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Marital Home and Divorce - An Update
© 2005 National Legal Research Group, Inc.
A series of recent cases provides a useful review of current case law on the division of the marital home.
To begin with, it is important to understand that the marital home is not always and automatically marital property. In Brock v. Brock, 2005 WL 757252 (Miss. Ct. App. 2005), the wife's father deeded a home to her during the marriage. The father's intent was to make a gift to the wife alone. After they received the home, the parties lived in it.
Because the home was acquired by gift to the wife alone, the trial court held that it was separate property. The husband appealed, arguing that because the property served as the marital home, it was necessarily marital property. The appellate court disagreed. "[T]his Court has recognized that a marital home is not necessarily marital property." Id. at *9.
The husband also argued that the home was marital property because he paid taxes and made repairs to the home. These activities, he argued, caused the home to transmute into marital property. Again, the appellate court disagreed. The husband's activities were not insignificant, but the value they added was extremely small in comparison to the value of the gift. "J.D. made a minimal number of repairs to the house, and his contributions to the home by paying property taxes are readily traceable." Id. To treat the entire home as marital property, merely because contributions of such a small amount were made, would allow a very small tail to wag a very large dog. The trial court's decision that the home was separate property was affirmed.
Brock is particularly interesting because just a few years ago a determined minority on the Mississippi Court of Appeals asserted that the mere act of using real property as the marital home should convert the home into marital property. Wilson v. Wilson, 820 So. 2d 761, 764 (Miss. Ct. App. 2002) (Southwick, P.J., dissenting). But Brock was a unanimous opinion. It would therefore appear that Mississippi is moving toward consensus recognition that the marital home can sometimes be separate property. This is also the position generally taken by other states. Brett R. Turner, Equitable Distribution of Property 5.24 at 412 et seq. (Supp. 2004).
Because opinions like the dissent in Wilson appear from time to time, it is useful to recall the policy reasons behind the general rule. Persons who own separate property should be encouraged to use it for the benefit of their families. If use of separate real property as the marital home results in automatic transmutation, the result will be that spouses who acquire such property will refuse to use it as the marital home. This result will be a significant net loss to the family. Some spouses will disregard the financial incentive to behave selfishly and generously permit family use of their separate property; these spouses will be penalized by loss of their separate property upon divorce. Conversely, spouses who refuse to permit family use of their separate property will be rewarded by receiving ownership of that property upon divorce. The effect is not only to encourage undesirable behavior, but, indeed, to reward it.
Conversely, if separate contributions can be traced into and out of marital homes just like other assets, owners of separate property are encouraged to allow family use. There is no financial incentive to keep separate property in storage; indeed, given the rising real estate market in many areas, plus the fact that passive appreciation in separate property generally remains separate, there is a considerable financial incentive to remove separate property from storage and invest it productively. The result is a considerable gain, for both the family and the economy.
Those who support mandatory marital classification of the marital home sometimes argue that such classification is necessary to ensure fair treatment of women at divorce. In Brock, however, the spouse who received the home by gift was the wife. This result should not be surprising, for most persons who transfer wealth by inheritance or gift do so to all of their children equally, treating sons and daughters alike. Had Brock applied the broad rule of transmutation urged by the dissent in Wilson, the result would have been to harm the wife and benefit the husband.
Recognizing a separate interest in the marital home does not harm the marital estate in any way. There is broad general recognition that any investment of marital funds to purchase a home or reduce the principal balance on the mortgage creates a marital interest in the home. Turner, supra, 5.10. The marital interest includes not only the amount of marital funds spent, but also a proportional share of future passive appreciation. In other words, the marital estate receives a fair return on its investment in the property. If there is any marital interest in the property at the time of divorce, the court is permitted to award possession of the home to the custodial parent, compensating the noncustodial parent for his or her separate interest (and for his or her equitable share of the marital interest) with cash or other property. Turner, supra, 8.12. The court can also usually award exclusive use of any marital home, marital or separate, to the custodial parent as an incident of child support. This combination of remedies gives the marital estate fair compensation for its contributions to the home, and acknowledges the interest of the parties' children in continuing to reside there, without rewarding financially selfish behavior.
Transmutation and Donative Intent
While the marital home is not automatically marital property, it can become marital property under some circumstances. A person who owns property is always free to give it away, and this rule applies with full force to separate property. But a gift exists only where the owner has donative intent that is, where he or she actually subjectively intends to give the property away.
