As a seasoned divorce attorney in Nebraska, I've witnessed firsthand the intricate process of asset tracing in divorce cases. It can be a complicated process that should be navigated by an experienced attorney.

When a couple decides to part ways in Nebraska, their marital property is divided equitably. Note that the word used is “equitably” not “equally as it’s not always an equal division. When determining the marital property division, it is important to note that not all property falls under the umbrella as “marital.” Equitable property division under Nebraska law is a three-step process. The first step is to classify the parties' property as marital or nonmarital. The second step is to value the marital assets and determine the parties’ marital liabilities. The third step is to calculate and divide the net marital estate between the parties in accordance with the Nebraska legal principles.

Generally, all property either spouse accumulates or acquires during their marriage is part of the marital estate. Property that a spouse acquired before the marriage, by gift, or by inheritance are exceptions to this general rule. If you can prove that you owned a certain asset before the marriage, you received it as a gift, or from inheritance, it may be considered separate property and not subject to division. The spouse wanting to claim property as nonmarital must provide proof. This is where the concept of 'tracing' comes into play.

Things can get complicated when trying to trace separate property when it is combined with marital property.  In Nebraska, there is no LIFO (last in, first out) or FIFO (first in, first out) rule. Separate property becomes marital property by commingling if it is inextricably mixed with marital property or with the separate property of the other spouse. However, if the separate property remains segregated or is traceable, commingling does not occur. Seems simple enough at first blush.

For instance, if you purchased a house prior to the marriage but had no equity in the house and during the marriage, both you and your spouse lived in it and paid for its upkeep, the court will consider it marital property.

On the other hand, if you had a savings account before the marriage and never used it for marital expenses or added to it with marital funds, it may be considered separate property.

Where it gets complicated is when part of an asset is marital, and another part is nonmarital. Taking our first example of a house purchased during the marriage, if you used a nonmarital bank account for the downpayment, there is likely some nonmarital equity in the house that we can trace. However, if you refinanced during the marriage and took your nonmarital equity out to pay off debt, we likely are not going to be able to trace any nonmarital equity.

The original capital or value of an asset is nonmarital if it was acquired prior to the marriage, while all or some portion of the earnings or appreciation of that asset may be marital if the asset increased in value throughout the marriage. Think of an investment account. If one spouse owned an investment account prior to marriage and the account grew during the marriage, there are both nonmarital (the contributions made during the marriage) and marital (the value at the time of the marriage) funds in that account. Determining what is what can be pretty easy to determine if a statement from the date of marriage can be found. However, what about the growth on the premarital portion? What if some of the funds were withdrawn during the marriage?

The accrued investment earnings or appreciation of the nonmarital funds during the marriage are presumed marital unless the party seeking the classification of the growth as nonmarital proves: (1) The growth is readily identifiable and traceable to the nonmarital portion of the account and (2) the growth is not due to the active efforts of either spouse. White v. White, 304 Neb. 945 (2020). This is called the active appreciation rule. The active appreciation rule sets forth the relevant test to determine to what extent marital efforts caused any part of an asset's appreciation or income. Appreciation caused by marital contributions is known as active appreciation, and it constitutes marital property. If someone actively traded, invested, and moved money around in an investment account, that too can be seen as active efforts.

One area that is less frequently considered is compensation for purely personal losses. This includes disability payment(s), a portion of a workman’s compensation award, or a portion of a personal injury award. This can include both a lump-sum payment for retroactive service-connected disability benefits or regular monthly payments. Essentially, it is any payment or award that is not in any sense a product of marital efforts. When determining if an award or payment is for purely personal losses, we look at the breakdown of the award/payment. Any payment that a spouse receives for an injury, pain, suffering, disfigurement, disability, or loss of postdivorce earning capacity should not equitably be included in the marital estate. On the other hand, compensation for past wages, medical expenses, and other items that compensate for the diminution of the marital estate should equitably be included in the marital estate as they properly replace losses of property created by the marital partnership.

But wait, these payments can also be comingled with nonmarital assets and become marital. If these funds are deposited into a joint account that contains other assets (wages, tax returns, etc.), the nonmarital funds can no longer be traced and set aside as nonmarital.

To sum it all up, it is not always clear. The rules are that any property can constitute a mixture of marital and nonmarital interests; a portion of an asset can be marital property while another portion can be separate property. Kauk v. Kauk, 310 Neb. 329, 966 N.W.2d 45 (2021). The original capital or value of an asset may be nonmarital, while all or some portion of the earnings or appreciation of that asset may be marital. White v. White, 304 Neb. 945, 937 N.W.2d 838 (2020) (quoting Stephens v. Stephens, 297 Neb. 188, 899 N.W.2d 582 (2017)). The burden of proof rests with the party claiming that property is nonmarital. Kauk v. Kauk, supra. Foster v. Foster. Totally clear, right?!?

Tracing is essentially the process of proving that a certain asset was yours prior to the marriage or was acquired by gift or inheritance. It can be a bit tricky, as it often requires substantial documentation, such as receipts, titles, or other forms of proof of ownership. It's not always a straightforward process, and the courts may consider various factors when determining whether an asset is marital or separate property.

It's important to approach this process with a clear understanding of your rights and the potential outcomes. We strongly recommend if you have questions about what marital and nonmarital, you gather as much documentation as possible and consult with a McGill Law Attorney who can guide you through the intricacies of this process.