The lowest intermediate balance rule caps what you can recover from a commingled account at the lowest balance that account reached after your money was deposited into it. If a trustee mixes $50,000 of your funds into a personal checking account and the balance later dips to $12,000, your traceable claim is $12,000. Anything the account holds above that low-water mark afterward is treated as somebody else’s money. Courts use the rule because they need a principled way to identify whose dollars are whose once a wrongdoer has blended trust funds with personal cash.
The Presumption That Protects You
The rule rests on a legal fiction that works in the claimant’s favor: when money leaves a commingled account, the law presumes the account holder spent their own funds first. A trustee who mixes $10,000 of trust money with $5,000 of personal money and then writes a $4,000 check is treated as having drawn only on personal funds. The trust balance stays intact at $10,000 until the personal portion is entirely gone.
This is not a favor to the wrongdoer. It keeps the claimant’s money whole for as long as the arithmetic allows. Only after the personal balance is exhausted does a withdrawal begin cutting into trust funds. The account holder stands at the front of the line for spending; the claimant sits at the back, protected until nothing else is left to spend.
How to Calculate the Recovery Ceiling
Look at every balance the account held between the moment your funds were deposited and the moment you assert your claim. The lowest of those balances is the most you can trace. What the account held before your deposit or after the dip does not matter. The low point controls.
Suppose someone deposits $20,000 of client money into a personal account already holding $8,000. The combined balance is $28,000. Over the following months, personal spending and bills pull the balance down to $3,000. The client’s traceable interest is now $3,000. Twenty thousand dollars went in, but $17,000 of it was spent and can no longer be identified in the account. People routinely overestimate what they can recover because they focus on what went in rather than what survived.
If the account hits zero at any point, the tracing claim is destroyed. Nothing remains to trace into. The claimant still has a personal claim against the wrongdoer for the amount owed, but the special advantage of tracing, which puts you ahead of other creditors on specific dollars, is gone.
Why Later Deposits Do Not Refill Your Claim
New money coming into the account does not rebuild your traced interest. A paycheck or tax refund the account holder deposits after the balance has already dipped belongs to the account holder. The law does not assume the wrongdoer meant to replace what they took.
The logic follows from what tracing is. Tracing follows specific value. Once trust money leaves the account, from a tracing perspective it is gone. A later deposit is unrelated money that happens to land in the same bank account. Letting a claimant jump from the original funds into new deposits would let them leapfrog other creditors with legitimate claims against the account holder’s general assets.
One narrow exception exists: proof that the account holder intended to replenish the trust. A written note, a transfer labeled “trust reimbursement,” or a contemporaneous ledger entry earmarking the deposit to restore the trust balance can support a claim to those later funds. Without that kind of paper trail, your interest stays frozen at the lowest intermediate balance. Arguments for implied replenishment almost never succeed without documentation.
Tracing Into Assets the Money Bought
The rule does not limit you to cash sitting in a bank account. When commingled trust funds are used to buy something tangible, such as real estate, a vehicle, or securities, you can follow your money into that asset. If a trustee uses $80,000 from a commingled account to buy a boat, and $60,000 of that account was trust funds at the time of purchase, the beneficiary can assert a claim against the boat itself.
You typically choose your remedy based on what happened to the asset’s value. If the asset appreciated, a constructive trust is usually better because it gives you ownership of the asset, gains included. If the asset lost value, an equitable lien is preferable because it preserves your right to recover the original amount from the wrongdoer’s other assets. Trust funds used to buy stock that later triples in value are a good example: claiming a constructive trust on the shares is worth far more than recovering the original dollar amount.
Tracing into assets works only when the funds can actually be followed. If the wrongdoer used the money to pay off credit card debt or buy something immediately consumed, there is no asset to reach, and you are back to the lowest intermediate balance in the account.
When Several Claimants Share One Account
Things get harder when multiple victims’ funds land in the same commingled account. If a financial advisor deposits money from three clients into one account and starts spending, each client needs a way to figure out how much of the remaining balance belongs to them.
