At some point practically everyone dreams of receiving a financial windfall. It may come in the form of a lottery win or the sale of an unexpectedly valuable item. Others may dream that somewhere in the world they have a long-lost relative who has identified them as the individual who should inherit their substantial end-of-life estate.
While many Californians do receive inheritances from their relatives and other loved ones, in most cases those items bestowed upon them are sentimentally valuable rather than financially gratuitous. From time to time, though, a person may receive a sizable inheritance that has the power to alter their financial future.
In order to prevent an individual’s inheritance from becoming a marital asset subject to property division during a divorce, several conditions must be in place. First, the bequest must be made to one person only, as any bequest that is given to an individual and their spouse is considered theirs jointly and therefore subject to division.
Second, the individual who receives the bequest should not mingle assets from the inheritance in accounts that are co-owned with their significant other. As readers of this family law blog may know, comingling separate assets with marital assets can convert all or part of the separate assets to marital assets when it comes time to divide up a couple’s shared property.
Finally, the individual recipient of an inheritance must maintain their inheritance in a separate account and apart from their spouse. If this money is used for marital living expenses, there is no right for these funds to be reimbursed. If inherited money is used to purchase a jointly-titled asset, such as using the funds for a down payment on a home, the amount that can be proven to have been invested from inherited funds may be reimbursed to the contributor. However, this reimbursement is without interest and without a share of any appreciation in the value of the asset.
An inheritance should be treated with care to prevent it from losing its separate status. With the right information, a person can make good choices regarding how maintain the separate character of their inheritance.