Separate Property and Joint Titling in Divorce: A Tale of Two Cases
© 2004 National Legal Research Group, Inc.
Two recent decisions from the Supreme Courts of Maine and Oregon adopt strikingly different approaches to the division of separate property placed into joint title during the marriage. Spooner v. Spooner, 845 A.2d 354, 2004 WL 1125902 (Me. 2004); In re Marriage of Kunze, 337 Or. 122, 92 P.3d 100, 2004 WL 1354125 (2004). One court reached a result well within the nationwide mainstream; the other court adopted without statutory authority a radical rule of law not followed in any other state. The contrast between the two cases illuminates the key factors which drive decisions regarding the division of jointly titled property traceable to a separate source.
Maine: Spooner v. Spooner
The parties in Spooner were married in 1988. In 1997, the wife opened a brokerage account, titled in the name of herself and the husband. At the same time, a second account was opened in joint title, with the names of the parties reversed, so that the husband's name appeared first. Beginning the same year, for a total of three years, the wife's mother deposited $10,000 into each account. All sums in both accounts were spent for expenses, but the accounts remained open. Upon her mother's death, the wife received $150,000 in stock from a trust established by her mother. She deposited the stock into the first account. The wife "testified that her reason for putting the stock into the joint account was because she thought that an account in one person's name would be in limbo if the person died. She also testified that she considered the account to be hers." 2004 WL 1125902, at *1. By the time of divorce, the balance in the account had dropped to $60,000 due to market forces, plus expenditures to pay marital expenses.
The contested issue was whether the balance remaining in the account was marital or nonmarital property. Maine's equitable distribution statute, 19-A Me. Rev. Stat. 953 (Westlaw 2004), is a relatively straightforward adoption of dual-classification principles. Marital property is divided equitably by the court; nonmarital property is awarded to the spouse who holds legal title. Property acquired by gift or inheritance is treated as nonmarital.
The trial court in Spooner held that the original $150,000 transfer of stock was a gift to the wife from her mother alone. It further held that the wife did not make a gift to the marital estate by electing to have the stock deposited into the jointly titled account.
The husband appealed, arguing that the transfer was a gift to the marital estate. The Maine Supreme Court quickly dispensed with the husband's argument that the transfer was a joint gift to both parties. The trust mentioned only the wife and not the husband, and there was no other evidence of any intent to benefit the husband. The trial court therefore properly found a gift to the wife alone.
The husband also argued, however, that the wife made a gift to the marriage by electing to deposit the stock into a jointly titled brokerage account. This contention forced the Maine Supreme Court to confront a series of contradictions in its prior case law. The court had initially held that property transferred into joint title was presumed to be a gift to the marital estate, but that the presumption could be rebutted by clear and convincing proof that no gift was intended. Carter v. Carter, 419 A.2d 1018 (Me. 1980). In Long v. Long, 697 A.2d 1320 (1997), the court changed its position, appearing to hold that real estate transferred into joint title automatically became marital property. Subsequent cases appeared to limit Long to real property and applied no presumption of gift when personal property was conveyed into joint title. Chamberlin v. Chamberlin,785 A.2d 1247 (Me. 2001); Murphy v. Murphy, 816 A.2d 814 (Me. 2003). The wife in Spooner relied upon those subsequent cases and argued that the trial court properly found no donative intent on the facts. The husband argued that no basis existed for applying different rules to real and personal property and asked the court to apply Long to both real and personal property.
The court began by clarifying the holding in Long, stating that jointly titled real property is not automatically marital. The court recognized that this rule was stated in the text of the Long opinion. "The purpose of the statute is enhanced by recognizing that real property acquired jointly during marriage, whether transferred from a spouse or a third party, becomes a part of the marital estate." Long, 697 A.2d at 1323. "It is incongruous to conclude that such an outright transfer of ownership to a spouse [in joint title] fails to create divisible marital property in the event of divorce." Id. It held, however, that a reference to Carter followed by a footnote, id. at 1323 n.3, meant that a rebuttable presumption actually exists so that the trial court may in a proper case reach the result which the Long court itself had called "incongruous." Read closely, the footnote in question acknowledges certain circumstances in which the Carter presumption can be rebutted, but it does not suggest at any point that the Carter presumption remained valid. Since the text of the opinion made no reference to a presumption, and referred at least twice to an absolute rule that jointly titled assets are unconditionally marital property, the reader can hardly be faulted for inferring that no presumption existed.
