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

Husband and Wife began dating in 2004.

Four years later, when they were engaged to be married, Wife bought the marital residence and had it titled only in her name. Husband contributed $62,000 toward the down payment needed to buy the home. They both moved into the home shortly after its purchase.

Four years after buying the home, they married.

Six years after marrying, Husband contributed $60,000 to pay off the mortgage on the home.

Three years later, i.e., nine years after marrying, Wife filed for divorce.

The parties agreed for the marital residence to be sold at auction, with the sale proceeds divided by the trial court. At auction, Husband purchased the marital residence for almost $362,500. After various expenses were paid, $351,000 remained for the trial court to divide.

At trial, the parties disputed whether the marital residence was marital or separate property.

Both parties testified substantial improvements were made to the home during the marriage. Wife conceded that Husband made substantial contributions to the home.

Husband claimed to have invested $265,000 in the marital residence and produced copies of checks and several receipts for home materials and repairs.

The trial court found Husband contributed significantly to the purchase of and paying off the mortgage for the marital residence and had otherwise contributed to the home’s value such that the marital residence was marital property. The trial court divided the sale proceeds equally, with each party receiving 50%, i.e., $175,000.

Wife appealed.

On Appeal: The Court of Appeals vacated the trial court’s judgment.

Tennessee law provides that, in general, marital property is that which either party acquires during the marriage, and separate property is what each party owned before the marriage.

However, marital property can also include the increase in value during the marriage of separate property if each party substantially contributed to its preservation and appreciation. Under the statutory definition of marital property, the increase in value during the marriage of a separate asset will be classified as marital property if the nonowner spouse substantially contributed to the assets preservation and appreciation.

Separate property can turn into marital property through commingling or transmutation.

Commingling occurs if separate property is inextricably mingled with marital property or with the other spouse’s separate property.

Transmutation occurs when separate property is treated in a way that shows an intention that it become marital property. Under the doctrine of transmutation, the entire asset may become marital property when the parties treat it as marital property.

Wife argued the trial court’s reference to Husband’s “substantial contributions” to the home limited the trial court’s authority to dividing only the increase in the home’s equity during the marriage instead of dividing the home’s entire value.

Husband argued the trial court found the marital residence transmuted into marital property, so it was proper for the trial court to divide all the proceeds from the sale of the home.

The Court couldn’t figure out exactly what the trial court’s analysis was from the record:

By considering the down payment funds provided by Husband and the parties’ engaged status at the time of the home’s purchase, the trial court appears to have employed a transmutation analysis without ever identifying the doctrine of transmutation. On the other hand, the trial court also considered whether each party had substantially contributed to the marital residence’s preservation and appreciation without directly referring to the statutory definition of marital property….

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In the instant action, no mention is made of transmutation in Husband’s pleadings before the trial court, the statement of evidence, or the trial court’s order distributing property. However, the trial court’s findings regarding the engaged status of the parties when Husband provided down payment funds for the marital residence’s purchase would seem to indicate a transmutation analysis.

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If the trial court intended to find that the marital residence had transmuted from Wife’s separate property to marital property, the result would be that the entire value of the marital residence would be marital property. However, if the trial court did not intend to find that transmutation had occurred, it was error to find that the entire asset was marital property because only the increase in value resulting from Husband’s substantial contributions would be marital property. We therefore determine that this case must be remanded for the trial court to explain its findings of fact and conclusions of law more fully regarding the classification of the marital residence.

If, on remand, the trial court finds that only the increase in value of the marital residence resulting from Husband’s substantial contributions is marital property, the amount of this increase in value must also be identified. Although it is undisputed that Husband made substantial contributions to the value of the marital residence, neither party has attempted on appeal to isolate the amount of increased value resulting from his contributions. Wife purchased the marital residence for $240,000, and it sold at auction … for $362,500…. [T]he trial court [will] need to identify the amount of the increase in value due to Husband’s substantial contributions.

The Court vacated the trial court’s ruling and remanded the case with instructions for the trial court to discuss whether its ruling was the product of the doctrine of transmutation or the statutory definitions of marital and separate property. If the former, the entire value of the marital residence is marital property. If the latter, the trial court must identify any increase in value that resulted from Husband’s significant contributions during the marriage as marital property.

Source: Esposito v. Esposito (Tennessee Court of Appeals, Eastern Section, December 12, 2023).

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