This case raises the question whether proceeds from the sale of a home are exempt from claims of creditors under the South Dakota homestead exemption, S.D. Codified Laws Sec. 43-45-3(2), when those proceeds are commingled with non-exempt monies in a savings account. We reverse the district court and hold that such proceeds do not lose their exempt status simply because they are commingled with non-exempt monies.

On April 11, 1986, the appellant, Diana Keleher, sold her home in Sioux Falls, South Dakota. She received $3,931.31 for the equity in the house. She deposited this entire sum in her bank account, bringing the balance to $12,288.52. She thereafter made a series of withdrawals.

On June 3, 1986, a levy on her account in the amount of $6,260.00 was made for a debt owed to the appellee, Technicolor Government Services, Inc. (Technicolor). At this time, Keleher had $8,217.10 in her account. On that same day, Keleher received notice of the levy. On June 9, 1986, she filed a claim of exemptions, including one for the homestead proceeds.

On November 3, 1986, after a hearing, the district court held that because Keleher had deposited the proceeds from the sale of the homestead in the savings account with non-exempt funds, the homestead proceeds lost their identity and thereby their exempt status.1

In this diversity case, we must determine what the highest court in South Dakota would hold were it called upon to decide the issue. See Kifer v. Liberty Mutual Insurance Co., 777 F.2d 1325, 1329 (8th Cir.1985). We must also grant the interpretation of South Dakota law by this federal district judge sitting in South Dakota substantial deference unless it is "fundamentally deficient in analysis or otherwise lacking in reasoned authority." Dabney v. Montgomery Ward & Co., Inc., 761 F.2d 494, 499 (8th Cir.), cert. denied, 474 U.S. 904, 106 S. Ct. 233, 88 L. Ed. 2d 232 (1985).

We look first to the statute. Section 43-45-3(2) states that when a homestead is sold:

under the provisions of chapter 21-19, or is sold by the owner voluntarily, the proceeds of such sale, not exceeding the sum of thirty thousand dollars, is absolutely exempt for a period of one year after the receipt of such proceeds by the owner.

The South Dakota Supreme Court has liberally construed the homestead exemptions. That court stated in Speck v. Anderson, 318 N.W.2d 339 (S.D.1982), "[t]here is no question but that this court has over the years jealously and assiduously protected the homestead exemptions guaranteed by our constitution and statutes." Id. at 343. In Speck the South Dakota Supreme Court quoted In re Schneider's Estate, 72 S.D. 174, 179, 31 N.W.2d 261, 264 (1948), where the South Dakota Supreme Court stated that "[t]hroughout the entire history of this court no inroads upon the homestead exemption have been recognized except such as were clearly in accord with the constitutional mandate, Art. XXI, Sec. 4, Constitution of South Dakota, and found clear expression by the legislature" (emphasis added).

In Aisenbrey v. Hensley, 70 S.D. 294, 17 N.W.2d 267, 269 (1945), the South Dakota Supreme Court stated the rule that the "debtor in the absence of any expression of a contrary intention should be presumed to intend no further peril to his homestead right than the necessity demanded."

We can find no statutory or constitutional language supporting the district court's decision. Moreover, it is readily apparent that convenience, rather than necessity, prompted Keleher to deposit her homestead proceeds in her savings account along with other monies. She gained nothing from this action except avoiding the bother of establishing an additional account. Because her account never dipped below the amount of the homestead proceeds, she never effectively withdrew more money from her account than she had before she deposited the homestead proceeds.

In effect, we are only presuming that Keleher intended to spend her homestead proceeds last, as any rational person would do in her position. This clearly comports with the rule enunciated in Speck and Aisenbrey that a debtor cannot be presumed to willingly imperil his or her homestead exemption unless "necessity" so requires or unless the debtor does so expressly.2

The district court cited no South Dakota cases in ruling that homestead proceeds lose their exemption when they are commingled with other monies. It also did not explain its holding. In light of this and the above analysis of South Dakota law, therefore, we reverse the district court.