When a couple divides their assets during a California divorce, various financial resources may be involved—including inheritance. If you and your ex are divorcing, knowing how the process will impact inheritance and other estate planning assets is important. Here is more on California divorce and inheritance.
California Community and Separate Property
California is a community property state meaning that, outside of certain limited circumstances, what a couple earns and acquires during their marriage belongs to each person equally. This is true regardless of which spouse earns income or has their name on a community asset. For example, suppose only one spouse worked during the marriage and deposited their pay into their sole checking account. In that situation, both spouses would have equal ownership interests in the account regardless of who earned income or had their name on the asset.
Under California law, Separate Property refers to assets and possessions that belong only to one spouse. Assets owned before marriage are typically considered to be separate property. In addition, gifts, inheritance, and income and profits earned from such property are usually considered to be separate property in a California divorce. Therefore, when it comes to an individual inheritance, a husband or wife generally has no right to receive any part of their spouse’s inherited property, funds, or assets. However, there can be circumstances when separate property inheritance can become community property.
Commingling of Inheritance
Whether a spouse’s inheritance will be considered community or separate property will depend on certain factors, including when the inheritance was received and what was done with it after the fact. For example, suppose a spouse inherited money during their marriage and then added what they received to a community asset such as a bank account. In that case, the inheritance may be considered to be comingled.
Comingling an inheritance and a community asset can change the character of the inheritance from being separate to being community property. The reason is that once the funds are blended, both spouses have equal access to them, thereby making them a shared asset. It may prove to be difficult to partition out what was once separated from community funds which is called a tracing.
Transmutation
Transmutation occurs when spouses enter into a postnuptial agreement that converts separate property into shared (community) property. Inherited property can also be transmuted from being community to separate.
Spouses can do this anytime during their marriage. Once this type of agreement is formed, the identified asset (separate property) will become shared or community property. However, it’s important to know that using a will to show that property has been transmuted may be insufficient.
The Family Code provides that a “statement in a will of the character of property is not admissible as evidence of a transmutation of the property in a proceeding commenced before the death of the person who made the will.” In other words, a mere statement of a property’s character in a testamentary document before the inheriting party’s death is inadmissible as evidence of transmutation. Therefore, a couple wanting to convert an inherited separate property asset to community will want to work with a family law attorney to create a document that memorializes the agreement.
Transmutation can benefit those couples who want to ensure that separate and community assets are distributed to one another in a certain manner. However, specific steps must be followed for the process to be legally binding.
Inheritance can be a significant issue during a California divorce, and getting the information and advice you need to address this asset is essential. By working with an experienced California divorce attorney, you can help ensure that you can evaluate and prepare for inheritance and other issues that may impact your case.
Contact an Experienced California Divorce Attorney
The attorneys at the Law Offices of Judy L. Burger are experienced California divorce attorneys who can help you with inheritance issues and all other aspects of your divorce case. Our firm assists clients along California’s Northern to Southern Coast, including San Francisco, Beverly Hills, Marin, San Jose, Gold River, San Diego, Santa Barbara, Ventura/Oxnard, and surrounding communities. Call us at 415-293-8314 to schedule a private appointment or visit our website.