Marriage of Whitman

Summary

Doug put $900,000 into his hedge fund in 1994 and later added community compensation to the same capital account. He claimed a separate interest of nearly $18 million in a fund then worth about $31.6 million. The trial court accepted only the $300,000 tranche as traceable. It rejected the $500,000 because his testimony was unreliable, since he had named a different brokerage account in discovery and his expert relied on that account. It rejected the $100,000 because no records showed the money moving from the Gardner Lewis checks to the Northern Trust account that funded it. A $900,000 withdrawal in July 1995 went into his separately titled premarital account, so the court found he had withdrawn his separate capital and nothing remained. The Court of Appeal affirmed that the fund was entirely community, and reversed only on an unrelated debt issue (the SEC penalty). The tracing discussion is in the unpublished part of the opinion.

What it means for the financial analysis

Tracing has to be documented at every transfer. Here the trail ended when checks were mailed out, and the court would not fill the gap with testimony. A tracing expert who adopts the client's account of the source without records is exposed if that account changes before trial. On withdrawals from a commingled account, where the money was deposited can decide the question. Money moved to a separately titled account supports an inference that separate funds were taken out, whatever was spent later. Because this part is unpublished, use it as a pattern of what courts credit, not as authority.

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