Another Non-Family-Use Case
August 7, 2013 § 2 Comments
I’ve mentioned here before that I am no big fan of the “family-use” doctrine that morphs separately-owned property into marital merely because it was used by the family.
There are some exceptions to the rule, however, as I have posted about. Here is a post where the COA refused to apply it. Here is another post where I pointed out cases holding that neither plantation and maintenance, nor payment of taxes, nor even joint titling convert separate property into marital.
The latest case, Renfro v. Renfro, decided by the COA on July 30, 2013, is yet another where the appellate court did not agree with the chancellor’s application of the concept.
Claudia and Johnny Renfro married in 1987, and had no children. In January, 2011, they separated after Claudia discovered that Johnny was involved in an adulterous affair, and Claudia sued for divorce.
At issue in the divorce was equitable distribution. The parties had accumulated the usual marital things, including cars, retirement accounts and other financial assets, a residence. In addition to all of the other assets, there was a 140-acre tract of unimproved land that Claudia’s mother had deeded to her in 2007.
Following a trial, the chancellor adjudicated all of the assets, including the 140-acre tract, to be marital property subject to division. She allocated one-half of the assets, which totalled in value nearly $600,000, to each party. In her opinion, the chancellor found as to the 140 acres as follows:
The testimony and evidence is substantial that the management of the property, including its enrollment in government programs, planting of trees, leasing for hunting purposes, construction of gates and roads, spraying and paying of taxes was solely at the control of [Johnny]. Further, and perhaps most importantly, [Claudia] indicated that the development and management of the property as a tree farm was for the purposes of providing income for the parties’ retirement. As such, the court finds that the normally non-marital character of the property was changed by the family[-]use doctrine, Algood [v.] Algood, 63 So. 3d 443 (Miss. [Ct.] App. 2011), as well as by conversion by implied gift, Algood, supra, such that the property lost its non-marital nature and now must be considered marital property subject to equitable distribution.
Claudia appealed, complaining primarily that the 140 acres was not marital property subject to division, and that the chancellor had misinterpreted the evidence.
In its opinion, penned by Judge Carlton, the COA found that there was inadequate evidence to support the judge’s finding that the tree farm on the property had been developed as part of the parties’ retirement plan.
As for the other indicia of family use relied upon by the chancellor, the COA said:
[¶16] … We also find error in the chancellor’s determination that Johnny’s actions of enrolling the land in government programs, planting trees, leasing the land for hunting purposes, constructing gates and roads, spraying the land, and paying taxes on the property constituted sufficient evidence to convert the land into a marital asset. See Hankins [v. Hankins,] 729 So.2d [1283]at 1286-87 (¶15); Ory [v. Ory], 936 So. 2d [405] at 411 (¶15). This Court has held that property-tax payments are traceable and do not transmute separate property into marital property. Brock v. Brock, 906 So. 2d 879, 888 (¶50) (Miss. Ct. App. 2005) (quotation omitted) (“[T]he key to determining when there has been transmutation [from separate property to marital property] by commingling is whether the marital interests can be identified, i.e., can be traced.”). We also find no evidence submitted by Johnny to show how the land increased in value during his marriage to Claudia, or that an agreement existed between Claudia and Johnny that Johnny’s actions of managing the land would give him an interest in the property.
¶17. As acknowledged, nonmarital assets may lose their status as such if the party commingles the asset with marital property or uses the assets for the benefit of the family. Johnson, 650 So. 2d at 1286. However, Claudia testified that she and Johnny never used the land for any family purposes. Significant to our analysis, we recognize that in the recent and similar case of Marter v. Marter, 95 So. 3d 733, 737-38 (¶¶14-16) (Miss. Ct. App. 2012), this Court held that evidence that the husband maintained the property inherited by the wife, paid the property taxes, and planted some trees on the property did not convert the property to marital property by virtue of commingling.
