0225: Understanding Commingling In Divorce - And How to Protect Yourself

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In this episode, I want to discuss an important term called co-mingling. That is the process in which you can inadvertently make separate property, marital property. Co-mingling is a very important term when it comes to divorce, and I'm going to use an example of an inheritance because it's a very common example.

 

Let's just say you receive an inheritance from your mom, I'm just going to make it up, and let's just say you received $100,000 from your mom because unfortunately, she passed away. Well, if you receive that money, the perfect circumstance or the ideal circumstance is you deposit that money into a separate bank account and you never move it to your joint bank account and you only track and... In a perfect world, you don't even spend that money. You save it for a rainy day. But let's just say you have to use some of it for a down payment on a house, and so you use that money for a down payment on a house. You and your spouse now have both of your names on the house, but that down payment came from that inheritance. That's a common example that I hear almost every week. Or even you needed the funds for daily living expenses and you started mixing those funds in and you move that money to a joint account. Well, when it comes to the time of divorce, you have to say, "Well, hey, is that money, is it separate property or is it marital property?" And it starts to get really complicated because it depends.

 

Now, if you got that money first, and let's just say you used it for life expenses, and you used that money and you put it in a joint account from that inheritance money into a joint account. Well, those funds may have become marital assets, inadvertently, because of that. Or if you used those funds for a down payment on a jointly owned house, does it immediately become marital property? Now it gets a little bit more complicated. This subject is very complicated and it depends on your individual circumstances, but I want to give you the highlights as to what you're going to be thinking about if this is an issue in your divorce.

 

Conversely, you could be on the other side of this situation too, where your spouse got an inheritance, and sometimes it's a pretty substantial amount, and you're trying to figure out, "Well, hey, we used some of that inheritance for these one, two and three things. Does he or she get credit for that money? Does that money come back? Is that joint property? What's the deal? What do we get to do with that?" So that is where this process becomes very important to understand from both sides of the spectrum.

 

So the first part, and the term that I'm going to introduce to start, is called tracing. So the first word is co-mingling, and that's the process of making a separate property, marital, broadly speaking. Now, tracing is a very important term, and that is figuring out where the money came from. Simple as that. So if you had, let's just say, a gift from a parent, and let's just say that gift came or that inheritance came eight years ago, and then five years ago you used that money to buy a house. And then now fast forward five years, you're facing a divorce situation. Well, you want to keep that inheritance separate, is my guess, and you don't want to split the funds that your parent gave you. So how do you figure out and prove, basically, that that inheritance is separate property? And conversely, if you're the one who's contesting this situation, you're going to have to make your spouse illustrate where all of that money came from and h