Separate Property Tracing

Separate Property Tracing requirements

Marriage of Braud summarizes the community property presumption regarding a commingled bank account in the following way:

[t]he mere commingling of separate property and community property funds does not alter the status of the respective property interests, provided that the components of the commingled mass can be adequately traced to their separate property and community property sources. But if the separate property and community property interests have been commingled in such a manner that the respective contributions cannot be traced and identified, the entire commingled fund will be deemed community property pursuant to the general community property presumption of section 760.

Marriage of Frick (1986) 181 Cal.App.3d 997, 1011. Marriage of summarizes the community property recording and reporting requirements regarding a commingled bank account in the following way:

The party seeking to establish a separate property interest in presumptive community property must keep adequate records. The party must show the exact amount of money allocable to separate property and the exact amount of money allocable to community property before it can be said that the money allocable to separate property is not so commingled that all funds in the account are community property.

In general, two tracing methods may be utilized to characterize the disputed property interests: "direct tracing," or "expense tracing." Whether the spouse claiming a separate property interest has adequately traced an asset to a separate property source is a question of fact for the trial court, and its finding must be upheld if supported by substantial evidence. Under the "direct tracing" method, the disputed asset is traced to the addition or withdrawal of separate property funds from the commingled account. This method requires specific records reconstructing each separate and community property deposit, and each separate and community property payment as it occurs. Importantly, separate property status cannot be established by mere oral testimony of intent or by records that simply add all separate property funds available during the relevant period and all the separate expenditures during that period. The records proffered by the party must adequately trace the funds to the source of the transaction at the time the transaction was made. 

Under the "family living expense" or "recapitulation" method, it is assumed that expenses are paid out of community property funds. Payments may be traced to a separate property source by showing community income at the time of the transaction was exhausted by family expense, so that the payments or purchase necessarily must have been made with separate property funds. The accounting must be sufficiently exhaustive to establish not only that separate property funds were available to make the payments, but that they were actually used. As with direct tracing, the record must demonstrate that community income was depleted at the time the particular asset was acquired.  (In re Marriage of Braud, supra, 822-824.)