Tracing Separate Property in Divorce
When going through a divorce you in California’s community property state, much of what you have built together will be split except separate property. Knowing how to identify separate property can make a significant difference in what you walk away with. That is where property tracing comes to play. Tracing is the process of proving that certain property or portions of them belong solely to you and not to the marital estate. Tracing becomes especially important in high-asset divorces where various assets, investments, retirement accounts, and businesses may contain separate property rights, even if they were acquired or grown during the course of the marriage.
Community vs. Separate Property
California is a community property state. This means that, with some exceptions, any property that was acquired from the date of marriage through the date of separation is presumed to be community property and equally belong to both spouses. There are exceptions and the property that falls within those exceptions are “separate property.” Each spouse can expect to walk away from the marriage with their separate property: it is not subject to division unless otherwise agreed upon.
Separate property includes:
- Property acquired before the date of marriage
- Property received as an inheritance
- Property received as a gift
- Proceeds from separate property that have been kept separate
The real challenge arises when community property and separate property have been commingled (mixed) in a way that makes it difficult to discern where the separate property ends/begins.
This is where tracing comes in.
What Is Tracing?
Tracing is the legal and forensic process of tracking the origin and path of assets. This is done in order to assess what is separate property. Supporting separate property claims requires clear, credible evidence. Simple statements of “the house was mine before we were married” are not enough. You need to show, for example:
- The source of the funds used to obtain the separate asset
- The asset maintained segregated status; it was not commingled (mixed)
- The asset was not transmuted (changed) into community property, either by intent or action.
Situations In Which Tracing Can Matter
There are many situations where clients benefit from a forensic accountant fully tracing their marital estate. This can include instances where a couple is dealing with one of the following issues:
1. Real Estate Purchased Before Marriage but Paid Off During Marriage
If you bought a home before you got married, that home is presumptively separate property. However, if the mortgage was paid down with community funds (like a joint bank account you both contribute to) then the community estate may have acquired an interest in the home’s equity and possible reimbursement claim.
2. Inheritance or Gift Received During the Marriage
An inheritance is considered to be separate property. However, if inherited money is deposited into a joint account and used for shared expenses, tracing to reclaim the inheritance might be required.
Contact Cardwell Steigerwald Young LLP
Tracing can make a huge impact on the final resolution of a case. The San Francisco divorce attorneys at Cardwell Steigerwald Young LLP are familiar with tracing, forensic accounting, and all of the nuances in play in high asset divorces. Contact our team today to receive specific legal counsel in your own case.