In any event, Spooner redefined Long to acknowledge rather than to reject a presumption of gift. The court then adopted the common-sense proposition that no basis exists for applying the joint title gift presumption to some types of property and not others. It therefore held that the presumption would apply to assets other than real property, including the brokerage account at issue. Contrary language in Murphy and Chamberlin was construed merely as an acknowledgment that Long did not apply its holding to personal property, and not as a statement that Long could not or would not be applied to personal property.
The court then stated the circumstances under which the joint-title gift presumption can be rebutted. Carter had held that the presumption can be rebutted by clear and convincing evidence that the transfer into joint title was made without donative intent. Spooner, continuing its reinterpretation of Long, held that the possible grounds for rebuttal are even narrower:
We now explain Long to mean that when real estate is held in joint tenancy there is a presumption that it is marital. The presumption is rebuttable but on very narrow grounds. The presumption can be rebutted only if the spouse did not intend to transfer the property to joint ownership or the spouse was induced by fraud, coercion, duress, or deception. Furthermore, the presumption can be rebutted only with clear and convincing evidence. The presumption of donative intent in Carter . . . is not applicable after Long.
Spooner, 2004 WL 1125902, at *4. On the facts, while the trial court found that the wife lacked any intent to give the husband a beneficial interest in the brokerage account, there was no doubt that she did intentionally and knowingly deposit the stock into a jointly titled brokerage account. The court therefore held that the account was marital property. The contrary decision of the trial court was reversed.
Oregon: Kunze v. Kunze
The parties in Kunze were married in 1980. The wife brought into the marriage a piece of real property, the Germantown Road property. The wife kept the property titled in her name alone, but the parties used it as their marital residence from 1980 until 1984. In 1995 the wife transferred the property into joint title for the specific purpose of obtaining financing for three homes which the husband planned to construct. The construction project ended up losing money for the marital estate, but the property remained in joint title. Both before and after the transfer into joint title, funds acquired during the marriage were used to pay expenses on the property, and the property was improved with the husband's marital efforts. The husband filed for divorce in 1999.
Oregon's equitable distribution statute, Or. Rev. Stat. 107.105(1)(f) (Westlaw 2004), is an interesting blend of dual-classification and all-property concepts. The statute defines two different categories of property: property acquired during the marriage and property acquired before the marriage. The court has authority to divide either type of property, but the rules for division are different. Property acquired during the marriage is subject to a statutory presumption that it was acquired equally from the contributions of both parties. If the presumption is not rebutted, the property must be divided equally. If the presumption is rebutted, the property is divided equitably without any presumption. Property acquired before the marriage and property acquired during the marriage through the contributions of one spouse alone is awarded entirely to the contributing spouse unless the court finds that a different division is equitable. In determining the contributions of the parties, the court is directed to include noneconomic contributions as a homemaker. The net effect is similar to a dual-classification system with an equal division presumption, except that the court is permitted to divide separate property if it makes a positive finding that such division is equitable.
Both parties in Kunze agreed that the increase in value of the Germantown Road property should be divided equally. They differed, however, as to the wife's premarital equity. The husband requested an equal division, arguing that the property had been given to the marital estate. The wife argued that the premarital equity had not been given to the marital estate and that it should be awarded to her alone. The trial court agreed with the wife. The Oregon Court of Appeals reversed, holding that the property became part of the marital estate when it was commingled with marital funds and transferred into joint title. It accordingly held that the equal contribution presumption had not been rebutted.
On further appeal, the Oregon Supreme Court identified two distinct theories upon which separate contributions can become divisible marital property. First, separate contributions can become marital property when they are commingled with marital contributions so thoroughly that the marital and separate components cannot be reliably measured. On the facts, however, the court held that the wife's separate contributions (the value of her premarital equity) was subject to reasonable measurement:
Although wife held [the property] jointly with husband at the time of the dissolution, that fact did not preclude the court from ascertaining wife's separate contribution. Indeed, wife presented undisputed evidence that the equity at issue in the Germantown Road property . . . had originated solely from her separate funds. In addition, husband's efforts during the marriage to improve the Germantown Road property contributed to its increase in value during the marriage, but did not affect the equity that wife had in that property before the marriage. See Jenks, 294 Or. at 241 n. 2, 656 P.2d 286 ("[E]fforts expended after acquisition are relevant to division of the value of improvements or appreciation, but do not affect the preceding acquisition.").
