If during your marriage, you inherited any asset, whether it be actual cash, a family heirloom, real estate, or anything of value, it is your separate property. If you keep the asset as your own separate property, it remains your separate property and will not be divided with your spouse when you divorce.
A problem often arises when the inheritance asset has been commingled with the community property. Some examples of how this happens are if you used your inheritance to remodel the family home or to make a down payment on a home, or if you simply deposited your inheritance funds into your joint account with your spouse.

When the inheritance, which is separate property, has been commingled with community property, there may be ways to trace those funds back to the inheritance so that you will at least receive back some of your inheritance as your separate property. There are two ways that the tracing is done.
Direct Tracing
This is done by presenting documents, like bank statements, the will that is responsible for the inheritance, or any other documents that show separate property inheritance funds were used for improvements to community property.
Family Expense Tracing
If direct tracing is not possible, California allows evidence of family expense to support the claim to separate property. With this method, the commingled account is analyzed, and it is presumed that community debts were paid first out of community funds.
The amount of community property funds deposited in the account is separated from the separate funds deposited in the same account. Expenses are deducted from the community property and what is left of the account that is separate property is awarded to the spouse who owns the separate property.
Who Does the Tracing?
An expert who does the tracing is someone who has had education and training and has developed expertise in this area to a level that the court will accept their credentials as an expert. It does not have to be a certified public accountant (CPA).
If you are in the midst of a divorce or contemplating a divorce and need assistance in tracing or evaluating your separate property, contact us at Heberger & Company An Accountancy Corporation. We can help.