¶18. Accordingly, we find the chancellor erred in classifying the 140 acres as marital property. The record fails to show that the real property at issue was converted to marital property through the family-use doctrine, since the property was not used for a family purpose. Additionally, Johnny’s testimony only showed a potential intended purpose for the property in the future. See Deborah H. Bell, Bell on Mississippi Family Law § 6.04 (2005). The record also fails to contain evidence that Claudia commingled the property or used it as collateral for family purposes. See Bell, § 6.04[2]. Also, insufficient evidence exists in the record to show that Johnny contributed anything of significance to the improvement of the property. The record shows little, if any, contribution by Johnny, and shows that Claudia owned the property for only three years while she cohabited with Johnny. For the foregoing reasons we reverse the judgment of the chancery court on the matter of equitable division of the property — specifically, the classification of the 140 acres as marital property — and remand to that court for further proceedings consistent with this opinion.
That is a template you might be able to use in extricating your client’s property from the grasping tentacles of the family-use doctrine.
It’s still beyond me that activities like infrequent use of a beach condo, or fishing in a lake, or use of an antique chair, would convert separate property to marital, while plantation and maintenance would not. But, hey, I’m not complaining. Any exception to this rule is gratefully welcomed by me!
A Not-so-Separate Peace
July 2, 2013 § Leave a comment
Christopher and Tammy Clausell purchased a jointly-titled home in 2003, using a cahsier’s check for $60,000 that was derived from settlement of a personal-injury claim that Christopher had before the marriage, but that he received post-marriage.
In 2005, after Hurricane Katrina, the parties received a joint grant of $98,000, of which they devoted around $78,000 to remodelling the home.
The parties lived together in the home until 2008, when they separated, and, after Christopher filed for a divorce, he was awarded temporary occupancy of it.
In the course of the divorce, the parties entered into a consent, leaving it to the chancellor to decide the equitable distribution of their personal and real property.
In 2011, the chancellor classified the home as marital property. The judge ruled that the facts that the home was the primary marital residence for most of the ten-year marriage, and that it was jointly titled, and that the grant money was invested in it, all supported a finding that it was a marital asset. After applying the Ferguson factors, she ordered that it be sold, with the net profit divided equally between Christopher and Tammy.
Christopher appealed, taking the position that the chancellor was in error in classifying the home as marital property subject to division, since the entire purchase price was paid out of his personal-injury settlement.
In Clausell v. Clausell, decided June 25, 2013, the COA affirmed. Judge Fair, for the majority, explained:
¶9. To equitably divide property, the chancellor must: (1) classify the parties’ assets as marital or separate, (2) value those assets, and (3) equitably divide the marital assets. Hemsley [v. Hemsley], 639 So. 2d at 914; Ferguson [v. Ferguson], 639 So. 2d at 928. Here, the only dispute by either party of the chancellor’s classification of assets as marital or separate and the division of those assets is the classification and division of their jointly titled house. In Johnson v. Johnson, 650 So. 2d 1281, 1287 (Miss. 1994), our supreme court stated that all marital assets are subject to possible equitable distribution in accordance with the factors provided in Ferguson. Marital property is “any and all property acquired or accumulated during the marriage . . . and [is] subject to an equitable distribution by the chancellor.” Hemsley, 639 So. 2d at 915. Further, such marital “[a]ssets acquired or accumulated during the course of a marriage are subject to equitable division unless it can be shown by proof that such assets are attributable to one of the parties’ separate estates prior to the marriage or outside of the marriage.” Id. at 914.
¶10. Christopher mistakenly asserts that the home cannot be marital property because it was purchased with money from his personal-injury settlement from litigation filed before marriage on a cause of action that accrued to him prior to marriage. However, Christopher was married to Tammy when he received the settlement check, and he was married to Tammy when they purchased the home. Further, “nonmarital assets . . . may be converted to marital assets if they are commingled with marital assets or used for familial purposes. Such converted assets are then subject to equitable distribution.” Heigle v. Heigle, 654 So. 2d 895, 897 (Miss. 1995). “The burden is upon one claiming assets to be non-marital to demonstrate to the court their non-marital character.” A & L, Inc. v. Grantham, 747 So. 2d 832, 839 (¶23) (Miss. 1999) (citing Hemsley, 639 So. 2d at 915). “This burden goes beyond a mere demonstration that the asset was acquired prior to marriage.” Id.
