What Is Tracing?

Theft and fraud are unfortunate realities, and when people lose their assets through misappropriation, illegal activity, or even mistakes, tracing offers them a chance to reclaim their lost assets. Tracing can also help during bankruptcy proceedings and most commonly arises when a bankrupt person possesses stolen or misappropriated property. Tracing exists to make sure that rightfully owned property isn’t lost or otherwise rendered irrecoverable by the person who took it.

Tracing often comes up when a person declares bankruptcy and other individuals either rightfully own pieces of the bankrupt individual’s listed assets or otherwise have legal claims to the assets in question. Tracing also plays a pivotal role in many divorce cases. Divorcing couples may split their property based on who paid for it.

Secured Creditors in Bankruptcy

When a person’s property is stolen and the person who stole it declares bankruptcy, that property may wind up being auctioned or otherwise distributed to creditors. Tracing makes victims of such theft secured creditors, meaning they essentially get to be the first to claim their unlawfully appropriated property. To qualify, the person must be able to positively identify his or her property and provide some sort of claim of restitution. The victim must prove that he rightfully owns or has a legal interest in a specific property. Individuals may not use tracing to settle a debt with the bankrupt individual.

Some property, such as real estate and physical items, are relatively easy to trace, but money that has been stolen and moved through various accounts or invested in other property is more difficult to recover. In some cases, the court may award whatever the property was used to buy as restitution to the victim. For example, if a person loses her house through fraud and the party who committed the fraud sells the house, the victim may not be able to recover the house. If the defrauder used the money from the sale of the house to purchase stock in a company, the victim may receive the stock as restitution.

The house may be recoverable, but only if the person who wound up buying the house did so knowing that the house was fraudulently obtained. If the buyer purchased the house in good faith, or did not know the seller defrauded the rightful owner, he does not have to give up the property. However, this does not mean that the rightful owner is left with nothing. A court may decide that he is legally entitled to the proceeds the seller received from the sale of the home to compensate for the loss.

Tracing in Family Law

Divorce proceedings can easily turn into complex affairs, and most states will divide a divorcing couple’s assets based on whether they qualify as community property. The law defines community property as any property or assets for which both spouses shared equivalent stakes or used commingled monies to purchase. While some divorces are relatively straightforward, emotions can run hot and cause vindictive divorcing spouses to ensure that every penny is tallied. Tracing can help a divorcing couple track assets through previous transactions and commingled bank accounts to determine their origins.

Tracing can be helpful if you have lost property from fraud or misappropriation, or are facing a divorce and want to ensure your assets are fairly divided. It’s vital to connect with a reliable and experienced attorney. Dealing with bankruptcy proceedings can be complex, and most divorce cases are very time-consuming and stressful for everyone involved. Tracing can help to ensure property winds up back in the hands of its rightful owners, and a good attorney can help make the process easier for everyone.