SOURCE OF FUNDS, TRACING, AND COMMINGLED FUNDS

Question 1

Define [ tracing ]

Answer 1

A mere change in form of an asset does not change its
characterization as CP or SP, thus tracing is permitted to establish the source of funds used to acquire an asset.

Question 2

What are the two methods for tracing?

Answer 2

Exhaustion method and Direct tracing method

Question 3

What is the Exhaustion tracing method?

Answer 3

Requires showing that at the time the
property was purchased, all CP funds in a commingled account had been exhausted by community expenses, and thus only SP funds were available to purchase the property.

Question 4

What is the Direct tracing method?

Answer 4

Requires showing a direct link from SP funds to the purchase such that sufficient SP funds in the account were available at the time of the purchase and the SP owner intended to use SP funds to make the purchase.

Question 5

What happens if we are unable to trace funds to SP?

Answer 5

If it is impossible to trace the source of the property or funds in a commingled account to SP, the property will be considered CP .