How to Handle Inheritance in a California Divorce | Los Angeles Divorce

Posted by Tim Blankenship on

 

How to Handle Inheritance in a California Divorce

I’m Tim Blankenship from Divorce661. If you’ve inherited money in California and you’re worried your spouse will get half in a divorce, this article explains what you need to know. I’ll walk you through how California treats inheritances, common mistakes that can convert them into community property, a real client example, and practical steps you can take to protect what’s yours.

Why inheritance matters in a divorce

In California, the default rule is straightforward: inheritance is usually separate property. That means money or assets you inherit—whether before or during your marriage—generally remain yours alone and are not automatically split with your spouse in a divorce.

However, there’s a big caveat: what you do with the inheritance after receiving it matters. If you mix it with marital assets or use it for joint expenses, it can lose its separate status. Understanding that distinction can prevent unpleasant surprises at settlement or trial.

Separate property vs. community property — the core differences

  • Separate property: Property owned by one spouse before marriage or acquired during marriage by gift or inheritance. It remains the separate property of that spouse unless converted.
  • Community property: Property acquired during marriage (with some exceptions) that is presumed to be owned equally by both spouses.

Inheritance starts as separate property. Community property is shared. But actions taken after receiving an inheritance can change how a court views it.

How commingling can change the status of an inheritance

Commingling occurs when separate property is mixed with community property so that it becomes difficult to identify what belongs solely to one spouse. Common examples include:

  • Depositing inherited funds into a joint bank account.
  • Using inherited money to pay household bills or shared living expenses.
  • Using inheritance to make improvements on the family home (a community asset if acquired during marriage).
  • Failing to keep records that trace the original inheritance funds.

Once separate funds are commingled without clear records, a court may treat those funds (or the increase in value they caused) as community property—or at least require tracing to determine what remains separate.

Real-life example: tracing inherited funds

Here’s a simplified version of a case we handled: a client inherited $100,000 and used a portion for home improvements. Because the improvements benefited the community asset (the marital home), some of that inherited money was at risk of being treated as community property.

What we did:

  • Carefully traced the source of the funds to show which dollars were inherited and which were community earnings.
  • Documented the amounts used for improvements and the remaining separate funds.
  • Protected the portion that remained separate and addressed the portion that became community property in the divorce paperwork.

Tracing and documentation allowed us to preserve as much separate property as possible and make the outcome clear and defensible in court.

Practical steps to protect your inheritance

Follow these best practices to reduce the risk of losing separate property status:

  1. Keep inherited funds in a separate account titled in your name only.
  2. Avoid depositing inheritance into joint accounts or using it for joint living expenses.
  3. If you use inherited funds for something that benefits the marriage (like home repairs), document the transaction and be prepared to account for the community benefit.
  4. Keep clear records—bank statements, deposit slips, invoices, and receipts—that trace the inherited funds from receipt through any subsequent use.
  5. Consider a written agreement or transmutation if both spouses agree to change the character of the asset—this should be drafted carefully and signed.
  6. Work with a family law attorney early to identify and protect separate property before a dispute arises.

Key takeaway

Don’t leave your assets to chance.

Inheritance is usually separate property in California, but careless handling—especially commingling—can change that. The best protection is clear documentation, careful financial handling, and legal guidance. If you inherit cash or property during your marriage, act proactively to preserve your rights.

Need help?

If you’ve received an inheritance and want help protecting it during a California divorce, Divorce661 can assist. We identify what’s separate versus community property, trace funds when necessary, and help ensure your divorce judgment clearly reflects those distinctions. Visit Divorce661.com to schedule a free consultation and get specific advice tailored to your situation.