Tracing assets for divorce is no easy task – You would hope that no one enters into a marriage expecting to one day get divorced. So if the idea is to be together forever, it is easy to see how each spouse’s “stuff” can become comingled.
But if the marriage does not work out, going back in time to unravel this tangled web of property – joint bank accounts, vehicles, personal property – can be a huge task. You are going to need help establishing the character – is it truly community or separate property? – and one good way to do this is with Tracing.
We’ve discussed this briefly before, but only in relation to inception of title. Under this rule, property is characterized as community or separate based on the time and manner in which a person first acquires it. If the property – such as a vehicle – was acquired before the marriage, it belongs to one spouse. If it was purchased during marriage, the presumption is that the property is considered community property.
Tracing reinforces inception of title by clearly and convincingly tracing the original property through all of its mutations (commingling) during the course of a marriage.
Confused? Let’s use the example of a vehicle.
If a spouse buys a car with cash during the marriage but wants to prove the vehicle should be considered separate property, that spouse must prove the cash used to buy it was not community-property. Now that can be simple or complex given the circumstances. But it can be done.
There are several methods used to trace cash, and I have detailed them in the simplest form below.
Clearinghouse Method – This method is used when separate funds are temporarily deposited in a joint bank account and are then withdrawn. A specific separate-property amount is shown as having been deposited and withdrawn to be used for other property.
Identical-sum-inference Method – Similar to clearinghouse involving a single deposit and then a single withdrawal of an identical or nearly identical amount. Because the deposited amount and the withdrawn amount are virtually identical, it is possible to infer that the money withdrawn is of the same character as the money that was deposited.
Minimum-sum-balance Method – This is when the value of a separate-property deposit can be identified and there have been only a few identifiable withdrawals or deposits. So long as the balance of the account never dips below the value of the separate-property deposit, separate property will remain in account.
Community-out-first Method – When community funds and separate funds have been comingled in one account for a long period of time, there is a presumption that the community funds are withdrawn first and that separate funds are only utilized when all community funds are gone.
Pro rata method – This is perfect for when a spouse can prove the character of the account’s original balance, but not the character of the ensuing transactions. Under this method, transactions are apportioned between the separate and community estates based on the ratio of separate property to community property in the original balance.
If a spouse cannot clearly trace separate property through all of its mutations (commingling), then there is no choice but to consider it community property.
If you would like us to discuss a particular family law topic in these blogs, please contact our Nelson Law Group, PC office to let us know. We will be glad to help you.