The court must distribute the assets in a divorce if the couple does not reach an agreement as to distribution. Certain property may be considered separate property. In Washington, an asset is separate property if it is either acquired before the marriage, acquired during the marriage by gift or inheritance, or acquired during the marriage with the traceable proceeds of separate property. If property is acquired during the marriage, it is presumed to be community property. Washington divorce attorneys know, however, that separate property may become community property in certain circumstances.
A Washington appeals court considered whether certain assets were separate or community property in a recent divorce case. The husband appealed the distribution of property.
Both parties had worked and begun funding retirement prior to their marriage. The husband had worked for the same employer for 20 years prior to the marriage, and he contributed to a 401(k) during that time. He continued to work for the company and contribute to the 401(k) for two years after the marriage. The company subsequently merged with another organization, and the husband lost his job.
At trial, the husband argued that the court should divide the 401(k) fund using a formula based on the premarital and post-marital years he paid into it. Using his calculation, the community portion of the fund would be less than $30,000, while his separate portion would exceed $300,000. The wife argued, however, that the couple had contributed to the fund during part of the marriage. The husband had written three checks to the company, and she did not know the reason. The husband claimed the checks were related to a stock account rather than the 401(k). He stated they had liquidated the stock to purchase their home.
The trial court found the husband had not produced documentation showing the values of the fund before the marriage, during the marriage, or at the time of separation. The trial court found he had failed to overcome the presumption that the fund was community property, and therefore it found that it was community property.
The husband also had two IRAs at the time of the marriage. He continued to contribute to them from a joint account after the marriage. The trial court found both IRAs were community property and awarded them to the wife.
The husband inherited a mutual fund from his mother. He claimed he had used money from that mutual fund toward the down payment for the family home, but he did not provide any documentation or accounting of the shares between the date he received them and the date the home was purchased. The trial court characterized both the mutual fund and the proceeds from the sale of the home as community property. The amount remaining in the fund was awarded to the husband.
A party can rebut the presumption that assets acquired during the marriage are community property through clear and convincing evidence that the asset was acquired with separate funds, but commingling of separate and community funds may give rise to a presumption that all are community property, if the commingling is such that the separate funds may not be distinguished or apportioned. The separate identity of the funds may be maintained if there is documentation that allows them to be traced and identified.
The husband in this case did not provide sufficient documentation to allow the property to retain its separate identity. Although the husband came into the marriage with the 401(k) account, there were contributions after the marriage. The husband did not produce any documentation that would allow the separate funds to be traced. He did not provide information on the amount in the account before the marriage, during the marriage, or at the time of separation. The appeals court found that the funds were hopelessly commingled and presumed to be community property.
There was a bit more information regarding the IRAs. The trial court had the value of those accounts at the time of the marriage and at the time of trial. However, there were multiple checks written to the company holding the accounts during the marriage. The husband argued that the checks were related to a different account that had been liquidated, but he provided no documentation of that other account. He only produced a document he had drafted to support his argument. The appeals court found that the IRAs were at one time separate property but had been commingled with community funds, giving rise to the presumption that they were community property. Again, the trial court did not err in finding them to be community property.
As with the retirement funds, the trial court had found insufficient documentation for the inherited mutual fund. There was no documentation or accounting for the funds between the date the husband acquired them and the time of the home’s purchase. Additionally, the wife’s counsel had objected to testimony about the inheritance, arguing it had not been disclosed before trial. The appeals court found that even if the funds had been inherited and was separate property at one time, the husband had commingled the funds by using them for the purchase of the marital home. The proceeds from the home’s sale would be presumed community property, so the trial court did not err in characterizing them as such.
This case illustrates the importance of financial documentation in a divorce case. Even though the retirement funds began as separate property, they became community property because of commingling of funds. If, however, the husband had provided documentation showing the values of the accounts and the contributions that were made after the marriage, he could have retained the separate property characterization for at least a portion of the funds.
Our high-asset divorce attorneys have a thorough understanding of Washington asset distribution law. If you are considering divorce, call Blair & Kim, PLLC, at (206) 622-6562.
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