Facts: Husband and Wife divorced after 18 years of marriage. The issue on appeal involves the classification of a joint account as Wife’s separate property.
During the marriage, Wife inherited funds from her late father. She placed them in a Wells Fargo account that was a joint account with a right of survivorship held in both her and Husband’s names. She testified she decided to create the joint account with a right of survivorship so, in the case of her death, the account would avoid being subject to probate. The inheritance tax consequences were also less with a joint account with a right of survivorship.
Several months after establishing the account, Wife began withdrawing $5000 per month to purchase various marital assets. Husband never deposited or withdrew any funds from the account. Husband also did not participate in the management of the account.
The year before the parties separated, Wife sought to remove Husband from the account. Wife said this was for tax purposes. She obtained a transfer letter from Wells Fargo that would remove Husband from the account.
After Husband did not sign the transfer letter, Wife noticed the parties’ daughter had signed Husband’s name. The daughter testified that Wife asked her to sign Husband’s name. Wife submitted the letter and had Husband removed from the account.
Husband testified he had no knowledge that he had been removed from the account until the parties separated.
At the time of trial, the account was valued at approximately $2.4 million.
The trial court found that Wife’s intent by titling the account in both parties’ names was for estate planning purposes and to avoid certain estate taxes. The trial court concluded Wife had no intent to gift the funds to the marital estate. Therefore, the account was classified as Wife’s separate property.
On Appeal: The Court of Appeals affirmed the trial court.
Tennessee law distinguishes between separate property and marital property in divorce proceedings. The trial court is charged only with providing an equitable division of the parties’ marital property. Accordingly, the trial court must first classify the parties’ property as marital or separate. Typically, property that is acquired during the marriage is deemed marital property. On the other hand, “separate property” includes, among other things, property acquired by a spouse at any time by gift, bequest, devise or descent.
Separate property can become marital property subject to division, however, through the doctrine of transmutation. When the parties treat separate property in a way that manifests an intent that the property become marital property, transmutation occurs. The rational underlying this doctrine is that dealing with property in such a way creates a rebuttable presumption of a gift to the marital estate. This presumption is based 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.
The party claiming that the separate property has been transmuted into marital property carries the burden of demonstrating that transmutation has occurred.
One of the ways transmutation can be proven is by evidence that property has been titled in the names of both spouses. Such property may begin as separate property but be subsequently placed in the names of both spouses. The theory is that dealing with property in this way creates a rebuttable presumption of a gift to the marital estate. The presumption, however, may be rebutted based upon evidence clearly indicating an intent that the property remain the spouse’s separate property.
The Court found Wife successfully rebutted the presumption created by the joint account, explaining:
The joint titling of the Account raises a presumption that Wife intended for the property to be a gift to the marital estate. . . . Wife testified that her intent was not to gift the Account to the marital estate. Instead, she testified that her intent in jointly titling the Account was for estate planning purposes, such as avoiding certain tax consequences. Wife specifically stated that she wanted the Account to avoid the probate process, and she believed that titling the Account jointly with a right of survivorship would accomplish this goal. . . . In addition, the parties do not dispute that Husband had no involvement with the Account other than being listed on it. Husband never participated in any management of the funds and did not utilize the funds for any reason. Equally important, Wife’s occasional use of funds from the Account for her family is insufficient to demonstrate that she intended for the Account to be a gift to the marital estate. Accordingly, we conclude that Wife has rebutted the presumption that she intended for the funds in the Account to become marital property.
Husband also argued he was fraudulently removed from the account because his daughter signed the transfer letter instead of him. The Court rejected this argument, too, explaining that the account was never marital property in the first place. Thus, Wife’s actions merely converted the form of property that was already separate into a different form of separate property. The Court said the result would be the same even if Husband’s name was still listed on the account.
K.O.’s Comment: Although the appeal only concerns the classification of the Wells Fargo account, the parties included in the appellate record a bunch of pleadings that had nothing to do with the issue presented. The Court chastised them in a footnote, explaining:
[W]e note that both parties failed to present this Court with a record that had been culled down to only relevant materials pursuant to their obligations in Tennessee Rule of Appellate Procedure 24. The technical record appears to contain a litany of documents unrelated to the Account at issue, such as restraining orders, motions for pendente lite support, various other motions, parenting class certificates, and documents regarding the parenting plan. The parties also included sixty exhibits totaling well over 1,000 pages in the record on appeal, approximately fifteen pages of which have any relevance to this appeal.
This practice does not promote the speedy resolution of cases and may be a ground for dismissal of the appeal. In the interest of judicial economy, this Court exercises its discretion to consider the merits of this appeal despite the foregoing deficiencies. However, we caution litigants to consider the implications of their decisions when creating the record on appeal, as we may not be so forgiving in the future.
Ouch. Over 1000 pages in the record, and only 15 pages are relevant to the appeal. Trial court clerks across the state are sharpening their knives just reading that.
Remember, the Court of Appeals expects lawyers to cull the appellate record down to only those items relevant to the issues presented on appeal. Doing so will keep you in the good graces of your trial court clerk and will also avoid a public scolding from the Court.
Information provided by K.O. Herston: Knoxville, Tennessee Divorce and Family-Law Attorney.