Joint Interspousal Gifts and the Parol Evidence Rule
© 2005 National Legal Research Group, Inc.
Under most equitable distribution statutes, property acquired by gift is separate property. Upon close examination, however, this basic rule has a number of important exceptions. Interspousal gifts, for example, are treated as marital property in a significant number of jurisdictions. See generally Brett R. Turner, Equitable Distribution of Property 5.19 (2d ed. 1994 & Supp. 2004).
This article will summarize recent case law on perhaps the most important exception to the general rule: joint gifts. Most equitable distribution statutes provide that separate property includes property acquired by gift to "a spouse" or "the spouse" or "one spouse" during the marriage. Turner, supra, 5.17. When property is given to both spouses, it is not acquired by one of the spouses alone, and falls outside of the statutory provision. E.g., Forsythe v. Forsythe, 558 S.W.2d 675, 678 (Mo. Ct. App. 1977); Burnett v. Burnett, 122 N.C. App. 712, 471 S.E.2d 649, 650 (1996).
Also, if the definition of separate property included gifts made to both spouses, then each spouse's legal title interest would be that spouse's separate property, so that the court would be required in most cases to divide joint gifts equally. This result is actually the law in one jurisdiction, the community property state of Texas. E.g., Roosth v. Roosth, 889 S.W.2d 445 (Tex. App. 1994). Other states have almost always found that recognizing two equal separate property interests is an odd, inflexible, and ultimately inequitable result. The strong general rule is therefore that gifts to both spouses are treated as marital property. Such gifts are not acquired by either spouse individually, but rather by the marital estate as an entity.
The classification of joint gifts was recently presented to the Supreme Court of Georgia as an issue of first impression. In Lerch v. Lerch, 2005 WL 123885 (Ga. 2005), the husband purchased a home before the marriage. During the marriage, he executed and recorded a deed of gift transferring the home into joint title. The question was obviously the effect of the conveyance upon the classification of the home.
The trial court held that "as a result of the gift, half of the home qualified as marital property and the other half remained the Husband's separate property." Id. at *1. The underlying rationale was that the husband had conveyed a one-half interest in the home to the wife, retaining the other one-half in his own name. Since only the wife's one-half interest had been transferred, the husband's one-half interest remained separate property. The wife's one-half interest, by contrast, could not be separate property, for Georgia has already determined that interspousal gifts are marital property. McArthur v. McArthur, 256 Ga. 762, 353 S.E.2d 486 (1987).
The wife appealed to the Georgia Supreme Court. Georgia's dual-classification system was created by court decision, not by statute, so the court was free to determine the proper rule of law as a matter of equity and policy. The supreme court reversed:
Normally, a gift to one spouse becomes the separate property of the recipient spouse. When a gift is given to the marital couple, however, the property will become marital property absent evidence of a contrary intent by the donor. In this case, the Husband deeded the home to both his wife and himself, to be held as "tenants in common" with right of survivorship. In so doing, Husband manifested an intent to transform his own separate property into marital property.
Because both Husband and Wife then owned an undivided one-half interest in the property, the entire home should have been treated as marital property. Accordingly, the trial court's decision to treat only one-half of the home as marital property must be reversed.
Lerch, 2005 WL 123885, at *1 (footnotes omitted). Thus, the husband did not give a one-half interest in the home to the wife; rather, he gave the entire home to the marital estate. Because the subject of the gift was the entire home, the entire home became marital property.
Beneath the surface of the opinion in Lerch lie complexities not fully explored by the opinion. To begin with, on what authority did the court rely in stating that the conveyance into joint title "manifested an intent to transform . . . separate property into marital property"? Id. The opinion could be read to suggest that a conveyance of separate property into joint title automatically constitutes a gift. But this is clearly not the law of Georgia. On the contrary, Georgia has recognized since at least 1920 that a transfer into joint title raises only a rebuttable presumption of a gift:
Where a husband pays the purchase money of land from his own funds and has the land conveyed to his wife, the presumption which the law makes is that the husband intended to make a gift to his wife; but the presumption is a rebuttable one, and a resulting trust in favor of the husband may be shown.
Jackson v. Jackson, 150 Ga. 544, 104 S.E. 236, 236 (1920) (syllabus by the court). The Georgia Supreme Court has applied the presumption in the divorce context as recently as 1966, and that case actually found on the facts that the presumption had been rebutted. Ashbaugh v. Ashbaugh, 222 Ga. 811, 152 S.E.2d 888 (1966).
Courts in other states likewise generally hold that a transfer into joint title does not automatically convert marital property into separate property. "Clearly, the donor's intent is the primary factor in determining whether a transfer of property is a gift, and we likewise hold that the donor's intent is also the primary factor in determining whether a gift is made jointly to spouses or individually to one spouse." Sexton v. Sexton, 125 S.W.3d 258, 268-69 (Ky. 2004); see also Husband T.N.S. v. Wife A.M.S., 407 A.2d 1045 (Del. 1979) (donative intent is the focus of the inquiry); Stephenson v. Stephenson, 811 A.2d 1138, 1143 (R.I. 2002) ("Because the trial justice specifically found that Lawrence did not have the requisite intent to create for Shari Ann any present possessory interest in the joint accounts, which finding was undisputed by either party, it was an error of law for the trial justice to then find that the contested joint accounts had transmuted into marital property.").
