Fundamentals of Pennsylvania Law: Tracing
Tracing is a method of identifying nonmarital property so that it will be preserved as nonmarital property and not divided in the process of equitable distribution.
In Pennsylvania, property acquired during the marriage is presumed to be marital property. Property owned prior to marriage is nonmarital property. But what happens when premarital property is sold, liquidated or exchanged?
For example, let’s say that a husband owned a car prior to marriage. The car was titled in his name alone. If he sells the car and deposits the proceeds into a joint bank account, he creates a “gift” to the marriage, which “transmutes” his separate property (his car) into marital property (their joint account). The joint bank account is marital property which is subject to equitable distribution.
If the husband deposits the proceeds into his own bank account instead, then there is no “gift” to the marriage. But he has co-mingled the proceeds with money that he may have earned during the marriage, which is marital property. Under the tracing doctrine, we can separate the nonmarital component of the husband’s bank account (proceeds from the car) from the marital component (money earned during marriage).
In Lawrence Smith v. Carol Smith, 653 A.2d 1259 (Pa.Super.1995), the trial court employed tracing to identify the nonmarital component of the wife’s stock portfolio and investment accounts. The wife hired a forensic accountant to testify as an expert based upon her tax returns, personal stock ledger and transaction records. Wife’s records were not complete, but her expert did his best to reconstruct years of stock trades. Since the husband offered no alternative evidence, the trial court adopted the opinion of the wife’s expert. On appeal, the Superior Court held that the expert’s analysis was good enough under the circumstances.