Methods of Tracing Property: Pro Rata, Item Tracing & Value Tracing
Under Texas law, all property on the dissolution of marriage is presumed to be community property, absent clear and convincing evidence to the contrary.
SEPARATE PROPERTY TRACING
What Is The Pro-Rata Approach to Property Tracing?
Although this method is only mentioned in a handful of Texas cases, an understanding of the methods of tracing would not be complete without addressing the pro-rata approach. For example, if separate funds of each spouse are mixed in an account containing no community funds, it would seem logical that acquisitions from the account would be owned pro-rata by each party in generally equal proportion to the entire account balance; therefore, there would be no “presumption” relating to the community and the pro-rata treatment of the asset would be only the means of determining the relative ownership of the parties.
Duncan v. U.S., 247 F.2d 845 (5th Cir. 1957).
In Duncan, the federal appeals court discussed a pro rata form of tracing. Over a brief marriage, the parties acquired only $16,000 of total community income. Despite such a low amount of income, substantial deposits were made to their accounts over the period of the marriage. As of the date of the purchase of stocks for $7,241, the account balance was $17,8113, of which $5,000 was community. Instead of applying the community out first theory (5,000/17,813) to total purchase of $7,241, the court stated that “All community funds might have been exhausted on the first purchase, or all might be ratably applied throughout the year. As this neither is nor can now be demonstrated, it does not overcome the presumption which the law affords to the community that to this full extent, all was proportionally community property”.
What Is The Item Tracing Approach To Property Tracing?
Item tracing is no misnomer. It is, in fact, identifying the character of a specific item as separate, then tracing its transformations from its original form to its present form. As in all instances, the tracing must show clearly and convincingly that the original asset was separate, must show how, when, and in some instances why it changed forms each time that it transformed until the shift is complete within the current asset. Cockerham v. Cockerham; supra Tarver v. Tarver, 394 S.W.2d 780 ( Tex. 1965); Love v. Robertson, 7 Tex 6 (1851). To begin the tracing, the character of the original asset must be clearly established. This means an affirmative showing of how the asset was acquired in the first place in such a way as to make it a separate asset. Mortenson v. Trammell, 604 S.W.2d 269 (Tex. Civ. App. - Corpus Christi 1980, writ ref’d n.r.e.); Logan v. Barge, 568 S.W.2d 863 (Tex. Civ. App.-Beaumont 1978, writ ref’d n.r.e.); Bile v. Tupa, 549 S.W.2d 217 (Tex. Civ. App. - Corpus Christi 1977, writ ref’d n.r.e.). For instance, deeds to property acquired prior to marriage must be introduced, demonstrating that the inception of title was prior to marriage.
From the original characterization, the tracing begins and evidence must clearly establish the chain of character. It is not sufficient to show that the original asset, or some mutation of that original asset could have been the source of the ultimate asset in question. Latham v. Allison, supra; Barrington v. Barrington, supra; Sibley v. Sibley, supra; Farrow v. Farrow, 238 S.W.2d 255 (Tex. Civ. App. - Austin 1951, no writ); Coggin v. Coggin, supra; McKinley v. McKinley, supra.
This burden sounds stringent and, indeed it is. However, case law seems to suggest that stronger burdens are placed on creditors cases and estate disputes. In fact, referenced herein are Holloway v. Holloway and Coggin v. Coggin. The courts in those cases used a more liberal standard in allowing testimony by one party or the other regarding marital agreements, either expressed or implied. This is limited to a spouse of the marriage who would have that discreet knowledge and will generally not be extended to a third party. Furthermore, the fact finder is always able to disbelieve the spouse testifying to the agreement.
What Is The Value Tracing Approach To Property Tracing?
