How to Trace Separate Property in a Divorce

The default rule of property division in California divorce is that community property is divided between the spouses 50/50. Sounds pretty straightforward, right? Well, yes and no. While community property is divided 50/50, not all property is community property. Some property is separate property, and that property is not subject to division. So how does one determine which property is which, especially in long-term marriages where a couple’s assets have been commingled for many years? That’s where tracing comes in, as our Stockton divorce attorneys explain below. 

Separate Property vs. Community Property 

First, let’s go over the basics of separate property and community property. Separate property is property either spouse brings into the marriage, as well as property they acquire via gift or inheritance during the marriage. Community property is property either spouse acquires during the marriage. California family law presumes that all property acquired during the marriage is community property and is thus subject to equal division. Either spouse can rebut that presumption by contract (e.g., a prenuptial agreement) or by producing evidence that the property is separate property. 

Methods of Tracing Separate Property 

Proving that funds or assets are separate property often requires the party arguing the same to “trace” the property back to its origins. This maneuver is particularly helpful for separating assets that have been commingled with community property during the marriage — for example, one spouse using separate funds to make improvements to the community home. The two most common methods of tracing separate property are: 

Direct Method

Direct tracing is the clearest way to overcome the community property presumption. It generally involves showing that a particular asset was purchased with separate funds and remained separate throughout the marriage. Relevant evidence for direct tracing can include checks, bank statements, brokerage records, and other financial records that show a direct link to a separate property source. Keep in mind, however, that courts require contemporaneous records; after-the-fact assertions or vague recollections do not cut it. 

Exhaustion Method

The exhaustion method is an indirect way to trace separate property, and therefore is a little more complex and less clear-cut than the direct tracing method. The theory behind it holds that if community funds were exhausted on community expenses (e.g., house, living expenses, etc.) during the tracing period, any remaining funds used for the purchase of the allegedly separate asset must have been separate funds. 

To illustrate, assume that Husband inherits $100,000 before getting married (separate property). During the marriage, Husband and Wife pool all of their money, including the inheritance, in a joint account. The couple earns $5,000 per month in wages, but their household bills are $5,200 per month. A few years later, they buy a small cabin. Because the couple’s bills were higher than their wages every month ($5,200 vs. $5,000), all of the community income was exhausted on living expenses, leaving only the husband’s inheritance money left over. As such, the cabin could be shown to be the Husband’s separate property because it must have been purchased with his separate funds after the community funds had been exhausted. 

Retain Your Property After a Divorce With Help From a Stockton Divorce Attorney 

Property division in divorce is notoriously complex, and overcoming the community property presumption requires careful accounting and persuasive evidence. To maximize your chance of success in keeping your separate property after a divorce, discuss your situation with a Stockton divorce attorney at McKinley, Conger, Jolley & Galarneau by using our online form or calling us at 209-477-8171.