PUJA SACHDEV | September 23, 2020 | Divorce Lawyer
Thinking about getting a divorce but worried about the fate of an inheritance you’ve received? Will it be subject to division? Will your spouse be entitled to any of the money or property you were given? The key to answering this question lies in understanding of the difference between separate and marital property under California law. In general, everything that a couple obtains during the marriage is community property.
When spouses go through a divorce in California, all assets must be dealt with as part of the process. That means that assets belonging to each partner must be designated as either a person’s separate property or as property of the couple together.
Community property is divided while separate property remains a partner’s own property and is not subject to division. Unless provided by law, neither spouse may lay claim to the separate property of the other spouse.
The General Rule: Inheritance is Separate Property
As a rule, a spouse’s inheritance is separate property. That means that it belongs solely to the spouse who inherited the property. This is true regardless of when the property was inherited. But there are some exceptions to this general rule.
The law is complicated in this area and small details matter. It is vital that you consult with your attorney regarding any questions that you may have.
How The Inheritance is Phrased Matters
Legal language matters and a will or trust is a legal document. If the language used in an inheritance states that the inheritance passes to a particular person, then the inheritance belongs solely to that person. If the language is more general, such as stating that the inheritance is to be given to you, your family, and your next of kin, there is an argument that the inheritance is really given to the family instead of the person individually. This may affect the characterization of the property at divorce.
How a Couple Deals With the Inheritance Matters
Couples share. It is in the nature of the relationship to do so. Sharing property can change the nature of how property is characterized. Transmutation and commingling are ways of sharing that may change the nature of separate property to community property.
In transmutation, a person changes the legal characterization of property. There are many ways to do this, but all involve, changing the nature of the ownership of the property.
Here is a quick example that can help illustrate transmutation. Partner A inherits a house from her mother. After the inheritance, partner A’s name is on the deed to the house. Several years pass and partner A decides to do some renovation to the property. To do that, partner A takes out a small loan using the house as collateral. During the process, partner A changes the deed and adds partner B’s name to the deed. The property is now transmuted from separate property to community property. Partner B now has a legal claim to the property if the couple divorces.
Commingling is the other way that separate property can become community property. Commingling is just as the term implies. Commingling involves the mixing of assets. When assets are mixed, it is easy to lose sight of what is separate and what is community property.
An example is helpful here as well. Partner A inherits $100,000 from her mother. She puts that money is a separate account that is in her name only. If that money stays in a separate account in her name, the property is separate property. If the couple divorces, the $100,000 is partner A’s separate property.
But let’s say partner A decides to buy stock with $20,000 of the $100,000. The couple has a joint stock portfolio and the $20,000 is used to buy stock in both of their names. The $20,000 in stock is now community property, although the $80,000 that remains in partner A’s separate bank account remains her separate property.
Let’s go a little further with this same example. Let’s say that partner B starts to make deposits into partner A’s separate bank account. Because those funds are now commingled, there is an argument that the account has lost its designation as separate property.
Proving That Commingled Property is Still Your Separate Property
These general rules associated with California community property laws are really presumptions. These presumptions are outlined in California Family Code §§ 760 – 761.
A legal presumption is a tool used to aid proof of a fact. It can also shift the burden of proof of fact. A presumption that property is characterized in a certain manner is subject to rebuttal by a preponderance of other evidence that shows it was intended to be held in a different manner.
To that extent, notes, emails, and other evidence that show the couple’s true intent can be valuable in determining the true nature of the property involved.
Prenups and Postnups Can Change Characterization
Finally, it is important to know that any legal agreement to characterize property as either separate or community will rule. Whether that document is executed before or after the marriage, such a document clearly states the intention of the parties. Most courts in California honor these prenuptial or postnuptial agreements. This is a complicated area of the law. Make sure to get the help you need to understand it.