Many divorcing spouses wonder, “Are trusts and inheritances protected in a California divorce?” When spouses divorce in California, inherited wealth is typically off-limits to property division negotiations. However, legal complications arise when spouses deposit inheritance checks into joint bank accounts, use inherited money to buy marital assets, or place wealth in trusts for other family members.
Why Choose Kramer & Zitser, LLP?
At Kramer & Zitser, LLP, our founding attorneys Brian J. Kramer and Diana P. Zitser are Certified Family Law Specialists with over 50 years of combined experience practicing high-net-worth family law. We represent individuals with substantial wealth in inheritance disputes, family trusts, and complex marital estates. While we aim to reach discreet settlements, our California trust & inheritance divorce lawyer can litigate contested divorce issues to protect your property.
Inheritances as Separate Property in California
California is a community property state, which means most assets acquired during marriage are owned equally by spouses. By contrast, separate property is owned 100% by one spouse. Inherited wealth is considered separate property under California Family Code § 770. Separate property can include gifts given before or during marriage.
There can be exceptions to this general rule if spouses use community funds to improve the property or if one spouse transfers the title into both of their names.
Keep in mind that income earned from separate property is still considered separate property. However, if community funds are used to improve the property or help pay mortgage payments, the contributing spouse may be entitled to reimbursement or a share of the property’s value.
When Assets Are Commingled
When families live together for years, it can be difficult to keep their money completely separate. Spouses sometimes use joint bank accounts or share credit cards to pay for household bills. If you receive an inheritance or another form of gift during the marriage, you should keep the money in a separate account until you spend it.
When separate and community property are mixed, they are said to be commingled. Generally speaking, commingled funds lose their original character when they are used to acquire new property.
For instance, if you inherit $10,000 from your aunt and place the funds into a family checking account, your spouse may spend the money on living expenses. Even though commingling does not necessarily convert the property to community, it may be difficult to trace what is left in the account back to you.
How Tracing Protects Inherited Wealth
The forensic accounting process used to track financial transactions is called tracing. When separate and community funds are mixed, attorneys may review bank records, brokerage accounts, escrow files, and real property deeds to follow the money trail. Two popular tracing methods include:
- Direct tracing. Matching specific separate-property funds to a particular purchase using transaction histories.
- Family expense tracing. Determining whether community funds were used to pay for family expenses before separate funds were spent on a disputed purchase.
As you can see, the facts of the transaction and documentary evidence usually dictate which tracing method applies.
How Trusts Are Treated During a California Divorce
As Americans age, many decide to plan for the future by developing an estate plan. A 2025 Pew Research Center survey found that 32% of Americans had created a will. Among adults over age 70, 83% of upper-income adults had a will versus 51% of lower-income adults. Interestingly, 37% of those with lower incomes still created estate plans.
Trusts are special types of property ownership governed by California laws enacted for the benefit of another person or entity. Family courts differentiate between property owned by spouses and property held in independent third-party trusts.
If you and your spouse created a revocable living trust during the marriage, the trust may hold community property that can be divided. On the other hand, irrevocable trusts established by another person may be wholly excluded from the marital estate.
Courts look at the trust instrument, rights of the beneficiaries, and distribution terms to decide whether your spouse has an interest in the trust that should be addressed during divorce. Your expectation of receiving distributions from a trust does not alone make the funds community property.
FAQs
Can Inherited Funds Used for Marital Property Be Recovered?
California law allows spouses to seek reimbursement for certain contributions to community property. Family Code § 2640 specifically permits recovery when separate funds are used toward buying marital assets like homes or businesses. If you can prove your inheritance was used for a down payment on a family residence, you may be entitled to reimbursement.
When Should You Hire a Divorce Lawyer?
You should hire a divorce lawyer as soon as possible due to the complex nature of separating commingled funds. Your lawyer can interpret trust documents, analyze financial disclosures, and hire a forensic accountant to trace your investments. A California divorce attorney can also advise you on reimbursement rights and argue on your behalf during contested hearings.
Can My Spouse Own an Inheritance I Have Not Yet Received?
In most cases, your spouse cannot own an inheritance that you haven’t received yet. An inheritance that has not yet been distributed is still under the control of the person who created the will or trust and their decision makers. If there is a beneficial interest in existence in a trust, that may be analyzed separately.
What Happens If My Spouse Secretly Transfers Marital Assets Into a Trust?
If your spouse secretly transfers marital assets into a trust without your knowledge or signature, this could be a breach of fiduciary duty as defined by California law. The court can look at the transaction and undo the transfer if it unfairly detracted from the community estate. Sanctions may also be imposed if the action was intentional.
Kramer & Zitser, LLP for Your Divorce Needs
Trusts and estates disputes can become complicated depending on who legally owns property and which state’s inheritance laws apply. At Kramer & Zitser, LLP, we help wealthy clients all over Los Angeles navigate through divorces with large family estates. Contact us today to talk about your financial rights and options.
