Tracing is the reconstruction of where identified money came from and where it went, through every account it passed, from the bank, brokerage, and accounting records that recorded each movement. Funds are commingled when money with one character, a spouse's premarital savings or a sum diverted from a company, is deposited into an account that also holds money of another character, so that the balance no longer shows which dollars are which. The analysis assigns the mixed balance and every withdrawal from it under a stated convention, follows the money into the assets it bought, and states where the trail breaks and what carries it across. This guide explains what tracing is and is not, the records it is built from, the conventions used to divide a mixed account and why the choice of convention is a legal question, how the analysis differs between divorce and fraud matters, and how the result is presented so it can be tested.
Tracing follows specific money through a series of transactions by matching each withdrawal to a deposit and each deposit to its source, using the records that documented the transfers. It is documentary work: the analyst does not infer that money moved because it would have been convenient, but shows the deposit item, the wire detail, or the check image that moved it. The fraud and asset tracing service describes the engagement in which diverted funds are followed into the assets they bought, and the divorce financial analysis service describes the same work applied to a spouse's claim that an asset was acquired with separate property.
Tracing does not decide what the money was. Whether a deposit was separate or marital, whether a transfer was authorized or a diversion, and whether a commingled account lost its separate character by the act of commingling are questions the governing law answers, and the report takes the legal framework from counsel and applies it. What the analysis supplies is the factual chain: this sum entered here on this date from this source, sat in this account alongside these other funds, and left in these amounts to these destinations. The characterization and the remedy are built on that chain, and the chain is what the opposing analyst will test.
Bank statements are the spine, but a statement alone shows amounts and dates, not sources and destinations. The analysis needs the deposit detail behind each credit, which identifies the check or the wire that made up the deposit; the check images and the wire confirmations behind each debit, which identify the payee and the receiving account; and the account opening records, which fix who owned the account and when. Brokerage statements add the trade confirmations and the transfers between cash and securities. Closing statements for real estate, title records, loan applications, and vehicle purchase documents show what the money bought. The company's general ledger, its accounts payable detail, and its payroll register show where diverted funds left the business and under what description.
Tax returns and their schedules tie the accounts together and sometimes reveal accounts that were not produced, because interest and dividend income are reported by payer. In a fraud or embezzlement matter the records come from the company, its banks, and the subpoenaed accounts of the person who took the money; in a divorce they come from both spouses and reach back to the date of marriage or the date the separate funds arrived. The request is for complete runs, not samples: a single missing statement in the middle of a chain is a gap the analysis has to bridge by assumption, and a complete run lets it bridge by evidence.
Once money of two characters shares one account, every withdrawal has to be assigned to one source or the other, and no rule of arithmetic makes the choice; a convention does, and the conventions give different answers. Direct tracing matches a specific withdrawal to a specific deposit by amount, timing, and stated purpose, and is the strongest where the records permit it. Where they do not, the alternatives are rules: that withdrawals for ordinary living expenses are presumed to come from marital or legitimate funds first, so that the separate or diverted balance is preserved; that the separate funds can never exceed the lowest balance the account reached after they were deposited, since money that left cannot return; that withdrawals are taken in the order deposits were made; or that each withdrawal is split in proportion to the mixture in the account at that moment.
Which convention governs is a question of law that varies by state and by the kind of claim, and the economist applies the one counsel identifies while showing what the others would produce, because the difference between them is often the whole dispute. A spouse in a divorce who claims a down payment came from premarital savings will fare very differently under a convention that charges living expenses to marital funds first than under one that charges them in proportion, and the report that presents only the favorable one has argued rather than analyzed. Presenting the result under each convention also lets the court adopt a rule without sending the analysis back to be redone.
Every tracing eventually meets a point where the records stop showing where the money went. Cash withdrawals leave the banking system and reappear, if at all, as cash deposits elsewhere that cannot be matched by item. A transfer to an account that was never produced, a closed account whose statements the bank no longer holds, a payment to a third party who passed the money on, or a period of missing statements each leaves a gap. The analysis does not paper over these. It states where the trail ends, what the records show up to that point, what the money could have become, and what assumption, if any, the report makes to carry the balance forward, and it separates the portion of the conclusion that rests on documents from the portion that rests on inference.
Gaps are also evidence in their own right. A pattern of cash withdrawals that begins when the diversion is alleged to have begun, or a set of accounts that appear on the tax return but were not produced, points to where the next subpoena should go, and the report can say so without concluding what the subpoena would show. For the separate property claim, a gap usually means the separate character cannot be carried past it under the stricter conventions, and the report states that consequence so counsel can weigh the cost of pursuing the missing records against what they could recover.
The mechanics are the same in both settings; the question and the direction differ. In divorce, the analysis usually runs forward from a known separate source, an inheritance, a premarital account, a gift to one spouse, through the accounts it was mixed into and into the assets that remain at the date of division, to show how much of a present asset is attributable to the separate source. Appreciation, distributions, and the spouses' own contributions during the marriage each have a treatment under the state's law, and the report applies the one counsel identifies and shows the separate and marital portions of each asset on a schedule.
In a fraud matter the analysis usually runs in both directions: backward from a suspicious payment or asset to the company account it was drawn from, and forward from the point of diversion to the accounts, property, and third parties that received the money, to quantify the loss and to identify what can be recovered. The loss figure and the recovery figure are different numbers, and the report keeps them separate. A matter venued in a Florida court, or in any venue, may also need the analysis to distinguish the diverted principal from any gains it earned, because the remedies for each can differ. The economist versus forensic accountant comparison explains why this work sits at the boundary of the two disciplines and how a practice that fields both assigns it.
A tracing stands or falls on whether the reader can follow it, so the presentation is part of the method. The core exhibit is a schedule for each account, in date order, that lists every deposit and withdrawal in the relevant period, assigns each to a source under the stated convention, and carries a running balance for each character of funds beside the bank's own balance, which the two must reconcile to on every statement date. A source-and-use summary then collapses the account schedules into a flow from each origin to each destination, and an asset schedule shows, for each asset still in existence, how much of its cost came from each source. Every line cites the document it came from.
The narrative explains the convention applied, the alternatives and their results, the gaps and the assumptions that bridge them, and the portion of the conclusion that rests on inference. A report built this way can be checked line by line, which is what a court needs when the opposing analyst applies a different convention to the same records. The rebuttal guide lists the questions an opposing tracing will be asked, and most of them concern whether the schedules reconcile, whether the convention was applied consistently, and whether the gaps were disclosed.
The one the governing law prescribes for that kind of claim, which counsel identifies. Because the conventions assign the same withdrawals to different sources and can reverse the result, the report applies the governing rule and also shows what the alternatives produce, so the court can adopt a rule and read the answer off the same schedules.
The report marks the point where the documents stop, states what the records show up to it, and separates the conclusion that rests on documents from any portion carried forward by assumption. Under the stricter conventions a separate or diverted balance usually cannot be carried past an undocumented gap, and the report says so.
No. It establishes the chain of movements: the source, the accounts the money passed through, and the destinations, each tied to a record. Whether a movement was authorized, whether a deposit was separate or marital, and what remedy follows are legal questions decided on that chain by the court, not by the analyst.
Request a consultation on Tracing Commingled Funds: How the Analysis Is Built or call (201) 343-0700. Plaintiff and defense counsel.