2004 WL 1354125, at *12. Thus, the wife's premarital equity was not lost through a failure of tracing.
If separate contributions are reasonably traceable, they are property acquired outside of the marriage under Oregon law and thus not subject to the equal contribution presumption. But Oregon law permits the division of separate property if such division is equitable on the facts. As a second basis for dividing commingled separate contributions, the court held that the division of separate property would be equitable if the separate property in question had been given to the marital estate:
We agree with the Court of Appeals that, in deciding whether the court should include a separately acquired asset in the property division because of commingling, the court's inquiry properly focuses upon whether a spouse demonstrated an intent to retain that spouse's separately acquired asset as separate property or whether, instead, that spouse intended for that property to become the joint property of the marital estate. We further agree with the considerations, discussed above, that the Court of Appeals has applied to decide whether equity requires the court to include a separately acquired asset in the property division under ORS 107.105(1)(f) because of the integration of that asset into the shared finances of the marital partnership through commingling. We caution, however, that acts of commingling do not mandate in all cases the inclusion of separately acquired property in the property division. Instead, the court must evaluate the extent to which a spouse has integrated a separately acquired asset into the joint finances of the marital partnership and also evaluate whether any inequity would result from the award of that asset to that spouse as separate property.
Id. at *11. Thus, if a spouse who made separate contributions "demonstrated an intent . . . for that property to become the joint property of the marital estate," the separate contributions become marital. Id. The considerations applied by the court of appeals case law in determining donative intent, as stated by the Supreme Court, are as follows:
(1) whether the disputed property was jointly or separately held; (2) whether the parties shared control over the disputed property; and (3) the degree of reliance upon the disputed property as a joint asset.
Id. at *10. Joint title is the first of these factors, but it is not the only factor, and it clearly does not control the result. If separate contributions are made to jointly titled property, but the property is treated as a separate asset by both spouses, the mere fact of joint title clearly does not alone require that the asset be treated as marital property.
Applying the law to the facts, the Oregon Supreme Court agreed with the trial court that the division of the wife's premarital property was not equitable on the facts presented:
On de novo review, we are persuaded that the trial court's disposition should not be disturbed. Although wife added husband to the title of that property, she did so only four years before the dissolution and only to secure financing for the parties' construction project. In addition, except during the initial years of the marriage, the parties did not use that property as their marital residence. Finally, although husband contributed labor to that property, he has received the benefit of that contribution from the division of the appreciation of that property that had accrued during the marriage.
Id. at *13. Because the property was conveyed into joint title late in the marriage for the purpose of securing financing for a business to be started by the husband alone, and because the property was not the marital residence, the court saw little indication that the wife actually intended to give the husband an interest in the property. In the absence of such evidence, there was no equitable basis for dividing the wife's premarital equity.
It is instructive to compare the court's holding with regard to the Germantown Road property with its holding regarding another asset traceable to the wife's separate contributions, the Chaps Court property. This property was purchased in tenancy by the entirety using funds traceable to the wife's prior inheritance. It was used as rental property during the marriage, although the husband occupied one of the rental units after the separation. The supreme court agreed with the court of appeals that the trial court had erred by not dividing the wife's separate contributions to Chaps Court:
On de novo review, we conclude that the trial court erred in excluding the disputed equity in the Chaps Court property from the property division. Wife's acts of commingling as to the Chaps Court property reveal that she intended that property, including the equity that she contributed from the funds from her inheritance, to be the joint property of both parties. Wife purchased the Chaps Court property jointly with husband in tenancy by the entirety, and, by contrast to the Germantown Road property, she introduced no evidence at trial that showed that she had intended to retain her separately acquired equity in that property as her separate property. Under those circumstances, we conclude that husband established that wife had converted that asset to a joint asset of the marital partnership through commingling, and it is "just and proper in all the circumstances" to divide that asset equally.
Id. The differing results on the two properties show clearly that the court was approaching donative intent as an issue of fact. The court's reference to the lack of evidence against donative intent regarding the Chaps Court property suggests that the spouse arguing against donative intent bears at least the burden of introducing evidence in support of his or her position. On the facts, the lack of any obvious nondonative purpose and the fact that the property was titled jointly from its inception appear to be crucial to the end result.
