Tracing Commingled Assets. How to Unmix your Separate Property Back Out of the Community Estate.

Mixing cocktails can be a skilled art. Hipster, tattooed bartenders refer to themselves as “mixologists”. Our job as Sacramento divorce attorneys is to unmix assets.

Happily married couples mix things too, such as their financial accounts and real estate. But situations change. No one can separate the commingled gin from the tonic in the tumbler, but with good documentation and accounting, your Divorce Attorney just might be able to separate those accounts and assets all over again. Why do divorce lawyers and accountants go through the exercise of sorting commingled assets? Because it just might be significantly worth the effort – traced assets aren’t shared. They’re all yours again.

Commingled funds are separate property deposits in the same account as community deposits (usually a joint account). An asset can be commingled if the separate property of one spouse is used to acquire a community asset. In order to determine the separate property interest in the mixed asset, a method of tracing is used to overcome the presumption that the asset acquired during marriage is community property. See Marriage of Mix (1975) 14 Cal.3d 604, 610–611. [Isn’t it ironic that the couple that had their case appealed to the California State Supreme Court concerning unmixing their property had the last name of Mix? That’s the kind of nerdy, mild joke that only lawyers think is humorous. Thank you, Mr. and Mrs. Mix.]

California Divorce Courts have approved two methods for tracing of separate property interests in mixed assets:

  1. Method One – Direct Tracing: The separate property in a mixed account are ascertained. The court then determines if funds were withdrawn to purchase specific property, based on if separate funds were on deposit when the withdrawal was made, and whether the party intended to withdraw separate funds. It is vital that adequate records be produced for the court to prove a direct tracing. To prove your separate property interest in the mixed asset with direct tracing, you must show the exact amount of money allocable to separate the separate asset. Remember that community property is the presumption and if the assets are so commingled that the court is unable to unmix the interests, it must treat the commingled asset as community property. See Marriage of Frick (1986) 181 Cal.App.3d 997, 1011.
  2. Method Two – Family Expense Tracing: (When direct tracing documents are no longer available). This tracing method is based on the presumption that family expenses are paid from community funds. It works when you can prove that the community expenses paid out of a commingled account are more than the community deposits made to the account. The remainder must be separate property. For example, we start with a zero balance on an account at the beginning of a marriage. If the wife has a separate property annuity that pays her $3,000.00 per month which she deposits into that account and $5,000.00 of the parties’ earnings are deposited into the account each month, the total deposits are $8,000.00 per month.

If the parties spend $6,000.00 each month on community living expenses (rent, food, entertainment and everything else), that total exceeds the $5,000.00 each month that the community deposits. However, the total deposits of $8,000.00 each month isn’t completely spent; only $6,000.00 is withdrawn. The remaining $2,000.00 that stays in the account each month is attributable to the $3,000.00 separate property annuity that the wife is depositing from her annuity. In this scenario, after five years of marriage, $120,000.00 is now on deposit and she doesn’t have to split it with her spouse if they divorce.

Important note: Method Two – Family Expense Tracing can be used only when direct tracing is impossible through no fault of the spouse claiming separate property. Marriage of See (1966) 64 Cal.2d 778, 783. Therefore, don’t plan on shredding your bank statements and then trying to use the family expense tracing method in your divorce. If you are claiming that a portion of a mixed asset is your separate property, you must keep adequate records to overcome the presumption that property acquired during marriage is community property.

If the court finds that the separate and community property or funds are so mixed together that it is impossible to trace the source of the property or funds, the whole asset will be treated as community property.

Have questions about commingled assets? Our Sacramento divorce attorneys may be of help. If you are considering or in a divorce situation in Sacramento, Placer, El Dorado or Yolo County, please give us a call or set up an appointment directly on our site.

Commingled Assets - Can they be unmixed in a California Divorce?