Why Is Tracing Important for Property Division in a Divorce?
When a couple gets a divorce in California, they must equally divide property
between them. The
division of property and assets in a divorce is governed by principles of community property in California.
Only property that qualifies as community property is subject to division
upon divorce. Property that is considered to be a spouse’s separate
property will not be divided during divorce proceedings.
All property acquired during the marriage and before the parties’
date of separation constitutes community property unless evidence proves
that a specific asset qualifies as a party’s sole and separate property.
Separate property includes all assets a party acquires before getting
married and after the date of separation. Moreover, any property a party
acquires during marriage through gift or inheritance will be considered
their separate property.
While timing is certainly a critical aspect of determining whether an asset
or property is subject to division upon divorce, how the property was
acquired can also determine how property is characterized upon divorce.
This requires evidence that traces the acquisition of a particular asset
to the funds used to obtain it and determining the character of those
funds. This process is commonly known as “tracing” in California divorces.
For example, if a spouse uses the money they received as part of an inheritance
to buy a vacation home while married, the house could qualify as the spouse’s
separate property and therefore not subject to property division upon divorce.
There different methods of tracing property to characterize it as either
community or separate property. Two of the major methods of accomplishing
this includes “direct tracing” and the “family expense”
method of tracing. These can be particularly useful when separate property
and community property funds are kept in the same financial account, making
it difficult to determine what funds were used to acquire certain property.
The Direct Tracing Method
Direct tracing requires proof of a direct correlation between a transaction
and the funds used to acquire property. This method can be used to argue
that property that would otherwise qualify as community property is, in
fact, a party’s separate property because they used separate property
to acquire it.
The person making a separate property claim on community property must
support their claim with evidence that clearly demonstrates their intention
to use their separate property on the date the property in question was acquired.
For example, a car that was purchased while a spouse was married may generally
qualify as community property. However, the spouse can claim that the
car should be considered to be their sole and separate property by arguing
that they used separate property money to buy the car.
There four elements to prove using the direct tracing method of property
Sufficient commingled funds: At a minimum, this proposition requires proof that there
sufficient separate property funds commingled in the financial account from which the party drew the money
necessary to effect the car’s purchase.
Intent to use separate funds: Next, the direct tracing method requires proof that separate property funds were
intentionally used to purchase the car in question. Evidence of intent is a crucial
issue to address, and the credibility of the evidence used to prove intent
becomes a significant concern.
Intent to acquire a separate, rather than community, interest: The person claiming a separate interest must also prove their intent to
treat the purchased hypothetical car of our example as their separate property.
Disclosure of intent: Finally, the spouse who wants to claim the property as their sole and
separate property must
tell their spouse about their intent to do so.
The Family Expense Method
The direct tracing method requires comprehensive record keeping on the
part of the spouse claiming a separate interest in community property.
Alternatively, one can use the “family expense” method of
tracing prove that separate property was used to acquire the asset in
question. This method relies on the presumption the community funds are
first used to cover family expenses.
For example, imagine that a couple had a bank account that contained both
community property money and separate property funds. Charges concerning
the payment of basic family expenses are presumed to be first drawn from
the community property part of the account.
Thus, if an account had $50,000 in community funds and $50,000 in separate
funds, community expenses – such as materials and labor to renovate
the kitchen of the family residence are presumed to be paid from only
the community property portion of the bank account. If community expense
exceeded $50,000 before the purchase of the car in question, the remaining
$50,000 in separate funds is considered to be the source of the funds
used to buy the car.
Looking for Comprehensive Legal Representation?
Property division issues can be a challenge to understand, especially in
divorce cases involving
high-value assets. At Hanson, Gorian, Bradford & Hanich, you can count on our team of
attorneys to help you determine the community or separate property character
of certain assets, using the most effective tools in our legal arsenal—such
as direct or family expense tracing methods.
For more information about how our firm can best represent your interests,
call us at (951) 506-6654 or
contact us online today and schedule a free consultation about your case.