What is a community property state?
- California is a community property state, meaning California state law governs how property acquired by a couple during a marriage is divided between them when the decide to end their relationship. State law classifies property as marital property. Marital property is owned equally by both parties. At the end of the relationship, marital property typically is divided equally, unless one of the parties can prove it to be separate property that is not subject to division.
Can my ex-spouse take property that I inherited during our marriage?
- At the moment a spouse inherits property during a marriage, that property belongs only to the inheriting spouse and is considered “separate property” not subject to division. However, depending on how you handle the inherited property over time, part or even all of the inherited property may end up in an ex-spouse’s hands.
How should I handle property that I inherited during the marriage to protect it from being divided at divorce?
- California permits you to claim as separate property not subject to division the house your aunt left to you in her Will even if the inheritance came to you during your marriage.
How should I handle income generated by inherited property?
- If you claim the inherited property as separate property, then all income generated by the property is also separate property. That is, if you choose to rent out your late Aunt’s home, the rental income is separate property that belongs to you and cannot be divided. Similarly, if you purchase something using the money generated by the rental income from the inherited property that you claimed as separate property, then the item(s) that you purchased are also separate property that belongs to you and cannot be divided.
How do I claim inherited property as separate property?
- Preventing inherited property from becoming community property can be a challenge without the assistance of an attorney to guide you. The road to claiming property as separate property is riddled with potholes that can get you caught up in a concept called commingling.
What is commingling?
- Commingling is the mixing of community property and separate property that could cause your inheritance to be divided during a divorce. For example, if you sell your late aunt’s home you inherited and deposit the money into a bank account held jointly by you and your spouse, then you have commingled separate property with community property. If you use some or all of the money received through an inheritance to make repairs or improvements to a home that you own jointly with your spouse, then you have commingled separate property with community property.
How can I protect my inheritance from becoming community property that my ex-spouse can take?
- Do not commingle your inheritance or profits derived from it with assets you own together with your spouse.
- Do not add your spouse to title or take loans out in both of your names secured by that property.
- Keep and protect all records pertaining to inherited assets in order to have them available should your spouse challenge their status as separate property.
- If you are already inherited then you may want to consider placing your separate property inheritance into a separate property trust.
How can the greater family assist in protecting my inheritance from an ex-spouse?
- Advise your family to give you your inheritance through an irrevocable trust with a third-party trustee. This keeps it out of your ownership all together while still providing you a beneficial interest. It would likewise not be subject to spousal support orders or other negative effects of divorce.
These are just a couple of easy tips to help protect your family’s hard-earned money from going out the door in an unintended way. The attorneys at NM Law combine their knowledge of California laws with their skills in estate planning and asset preservation to advise clients concerned about protecting inheritances in the event of a divorce. Call them today at (949) 253-0000 to schedule an appointment.
Disclaimer: This article is intended to provide a general summary of laws in the State of California and should not be construed as a legal opinion nor a complete legal analysis of the subject matter. Noelle Minto is an attorney at NM Law, APC in Tustin, California, a law firm specializing in Trusts & Estates and Business Transactions.