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The Divorce Encyclopedia
Commingled Assets

Term Definition Commingled Assets - mixing of assets, separate and marital.
Application in Divorce One of the more difficult area of property division happens when separate property becomes commingled as a result of interspousal conveyance. Commingling, which is also called transmutation, can happen as a result of a transfer by contract, gift, or a mere change in legal title.

Very often young couples starting life together pool their money and take a "what’s mine is yours and what’s yours is mine" worldview about finances. For example, young couples frequently put all the cash they receive as wedding gifts into a pot with the idea that down the road they will use it for a house. During the happy times of a marriage neither spouses worries about ownership because "the money is ours."

Commingled property makes for surprises when it is divided in a divorce. A money gift to one spouse deposited in an account in both names become commingled property and may be viewed as a gift to the marriage, i.e., both parties.

When the court must classify property conveyed from one spouse to the other during a marriage, it must answer three questions: 1) Was the transfer a contract? 2) If not a contract, was the transfer a gift? and 3) if the transfer was a gift into a sole title, is the intersperse gift marital or separate property?

In general, courts agree that property can be classified as marital or separate by agreement of the spouses or by operation of "the relevant equitable distribution or community property statute," (with the first taking priority over the second). This may happen when couples enter into what is contractual agreements, particularly what is called a contractual transfer.

Courts view contractual transfers as happening when they are the result of actual negotiations with "substantial discussion"; when one spouse has a history of otherwise keeping separate finances; when the transfer happens "during a period in which the parties are experiencing marital problems." By comparison, courts view that transfers made for proposes of estate planning are not contractual.

In common law, a gift requires three elements: intent, delivery and acceptance. Under common law, the burden of proof is on the party who claims donative intent is present, and this applies even when the property is transferred into the name of one spouse alone.

Property conveyed as a gift generally is governed by what is called the joint title presumption, which means that a transfer into joint title places the burden of proof on the party who claims that the transfer is not a gift. When the court finds that a conveyance into joint title is a gift, the conveyed property is 100 percent marital, not 50 percent separate property of each spouse.

Very often, courts must struggle with what one legal observer calls "the meaning of denotive intent." One body of thinking -- which he calls the legal title approach -- defines "donative intent as the intent to convey legal title without consideration." Another body of thought "defines "the intent to convey beneficial interest without consideration." According to the legal title line of thought, "a deliberate transfer into joint title without consideration is a gift even if the donor did not intend to give both spouses actual beneficial interest. According to the second line of thought, " [the intent] that each spouse would have a real beneficial interest in the asset." In this case, the asset is nonmarital.

When the court finds that a conveyance into any form of title is neither a contract nor a gift, the transfer does not affect the classification of the asset.

Sometimes assets are transferred from single to joint names as part of estate planning. The single most-common reason spouse may transfer property to joint names is the desire to avoid probate. If the marital home, for example, is jointly owned by husband and wife as tenants by the entirety, the spouses both have a 100 percent interest. The house thus escapes probate when one spouse dies. Under the legal title approach, a desire to avoid probate does not alter the fact that legal title was conveyed to both spouses; under the beneficial interest approach, however, "the transferer has no intent to give the transferee a beneficial interest at any point short of death."

The more commingled separate and marital property becomes the more difficult it is to decipher and separate appropriately upon divorce. A common analogy used to describe commingled property is that it is much like a scramble egg. As mentioned, the most typical of commingling of assets is using inherited or separate funds to help purchase a marital home.

The term commingling is also used in connection with attorney-client finances. Commingling of funds by an attorney -- that is, his own with those of client -- is considered a breach of fiduciary responsibility and the lawyer is subject to disciplinary action.

See also Interspousal Gifts; Prenuptial and Antenuptial Agreements; Separate Property; Equitable Distribution; Community Property; Kitchen Sink States; Dual Classification States; Transmutation.

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