Using a Direct Tracing test, you can establish that what you purchased from a community account is a separate property asset when you can show
- Your separate funds (e.g., from an inheritance) were deposited with community funds (e.g., into a joint account), and 2. they continued to be on deposit when you withdraw the money for the purchase, and 3. you intend to withdraw your separate funds specifically. (See In re Marriage of Frick (1986) 181 Cal.App.3d 997, 1010-1011.)
Under Direct Tracing, the disputed property is traced to the withdrawal of separate property funds from the commingled account.
For this example let’s imagine you have inherited $100,000, deposited it into a community account, then later pulled it out to purchase $100,000 worth of stock.
To show Direct Tracing, you would first prove that you deposited the inherited money (intended only to go to you). Let’s say you have the will or other testamentary document and have documents showing the money flowing from the deceased’s estate and ultimately into the joint account.
Then the stock was purchased: you would need to prove how much money remained after each stock purchase and in turn prove that there were sufficient separate property funds remaining in that joint account at that time to cover the payment at the time it was made. (See Marriage of Stoll (1998) 63 Cal.App.4th 837, 841; Marriage of Braud (1996) 45 Cal.App.4th 797, 823).
Under the direct tracing method, separate property funds do not lose their character as such as long as the amount of separate funds is ascertainable. (Hicks v. Hicks (1962) 211 Cal.App.2d 144; In Re Marriage of Stoll (1998) 63 Cal.App.4th 837.)
In order to prevail on a direct tracing case in a potentially commingled account, the proponent must present credible evidence as to his intentions coupled with a chronology of the source of separate funds. (In Re Marriage of Mix (1975) 14 Cal.3d 604.)
At Divorce Helpline, we work to help our clients get started in the divorce process, we work as divorce mediators and we are to help navigate through difficult financial analyses, such as Tracing. Be sure to check out our next blog to review how this applies to our example with inherited property.