In This Issue


We are grateful to have the opportunity to provide you this valuable information via our monthly e-newsletter and our unparalleled forensic accounting and investigative services.

The goal of this e-newsletter is to provide you critical, inside information that will help you prevail when defending an IRS criminal case. We will do this by sharing the knowledge we have from our 25+ years of experience as an IRS Special Agent.

We take special care to ensure the information we provide you in "The Beacon" is the latest and most current information available.  In this edition, we explain tracing and characterization of property in divorce matters. 

We want to write about topics that will assist you in prevailing with criminal IRS cases. Please e-mail us your topics of interest to 
We encourage you to share our e-newsletter with others in your sphere of influence.
Edmond J. Martin
Principal, Chief Investigator
Certified Fraud Examiner (CFE)
Texas Certified Investigator (TCI)
Tracing & Characterization of Property in Divorce Matters

The nature of property as separate or community is determined by time and circumstances of its acquisition. The Texas Constitution, Article XVI, Sec. 15, defines Separate Property as: a ll property, both real and personal, of a spouse owned or claimed before marriage, and that acquired afterward by gift, devise, or descent, shall be the separate property of that spouse; [1]
Characterization of assets relates to the application of marital property law, presumptions, and tracing. Tracing has been defined as a process that "involves establishing the separate origin of the property through evidence showing the time and means by which the spouse originally obtained possession of the property. Zagorski v. Zagorski, 116 S.W.3d309 (Tex.App. -Houston [l4thDist.] 2003, pet. denied) Hillard v. Hillard, 725 S.W.2d 722, 723 (Tex. App. - Dallas 1985, no writ.) The beginning point in the characterization and tracing of property is the statutory presumption that property possessed by either spouse during or on dissolution of marriage is community property, TFC Sec. 3.002. This presumption may be overcome by identifying and tracing the property claimed as separate, to a separate source of funds or credit used in its purchase. McKinley, 796 S.W.2d 540. [2]
The degree of proof necessary to establish property as separate property is clear and convincing evidence. As a general rule, mere testimony that property was purchased with separate funds, without any tracing, is insufficient to overcome or rebut the community property presumption.
The most common reasons for tracing are:
  1. To establish the separate character of funds or assets held on account during marriage;
  2. To establish the separate character of an asset acquired during marriage from separate funds or assets;
  3. To support a reimbursement claim by demonstrating the use of funds or assets by one marital estate to benefit another marital estate;
  4. To defeat a reimbursement claim from one marital estate to another by demonstrating that the benefit was paid by the estate receiving the benefit; and
  5. To prove or disprove an economic contribution or reimbursement claim pursuant to TFC § 3.401 et. seq.
This form of tracing usually involves a large quantity of bank, brokerage, and municipal fund statements and the development of assets and liabilities. A proper tracing requires...
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