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Property Division in Divorce: Commingling and Tracing

 

Property Division in Divorce: Commingling and Tracing

The terms “commingling” and “tracing” are related concepts in the identification and division of property in divorce proceedings. Commingling occurs when a spouse or both spouses treat separate property in such a way that it loses its separate property character. Common ways for that to happen is for a spouse to use his or her separate property to pay marital debts, purchase marital property, collateralize a marital debt, or allow the other spouse to use the property as if it is marital property.

 

In a variation on commingling, a spouse’s separate property character can be compromised by allowing the other spouse to use the property as if it is that spouse’s separate property. In that context, the issue is not whether the property has become marital property, but rather whether it has become the other spouse’s separate property by gift.

 

Tracing is the general process by which a party tracks property back to its origin as that party’s separate property. It is one way to overcome the presumption that a particular property item acquired during marriage is marital property. Tracing may be simple for a property item itself, but it can become much more complex when attempting to trace commingled proceeds, or the proceeds of proceeds, from separate property in order to preserve the separate character of the original property or its proceeds.

 

Commingling and tracing probably are more important in pure community property states and, to a lesser extent, in non-community property states that do not use strict equitable distribution schemes. Commingling and tracing can be important in at least three scenarios in the divorce context. First, is the plain asset division between the spouses. Second, is the allocation of debts, and more specifically, which property is liable for marital debts and which is liable for the separate debts of each spouse. Third, is the consideration of the spouses’ relative assets for purposes of spousal and/or child support.

 

The best way to maintain property’s separate character is to segregate the property from the marital estate and from the other spouse’s separate property. If property is to be commingled, or treated in a fashion that could be interpreted as commingling, then the spouse claiming the separate property right should keep detailed reliable records. Those records should show when, where, and how the property originated, how it was treated during the marriage, and how its proceeds, if any, were treated.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

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