Understanding Commingling in California

Dec 2, 2023 | California Prenuptial Agreements

Let’s dive into a legally dense topic that leaves many people confused–commingling. In the context of family law, commingling is the mixing of separate and community funds. Among the many factors that come into play, the concept of “commingling” holds significant importance, especially when it comes to the division of assets. 

 

Defining Commingling

What exactly is commingling in the realm of family law? Commingling refers to the blending of separate property with marital/community property during marriage. Couples often combine their assets during their union, whether intentionally or unintentionally. The occurrence of commingling varies based on state laws and can manifest in several ways, including:

  1. Adding an Owner

For instance, adding a spouse as a joint owner to a piece of property that was originally separate (e.g., making your spouse a joint owner of real estate that was initially your separate property).

  1. Combining Property

Another scenario involves merging separate funds (ie. income from a separate property source or premarital funds) with joint property (ie. employment income earned during marriage).

  1. Joint Purchases

Couples may also commingle by jointly purchasing new property using both separate and marital/community funds. An example is buying a boat together with a combination of individual and joint funds.

Commingling becomes problematic in divorce proceedings when it alters the characterization of property. In most cases, marital/community funds are divided equally between parties. However, when those funds are commingled with separate property funds, it becomes a harder process to divide that asset. In order to do so, a court, with the help of forensic accountants, must conduct a tracing to analyze what is marital/community and what is separate. However, if it is difficult to trace back what is separate property, a court may simply declare that it is entirely marital/community property.

 

An Example of Commingling

Imagine a married couple, Nancy and John. Before marriage, Nancy purchased a rental property (an apartment building) and now receives passive income from this, which their state laws presume to be separate property income. After tying the knot, Nancy regularly deposits the rental income into a joint marital/community bank account that contains community property funds. This act is typically considered commingling in most states. In the event of a divorce, distinguishing between what is separate (funds from the apartment building) and what is marital/community (joint bank account) can become challenging. If this distinction cannot be made, the commingled funds may be categorized as marital/community property, subject to division in a divorce. Had the funds not been commingled, they likely would have remained Nancy’s separate property.

 

Implications of Commingling in Divorce

Commingling can have significant implications during divorce proceedings. Essentially, property that you previously thought was separate property can become marital/community property, subject to division. In plain English: if you commingle, you can lose property you previously thought was yours only. Courts aim to distribute assets fairly, but the commingling of separate and marital/community property often complicates this process by being unable to untangle the funds and categorize it correctly.

Preventing Commingling

Okay, so we’ve covered defining commingling and its implications in the divorce process. Let’s talk about how you can avoid commingling.

Maintain Separate Accounts

Keeping separate bank accounts for pre-marital and separate property assets and joint accounts for marital funds can help maintain financial clarity.

Define Financial Responsibilities

Clearly outline who is responsible for specific financial aspects, such as bill payments, savings goals, and investment decisions. Having defined roles helps prevent unintentional commingling.

Keep Accurate Financial Records

Keep accurate financial records and/or hire an accountant to maintain accurate records of your finances. Regularly reconcile accounts to identify and rectify any instances of commingling.

Documenting Contributions

Clearly documenting any contributions of separate property to joint assets can serve as evidence during divorce proceedings.

Don’t Add Partners to Separate Property

Make sure to keep property that you want to remain separate in the name of one person. For example, you wouldn’t want to add a spouse to a property deed if you intend to keep that property separate in the event of a divorce.

Get a Prenuptial Agreement

Creating a comprehensive prenuptial agreement is a proactive way to address commingling concerns and protect individual assets. Through a prenup, you can outline exactly what intends to remain separate and what is marital/community, so you know what can and cannot be commingled. Your prenup can also provide for how separate property contributions to a joint account will or will not be reimbursable, as well as provisions on how separate property may be traced in order to preserve its characterization.

 

Final Thoughts

In conclusion, understanding the concept of commingling is crucial for individuals getting married. By being aware of how assets may become interwoven during a marriage, couples can take proactive steps to protect their separate property and promote a smoother resolution in the event of divorce. 

You are writing your life story. Get on the same page with a prenup. For love that lasts a lifetime, preparation is key. Safeguard your shared tomorrows, starting today.
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