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Thursday, April 10, 2014

WILL MY SPOUSE TAKE MY INHERITANCE IN A DIVORCE?

So, Great Aunt Martha left you the vineyard and now your spouse wants her half so she can take that Maui vacation she always wanted…with her new boyfriend.

I have good news and bad news.

It is a beautiful sunny day here in Santa Cruz so we’ll start with the good news:

In California an inheritance is classified as “separate property” and not “community property.”  Community property is shared equally by the spouses and, for the most part, divided equally in a divorce.  Separate property belongs to the spouse that owns it and is technically not subject to division in divorce.   But lawyers have to make their money and in divorce all of the fun is in picky exceptions and creative reimbursement strategies.  (Any lawyer who tells you that the fun part is figuring out the least painful way to divide the kids time between two houses is clearly not me.)

Speaking of me, here is the part where I go into a tangent where I try to make my childhood memories relevant to your question.


When I was in high school I loved doing the proofs in geometry class.  I loved them so much, in fact, that I would get a little thrill in my body when it was time to work on them.  (The part of my body that felt tingly was my brain, by the way,  not the part you are thinking about.  My love for parallelograms only went so far.)  This is the same feeling I get when I have a complicated division of property to do in a dissolution.

(Dissolution, if you don’t know, is the legal term for divorce— we legal folks like to switch it up like that because we think clients will pay higher rates if we use words with lots of letters in them.)

In a dissolution, just like in a math class, if you don’t know all of the rules you will end up with a different answer than if you do know all of the rules so if you don’t get a tingly feeling of glee at the thought of researching every possible exception to the standard property division laws, I highly recommend finding someone who does before you sign your final marriage settlement agreement. With property division, hiring a lawyer could result in huge savings, especially because laws, unlike mathematical theorems, change frequently.

So, what about your inheritance?
As I said, under the basic California law inheritance is classified as separate property.  This is fairly straight forward when the inheritance is a diamond necklace that was listed in Aunt Martha’s will as going to only you.  It gets much more complicated if it is cash that got mixed into an account with cash that came from other sources or if it is real estate and community money (for example money you earned during the marriage) was used to improve the real estate or pay off the mortgage.  In one case, years ago, I was able to successfully argue that since both spouses lived off of one spouse’s inheritance during the marriage the heir spouse was required to use his inheritance to continue supporting the non-heir spouse with the inheritance— even though the inheritance did not produce any income.  That argument might not work in a courtroom today, and there were a bunch of other factors in that case, but I give you the example to show that even the principal of an inheritance, which is supposed to be a clear case “separate property” asset, can be roped in with the right facts.

That was the bad news, I’m sure you guessed.

But, in honor of this lovely day, I am going to leave you with a little more good news.

First, although I advise not going it alone, this stuff is not rocket science, any competent lawyer familiar with family law should be able to explain it to you.

Second, if you are the person considering leaving an inheritance, and the inheritance is significant enough to justify the additional expense, there are trusts you can set up to help protect your heir in the case of a divorce.  Nothing is 100%, but a trust is probably the strongest protection money will buy.  If you don’t know what a trust is, you’ll find the basics in my post, “What is a Trust?” 

Third, and I know this is a revolutionary thought but I think Ask Roxy readers can handle it, you and your soon to be ex-spouse are not required to follow the property division laws.  As long as you have competent advice and understand what you are doing, you two are allowed to divide your property how ever feels fair to you.  Really, the family laws are just there for back up, just in case one of you gets greedy and can’t work through it.  I’m a huge advocate for collaborative divorce where both parties have a lawyer and the four creative minds, two people with knowledge of the facts and two people with knowledge of the law, come up with a solution that makes sense.

So often in litigation the fight ends up being about the fight (I can’t believe that schmuck filed another motion right before Christmas vacation!) and the costs spin out of control.  Collaborative law isn’t sitting around a campfire singing Kum-ba-ya— there are intense moments like in any divorce — but at least the money spent on the lawyers goes directly to resolving the actual issues.  Not paying them to sit in the hallway waiting for the Judge to call them.  Not paying them to file a motion to set aside another motion.  Not paying them to point to the crystal ball they keep in their office for the moments when the client says, “What Will the Judge Decide?”  In a collaborative setting your spouse can’t “take” anything from you because you have control over what happens to your inheritance.







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