In community property states like California, determining whether assets are separate or community property can significantly impact divorce outcomes. Tracing is the forensic process of proving that specific assets originated from separate property, such as premarital funds, inheritances, or gifts.
Why Tracing Matters
- Protects premarital or inherited assets from division
- Establishes reimbursement claims for separate property used in community investments
- Clarifies commingled accounts or property acquired with mixed funds
- Helps ensure equitable and legally accurate property division
Common Tracing Methods
- Direct Tracing: Follows funds from their original source to their current form. Requires detailed documentation of each transaction and clear intent.
- Exhaustion Method: Demonstrates that all community funds were used before separate funds were applied, often in mixed accounts.
Key Documents Needed
- Bank statements and check registers
- Closing documents and title reports
- Tax returns, investment account records, and financial ledgers
- Gift and inheritance documentation
Role of the Forensic CPA: A forensic CPA applies specialized methodologies to follow paper trails, segregate assets, and prepare exhibits and declarations that stand up in court. They also help rebut or support opposing claims, provide testimony, and assist during settlement negotiations.
Forensic CPAs provide the analysis and documentation necessary to support or challenge tracing claims during divorce proceedings.