WHEN NON-MARITAL PROPERTY BECOMES MARITAL PROPERTY

There  are legal principles that  apply to  non-marital  assets brought  into the  marriage that convert these assets into marital property.    Usually  the  person who owned the assets at the time of  marriage  is   afforded  an  opportunity to demonstrate that the assets in  fact have not  been transmuted.    Because the demonstration requires applying these  principles  to  assets  which  have  a  financial  value,  the   valuator  is  an  important part  of  the  team since  the legal defense  placed before the court  is  joined  at  the hip with  an understanding  of the transactional process which gave rise to the presumed  transmutation, and why  what actually happened demonstrates that nothing  has changed.

When  non-marital funds are combined with marital funds inside joint accounts  there is a presumed interspousal gift that occurred.  This is a  rebuttable presumption.  In order to overcome the presumption, the  spouse who previously owned the money will have to show that gifting was  not intended and it will have to be demonstrated with clear convincing  evidence.  The most often recognized way to do this is to be able to  trace the funds through separately defined assets having distinct  characteristics.  Tracing is one of the services offered.

It is much more difficult overcoming a presumption of a gift when real estate is involved.  There may be another way to accomplish the same objection through an award of unequal distribution.  This is a complicated matter requiring a demonstration of windfall showing causation effect and the exact amount of property involved.  This remedy is available only in equitable distribution states, such as Florida.

 Commingling of funds occur when marital funds are mixed  with non-marital funds.  When it occurs inside joint accounts this  causes a presumption of an interspousal gift, and if it is not rebutted  the transaction transmutes the property into marital property.  But when  it occurs inside a non-marital account, the funds are commingled.   While the intuitive presumed gift has not occurred, many courts employ  circular reasoning finding that a gift occurs if the funds cannot be  traced.  Yet tracing funds is sufficient as proof, but courts accept  other forms of proof in overcoming the rebuttable presumption.  All  assets are presumed marital and the person claiming a non-marital asset,  or a non-marital portion, has a separate burden to demonstrate that  portion; and if he or she cannot, the property that started out as  non-marital is converted into marital property.  Confusing that  commingled liquid assets cannot be separated without tracing a  non-marital portion (which is financially incorrect), some courts have  similarly confused the burden to demonstrate a non-marital portion with  the burden of overcoming an interspousal gift, and have come full circle  to rule that unless the funds can be traced, mere commingling produces  an interspousal gift.  The client needs to check with his or her  attorney to see if the contrasting issues were tried in his or her state  and consider trying it.  See Commenator article inside publication  links for a complete analysis of issues. 

A  presumed interspousal gift occurs when a separately titled house is  transfered to joint ownership.  Showing contrary intent is much more  difficult with real property.  That does not mean that it cannot be  done.  While tracing funds may be part of the process, clear contrary  intent must be established by a preponderance of evidence.   Such  demonstrations are very rare.  But even failing at that that does not  leave the previous owner with no other options.  If certain statutory  factors can be met, the previous owner can request that the court do an  unequal division of property  (in many but  not all states).  Tracing  funds shows what impact non-marital assets may have played in the  development of marital assets, distinguished from marital effort.  This  may be an important piece of evidence that will assist the court in  making its ruling.

The statute dealing with houses that are separately titled changed drastically in 2018.  Trying to fix the Supreme Court Kaaa ruling of 2010, the new 2018 statute creates so many unexpected convoluted results that division is ripe for unprecedented errors.  Mr Reiss identified them in a May 2021 article and identified the correct valuation method in keeping with the clear statutory intent laid out in that new statute.  That clear statutory intent defines the marital contribution as the paydown of mortgage. The best thing about that statute is it provides the court with discretion to vary from the suggested formula that determines the appreciation of the marital contribution.  It results in huge errors that favor the party in whose name the house is titled provided that the house was not refinanced.  The refinance exacerbates that error in a major way sometimes wiping out any marital contribution when the exact opposite result should occur.  A refinance that borrows all the equity should wipe out all contribution, both marital and nonmarital,  making the refinance payments 100% marital and the suggested formula does exactly the opposite.  That is because the formula treats the loan by subtracting it from the appreciation and preserving the principle. Try finding a bank that loans you all the equity but guarantees the principal should the house lose value. This creates the absurd result at the point of the loan of negative appreciation when the selling price increased.

Marital property is created within such  assets when a marital contribution is added to the property.   This  occurs when either an infusion of marital money occurs or when the  property is improved with marital labor.  The mistake made by the vast  majority of attorneys is distinguishing an improvement based on marital  labor from the basic asset without inquiring whether the marital labor  created all of the growth, some of the growth, or whether the growth  could have reasonably occurred with no marital effort.  This affects  whether, and by how much marital property is creatred.  Only the best  financial experts can assist your attorney with this issue.   Mr. Reiss  has been instrumental with creating case law in Floirda on this precise  issue.

The  expert can make the difference in whether you share an overvalued  marital property value, an undervalued marital property value or a  correct amount of property.  There are a number of different approaches  to separating out the non-marital value or in seeking an unequal  division of property.

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