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There are multiple references when referring to the term comingling. Commingling in its most widespread definition is the act of illegally mixing investors funds with personal funds or with other investors funds. While this practice on its face is illegal, commingling if done correctly is not unlawful and in fact may actually benefit investors and principals.

The other definition of the term, the one that is legal, is when one party combines assets and funds of one investor with another with the intent to invest in a property or other investment. Many investment banks or syndicators use commingling to invest in assets that require multiple investors capital contribution to purchase an asset or investment.

When Commingling Occurs

–             Party’s Want to Purchase Real Property: When a properties high cost requires multiple investors, investors can combine their capital to purchase the property. The principal in the transaction whom is the party organizing the purchase can comingle funds into one investment fund and use the fund to make business purchases. When a party deposits a check into the fund, the funds are no longer personal in nature, rather the money becomes separate property.

–             Parties Wish to Purchase a Company or Invest in Mutual Funds: It is common for investment banks or syndicators to pool investors funds into one fund with the specific purpose of purchasing a company or investing in mutual funds. Having investors funds in one account makes the process of investing simpler, however typically requires an accountant or book keeper to maintain records of all costs associated with the investment.

Purpose of Commingling

Purchasing expensive properties or investing in mutual funds, particularly when they are high in value can be difficult. Commingling funds into one account makes the process of submitting offers more straightforward and increases the chance that a seller would entertain selling a property to buyer with funds in one account.

Commingling has been used for thousands of years, in form or another. Without commingling funds into one account, purchasing expensive property would be difficult to do because of the fact that dealing with various accounts can be difficult, time consuming, and expensive. Having funds in one account streamlines the process and gives the principal to make decisions on behalf of all investors, thereby reducing time and expenses.

The cost of doing business with one account, rather than multiple accounts drastically reduces unneeded costs because the need for managing various accounts is eliminated. Instead of hiring bookkeepers to keep track of multiple accounts, commingling gives principals the ability to invest on behalf of all parties at the same time when it involves one transaction.

The most common commingled accounts include mutual funds and institutional funds. Both types allow the portfolio manager or principal the ability to invest in a specific project without having objections or other issues associated with investing with multiple accounts.

Reputation of the Term Commingling

The term commingling has a reputation for being synonymous with illegal activities. Although in many instances, particularly in real estate, this is true, more often than not, if the proper steps are taken, there is nothing illegal with commingling. Commingling is only illegal when a principal does not disclose the fact that funds will be pooled with other funds into one account or when a principal temporarily borrows money from the fund, even if they intend on replacing the fund’s money. A principal has the fiduciary duty to manage investors funds with the greatest of care and to take the necessary precautions to avoid making any unlawful mistakes.