"Co-mingling Funds" Can Create Profound Consequences

In the context of a divorce, co-mingling refers to the act of mixing "separate property" with "marital property" to the point where it becomes difficult to distinguish between the two. This seemingly innocent act can have profound and often irreversible consequences on how assets are divided.

Separate Property vs. Marital Property

To fully grasp this, it's essential to understand the two basic types of property in a marriage:

Separate Property: This includes assets owned by a spouse before the marriage. It also includes specific assets acquired during the marriage, such as a direct inheritance or a gift given solely to that individual.
Marital Property: This encompasses all assets and income acquired by either spouse during the marriage, regardless of whose name is on the title or who earned the money. This is the property that is subject to division in a divorce.

Co-mingling happens when the clear line between these two categories gets blurred.

How Co-mingling Happens: Common Examples

Co-mingling is often unintentional and happens through everyday financial activities. Here are some classic examples:

Depositing Inheritance: You inherit $50,000 (separate property) and deposit it into the joint checking account you share with your spouse (marital property).
Using Separate Funds for Joint Assets: You sell a house you owned before the marriage (separate property) and use the proceeds to pay for a major renovation on the marital home.
Paying the Mortgage: You consistently use funds from a pre-marital investment account (separate property) to make mortgage payments on the home you and your spouse live in (marital property).
Changing Titles: You add your spouse's name to the deed of a property you owned before you were married, effectively making them a co-owner.
Mixing Income: You use a bank account you had before the marriage as the primary account where both you and your spouse deposit your paychecks and pay all household bills.

The Critical Effect: How Co-mingling Impacts Asset Division

The primary effect of co-mingling is a legal concept called transmutation. This means that by mixing them, the separate property can be legally transformed—or "transmuted"—into marital property.

Here’s how this plays out and why it's so critical:

Presumption of Marital Property: Once an asset is co-mingled, courts will often presume that the entire asset is now marital property. The gift of the separate asset to the marriage is implied by the action of mixing it.
The Burden of Proof Shifts: The burden now falls on the spouse who originally owned the separate property to prove that some or all of the asset should retain its separate character. This is done through a difficult and expensive process called tracing.
The Challenge of Tracing: Tracing requires you to create a meticulous paper trail that follows the separate funds from their origin, into the mixed account, and proves they were not spent on marital expenses. You need to provide bank statements, deeds, and other financial records, sometimes going back many years. If the funds have been mixed for a long time and used for numerous transactions, tracing can become "hopelessly" commingled and, therefore, impossible.
The Final Outcome: If you cannot successfully trace your separate funds, the entire co-mingled asset will be classified as marital property. This means an asset you once owned outright—like an inheritance or the proceeds from a pre-marital home—is now on the table to be divided between you and your spouse according to your state's laws (either equitable distribution or community property).

Conclusion

In short, co-mingling can cause you to unintentionally give away a portion of your separate property, significantly altering the financial outcome of your divorce. Also, every case is different, so before making any decisions you should consult with a qualified family law attorney for advice regarding your individual situation.

Author: Ciera Freeman

Brought to you by: Boeheim Freeman Law - Family Attorneys - Tulsa, Oklahoma - 918-884-7791