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Jointly Titled Property as Separate Property
© 2003 National Legal Research Group, Inc.
NEBRASKA: Schuman v. Schuman, 265 Neb. 459, 658 N.W.2d 30 (2003).
The trial court erred in treating jointly titled property as marital where the property was successfully traced to a separate source. There is no rule that jointly titled property is automatically or presumptively marital, as the classification of property does not depend upon legal title. Contrary authority from the Nebraska Court of Appeals is overruled. The trial court erred by subtracting the tax consequences of a hypothetical future sale from the value of the husband's business where no actual sale was contemplated in the near future. Where the husband paid $35,000 for his business two years before the marriage, the trial court properly recognized a $35,000 separate interest at the time of the divorce, even though the business had little value at one point during the marriage.
In a divorce case, each party relied upon expert testimony to value the worth of the husband's business. The husband's expert considered the tax consequences of a future sale of the property, while the wife's expert did not. The district court accepted the valuation offered by the husband's expert. The Nebraska Supreme Court reversed. That court concluded that, in assigning a value to a business for purposes of dividing the property in an action for dissolution of marriage, a trial court should not consider the tax consequences of the sale of the business unless there is a finding by the court that the sale of the business is reasonably certain to occur in the near future. The trial court may consider such consequences, however, if it finds that the property division award will, in effect, force a party to sell his or her business in order to meet the obligations imposed by the court. Here, the record did not support a conclusion that the sale of the husband's business was reasonably certain to occur in the near future or that the property division award would require the husband to sell the business in order to meet the obligations imposed by the court. While at trial the husband testified that he had received an offer to purchase the assets of his business, he also admitted that he could not honestly say whether he intended to sell the business, stating only that his decision whether to remain in business or sell would depend upon his financial condition after the divorce. In light of the evidence before the trial court, the Nebraska Supreme Court held that the lower court had abused its discretion in considering the tax consequences of a sale of the business in arriving at its valuation of that asset.
The husband purchased the business in 1982, two years before the parties married. He paid a portion of the purchase price with his own funds and a loan from his parents, an amount totaling $35,000. The remainder was financed with a small business loan. In determining the value of the husband's business, the district court deducted this $35,000 from the value of the business as a marital asset subject to distribution. On appeal, the wife argued that this was error because at one time during the marriage the business had no value at all. The record showed that in 1994, because of a fire and acts of embezzlement by an employee of the business, the business indeed had little or no value. Through the efforts of the husband, however, he built the business back to its present value. The Nebraska Supreme Court disagreed with the wife's contention in this regard. While acknowledging that the burden of proof to show that property is a nonmarital asset remains with the party making the claim, the court concluded that the husband had met his burden of demonstrating that the $35,000 contribution represented a premarital contribution to the business and that, therefore, the district court did not err in determining that this value should be deducted from the value of the business.
The husband argued that it was error for the district court to award to the wife a parcel of land purchased during the marriage with funds traceable to his inheritance. The district court found that any funds the husband may have used from an inheritance to purchase the property was marital property because the land was placed in joint tenancy with his wife. The wife argued that when the land was placed in joint tenancy it became marital property under Gerald-Ley v. Ley, 5 Neb. App. 229, 558 N.W.2d 63 (1996). The court in that case had held that where funds received by the husband during the marriage in the form of an inheritance were used to pay off the outstanding debt on the marital residence, said property standing in the names of the parties as joint tenants, there is a presumption that the husband intended to give the wife a one-half interest in the property. The Nebraska Supreme Court held in Schuman that the district court had erred in applying the above-cited principle from Gerald-Ley in the case before it. The court noted that none of the cases cited by the Gerald-Ley opinion involved a dispute between spouses over property distribution in a dissolution of marriage proceeding. The manner in which property is titled or transferred by the parties during the marriage, decreed the court, does not restrict the trial court's determination of how the property will be divided in an action for dissolution. As a general rule, property accumulated or acquired by either spouse during the marriage is part of the marital estate unless it falls within an exception to the general rule. The court then declared that to the extent that the opinion in the Gerald-Ley case can be interpreted to mean that nonmarital property which during a marriage is titled in joint tenancy cannot be considered as a nonmarital asset in an action for dissolution of marriage, such interpretation is expressly disapproved.
The court continued by noting that how property inherited by a party during the marriage will be considered in determining the division of property must depend upon the facts of the particular case and the equities involved. If the inheritance can be identified, declared the court, it is to be set off to the inheriting spouse and eliminated from the marital estate. Looking to the record, the court determined that the husband could establish that $19,000 out of an inheritance of $53,000 was eventually applied to the $60,000 purchase price of the land. This was in the form of a certified check that had been drawn from a joint account into which the husband had deposited $20,000 of the inheritance. It was error, therefore, for the district court to fail to set aside $19,000 from the value of the land as the husband's inheritance and separate property.
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