Facts: Husband and Wife divorced after 27 years of marriage.

During the marriage, Husband inherited $312,000 from his father’s estate. He deposited the money in a savings account titled in both parties’ names. Wife had equal access to this account and made regular withdrawals to benefit both parties during the marriage. When the parties separated, they equally divided the $4000 that remained.

One year after his father’s death, Husband bought his father’s family home from his mother for $64,000. Wife withdrew $64,000 from the parties’ joint savings account to purchase this property. After the purchase, the property was titled only in Husband’s name. This property is called the “Home Property.”

Over a decade after receiving Husband’s inheritance, the parties bought an unimproved lot from Husband’s brother for $8000 from the joint savings account. This property was also titled only to Husband. This property is called “Lot 26.”

The taxes and other expenses associated with both properties were paid from either the parties’ joint savings account or joint checking account.

The trial court classified the Home Property and Lot 26 as Husband’s separate property because they were “acquired by Husband from his father’s estate.”

Wife appealed.

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

Dividing marital property necessarily begins with the systematic identification of all the parties’ property interests. The second step is to classify each of these property interests as either separate or marital property.

In Tennessee, a spouse’s inheritance is considered that spouse’s separate property unless actions are taken that convert it into marital property. This can occur through either commingling or transmutation.

Separate property becomes marital property by commingling if it is inextricably mingled with marital property or the other spouse’s separate property. If the separate property continues to be segregated or can be traced into its product, commingling does not occur.

Transmutation occurs when separate property is treated in such a way as to give evidence of an intention that it becomes marital property.

Dealing with 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 clearly indicating an intent that the property remains separate.

The Court found the trial court erred in classifying the Home Property and Lot 26 as Husband’s separate property:

Here, it is undisputed that Husband inherited funds following his father’s death and that he deposited those funds into a jointly titled account. It is also undisputed that Wife enjoyed equal access to the account and the funds therein and that she regularly made withdrawals over the course of the next several years for marital purposes.

Based on the proof presented, we agree with Wife’s postulate that the funds contained in the parties’ former joint savings account had been transmuted into marital property. Insofar as Wife proved that Husband had willingly deposited the inherited funds into a joint account and had allowed both parties to utilize those funds for marital purposes, a rebuttable presumption arose that Husband had gifted those funds to the marital estate. The burden then shifted to Husband to rebut the presumption by presenting evidence of circumstances or communications clearly indicating his intent that his inherited funds would remain separate. Although Husband testified that he had communicated such an intent to Wife, Wife denied any such communication and maintained that the parties had treated the funds as marital and utilized them for marital purposes throughout the marriage. Of significance, the trial court found that Husband was not a credible witness. We accordingly conclude that Husband failed to rebut the presumption that he made a gift to the marital estate by depositing his inherited funds into a joint account and giving Wife equal access thereto.

The Home Property and Lot 26 were undisputedly purchased by the parties during the marriage from the joint account. As such, these properties would be considered marital property regardless of their legal title.

As with the inherited funds, Husband could have rebutted the presumption that these real properties were marital by presenting evidence demonstrating that he intended for the properties to be his separate property, but he failed to do so. Instead, the proof demonstrated that the property taxes were paid annually by Wife, utilizing funds from the parties’ joint checking or joint savings account. Wife testified that the parties treated the properties as marital and paid expenses related to the properties from their joint funds. Husband proffered that he had informed Wife of his intention for the properties to be his separate property, but the trial court found Husband’s testimony not credible. As such, the evidence at trial preponderates against the trial court’s classification of the Home Property and Lot 26 as Husband’s separate property.

The Court vacated the trial court’s division of marital property and remanded the case for reconsideration considering its ruling.

Source: Grider v. Grider (Tennessee Court of Appeals, Middle Section, January 30, 2023).

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