Divorce and Commingled Funds

man in house with boxes
Klaus Vedfelt / Getty Images  

Before you marry, the property you own is “separate property,” meaning it is owned in whole by you. For instance, if you own a home and have $10,000 in the bank at the time of your marriage, you bring that separate property into the marriage.

The property will remain separate unless it is “commingled” with the separate property your spouse brought into the marriage. If you marry and the two of you live in the home you owned before the marriage and both incomes are used to pay the mortgage, that home becomes marital property—in other words, property that your new spouse will have an interest in if there is a divorce in the future.

During a divorce, the task of dividing property and other assets can be a difficult and conflict-riddled one for couples, especially if funds have been commingled during the marriage. During settlement negotiations, deciding what property belongs to who depends on the extent to which commingling of funds occurred during the marriage and the complexity of any transactions such as automobile or home purchases. In other words, commingled funds play a huge role during divorce. 

What Role Can Commingled Funds Play in a Divorce?

At the time of divorce, you and your spouse will be required to divide all marital property. What does that mean? It means that any property or funds that were used to benefit the marriage become marital property. If it was a home owned before the marriage or money earned before or during the marriage that was used to purchase property during the marriage, then that property will still be divided according to state divorce laws at the time of divorce.

Examples of Commingled Funds:

  • If you inherit money and deposit that money into a joint account with your spouse, the inheritance then becomes marital property.
  • Spouses pool together money to either maintain or buy a home. If you owned a home before marriage and the mortgage is paid for from funds out of a joint bank account, those funds are considered “commingled” and the home becomes marital property.
  • If you and your spouse combine resources after the marriage and buy a home, car, television or any other property, that property is considered marital property.
  • If you have an investment account or start an investment account and both spouse’s incomes are contributed to the account, the funds in that account become marital property.
  • If you have a checking account or savings account in which both spouses deposit funds, those funds become marital property.
  • If you borrow a sum of money from family and use that money to benefit both spouses and the family in general, that money becomes marital money. In a case like this where money is owed, it would, at the time of the divorce, become the responsibility of both spouses to repay the loan unless you can negotiate a settlement at the time of divorce.

If you don’t keep a detailed accounting of what you do with your assets during the marriage, it can be difficult to prove that property was not purchased with commingled funds. Below are a few suggestions for those who want to avoid commingling during marriage.

Ways to Avoid Commingling Funds During Marriage:

  • Have a prenuptial agreement that plainly states what property will and will not be considered marital property should there be a divorce.
  • Don’t use separate property to pay off a marital debt. For example, if your parents gift you a large sum of money, don’t use that money to pay off your home or pay down credit card debt. Remember, if the marriage benefits from funds, the funds become marital property.
  • Keep your name alone on any deeds to separate property owned. If that separate property requires maintenance use only your income to fund that maintenance. And keep strict records to prove that your spouse didn’t monetarily contribute to the maintenance of the property.
  • Maintain a separate bank account. Only deposit funds into a joint account that you want to use as marital funds. Any funds left, keep in a separate account of your own and it will remain separate property.
  • Don’t use separate funds—those funds not used to pay off a mortgage or marital debt—to purchase a home, car, or television... not unless you want that home, car, or television to be exempt from the division of marital property should there be a divorce.
  • As a rule of thumb, discuss beforehand whether or not any purchase you make as a couple should be marital property or separate property. If you want to have an equal interest in a home, then you should use funds from both spouses to purchase the home with both spouses' names on the deed and mortgage.
  • If you want to make a purchase that remains separate property, then use funds out of an account with only your name on it and keep records of the funds used to make the purchase. For instance, pay with a check that is from the account in your name only and keep a copy of the check.
  • Before marriage, consult with a divorce attorney who is familiar with property laws in your state about what you should do to protect your separate property during the marriage.

The best thing a couple can do after marriage is to not commingle property or funds. Should your marriage end in divorce, it will be up to one or the other to prove that property is marital property and subject to division. Unless you’ve kept in-depth records on purchases, it can be almost impossible to prove or disprove that property is actually marital property.

Related Stories