Protecting Your Inheritance or Gifts During a California Divorce
Not all assets are treated equally in a California divorce. Those who receive an inheritance or significant gift during the course of their marriage may have questions surrounding whether the inheritance or gift will be subjected to division in divorce.
The Basics: Separate Property vs. Community Property in California
California is a community property state. That means that all assets and debts that are acquired by either spouse during the course of the marriage is presumed to be community property, which means they belong to each spouse equally. In divorce, the community property is subject to a 50/50 division.
All assets and debts acquired before marriage or after the date of separation is presumed to be separate property. Additionally, gifts, bequests, and inheritances, can all be items that are separate property and, therefore, not subject to division in divorce. However, you have to be careful. Just because gifts and inheritances might have the presumption of being separate property does NOT mean that their nature cannot be changed.
Commingling: How Separate Property Can Become Community
Even if your inheritance or gift is presumed to be separate property it can partially or even fully transmute into community property if the separate property is commingled with marital assets. This is called “commingling,” an often an unforeseen and unintentional. For example, commingling occurs when:
- You deposit inherited funds into a joint bank account
- You refinance a property with community funds
- You pay taxes, maintenance, or mortgage payments from a shared account
In these cases, your spouse will likely have a good argument that the inheritance lost its separate character and became community property when/if it becomes inextricably enmeshed in the community property. The court will evaluate intent, documentation, and whether the inherited or gifted funds can be traced, or if they are truly lost inside the community property.
Tracing
To reclaim or preserve your inheritance during divorce, you may need to provide evidence that traces it back to establish that the funds are your separate property. This might include submitting bank records, wire transfers, or estate documents to the court, and demonstrating that there was no intent to gift those funds to the community.
Protect Your Inheritance in Divorce
Here are some crucial actions that you can take to help protect your inheritance and gifts in divorce:
- Gather documentation that establishes the separate nature of the inheritance or gift. This can include wills, trusts, wire receipts, title records, etc.
- Avoid commingling. Deposit inheritances and gifts in separate accounts.
- Consider a Postnuptial Agreement that calls out the separate nature of the property.
- Do not re-title assets jointly as this could trigger a transmutation.
- Hire a forensic accountant for tracing, and consult with a trusted divorce attorney.
Contact Cardwell Steigerwald Young LLP
Whether you are preparing for divorce or already in the midst of it, our experienced San Francisco high net worth divorce attorneys know how to defend your rights and fight for your future. Contact our office today to begin speaking with our experienced team about your own case.