Value tracing is much the same as item tracing. However, in this case, instead of tracing the origin, transformation, and eventual nature of the asset, we are simply tracing cash assets in the same manner. In some ways, this form can be easier than asset tracing because the proponent of the tracing is aided by the theory that “(O)ne dollar has the same value as another; there can be no commingling of dollars where the number owned by each claimant is known.” In Re Marriage of Tandy, 532 S.W.2d 714 (Tex. Civ. App. - Amarillo 1976, no writ). Keeping in mind the other principals discussed in this paper, even commingled funds can potentially be traced, depending, of course, on how and to what extent the funds were commingled and what documentation and evidence is available to overcome the community property presumption.
Dallas Divorce Lawyers Who Can Trace Separate Property
Our Dallas lawyers specialize in divorce, property division and property tracing. Our staff strives to build strong relationships with our clients in order to appreciate their best interests and help them achieve their family law goals. Whether you're facing the burden of a divorce, battling for custody of your child, excitedly anticipating an adoption, or looking to amicably resolve a dispute, we want to be there with you, clearing the way and lightening the load. With attorneys certified by the Texas Board of Legal Specialization in Family Law and over a decade of experience litigating family law disputes, the Wilson Legal Group is specially equipped to meet your needs and address the particular concerns of divorce property division.
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A successful family law case often begins with a strong assertive offense and/or defense, and you need a lawyer capable of being assertive when and as necessary. Our Dallas divorce attorneys have represented clients in hundreds of cases, from simple undisputed divorces to the most complex and difficult matters. They have successfully taken numerous cases to trial and have reached settlements favorable to our clients in scores more cases. Our success is due to our attorneys' strong concern for our clients' best interests that drives them to protect our clients' rights and interests. Our divorce lawyers will not allow you to be taken advantage of but will strive to protect your rights, to fight for your interests, and to give you the strong and aggressive representation your case demands.
Failure to Overcome Presumption of Community Property In Property Tracing
Several cases exists which show what when and how litigants fail to overcome the community property presumption in divorce:
(1) A husband testified that accounts listed in a premarital agreement were his separate property and that they were separate property at divorce. This was the only evidence the accounts were his separate property. The court held there was insufficient evidence to support a separate property finding as without tracing the husband's testimony could not overcome the community property presumption. Osorno v. Osorno, 76 S.W.3d 509 ( Tex. App.— Houston [14th Dist.] 2002, no pet.).
(2) A husband testified that money used to open a bank account came from the sale of stock, but he failed to explain what stocks were sold or the origin of the funds used to purchase the stocks. Robles v. Robles , 965 S.W.2d 605 (Tex. App.—Houston [1st Dist.] 1998, pet. denied).
(3) A husband testified that he had bought a parcel of real property with money he had received in an inheritance, but the deed for the property was not presented to the court and no documentary evidence was presented to trace the money used for the purchase. Robles v. Robles, 965 S.W.2d 605 (Tex. App.—Houston [1st Dist.] 1998, pet. denied).
(4) A wife testified that disputed bank accounts were created with income from her disability benefits provided by her employer and from the sale of timber from her separate real property; both of these sources were community property. McElwee v. McElwee, 911 S.W.2d 182 (Tex. App.—Houston [1st Dist.] 1995, writ denied).
(5) A wife testified that she and three siblings inherited $400,000.00 from their father, and that disputed bank accounts in the parties' names contained only the proceeds from such estate, but her evidence failed to trace the proceeds from her father's estate to the accounts and failed to account for the discrepancy between the amounts shown in the documents relating to the estate and the principal amounts appearing in the various accounts in the wife's evidence. Walton v. Johnson , 879 S.W.2d 942 (Tex. App.—Tyler 1994, writ denied).
(6) A couple's premarital agreement provided that income from the parties' separate property would be deemed community property and used to finance ordinary expenses during the marriage, but that excess income could be deposited to the corpus of separate property and would then become the separate property of the spouse whose separate property produced that income; the wife's proof that $69,000 of the $79,000 purchase price of the parties' residence had been saved excess income from her separate property
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