Disclaimer: This article does not constitute legal advice. If you have any questions about your individual situation it is best to seek the advice of an experienced legal professional.
In divorces with complex assets, it’s often the case that one or both partners have family money or inherited wealth that was acquired before the marriage or through inheritance. In California, assets acquired before the marriage or as an inheritance are generally not defined as part of community property.
In practice however, it isn’t that simple. People use inherited money or money they earned before the marriage to fund their shared life as a married couple. Thus assets that aren’t part of the community property can easily become part of marital property.
How Do You Know if Inherited Money Has Become Marital Property and Why Does it Matter?
When assets that are technically outside the marital estate get used for marital expenses this means the assets have been “commingled.” It means that the non-inheriting spouse has a claim to these assets, which might have been defined as separate property but were somehow used to benefit the marriage.
In these situations it’s important to tread extremely carefully as there is a high potential for conflict. This is why it’s important to track the way you used money during the marriage and be precise about what is part of your marital estate.
What Happens if A Spouse Has Bought Assets with Money that Isn’t Part of the Marital Estate?
What happens in the case that a spouse has purchased assets with non-marital funds, such as a family trust, or any other trust that was set up before the marriage? It seems obvious that the money used to buy the property isn’t part of the community property, but what about the income from that property, such as if someone buys investment property with an inherited trust or with money made before the marriage?
If one spouse has bought investment property and that property is making a profit, the income could be defined as marital property if the spouse was using this income to fund the married couple’s lifestyle, to pay marital debts or was using marital funds to fund these investments or the upkeep of these properties. These issues can get complex quickly, so it’s important to be transparent from the outset about property that may have become commingled.
Why A Transparent Divorce Makes Things Easier
Divorce Mediation is a transparent and fair process that involves a thorough analysis of the community property based on full disclosure of the parties’ assets and debts. Spouses are more likely to be transparent during the disclosure of their assets in divorce mediation for a couple of reasons:
- Divorce mediation is a completely private and confidential process. Unlike going to court, your financial details never have to become public record or known to your family and friends. Mediation can also incorporate non-disclosure agreements in which spouses agree not to disclose information about their private family wealth or business. This gives parties an incentive to be open about their assets.
- Divorce mediation is an efficient and cost effective process in which the divorce process can be as quick and as clean as you want it to be. When spouses choose to be transparent and thorough about their finances, the divorce process can often be resolved much more quickly than traditional divorce.
- Divorce mediation can be viewed as a high level business deal in which transparent disclosure of assets and thorough analysis of the community property has the potential to positively impact the wealth of both parties. Being open and transparent about your marital and non-marital property can help you make better decisions about how to divide assets, such as timing the sale of assets and understanding the appreciation potential of assets.
Choosing divorce mediation avoids conflict because it directs your divorce process towards the common goal of optimizing the community property, which will benefit you both. Deciding “who gets what” in the fairest manner possible should be the result of a thorough analysis of everyone’s contributions to the marriage.
At Divorce Options San Diego we are West Coast Divorce Mediators who aim to help you reach an optimum divorce settlement in the most efficient, transparent and conflict-free manner. We have high-level financial expertise, mathematical expertise and legal expertise that aids in a thorough analysis of your community property. If you are getting a complex, high-level divorce with inherited property, marital assets, investments and business interests, we can help you to streamline and simplify the process of property division in divorce. We have offices in San Diego, CA, Berkeley, CA and Silicon Valley. Please contact us for a remote consultation or to meet in person.
