Call Now (610) 460-0135
Call Now (610) 460-0135
When spouses divorce in Pennsylvania, determining which assets are marital and which remain separate will have a substantial impact on equitable distribution. The issue becomes especially complicated when a spouse’s inheritance, premarital savings, gift, investment account, or other separate property is commingled with marital funds.
Commingling generally occurs when property that originated as one spouse’s separate property is combined with marital property.
Common examples include:
Commingling can create a significant evidentiary problem because the spouse claiming that property is separate may need to demonstrate that the separate component can still be identified.
That does not, however, mean that Pennsylvania follows a rigid rule that every separate asset becomes marital the moment it enters a joint account.
The starting point is Pennsylvania’s Divorce Code, particularly 23 Pa.C.S. § 3501.
Pennsylvania generally defines marital property as all property acquired by either spouse during the marriage, subject to statutory exclusions. Those exclusions include property acquired before marriage and property acquired by gift, bequest, devise, or descent (i.e. “inheritance”). 23 Pa.C.S. § 3501(a)(1), (3).
The statute also provides that property acquired during the marriage is presumed to be marital property regardless of whether title is held individually or jointly. 23 Pa.C.S. § 3501(b).
This is important in divorce litigation because the name on the account or deed is not necessarily dispositive.
For example, putting property acquired during the marriage solely in one spouse’s name does not necessarily automatically make it separate property. Conversely, the lone fact that separate funds passed through a jointly titled account does not immediately make it marital property.
Shane Thompson is an accomplished, caring family law attorney serving Pennsylvania. Since 2015, he’s helped clients just like you understand what it means to commingle assets, how to protect separate property, and how to move forward after a divorce in a healthy financial state.
Have questions, or in need of legal guidance as a concerned grandparent? Reach out to the Greenberg Legal Group LLC for an initial consultation today.
Generally, yes. Under 23 Pa.C.S. § 3501(a)(3), property acquired during the marriage by gift, bequest, devise, or descent (i.e. “inheritance”) is excluded from the marital estate. This means that an inheritance received by one spouse begins as that spouse’s nonmarital property.
The problem can arise afterward depending upon how that property was handled. If the inheritance is deposited into an account containing marital funds, used to purchase jointly owned property, transferred to an investment account containing marital assets, or otherwise combined with marital property, the separate character of the inheritance may become difficult to establish.
Pennsylvania does not follow a rigid transmutation approach under which separate property automatically changes character merely because it is commingled with marital property.
In Sutliff v. Sutliff, 522 A.2d 1144 (Pa. Super. Ct. 1987), the court considered funds the husband claimed were derived from property received following his father’s death. The funds had been placed into a joint account and used in connection with marital finances. The court addressed the tracing issue and concluded that the husband’s inability to establish the nonmarital source of the funds supported the treatment of the disputed property as marital. Sutliff, 522 A.2d at 1146–47.
The practical distinction is important:
Commingling itself is not necessarily the end of the analysis. Rather it is the ability or inability to trace the separate property that can be decisive.
Tracing is the process of following separate property through subsequent financial transactions to determine whether the property or an identifiable portion of it still exists.
The more complete the documentary trail, the easier it may be to demonstrate the connection between the original inheritance and the current asset.
The attorneys at Greenberg Legal Group, LLC are experienced in exactly these types of problems that arise in complicated divorce litigation. In certain situations, our team will work with a trusted forensic accountant to reconstruct the movement of funds and ensure an equitable and fair outcome for our clients.
This is one of the most common and consequential commingling scenarios.
Imagine that one spouse inherits $200,000 and uses those funds toward the purchase of the marital residence.
The outcome will require a detailed analysis of the source of the contribution, title, intent, mortgage payments, improvements, appreciation, and other circumstances. A separate contribution does not necessarily mean the entire residence is separate property, nor does use of separate funds necessarily resolve the equitable-distribution issue.
The answer cannot be determined simply by asking who provided the down payment or whose name appears on the deed.
Pennsylvania’s Divorce Code separately addresses increases in value of certain nonmarital property. Under 23 Pa.C.S. § 3501(a.1), increases in value of qualifying nonmarital property are measured according to statutory rules, including the relevant period between acquisition or marriage and final separation or the equitable-distribution hearing.
In practical terms what this means is that even if a non-marital asset itself has not become marital, the increase in that assets value can be considered marital property.
For example: Wife owns stock worth $40k at the date of marriage. That stock is worth $80k when the parties separate. While the stock itself has not become marital property, the $40k increase is part of the marital estate subject to equitable distribution.
This is particularly important with businesses, investment portfolios, real estate, and other appreciating assets.
If you have an inheritance, premarital investment account, business interest, real estate, or other potentially separate property, documentation can be extremely important. Do not assume that you can reconstruct the financial history years later.
The best way to protect your separate property is with a well crafted premarital/prenuptual or post-marital agreement. The attorneys at Greenberg Legal Group, LLC are experienced at all aspects of negotiating and drafting marital agreements and available to assist clients in Pennsylvania.
Talk to a Pennsylvania Divorce Attorney About Your Commingled Assets
If you have an inheritance, premarital savings, family business, investment account, real estate, trust distribution, or other property that has been mixed with marital funds, do not assume that the asset is automatically marital or automatically protected as separate property.
The outcome may depend on the asset’s original source, how it was titled, how the funds were used, whether they can be traced, the parties’ intent, and the documentation available to establish the financial history.
The attorneys at Greenberg Legal Group, LLC can assist you to review your financial records, identify potentially separate assets, evaluate the applicable statutory exclusions, analyze the tracing issues, and determine how those assets should be presented in equitable-distribution negotiations or litigation.
If you are facing divorce in Pennsylvania and believe your spouse has commingled, concealed, or improperly characterized assets, contact our office to schedule a confidential consultation. Bring your recent bank and investment statements, inheritance or gift records, real-estate documents, and any marital agreements you have available. Early review of the financial records can help identify tracing issues before important property-classification decisions are made.
Contact our office today at (610) 460-0135 to discuss your case and learn what documentation may be necessary to protect your property rights.
Shane Thompson is an accomplished, caring family law attorney serving Pennsylvania. Since 2015, he's helped clients just like you understand what it means to commingle assets, how to protect separate property, and how to move forward after a divorce in a healthy financial state.
Have questions, or in need of legal guidance as a concerned grandparent? Reach out to the Greenberg Legal Group LLC for an initial consultation today.
