# Lowest Intermediate Balance Rule, With an Example

- Author: PreciseBankFlow (https://www.precisebankflow.com)
- Published: 2025-10-24
- Updated: 2025-10-24
- Category: Forensic review in disputes
- Canonical: https://www.precisebankflow.com/blog/lowest-intermediate-balance-rule

> The lowest intermediate balance rule for tracing commingled funds: how it works with a daily balance example, and where courts apply it differently.
The lowest intermediate balance rule traces money held for someone else after it is mixed into an account with the holder's own funds. Withdrawals are treated as coming from the holder's money first. The claimant can recover no more than the lowest balance the account reached after the mixing, even if the balance later recovered.

## What the lowest intermediate balance rule assumes about withdrawals

The lowest intermediate balance rule assumes that a person holding someone else's money in a mixed account spends their own money first. Only once the account falls below the amount held for the claimant is the claimant's money treated as gone. It is a legal presumption, not a finding about what the holder intended.

The Tenth Circuit described the rule in [Hill v. Kinzler (In re Foster), a 2001 Tenth Circuit opinion](https://ca10.washburnlaw.edu/cases/2001/12/00-1381.htm): withdrawals are presumed to come from the debtor's own funds, later deposits are not treated as trust money, and the beneficiary may recover only the lowest balance recorded after the funds were commingled. The same opinion calls the rule an "equitable fiction," which matters when courts decide whether to use it.

The rule appears wherever money that belongs to one person ends up mixed with another's: a trustee who deposits trust funds into a personal account, a business that holds customer deposits in its operating account, a debtor in bankruptcy holding funds for a third party.

## A daily balance example of the lowest intermediate balance rule

The example below shows the rule at work. A claimant's 20,000 is deposited into an account that already holds 5,000 of the holder's own money. The figures are illustrative.

| Day | Movement | Account balance | Traceable to claimant |
| --- | --- | --- | --- |
| 1 | Opening, holder's own money | 5,000 | 0 |
| 2 | Claimant's funds deposited | 25,000 | 20,000 |
| 5 | Withdrawal of 8,000 | 17,000 | 17,000 |
| 9 | Withdrawal of 6,000 | 11,000 | 11,000 |
| 12 | Holder deposits 15,000 of own money | 26,000 | 11,000 |
| 20 | Withdrawal of 4,000 | 22,000 | 11,000 |

On day 5 the first 5,000 of the withdrawal is treated as the holder's own money and the remaining 3,000 as the claimant's, leaving 17,000 traceable. On day 9 the account falls to 11,000, and the claimant's traceable share falls with it. The deposit on day 12 belongs to the holder and does not top up the claim. The withdrawal on day 20 comes out of that new money first. The claimant's traceable amount ends at 11,000, the lowest balance after day 2.

The remaining 9,000 is not necessarily lost. The claimant may still have an ordinary claim for it. It simply cannot be traced to this account.

## Do later deposits restore funds under the lowest intermediate balance rule?

Later deposits do not restore traced funds under the lowest intermediate balance rule. Once the account dips to a balance, that balance caps the claim from then on, however much the holder deposits afterwards. The Foster opinion states that later deposits are not subject to the trust, and withdrawals are presumed to come from those new funds first.

That is why month-end balances are not enough. An account can open the month at 30,000, fall to 2,000 for one afternoon and close at 28,000. On month-end figures the claimant appears fully covered. On daily figures the claim is capped at 2,000. The work has to use the lowest balance on any day after the mixing, and where a bank posts several items on one day, the order in which they post can matter.

## Where do courts set aside the lowest intermediate balance rule?

Courts set the rule aside when applying it would be unfair to other people with an equal claim to the same money. The clearest case is an account funded mostly by fraud on many victims, where tracing for one victim would let that victim recover ahead of the others whose money is mixed with theirs.

In Foster, the account held money from investors in a Ponzi scheme. The court said that "courts refuse to employ the lowest intermediate balance fiction where the commingled account is comprised largely of funds acquired from other fraud victims," and sent the case back for the lower court to consider the other creditors. Older authority points the same way: in [Cunningham v. Brown, the 1924 Supreme Court decision on Charles Ponzi's scheme](https://www.law.cornell.edu/supremecourt/text/265/1), the Court found the investors' deposits could not be traced and treated those who were repaid as creditors, invoking the principle that "equality is equity."

So the rule is a starting point. In a scheme with many victims, distributions often follow a pro rata approach instead, covered in [how Ponzi scheme bank records reveal net winners and losers](/blog/ponzi-scheme-bank-records). When a bankruptcy trustee seeks to recover transfers out of a commingled account, the tracing question sits beside the separate test of whether the transfer itself can be avoided, set out in [fraudulent transfer analysis in bankruptcy](/blog/fraudulent-transfer-analysis).

## Daily balances for the rule: building them from bank statements

The lowest intermediate balance rule needs a balance for every day from the date of commingling to the date of the claim. Many bank statements print a running or daily balance, which gives the daily figure directly. Where a statement shows only totals, the accountant rebuilds the daily balance from the opening figure and every posted line.

Before building the schedule, confirm the statements are complete. Each month's opening balance should equal the prior month's closing, and each statement should foot. [PreciseBankFlow](/get-started) foots each statement and marks any that are out of balance, so a missing page cannot quietly hide the day the balance hit its low.

A commingling dispute is easier to prevent than to trace. A business that holds customer deposits, client funds or escrowed money should keep them in a separate account and reconcile it on its own. An [internal control questionnaire for cash](/blog/internal-control-questionnaire-for-cash) asks whether that separation exists, and a "no" there is often the first sign that a tracing exercise lies ahead.