Inheritances & Gifts in Divorce
Property in divorce can be either community (marital property) or separate property. Gifts and inheritances are considered to be separate property in most instances.
If inheritance funds were kept separate upon inheriting during the marriage, then the funds would be considered separate property of the recipient. However, if the funds were placed in a joint account or an account where marital funds (earnings, for example) were located, the inheritance may not be able to retain its separate property nature.
Inheritance funds should be placed in a separate account to which no marital/community property funds are added to retain their separate property character.
In community property states, the inheritance is not usually divided during the division of community assets. It is retained by the recipient spouse. However, in some equitable division states, inheritance may be tapped by the court to achieve an equitable division. While this is rare, it is a possibility.
Gifts from one spouse to another during a marriage are typically not subject to an equalization as part of the asset division. However, in California, there is case law that establishes some parameters around the division of gifts. If the gift was substantial in comparison to the parties’ annual earnings or net worth, the gift may be subject to division. Most gifts, then would be considered the separate property of the recipient spouse.
However, if a gift was given by a third party to one spouse, often the spouse would need to show proof that the gift was given solely to that particular spouse and not to both spouses to claim it as separate property. This may involve documentation such as letters, deeds, trusts, and emails that clearly specify to whom the gift was intended.
The recipient of the gift has the burden of proof to demonstrate that the gift was only meant for the recipient. Otherwise, the default is that the gift was a gift to the “community” or both spouses.
Similar to inheritances, a gift of funds must be kept intact or at least separately titled and not commingled with other community (marital) funds in order to ensure that the gift retains its separate property characterization. If it cannot be traced or has been sold and property purchased and placed in both parties’ names, then the gift will likely no longer retain its separate property characterization.
In these instances, the court may interpret that the person has made a “gift” to the community (marriage) of their separate property gift whether it was intentional or not. Of course the gift recipient may be able to prove that a gift was not intended with property tracing and other evidence. But the burden of proof will be high in these circumstances.
While gifts and inheritances are considered separate property there are many instances when they cannot be proven to continue to be characterized as separate. This occurs because they are no longer intact but instead have been commingled with community (marital) funds, sold for the purchase of another asset or retitled. This makes the characterization as separate property difficult to prove.
This article does NOT constitute legal advice and is for general information purposes ONLY. Prior to making any decisions, seek legal counsel from a licensed attorney.
