An inheritance can be quite bittersweet. Whether the deceased left you material objects, real estate, or a sum of money, you are now the steward of part of someone’s legacy. If you’re married and contemplating separation or a divorce, this gift—no matter how long ago it was received—can become even more complicated.

California is one of only nine states around the nation to recognize community property in a marriage. Therefore, the question of the characterization of an inheritance can be quite challenging and stir up a variety of emotions in both you and your spouse (or ex).

Establishing whether an inheritance is community or separate property hinges on the answers to three questions:

1. Was the inheritance left to you alone?
2. Was the property of the inheritance commingled (mixed) with community property assets or expenses?
3. Was the property of the inheritance transmuted?

Let’s take each of these in turn.

Was the Inheritance Left to You Alone?

In order to be considered separate property, an inheritance must have been bequeathed to you and you alone. If the will and testament or trust named you and your spouse as beneficiaries, then the inheritance is likely considered community property. However, if the decedent named only you in their bequest, the property you inherited is likely separate property.

When we talk about property, we’re referring to money and all things money can buy, including real estate, investments and material objects. Typically, separate property objects (like art, jewelry, dinnerware, etc.) remain separate property no matter who uses them or how often unless you explicitly gift them or specifically agree (in writing) otherwise. However, separate property money, investment, and real estate can get a bit more complicated, depending on how they’re used (often known as commingling).

Q: Is an inheritance considered community property if it was left to you alone?

A: No. If it was bequeathed to you and you alone, then it is your separate property unless you commingle or transmute your separate property. It does not matter whether you received this inheritance prior to, during, or after your marriage. If it came to you alone, it’s yours!

Was the Inheritance Commingled?

Commingling means the use of separate property for the benefit of the community. For example, if you inherited a home and you and your spouse live in it during the marriage, then part of the property may be considered community. Similarly, if you inherited a sum of money and your spouse makes deposits to the bank account where you save it, some of this money may become part of the community. Lastly, if you spend your separate property on your spouse or on the community, you have effectively signed away your claims to it being your separate property.

Q: Is an inheritance considered community property if it was commingled?

A: Possibly. At a minimum, it may be hard or expensive to trace your separate from the community property. If you used your separate property for the benefit of the community (or used your community property time and energy to improve your separate property), the community will likely have at least a claim to reimbursement if not a portion of its value.

Was the Inheritance Transmuted?

This is the least common way for separate property inheritance to become community property but also the most straightforward. In a transmutation, you change the characterization of your separate property to that of the community (or that of your partner’s separate property) through a written agreement. In this case, just changing the way title is held on a real estate property, for example, would not be adequate. Instead, under California law, to transmute property from your separate to community property (or to the separate property of your spouse), you must sign a written document that shows you’re knowingly changing the characterization of the asset.

The document transmuting your separate property inheritance may take many familiar forms. For example, your pre-nuptial agreement may establish your separate property inheritance as community property or your post-nuptial agreement may grant your spouse half of your inheritance as a gift.

Q: Is an inheritance considered community property if it was transmuted?

A: It depends on what the terms of the transmutation were. If you transmuted your separate property inheritance into community property, then yes. But, you could have also transmuted your separate property inheritance into your spouse’s separate property. In this case, the property would still be considered separate property: Just not your separate property.

Is Inheritance Considered Community Property in California?

On its face, the answer to this question is seldom a simple “yes.” As we’ve seen, there are a few factors that can make this answer less straight-forward.

Keep in mind that the state of California grants us broad powers to determine many of the terms of our marriages, including our right to enter into pre- and post-nuptial agreements and our ability to give our spouse’s valuable property, including real estate. If you have questions about the characterization, value, or appropriate division of inherited property, speak with an expert who can help you understand your rights and your options.

At Van Voorhis & Sosna, we know the complexities of community property in the Bay Area because it is our sole focus. We offer legal advice and representation based on integrity, trust, and understanding. Contact us today, or call 415.274.2530 to schedule a free legal consultation.