Legal Definitions - comingle

The term commingle (sometimes spelled "comingle") refers to the act of mixing funds or property that, by law, contract, or ethical duty, should be kept separate. This often occurs when an individual or entity responsible for managing another's assets combines those assets with their own personal funds or property, or with other funds that belong to different parties.

Here are some examples to illustrate the concept of commingling:

• Example 1: A Trustee and Estate Funds

  Imagine a person appointed as a trustee to manage the assets of a deceased relative's estate. The trustee has a legal duty to keep the estate's money distinct from their own personal finances. If the trustee deposits a large inheritance check belonging to the estate directly into their personal checking account, where their own salary and household expenses are managed, they have commingled the estate funds with their personal funds. This action is a breach of their fiduciary duty because it makes it difficult to track which money belongs to the estate and which belongs to the trustee personally, potentially leading to misuse or confusion.

• Example 2: A Real Estate Broker and Client Deposits

  A real estate broker receives an earnest money deposit from a potential buyer for a property. Legally and ethically, this deposit must be held in a separate, designated escrow or trust account until the sale is finalized or falls through. If the broker instead deposits the buyer's earnest money into their general business operating account, which they use to pay office rent, utilities, and staff salaries, they have commingled the client's funds with their own business funds. This is a serious violation that can result in disciplinary action, as it puts the client's money at risk and blurs the financial lines.

• Example 3: A Small Business Owner and Corporate Assets

  A small business owner operates their company as a separate legal entity, such as a corporation or LLC, to protect their personal assets from business liabilities. To maintain this separation, the owner must keep the company's finances distinct from their personal finances. If the owner frequently pays for personal expenses like their home mortgage, children's tuition, or family vacations directly from the company's bank account, without proper accounting or reimbursement, they are commingling personal and corporate funds. This can undermine the legal protection of the corporate structure, potentially allowing creditors to "pierce the corporate veil" and hold the owner personally liable for business debts.