Courts in other states are divided as to the burden of proof. A majority of states applies the joint title gift presumption adopted in Jackson. E.g., Conrad v. Bowers, 533 S.W.2d 614 (Mo. Ct. App. 1975); McLean v. McLean, 323 N.C. 543, 374 S.E.2d 376 (1988), approving McLeod v. McLeod, 74 N.C. App. 144, 327 S.E.2d 910 (1985); Whiting v. Whiting, 183 W. Va. 451, 396 S.E.2d 413 (1990). A respectable and growing minority requires a gift to be proven by positive evidence. E.g., Grant v. Zich, 300 Md. 256, 477 A.2d 1163 (1984); Pearson v. Pearson, 761 So. 2d 157 (Miss. 2000); Schuman v. Schuman, 265 Neb. 459, 658 N.W.2d 30 (2003). See generally Turner, supra, 5.18.
It seems doubtful that Lerch intended to overrule over 80 years of Georgia case law holding that a conveyance into joint title creates only a rebuttable presumption of a gift. In a footnote following its absolute statement that a gift was present on the facts, the court cited a Florida decision, Goldstein v. Goldstein, 310 So. 2d 361 (Fla. Dist. Ct. App. 1975), for the following proposition: "[G]ift from husband to husband and wife raised presumption that property qualified as marital." Lerch, 2005 WL 123885, at *1 n.3. It would be interesting to know why the court did not cite Georgia cases, e.g., Jackson, which state the same proposition. But the court's express reference to an out-of-state presumption case suggests strongly that the court had no intention of overruling prior Georgia presumption cases.
On what basis, then, did the court infer so quickly that the conveyance into joint title was intended as a gift? One possible answer lies in the fact that the conveyance into joint title was made in a deed of gift. There is authority from other states finding that when the deed states clearly and unambiguously that a gift is present, the deed cannot be impeached by parol evidence. Utsch v. Utsch, 266 Va. 124, 581 S.E.2d 507 (2003); see also Hall v. Hall, 734 P.2d 666 (Idaho Ct. App. 1987), aff'd on other grounds, 777 P.2d 255 (Idaho 1989). But this is also not the law of Georgia:
Parol evidence of the nature of the transaction, or the circumstances, or the conduct of the parties, is admissible to rebut the presumption of a gift; but in order to rebut the presumption of a gift the proof must be clear and convincing.
Jackson, 104 S.E. at 236 (syllabus by the court). Jackson explained that where the joint title gift presumption is not rebutted, the recipient holds his or her interest in a resulting trust for the transferor. Real property law is clear that a resulting trust can be proven with parol evidence. Because rebuttal of the joint title gift presumption is tantamount to proof of a resulting trust, the joint title gift presumption can be rebutted with parol evidence.
Indeed, Jackson casts an interesting light upon the cases holding that the parol evidence rule applies to an interspousal transfer. Cases applying the parol evidence rule have tended to view the issue as one of construing the written instrument. At common law, however, the issue was not one of construction, but rather one of establishing a resulting trust. The law has always allowed a resulting trust to be proven with parol evidence. Because the common-law rule required the court to choose between a gift and a resulting trust, parol evidence was generally admissible. For example, the Virginia Supreme Court held:
The general doctrine is, that when a conveyance of real estate is made to one person and the consideration paid by another, it is presumed that the party advancing the money intended a benefit to himself, and accordingly a resulting trust is raised in his behalf. But when the conveyance is taken to a wife or child, or to any other person for whom the purchaser is under legal obligation to provide, no such presumption attaches. On the contrary the presumption in such case is that the purchase was designed as a gift or advancement to the person to whom the conveyance is made. But this presumption is one of fact and not of law and may be rebutted by parol evidence or circumstances showing a contrary intention.
Bransom v. Bransom, 151 Va. 603, 606, 144 S.E. 613, 613-14 (1928) (emphasis added).
Seventy-five years later, the same court held in Utsch that parol evidence could not be used in the face of a clear deed to prove that the transfer was not a gift. The court did not cite Bransom, and it was to all appearances unaware of the passage emphasized above. The opinion focuses entirely on the construction issue, not discussing the possibility that parol evidence might be admissible because the absence of a gift shows the presence of a resulting trust. "An agreement which forms the basis of an implied or indirect trust may be established by parol evidence." Gifford v. Dennis, 230 Va. 193, 198, 335 S.E.2d 371, 374 (1985). Gifford relied upon parol evidence to find that a conveyance between engaged persons was intended to create a resulting trust and not a gift. Utsch held that parol evidence was not admissible to determine the effect of a deed between married persons.
