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

Before the marriage, Wife had $30,000 in a savings account.

Wife placed marital funds—her income from working as a schoolteacher—into the account during the marriage before removing funds to purchase, among other things, an automobile for $26,000. Wife testified that the balance remained about the same.

At the time of divorce, Wife’s savings account held $20,000.

The trial court found that Wife’s savings account was her separate property:

[T]hat account was a premarital asset of [Wife] and retained the same value, both at the time of the marriage and the time of divorce, and therefore remained her separate property. . . . Both parties kept their finances separate during this marriage. Both parties purchased their own automobiles and maintained their own separate accounts. [Husband] testified he paid the house payment and [Wife paid the parties’ other expenses. Those facts impact not only the savings account, but also the home.

Husband appealed.

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

In Tennessee, separate property includes all property owned by either spouse before the marriage.

Tennessee courts recognize two ways separate property may be converted into marital property: commingling and transmutation.

Commingling occurs if the separate property is “inextricably mingled” with marital property or 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 a spouse treats separate property in such a way as to show an intention to make it marital property, e.g., adding the spouse’s name to the title of premarital real estate.

In either case, dealing with separate property in these ways creates a rebuttable presumption of a gift to the marital estate. The presumption can be rebutted by evidence of circumstances or communications indicating an intent that the property remains separate.

The Court found this to be a case of commingling:

There is no accounting in the record of the money going in or coming out of Wife’s savings account other than the stipulations of the parties and Wife’s testimony. Wife added marital funds to the account before purchasing [an automobile] for $26,000 and ultimately ending up with $20,000 remaining in her savings account. The trial court classified the [automobile] as marital property. Wife testified that during the marriage, whenever she withdrew money from the account, she would place money in the account keeping the account balance “about the same.” Wife placed money from her teaching salary, which was marital funds, into the savings account. During her testimony, Wife does not state how many times she had withdrawn money from the account or placed marital funds back into the account or the amounts of these withdrawals or deposits.

Wife claims that Wife’s savings account “remain[ed] titled in her separate name and segregated and thus is not inextricably mixed.” We agree with Husband on this issue. We find and hold that Wife’s savings account had become inextricably mingled with marital property. Thus, a rebuttable presumption of a gift to the marital estate was created, and that presumption was not rebutted by Wife.

The Court reversed the trial court’s judgment, classified Wife’s savings account as marital property, and, in keeping with the trial court’s division of marital property, awarded one half of the savings account, i.e., $10,000, to Husband.

Darnell v. Darnell (Tennessee Court of Appeals, Eastern Section, August 12, 2019).