If you inherited property, money, stocks or other assets either before your marriage or during it, the inheritance, whether cash, real estate, family heirloom, or anything at all, is your separate property. If you kept the asset separate, for example, put the inherited money in a separate bank account belonging only to you, it remains your separate property and is not divided with your spouse in the event of a divorce.
A problem arises when the separate property is commingled with the community property. The court presumes commingled funds are community property. The burden is on the party claiming the property is separate to prove that to the court. To do that, expert tracing of the asset or accounts is required.

Direct Tracing of Separate Property
When an improvement to community property is completed using one party’s separate property, or real estate is purchased partially with separate property, the party can be reimbursed by the community at the time of the divorce if that party can prove by direct tracing that the improvement or down payment was paid with the separate property.
Proof involves presenting the court with bank statements that show the amount of the separate property assets that were used for the purchase of the community property purchase or improvement. It can include a direct line-by-line tracing of bank or brokerage accounts that were comingled in order to show that at the time of the investment, only separate property was available to be utilized.
Family Expense Tracing
California law allows you to use this method only if direct tracing is impossible. In a commingled account, it is assumed that community property is used first to pay family expenses. Here’s an example: There is a joint bank account in which every month the husband and wife each deposit their salaries. Their salaries are considered community property and their combined salaries total $5,000 per month. Assume the wife deposits an additional $2,000 a month into the account from interest she receives from her clearly identified separate property (from an inheritance or gift) making the account commingled. The couple then pays $6,000 in household expenses every month from the joint account, with $5,000 coming from community funds and $1,000 from the separate property of the wife. Since the $1,000 a month is spent during the marriage for household expenses, it is considered a gift to the community and not subject to reimbursement.
The remaining $1,000 a month that stays in the account, however, is attributable to the separate property the wife has on deposit in the account. If the couple divorces after five years, the wife’s separate property in the account will have accumulated to $60,000 ($12,000/year times five years). This remains her separate property, and she does not have to divide it with her husband in the event of a dissolution of their marriage.
If you have inherited funds that you have commingled with community property funds, to maintain your inheritance as your separate property during your divorce, you need the help of a forensic accountant who is experienced with tracing funds. Contact the professional team at the offices of Ron J. Anfuso, CPA/ABV, An Accountancy Corporation. You may also call us at (310) 378-6606 for a free telephone consultation.
This article was originally posted on Collaborative Divorce California’s website on the following link: https://collaborativedivorcecalifornia.com/dividing-inherited-assets-in-a-divorce/