In most marriages, one spouse or the other will be the manager of most of the assets of the parties’ separate and community property estates. This “trust theory” has been developed in a long line of cases and provides that the spouse who is managing the assets of the marriage will be treated as a trustee.
Once the trust relationship is established, the managing spouse has the burden to produce records to distinguish his separate property from the community property and to show fairness in dealing with the other spouse. If the managing spouse is handling both the community property and the other spouse’s separate property and fails to meet the tracing burden, then the managing spouse’s interest in the community property is lost and the mixture becomes the other spouse’s separate property.
Based on the forgoing, a managing spouse may need to trace assets to confirm their separate property or to identify the community property. In so doing, the tracing must clearly identify the property’s character using clear and convincing evidence. As such, tracing can be a very labor intensive process depending on the volume of records and transactions involved. Experts in this endeavor should be retained when the attorney discovers the client has such claims.
There are no credentials that specifically qualify an individual as an expert in tracing. However, the expert should possess an intimate understanding of the statutes, cases, presumptions, methods, theories and procedures that are generally recognized. CPAs possess the ability to work with voluminous records but to be effective they must understand what is needed to meet the clear and convincing burden of proof placed on the party making the claim. Retaining an individual who is not experienced in tracing can have disastrous consequences for the client.