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Tracing: What is Community Property and what is Separate Property?

California is a community property state, which means that all property acquired during the marriage is presumed to be community property, which is split 50/50 during a divorce. But what if you had certain assets before the marriage, such as a house, retirement, IRA, or money in a bank account? How will that be divided upon entry of divorce?

Where community funds are mixed in with separate property funds, the account is know as a comingled asset. Comingling occurs when a spouse’s separate property is mixed in or combined with the other spouse’s separate property or with community property so that the entire account is used for a community purpose. In order to have a right to reimbursement, the spouse must be able to “trace” the funds back to their separate property source to prove that some of the funds in the account were separate property. This can include things like an inheritance, gift, or financial accounts that existed prior to getting married.

So at the time of divorce, you will need to indicate which accounts and what property you have a separate property claim to on your Schedule of Assets and Debts and in order to preserve your right to reimbursement, you need to be able to “trace” the money back to a separate property source. Commingling assets alone, is not enough to change the properties identity, but if it is impossible to trace back to the separate property source, the whole asset will be treated as community property divided 50/50 during the divorce.

There are a few ways you can do this, but the easiest way is to pull the financial account statements back to before the date of marriage to show the money that was in the account(s) prior to marriage. You can also show IRA or 401(k) statements for money that was in the account before you got married. However, any money contributed to the account during marriage will be treated like community property, unless you have a written agreement such as a pre-marital agreement stating otherwise.

If a house was purchased prior to marriage or during marriage with a spouse’s separate property, you have to be able to trace the money used back to a separate property source in order to be entitled to your reimbursement at the time of divorce. If you are able to prove separate property monies were used to fund the down payment, make improvements to the house, or pay for the other spouse’s separate property, you will be entitled to reimbursement off the top during a divorce when the house is sold, the rest will be split 50/50. Any money earned during the marriage is community property unless specifically agreed otherwise in writing, so money from earrings used to pay the mortgage or make improvements to the house are not recoverable unless otherwise agreed between the parties.

It is important to consult with an experienced family law attorney in order to preserve your separate property claims during the divorce matter so that they are not waived or assumed to be community property. Contact Cage & Miles, LLP for a free 30 minute consultation today.