One of the biggest considerations when spouses decide to part ways is how property should be divided in divorce. Importantly, property tracing can be a vital issue for many couples — especially for those who possess substantial assets or were in a long-term marriage. The process can help to identify the origin of an asset to determine whether it should be characterized as marital property or separate property for the purpose of ensuring a fair division. In some cases, it can also be used to uncover hidden, dissipated, or concealed assets in a divorce.
Why is Property Tracing Important in an Ohio Divorce?
Under Ohio’s equitable distribution laws, all property is not necessarily divided equally. It is divided by a court in a way that is deemed fair to both parties. However, it’s important to understand that only marital property is subject to division in divorce — separate property usually remains with the spouse who originally owned it. This is why it is crucial to ensure property is correctly characterized.
The first step is determining all of the assets and debts, and then, as a second step, identifying which assets are separate property and which assets are marital property. In some cases, marital and separate property can be “commingled,” or mixed together, making it difficult to determine how much ownership each spouse has in a particular asset. Property tracing is the process of determining which spouse owns a particular asset, when it was acquired, and how much of it they own. It usually involves researching the origin and value of an asset and reviewing documentation regarding sales or transfers to determine whether it is separate or marital property.
What Assets Require Property Tracing?
While establishing an asset as separate property can be straightforward in some cases, in others it is much more complicated. For example, if one of the spouses owned an interest in a 401(k) before marriage, that asset would be considered separate property. If contributions continued during the marriage, those new contributions would be from marital earnings, and thus marital property. Doing so means that premarital and marital assets would be commingled. The premarital interest in the 401(k) will have gains and losses that occur in the stock market where 401(k) interests are invested, and separating the earnings and losses between the premarital part and the marital part can be complicated and difficult to determine ownership in one person or in both persons.
Complex property division matters that may require asset tracing can include those involving the following:
- IRAs & 401ks
- Investment portfolios
- Family businesses
- Intellectual property
- Stock interests
- Commercial and residential real estate
- Investment properties
While the tracing process is straightforward for some assets, others might require a significant amount of financial scrutiny and attention to detail — and it can sometimes be necessary to involve a financial professional who can determine the origin of the asset, and how the asset evolved over time. In the event a valid prenuptial or postnuptial agreement was put into place, the document may specify how certain assets should be characterized in the event of divorce.
How Does Property Tracing Work?
Tracing assets back to before the marriage to establish the separate nature of a specific asset is best shown with documentary evidence. However, the type of documentation used to trace property in a divorce case can depend upon the piece of property at issue. For instance, when it comes to determining how the marital home should be characterized in divorce, a court will typically consider the questions: was the home owned before marriage? If so, what was the value then, and what was the mortgage balance then? Were there improvements made to the home during the marriage, and were they paid from marital funds or separate funds? If the home was purchased during the marriage, where did the down payment for the house come from? In such cases, deeds, mortgage statements, bank records, along with the settlement statement from the purchase, can help carry that burden of proof.
If a house was previously sold, the seller’s statement showing the proceeds received, the bank records demonstrating where the check was deposited, and the bank records establishing where the funds were used, will help to carry the burden. Notably, banks, title companies, and retirement fund managers often do not keep records beyond seven years. Since title companies and banks destroy those records after a period of time, people need to be mindful that they should retain such records to recoup their funds in the event of divorce. While deeds are part of the permanent public record and will show the purchase price, they will not show where the funds came from. Retaining all documents concerning the acquisition of real estate is very important.
For retirement funds, such as 401(k)s and other defined contribution plans, the holdings in the account prior to the marriage, together with the gains and losses on those holdings, can be proven as separate property with adequate tracing, i.e. quarterly statements. However, employers sometimes change plan administrators, and the old records are often not carried over to the new company. This often means they cannot be relied on to keep and produce the records required to prove an asset should be classified as separate property. As people frequently change employment and move 401(k)s to IRAs, being able to trace part of the current holdings back to the premarital holdings is crucial. Retaining documents concerning retirement accounts is also very important.
Contact an Experienced Ohio Divorce Attorney
If you are considering divorce, it’s essential to understand your property rights. A skillful divorce attorney can assist you with ensuring your assets are correctly characterized and your interests are protected. Located in Green, Ohio – halfway between the Akron (Summit County) and Canton (Stark County) courthouses – Melissa Graham-Hurd & Associates, LLC provides reliable counsel to clients for a wide array of matrimonial matters, including those involving complex property division issues. Contact Melissa Graham-Hurd and Associates to schedule a consultation to learn how we can help.
