Transmutation in Property Division Tennessee Divorce Law
Transmutation in Tennessee divorce law: property division and classification.
Transmutation means a spouse can convert separate property into marital property by gift or other legal transfer. The marital property can then be subject to equitable division in Tennessee divorce.
Just like commingling, transmutation is a means by which property loses its original character over the course of a marriage. Commingling occurs when marital property is combined with separate property and becomes “inexplicably mingled” until it is impossible to distinguish between the separate and marital property. Similarly, transmutation occurs when spouses treat separate property like marital property to the point where courts cannot discern the separate nature of the property. A rebuttable presumption is created that the spouse has made a gift of the property to the marital estate. This presumption is rebutted when parties present evidence of circumstances or communications that clearly indicate intent that the property remain separate. Transmutation may also occur when spouses treat marital property as separate property during a marriage. Marital property is transmuted into separate property when one spouse intends for the property to be a gift to the other spouse. The following three cases illustrate instances where divorcing spouses have attempted to claim transmutation of property in Tennessee.
Woodward v. Woodward demonstrates that transmutation can occur even in very brief marriages. Mr. and Mrs. Woodward separated after only 18 months of marriage. Before the marriage, Mr. Woodward owned two houses in Hixson, Tennessee, independently of Mrs. Woodward. The first property at issue was sold during the marriage for $81,272, and $57,000 of that amount remained at the time of the divorce. The second property at issue served as the couple’s residence during the marriage. Despite the fact that Mr. Woodward acquired the property before the marriage, the trial court awarded Mrs. Woodward half of the value of the residence. Mrs. Woodward was also awarded a one-half interest in the value of the appreciation of the second property, that served as the marital residence.Mr. Woodward appealed the trial court’s division of the two homes, and claimed that the parties intended for the property to remain separate through the course of the marriage. The Tennessee Court of Appeals disagreed with Mr. Woodward, and affirmed the holding of the trial court that both properties were part of the marital estate. Mr. Woodward’s mistake was retitling both of the homes jointly with Mrs. Woodward after the marriage. This retitling created a rebuttable presumption that Mr. Woodward gifted the homes to the marital estate. Mr. Woodward also deposited the proceeds from the sale of the first home into the parties’ joint account and used the second home as the marital residence, which served as further evidence of Mr. Woodward’s intent that the property be transmuted.
The presumption that a gift has occurred when separate property is retitled as joint property or used as a marital residence may be refuted when one spouse proves that the property was clearly intended to remain separate. This is what occurred in Patton v. Patton. Shortly before the parties married, Mr. Patton purchased a home with a down payment of $73,000 and borrowed $9,500 from Mrs. Patton in return for a promissory note to add to the down payment. Mrs. Patton also purchased an unimproved property before the marriage, to which Mr. Patton contributed $10,000. The parties never titled either property jointly, but they did use the home as the marital residence. At trial, Mr. Patton testified that he purchased the home as separate property before the marriage because his marriage to Mrs. Patton was her fourth marriage. He explained: “I would be putting myself I thought at great risk to purchase anything jointly with her. I really didn’t know what would happen, what would transpire in the marriage, but the history pretty much speaks for itself so I was trying to protect my assets and my property.” Despite Mr. Patton’s testimony, the trial court held that the home and the unimproved land transmuted into marital property over the course of the nine-year marriage.
Mr. Patton appealed the decision of the trial court and asserted that the property remained separate throughout the marriage. The Tennessee Court of Appeals agreed with Mr. Patton and modified the decision of the trial court to reflect that the property was not transmuted during the marriage. Although the parties resided together in the home during the marriage, Mr. Patton’s refusal to title the home jointly after the parties married rebutted the presumption that a gift was made of the property to the marital estate. Mr. Patton’s payment of the mortgage, payment of taxes, and maintenance of the property from his personal income served as further evidence of his intent to keep the property separate. The appellate court applied the same reasoning to find that the unimproved land owned by Mrs. Patton was also separate property.
While separate property is often transmuted into marital property over the course of a marriage, marital property may also be transmuted into separate property by the actions of the parties. This concept is illustrated in Kinard v. Kinard. Mr. Kinard and Mrs. Kinard were married for over thirty years. The couple amassed a substantial estate with the income earned by Mr. Kinard as a pharmacist and proprietor of nine drugstores. When the parties divorced, Mrs. Kinard claimed the marital estate was worth $600,000. In contrast, Mr. Kinard claimed the value of the marital estate was $850,000. Mr. Kinard’s valuation of the marital estate included $20,800 of crystal, china, and silver; two brokerage accounts worth about $50,000 opened by Mr. Kinard in Mrs. Kinard’s name during the marriage; Mrs. Kinard’s jewelry worth $38,000; and a home in Mississippi purchased by the parties during their marriage that was titled in the names of Mrs. Kinard and the couple’s son. Mrs. Kinard claimed these assets were her separate property, but the trial court disagreed and held that all four of the properties were transmuted into the marital estate.
Mrs. Kinard appealed the holding of the trial court and asserted that the china, silver, crystal, brokerage accounts, jewelry, and Mississippi home were all her own separate property. The Tennessee Court of Appeals agreed with Mrs. Kinard and modified the holding of the trial court. At trial, Mrs. Kinard testified that the crystal, china, silverware, and jewelry were amassed as wedding gifts and as special-occasion gifts from Mr. Kinard over the course of the marriage. The appellate court held that the testimony indicated Mr. Kinard intended for these items to serve as gifts; thus, the items were never transmuted into the marital estate. The home titled in the names of Mrs. Kinard and her son was acquired with marital funds. Despite this fact, the appellate court held that the affirmative act of titling the home in the names of Mrs. Kinard and her son without Mr. Kinard’s name indicated an intent to keep the home as separate property. Finally, the appellate court used a note written by Mr. Kinard to Mrs. Kinard at the opening of one of the bond accounts to hold that the two bond accounts were Mrs. Kinard’s separate property. Mr. Kinard wrote to Mrs. Kinard: “I have told [the bondsman] to put this account in your name—not joint. I can still speak with him—but it will be your money and decision.” This note, along with Mr. Kinard’s trial testimony that he opened the accounts in Mrs. Kinard’s name because Mrs. Kinard complained that she owned no personal assets, served as proof of Mr. Kinard’s intent that the property remain separate.
Transmutation occurs when the parties intend for the nature of certain property to change. A rebuttable presumption arises that one spouse has given a gift to the marital estate when that spouse takes affirmative steps to change the separateness of property owned before the marriage. That separate property is transmuted into marital property that is divisible by both spouses at divorce. If evidence exists that the parties intended for the property to remain separate, Tennessee courts are reluctant to infer transmutation. Conversely, property acquired during the marriage may be transmuted into separate property if the property is treated as a gift from one spouse to the other. As the above cases illustrate, it is important that each spouse keep detailed records of the nature and intent of every piece of property acquired both before and during a marriage.
Resources, References and More:
- Property Division in Tennessee Divorce
- Tennessee Property Division Divorce Laws & Factors | Answers to FAQs
- Business Valuation in Tennessee Divorce Law
- Property Division – Tennessee Family Law Blog for analysis, commentary, updates and case law summaries
- Your First Steps: 7 Steps Planning Your Tennessee Divorce | Free eBook