Are Gifts Separate Property?

You may have heard that because California is a Community Property state, marital property–or property earned or acquired during marriage–is equally divided in the event that you and your spouse get divorced. Of course, there are numerous exceptions to this general rule, but you may also wonder: would the gifts you have received from friends and family be subject to an equal division too? The answer, as it often is, depends.

California is a community property state, which means that all income earned and other assets acquired during the marriage are generally considered to be community property. Separate property is not usually subject to division unless a prenuptial or postnuptial agreement provides otherwise.

What is Separate Property?

Separate property generally includes:

• Income earned or received prior to the date of marriage and after the date of separation
• Assets acquired prior to the date of marriage and after the date of separation
• All other property received or acquired during marriage, but via gift, bequest, devise, or descent

What is a ‘Gift’?

The Civil Code–which is incorporated into Family Court–defines a ‘gift’ as “a transfer of personal property, made voluntarily, and without consideration.” That last part–consideration–is important. It means that the giftor (or the person making the gift) does not receive anything in return for making the gift and does so freely and voluntarily.

“Personal property” can also include cash, one of the more common forms of a gift. When the Court determines whether a gift is one spouse's separate property or belongs to the community, it would be wise to first establish these elements: who was the giftor? What was the personal property? Did the giftor make the gift voluntarily? Did the giftor receive anything in return? What was the intent of the giftor? 

How to Protect ‘Gifts’?

Should you receive a monetary/cash gift as defined above from a friend or family member while you are married, it is important that you keep those funds separate from any joint or shared accounts, where they could be commingled–or mixed in–with community funds. When separate funds become commingled with community funds, it becomes more difficult and costly to prove to the Court that the monetary gift in question is your separate property.

The concern also then turns to how to characterize the assets you buy with your gift; if the gift funds becomes commingled with community funds in a joint account, then proving the characterization of the items purchased from funds in the joint account becomes difficult as well.

How Does the Court Determine What is Separate or Marital Property?

If you have a claim for a separate property gift upon divorce and your spouse disputes the characterization of said gift, there are ways in which you may wish to affirmatively “prove up” your claim. 

Tracing is one very important way to make a claim for gift monies, as it allows the claimant to track down said monies back to the separate property source. This method is often accomplished by hiring a forensic accountant. Separate, gift funds do not lose their character just because they are commingled, so long as you can trace it back to its separate source. 

You must also prove that the separate funds were at your disposal when they were withdrawn for the purpose of purchasing specific property as well as whether it was your intent to draw those funds for that specific purpose. 

The Exhaustion Method, or the “Family Expense” method, is another way of proving to the Court that the disputed funds are your separate property gift. If you can prove that at the time you spent gift funds on a certain asset all community income was exhausted by family expenses, you may establish the asset in question was purchased with your separate funds.

Next: How to Have a ‘Good Divorce’

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