There are legal principles that apply to non-marital assets brought into the marriage that convert these assets into marital property. Usually the person who owned the assets at the time of marriage is afforded an opportunity to demonstrate that the assets in fact have not been transmuted. Because the demonstration requires applying these principles to assets which have a financial value, the valuator is an important part of the team since the legal defense placed before the court is joined at the hip with an understanding of the transactional process which gave rise to the presumed transmutation, and why what actually happened demonstrates that nothing has changed.
When non-marital funds are combined with marital funds inside joint accounts there is a presumed interspousal gift that occurred. This is a rebuttable presumption. In order to overcome the presumption, the spouse who previously owned the money will have to show that gifting was not intended and it will have to be demonstrated with clear convincing evidence. The most often recognized way to do this is to be able to trace the funds through separately defined assets having distinct characteristics. Tracing is one of the services offered.
Commingling of funds occur when marital funds are mixed with non-marital funds. When it occurs inside joint accounts this causes a presumption of an interspousal gift, and if it is not rebutted the transaction transmutes the property into marital property. But when it occurs inside a non-marital account, the funds are commingled. While the intuitive presumed gift has not occurred, many courts employ circular reasoning finding that a gift occurs if the funds cannot be traced. Yet tracing funds is sufficient as proof, but courts accept other forms of proof in overcoming the rebuttable presumption. All assets are presumed marital and the person claiming a non-marital asset, or a non-marital portion, has a separate burden to demonstrate that portion; and if he or she cannot, the property that started out as non-marital is converted into marital property. Confusing that commingled liquid assets cannot be separated without tracing a non-marital portion (which is financially incorrect), some courts have similarly confused the burden to demonstrate a non-marital portion with the burden of overcoming an interspousal gift, and have come full circle to rule that unless the funds can be traced, mere commingling produces an interspousal gift. The client needs to check with his or her attorney to see if the contrasting issues were tried in his or her state and consider trying it. See Commenator article inside publication links for a complete analysis of issues.
A presumed interspousal gift occurs when a separately titled house is transfered to joint ownership. Showing contrary intent is much more difficult with real property. That does not mean that it cannot be done. While tracing funds may be part of the process, clear contrary intent must be established by a preponderance of evidence. Such demonstrations are very rare. But even failing at that that does not leave the previous owner with no other options. If certain statutory factors can be met, the previous owner can request that the court do an unequal division of property (in many but not all states). Tracing funds shows what impact non-marital assets may have played in the development of marital assets, distinguished from marital effort. This may be an important piece of evidence that will assist the court in making its ruling.
Marital property is created within such assets when a marital contribution is added to the property. This occurs when either an infusion of marital money occurs or when the property is improved with marital labor. The mistake made by the vast majority of attorneys is distinguishing an improvement based on marital labor from the basic asset without inquiring whether the marital labor created all of the growth, some of the growth, or whether the growth could have reasonably occurred with no marital effort. This affects whether, and by how much marital property is creatred. Only the best financial experts can assist your attorney with this issue. Mr. Reiss has been instrumental with creating case law in Floirda on this precise issue.
The expert can make the difference in whether you share an overvalued marital property value, an undervalued marital property value or a correct amount of property. There are a number of different approaches to separating out the non-marital value or in seeking an unequal division of property.
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