Commingling Assets Can Complicate Property Matters In A Divorce

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When couples come together in holy matrimony, sometimes their assets also become one. It's commonplace for married couples to pool their savings and earnings together for the sake of their family, whether it's to buy a new home, help a spouse start his or her business or provide for any children they may have during the marriage.

Separating these entangled assets can be problematic when it comes to divorce. Commingling is a common issue that often complicates divorce matters.

How Assets Become Commingled

Most couples typically bring with them their own separate property they acquired prior to being married. Commingling (also known as transmutation) commonly happens when the separate property of one spouse is mixed or combined with the other spouse's separate property or the couple's jointly held marital property.

There are plenty of scenarios where separate property could wind up being commingled into marital property:

  • You take money that belongs to you out of your own separate bank account and deposit it into another account jointly held by you and your spouse.
  • You earn money along with your spouse and the two of you placed the money into a joint bank account.
  • You purchased your home before the marriage, but your spouse pitches in with its maintenance and upkeep either through physical labor or monetary means.
  • You inherited your home or other property during the marriage, but allowed your spouse to receive a share of it or help with home upkeep.
  • You purchase or inherit a home whose value increases by a substantial amount during the marriage. Although your spouse is ineligible to receive any proceeds totaling the value of the home, he or she can still receive a significant portion of the equity in the home.
  • You receive money taken from your joint checking account and deposit it into your separate checking account.

Commingling doesn't apply as long as your home was purchased before the marriage and of your own separate funds and you solely perform physical and financial upkeep of your home. If you maintain your own separate bank account throughout the marriage, those assets will not be subject to commingling either.

How States Sort Out Commingled Assets

Separating commingled assets can be a tricky and contentious job, which is why most states rely on two well-known methods for fairly dividing assets among divorcing couples: equitable distribution and community property.

In states that follow equitable distribution statutes, any separate property that becomes commingled is considered and treated as marital property to be equitably divided later on. Some states may exclude commingled assets from property division if a spouse can provide sufficient documented proof of ownership. For instance, providing bank statements and transaction slips could help officials trace your money and separate it from other marital assets.

States that follow community property statutes may also consider commingled assets to be marital property, which in turn becomes community assets that are to be split 50/50 between you and your spouse. Again, commingled assets may be separated as long as a sufficient paper trail back to the source property can be found and reliably followed.

The Effects of Prenuptial and Postnuptial Agreements

Prenuptial and postnuptial agreements give couples an opportunity to protect and preserve their assets. For instance, a prenuptial agreement can be used to assign responsibility for certain debts taken on during the marriage to a particular spouse.

A well-written prenuptial or postnuptial agreement can help protect you or your spouse from taking on commingled debt or taking an unfair share of marital property. Keep in mind, however, that some states may not recognize these agreements and instead use their own statutes in regards to property division.

The best way to prevent the commingling of assets is to keep them as separate as possible. For instance, any bank or brokerage accounts opened prior to marriage should be kept funded solely with the funds you personally earn. Keeping accurate and complete records can also help prevent assets from being commingled during divorce proceedings. If your house ends up being a commingled asset, you may want to contact both a real estate attorney and family lawyer.