Is My Spouse Entitled to My Inheritance When We Get Divorced?
California is a community property state. In most cases, your spouse receives one-half of all community property in a divorce case. While this law may appear to simplify property division in California divorce cases, property division is a highly disputed matter.
The subject of litigation often centers on questions related to which property is community property versus which property is separate. Separate property is not subject to property division.
Community Property vs. Separate Property
Everything you acquire during your marriage is considered community property and subject to property division during a divorce action. Each spouse has an equal share in community property, regardless of whether one or both spouses’ names appear on the title to the property.
Even if you purchase property while living in another state during your marriage, it is subject to community property laws if you file for divorce in California. If the property would have been community property if purchased in California, then it is considered community property during your divorce in California.
Separate property is not subject to property division during a divorce. Separate property is property that you owned before the marriage.
For instance, if you purchased a vacation home before your marriage, the vacation home is separate property. Provided that you maintain the status of the property as separate property throughout the marriage, your spouse is not entitled to half of vacation home when you divorce.
Inheritance is Considered Separate Property
The statute defining separate property specifically states that all property received during the marriage by “gift, bequest, devise, or descent” is considered separate property. Therefore, your spouse cannot claim an interest in the inheritance that you receive during your marriage.
However, with all other areas of law, there are exceptions. There could be instances in which a spouse may be entitled to one-half of your inheritance or a portion of your inheritance during a divorce.
Commingling an Inheritance Destroys Its Separate Status
A spouse can cause separate property to become community property during a marriage. If this occurs, property that once was not subject to property division laws is now up for grabs. This situation can happen to your inheritance if you are not careful.
Commingling Separate and Community Property
Commingling property means that you combine separate property with community property. There are a few ways that this can happen with an inheritance.
If your inheritance is cash, you cannot place those funds in an account that has funds or assets acquired during your marriage. For example, you deposit your inheritance funds into an account that you and your spouse use to pay bills or deposit your earnings. The inheritance is now community property.
If you inherit stock and transfer the stock to an account that has assets you acquired during the marriage, the inheritance becomes community property. The account does not need to be a joint account. The fact that the account holds assets that were acquired during the marriage is sufficient to change the characterization of the inheritance from separate to community.
The key is to keep the inheritance “separate” from all your other assets. The inheritance should remain in an account in your name only. You cannot place any new funds into the account, because your current earnings and assets you acquire are community property.
Using Community Funds to Improve Inherited Property
Another way to turn inheritance into community property is to use community property to improve the inherited property. For example, if you inherit a home and use future earnings to make improvements on the home, your spouse now has an interest in the inherited home because you used community property to improve the home.
Likewise, if you borrow money against the home to make improvements and use earnings to pay the debt, your spouse has an interest. You used community property to pay the debt.
You can only use inherited funds that have been kept separate or income generated from the inherited property that has been kept separate to improve the assets. Only then can you avoid a community property allegation.
Transmutation of Inherited Assets
Transmutation occurs when you transfer an interest in the property to your spouse. You are signaling your intent to convert separate property to community property.
For example, you transfer an interest in an inherited home or car to your spouse. Another example would be selling an inherited asset to purchase another asset that you title jointly with your spouse.
You Must Be Very Careful to Maintain Inheritance as Separate Property
One small mistake could give your spouse the right to claim one-half of your inheritance. In many cases, people are not even aware of the fact that they are commingling property. If you want to maintain the separate nature of your inheritance, it is best to consult with an experienced divorce lawyer as soon as you learn about the inheritance.
There are several ways you can protect your inheritance if you and your spouse divorce. A lawyer can advise you on how to keep the inheritance separate.