Tracing Methods for Commingled Property
If you are currently planning for a divorce in California, it is important to know that most assets and debts acquired after the date of your marriage and before the date of your separation will be considered “community property” under California law and will be equally divided between both spouses. Assets and debts acquired or accrued by a spouse outside that period or during the period of the marriage by gift, bequest, or inheritance will typically be classified as “separate property.” Proven separate property will not be divided but instead assigned to the spouse who is able to prove their separate property claim. However, especially in long-term marriages, community property and separate property can often get mixed together or “commingled.” For example, one spouse might use separate assets to pay for renovations or improvements to a community property home. Or the spouses might decide to pay off one of the parties’ separate debt with community assets during the marriage. Property is also often commingled when spouses allow for separate property funds to be deposited into an account with community property funds, or vice versa.
In order for community property to be divided fairly between the spouses according to the terms of California law, it is essential to classify community and separate property accurately. If a spouse believes they have a separate property claim, it is their burden to prove the claim. When there is commingled property in a marriage, a tracing of the separate property is typically necessary to ensure accurate division and assignment of property. How does tracing work? Consider the following information about tracing methods from our San Jose divorce attorneys.
Direct Tracing Method
In California divorces, there are two general methods that can be used for tracing separate property within commingled property. The first is known as the “direct tracing” method. With this method, every payment, deposit, withdrawal, or debt accrued is traced out to its original separate property source. This method can be time-consuming and complex and requires complete and clear records. It is often most effective in circumstances where the transactions are relatively limited and involve significant amounts. For example, it may work well when a single large deposit of separate property is clearly followed by a traceable purchase indicating the separate property funds were intended for that purchase.
Family Expense Method
The other tracing method that can be employed is known as the “family expense” method. This method essentially looks at circumstances where both separate property and community property are used for family expenses, and it presumes that community property is used first to pay for family expenses. Then, remaining separate property balances can be traced out. In using this method, a spouse can show that the community property was exhausted by the family expenses; therefore, the remaining balance is separate property. This method is less specific than the direct tracing method discussed above but still requires complete and detailed records. It is typically employed in circumstances where property is substantially commingled and has been commingled frequently over time.
With either method, forensic accountants are often employed to review the records and trace separate assets and debts.
Contact Our San Jose Divorce Lawyers for Assistance with Property Division and Asset Tracing
If you and your spouse have any commingled property, it will be crucial to trace out separate assets and separate debts for purposes of your divorce. As we discussed above, any property considered “community property” will need to be divided between the spouses, whereas any separate property will remain the separate property of the spouse. To find out more about methods for tracing out separate property that has been commingled or to learn more about property division in California divorces, you should get in touch with an experienced San Jose divorce attorney at Foster Hsu, LLP for assistance. Contact our firm today to discuss the details of your divorce case.
Source:
leginfo.legislature.ca.gov/faces/codes_displayexpandedbranch.xhtml?tocCode=FAM&division=7.&title=&part=&chapter=&article=&nodetreepath=9
