As published in the September/October 2022 issue of the Tennessee Bar Journal
Whether property owned by a party in a divorce constitutes separate or marital property is always an important distinction and often one of the most important issues for that party in the divorce proceeding. However, making that determination accurately is challenging and, in certain situations, advising clients of likely outcomes is also challenging for a family law practitioner. A brief review of case law relevant to this particular facet of a divorce case is well worth the analysis.
The Tennessee Code provides guidance on what property is marital property and what remains separate property of one of the parties at the time of divorce. “Marital property” is defined as “all real and personal property, both tangible and intangible, acquired by either or both spouses during the course of the marriage up to the date of the final divorce hearing and owned by either or both spouses as of the date of filing of a complaint for divorce.”1 The accrual of marital property continues until the divorce decree is final, not from the date of the filing of the divorce actions.2 Property that remains separate is defined, generally, as “[a]ll real and personal property owned by a spouse before marriage”;3 however, there are specific exceptions for property that was accrued during the marriage, such as exchanges of premarital property for other property during the marriage,4 income and appreciation derived from premarital assets,5 gifts and bequests given to one of the parties6 or certain types of personal judgments awarded specifically to one spouse.7 While this may seem to make the division of property a relatively straightforward matter, various wrinkles relating to specific types of property still arise. This most often occurs when what was previously separate property is converted to marital property, specifically through either commingling, substantial contribution or transmutation.
Commingling has been defined by Tennessee courts as the occasion when separate property is “inextricably mingled with marital property or with the separate property of the other spouse. If the separate property continues to be segregated or can be traced into its product, commingling does not occur,” but if the property is not kept separate, then it becomes marital property.8 More subtly, the principle of transmutation “occurs when separate property is treated in such a way as to give evidence of an intention that it become marital property,” thereby converting what was otherwise separate property to part of the marital estate for the purposes of division.9 The court further explained that [t]he rationale underlying these doctrines is that dealing with property in these ways creates a rebuttable presumption of a gift to the marital estate. This presumption is based also upon the provision in many marital property statutes that property acquired during the marriage is presumed to be marital. The presumption can be rebutted by evidence of circumstances or communications clearly indicating an intent that the property remain separate.10
The commingling of assets may seem the more simple of the three doctrines under review, but it still requires careful review, particularly with parties that have a lot of assets both pre- and post-marriage. Sometimes, even if one of the parties goes to great effort to make sure property remains separate, they still become “inextricably mingled.” A good example of the difficulty and the close analysis required is with respect to retirement accounts which are, of course, quite common. When a spouse removes money from a separately held retirement account and commingles it with marital funds, does that then make the entire account marital property, or only the portion that was clearly commingled? The remainder is separate and remains so as courts that have reviewed this issue note that such a withdrawal and use of funds lacks any intent on the part of the spouse to make a gift or a contribution of the entire separate property to the marital estate or the other spouse directly.11
The principle of transmutation is more difficult to discern, but it is comparable to commingling in the sense that the intention of the use of the assets is clear, even if the manner in which it is used does not automatically result in commingling. Four of the most common factors courts use to determine whether real property has been transmuted from separate property to martial property are:
- the use of the property as a marital residence;
- the ongoing maintenance and management of the property by both parties;
- placing the title of the property into joint ownership; and
- using the credit of the non-owner spouse to improve the property.
No single factor is determinative, and whether transmutation has occurred depends on the particular facts and circumstances of each case.12 One obvious example of the principle of transmutation is the use of separate property to purchase something, often real property, that is then clearly being used for the benefit of the married couple. As noted in poignant case law of Potter v. Potter citing Batson v. Batson, a clear-cut example of “transmutation is to purchase property with separate funds but to take title in joint tenancy” or by “placing separate property in the names of both spouses.”13 Fox v. Fox asserts that “a marital residence acquired by the parties during the marriage and owned by the parties jointly should be classified as marital property. Even a marital residence that was separate property prior to the marriage or that was purchased using separate property should generally be classified as marital property if the parties owned it jointly because joint ownership gives rise to a rebuttable presumption that the property is marital, rather than separate, property.”14
Again referencing the general principle of transmutation relating to the intent of the parties in the use of the property, “whether a particular asset is marital or separate depends on the conduct of the parties, not the record title of the asset. An asset separately owned by one spouse will be classified as marital property if the parties themselves treated it as marital property.”15 Specifically, in reference to the transmutation of real property, Tennessee courts have classified “separately owned real property as marital property when the parties agreed that it should be owned jointly even though the title was never changed, or when the spouse owning the separate property conceded that he or she intended that the separate property would be converted to marital property.”16
Perhaps the most difficult and subjective avenue for separate property becoming marital property is the idea of substantial contribution. The term “substantial contribution” is defined to include, but is not limited to “the direct or indirect contribution of a spouse as homemaker, wage earner, parent or family financial manager, together with such other factors as the court having jurisdiction thereof may determine.”17 Tenn. Code Ann. § 36-4-121(b)(1)(A) provides that the increase in value of assets during the marriage constitutes marital property; however, this policy “does not permit the conclusion that any increase in value [of separate property] during marriage constitutes marital property. The increase in value constitutes marital property only when the spouse has substantially contributed to its preservation and appreciation.”18 Tenn. Code Ann. § 36-4-121(b)(1)(D) specifically notes the contribution of a “homemaker may contribute indirectly to appreciation” as this codifies “a legislative policy designed to assure that spouses, after a divorce, are not economically disadvantaged by a decision to contribute to a marriage by rearing children and managing the complex affairs of the household, rather than devoting their labors to an outside-the-home job.”19 The key is that there be some form of contribution to the asset by the spouse. One party cannot shield what is otherwise a marital asset through the use of the asset, like a second home that was purchased with separate funds by one of the parties, by claiming that the homemaker contributed nothing unless he or she truly did not contribute anything of substance to the otherwise separately held asset.
