Commingled Assets in Divorce

Commingled assets in divorce can complicate the process of asset division, as these are properties or funds that have been mixed together from both spouses’ separate assets, making it challenging to determine individual ownership.

When going through a divorce, one of the most challenging aspects can be the division of assets, especially when those assets are commingled—meaning that separate property has been combined with marital property over the course of the marriage. This can include savings accounts, retirement funds, real estate, and even debts. Understanding how commingled assets are treated during divorce can help you navigate this complex area with more clarity and ensure a fair resolution.

What Are Commingled Assets?

Commingled assets are assets that started as separate property but became intertwined with marital property during the marriage. For example, if one spouse had a bank account with their personal savings before marriage, but both spouses deposited funds into the account during the marriage, that account may be considered commingled.

Types of commingled assets

• Bank accounts where one spouse’s pre-marriage money was deposited, but both spouses added or withdrew funds.
• Real estate purchased with one spouse’s separate funds but maintained or renovated with marital funds.
• Retirement accounts that began as separate assets but increased due to joint contributions or interest earned during the marriage.
• Investments or inheritances that were initially separate but mixed with joint finances.

How Courts Handle Commingled Assets

The treatment of commingled assets can vary depending on the state’s divorce laws and whether the assets are classified as separate or marital property. Here’s how courts typically handle commingled assets:

1. Tracing the Source of the Funds

Courts often rely on the process of tracing to determine the origin of an asset. If one spouse can provide clear documentation or evidence that an asset (e.g., a bank account or real estate) was initially separate and that the commingling occurred later, the court might still classify it as separate property.

2. Partial Marital Property

If tracing is not possible or the commingling is extensive, the court may rule that the asset is partially marital property. For instance, if one spouse inherited money before the marriage but then deposited it into a joint account and used it for family expenses, the court might divide the asset between marital and separate property based on the proportion of marital funds involved.

3. Equitable Division

In community property states, commingled assets may be divided 50/50, while in equitable distribution states, the court will divide assets fairly, but not necessarily equally. Factors like the length of the marriage, each spouse’s financial contribution, and individual needs may influence how commingled assets are divided.

Steps to Take When Dealing with Commingled Assets

If you suspect that your assets have been commingled or if you are navigating a divorce and unsure about how commingled assets will be handled, consider the following steps:

1. Organize Financial Documents

Start by gathering all relevant financial documents. Bank statements, tax returns, and account records are essential for proving the origin and flow of funds. If you can trace an asset back to its separate property origins, it might be easier to argue that it should remain separate.

2. Hire a Forensic Accountant

In cases where tracing assets is difficult, a forensic accountant can be invaluable. These professionals specialize in reviewing financial records and may be able to identify the source of commingled assets and determine the percentage that should be classified as marital versus separate property.

3. Consider Mediation or Settlement

Instead of relying solely on the court, consider discussing a settlement or engaging in mediation with your spouse. A mutually agreed-upon division of assets can help avoid costly litigation and may be more favorable for both parties.

4. Seek Legal Counsel

An experienced divorce attorney can help you navigate the complex issue of commingled assets. They will advise you on the best course of action based on the specifics of your case, including the laws of your state and the nature of your commingled assets.

Tips for Preventing Commingling of Assets

While it’s important to know how to handle commingled assets in divorce, it’s equally beneficial to take steps to avoid commingling in the first place. Some preventive measures include:

• Keeping separate bank accounts and refraining from depositing marital funds into these accounts.
• Clearly documenting any inheritance or gifts received, especially when they are used to purchase assets during the marriage.
• Creating a prenuptial or postnuptial agreement to establish how assets will be treated in the event of divorce.

Dealing with commingled assets in a divorce can be one of the most challenging aspects of the property division process. By understanding how commingling occurs and how courts address it, you can take proactive steps to protect your financial interests. Whether through organizing financial records, hiring a forensic accountant, or consulting with an attorney, being informed will give you a better chance of securing a fair outcome in your divorce.

Frequently Asked Questions About Commingled Assets in Divorce

1. What are commingled assets?

Commingled assets are assets that were initially separate property (owned before marriage or acquired through inheritance) but have been mixed with marital property during the marriage. For example, using separate funds to pay for marital expenses or depositing separate money into a joint account could lead to the commingling of assets.

2. How can I prove that an asset is commingled?

To prove that an asset is commingled, you must trace the origin of the funds or asset through documentation. Bank statements, tax returns, and account records can help demonstrate whether and when separate property was combined with marital property. In complex cases, a forensic accountant may be able to assist with tracing assets.

3. Will commingled assets be divided equally in divorce?

Not necessarily. The division of commingled assets depends on whether the state follows community property or equitable distribution laws. In community property states, assets are usually divided 50/50, whereas equitable distribution states consider various factors, such as each spouse’s contributions and needs, to determine a fair (but not necessarily equal) division.

4. Can commingled assets be classified as separate property?

In some cases, commingled assets may still be classified as separate property if one spouse can trace the origin of the funds and demonstrate that they were not intended for joint use. The more you can document the separate nature of the asset before it was commingled, the better the chance of keeping it classified as separate.

5. How are mixed-use properties (e.g., real estate) treated in a divorce?

If a real estate property was purchased with separate funds but maintained or improved using marital funds, it may be considered partially marital property. Courts may divide the property based on the percentage of marital contributions, meaning the spouse who contributed more marital funds may have a larger share in the division.

6. How do I prevent commingling of assets during marriage?

To prevent commingling, maintain separate accounts for personal and marital finances. Keep detailed records of any separate property (such as inheritances or gifts) and avoid using marital funds to maintain or improve separate assets. If you’re concerned about protecting assets in case of divorce, consider a prenuptial or postnuptial agreement.

7. Can I get my separate property back if it was commingled during the marriage?

It can be challenging, but not impossible. If you can prove that the asset was originally separate and trace its history through documentation, the court may be able to distinguish the separate portion from the marital portion. A forensic accountant may help in providing evidence of the original separation of assets.