Facts: The parties divorced after 31 years of marriage.

Wife’s mother owned two pieces of commercial real estate at 713 and 715 Greenwood Avenue.

Wife operated her cosmetology business at 713 Greenwood before and throughout the marriage.

Midway through the marriage, Wife’s mother conveyed both parcels to Wife.

The parties agree that 715 Greenwood is marital property because they purchased it from Wife’s mother for $25,000.

The classification of 713 Greenwood was disputed. Wife argued it is her separate property because her mother gave it to her as a gift via a quitclaim deed without compensation.

Husband argued it transmuted into marital property because they improved the building with marital funds (via a home equity loan against the marital residence), Husband performed routine upkeep on the property, and the property taxes were paid with marital funds.

The trial court found the 713 Greenwood property is marital property.

Wife appealed.

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

The division of marital property begins by classifying property as separate or marital.

Marital property is generally any property acquired by either spouse during the marriage.

Separate property is generally any property owned by a spouse before the marriage, but it also includes property acquired by a spouse as a gift.

Separate property may become marital property through transmutation if it is treated in such a way as to show an intention that it become marital property. This creates a rebuttable presumption of a gift to the marital estate.

The most common factors Tennessee courts used to determine whether real estate has transmuted from separate property to marital property are:

• using the property is a marital residence;
• the ongoing maintenance and management of the property by both parties;
• jointly titling the property; and
• using the credit of the nonowner spouse to improve the property.

The Court found the evidence supported transmutation because marital funds were used to preserve and improve the property:

We note that Wife testified that taxes and other financial obligations relating to 713 Greenwood were “paid by the business,” but the trial record contains no business records. All evidence available to us in the record shows that taxes and other expenses were paid from marital funds. The facts of the case at bar are similar to those of Anderson v. Anderson. In that case, the husband owned a certain piece of real estate prior to the marriage, and we held that the real estate became marital property by transmutation because the wife had obligated herself on a promissory note for which some of the proceeds were used to improve the husband’s real estate. The wife also helped the husband repay some of that loan. Like in Anderson, we conclude that the property at 713 Greenwood began as separate property but became marital property by transmutation.

The Court affirmed the trial court’s classification of 713 Greenwood as marital property.

Binkley v. Binkley (Tennessee Court of Appeals, Middle Section, October 20, 2020).