How Commingling Changes the Classification of Assets

As an equitable distribution state, Florida does not necessarily distribute property evenly between two divorcing parties. Rather, the courts will assess each spouse’s contribution to the marriage and make a determination based on its findings. Of course, some property is excluded from distribution. That property is considered to be “separate.” Separate property includes any property either party owned prior to the union, any items acquired as a gift during the union, property that was directly inherited by either spouse, and, in some cases, income and assets that were derived from or exchanged for separate property. That said, the way in which either party uses his or her separate property may change the way in which the courts classify it. For instance, if a spouse uses separate funds or assets to improve, maintain, or contribute to marital property, the courts may reclassify the separate property as marital property. The courts are able to do this thanks to the theory of commingling.

Three Commingling Theories

According to the Florida Bar, Florida recognizes three ways by which assets may go from being separate to being marital. Those three theories are as follows:

• Strict Transmutation
• The Tracing Approach
• Intent of Parties

Strict Transmutation 

Per this theory, when a couple mixes marital and nonmarital funds, all nonmarital contributions suddenly transform into marital assets. In cases such as these, the courts will not consider any other factors, which it justifies by stating that money is “fungible,” and once commingled, it loses its separate status. The courts define “fungible” as something being commercially interchangeable with other property of the same kind.

The courts may apply this theory if you, say, sell a separate property and place the proceeds from that property into a joint checking account from which both you and your spouse can pull funds.

The Tracing Approach 

If the courts use this approach, one spouse might be able to stake claim to some of his or her previously separate property by tracing the assets back to before they were commingled. For instance, if you purchased your home prior to tying the knot, you may be able to prove you have greater equity in the home than your spouse by presenting mortgage statements, purchase records, and bank records showing how much you contributed prior to the marriage. If your now joint account used to be your sole account prior to the union, and if you had a substantial amount of money in the account before adding your spouse’s name to it, you can use account statements to trace how much of the remaining funds should rightfully belong to you.

Intent of Parties 

The courts will generally refer to the intent of parties approach when an inheritance is involved. When determining whether or not a gift is separate property, the courts will consider the intent of the recipient spouse. For instance, did the recipient place the funds from a deceased grandparent into a separate account to which only he or she had access? If so, the courts will likely classify the gift as separate. However, if the recipient spouse used some of the funds to improve the family home and then used the remainder of the funds to pay off the mortgage and contribute to other familial bills, the courts will likely classify the gift as marital property. If you wish for gifts or inheritances to remain separate, the key is to never intermingle them with the other party’s or joint funds.

Contact a Fort Lauderdale Property Division Attorney 

If you have questions regarding your marital and separate property, or if you want to ensure that your separate property does not go to your spouse in your divorce, reach out to a knowledgeable Fort Lauderdale property division lawyer for guidance today. Contact Edward J. Jennings, P.A., today to schedule your initial consultation.

Resource:

floridabar.org/the-florida-bar-journal/the-commingling-of-nonmarital-and-marital-funds-untangling-the-changing-character-of-assets-in-equitable-distribution/

https://www.ejj-law.com/protect-your-business-assets-in-divorce-heres-how/