It must be stressed that Gifford did not find the deed at issue to be ambiguous. It did not reach the question of whether the deed was ambiguous, because it held as a threshold matter that the parol evidence rule simply did not apply when the issue was the existence of a trust. The law has always allowed a trust to be proven by parol evidence, even against the clear language of an unambiguous written instrument. Indeed, as Gifford recognized, implied trusts normally "contravene the express language of a writing." 335 S.E.2d at 373.
It is true that the Virginia equitable distribution statute rejects the common-law joint title gift presumption, expressly placing the burden of establishing an interspousal gift upon the party who asserts it. Va. Code Ann. 20-107.3(A)(3)(g) (Westlaw 2005). But this statute changes only the burden of proof; it does not change the fact that a decision finding no gift has always been viewed as equivalent to a decision finding a resulting trust. In future cases, when the parol evidence rule is raised as an objection to evidence suggesting that an interspousal transfer was not intended as a gift, it may be possible to avoid the parol evidence rule by expressly requesting the court to hold that the transferee's interest in the property was held in some form of trust for the transferor.
Returning to the facts of Lerch, the court there was plainly correct in holding that a gift, if present, would convert the entire asset into marital property. The trial court's holding that a gift would encompass only one-half of the property was clearly wrong; the gift, if present, would have been to the marital estate. Lerch was too quick to assume, however, that a conveyance of property into joint title was necessarily a gift to anyone. Georgia law provides that a conveyance into joint title raises only a rebuttable presumption of a gift, and it clearly allows the presumption to be rebutted by parol evidence. The court should have stated that the transfer into joint title was only presumptive evidence of a gift, and it should have stated the basis for finding that the presumption was not rebutted.
The most logical explanation for the court's failure to consider the issues raised by Jackson and Ashbaugh is the simplest: The husband did not attempt to argue that the presumption was rebutted on the facts. This would be an entirely proper basis for treating the transfer as a gift, for rebutting a presumption is an affirmative act. If the husband did not affirmatively seek to rebut the presumption, then the transfer into joint title should have been treated as a gift. But the court should still have stated this point directly, so that future courts and attorneys are not misled into believing that Lerch somehow overrules Jackson and other cases holding that a transfer into joint title raises only a rebuttable presumption of a gift.
The supreme court opinion in Lerch gives very few facts, so it is difficult to tell whether sufficient facts might have existed to rebut the presumption. Ashbaugh held that the presumption could be rebutted by evidence that only one spouse controlled the property after the transfer. 152 S.E.2d at 892. By reverse inference, joint control would seem to be evidence that the presumption is not rebutted.
But the mere fact that property is used as the marital home, without more, is not necessarily evidence of donative intent. If that were the law, spouses who use their separate property only for their own benefit would be rewarded upon divorce, while those who generously permit the use of separate property for joint benefit would be penalized.
Indeed, that is the fundamental policy problem which had led to the weakening of the joint title gift presumption in recent years: It gives the greatest financial benefit to those owners of separate property who have retained sole use and control of their separate property, and who have therefore acted most selfishly. If the presumption were universally understood by married persons, the likely effect would be to harm dependent spouses and children, for owners of separate property would be much less likely to transfer property into joint title if they fully understood how vigorously some states apply the presumption.
In addition, the lack of universal awareness of the presumption creates policy problems of its own, for real estate professionals often stress to buyers of real estate the tax and probate advantages of joint title. Rarely, if ever, are the parties warned of the potential danger that transfer into joint title will prevent recognition of prior separate contributions to the property. The author regularly works on joint title gift presumption cases in which the reality of the situation is that separate property was conveyed into joint title upon the strong insistence of a real estate professional, insistence which an ordinary spouse with no particular training in equitable distribution law was unable to resist. The net effect is to reduce the degree of recognition given to the separate contributions of those unfortunate enough to be clients of bankers or brokers who aggressively push joint title. If a joint title gift presumption of any sort is to exist, buyers of real estate are entitled to be informed of it before the decision to take title jointly is made, particularly when the buyers have retained an attorney with a legal duty to explain to them the full consequences of the transaction. Yet in the author's experience, it is a rare case in which anyone discloses to the buyer the potential effect of joint title upon prior separate contributions.
None of these arguments are meant to question the notion that separate property placed into joint title should be treated as marital property, as long as the owning spouse had actual intent to give the property to the marital estate. The actual existence of donative intent, however, is a much more complex issue than merely determining the state of legal title. It requires a broad investigation of the facts and an intellectually honest attempt to determine whether the owning spouse actually subjectively intended to give his or her separate property away.
Nothing in Lerch reminds the reader that the joint title gift presumption is rebuttable or that the trial court is required to look broadly at the facts before concluding that the presumption has not been rebutted on the facts. The court's failure to discuss these points on the facts of Lerch is understandable, as there is no indication in the opinion that the husband raised them. He may well have argued only that his gift encompassed only one-half of the home, as the trial court held; indeed, he may have accepted or even stipulated to the court's finding of donative intent. The effect of the Lerch opinion, however, may be to encourage future Georgia courts to find donative intent based upon joint title alone. That result was probably not intended, and it is certainly not good policy.