Ron’s Corner
I thought it would be of interest to you to discuss an existing case that involves disputed tracings. Because the case is in progress, I am protecting the names of the parties involved, as well as making minor changes to the dollar amounts and dates. What I am sharing with you is what I believe is required for the Respondent to attain an equitable outcome. In a future newsletter, I will reveal the court’s findings.
We will call this case In Re Marriage of Smith vs. Smith.
Recent Presentations
I recently made presentations to two bar associations: February 26th to the South Bay Bar Association and March 19th to the Orange County Bar Association. My talk was entitled Everything You Want to Know about Xspouse™, But You Were Afraid to Ask.
Due to the discontinuation of the DissoMaster™ program, my presentation provided information concerning the use of Xspouse to run child and spousal support calculations, including, without limitation, similarities and differences between Xspouse and DissoMaster, data detail and display options, entering child details, hardship deduction details, taxes, spousal support settings, income reports, and shortcuts.
For further reference, you may wish to review our previous newsletter’s feature article, Child Support and SB 343. In addition, I would be glad to send you the outline of my presentation. Simply contact our office to request a copy.
Ron
More on Tracing: In re Marriage of Smith vs. Smith
Presented by Ron J. Anfuso, CPA/ABV, An Accountancy Corp.
Tracing usually becomes an issue when community and separate property funds have been commingled in the same account(s) and then an asset is purchased with funds from that account. The mere commingling of separate property moneys in a community bank account does not destroy the separate property character of the funds, so long as they can be properly traced. (In re Marriage of Mix, (1975) 14 Cal.3d 604.) In the case I present here, there were no supporting documents to reflect the source of the funds in at least one instance.
Property acquired by purchase during a marriage is presumed to be community property (Family Code §760), and the burden is on the spouse asserting its separate character to overcome the presumption. (Mason v. Mason (1960) 186 Cal.App.2d 209, 212; Estate of Nicholas, (1912) 164 Cal. 368; Thomas v. Thomas, (1953) 122 Cal.App.2d 116.) Thus, in the case I am presenting here, most of the history of deposits and withdrawals may not qualify as separate property and must be considered community if Petitioner cannot prove her claims.
The presumption applies when a spouse purchases property during the marriage with funds from an undisclosed or disputed source, such as an account or fund in which a party has commingled his or her separate funds with community funds. (Estate of Neilson, (1962) 57 Cal.2d 733.) A spouse may trace the source of the property to his or her separate funds and overcome the presumption with evidence that community expenses exceeded community income at the time of acquisition. If the party proves that at that time all community income was exhausted by family expenses, the spouse establishes that the property was purchased with separate funds. (See v. See (1966) 64 Cal.2d 788, Estate of Neilson, supra, at p. 742; Thomas v. Thomas, supra, at p. 127.)
A spouse may protect the character of his or her separate property by not commingling it. However, if the spouse chooses to commingle accounts, then he or she assumes the burden of keeping adequate records. The documentation must be sufficient to establish either the direct tracing or the balance of community income and expenditures at the time an asset is acquired with commingled property. (Estate of Murphy (1976) 15 Cal.3d 907, 919; White v. White (1938) 26 Cal.App.2d 524, 529.) The spouse’s testimony alone is not sufficient. (In re Marriage of Frick (1986) 181 Cal.App.3d 997.)
Facts of the Case
Petitioner, who is not my client, testified on May 11, 2011, that a Bank of America brokerage account ending in 6166 is her separateproperty from an alleged inheritance of approximately $356,000. The Judge agreed despite the fact that she did not present sufficient documentary evidence or a tracing. Respondent’s counsel successfully had the judgment set aside due to the following documentation, which presents questions as to character:
1) According to the WF # 6166 Performance Summary, the account was actually opened in June 2010, prior to the inheritance,with a deposit of $10,000. Absent tracing, the $10,000 is presumptively community property.
2) According to the Performance Report of June 2010, the parties had a beginning balance in February 2011 of $15,100. This amount would be considered community property. Petitioner then commingled this account with her alleged inherited funds.
3) The earliest statement produced was September 1, 2019. This statement reflects that the year-to-date cash deposited into the account was $11,000 with cash withdrawals of $21,000. The $11,000 would be considered community property due to the lack of supporting documents.
4) In February 2020, there was a deposit of $121,312. This deposit would also be considered community property absent of evidence that it is separate property.
5) In April 2020, there were $205,000 in cash withdrawals. A tracing needs to be performed to determine how these funds were utilized and the character of these funds.
6) According to a June 1, 2021 statement, there were no deposits and $97,353 in cash withdrawals. Again, a detailed tracing is necessary to determine the character of these funds and how they were utilized.
7) According to the closing statement ending December 31, 2021, there was a small deposit of $1,825 and $51,375 in withdrawals,with no tracing or documentation to prove the character of these funds and how they were utilized.
There has been brokerage activity in either sales and/or purchase transactions every month. The Petitioner needs to present a full tracing analysis to determine which securities are deemed separate property and where these securities or other assets are today.Keep an eye out for the court’s findings, which I will present in a future issue of Forensic Accounting Today.
