The asset-tracing process can range from the examination of documents that existed at the time of marriage to creating schedules that detail years of financial transactions involving the asset in question. The methods used are designed to demonstrate that the asset qualified as exempt property at the date of marriage and then to trace the exempt ownership and/or all transmutations of that asset up to the date of complaint. To establish this claim it is often helpful to retain the services of a CPA. Moreover, the client must obtain paper proof through discovery to prove that the asset is exempt. For instance, in the case of real estate, the gifting documents such as gift tax returns, the will, the letter of a gift, the deed and checks that would be critical evidence of the payment of consideration and of the source of those funds.
A common example of transmutation occurs when a newly married couple purchases a home. Quite frequently, one spouse purchases a house just before the marriage. Quite often the new husband uses his money and then purchases a home so that the couple has a place to live. Thereafter, the husband then makes all the mortgage payments over the next twenty years. If the couple eventually gets divorced, a key issue is whether the marital home is an exempt asset or whether it has been transmuted into a marital asset.
An argument can be made that the marital home is a non-marital asset, and that it is exempt because it was purchased by the husband before the marriage. In all likelihood this argument will not be successful. Even though the house was purchased prior to the marriage, only a small portion of it is really a non-marital asset. All of the mortgage payments, and the corresponding increase in equity, were made during the marriage with, presumably marital property. As these marital funds were applied to a non‑marital asset, the asset slowly took on a marital character with each monthly payment. The home in this example was transmuted from non‑marital property into marital property.
3. I purchased my home before I got married to my wife. We are now getting divorced, and my wife’s lawyer is now trying to claim that my home and my other financial investments were transmuted into marital property. How can I assist my lawyer to refute my greedy wife’s claims?
During the client interview process, you should list all of your exempt and/or transmuted assets. The following records and information should be obtained and given to your legal counsel; All documents regarding the acquisition of the property and the source of funds used to acquire it, in addition to the name of the titleholder. Also, you should provide all of the records and the details that relate to any dispositions or conversions of all or part of the property in question. These documents include bank statements, investment statements, real estate closing statements and any other documents regarding the source of funds for the transactions.
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