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

When it comes to cocktails, mixed is a good thing – but not so much for assets in a divorce.

As Sacramento divorce attorneys, our job is to unmix assets, moving them from the community estate to your rightful possession. Understanding the definition of commingled assets, as well as how commingled assets are separated in divorce, can help you minimize stress and pursue a fair outcome.

What are Commingled Assets?

Happily married couples regularly mix assets, such as their financial accounts and real estate. But situations change, and CA divorce proceedings require a division of property. No one can separate the commingled gin from the tonic in the tumbler, but with the right documentation, your Sacramento divorce lawyer just might be able to separate those accounts and assets.

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.

Why do divorce lawyers and accountants go through the exercise of sorting commingled assets? Because it’s often more than worth the effort – traced assets aren’t shared. They’re all yours again.

Tracing Separate Property in California Divorces

So, how do you separate commingled assets in a divorce? California Divorce Courts have approved two methods for tracing of separate property interests in mixed assets. These methods are used to dispute the default presumption that an asset acquired during marriage is community property.

Direct Tracing

The separate properties in a mixed account are determined. The court then determines if funds were withdrawn to purchase specific property, based on if separate funds were on deposit when the withdrawal was made, and whether the party intended to withdraw separate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.

Family Expense Tracing

This method is typically ideal when direct tracing documents are no longer available. It’s 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 begin 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.

When Can Family Expense Tracing Be Used?

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.

What if Community Property Can’t Be Separated?

Remember that community property is the default presumption. 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.

See Marriage of Frick (1986) 181 Cal.App.3d 997, 1011.

Consult Our Sacramento Divorce Lawyers for Professional Legal Support

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 our community property attorneys a call or set up an appointment with a divorce lawyer directly on our site.

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