For example, in Measor v. Measor, 2005 WL 694411 (Ohio Ct. App. 2005), both parties owned homes at the time of the marriage. They decided to reside in the wife's home, and sell the husband's home. The following events then occurred:
Later that year, while considering estate planning options, the parties discussed making appellant an equal owner of the premises. Appellee agreed to appellant becoming a part owner but also wished to give her equity in the home, which accrued before her marriage to appellee, to her children. The parties then executed a mortgage deed and promissory note to appellee's children in the amount of $70,000. Appellee also executed a joint and survivorship deed to herself and appellant. As a result of this series of transactions, the parties believed that they had removed the existing equity in the home and given it to appellee's children so that appellee and appellant stood in a position of equality with regard to the property.
Id. at *2. Thus, the parties themselves agreed to a transaction which placed the wife's home into joint title, withdrawing her $70,000 in premarital equity and using it for the purpose she desired, a gift to her children. As public awareness of equitable distribution increases, married persons are dealing with their separate estates during the marriage in increasingly sophisticated ways.
Upon divorce, the trial court held that the wife's former home was marital property. The wife appealed, arguing that the home was her separate property. The Ohio Court of Appeals reversed:
As a general matter, a spouse can convert separate property into marital property through his or her actions during the course of the marriage. The real property at issue was originally appellee's property before the marriage. However, the series of transactions that occurred shortly after the marriage was, by intention of the parties, an attempt to provide equal ownership of the property and render it marital property.
Id. at *7. In short, by agreement of the parties, the wife's premarital equity had been withdrawn from the home, leaving the remaining equity as entirely marital. Because the wife had actual intent to convert her premarital interest into another form, that interest was lost by gift to her own children.
Another view of the gift doctrine is presented by a less sound decision, Chase v. Chase, 2005 WL 737415 (Alaska 2005). The husband in Chase owned a home. He testified that the home was acquired before the coverture period (which includes premarital cohabitation in Alaska if the parties ultimately marry); the wife testified that the home was acquired during that period. The trial court held that the home was marital property. Without resolving the factual dispute over when the home was acquired, the Alaska Supreme Court held that the home was marital property even if acquired before the coverture period:
In Cox v. Cox, [882 P.2d 909, 913 (Alaska 1994),] we stated that "[s]eparate property becomes marital . . . upon a showing that the parties intended to treat the property as marital." Factors to be considered by a trial court in making this determination include: (1) the use of the property as the parties' personal residence, (2) the ongoing maintenance and management of the property by both parties, (3) placing the title of the property in joint ownership, and (4) whether the non-titled owner's credit has been used to improve the property. It is not necessary for all four factors to be present in order for the court to find that the property was marital property. Under the standard set forth in Cox, evidence that the couple had improved the home and lived in it together was sufficient for the superior court to determine that the home was marital property, even accepting Ernest's contention that he acquired the home prior to the period of cohabitation.
Id. at *5. Thus, the use of marital funds to improve the husband's home, and even the fact of joint residence, led the court to find that the husband intended to give away any separate property interest he had in the property.
The result reached on the facts of Chase was reasonable, as the husband gave two very different dates for when he acquired the home (1978 and 1983). The author is left with considerable doubt as to whether the husband carried his burden of proving that the home was acquired before the relationship. On the facts, there was good reason to reach the issue the court failed to address and hold that the husband had not sufficiently proven that the home was separate property.
On the issue which the court did address, however, its reasoning is suspect. The decision fundamentally suggests that intent to use property as the marital home and intent to improve separate property with marital funds are evidence of donative intent. Both of these suggestions are unsound. Many people share their home with another person, without intending to give that person an interest in the home. The most common example is children, who reside in their parents' home for years without acquiring any ownership interest. Similar arrangements are made with older family members, and sometimes even with close friends. Intent to share a home, in and of itself, is not equivalent to intent to give away an interest in the home.
In addition, at a practical level, if intent to share a home is equivalent to intent to transmute the home into marital property, then the marital home will always be marital property. For the reasons stated above, such a rule is bad policy. Its net effect would be to harm families by discouraging use of separate property as the marital residence. Its primary cost would be paid by persons who acted generously by sharing their separate property; its primary benefit would be received by persons who acted selfishly by refusing to share their separate property.
