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Community Property • Commingled Bank Accounts
CPROP#050
Legal Definition
Recapitulative accounting is not permitted. In other words, a spouse cannot show that total family expenses paid out from a separate property account exceeded community property income over the years, and thus any assets purchased from the separate account are separate property. Rather, the burden falls on the commingling spouse to show (1) that the community funds were unavailable (i.e., exhausted) when each asset was purchased using separate property (i.e., there were no community funds left, so the money spent was necessarily separate property), or (2) directly trace each asset purchase by showing there were sufficient separate property funds and intent to use such funds to purchase the asset (i.e., the spouse must show intent and that the balance of separate property never dipped below the amount necessary to purchase the asset).
Plain English Explanation
Imagine if before Amy and Bob got married, they both owned piggy banks. Later, when they got married, they purchased a new, shared piggy bank. Amy and Bob both earn $50,000 per year in salary and place that money into the shared piggy bank. At the end of the year, the shared piggy bank would have $100,000 of community property funds in it as a result of their salaries. But what would happen if on January 1st of the next year Amy decided to transfer $50,000 from her separate piggy bank into the community piggy bank? Why? Maybe it's more convenient. Maybe Amy's separate piggy bank belongs to some random credit union, but the shared piggy bank is part of Chase with more ATMs and services available.
All that matters now is $150,000 would exist inside of the shared piggy bank, but only $100,000 of it is actually community property. After all, simply moving money over doesn't mean it is no longer Amy's.
Amy and Bob use this shared account to buy things and at the end of the year they decide to get divorced. There is $0 left in the piggy bank.
Amy wants to try to recover as much value as she can during the divorce, so she notices that by mid-year, in June, they had already spent $100,000. Between June and December, they bought a brand new car. She now wants to claim the car is 100% her separate property. How? She argues that "the community only put $100,000 into the piggy bank, which means the remaining $50,000 was my separate property, so anything bought after June is 100% mine.
But the court's don't see it this way. After all, when you mix a bunch of cash in a piggy bank, who is to say which dollar is spent first? Maybe Amy's $50k was spent before June, maybe some of it is left.
Thus, the only way for Amy to claim the car is to either (1) definitively prove that the community funds were already spent before they purchased the car; or (2) somehow prove that the money spent on the car was actually her separate property (called "tracing"). Tracing can sometimes be possible when a bank account has multiple sub-accounts inside of it where money can be separated from the rest.
All that matters now is $150,000 would exist inside of the shared piggy bank, but only $100,000 of it is actually community property. After all, simply moving money over doesn't mean it is no longer Amy's.
Amy and Bob use this shared account to buy things and at the end of the year they decide to get divorced. There is $0 left in the piggy bank.
Amy wants to try to recover as much value as she can during the divorce, so she notices that by mid-year, in June, they had already spent $100,000. Between June and December, they bought a brand new car. She now wants to claim the car is 100% her separate property. How? She argues that "the community only put $100,000 into the piggy bank, which means the remaining $50,000 was my separate property, so anything bought after June is 100% mine.
But the court's don't see it this way. After all, when you mix a bunch of cash in a piggy bank, who is to say which dollar is spent first? Maybe Amy's $50k was spent before June, maybe some of it is left.
Thus, the only way for Amy to claim the car is to either (1) definitively prove that the community funds were already spent before they purchased the car; or (2) somehow prove that the money spent on the car was actually her separate property (called "tracing"). Tracing can sometimes be possible when a bank account has multiple sub-accounts inside of it where money can be separated from the rest.
Hypothetical
Hypo 1: Bob inherits $30,000 and puts it in a joint account with Amy. They both add their monthly salaries to this account. They use the account to buy a car for $25,000. Later, during divorce proceedings, Bob claims the car is his separate property as it was bought with his inheritance. Result: Bob must show that the joint account was out of community funds (Amy's and his salary) at the time of purchasing the car (exhaustion), or trace the car's purchase back to his separate inheritance (tracing). If he can't, the car is considered community property.
