In our example the spouse who inherited must show whether separate funds deposited continued to be on deposit when a withdrawal was made for purchasing the stock, and whether it was their intention to withdraw separate property funds for that purpose. These are questions of fact for the trial court. (Hicks v. Hicks (1962) 211 Cal.App.2d 144, 157.)
In Hicks, the plaintiff produced evidence that he deposited separate property funds exceeding the withdrawals made for separate property purchases. (Id. at 158.) Evidence establishing the availability of sufficient separate funds for separate purposes supports an inference that the owner thereof used such funds for such purposes. (Estate of Goodhew (1959) 174 Cal.App.2d 75, 80.)
In Marriage of Mix (1975) 14 Cal.3d 604, the Supreme Court held that a wife had satisfactorily shown a direct tracing of the source of funds used to acquire each item of her disputed separate property:
“Esther introduced into evidence a schedule compiled by herself and her accountant from her records which itemized chronologically each source of separate funds, each expenditure for separate property purposes, and the balance of separate property funds remaining after each such expenditure. She received $99,632.02 attributable to her separate property; expended $42,213.79 for separate property purposes, leaving an excess of separate property receipts over separate property expenditures in the amount of $57,418.23 throughout the course of the marriage.”
(Id. at 613.) The Supreme Court found that the “schedule demonstrated that Esther’s expenditures for separate property purposes closely paralleled in time and amount separate property receipts and thus established her intention to use only her separate property funds for separate property expenditures.” (Id.)
However, Esther was unable to correlate the expenditures of separate property funds with any bank account due to the unavailability of bank records. By itself, the Court held that the schedule was “wholly inadequate”
to meet the direct tracing test. (Id. at 613-614.) However, it noted that the trial court was entitled to accept Esther’s testimony “that the schedule was a true and accurate record, that it accurately reflected the receipts and expenditures as accomplished through various bank accounts, although she could not in all instances correlate the items of the schedule with a particular bank account, and that it accurately corroborated her intention throughout her marriage to make these expenditures for separate property purposes, notwithstanding her use of the balance of her separate property receipts for family expenses.” (Id. at 614.)
“The testimony of a witness, even the party himself, may be sufficient.”
(Id. at 614, citing 6 Witkin, Cal. Procedure (2d ed.) § 248, p. 4240.)
In our example, how can the inheriting spouse connect separate property purchases using inheritance funds to the joint account in which all of the inheritance funds were deposited and from which all purchases of stock were debited through cashier’s checks?
Bank account statements and checks will show deposits of inheritance funds into the account. Bank statements and checks can show the expenditures of separate property for the stock.
Similar to the Mix case, if the balance of her inheritance funds in the account exceed her expenditures on separate property stock purchases, she then merely needs to establish her intention to use her separate property to purchase the stock for herself.
She can testify that she intended to make separate property purchases with her inheritance funds. Unless there is evidence (such as statements in emails, witnesses, etc.) that show an intention to purchase the stock on behalf of the community, her testimony will likely be sufficient. (compare Marriage of Ficke (2013) 217 Cal.App.4th 10, 26 (noting testimony of single witness may constitute substantial evidence of tracing)—no need to produce specific records where H testified mortgage payments on his SP rental were made from rental proceeds account that was never commingled with CP earnings.)
At Divorce Helpline, we regularly work with court-experienced accounting professionals to help our clients navigate through difficult financial analyses, such as Tracing, at a fraction of the cost they would incur in litigation with our services.