When it comes to divorce, there are basically two “buckets” of property: “Community” and “separate.”

“Community” is what you and your husband owned together; it gets divided.

“Separate” is just yours. Or his. It doesn’t get divided.

Money that you—or he—inherit is automatically classified as “separate” property. So is money that’s awarded to you from a lawsuit.

So what’s yours is yours, and what’s his is his. Simple, right?

Nope.

A financial stew

Now if you had never touched that inheritance since you received it, then, yes, this would be simple.

But that’s almost never the case. In virtually all divorces, the separate money that comes in from inheritances and/or lawsuit awards gets commingled with the community property. And not only that, it gets commingled over time, making the numbers infinitely trickier to tease out when it comes to divorce.

Face it: No married woman inherits money and thinks “Well, I should treat this money differently, because someday I might get divorced, and it would make a big difference then.”

So I’m not gonna chastise you over that one.

But the fact remains: teasing out who-owns-what—what’s officially known as “separate property tracing”—is a specialty. It’s one of my specialties, as a CPA, a CERTIFIED FINANCIAL PLANNER™ professional and a Certified Divorce Financial Analyst® professional. And the implications of which-proportion-of-ingredients-constitute-this-financial-stew can be huge. They can make a really big difference in the case.

Coincidentally, I’m working on a case right now in which both the husband and the wife each received inheritance money during the marriage… and each also was awarded a lawsuit payout, too!

So when you inherited money, and put it into a joint account and used it as a down-payment on that house, it was instantly commingled. Then, for each subsequent month of the marriage, the house expenses (such as electricity and repairs) were also paid from community incomes, making the division even murkier.

And that’s not even touching the topics of investing these funds, interest earned, dividends paid, or accounts transferred.(And what about inheritance tax? Fortunately, you can breathe a little easier on that one, since it’s paid up-front out of the decedent’s estate, and simply reduces the amount that you got in the first place.)

Get what’s right

If you’ve got inheritance or lawsuit-award money in your past, start digging up statements now. I’ll need them to help build your case.

Don’t worry. I’ll help you determine exactly what to find, and where to find it, too.

But you can’t get started until you contact me.

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