Marital or Separate Property
If you are considering a divorce, you may wonder what property you will be entitled to if you divorce your spouse. During a marriage, oftentimes real property is acquired, pension and retirement accounts are created or increased and sometimes an inheritance is received. How and when you acquire property determines to a large extent if it is marital or separate property.
Under the laws of Tennessee, marital property is required to be equitably distributed. If you and your spouse can agree to a division of marital property, then the terms may be placed in a Marital Dissolution Agreement which specifies the division of marital assets and debts. If you and your spouse cannot agree, then a judge will hear evidence from both sides and order an equitable distribution of the marital assets and debts.
Under Tennessee statutes, marital property is property acquired by either or both spouses during the marriage up to the date of the final divorce hearing. Thus, property that is acquired during the marriage from income earned during the marriage is marital property, regardless of title. If you buy a car after you are married and it is titled in your name and paid from your income, the car is marital property. If you obtain a job after marriage and you contribute to a 401k account, the entire balance of your 401k account will be marital property subject to equitable distribution.
Separate property is property owned by a spouse prior to marriage such as an individual retirement account, property acquired in exchange for property acquired prior to marriage and property acquired by gift or through inheritance. Even after marriage, if you inherit property and maintain it in a separate account or in your name, then it will generally not be considered marital property.
Oftentimes, at the time a party receives an inheritance, a divorce was not being contemplated, so no consideration is given to the use of the inheritance. Under the laws of the state of Tennessee, property inherited is considered separate property which means it is not subject to distribution upon divorce. However, there are certain circumstances that can change the nature of the asset and convert it to marital property. For instance, if you inherit money and you use that money to purchase a jointly titled car, then it can be argued that the money was a gift to the marriage and the car is marital property subject to equitable distribution upon divorce. Another example would be if you inherit money and place in a joint account and commingle it with earned income. In that scenario, it can be argued that the money has been so commingled that it cannot be segregated and it loses its separate identity.
If you inherit assets or money while married, it must be kept in your name if it has a title and not mixed with marital assets if you want it to maintain its separate identity. If you are contemplating a divorce and have inherited assets, it would be to your advantage to consult with an experienced domestic attorney about protecting your inherited property.
Determining what property is marital and separate can sometimes be tricky, start with:
Tracing when and how the property is acquired
Determining how it is classified.
Some property is not as easy to classify.
In Tennessee, the doctrine of transmutation has been recognized as a mechanism in which separate property becomes marital property. The Courts have noted that when separate property is treated in such a way as to display an intent that it is marital then transmutation occurs and the property becomes marital. Another method by which separate property can become marital is commingling. The doctrine of commingling is applied with separate property and marital property is inextricably mingled together. However, under the doctrine of commingling, if the separate property can be traced or if the separate property remains segregated in some form, then commingling does not occur and the separate property remains.
Under the doctrine of transmutation, if the property is treated with the intent that it is marital property, a rebuttable presumption arises that the owner of the separate property made a gift to the marital estate.”Pate v. Pate, 2001 WL 985066. Thus, under the doctrine of transmutation, the tracing of separate property does not occur because it is presumed to be a gift to the marital estate.
An example of the doctrine of transmutation is explained in Hayes v. Hayes, 2012 WL 4936282, wherein the Court of Appeals reversed that portion of the trial court that determined that the former marital residence was wife’s separate property. In that case, the parties had been married for six years and the wife owned the residence prior to marriage. The parties resided in the residence during the entire length of the marriage. After the parties were married, they opened a joint bank account and both parties contributed funds to the joint account. The mortgage payments for the residence were made for several years from the joint account. Eventually, wife opened a separate account and began making the mortgage payments from her separate account but husband argued that her earnings that went into the account were marital funds. The husband also noted his other contributions to the residence such as removing carpet, repainting the interior of the home and other improvements to the residence. In this case, the Court of Appeals determined that the residence that was initially wife’s separate property had become marital property based on the doctrine of transmutation. The Tennessee Court of Appeals has consistently determined that the treatment of separate property during the marriage in a way that is evidence of the intent to make the property marital will change the classification of the property to marital under the doctrine of transmutation.
In Fox v. Fox, 2006 WL 2535407 the Court reversed the trial court’s determination that the marital residence was wife’s separate property and determined that it had become marital property under the doctrine of transmutation. Wife had purchased a tract of land prior to marriage. During the marriage, the parties constructed a marital residence on the separately titled tract of land. Most of the funds for the construction of the house were from wife’s separate assets. The title to the property remained solely in the name of wife throughout the marriage. However, during the marriage some payments for construction came from joint funds and husband helped contribute by coordinating the construction and painting and yard work. Other expenses associated with the residence were paid from a joint account such as insurance and property taxes. The parties lived in the home for approximately six years. Based on the evidence, the court concluded that the property should not have been classified as wife’s separate property and held that it should be considered marital. Other fact patterns where the Court of Appeals has applied the doctrine of transmutation involve situations where one party purchases a home in contemplation of marriage and the parties move in together and live there as a married couple and contribute to the upkeep with marital earnings. In that fact pattern, the home was considered marital property even though it was purchased by one party prior to marriage. The Court has reiterated that the parties’ treatment of the property at issue is determinative of its classification as either separate or marital property.
If you are contemplating a divorce and have some questions about how your assets will be classified, call Held Law Firm at 865-637-6550 and we will be happy to assist you.