Keeping in mind the intricacies of separate and marital property is an everyday task for a family law attorney, but situations arise that warrant more concentrated care. A firm grasp of the principles of substantial contribution, commingling and transmutation will give a practitioner the tools to advise each client as accurately as possible.
MARLENE ESKIND MOSES is a partner at Gullett Sanford Robinson & Martin, and formerly was manager and founder of MTR Family Law PLLC, a family and divorce law firm in Nashville. She is a past president of the American Academy of Matrimonial Lawyers. She has held prior presidencies with the Tennessee Board of Law Examiners, the Lawyers’ Association for Women and the Tennessee Supreme Court Historical Society. She is the immediate past president of the International Academy of Matrimonial Lawyers and is on the executive committee of the American College of Family Trial Lawyers. The National Board of Trial Advocacy has designated Moses as a Family Law Trial Specialist.
MANUEL BENJAMIN RUSS earned a bachelor of arts from Johns Hopkins University, a master of arts from University College London, and a law degree from the Emory University School of Law. He is in private practice in Nashville focusing primarily on criminal defense.
NOTES
1. Tenn. Code Ann. § 36-4-121(b)(1)(A).
2. Id.
3. Tenn. Code Ann. § 36-4-121(b)(2)(A).
4. Tenn. Code Ann. § 36-4-121(b)(2)(B).
5. Tenn. Code Ann. § 36-4-121(b)(2)(C).
6. Tenn. Code Ann. § 36-4-121(b)(2)(D).
7. Tenn. Code Ann. § 36-4-121(b)(2)(E).
8. Langschmidt v. Langschmidt, 81 S.W.3d 741, 747 (Tenn. 2002).
9. Id.
10. Id.
11. Snodgrass v. Snodgrass, 295 S.W.3d 240, 257 (Tenn. 2009); citing Avery v. Avery, No. M2000-00889-COA-R3-CV, 2001 WL 775604 (Tenn.Ct.App. July 11, 2001).
12. Hayes v. Hayes, 2012 Tenn. App. LEXIS 727, 2012 WL 4936282, at *12. (Tenn. Ct. App. Oct. 18, 2012; Fox v. Fox, 2006 Tenn. App. LEXIS 591, 2006 WL 2535407 at *5 (internal citations omitted).
13. Potter v. Potter, 2013 WL 445889 at Pp. 4-5, August 19, 2013, (Tenn. Ct. App. 2013); citing Batson v. Batson, 769 S.w.2d 849, 858 (Tenn. Ct. App. 1989).
14. Fox v. Fox, 2006 WL 2535407 at P. 5, September 1, 2006, (Tenn. Ct. App. 2006).
15. Id.
16. Fox v. Fox, 2006 WL 2535407 at P. 5, September 1, 2006, (Tenn. Ct. App. 2006) (citing Robertson v. Robertson, 2001 Tenn. App. LEXIS 319, No. M1999-02103-COA-R3-CV, 2001 WL 459100, at *3 (Tenn. Ct. App. May 2, 2001) (No. Tenn. R. App. P. 11 application filed); Cronin-Wright v. Wright, 121 S.W.3d 673, 675 (Tenn. Ct. App. 2003).
17. Tenn. Code Ann.§ 36-4-121(b)(1)(D).
18. Harrison v. Harrison, 912 S.W.2d 124, 127 (Tenn. 1995).
19. Keyt v. Keyt, 244 S.W.3d 321, 334-335 (Tenn. 2007).