Courts overwhelmingly favor a pro rata approach. Under the Restatement (Third) of Restitution and Unjust Enrichment § 59, claimants share the traceable balance in proportion to their original contributions. If Client A deposited $100,000 and Client B deposited $50,000, and the lowest intermediate balance is $30,000, Client A takes two-thirds ($20,000) and Client B takes one-third ($10,000). No claimant gets to grab the entire remaining balance just because their deposit came first.
Some older decisions applied a first-in, first-out method that treated earlier deposits as the first money spent. That approach could wipe out one claimant while leaving another whole based purely on timing. Most courts have moved away from it because arbitrary results feel especially wrong when multiple innocent victims are competing for the same shrinking pool. Pro rata treats similarly situated claimants equally, which is what equity is for.
What Happens in Bankruptcy
In bankruptcy, the rule determines whether money in a debtor’s account belongs to the bankruptcy estate or to a third party. When a debtor holds property in trust for someone else, only the debtor’s legal title enters the estate. The beneficial interest stays with the trust beneficiary.1Office of the Law Revision Counsel. 11 USC 541 – Property of the Estate
The practical problem is proving how much of a commingled account is trust property. If a debtor mixed $30,000 of client funds with personal money and the account dropped to $10,000 before filing, the client can exclude only $10,000 from the estate. The remaining $20,000 shortfall becomes an unsecured claim, which in most bankruptcies means pennies on the dollar, if anything. The governing subsection provides that property where the debtor holds only legal title, without an equitable interest, enters the estate only to the extent of that legal title.1Office of the Law Revision Counsel. 11 USC 541 – Property of the Estate
The gap between proving a $10,000 traced interest and failing to trace at all is the gap between recovering real money and standing in line with every other unsecured creditor. Bankruptcy trustees scrutinize account records aggressively, and a claimant who cannot produce transaction-level documentation showing the lowest intermediate balance often loses their preferred position entirely.
Proving Your Tracing Claim
The burden is on the person asserting the claim. You have to reconstruct the account’s balance at every relevant point between the moment your funds entered and the moment you make the claim. That means bank statements, deposit records, withdrawal receipts, and ideally a day-by-day ledger showing how the balance moved.
Courts vary in how strictly they enforce this. Some demand granular, transaction-by-transaction accounting tied to specific sources. Others accept a more generalized showing, particularly when the wrongdoer’s poor recordkeeping makes precise reconstruction impossible. The more detailed your records, the stronger your position. Claimants who arrive with a spreadsheet mapping every transaction to a source tend to prevail; those who wave at monthly statements and ask the court to fill in the gaps tend to lose.
The wrongdoer’s own records are often the key evidence. Subpoenaed bank records, canceled checks, wire transfer confirmations, and brokerage statements can reveal the full transaction history. Informal books the wrongdoer kept can establish both the timing and the purpose of deposits and withdrawals. Forensic accountants routinely reconstruct these histories for litigation, and while their fees can be substantial, the alternative is losing the tracing claim.
Ponzi Schemes and Fraud Recoveries
Ponzi schemes are a particularly harsh version of the commingling problem. Every dollar paid to an early investor came from a later investor’s deposit, and the “profits” shown on account statements never existed. When the scheme collapses, a trustee or receiver has to work out who gets what from whatever remains.
Courts typically separate an investor’s actual principal from any fictitious profits received. Someone who invested $100,000 and withdrew $130,000 before the collapse got $100,000 of their own money back plus $30,000 of someone else’s money disguised as returns. That $30,000 is a fraudulent transfer and can be clawed back. Someone who invested $100,000 and withdrew only $40,000 has an allowed claim for the $60,000 shortfall.
Many courts apply what is called the Ponzi scheme presumption to streamline these recoveries. Once the fraud is established, the court presumes the debtor acted with intent to defraud, was insolvent from the start, and did not receive fair value for any payments exceeding an investor’s principal. That relieves the trustee from having to prove those elements for every individual transaction, which in a scheme with thousands of victims and years of activity would be nearly impossible.
The lowest intermediate balance rule sits in the background of these cases, determining how much of the remaining pool can be attributed to claimants as a group rather than to the wrongdoer. Claimants then share that amount pro rata based on their net investments. Full recovery is rare, but the loss gets distributed more fairly than it would if the first claimants to file could take everything.