What Happens When You Deposit Separate Money into a Marital Account During a Divorce?

Divorces can be financially intricate, especially when it comes to differentiating between separate and marital property. A frequent question is what occurs when separate money is deposited into a marital account. Understanding the legal framework in Virginia and tracing separate property is essential to protect your financial interests during a divorce. This blog post explores the definitions, relevant case law, and practical implications of commingling separate and marital funds.

Defining Separate and Marital Property

1. Separate Property

Under Virginia Code Section 20-107.3(A)(1), separate property is defined as:

• All property, real and personal, acquired by either party before the marriage;
• All property acquired during the marriage by bequest, devise, descent, survivorship, or gift from a source other than the other party;
• All property acquired during the marriage in exchange for or from the proceeds of sale of separate property, provided that such property acquired during the marriage is maintained as separate property;
• That part of any property classified as separate pursuant to subdivision A 3.

2. Marital Property

Marital property includes all jointly titled property and any property acquired during the marriage that is not classified as separate property. When separate and marital properties are commingled, the classification of the contributed property may change depending on the circumstances and the ability to trace the original separate funds.

Commingling of Separate and Marital Property

Virginia Code Section 20-107.3(A)(3)(d) addresses commingling:

• When marital property and separate property are commingled, resulting in the loss of identity of the contributed property, the classification of the contributed property is transmuted to the category receiving the contribution.
• However, if the contributed property is retraceable by a preponderance of the evidence and was not a gift, it retains its original classification.

Burden of Proof and Retraceability

The burden of proving that commingled property remains separate falls on the party claiming the separate interest. Retraceability must be established by a preponderance of the evidence. As stated in von Raab v. von Raab, 26 Va. App. 239, 248, 494 S.E.2d 156, 160 (1997), the party must demonstrate the ability to trace the separate funds within the commingled account to maintain their separate property status.

Case Law on Commingling and Retraceability

1. Rahbaran v. Rahbaran

In Rahbaran v. Rahbaran, the court emphasized that property does not become untraceable merely because it is mixed with marital property in the same asset. The party must trace the contributed funds to the account and prove that those discrete funds can be identified as being in the account. (26 Va. App. 195, 209, 494 S.E.2d 135, 141 (1997))

2. Olsen v. Mackey

Olsen v. Mackey highlighted that whether a transmuted asset can be traced back to its original property interest depends on the circumstances of each case, including the value and identity of the separate interest at the time of transmutation. (2010 Va. App. LEXIS 155, at *14 (Va. App. Apr. 27, 2010))

3. Robbins v. Robbins

Robbins v. Robbins discussed that retracing withdrawn funds requires an analysis of where the withdrawn funds went, when and why they were transferred, for what purpose they were ultimately used, and what contemporaneous financial records show about each transaction. (48 Va. App. 466, 479, 632 S.E.2d 615, 621-22 (2006))

4. Whitehead v. Whitehead

In Whitehead v. Whitehead, the husband successfully retraced his separate property interest in the parties’ joint bank account, despite several transactions occurring over a six-week period. The court ruled that the withdrawals equaling the husband’s deposit were his reclamation of separate property, while the excess was classified as marital property. (2001 Va. App. LEXIS 381 (Va. App. June 26, 2001))

Practical Implications and Steps to Protect Your Separate Property

1. Documentation and Records

Maintaining detailed records and documentation of all financial transactions is crucial. This includes keeping copies of bank statements, deposit slips, and any correspondence related to the transactions. Proper documentation helps establish the traceability of separate funds.

2. Avoiding Commingling

Where possible, avoid commingling separate and marital funds. Use separate accounts for separate property to maintain its distinct classification and prevent complications in proving retraceability.

3. Legal Guidance

Seek legal advice early in the divorce process. An experienced attorney can provide guidance on protecting your separate property and navigating the complexities of commingling issues.

Reference to Relevant Content

For a more detailed discussion of how real estate is divided during divorce, refer to the following previous poste: Dividing Real Estate in Virginia During Divorce

Conclusion

Depositing separate money into a marital account during a divorce can lead to complications in distinguishing between separate and marital property. Understanding the legal framework and the importance of retraceability is crucial for protecting your financial interests. By maintaining thorough documentation and seeking expert legal guidance, you can navigate these challenges effectively. For personalized legal assistance, visit our website at www.familylawva.com.