By Sue Olson, Accountant
Tracing usually becomes an issue when community and separate property funds have been commingled in the same account(s) and then an asset is purchased with funds from that account. The mere commingling of separate property moneys in a community bank account does not destroy the separate property character of the funds, so long as they can be adequately traced. In re Marriage of Mix, (1975) 14 Cal.3d 604.
Property acquired by purchase during a marriage is presumed to be community property (Family Code §760) and the burden is on the spouse asserting its separate character to overcome the presumption. Mason v. Mason (1960) 186 Cal.App.2d 209, 212; Estate of Niccolls, (1912) 164 Cal. 368; Thomasset v. Thomasset, (1953) 122 Cal.App.2d 116.
The presumption applies when a spouse purchases property during the marriage with funds from an undisclosed or disputed source, such as an account or fund in which a party has commingled his or her separate funds with community funds. Estate of Neilson, (1962) 57 Cal.2d 733. A spouse may trace the source of the property to his or her separate funds and overcome the presumption with evidence that community expenses exceeded community income at the time of acquisition. If the party proves that at that time all community income was exhausted by family expenses, the spouse establishes that the property was purchased with separate funds. See v. See (1966) 64 Cal.2d 788, Estate of Neilson, supra, at p. 742; Thomasset v. Thomasset, supra, at p. 127.
A spouse may protect the character of his or her separate property by not commingling it. However, if the spouse chooses to commingle it, then he or she assumes the burden of keeping adequate records. The documentation must be sufficient to establish either the direct tracing or the balance of community income and expenditures at the time an asset is acquired with commingled property. Estate of Murphy (1976) 15 Cal.3d 907, 919; White v. White (1938) 26 Cal.App.2d 524, 529. The spouse’s testimony alone is not sufficient. In re Marriage of Frick (1986) 181 Cal.App.3d 997.
Direct Tracing Method
Direct tracing is employed if the withdrawal from the commingled account used to acquire the disputed asset can be traced to a specific separate property deposit or deposits into the account. The requirements for direct tracing are:
(1)The tracing spouse must have specific records. In re Marriage of Marsden (1982) 130 Cal.App.3d 426;
(2) The specific records establish that on the date that the separate expenditure was made, there were separate funds available in the account to make the purchase. In re Marriage of Higinbotham (1988) 203 Cal.App.3d 322; and
(3) The tracing spouse had the intent to utilize the separate funds to make the purchase. Estate of Murphy (1976) 15 Cal.3d 907, 918; In re Marriage of Frick (1986) 181 Cal. App.3d 997, 1010-1011, 226 Cal.Rptr. 766.
Generally, the tracing burden cannot be met by annual recapitulations (In re Marriage of Higinbotham, supra, 203 Cal.App.3d at p. 330; In re Marriage of Marsden, supra, 130 Cal.App.3d 426), or by recapitulations over the length of the marriage. See v. See, supra, 64 Cal.2d 778. The only time that recapitulation may be used is when, through no fault of the spouse asserting the separate property interest, it is impossible to ascertain the balance of income and expenditures at the time each payment was made. Id. at p. 783; In re Marriage of Higinbotham, supra, 203 Cal.App.3d at p. 330. Examples of this would be when the opposing spouse destroyed the records, or the documents were destroyed by fire or flood.
Actual Use of Separate Property Funds
The tracing must trace the separate property directly into the particular bank account from which the disputed payment was made and show that on that date there were sufficient separate funds available in said account to make the payment. Evidence that merely establishes the general availability of separate funds on particular dates without also showing any disposition of the funds is not sufficient proof of tracing to overcome the presumption in favor of community property. Estate of Murphy, supra, 15 Cal.3d at p. 918; In re Marriage of Mix, supra, 14 Cal.3d at pp. 613-614.
Intent to Use Separate Funds
In addition to showing the availability of separate property funds in the account from which the payment was made, the tracing party must also establish the intent to use those separate funds in purchasing the disputed asset. In re Marriage of Higinbotham, supra, 203 Cal.App.3d at p. 329; In re Marriage of Johnson (1983) 143 Cal.App.3d 57. This additional burden can often be met by the party’s testimony as to his or her intention. No case has yet addressed the effect on the intent requirement of Family Code §1100’s imposition of a fiduciary duty on spouses during marriage.
Substantial Evidence Rule
Whether a tracing is adequate is a question of fact for the trial court, which decision will be upheld on appeal if supported by substantial evidence. In re Marriage of Higinbotham, supra, 203 Cal.App.3d at p. 329.