In most cases, a person who receives an inheritance is under no obligations to share it with his or her spouse. However, there are some instances in which the inheritance must be shared. Primarily, the inheritance must be kept separate from the couple’s shared bank accounts. There are several ways in which an inheritance can lose its separate status.
Disputes over inheritances typically arise between couples undergoing a divorce. In some cases, the inheritance legally became community property between the individuals. This largely depends on state law, but there are some scenarios in which one spouse can circumvent community property law and retain assets or money awarded specifically to him or her.
Community Property Law
When a couple undergoes a divorce, the spouses must adhere to state laws concerning the distribution of their shared assets. Most states follow an equitable distribution law, which means the court will assess how assets should be distributed between the divorcing spouses justly. This typically involves investigating past earnings and determining how much of the property was earned by each spouse. For example, if a couple divorces and one spouse earned a salary of roughly $100,000 per year while the other earned a salary of roughly $50,000 per year during the course of their marriage, the court may decide that two-thirds of their financial assets were earned by the higher-paid spouse – and thus belongs to him or her.
A few states follow community property law. These states view marriage as a partnership agreement. All the assets in the marriage are considered community property. In these states, all property and assets gained during the course of the marriage are split equally between the spouses.
If one spouse receives an inheritance and deposits it in the couple’s shared checking account, it is highly likely that the inheritance will be considered shared property if the money is used for any of the couple’s expenses or if it is used to purchase items shared by the couple. This is called “commingling” and describes an inheritance awarded to one spouse being mixed into funds shared by both spouses.
If a spouse received an inheritance and wishes to retain the inheritance for him or herself, he or she must deposit it into a separate bank account. However, if he or she can convince a court that he or she never meant to share the inheritance, the terms of the inheritance clearly state it was not to be shared – or the funds can be traced and the inheritance is distinguished separately from the shared marital account – he or she may be able to keep the inheritance as his or her sole personal property.
In California, an inheritance is considered individual property as long as the inheritance was kept separate. One legal concept known as “transmutation” may apply. Transmutation describes any instance of an inheritance being changed into another form of property. For example, if you receive an inheritance left solely to you and use the money to buy a house, the inheritance is transmuted into community property if the deed to the house is in both your name and your spouse’s name. To retain sole ownership of the inheritance, you must ensure that any property purchased with the inheritance is kept in your name only.
Divorce cases are typically emotional and stressful. They can quickly spiral into heated legal entanglements, especially if one spouse feels as though he or she is not being treated fairly when the time comes to split the couple’s assets. An attorney experienced in divorce law can make a world of difference for everyone involved and will also help ensure that property is justly divided.