Marital Property v. Separate Property: (And, Why They Matter)
Posted by Martin Heller Potempa & Sheppard, PLLC on February 22, 2019
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Marital property v. separate property. More than likely, the words speak for themselves. Without question, separate property may be real and personal property you owned before you married or after your divorce. Just about everything else is marital property – with a few exceptions. For example, if you acquired property by way of inheritance, Tennessee law considers it to be separate property.
Why is this even important? T.C.A. § 36-4-121 provides the details on dividing property after couples divorce or legally separate. In fact, the law specifically deals with the distribution of marital property. The reason? Separate property remains apart from the distribution.
As you can see, the distinction between marital and separate property becomes critical when you pursue a divorce. In addition to the items already described, the law also defines separate property to include:
Assets held in individual retirement accounts (IRAs) before marriage
Property acquired in exchange for property acquired before marriage
Income from and appreciation of property owned by a spouse before marriage with exceptions
Property gifted to a spouse (even if the gift comes during the marriage)
Pain and suffering awards, victim of crime compensation awards, future medical expenses, and future lost wages
As you look at the differences between marital and separate property, your head may start to spin. No doubt you have your own concerns about the distribution of your marital property. Could you and your spouse challenge one another on particular assets?
If it’s any comfort, you wouldn’t be the first to think that not everything you own counts as marital property. This issue is something experienced family law attorneys consider in many divorce matters. In fact, you may want to see how the court ruled in a recent case regarding the marital residence. Was it deemed marital property or separate property?
Marital Residence as Separate Property?
The Court of Appeals of Tennessee entered a decision in Carter v. Browne on February 4, 2019. The appeal considered a couple of issues. One of them was the classification of the marital residence as Elizabeth Jo Browne’s separate property.
Elizabeth Jo Browne and Jonathan George Carter married in 2008. They had no children together. After seven years of marriage, the couple decided to divorce.
From the inception of their marriage, the couple lived in a home previously owned by Elizabeth’s family. In 2009, Jonathan’s name was added to the deed so that the couple could take out a home equity line of credit. That said, Elizabeth’s father is also on the deed as a tenant in common with the couple.
As far as Elizabeth was concerned, the marital residence constituted separate property. Meanwhile, Jonathan argued that it was marital property and therefore subject to distribution.
The parties could not settle their dispute, and the case went to trial. Elizabeth’s father testified that the disputed property had been in the family for many years. In fact, his grandfather built the home. The father added his daughter’s name to the deed when Elizabeth married Jonathan.
As his testimony continued, Elizabeth’s father shared that he added Jonathan’s name to the deed in the following year. Nonetheless, he never intended for his son-in-law to retain ownership of the property. The addition was so the couple could obtain the home equity loan. In fact, Jonathan even signed a written agreement to that effect.
Husband Argued Home Was Marital Property
When it was Jonathan’s turn to testify, he informed the court that the property was in a total state of disrepair when he first moved into it. Although the couple used money from the home equity loan, they also went into marital funds to make home improvements. Jonathan did some of the work himself, with the help of his family members.
Jonathan disputed that he ever signed an agreement that denied him ownership rights to the subject property. However, he did recall signing something regarding the home equity loan.
For whatever reason, neither party produced the written agreement signed at the time Jonathan’s name was added to the deed. No doubt it would have added clarity to the understanding of all involved.
The judge also listened to Elizabeth’s testimony as part of the divorce hearing. At the conclusion, the court ruled in the wife’s favor in finding that the marital residence constituted separate property.
Jonathan’s argument on appeal focused on the classification of the marital residence as separate property, rather than marital property. In reviewing the matter, the Court of Appeals considered the concept of transmutation. That is, “separate property can be treated “in such a way as to give evidence of an intention” that it is to become marital property.”
In contemplating whether a house previously owned by either party before the marriage becomes marital property, the court looks for answers to the following:
Was the property used as a marital residence?
What contribution have both parties made to the property’s maintenance and management?
Was the title of the property changed to joint ownership?
Does the non-spouse owner deserve credit for improvements to the property?
Upon review of the circumstances in this particular case, the Court of Appeals found that the marital residence “converted to marital property via transmutation.” Although the home started off as separate property, they paid all expenses through a joint bank account.
Not only was the property used as a marital residence, but Jonathan also made a number of improvements to the home. Furthermore, both husband and wife borrowed from the equity in the home. Both parties admitted that the intent of the loan was to renovate the house.
The claim that Jonathan’s name was only added to the deed to obtain the equity line was of little consequence in this matter. After all, Elizabeth admitted herself that the outstanding loan remained in Jonathan’s name.
On appeal, the court concluded that based on a totality of the circumstances, there was “evidence of an intention that… become marital property.” The case was remanded to the trial court for a determination regarding equitable distribution.
Equitable distribution is a critical part of every divorce case. You may be concerned about whether particular assets are marital property or separate property. Contact Martin Heller Potempa & Sheppard, PLLC to schedule an appointment to discuss the particulars of your case.
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