In California, divorces typically lead to a 50/50 split of community property. That doesn’t mean you’ll lose 50% of everything, though. Assets considered separate property are untouchable in a divorce. Asset tracing in California divorce gives you a way to prove what property is yours and yours alone. The team at Neumann Family Law, A.P.C., can provide detailed assistance with this process.
What Is Asset Tracing?
Asset tracing involves identifying and proving the source of funds used to acquire financial assets or property when a claim is made that an asset is separate property. It is a key tool in complex marital property division cases, helping determine what constitutes separate property versus what is subject to division in a dissolution of marriage. The process typically requires a detailed review of financial records and documentation to track the movement of funds from their origin through to their ultimate use or current form.
Community vs. Separate Property
The idea at the heart of asset tracing is the division between different types of property. Here’s what you need to know to understand the concept:
- Community property: Community property includes any earnings, assets, or debts that were acquired during the marriage. It’s split 50/50 upon divorce.
- Separate property: Separate property includes assets and debts owned before the marriage started or acquired after the separation. It also includes inheritances and gifts received during the marriage. Your separate property stays with you after the divorce.
- Commingled property: Commingled property is assets or debts that were mixed together using community and separate funds. One simple example would be depositing inheritance money into a jointly owned bank account. Without proper tracing, separate assets can be reclassified as community property due to commingling.
- Quasi-community property: Quasi-community property is assets that were acquired while living outside California that would have been considered community property if acquired in the Golden State. They are usually divided equally in California divorces.
Why You Need Asset Tracing?
California divorce laws assume that everything earned or acquired during a marriage is community property, even if only one spouse’s name appears on the title to an asset. To rebut this presumption, the spouse asserting a separate property interest must establish the source of the funds used to acquire the asset, the timing of acquisition, and whether those funds were kept separate or commingled with community property. This is where asset tracing becomes critical.
Through asset tracing, financial records are analyzed to follow the path of funds from their origin to their ultimate use, allowing the court to determine whether an asset retains a separate property character or has become community property.
The Role of Forensic Accountants
Forensic accountants can determine what belongs to whom. They create financial timelines by reviewing shared and separate bank account statements, tracing any deposits made, and following money as it gets moved between accounts. They work with attorneys to build evidence, prepare reports, and clarify complicated financial situations when assets are disputed. Forensic accountants use techniques such as:
- Direct tracing: Direct tracing involves showing that you had enough separate funds available at the time of a purchase and intended to use them to make the purchase.
- The exhaustion rule: Also known as the family expense method, this forensic accounting technique assumes that community funds are spent first on daily living expenses. It seeks to show that they were exhausted when you spent separate funds on a major purchase.
- Reasonable reconstructions: Courts in the Golden State allow tracing methods that don’t follow textbook formulas. They’re called reasonable reconstructions. These methods can include rebuilding account balances from bank summaries and tax returns, tracking specific investments, and using spreadsheets to trace funds.
The average household in California has a median net worth of $288,000, which is far higher than the national average. Many families have significantly more money and assets, often partially in the form of separate assets. This makes the use of these asset tracing techniques invaluable to divorcing couples with complex financial histories.
Complications and Legal Issues
Asset tracing cannot help with certain legal issues. Two of them are:
- Transmutation rules: If you’ve legally given up your rights to separate property under California Family Code 852, tracing cannot undo a valid transmutation.
- Joint title complications: Putting both names on a piece of property during a marriage makes it community property, even if it started as your separate property. Joint tenancy is one common example.
If you’re not sure whether one of these situations applies, the smart move is to hire a divorce attorney. They can help you with not just asset tracing but also finding hidden assets that might otherwise go undivided in a divorce.
FAQs
What Assets Are Untouchable in a Divorce?
Assets that are untouchable in a divorce are considered separate assets. They include:
- Money or other assets that were obtained prior to the marriage
- Inheritances
- Gifts made to one spouse
- Money or assets that were obtained after the separation
Mixing separate funds with marital funds can lead them to become community property.
Can Moving Out Be Detrimental in a Divorce?
Moving out during a divorce can have practical consequences and should be considered carefully. It may create a status quo affecting parenting time, increase financial strain from maintaining separate households, and reduce day-to-day contact with your children if a clear schedule is not established. However, moving out does not constitute abandonment and does not affect your legal ownership interest in the marital home. Property division in California is based on community property law, regardless of who remains in the residence. Careful planning and appropriate agreements or court orders can help protect your parental and financial rights.
Is My Spouse Entitled to Half My Assets in a Divorce?
Your spouse is entitled to half of the community property, including assets, in a divorce. Separate property is not subject to division. Community property includes income, assets, and debts acquired during the marriage up to the date of separation, and it is divided equally regardless of which spouse earned more. However, separate property may still be relevant in certain circumstances, such as claims for reimbursement, commingling issues, or the payment of attorney’s fees.
Does My Spouse Get Half of My 401(k) in a Divorce?
Your spouse will not necessarily get exactly half of your 401(k) in a divorce. Only contributions and growth that occurred during the marriage are considered community property, so only they are subject to division. You can also agree to trade other assets, such as the marital home, to offset a spouse’s share of the 401(k).
Hire a Divorce Lawyer Today
Asset distribution is one of the most contentious aspects of any divorce. If you’re concerned about getting a fair share of the marital property, you should hire a divorce lawyer to trace assets and prove which of them should be considered separate property. The attorneys at Neumann Family Law, A.P.C., can do so for you. We have a certified family law specialist on staff, and our two senior attorneys have over 25 years of litigation experience. Contact us to learn more today.
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