Tracing Separate Property can be a Difficult Task

Posted on February 13th, 2012

California Upholds Strict Tracing Requirements for Reimbursement Claims

In every California dissolution (divorce) proceeding, the court is required to divide the  parties’ community property estate.  The community estate includes the property acquired by either party during the marriage with several exceptions.  Inheritances, for example, are not part of the community estate.  In the division of the community estate, unless a party signs a written waiver, either party is to be reimbursed for his or her contributions to the acquisition of property to the extent the party traces the contributions to a separate property source.

In a recent case, a California court determined Husband’s testimony alone was insufficient to trace his separate property interest to subsequently purchased community assets.  Prior to the marriage, Husband purchased a property in London for which he claims he made several improvements during the marriage.  After the marriage, Husband conveyed this property to himself and Wife as joint tenants.  The couple refinanced the property and deposited $225,000.00 of the proceeds into their joint account. After refinancing the property, Husband and Wife used these funds as a down payment to purchase another property.  Husband produced no records to indicate the source of the money used as a down payment on the second property.  The second property was subsequently sold and the couple used the profits as a down payment to purchase a third property.  Approximately seven years after its purchase, the couple sold the first property and used to proceeds as a down payment to purchase a fourth property.

At the couple’s dissolution trial, Husband testified that his separate property could be adequately traced from the first property to the fourth.  However, he was unable to provide any documentary evidence because he claimed the evidence had been destroyed.  The trial court was forced to rule on his testimony alone and concluded that Husband was credible enough finding Husband’s separate property had been adequately traced to the first property.  Wife appealed the trial court’s finding and the trial court was reversed.

Commingling of funds does not alter the status of separate property if the funds can be traced to a separate property source.  The spouse claiming a separate property interest in a community asset carries the burden of tracing the funds to a separate property source.  Here, Husband had the burden to overcome the presumption that property purchased during the marriage is a community property asset.  Generally, the testimony of a single witness is sufficient to support a finding of a certain fact.  However, there is a heightened evidentiary standard to prove a separate property interest in property that is presumably acquired during a marriage.

Dividing assets can be a complicated issue.  For more information contact our Certified Family Law Specialists.  Our San Diego divorce attorney team offers a private consultation and our lawyers are skilled in a variety of family law issues including divorce matters.  Please send us an email or call our office at (619) 284-4113, where our attorneys will be able to speak with you directly.  You can also email our firm.