1. What role does asset tracing have in a divorce case?
In most divorces the couples come to court with all sorts of assets. Some of the assets are titled jointly, some are shared, and are never intended to be shared. Asset tracing is simply the process of the documentation and supporting of a claim that a marital asset is exempt property. In the majority of divorce cases the equitable distribution of marital property is the most grinding aspect of the process. Earning money and saving it is no easy task in today’s world. Moreover, as people get older it is not easy to replace assets that are lost to the other spouse in a nasty divorce case. The task of determining what assets is subject to equitable distribution is often an extremely arduous task. All property that is owned by one spouse individually or jointly is presumed to be marital property subject to distribution unless it can be shown that it is exempt from distribution. See, Painter v. Painter, 65 N.J. 196 (1974). The burden of proof for the exemption claim is on the party seeking it.
In summary, in many divorce cases it is very often unclear what assets are subject to equitable distribution. Many divorce clients only come to court after they have lived together for a longer period of time. The longer the marriage then it is more difficult to separate non-marital and marital assets. It is extremely important to keep exempt assets separated once a person gets married. If a spouse has a prenuptial agreement then it does not have much value if he mixes his exempt assets with his wife. If a spouse has property that he inherited then these assets should be only titled in his name. The spouse should not add his wife on the mutual fund account, bank account, or brokerage account that originally only contained exempt assets. In summary, it is critically important to keep exempt assets separate from the other marital assets. If a spouse mixes exempt assets and marital assets then it may be impossible to determine what percentage of the “marital pot” actually consists of exempt assets. A prenuptial agreement is useless unless the exempt assets are kept separate from the marital assets.
2. What does the term transmutation mean?
Transmutation is the process of turning separate property into property subject to equitable distribution. Some typical examples include the gifting of property from one spouse to another, the commingling of property by joining of assets, and the use of joint property. The term transmutation refers to the situation where non-marital property is slowly converted into marital property during a marriage. Therefore, the spouse who originally owned the non-marital asset loses his right to claim that the asset is exempt from equitable distribution.
The documentation and support of a claim of exempt property are typically done by using a process called asset tracing. Unfortunately the tracing of assets is often very difficult. In many high dollar cases, it is necessary to engage a CPA to assist in proving or disproving the separate nature of the property through an asset tracing accounting. The resulting documentation should demonstrate that at the date of complaint the asset is either exempt, marital or a combination of the two.Continue Reading