Facts: The parties were married for six years. Prior to the marriage, Wife owned the house that became the marital residence. During the first few years of marriage, the parties had a joint checking account from which the mortgage on the marital residence was paid. After approximately four years, Wife established a separate account into which her earnings were deposited and from which thereafter the mortgage on the marital residence was paid. During the marriage, Wife established a home equity line of credit from which both parties borrowed money. In order for Husband to borrow money via the home equity line of credit, the bank required Wife to title the home in both parties’ names. After a lengthy trial, the trial court classified the marital residence as Wife’s separate property. Husband appealed.

On Appeal: The Court of Appeals reversed the trial court.

Husband — citing the fact that the parties lived together in the home for the entire six years of marriage and the quit claim deed transferring title from Wife individually to Wife and Husband as tenants by the entirety — argued the home became marital property under the doctrine of transmutation, and thus should have been equitably divided as part of the marital estate.

Tennessee is a “dual property” state because its domestic relations law recognizes both “marital property” and “separate property.” When a married couple seeks a divorce, the “marital property” must be divided equitably between them, without regard to fault on the part of either party. “Separate property” is not part of the marital estate and is therefore not subject to division.

Broadly speaking, “separate property” is all real and personal property owned by a spouse before marriage. “Marital property” is defined as all real and personal property, both tangible and intangible, acquired by either or both spouses during the course of the marriage up to the date of the final divorce hearing and owned by either or both spouses as of the date of filing of a complaint for divorce.

Separate property can become part of the marital estate due to the parties’ treatment of the separate property. Separate property becomes marital property via “commingling” if it is inextricably mingled with marital property or with the separate property of the other spouse. If the separate property continues to be segregated or can be traced into its product, commingling does not occur. “Transmutation” occurs when separate property is treated in such a way as to give evidence of an intention that it become marital property. The rationale underlying these 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 to be marital. The presumption can be rebutted by evidence of circumstances or communications clearly indicating an intent that the property remain separate. Four of the most common factors courts use to determine whether real property has been transmuted from separate property to marital property are: (1) the use of the property as a marital residence; (2) the ongoing maintenance and management of the property by both parties; (3) placing the title to the property in joint ownership; and (4) using the credit of the non-owner spouse to improve the property.

After reviewing the record, the Court reasoned as follows:

The undisputed evidence about the reason Wife executed the quit claim deed rebuts any presumption stemming from the parties’ joint ownership of the [marital residence]. . . .

The [marital residence] started out as Wife’s separate property, since Wife owned it in her sole name prior to the marriage. . . . Even if Husband’s financial contributions to the joint account were minimal, once funds were deposited in the account from any source, they were owned by the parties jointly. For several years, the mortgage payment on the [marital residence] was paid from this joint account. The parties, of course, lived together in the [marital residence] throughout their marriage. Husband consistently made significant improvements to the home. Both parties borrowed monies from the equity in the home. While no one factor is determinative, all of this considered together is evidence of an intention that the [marital residence] become marital property. . . .

Under all of these circumstances, we must conclude that the evidence in the record preponderates against the trial court’s finding that the [marital residence] remained Wife’s separate property. We hold that the evidence preponderates in favor of a finding that the [marital residence] became marital property and should have been included in the parties’ marital estate for purposes of the trial court’s division of property.

The case was remanded to the trial court to reconsider the equitable divisionand of the marital estate in light of the Court’s reclassification of the marital residence.

K.O.’s Comment: Note that the Court says mortgage payments made by Wife from her separate account into which only her earnings were deposited supports a finding of transmutation because her earnings were themselves marital property. This reinforces the necessity of a prenuptial agreement.

Hayes v. Hayes (Tennessee Court of Appeals, Western Section, October 18, 2012).

Information provided by K.O. Herston: Knoxville, Tennessee Matrimonial, Divorce and Family Law Attorney.