Facts: During an eight year marriage, the parties kept their finances separate except for a joint account that was rarely used. Husband moved into Wife’s residence on Loma Dr., which was Wife’s separate property. Husband funded a renovation of the basement of the Loma Dr. property, for which he was reimbursed by Wife. The parties refinanced the mortgage on the Loma Dr. property, thereby adding Husband’s name to the deed while keeping Wife is the only party obligated on the loan. Wife purchased another property and sold the Loma Dr. property shortly thereafter, resulting in the receipt of $172,000. Wife instructed Husband to deposit the check. Husband deposited it in his private checking account and never gave Wife any of the money. Wife believed the money was sitting in the bank account. She later learned Husband had spent all of the money on a boat, credit cards, and sundry other expenses, including over $10,000 in checks payable to “cash.” After trial, the trial court granted the divorce and ruled the Loma Dr. property was Wife’s separate property and that Husband had dissipated the proceeds from its sale, for which Wife was awarded a judgment. Husband appealed.
On Appeal: The Court of Appeals affirmed the trial court.
Husband first argued the trial court improperly classified the Loma Dr. property as Wife’s separate property because it had transmuted into marital property.
Tennessee is a “dual property” state, meaning a trial court must identify all of the assets possessed by the divorcing parties at either separate or marital property before dividing the marital estate. Separate property is not part of the marital estate and is therefore not subject to division. Separate property can become part of the marital estate due to the parties’ treatment of the separate property. The doctrines of transmutation and commingling provide an avenue were separate property can become marital property.
Transmutation occurs when separate property is treated in such a way as to give evidence of an intention that it become marital property. One method of causing transmutation is to purchase property with separate funds but to take title in joint tenancy. This may also be done by placing separate property in the names of both spouses. The rationale underlying both doctrines is that dealing with property in these ways creates a rebuttable presumption of a gift to the marital estate. This presumption is based also upon the provision in many marital property statutes that property acquired during the marriage is presumed marital. The presumption can be rebutted by evidence of circumstances or communications clearly indicating an intent that the property remain separate.
After reviewing the evidence, the Court concluded that Wife had rebutted the presumption of transmutation, writing:
We agree with the trial court that the addition of Husband’s name to the deed created a rebuttable presumption that Wife gifted her separate property to the marital estate. However, we, like the trial court, cannot ignore way in which these parties treated the obligations arising out of the care and maintenance of Loma Drive. Wife was the only party obligated on the mortgage and was the only party that paid the mortgage and other expenses related to the property. Additionally, Husband demanded to be reimbursed for his one-time investment in the property when he renovated the basement. In short, the parties evidenced a clear intent to keep Loma Drive as Wife’s separate property.
Accordingly, the trial court’s judgment was affirmed.
Information provided by K.O. Herston: Knoxville, Tennessee Matrimonial, Divorce and Family Law Attorney.