Dividing Community Property
In a divorce case, the property of the parties is distributed according to the principles of community property. In California, assets that qualify as community property are equally divided between the divorcing couple.
Assets that the couple acquired during their marriage generally qualify as community property that is divisible upon divorce. However, the property a party acquired before marriage and after separation—or during marriage through gift or inheritance—is considered to be their separate property and is not divisible in a divorce case.
In general, all property that the parties own is presumed to be community property. Therefore, if a party wants to claim an asset as their non-divisible separate property, they have the burden of proving that it qualifies as separate property rather than community property. Courts usually look at an asset’s date of acquisition when determining whether to classify it as a divisible community asset or non-divisible separate property.
What Is Tracing?
Even if property was acquired during the marriage, its community or separate character might ultimately depend on whether the funds used to acquire it were community or separate property funds. Thus, the community or separate character of property can be traced back to the funds that the parties used to acquire it.
Tracing can also be used to determine the character of loan proceeds, such as money received through refinancing a house. As a result, courts allow a party to trace the character of an asset to rebut the presumption that it is community property divisible upon divorce.
The Direct Tracing Method
There are different methods of tracing the character of an asset to a community or separate property source. Chief among these methods are the direct tracing method and the family expenses tracing method.
Direct tracing involves looking at a chain of transactions and assessing the character of each transaction, following them back to the character of its original source. A party can overcome the community property presumption if they can prove the following:
- They withdraw funds from a separate property source (e.g., separate bank account)
- They knowingly and intentionally withdrew separate property funds to acquire the asset in question
- They intended to acquire a separate property interest in the asset using those funds
A party may also have to disclose their intention of obtaining a separate property interest in the asset in question in order to rebut the community property presumption through direct tracing.
Tracing Based on Exhaustion of Family Expenses
In some cases, a party withdrew funds from a financial account containing commingled community and separate property money. Due to the fungible nature of money, it is impossible to determine whether a withdrawal drew from community or separate property deposits.
In such cases, a party can rely on the presumption that the community property funds in a commingled bank account are used first to pay for family expenses. Under the family expenses method of tracing, a party attempts to show that a particular transaction used only separate funds in a commingled account because all community funds had been exhausted at that point.
For example, imagine that a bank account contained only the separate funds of Spouse A as of January 1, 2017, amounting to $30,000. However, $20,000 in community funds were deposited between February 1, 2017, and January 31, 2018. On March 1, 2018, Spouse A withdrew $30,000 to buy a car.
If Spouse A wanted to claim the car as their separate property, they would have to prove that $20,000 worth of family expenses were paid from the account before the purchase. Spouse A can use bank statements and receipts showing that the couple spent $20,000 since February 2017 on groceries, family vacations, family health care, and so on. As a result, all community funds had been exhausted by the time Spouse A bought their car on March 1, 2018. Therefore, a court could classify the car as Spouse A’s separate property.
You Can Count on Moshtael Family Law to Support Your Legal Rights
If you have any more questions or concerns about a legal matter touching on California family law, such as sophisticated issues of property division in divorce cases, you should reach out to our legal team at Moshtael Family Law. Backed by more than 200 years of combined legal experience, you can benefit from our in-depth knowledge and familiarity with complicated legal concepts regarding your case.
Call us at (714) 909-2561 or contact Moshtael Family Law online to arrange for a case evaluation about your legal rights and interests today.