Every household works out some arrangements for receipt, storage, distribution, and expenditure of the household’s financial assets. Most households stabilize those arrangements by such devices as budgets, allowances, pooled or separate bank accounts, and respon­sibility for payment of bills. So doing, members of households si­multaneously represent and shape their shared understanding of re­lations within the household and the household’s collective relations to others outside. Even when these arrangements smooth into rou­tines that household members take for granted, changing circum­stances produce controversies over finances. A new job, children growing into adolescence, a serious illness, and divorce all illustrate the sorts of adaptations most households make sooner or later. Most of the time, households deal with stressful changes by relying on their own resources or those of friends and family.

But some disputes over finances become occasions for legal ac­tion. As before, we can make a rough but useful distinction between struggles that develop out of the household’s internal relations and conflicts that begin with relations between the household and others outside. In the first category, let us look especially at disputes center­ing on pooled household financial assets; in the second, legal contro­versies over responsibilities of household members for the dubious activities of one of them. Of course, routine household financial management—how much family members spend, for what, how much is saved, and how the money is invested—gives rise to recur­rent domestic squabbles, but those disputes rarely go to court. Even if they did, the law would refuse to intervene in such private dis­agreements (Hartog 2000; Siegel 1994; for exceptional nineteenth – century cases in which courts did intervene, see Kahn 1996: 383). When households break up, however, their most routine financial practices often turn into bitter accounting disputes. Collective mon­ies must be relabeled, as his, hers, or theirs.

Lawyers and courts regularly distinguish between marital and nonmarital property: indissolubly mingled assets that belong to the household as such, and those they can somehow separate as belong­ing to contracting individuals. For example, courts often invoke the doctrine of transmutation, asking whether the couple undertook deliberate actions that converted individual assets into collective goods. Did a spouse, for instance, buy property with her funds but title it in both spouses’ names? Or did a husband deposit his separate money into a joint bank account with his wife? By doing so, it is usually assumed that separate funds convert into a marital asset (see Hadden 1993-94; Weyrauch, Katz, and Olsen 1994: 140-56).

In the absence of deliberate action, courts often apply a “source of funds” rule: they search the origins of the contested assets, seeking evidence that they did in fact belong to only one of parties. Did a husband acquire a property after the divorce? Did a wife get her money as a personal gift or bequest? Were the funds compensation for one spouse’s personal injury? In such cases, and with, of course, the usual, extensive state-to-state variation, the asset is often de­clared nonmarital. But not always. Tracking ownership is often a daunting legal quest. Commingling funds, for instance, is not defin­itive proof of their joint ownership. If spouses’ separate funds are commingled into a joint checking account and also used for collec­tive household expenses, the commingling does erase earlier traces of earlier separate ownership. But if the court is able to trace the separate monies in a joint account or investment fund, or show their personally earmarked uses, then a spouse often retains individual ownership rights.

That is what happened in the case of Tolley v. Tolley (592 N. W.2d 318 (Wis. Ct. App. 1999)). In 1988, Bertie Tolley had received some $300,000 for compensation of a personal injury, while Barbara, his wife, got about $21,000 for loss of consortium resulting from the injury. The couple deposited both awards in their joint names. When the Tolleys divorced, the court determined that the funds did not belong to the marital estate. Barbara appealed the decision, claiming that the commingling of awards in a joint account, com­pounded by the use of the monies for household expenditures had converted the funds into marital property. But the Wisconsin Court of Appeals rejected her claims, ruling that the source of the monies overrode their commingling. Citing an earlier case, the court under­lined the specificity of a personal injury award in these terms: “Just as each spouse is entitled to leave the marriage with his or her body, so the presumption should be that each spouse is entitled to leave the marriage with that which is designed to replace or compensate for a healthy body” (318).

From a doctrinal point of view, source of funds overwhelmed transmutation. A reverse outcome occurred in the divorce case of Spooner v. Spooner (850 A.2d 354 (Me. 2004)) in Maine’s Supreme Judicial Court. At stake here was an investment account with stocks worth about $60,000. A trust established by Deborah Spooner’s mother had endowed Deborah with those securities, which Deborah placed in a joint account with her husband, Stephen Spooner. The Spooners used some of the money to pay off credit card debts, “down payments on vehicles for both Stephen and Deborah, repay­ment of a car loan, Deborah’s dental work, and repayment of a col­lege loan for Deborah’s son” (357).