Similar reasoning applies to the court's suggestion that use of marital funds or efforts to improve property are evidence of intent to share. The problem with this suggestion is that it leads to situations like Brock, in which one spouse argues that contributions of relatively minor value caused separate property to become marital. There is every reason to assume that the owner of separate property intended to give the marital estate an interest proportional to the marital contributions, but the law already recognizes such an interest. It should be a rare case in which the use of marital funds to improve property results in a marital interest greater than the interest which normally arises from the funds so spent. Recognizing such an interest again discourages use of separate property as the marital home and over the long run, this will harm married persons more than it helps them.
There may, of course, have been more evidence of donative intent than the Chase court recited in its opinion. There was also no clear evidence recited as to the amount of marital funds used for improvement, and when an unknown amount of marital funds is commingled with an existing separate asset, the separate interest may become untraceable. E.g., Schmitz v. Schmitz, 88 P.3d 1116 (Alaska 2004). Given these problems, plus the doubt over whether the home was really separate property to begin with, the result reached in Chase is easily justified. But the court's broad suggestion that the marital home easily transmutes into marital property may cause materially more harm in a future case, in which the evidence necessary to prove and preserve the separate nature of the separate contributions is properly presented to the court.
Division Stage Issues
The strong majority rule is that the marital home can be both marital and separate property. It transmutes into marital property if the owning spouse gave away the separate interest most frequently through conveying the home into joint title. Absent a factual finding that the owning spouse had actual donative intent, the marital and separate interests are both preserved. If the parties have children, the home is then awarded to the custodial parent. The noncustodial parent receives a cash award if the size of the marital estate makes such an award feasible. Otherwise, the custodial parent receives exclusive use as an incident of child support, and the home is sold after the children are emancipated.
Once in a while, a trial court is reversed for failing to implement this procedure properly at the division stage. In Craig v. Craig, 2005 WL 825188 (S.C. 2005), the parties were divorced after a 25-year marriage in which the husband had repeatedly committed adultery. The husband was a physician, the wife a critical care nurse, and the marital estate was worth $2.4 million. The marital home was entirely marital property. Even though the youngest of the parties' three children was still a minor and resided in the home, the trial court ordered the home sold.
Upon appeal by the wife, the South Carolina Court of Appeals held that it was error to order the home sold, and the South Carolina Supreme Court affirmed. Sale of marital property is not an ideal division method, for the parties incur expenses of sale (e.g., broker's fees) and may realize capital gains taxes. In addition, divorce-related sales of property often fail to realize full market value. Because of these disadvantages, "[b]efore ordering marital property be sold, the court should first try to make an 'in-kind' distribution of the marital assets." Id. at *2.
Division by means of an exclusive use award is admittedly also disfavored, because the nonowning spouse must wait to receive his or her share of the property. Exclusive use awards are therefore often made only where special need is shown. Turner, supra, 6.25. Where the marital estate is large enough to permit an immediate award, as it clearly was in Craig, special need is normally not present. Thus, the Craig court rejected exclusive use.
But rejection of exclusive use does not mean that sufficient need has been shown to order the home sold. Another alternative remains: awarding the home to the custodial parent as part of his or her share of the marital estate. This option is so simple that it sometimes gets lost in the press of greater issues. Because this remedy does not require a delay in the other spouse's property award, it is available even without a showing of special need. Both appellate courts in Craig held that the trial court should simply have awarded the marital home to the wife:
The family court failed to consider the desirability to maintain the marital home or consider the nonmarital property owned by Husband.
As to the desirability to maintain the marital home, Wife testified she had lived in the marital home longer than she had lived in any home. Further, Wife testified that she feels safe in the home because it is in a gated neighborhood. In addition, the children, even though emancipated, maintain rooms in the marital home. These factors weigh heavily in favor of awarding Wife the marital home as part of the equitable distribution of the estate.
In awarding the home as part of the distribution of the estate, the family court also overlooked the abundance of property owned by Husband. The record indicates that Husband owns an interest in at least three other properties either with his son or with other family members.
Id. at *3. On the facts, there was no reason to order the home sold; it could easily have been awarded to one spouse, and the other compensated with other assets. Since the wife had custody of the remaining minor child, and since the husband had a greater ability to obtain alternate housing, awarding the home to the wife was plainly equitable. It also seems grossly wrong to force the wife to leave her long-term residence, when the marriage broke down largely because of the husband's repeated adultery. The supreme court expressly approved the court of appeals' order that the marital home be awarded to the wife.
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