How to Handle Inheritance in a California Divorce
One of the most common questions in a divorce is simple: “What happens to inheritance?” In California, the short answer is usually in your favor. Inheritance received during the marriage is generally treated as separate property. But there are important exceptions and common pitfalls that can turn what was once clearly yours into something that must be divided in the divorce.
What California law says about inheritance
In California, inheritance is generally considered separate property.
That means money or property you inherit belongs to you alone, not the community, provided it remains identifiable as separate property. The key word is identifiable. If you keep your inheritance separate and document it, courts will typically respect that status.
How inheritance can lose its separate status
The main way inheritance becomes subject to division is through commingling. When separate funds are mixed with community assets so they cannot be traced, those funds, or a portion of them, may be treated as community property.
Common situations that cause commingling
- Depositing inheritance checks into a joint bank account.
- Using inherited cash to pay household bills or joint living expenses.
- Using inherited funds for home improvements on a home held in both spouses names.
- Paying down a joint mortgage or refinancing a jointly owned property with inherited funds.
- Changing title to add a spouse or otherwise transferring ownership without clear documentation.
Even well intentioned acts, like renovating a family home with inherited money, can convert some of your separate inheritance into community property unless the separate and community contributions are carefully traced and documented.
Tracing: the tool that protects your separate property
Tracing is the process of following the path of funds to show which portion of assets is separate and which portion is community. With good records, tracing can often preserve most or all of an inheritance, even when some funds were used for joint purposes.
Here is a real world example. A client inherited one hundred thousand dollars from a relative. Some of that money paid for home improvements on a jointly owned property. By carefully tracing bank deposits, invoices, contracts, and payment records, we were able to identify and protect the portion of the inheritance that remained separate while fairly addressing the portion that became community property.
What helps tracing succeed
- Bank statements showing direct deposits of inheritances into a separate account.
- Cancelled checks, receipts, and contractor invoices for improvements paid with inherited funds.
- Keeping any inheritance checks separate or endorsed only to the recipient spouse.
- Written records explaining the source and purpose of transfers between accounts.
- Expert accounting analysis when transactions are complicated.
Practical steps to protect an inheritance
- Keep inherited funds in a separate account in your name only. Do not deposit them into joint accounts.
- Document everything. Save checks, deposit slips, receipts, contracts, and written explanations.
- Avoid using inherited money to pay joint debts or everyday household expenses unless you track the transactions precisely.
- If you use inheritance to make a loan to your spouse or to the community, put the loan in writing with clear repayment terms.
- Consider a postnuptial agreement or written transmutation if you intend to change the character of the inheritance.
- Discuss options with a lawyer before making large transfers or title changes on real property.
How inheritance is handled in divorce paperwork
During divorce, separate property must be identified and disclosed. Proper paperwork will list inherited assets and explain how they were used. If commingling occurred, the paperwork should explain the tracing method and propose an equitable division for any portion that became community property.
Accurate disclosures and clear documentation make it much easier to protect separate property and avoid lengthy disputes in court.
When to get help
If you have received an inheritance and are facing divorce, seek help early. The sooner you document how funds were handled, the stronger your tracing position will be. Professional help can range from reviewing records to preparing court approved paperwork that protects your assets.
For assistance identifying and protecting separate property, including inheritance, consider consulting a firm experienced in property division and tracing. If you want a place to start, visit Divorce661.com for a free consultation and guidance on protecting what is yours.
Final thoughts
Inheritance in a California divorce is usually separate property, but commingling and transfers can change that. Keep inherited funds separate, document every transaction, and get legal advice when in doubt. With proper care and timely action you can protect the portion of your inheritance that belongs to you.