¶11. Reversal is warranted “only where the failure to make sufficient findings of fact and conclusions of law constitute manifest error.” Selman v. Selman, 722 So. 2d 547, 554 (¶29) (Miss. 1998). In this case, the chancellor set out her considerations in classifying the home as marital under Hemsley and conducted a detailed analysis of all the Ferguson factors in distributing the marital estate. We cannot say that the chancellor abused her discretion in classifying the home as marital and dividing proceeds of its sale equally. Accordingly, we affirm the judgment of the chancellor.
Understand that if you represent the party seeking to keep an asset separate, you have a substantial burden that “goes beyond a mere demonstration that the asset was acquired prior to the marriage.” You will have to show how the asset retained its separate character, or how it can easily be traced out and re-separated. And your proof must be in the record. If you just dump that on the judge to do and do not make the record, you are planting potent reversible error.
My sense is that it is getting harder and harder to convince the appellate courts that an asset is in any way separate (1) if it has been used in any form or fashion for family use, or (2) if marital money was invested in it, or (3) if there is no pre-marital agreement that it be treated separately despite (1) and/or (2).
As a lawyer, you are in a position to advise clients in advance how to avoid these judicially-created traps. The downside is that, 99% of the time, you are invited to get involved long after the deed is done (no pun intended).
THREE ACTS THAT DO NOT CONVERT SEPARATE PROPERTY TO MARITAL
August 28, 2012 § 1 Comment
Any asset value accumulated through the work efforts of one or both parties to a marriage during the marriage is a marital asset subject to equitable distribution in a divorce case. See, Hemsley v. Hemsley, 639 So. 2d 909, 915 (Miss. 1994).
Marital assets are subject to equitable distribution and may be divided between the parties in a divorce, applying the factors in Ferguson vs. Ferguson, 639 So.2d 921, 928-9 (Miss. 1994).
Any assets attributable to a party’s separate estate prior to the marriage, or acquired separately during the marriage, as by gift or inheritance, by one party, are the separate property of that party, and is not subject to being divided in equitable distribution. Hankins v. Hankins, 866 So. 2d 508, 511 (¶13) (Miss. Ct. App. 2004).
In Ory v. Ory, 936 So. 2d 405, 411 (¶13) (Miss. Ct. App. 2006), the court recognized the general rule that assets may lose their separate status as such if the party commingles the asset with marital property or uses [it] for familial benefit” (citing Johnson v. Johnson, 650 So. 2d 1281, 1286 (Miss. 1994).
So what are the actions that can make property lose its separate character? That was the question before the COA in the case of Marter v. Marter, decided by the COA August 7, 2012. In Marter the court considered and rejected the appellant-husband’s three arguments that the wife’s separate property had been converted from separate to joint property.
- Plantation and maintenance. The proof was uncontradicted that the husband had maintained the property and participated in planting trees on it. The opinion stated: “At some point during the marriage, the Marters planted 49 acres of pine trees and 32 acres of hardwood trees on the property. The Marters enrolled in a Conservation Resource Program (CRP) with the federal government whereby they receive rental payments for the trees. However, the rental payments have always been directly deposited into [the wife’s] separate checking account.” The husband also did bush-hogging and maintenance. The COA cited Hankins, at 1286-87 (¶¶14-15) (Miss. 1999), and Ory, at 411, which held that the fact that husband cleared a portion of the land, hauled dirt onto the property, and had a large number of seedlings planted on the property did not operate to convert the property to marital property. The court also held that the husband’s contributions to maintenance were de minimis.
- Joint titling. The Marters had conveyed the property to themselves in joint ownership, and the husband argued that the joint title made the property lose its separate character and converted from separate property to marital. Citing Pearson v. Pearson, 761 So. 2d 157, 163 (¶16) (Miss. 2000), the court rejected his argument, pointing out that the MSSC has rejected the “title theory”, and has stated that “[t]he issue in divorce is which property is ‘marital property,’ subject to equitable distribution, and that determination proceeds absent any presumption based on title.”
