Facts: Husband and Wife divorced after 10 years of marriage.
Husband owned a rental home on Taggart Drive prior to the marriage. The property was always titled solely to Husband. He and Wife never lived in the property.
Husband rented the property prior to and throughout the marriage.
Husband purchased the property for $78,000, and financed 100% of the purchase price. At the time of the marriage, Husband owed $70,000 on the mortgage.
Two years into the marriage, Husband refinanced the mortgage. To facilitate the refinancing, Wife signed a quitclaim deed relinquishing any marital interest she had in the property.
Shortly before beginning the divorce, Husband paid off the mortgage on the Taggart property. Husband claimed the mortgage payments came from the rental income the property generated except for roughly $29,000 that came from the sale of two other properties.
Husband admitted, however, that he spent nearly $34,000 of marital funds to remodel the property during the marriage, as well as paying the taxes and insurance from marital funds.
Wife testified that she helped clean the property between renters, planted some landscaping, and purchased some supplies and accessories for the property.
The trial court classified the Taggart property as Husband’s separate property.
On Appeal: The Court of Appeals reversed the trial court.
Tennessee courts recognize both marital property and separate property.
Marital property is anything acquired by either spouse during the marriage. It can also include the increase in value of a spouse’s separate property if both parties substantially contributed to the preservation and appreciation of the separate property.
Separate property is anything owned by either spouse prior to the marriage.
When a married couple gets divorced, the marital property must be equitably divided without regard to fault on the part of either party. Separate property is not part of the marital estate and, therefore, is not subject to division. Thus, the trial court must classify all the divorcing parties’ assets as either marital or separate so a proper division can be accomplished.
Tennessee courts recognize two methods by which separate property can be converted into marital property: transmutation and commingling.
Transmutation occurs when separate property is treated in such a way as to evidence an intention that it become marital property. This creates a rebuttable presumption of a gift to the marital estate, which presumption can be rebutted by evidence indicating an intent that the property remain separate.
Commingling occurs when marital property is inextricably mingled with separate property. If the separate property remains segregated or can be traced into its product, commingling does not occur.
The Court held that Husband’s separate rental property transmuted into marital property when he applied substantial marital funds to it:
The evidence in the record on appeal shows that Taggart was acquired by Husband pre-marriage. Thus, Taggart would be classified as Husband’s separate property unless the evidence showed that Taggart was converted into marital property through transmutation.
Husband testified that Taggart was rental property that paid for itself and that Wife never contributed toward Taggart in any significant manner. Husband, however, admitted that he paid off the mortgage owed on Taggart during the marriage and that he used marital funds that he earned during the course of the marriage to do so, at least in part. Specifically, Husband testified that at the time the parties were married, the debt on Taggart was approximately $70,000, and that during the marriage he took income he earned from selling two houses and paid off “right at 29 to $30,000 . . .” on Taggart. Husband also admitted that he spent $33,865 of his income during the marriage remodeling Taggart. The preponderance of evidence in the record on appeal shows that Husband transmuted Taggart into marital property when he expended these significant amounts of marital income on paying off and remodeling Taggart. Thus, a rebuttable presumption of a gift to the marital estate was created, and that presumption was not rebutted.
We find and hold that Taggart is marital property.
Thus, the trial court’s judgment was reversed and the case remanded for an equitable division that includes the Taggart property as part of the marital estate.