The district court trying the Spooner’s divorce was persuaded by Deborah’s claims—supported by a trust document establishing her as her mother’s sole beneficiary—that the stocks were hers alone, not her husband’s. Stephen disagreed and appealed the judgment. He argued that even if the assets had originated as Deborah’s personal funds, the stocks had converted into marital property once his wife had placed them in their joint account and they had spent the money for mutual debts and purchases. Transmutation, by his argument, had occurred. The Supreme Court agreed with Stephen and reversed the district court’s initial judgment. In so doing, the court made two crucial rulings in the case: first, that the doctrine of transmutation applies to securities, not just property; and second, that in the absence of strong evidence to the contrary, transmutation trumps source of funds. The court did not contest Barbara’s claim that her mother’s stocks had been a gift to her alone, but once she had placed them in a joint account, they ceased being her personal property.

In other cases, the legal dispute does not originate within the household, but in relations between the household and outside au­thorities. A striking case in point arises with tax obligations. Over the past half-century, U. S. households have usually filed joint tax returns and borne joint responsibility for any errors, misrepresenta­tions, or fraud. Internal Revenue Service guidelines make clear the extent of married couples’ joint liability: “Both taxpayers are jointly and individually responsible for the tax and any interest or penalty due on the joint return even if they later divorce. .. . One spouse may be held responsible for all the tax due even if all the income was earned by the other spouse” (Internal Revenue Service 2004).

What happens when a husband or a wife makes fraudulent claims of which the other spouse has little or no knowledge? Since often one spouse prepares the tax return and the other simply signs, the opportunity for serious trouble looms large. Indeed until 1971, under American tax law, the unwitting conspirator shared full liabil­ity for fraud, whether the couple was divorced or still married. Be­tween 1971 and 1998, however, Congress introduced some protec­tion for what it called an “innocent spouse.” If a wife or a husband could prove she or he was unaware and had no reason to know of any tax understatement, the IRS would exempt that spouse from unfair liability.

In 1989, for instance, a U. S. Court of Appeals declared Patricia Price an “innocent spouse,” reversing an earlier judgment by the U. S. Tax Court. In their 1981 joint federal income tax returns, Charles Price, her husband, had claimed a $90,000 deduction for expenses related to a Colombian gold mine investment. Patricia tes­tified she “thought [it] was a bit much,” yet reassured by her hus­band, she signed. When the IRS challenged the deduction some years later, Patricia pleaded innocence: she had trusted her hus­band’s business expertise without suspecting foul play. Although the Tax Court rejected her claims, the U. S. Court of Appeals was per­suaded, noting, among other factors, Patricia’s subordinate involve­ment in the household’s financial accounting system:

[W]e note that Patricia had limited involvement in the financial affairs of her marriage with Charles in general and none what­soever in the [gold mine] investment in particular.. .. Indeed, Charles held a separate checking account for his investments, while Patricia’s participation in the couple’s money matters ap­parently was limited to paying household expenses and the mortgage on their home. (Price v. Comm’r 887 F.2d 959, 965 (9th Cir. 1989))

Charles, concluded the Appeals Court, “had taken advantage of Pa­tricia’s lack of understanding of their financial affairs and misled her” (959). Nevertheless, under the legislation prevailing until 1998, few aggrieved spouses either filed for protection or won their cases (Willis 1998: 2).

In 1998, Congress responded to complaints by reducing joint lia­bilities further, but by no means eliminating them. In fact, Elizabeth Cockrell, who had agitated for tax reform, nevertheless lost her own case when it came to the U. S. Supreme Court. During their two – year marriage, John P. Crowley, Cockrell’s then husband, a com­modities broker who speculated in tax shelters, allegedly duped her into signing tax statements claiming fraudulent deductions for sham tax shelter losses. In 1990, nine years after their divorce, the IRS, unable to collect from Crowley, billed Cockrell, now a single mother of two, for $650,000. Cockrell’s claim of innocence faced several difficulties: her college education; her training as a stockbroker; her involvement, however limited, in her husband’s business; the cou­ple’s lavish living style; and the sheer size of the deductions for which the IRS was pursuing them. As a result, both the Tax Court and an Appeals Court rejected her defense (Cockrell v. Comm’r, 97­2 U. S. Tax Cas. (CCH) P50, 549 (2d Cir. 1997)).

Stung by her defeat, Cockrell became an outspoken advocate of legislative reform. She testified before the 1998 Senate Finance

Committee and created Women for IRS Financial Equity (WIFE) to defend vulnerable spouses. Congress did act on her group’s pro­posal: after the 1998 tax reform, the number of innocent spouse claims multiplied. Between 1999 and 2001, for instance, the IRS received over 150,000 relief requests (Cozort 2003; see also U. S. General Accounting Office 2002). Cockrell, however, did not bene­fit personally. In 1999, the U. S. Supreme Court refused to hear her argument that she was an “innocent spouse.” Yet concern about her plight continued: in December 2003, a Daily News gossip story re­ported that Hollywood movie producers were considering a movie about Cockrell’s experience and that of another innocent spouse (Grove 2003).