California is a community property state, which has fairly simple rules for dividing property when a couple gets a divorce. However, one of the most difficult issues of divorce frequently involves making decisions on how to divide assets.
The first step in any discussion on how to divide marital assets starts with actually identifying which assets need to be allocated. Property in a California divorce is either community property or separate property. Community property is divided equally, but separate property is kept by each spouse.
So, what can happen if you get an inheritance? Would it fall under community property or separate property? Do I have to give my spouse a portion of my inheritance if we make the decision to get a divorce in California?
These are common questions our California divorce attorneys receive. The person calling either expects to receive an inheritance or already has received it and wants to know if they will lose it when they divorce. The short answer is that in most cases, you can keep your inheritance after a divorce.
Generally, your spouse is not entitled to any of your inheritance because it is not defined as community property. However, you might use your inheritance in such a way that you end up commingling it with community assets, thus putting it at risk.
What is an Inheritance?
When someone passes way, the property they own and their assets are divided to other members of their family. In most cases, the deceased family member has prepared a will in advance that's lays out exactly how their property and assets will be divided after they die. When you are listed on the will to receive property, this is commonly known as an inheritance.
It should be noted that you can still receive an inheritance even if your family member passed away without preparing a will. In California, some members of the family will automatically receive property from a family member's estate once they pass away. Spouses and children of the deceased are first in line to inherit their property. Let's take a closer look below.
Community Property Basics
California is one of nine states that operate under community property rules. These rules are pretty simple: any property that you acquire while married is considered the property of both spouses. Each has an equal right to the property, so they each get half of it upon divorce.
As an example: you get married in 2006 and in 2007 buy a home. Even though you put the deed in the name of only one spouse, the fact is that your home is community property regardless of what the deed says. When you divorce, a judge does not look at the deed or title of any piece of property. Instead, the judge looks at when you acquired it. If you obtained the property while married, it is community property.
Any property that is not community property is separate property. Most often, this includes property one spouse acquired before marriage, such as a car you bought two months before your wedding. Under California Family Code § 770, your spouse does not have an interest in your separate property. It is entirely yours when you divorce.
Inheritances are Separate Property
What about an inheritance that you received while married? Is this separate or community property?
It is separate property, as set out in California Family Code § 752. It does not matter when you inherited it, the inheritance is by law separate property and not part of the marital estate subject to division.
There are a few caveats we want to discuss in this article. The first: make sure the property was truly left to you and only you. If it was left to you and your spouse, then it is community property, not your separate property. So if your mother left a summer home to you and your spouse, then it is community property.
Commingling an Inheritance Changes the Character of Separate Property
This is the second caveat. Your inheritance can lose its character as separate property if you commingle it with marital property such that you cannot trace and identify what portion is separate. In this unfortunate situation, the entire asset becomes marital property.
If your separate property is commingled, then your spouse can be entitled to it during a divorce. To prevent that from happening, talk with a Los Angeles divorce attorney.
It should be noted that increasing the value of separate property with community funds can change the character. Let's say you inherit a house from your parents. You then use money you earned while working to make upgrades to the home. Is the home still separate property because you inherited it?
Actually, some of it is now your spouse's. You used funds that you earned while married to make improvements. These funds were community property, so now the separate property has increased in value thanks to the community property used to pay for the renovation.
The same principle applies if you took out a home equity loan to make improvements and used income earned while married to pay down the loan balance. You have used community funds to reduce the mortgage, which increases the equity in the home.
In these situations, your spouse has an interest in the house. During a divorce, a judge will have to calculate how much they now are entitled to. The greater the increase in value, the greater your spouse's interest in the property. Meet with a Los Angeles divorce attorney to analyze how much of the property is now community property.
It should also be noted you can change the character of an inheritance by using legal documents. Another situation where a person can convert separate property to marital property involves signing a legal document that changes the character. Under California Family Code § 852(a), the property can change if the heir “expressly declares” that the property is changing character.
For example, you might sing a prenuptial agreement identifying your inheritance as marital property, or you might put the property in a deed in both of your names. This means the asset is now community property.
Contact a Los Angeles Divorce Lawyer to Protect Your Inheritance
Protecting what is yours should be a key concern during any divorce or dissolution of a domestic partnership. You should always retain detailed records about any inheritances you receive. In some cases, your spouse might try to claim an ownership of your assets when you get divorced.
In this happens, you can protect your inheritance by showing the court these the assets were given to you alone and were not intended for your spouse. Our experienced Los Angeles family law attorneys can help you protect your assets.
We are skilled at identifying community property and whether your spouse has an interest in it. Speak to us calling our law firm or submitting our contact form. You can meet with one of our attorneys for a free consultation.
Furman & Zavatsky
15821 Ventura Blvd #690
Encino, CA 91436