Comparison and Analysis
Has the reader been able to predict which decision follows the general nationwide rule? Oregon's equitable distribution statute is unusual, and its unique mixture of dual-classification and all-property concepts will be unfamiliar to most readers outside the state. Nevertheless, the Oregon Supreme Court's opinion is a superlative example of statutory construction, and the rule adopted is as close to the general rule as Oregon's statute permits. Maine's equitable distribution statute is well within the mainstream, but the Maine Supreme Court's construction of the statute is unusual and unwise.
Maine's equitable distribution statute provides, in unconditional language, that property acquired by gift or inheritance is nonmarital property. 19-A Me. Rev. Stat. 953(2)(A). It states that property acquired during the marriage, whether "held individually or by the spouses in some form of coownership," is presumed to be marital, but the presumption is rebutted by evidence that "the property" falls within the definition of nonmarital property. Id. 953(3). "The property" is a reference to property described earlier in the same subsection that is, to any property owned by the parties, whether owned individually or jointly. Thus, the statute expressly states that property held "in some form of coownership" is nonmarital property if the owner proves that it was acquired by gift or inheritance. Spooner did not dispute that the wife's brokerage account was acquired by gift or inheritance, but it nevertheless held that the account was marital property. On its face, the court's opinion fails to implement the plain language of a controlling statute.
While the statutory language is absolute, Carter very properly recognized that nonmarital property can become marital property if it is given to the marital estate. The owner of property is always free to give the property away to another. But the first and most important element of a gift is always donative intent. Carter recognized as much, adopting a rebuttable presumption that donative intent is present whenever property is conveyed into joint title. Spooner, by contrast, expressly states that the presence or absence of donative intent is irrelevant as long as the property at issue was intentionally conveyed into joint title. If the husband and the wife had stipulated that the wife had no donative intent but that the property was nevertheless intentionally conveyed into joint title, the Spooner court would have found that the property was marital.
Since Spooner expressly disclaimed any reliance upon donative intent, the court's opinion cannot be explained as a finding that the wife gave her nonmarital property away. In the absence of a finding of a gift, there is no valid basis for defying the statutory requirement that jointly titled property acquired by gift or inheritance be treated as nonmarital.
The key policy basis behind the Spooner opinion is the following passage:
When a person, engaged in a shared enterprise with another, transfers property into an account held jointly with the other, it is reasonable to consider that the two members of the joint enterprise own the property together. [Quotation from Long omitted.] Marriage is a joint enterprise that is strengthened by treating the property that spouses have placed in joint tenancy as marital.
. . . [A contrary approach] does not comport with the actual behavior of a married couple. As in this case, marital partners generally treat the assets in a joint account as marital property, expending the proceeds of the assets for marital items.
Spooner, 2004 WL 1125902, at *6. From all indications, the Maine Supreme Court simply believes that jointly titled property should normally be marital. With all due respect, however, the Maine statute does not so provide. On the contrary, it expressly states that the marital property presumption is rebutted by proof that property held "in some form of coownership" falls within the statutory definition of nonmarital property. 19-A Me. Rev. Stat. 953(3). The only basis for a contrary holding is donative intent, the basis for the Carter presumption, which Long and Spooner both expressly rejected.
Apart from its inconsistency with the Maine statute, the Spooner opinion is also wrong as a matter of policy. It is simply not true that jointly titled assets are generally treated as marital property. On the contrary, the entire policy basis behind equitable distribution is that married persons generally pay little attention to legal title. A large number of decisions from other states find that the joint-title gift presumption, in the general sense used in Carter and in case law from other states, has been rebutted by proof that donative intent was lacking. In these cases, the courts necessarily found that jointly titled assets were not treated as marital property. It may well be that jointly titled assets are more often treated as marital property than separate property; that is why many states have adopted a presumption of donative intent. But no other state court has ever held, on its own initiative, that nonmarital property becomes marital when placed into joint title without donative intent.
In justifying its departure from Carter, Long suggested that a presumption of donative intent had led to inconsistent results. The results of joint-title gift presumption cases will always vary because different transfers into joint title will be made with or without donative intent. But the law itself is consistent from case to case, and the results are no more inconsistent than the facts of the cases themselves. Other states almost uniformly treat donative intent as the key issue, and no other court has found such a rule to be unworkably inconsistent.
