September 1997

Litigation Services

Asset Tracing to Establish the Existence of Separate Property in a Marital Dissolution - Part 1

Why Asset Tracing?

Under Colorado's Uniform Dissolution of Marriage Act, separate assets are not subject to equitable distribution. Therefore, a spouse who can establish that assets are separate, to the court's satisfaction, gets to keep them. The task at divorce is to show that assets now in existence are the same separate property that existed at the time of marriage or were acquired in exchange for property acquired before the marriage or in exchange for property acquired by gift, bequest, devise, or descent. The "Disposition of Property" Section 14-10-113 of Colorado's Uniform Dissolution of Marriage Act establishes a rebuttable presumption that "all property acquired by either spouse subsequent to the marriage" is marital property. How does one overcome this presumption? The answer is asset tracing.

What is Asset Tracing?

Asset tracing is an accounting process that traces an asset from its separate property beginnings through all of its mutations and demonstrates that the resulting asset in existence at the date of divorce is either separate, marital, or a combination of the two.

Interface of the Accounting and Legal Professions

The practical problems in producing a successful asset tracing accounting, in my experience, come from attorneys not understanding accounting concepts used in asset tracing and accountants not understanding the legal concepts that provided the rules for asset tracing. Too often, attorneys give accountants ten to fifteen minutes of verbal guidance on the legal aspects of asset tracing and send them away to produce an accounting. Usually, unless the accountant is experienced in asset tracing cases or is an accomplished conceptual thinker, the asset tracing accounting produced is seriously deficient. In addition, by the time the attorney usually has a chance to review the accountant's work, it is late in the litigation process, the accountant has spent thousands of dollars in fees, and it would be prohibitively time consuming and expensive to correct any problems with the accounting.

To avoid the above described problems, it is important, at the outset of an asset tracing engagement, for the attorney and accountant to conceptually understand and agree to the asset tracing methodologies to be used by the accountant. It is equally important for the accountant to understand when he or she needs to consult the attorney on legal issues and principles involved in the asset tracing.

Deadlock - Part II

This month we look at more strategies that mediators, attorneys, and other advisors can use to assist clients in breaking deadlocks. The following techniques may be helpful in breaking a deadlock in negotiations:

  • Valuation Report Critiques
  • Business Valuations
  • Financial Litigation Support
  • Expert Witness Services
  • Mediation of Financial Disputes
  • Employee Fraud
  • Buy/Sell Formulas
  • Court Appointed Special Master
  • Court Appointed Receiver
  • Economic Loss Analysis
  • Gift & Estate Valuations
  • Financial Issues in Divorce