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In a legal separation or divorce in San Diego Superior Court, there are many cases in which property is acquired from date of marriage to date of separation but is not divided one half each in the final judgment whether by legal separation or marital settlement agreement or trial. Two of the most common examples of a non division of an asset in a divorce or legal separation are gifts and inheritances. If the inheritance or gift is made before the date of separation and after the date of marriage in a divorce or legal separation, then the presumption can be rebutted with evidence. This is called a “tracing” and this is comprised of documents and oral testimony proving that the funds which still exist at the time of legal separation or divorce are a gift or inheritance. The burden of proof is on the spouse who is asking to rebut the presumption. If the burden of proof is not met, then the asset is divided as community property.
If the gift or inheritance was placed in an account with the giftee or beneficiary name solely and no funds were withdrawn and no funds added during the marriage, then this would support the tracing. In many cases, however, this is not the factual case and the funds are “commingled” which means that they have been placed into a community property account perhaps with other community property funds. Even if the funds were placed into a community property account, the separate property component can still be requested not to be divided however, again, a tracing is required which meets the burden of proof. When funds are used to acquire an asset, such as a house, then the burden is still on the spouse claiming the presumption should not be used. An escrow statement with a copy of where the funds came from which were used for the down payment, for example, would be part of the tracing.
The best procedure is not to commingle at all. This would meet the burden of keeping adequate records. There is no law which states that an inheritance or a gift needs to be placed into a community property account. By placing the gift or inheritance in an account with only the name of the beneficiary or giftee, this satisfies the burden to keep adequate records. This should not be confused with placing community funds into an account with a separate name. If income from the marriage is placed into an account with only the name of the employed spouse from where the income was derived than this is still community property in character even though in the name of one spouse only. This can be a very complicate issue with banks closing, merging or not having records going back for the years necessary to meet the burden of proof.
Direct tracing is used when the withdrawal from the account which is commingled was used to purchase the disputed asset which can be traced to specific deposits which are separate property in character [community property is that which is acquired from date of marriage through date of separation; separate property is that which is acquired after date of separation or before date of marriage; quasi community property which is property which would be community if in California but is located in another state or jurisdiction] in the account. The requirements for the direct tracing include that the tracing spouse much have specific records which meet the burden of proof that the separate expenditure was made from the separate property funds available from that account.
There are many other issues involved in tracing such as recapitulations, actual use of separate property funds, intent to utilize separate funds and also whether the family living expense [exhaustion] method will be used. An attorney or lawyer should be consulted with if these issues are present in your divorce or legal separation case.
If you have a tracing issue in your legal separation or divorce, please feel free to contact us to discuss confidentially.