In community property states, the division of marital property is fairly cut and dried. If a couple divorces, all assets gained during the marriage are split 50/50 regardless of who purchased them or earned the lion’s share of the income. Anything you owned or owed before you were married belongs to you unless you stipulate otherwise, as a probate attorney can tell you.
One gray area that comes into play is the question of inheritance. If you receive a bequest during your marriage, is this considered a marital asset or does the windfall remain with the heir as separate, individual property?
What Is Community Property?
Community property is a defined as any assets obtained during a marriage. Property, income, and even debts incurred prior to marriage are considered individual assets and obligations that are separate from marital property and debts. That means anything you had before your marriage is still yours if the marriage dissolves. Your spouse is not legally responsible for debts incurred before the nuptials took place, and you are not responsible for theirs.
Any of this can be changed when you’re working with a probate attorney to write your will and through prenups or post-nuptial agreements. The only thing that matters in a legal setting is that:
• The decision is agreed upon by both parties,
• it’s entered into in good faith, and
• the choice was made of your own free will and not under duress.
Most courts will abide by the terms of the prenup/postnup even if the couple lives in a community property state.
Community Property States Versus Common Law
The majority of states are not community property states. Under common law, division of assets is performed through sometimes lengthy and fraught negotiations. Community property laws are determined at state level. They seek to simplify divorce by splitting all marital assets down the middle.
The one caveat regarding community property is that the law is not absolute. It only applies to income earned and assets obtained while the couple was living in a community property state.
This has led to quite a bit of legally maneuvering for couples with homes, businesses, and assets in multiple jurisdictions. However, the state of residence is generally determined by where you pay income tax, vote, and/or are licensed to drive, among other factors.
Do You Live in a Community Property State?
As of 2021, there are nine true community property states in the United States. Nevada is one of them. That means if your legal residence during your marriage is in one of these states, any assets are divided in half during a divorce.
These states differ from common law states, which define marital property as anything jointly owned. Any other assets go to the person whose name is on the title, deed, or account and anything purchased by the individual with their own money. This can only be challenged or changed during divorce negotiations or unless a judge determines otherwise.
Although not on the list of community property states, South Dakota, Alaska, and Tennessee have a conditional opt-in arrangement that allows a 50/50 split if both partners can agree to such a division. Nevada is one of three states where community property laws extend to registered domestic partners as well as those who are legally married. The others are California and Washington.
If you’re a legal resident of Nevada, it’s even more essential that you talk to an estate planning lawyer in Las Vegas about your options.
The Difference Between Marital Assets and an Inheritance
Inheritances are one asset that is excluded from community property laws. However, using any part of the inheritance to purchase, upgrade, or maintain a marital asset can put your bequest in jeopardy. The same applies if you use money from jointly held marital funds to maintain an inheritance.
For example, if your father leaves you his home and you use money from an account containing joint assets to make repairs or otherwise improve or maintain it, it can be argued that the home is now a martial asset in some cases. If you sell the property and put the money into a marital asset, such as buying a home with your spouse, purchasing a painting together, or event just putting it into your bank account, you’ll lose the right to claim it as separate property.
In legal parlance, this is known as “commingling.”
The account doesn’t need to be a joint account, either. If it holds funds or income acquired during your marriage, it’s used to pay bills, or your spouse benefits from the money in any way, it’s community property.
However, even in community property states, courts will subtract the portion of a jointly held marital asset that’s purchased with individual or pre-marital funds and divide only the portion that’s considered marital property. Assets purchased with income earned in a community property state are considered community property regardless of their location.
As you can see, it can become very confusing. The good news is that there are steps you can take to preserve your inheritance.
When You Need to Take Steps With a Probate Attorney to Protect Your Inheritance
Although inheritances are excluded by law from marital assets, it’s still important to take steps to protect your personal assets when it comes to property division.
1. Open a new bank account to deposit any cash you inherit, and only use funds from that account to maintain or improve property and other inherited assets
2. If you sell or earn income from an inheritance, place those funds into the separate, dedicated account
3. Don’t use funds from an inheritance to purchase, upgrade, maintain, or fund joint marital ventures or pay expenses
4. Establish a trust to protect your inheritance. There are various types of trust that will provide tax benefits in addition to protecting your personal property.
You should also detail in your will how you’d like inherited assets to be dispersed. A probate court will automatically assume that all property and assets are jointly owned community property. If you want to make sure a child from a previous marriage gets grandpa’s house or your favorite gallery gets the sculpture Aunt Bee left to you, spell it out in your will. To protect your assets, you may want to talk to an experienced probate attorney in Las Vegas about estate planning strategies according to your unique circumstances.
Deciding who gets what in the case of death or divorce is never easy. Although an inheritance is protected by community property laws, things can become messy and contentious when emotions run hot.
