In law, commingling is a breach of trust in which a

fiduciary A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (legal person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, ...

mixes funds held in care for a client with their own funds, making it difficult to determine which funds belong to the fiduciary and which belong to the client. This raises particular concerns where the funds are invested, and gains or losses from the investments must be allocated. In such circumstances, the law usually presumes that any gains run to the client and any losses run to the fiduciary who is guilty of commingling. As one source puts it, " a pejorative sense, commingling is the special vice of fiduciaries (trustee, agents, lawyers, etc.) in failing to keep a beneficiary's money separate from the fiduciary's own money". Commingling is particularly an issue in case of

bankruptcy Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the deb ...

of the fiduciary. Funds held in care are not the fiduciary's property, and the client is not a creditor. So in case of bankruptcy, if the funds have been properly kept separate, they can easily be returned to the client. If, however, the funds have been commingled, the client is potentially subject to becoming entangled in the bankruptcy proceedings, and there may not be sufficient funds to pay the client back.

Examples

Tenant deposits

For example, a tenant who deposits money with a landlord has not lent money to the landlord – the tenant is not a creditor – and is entitled to their deposit back even in case that the landlord declares bankruptcy, assuming property is in good condition – the tenant is responsible for the ''property,'' but is not undertaking credit risk.

Investment funds

Similarly, a client who invests with a fund or broker is investing, not lending, so the fiduciary must keep the client money separate and not use it for their own purposes, but only for approved investment purposes: the client is subject to ''investment'' risk on his money, but not credit risk regarding the fiduciary.

Lawyers and brokers

The problem of commingling is of particular concern in the legal profession. Attorneys are strictly prohibited from commingling their clients' funds with their own, and such activity is grounds for disbarment in virtually every jurisdiction, because of the ease of

embezzlement Embezzlement (from Anglo-Norman, from Old French ''besillier'' ("to torment, etc."), of unknown origin) is a type of financial crime, usually involving theft of money from a business or employer. It often involves a trusted individual taking ...

and the difficulty of detection. Similar rules apply for licensed

real estate broker Real estate agents and real estate brokers are people who represent sellers or buyers of real estate or real property. While a broker may work independently, an agent usually works under a licensed broker to represent clients. Brokers and age ...

s handling earnest money and other professionals who hold deposits as agents for clients ''in absentia''.

Corporations

Commingling is also evidence that may be used in " piercing the corporate veil" of a sham corporation, where a person shields themself from personal liability through "incorporation", yet fails to observe strict separation of corporate and personal property or accounts, among other improprieties. For

small business Small businesses are types of corporations, partnerships, or sole proprietorships which have a small number of employees and/or less annual revenue than a regular-sized business or corporation. Businesses are defined as "small" in terms of being ...

, strict separation of corporate and personal property is a particular issue, notably in tax and divorce law.

Community property

In community property states of the

United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...

, "commingling" non-marital property with marital property can make it community property.William H. Pivar, Robert Bruss, ''California Real Estate Law'' (2002), p. 251. For example, depositing money received by an individual through

inheritance Inheritance is the practice of receiving private property, titles, debts, entitlements, privileges, rights, and obligations upon the death of an individual. The rules of inheritance differ among societies and have changed over time. Offi ...

– ordinarily considered non-marital, individual property – into a joint

bank account A bank account is a financial account maintained by a bank or other financial institution in which the financial transaction A financial transaction is an Contract, agreement, or communication, between a buyer and seller to exchange goods, ...

may transform the money into community property. Most community property states apply a

presumption In law, a presumption is an "inference of a particular fact". There are two types of presumptions: rebuttable presumptions and irrebuttable (or conclusive) presumptions. A rebuttable presumption will either shift the burden of production (requir ...

of community property; where there is any commingling, the burden of proof is on the party disputing the classification to "trace" the property back to individual property, and demonstrate an intent to keep it separated.

References

{{Authority control Legal ethics