Moreover, it was clear after Long and before Spooner, and it is presumably still true after Spooner, that the trial court is free to make an unequal division of nonmarital property that became marital when placed into joint title. See Kruy v. Kruy, 789 A.2d 99 (Me. 2002) (Long does not require that all jointly titled real property be divided equally). The author therefore submits that the results of the cases will be more inconsistent after Long and Spooner. The spouse who lost the nonmarital property will seek an unequal division, and in many cases will receive one. But because the division of marital property is discretionary, trial court decisions which refuse to make such an unequal division will almost certainly be affirmed. In addition to the inconsistency resulting from differing levels of donative intent, therefore, there will be additional inconsistency added by the freedom of different trial judges to adopt different approaches to the division of the marital estate. When the classification and division stages are considered together, the net effect of Long and Spooner is to increase the inconsistency in the ultimate division of property.
Finally, consider briefly what might have happened if the Maine court had consistently followed Carter. Joint-title issues have been the subject of considerable appellate litigation in Maine in recent years. Long changed the law; Chamberlin and Murphy appeared to limit Long to real property; Kruy held that Long did not require any particular result at the division stage; and now Spooner has redefined Long but extended most of the practical effect of its holding to all forms of property. Does the difference between the fairly strict Carter presumption and the absolutely strict Spooner presumption justify the cost in terms of appellate litigation alone? The system would arguably have reached generally similar results, in a manner much more consistent with the Maine statute, at a much lesser cost to trial judges and litigants, if the Carter presumption had been continuously followed. Carter is also the majority rule in other jurisdictions.
Compared to the strikingly activist reasoning of Long and Spooner, Kunze is a breath of fresh air. Faced with a unique and somewhat challenging statute, the Oregon court construed that statute in a manner fully consistent with the general nationwide consensus. Like the previous leading 2004 decision on the effect of transfers of separate property into joint title, Sexton v. Sexton, 125 S.W.2d 258 (Ky. 2004), Kunze recognized that any conversion of identifiable separate property into marital property by means of a transfer into joint title must be based upon a factual finding of donative intent. The court also identified what is probably the most important factor in determining whether a transfer of title was accompanied by donative intent: the manner in which the parties themselves treated the asset after the conveyance.
Finally, and most refreshingly, the court's findings on donative intent were based upon a perceptive examination of the facts and not upon broad, unjustified assertions of what the parties must necessarily have intended. The Germantown Road property was transferred into joint title late in the marriage, long after the wife initially received title to the property, for the obviously nondonative purpose of helping the husband obtain financing for a questionable (and eventually unprofitable) business venture. This is the sort of transfer that is generally least likely to arise from donative intent. The Chaps Court property, by contrast, was titled jointly from its inception, and there was no obvious nondonative purpose for the conveyance. The difference in the holdings regarding the two pieces of property arose directly from important, fundamental differences in the facts regarding the two transfers. The Oregon court's sensitivity to the facts is an excellent example of how an approach based upon donative intent should be applied.
Kunze's apparent preference for a presumption of donative intent has firm nationwide support. A majority of states have some form of presumption that a transfer into joint title was made with donative intent. Some of the states have a strict presumption, rebuttable only by clear and convincing evidence; this is the presumption that Maine followed from Carter until Long. Other states have a presumption which is rebuttable by a preponderance of the evidence. Brett R. Turner, Equitable Distribution of Property 5.18 (2d ed. 1994 & Supp. 2003). Kunze's treatment of the Chaps Court property, and particularly its reference to the lack of any evidence that the wife intended to retain her separate interest, is consistent with a weak presumption.
A growing minority of states, however, are rejecting the presumption entirely, holding that a transfer into joint title is a gift to the marital estate only if donative intent is affirmatively proven. E.g., Schuman v. Schuman, 265 Neb. 459, 658 N.W.2d 30 (2003); Pearson v. Pearson, 761 So. 2d 157 (Miss. 2000). The author's ongoing assessment of the wisdom of this approach is set forth at length in Turner, supra, 5.18. The argument for the presumption is that transfers into joint title are made with donative intent somewhat more often than without it. The argument against the presumption is that courts in states which have a presumption are often too quick to assume that every conveyance into joint title is made with donative intent. States without a presumption have on the whole reached decisions which are more consistent with the facts of the individual cases. Kunze's ability to combine what appears to be a weak gift presumption with a perceptive review of the facts may combine the best elements of both approaches.
Joint Titling Category