We Are Getting Divorced, Is My Inheritance Still Mine?
The question of inheritance is a major concern for anyone facing divorce. The good news is that your inheritance is separate property in divorce if you kept it separate, avoid spending it, and have records that trace the funds back to the original inheritance.
Inheritances Start as Separate Property
When you receive an inheritance during your marriage, it is generally treated as your separate property by operation of law. Meaning that the inheritance belongs to you rather than the marital community. Protecting that inheritance from becoming community property depends on what happened after you received the money. If the inheritance remained separate and identifiable, you have a strong basis for keeping it outside the property division process.
Keep Inherited Funds Separate
The simplest way to protect an inheritance is to place it in a separate account and avoid mixing it with wages, joint savings, or other community funds. Clear financial records will show where the money came from and where it went.
Where there are problems is when your inherited money is deposited into a regular checking account with paychecks and household funds. If you use that account for monthly expenses, the inheritance may be spent along with other money. Once the funds are gone, there may be nothing left to trace.
What Happens if the Funds Are Commingled?
Commingling means mixing separate inheritance funds with community money. Mixing funds does not automatically destroy the separate nature of an inheritance. The key is the ability to trace the funds. For example, if you placed inheritance money into an investment account and later added community funds, it is still possible to identify the original inheritance. With proper records, a financial expert can trace the inherited amount back to its source.
Tracing is much more difficult when money goes into a checking account used for everyday expenses. Financial experts may use a “first in, first out” accounting principle. Under that method, money deposited first may be treated as the money spent first. If your inheritance entered an account and expenses quickly used up those funds, protecting your inheritance becomes far more difficult.
Investment Growth Requires Careful Review
An investment account may preserve the ability to trace inherited funds, even when later contributions were made. The analysis is more detailed because investment growth is allocated between separate and community contributions.
The financial expert may need to determine which portion of the account came from the inheritance, which portion came from community funds, and how much growth belongs to each source.
Records Matter
Bank statements, account histories, inheritance documents, and investment records provide the foundation for tracing. The more complete your documentation, the easier it is to show that inherited property is separate.
To recap, inheritances begin as separate property. Protecting the inheritance depends on keeping those funds separate, avoiding commingling, and preserving records to trace the money back to its original source. If inherited funds are mixed into an investment account, expert tracing can still identify your separate share.
Contact Kim Mediation
The Kim Mediation and Law Center is located at 3710 Wilshire Blvd in Los Angeles, CA. You can make an appointment by calling 213-351-1000 or visit www.kimmediationandlaw.com.
FAQs
Is an inheritance automatically divided in divorce?
No. An inheritance is considered the recipient’s separate property.
What if I deposited my inheritance into a joint or regular checking account?
If the funds were mixed with wages and spent on expenses, tracing can be difficult or even impossible.
Can an inheritance remain separate inside an investment account?
Yes, if the inherited funds are identifiable and traceable. An expert may need to separate growth tied to the inherited funds vs the community contributions.
Compassion for my clients is important to me, and that’s why I’ve remained a family law practitioner for 30 years — and still love what I do. I’m keenly aware of the emotional toll divorce can have on you and your family. As you navigate the rough waters of transition, my team and I will help you find your balance. We’re here to support you in making the best decisions for your future. I’ve seen the positive results again and again when couples embrace meditation or collaborative divorce. I’d be honored to share these practices with you and set your family on a healthy path.
