Is Real Property Purchased with an Inheritance during Marriage Separate or Community Property?

 When someone receives an inheritance during marriage, one of the most common questions that follows is whether that inheritance, or anything bought with it, belongs to them alone or to both spouses. The answer can be straightforward in principle, but in practice, it often depends on how the funds are handled after they’re received.

Separate and Community Property in Texas

Property in Texas is characterized as either separate property or community property. Separate property includes all property you owned before marriage, as well as anything you receive during marriage by gift or inheritance. There is a presumption that everything else you acquire during your marriage is community property, which means both spouses own it equally, regardless of whose name is on the title.

This presumption can be overcome, but only with clear proof. That’s where good records and careful financial handling become important.

Buying Property with Inherited Funds

If you use an inheritance to buy real estate, that property can remain your separate property, but only if you can show that the purchase was made entirely with inherited funds. The law calls this “tracing.” In other words, you have to be able to follow the money from your inheritance directly to the purchase, without it being mixed in with community property.

For example, suppose a wife inherits $150,000 from her father and uses that inheritance to buy a small rental property. If you keep your inheritance in a separate account and can link the purchase of that property to that separate account, the rental house will keep its separate property character. But if she deposits the inheritance into a joint checking account and then uses that account to buy the property, the situation becomes murkier. The law presumes the property is community property unless she can prove otherwise.

The Problem of Commingling

Once separate funds are mixed with community money in a way that makes them indistinguishable, they’re said to be “commingled.” If the inherited money becomes so blended with joint assets that it can’t be traced, it loses its separate character. This is one of the most common reasons that separate property disputes arise in divorce cases.

The best way to prevent commingling is to keep inherited funds in a separate account, and to keep clear records showing where the money came from and how it was used.

When Both Separate and Community Funds Are Used

Sometimes, a home or other real estate is purchased partly with inherited money and partly with marital income. In those cases, the property can have both separate and community elements.

What If Only One Spouse’s Name is On the Title?

How the property is titled doesn’t necessarily determine whether it’s separate or community property, but it can raise questions. If you purchase real estate with inherited money, but add your spouse’s name to the deed, a court may see that as evidence that you intended to make a gift of half the property your spouse.

A deed showing that you are purchasing the real estate as your “sole and separate property” can protect its character.

Protecting Your Separate Property

To preserve the separate nature of property purchased with inherited funds, a few practical steps can help:

• Keep the inheritance in its own account, separate from community money.
• Document the source and use of the funds carefully.
• Consider a marital property agreement stating that the purchase was made with separate funds.
• Avoid adding your spouse’s name to the title unless you intend to share ownership.

A Careful Balance

Texas law does protect inheritances, but that protection depends on how you manage the funds. Real estate you purchase with inherited money can remain separate property, but only if you can clearly show that you purchased it with separate property and you intend for it to be your separate property. Once the money is mixed or used in a way that suggests shared ownership, the line between separate and community property can blur.

Texas law does protect inheritances, but that protection depends on how the funds are managed. Real estate purchased with inherited money can remain separate property, but only if you can clearly show the connection. Once the money is mixed or used in a way that suggests shared ownership, the line between separate and community property can blur quickly.