Facts: Husband and Wife divorced after 39 years of marriage.

Prior to their lengthy marriage, Husband served in the Vietnam War. A few months before Wife filed for divorce, Husband received a lump sum award from the Department of Veterans Affairs (“VA”) in the amount of $125,399. The benefits were awarded to Husband as a result of his exposure to Agent Orange during the Vietnam War. The award letter explained that $15,399 of the retroactive benefits were attributable to Husband’s marriage status.

The lump sum VA benefit was automatically deposited into their joint checking account. Husband and Wife subsequently purchased a certificate of deposit in the amount of $110,000 from the VA benefit proceeds. This allowed Wife equal access to the money.

The trial court classified the certificate of deposit opened with Husband’s retroactive VA benefits as marital property as a result of transmutation. The trial court then divided the marital assets.

Husband appealed.

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

Husband argued his retroactive VA benefits were not subject to division by the trial court because they never were transmuted into marital property. He explained he purchased the certificate of deposit solely to ensure that the funds would transfer to Wife in the event of his death. He notes he did not transfer the amount that was attributable to Wife, namely $15,399, because he sought to separate his benefits from Wife’s portion.

Wife responded by noting the VA benefit was used to purchase a joint certificate of deposit that allowed her equal access to the funds, thereby expressing Husband’s intent that the VA benefit be treated as marital property.

Because Tennessee is a “dual property” state, a trial court must identify all of the assets possessed by the divorcing parties as 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 whereby 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 title it jointly. This may also be done by placing separate property in the names of both spouses. The rationale underlying this doctrines is that dealing with property in this way creates a rebuttable presumption of a gift to the marital estate. This presumption is based also upon the provision in Tennessee’s 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 record, the Court concluded:

While the retroactive VA benefits were awarded for Husband’s service prior to the marriage, Husband used the funds to purchase a joint certificate of deposit with Wife, thereby creating a rebuttable presumption that the certificate of deposit was marital property. Husband argues that he only intended for the funds to transfer to Wife upon his death. However, the certificate of deposit allowed Wife equal access to the money throughout Husband’s lifetime and required both signatures for either party to access the money. Husband simply submitted no evidence to establish that he ever intended to keep the retroactive VA benefits as his separate property during the marriage. On the contrary, Husband’s intent to keep the benefits as his separate property surfaced only after the demise of the marriage. Accordingly, the evidence supports the determination of the trial court that the certificate of deposit purchased with the VA benefits was marital property.

Accordingly, the trial court’s property classification was affirmed.

Phipps v. Phipps (Tennessee Court of Appeals, Eastern Section, January 27, 2015).

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