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Business Owners Beware: Use of Jointly Owned Funds Could Convert Property into Marital Asset

moneyMany people enter a marriage with certain assets, perhaps a house, a car, a boat, or even a business. Generally speaking, if you bring an asset into your marriage, it remains your separate property. This is not the case, however, if you engage in what’s called “commingling” of assets, which means you have mixed your separate property with marital property or have spent marital assets for the benefit of your separate property. That’s exactly what happened to one South Florida wife, and the 4th District Court of Appeal ruled that it cost her the ability to claim a house as separate property.

Before she married Michael Sorgen, Denise Sorgen and her two sisters inherited a home. The sisters used the home as a rental property and placed the proceeds of the rental business into a separate bank account. After the Sorgens married, the wife bought out her two sisters’ interests in the property. The couple renovated the home using money from marital accounts. Additionally, the wife continued using the home as a rental property but began depositing the proceeds from rent payments into an account she co-owned with her husband. The couple paid taxes on the property using jointly owned funds, and, when they sold the house, they placed the proceeds of that transaction into a joint account. When the husband filed for divorce, the wife moved the sale proceeds into an account she owned by herself.

The husband sought to include the home sale proceeds in the equitable distribution of the couple’s assets. The trial court refused, but the appeals court concluded that the property was a marital asset.

The house started out as separate property the wife solely owned, but it became marital as a result of commingling. When a spouse with separate assets mixes those assets with marital ones to such an extent that the separate assets become untraceable, commingling has occurred and creates the assumption that the owner has gifted a one-half interest to his or her spouse. That’s what the wife did when she used marital assets to renovate the house, deposited rent from the property into a marital account, paid taxes using marital funds, and placed the proceeds from selling the house into a marital account.

The appeals court ruling in the Sorgen case serves as a warning to any spouse bringing separate assets into a marriage, especially business owners. Any time you use money from an account you own jointly with your spouse to benefit your separately owned business, you run the risk that a court will determine in a divorce proceeding that you commingled marital assets with your business and gifted a one-half interest in that (previously separate) property to your spouse, making it subject to the rules of equitable distribution.

Spouses in these situations should take the utmost care to ensure that they keep their separately owned business interests or other assets completely segregated from their marital assets. The wife in the Sorgen case made many missteps that resulted in the court’s ruling that the asset had become marital, but any one of her errors might have been enough to result in a finding that commingling had occurred.

Anyone bringing substantial, separately owned assets into a marriage, especially business interests, would be wise to seek out knowledgeable counsel about the law related to commingling assets to ensure that separate assets are protected and remain separate. For thoughtful, skillful, and careful advice about this and other issues regarding the distribution of assets in divorce, talk to the Florida family law attorneys at Stok Folk & Kon. Our attorneys can help you protect your assets and avoid an unexpected and unwanted result.

Contact us online or by calling (305) 935-4440 to schedule your consultation.

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