Facts: Before the marriage, Husband owned two large tracts of land used for farming. After the parties married, they built the marital residence on one of Husband’s premarital properties, a 197-acre tract. While Husband added Wife to the farm’s credit line and his previously separate checking account, he did not add her to either deed.
Husband and Wife deposited their income into a joint account used to pay their personal and business expenses, including Husband’s mortgage on the 197-acre tract upon which the marital residence was built.
After 20 years of marriage, the parties separated.
The trial court classified the physical structure that was the marital residence as marital property but classified the underlying land as Husband’s separate property.
The trial court found that Husband used the land primarily for farming and Wife’s financial contributions were unnecessary because the farming operation was successful. Any increase in the value of the land during the marriage was found to have resulted from the passage of time instead of Wife’s contributions. The marital appreciation of the land was also classified as Husband separate property.
Because Husband’s separate property valued at $2.1 million was far more than Wife’s separate property of $160,000, the trial court divided the marital property unequally in this long marriage, with 59% awarded to Wife and 41% to Husband.
On Appeal: The Court of Appeals reversed the trial court.
Dividing a marital estate begins with the systematic identification of the parties’ property interests. Once identified, these property interests must be classified as either separate or marital property. Only property that fits within the definition of “marital property” can be included in the marital estate.
The dividing line between marital and separate property frequently becomes blurred. Marital property can become separate property when one spouse gives it to the other spouse. But separate property can become marital property either through commingling or transmutation.
Even if an asset is separate property, the increase in the asset’s value during the marriage and the income from the asset may be considered marital property if the nonowner spouse contributed substantially to the asset’s preservation and appreciation. Contributions to the preservation or appreciation of a separate asset will be considered “substantial” if they are real and significant.
Transmutation occurs when separate property is treated in such a way as to give evidence of an intention that it become marital property. Factors include
- use of the property by the family or to support the marriage;
- shared control, maintenance, or management of the property;
- titling the property jointly; and
- use of the nonowner spouse’s credit or separate funds to pay for or improve the property.
Tennessee courts have recognized that buildings erected on land generally become part of the real property and are conveyed with the land.
The Court found error in the trial court’s conclusion that the structure was marital property while the land underneath it was separate property:
The trial court should have focused its inquiry on the intention of the parties in deciding whether any of the [property] transmuted to marital property.
* * * * *
It is undisputed that the marital residence is a marital asset, and the parties intentionally built and permanently affixed it to Husband’s separate property. [R]ecognizing that the parties intended for the marital residence to be a family home, it is apparent the parties intended for the land, or at least that portion of the land used in conjunction with the marital residence, to be marital property. Because the marital residence became part of the land, and conversely at least some of the land became part of the marital estate, we respectfully reverse the trial court’s determination that the entire 197-acre tract  became Husband’s separate property.
The case was remanded to the trial court to identify the portion and value of the land that became part of the marital residence and estate. In making this determination, the intent of the parties is the guiding principle. To determine the parties’ intent, the trial court was instructed to consider, among other relevant factors and evidence, uses to which the various sections of the 197-acre tract were put after the parties moved into the marital residence for use as their home.