Commingling occurs in the financial sector when the assets (securities) of many investors are pooled into one fund, for example a mutual fund.
Mutual funds might be considered (like real estate investment trusts or REITS) as commingled assets or "pooled" funds. Thus, commingling is not necessarily negative. Mutual funds utilize the power of a large group of investors to maximize the benefits to each investor.
When commingling becomes an issue is when a small business owner commingles personal funds with those of a business. Creditors to the business can attach the funds. Both personal and business assets are put at risk.
Likewise, when property/asset from one spouse is commingled with the assets of the other spouse, there may be unforeseen results.
For example, if a gift or inheritance prior to marriage is deposited into a jointly held account, that inheritance is commingled. In many cases those funds might be considered as joint assets to the marriage.
Prior to marriage, establishing a separate trust account with the inheritance or gift may resolve future issues.
Commingling can also create financial problems if one individual commingles funds with another who might have significant creditor debt, for example when two partners commingle their funds in a business. The commingled funds become liable to seizure by a creditor for the debts, even though the debt was only from one individual.
Similar to the hazard of commingled funds - When a new business owner uses funds from their business to pay for personal expenses, this activity might well bring them to the attention of the IRS. The IRS has clear definitions of what constitutes a business expense.
The new entrepreneur needs to keep good records and not commingle funds and to keep personal and business expenses separate. Identify what are acceptable business related expenses for your industry and follow IRS guidelines for your industry.
Commingling of funds in personal finance can lead to far reaching consequences.
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