nonmarital property

Tracing is a method of identifying nonmarital property so that it will be preserved as nonmarital property and not divided in the process of equitable distribution.

In Pennsylvania, property acquired during the marriage is presumed to be marital property. Property owned prior to marriage is nonmarital property. But what happens when premarital property is sold, liquidated or exchanged?

For example, let’s say that a husband owned a car prior to marriage. The car was titled in his name alone. If he sells the car and deposits the proceeds into a joint bank account, he creates a “gift” to the marriage, which “transmutes” his separate property (his car) into marital property (their joint account). The joint bank account is marital property which is subject to equitable distribution.

If the husband deposits the proceeds into his own bank account instead, then there is no “gift” to the marriage. But he has co-mingled the proceeds with money that he may have earned during the marriage, which is marital property. Under the tracing doctrine, we can separate the nonmarital component of the husband’s bank account (proceeds from the car) from the marital component (money earned during marriage).

In Lawrence Smith v. Carol Smith, 653 A.2d 1259 (Pa.Super.1995), the trial court employed tracing to identify the nonmarital component of the wife’s stock portfolio and investment accounts. The wife hired a forensic accountant to testify as an expert based upon her tax returns, personal stock ledger and transaction records. Wife’s records were not complete, but her expert did his best to reconstruct years of stock trades.  Since the husband offered no alternative evidence, the trial court adopted the opinion of the wife’s expert. On appeal, the Superior Court held that the expert’s analysis was good enough under the circumstances.

It’s never easy to take the first step on any journey. When you are facing a marital separation, there are five things that you can do to protect yourself, financially and emotionally.

1.         Secure your property. Review your joint bank and credit card statements regularly to ensure that no unexpected withdrawals or charges have been made. You might want to divide joint accounts or close credit cards if there is no legal restriction, but check with your divorce lawyer first. It’s also a good idea to secure property that may have sentimental value, like family heirlooms, where they cannot be misplaced or damaged.

2.         Conserve resources. Creating a budget and sticking to it are always prudent measures, especially during a marital separation. When one household becomes two households, the expenses are increased but income is not. When making financial decisions, consider the effect on cash flow and liquidity. It might be better to pay joint debts out of joint income and assets instead of your separate income and assets, but check with your divorce lawyer first.

3.         Gather financial records. If you keep your records organized, you will have an advantage in the divorce process and save legal fees. Make photocopies and keep them in a secure place so that you can furnish them to your divorce lawyer when asked. If you have access to your spouse’s records legally, make copies of them as well. You can obtain most documents through a legal process known as discovery, but it is cheaper to make copies yourself.

4.         Think twice before acting. Imagine at all times that your kids and a family judge are watching every action and reading what you write. Anything you say or write in emails and text messages might be used as evidence. How would a family judge react to your Facebook profile? If you have a temper, consider moving out before you do something that might result in a restraining order. Don’t make any agreement without consulting a lawyer first.  

5.         Contact reliable allies. Trust is one of the first casualties of divorce, so you need to find reliable allies. Consider supportive friends and family members who are able to keep your confidences and empathize with your feelings. Physical activities like exercise can reduce stress more effectively than alcohol or junk food. Hire a family lawyer that you feel comfortable with. It is very important to understand what your lawyer is saying and to be heard when you speak to your lawyer. Consider lawyers who concentrate their practice in divorce and know the nuances of this complex area of legal practice.