Community Property v.s. Separate Property: What Happens to Inheritances in California?

In California, a community property state, assets acquired during the marriage are typically divided equally between spouses in a divorce, regardless of individual circumstances.  While inheritance is often considered separate property and not subject to division, the differentiation between community and separate property can be complex. Generally, community property is shared equally, whereas separate property, including pre-marriage assets and inheritances, is not divided.

 Read on to learn more. 

Understanding Community Property

In California law, community property is defined as any assets or income acquired by either spouse during the course of the marriage. This definition is rooted in the state’s approach to marital property, which views marriage as a partnership where both parties contribute equally, regardless of the actual income or assets each person brings in.

 Typical examples of community property include:

  • Wages earned by either spouse during the marriage.
  • Property purchased with income earned during the marriage.
  • Joint bank accounts and other shared financial assets.

During a divorce in California, community property is subject to an equal division between the spouses. This means that assets classified as community property are divided 50-50, reflecting the state’s policy of equitable distribution of marital assets. This division is independent of who earned more income or contributed more financially during the marriage.

Understanding Separate Property

Separate property, in contrast to community property, includes assets and debts that belong solely to one spouse. This typically encompasses:

  • Assets owned by one spouse before the marriage.
  • Gifts or inheritances received by one spouse, even during the marriage.
  • Earnings or acquisitions post-separation.

Unlike community property, separate property is not divided during a divorce in California. Each spouse retains ownership of their separate property, which includes any inheritances they received, unless those assets have been commingled with community property. The distinction between separate and community property can become blurred in cases where assets are mixed, such as a separate bank account used for marital expenses or a jointly titled home originally purchased by one spouse before marriage.

Inheritance as Separate Property

In California, inheritances are generally classified as separate property, even when received during the marriage. This means that if a spouse receives an inheritance from a relative or other source, it is typically considered their sole property and not subject to division in the event of a divorce. The fundamental principle behind this classification is that inheritances are gifts intended for one individual, not the marital unit.

Characteristics of Inheritance as Separate Property

  • Direct Bequeathal: Inheritances are usually directed to an individual by name in a will or trust.
  • Presumption of Separateness: The law presumes that the benefactor intended the inheritance for the individual spouse, not the couple jointly.
  • Protection in Divorce: Since inheritances are separate property, they are generally protected from division during divorce settlements.

When Does Inheritance Become Community Property?

While inheritances are typically separate property, certain actions or circumstances can lead to them being treated as community property.

  • Commingling of Funds: If the inherited money is deposited into a joint account and used for joint expenses or investments, it may become commingled with community property, making it difficult to distinguish the separate property portion.
  • Transmutation Agreements: If a spouse agrees to convert their inheritance into community property, often through a written agreement or a clear action that indicates a change in the character of the property, this can reclassify the inheritance as community property.
  • Use of Inheritance for Community Property: If inheritance funds are used to benefit or improve community property, such as paying off a shared home mortgage or renovating a jointly-owned property, it may partly transform the inheritance into community property.
  • Lack of Clear Separation: Absence of clear financial boundaries between the inherited assets and marital assets can lead to the inheritance being treated as community property.

How to Keep Inheritance as Separate Property in California

In California, ensuring that an inheritance remains separate property and not subject to division in the event of a divorce requires careful management and adherence to specific legal practices. Here are steps and considerations to help maintain the separate status of an inheritance:

  • Maintain Separate Accounts: Deposit the inherited funds into a separate bank account in your name only. Avoid depositing the inheritance into a joint account shared with your spouse, as this can lead to commingling of funds, making it difficult to distinguish what portion remains separate property.
  • Avoid Commingling with Marital Assets: Be cautious about using inheritance funds for joint purposes or marital expenses. Paying for joint assets or expenses (like a mortgage for a marital home) can blur the lines between separate and community property.
  • Keep Detailed Records: Maintain meticulous records of the inheritance, including documentation showing the source of the inheritance, bank statements of the separate account, and any transactions involving the inherited funds. Clear records help in proving the separate nature of the assets if challenged.
  • Use a Pre- or Postnuptial Agreement: Consider a prenuptial or postnuptial agreement that specifically outlines how your inheritance will be treated in the event of a divorce. These legal agreements can explicitly state that the inheritance remains separate property.
  • Legal Documentation of Intent: If the inheritance is through a will or trust, ensure that the documents clearly state the intention for the inheritance to be your separate property. Clarity in estate planning documents can be crucial in upholding the separate nature of the inheritance.
  • Avoid Transmutation: Be wary of any action that might be construed as transmuting the inheritance into community property. Transmutation occurs when separate property is converted into community property, often through a written agreement or clear actions indicating a change in the character of the property.
  • Consult with a Legal Professional: Consider seeking advice from a family law attorney or an estate planner. A legal professional can provide guidance tailored to your specific situation and help with drafting agreements or managing assets in a way that preserves their separate property status.

By following these guidelines, you can significantly increase the likelihood that your inheritance will be protected as separate property in California, safeguarding it from being divided in a divorce settlement.

Frequently Asked Questions

Can my spouse automatically claim half of my inheritance in a California divorce?

No, in California, inheritances are generally considered separate property and are not automatically subject to a 50/50 division in a divorce. However, if the inheritance has been commingled with marital assets or used for the benefit of the marital estate, it may be partially or fully classified as community property.

How can I ensure that my inheritance remains separate property in the event of a divorce in California?

To ensure your inheritance remains separate property, you should keep it in a separate bank account, avoid using it for marital expenses or joint investments, maintain clear records of its use, and consider a prenuptial or postnuptial agreement. Consultation with a legal professional can also provide tailored advice to protect your inheritance.

What happens if I use my inheritance to improve our joint home in California?

Using your inheritance to improve a jointly owned home can complicate its status as separate property. The invested funds may be considered commingled, potentially converting them into community property. This means that in a divorce, you might not get back the full amount of your inheritance used for home improvement. Keeping separate property distinct from marital assets is key to retaining its separate status.