TN Wife’s Inheritance Remains Her Separate Property, Despite Joint Account

Tennessee case summary on transmutation in divorce.

Robert Harold Douglas v. Susan Mercedes Douglas

The husband and wife in this Tennessee divorce case were married in 1995 and separated in 2013.  They had one child, who was already over the age of majority at the time of the divorce.

One of the major assets was a bank account with a value of about $2.4 million, containing funds that the wife had inherited from her father after his death in 2010.  The inheritance was the sole source of funds in that account.

After the wife inherited the money, she met with a financial advisor and decided to set up a joint account with her husband with right of survivorship.  She testified that she made this decision on her own, based upon potential inheritance tax consequences.

After opening the account, the wife started withdrawing $5000 per month, and used the money to support the family, and to buy some big ticket items.  She testified that the husband never participated in the management of the account.

In 2012, the wife contacted the bank and had the husband removed from the account.  She stated that she did this for tax reasons, but also because they were experiencing marital difficulties.  The husband never signed the document removing his name from the account.  He testified that he had no knowledge that he had been removed from the account until after the separation.  The document was actually signed in the husband’s name by the parties’ daughter, although it was disputed whether the mother asked her to sign.

The trial court held that the bank account was the wife’s separate property, and the husband appealed to the Tennessee Court of Appeals.  On appeal, he argued that the account had become marital property under the doctrine of transmutation.

The trial court had held that the title on the account was not relevant, since it found that the wife had titled it jointly for tax purposes, and not with the intent to make the money marital property.  Therefore, even if the later transfer to her name individually was fraudulent, this was not relevant.  The lower court had held that even though she had made some gifts to the marriage from the account, there was no intent to make a gift of the funds still remaining in the account.

The Court of Appeals first noted that the doctrine of transmutation requires evidence of an intention to make separate property into joint property.  The party trying to show transmutation bears the burden of proof.

One factor to consider is how the property is titled.  However, that can be rebutted by evidence showing that the spouse intended to keep the property separate.  In this case, the appeals court agreed that the wife’s explanation of her tax-related reasons, was sufficient to rebut the presumption caused by how the property was titled.

The court also agreed that the subsequent change to separate property was not relevant, because the property was already separate property, and at most, the wife had changed it from one kind of separate property to another kind of separate property.

For these reasons, the Court of Appeals agreed with the lower court and affirmed the lower court’s order.

No. W2015-02044-COA-R3-CV (Tenn. Ct. App. Aug. 8, 2016).

See original opinion for exact language.  Legal citations omitted.

To learn more, see Transmutation in Tennessee Property Division Divorce Law.