A Team of Compassionate Legal Advocates

Tracing Hidden Assets: Breach of Duty

There are times when a spouse or partner hides assets from the other.  This may be done intentionally or absentmindedly, by failing to fully disclose all assets, as required by California family law.  At other times, a party to a divorce might commingle their separate property assets, which makes it difficult to determine exactly what belongs to which party.

If one spouse intentionally hides assets from the other, a CPA or forensic accountant may be brought in to help trace these carefully hidden assets.  It can be a difficult process to separate true ownership when separate property, such as stock portfolios or real property, has been commingled.

Tracing is the term used for tracking the source of funds used for the acquisition of any asset.  In California, tracing rules have been established entirely by case law.  There is no California tracing statute.  The present law on tracing separate and community assets developed prior to the enactment of the current fiduciary duty statutes.

If a party can prove a breach of duty by the other, it may provide a good defense to a property claim based on tracing.  Due to the fiduciary duty requirements placed on spouses, courts may impose upon a party the additional burden of demonstrating that in tracing separate funds, he or she did not usurp a community opportunity.

There are three requirements to a successful tracing of separate contributions to assets presumed to be community property:

  • Proof that separate property funds were available at the time of the
    acquisition of the property;
  • Proof that the separate funds were used to make the contribution or
  • Proof that the party claiming a separate interest used the separate funds with the intent of acquiring a separate property asset.