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Tracing Essentials
If your client is contemplating marriage after the death of a spouse or divorce and the client was left with a high net worth, it is necessary to protect their separate property before their remarriage. It is best since you are marshaling the assets and liabilities that exist at that time because of probate or the division of assets and liabilities during the divorce to prepare evidence of separate property. Suppose your client remarries after these changes and the new spouse has a large separate estate or a minimal estate; you will tell your client that they should protect their separate assets from claims of acquisition by community property.
The protection includes maintaining documents revealing the ownership of real estate, rental property, farm and ranch land, financial records including bank statements, canceled checks, and deposit slips, brokerage statements detailing their financial holdings, and records showing the ownership of certificates of deposits, cyber currency, precious metals and stones, artworks, expensive vehicles, and any other valuable items. If a business is owned, records of stock ownership, minutes of meetings, and financial records revealing cash in banks, real property, intangible property, and the retained earnings of the business and federal income tax returns.
Below you will find information and financial records that are essential for your client to maintain separate property funds for the future:
- Bank and Brokerage accounts showing account balances near or at the date of marriage. Statements, canceled checks, deposit slips, and explanations of transactions of $10,000 or more. Please be aware that bank statement notations alone do not contain all the necessary information to verify the nature of transactions. When major banks use blank deposits and transfers between accounts of the same and different banks, they are sometimes challenging to follow, and the fronts and backs of checks are not always included in the bank statements.
- Your client must understand that the law requires proof of the separate property nature of the asset, or it is considered community property.
- Your client needs to avoid comingling separate property funds with community property funds. Dividends are community property. When reinvested, the funds become comingled with the value of the stock generating the dividend and becoming a fractional share of the stock value, complicating the tracing. As long as the funds can be clearly and indisputably traced and identified, their distinctive character will remain, Smith v. Bailey, 66 Tex. 553, 1 S.W. 627, 628 (Tex. 1986) & Norris v. Vaughn, 152, Tex. 491. 496-97, 260 S.W. 2d 676, 679 (1953) [1]
- Closing statements for real estate transactions are essential to allow the tracing of separate property proceeds to separate property Certificates of Deposit, the start of a brokerage account, or reinvestment in other properties.
- Income tax returns are essential because they show the basis of the asset sold and the profit resulting from the sale. Handwritten notes and analyses of individual transactions contemporaneous with the transaction would be helpful.
Gathering the essential records and information is beneficial for the tracing done by spreadsheet analysis. Sage Investigations, LLC uses our proprietary technology, DIO, which helps with the tracing, especially when multiple accounts are involved, and separate funds are transferred between accounts to purchase real estate, rental properties, equities, bonds, and other valuable items. DIO uses a SQL Database to track and reconciles bank and brokerage accounts, reference exhibits in PDF, and generates reports in Excel Format. [2]
If your client is faced with a remarriage matter that requires tracing assets and liabilities or other complex financial investigations, contact Sage Investigation, LLC. DIO is waiting to help you process the case data and help your client prepare to trace or maintain their separate property. To learn more about helping your client, contact Retired IRS Special Agent Edmond J. Martin, Chief Investigator at Sage Investigations, LLC, call 512-659-3179 or email edmartin@sageinvestigations.com. You can also visit our website: www.sageinvestigations.com, and view the C.V.s of our team.
[1] Norris v. Vaughn, 152, Tex. 491. 496-97, 260 S.W. 2d 676, 679 (1953) – Richard R. Orsinger “Different Ways to Trace Separate Property”