- Payment of Taxes. The parties paid the taxes on the property from their joint account, and the husband argued that that converted the property to marital. Not so, answered the COA. The court said: ” … this Court has previously held that property-tax payments are traceable and do not transmute separate property into marital. Brock v. Brock, 906 So. 2d 879, 888 (¶50) (Miss. Ct. App. 2005).
So there are three lines of argument for transmutation that have been found wanting by the appellate courts. What it takes to convert separate property is beyond the narrow scope of this post.
I encourage you, if you have a case either attempting to establish commingling or transmutation, or defending against it, that you carefully research the case law. There are many cases on this issue, and you will find authority all over the ballpark. If you show up in court without some authority, and the other side has its cases in hand … well, don’t expect to come out too spiffy.
AN ENDURING MISCONCEPTION
June 26, 2012 § Leave a comment
In a contested equitable distribution case, I require the parties to present a pre-trial order that includes a listing of all property with values. Lawyers appear with the appropriate information, get a trial date, and we proceed from there.
Then, at trial, it happens quite often that someone testifies that they omitted an item or several — some stock, interest in a trust, some furniture, a few pieces of jewelry — usually with some significant value. And we then devote considerable attention and time to something that could simply have been listed on the property list that was not.
Almost invariably the rejoinder is to the effect that “It was something I owned before the marriage,” or “That was an inheritance from my dad that I received after the marriage,” or “Those were rings that momma gave me.”
The misconception — an enduring one — is that if it was owned before the marriage, or was an inheritance or gift, it is not considered in equitable distribution. That’s not so.
All property of the parties, whether marital or non-marital, is taken into consideration in equitable distribution. Among the Ferguson factors that govern the chancery court’s adjudication of equitable distribution is the value of each spouse’s separate estate, or, in the court’s own language, “The value of assets not ordinarily, absent equitable factors to the contrary, subject to distribution, such as property brought to the marriage by the parties, and property acquired by inheritance or inter vivos gift by or to an individual spouse.” Ferguson v. Ferguson, 639 So.2d 921, 928 (Miss. 1994). Thus, proof of each party’s separate estate must be developed and considered by the court in deciding how to divide the marital estate equitably.
Even though the parties’ separate property is required to be considered, however, assets that prove to be truly separate in nature are not subject to being divided in equitable distribution, meaning that they will go into the column of the party who owns them. The aftermath of equitable distribution will be two piles of marital assets that have been divided equitably, one for each party, upon each of which is heaped the party’s separate assets.
It is only after equitable distribution has been accomplished that alimony may be considered, and alimony is appropriate only when the equitable distribution leaves a party with a deficit, or inability to support himself or herself. Among the Armstrong factors for adjudication of alimony is “The obligations and assets of each party.” The MSSC has held that the trial court must consider in determining alimony both the assets awarded to the spouse in equitable distribution, and the parties’ separate assets. Striebeck v. Striebeck, 911 So.2d 628, 634-635 (Miss. App. 2005), Sanderson v. Sanderson, 824 So.2d 623, 627 (Miss. 2004). Disparity of income and assets, including separate assets, after equitable distribution triggers consideration of alimony.
Remember, too, that assets can change character from separate to marital or mixed. Just because your client tells you that she acquired that antique armoire from her aunt before the marriage, don’t automatically assume it is out of reach of equitable distribution. The appellate courts have clung to the “family use doctrine,” and that piece of furnture may have gotten in play for equitable division simply because the husband used it for ten years to store his shirts, ties, underwear, pajamas and even love notes from his girlfriend.
List all of the assets, clearly marital as well as questionably marital. Then argue your client’s case as to why certain items should be excluded from equitable distribution, but don’t fail to list them.
THE FAMILY USE DOCTRINE IS ALIVE AND WELL
January 18, 2011 § 3 Comments
It is well settled in our jurisprudence that a gift to or inheritance by one of the parties during the marriage is separate property unless it loses its separate character through some act of the parties. Title, for instance, may be changed from individual to joint. Or separate funds may be commingled to the extent that they lose their separate character. Or there may be investment of marital assets in the separate property so that the marital estate has a substantial stake in it.
In 2000, the concept of the “family use doctrine” made its appearance in Mississippi in the case of Brame v. Brame, 98-CA-00502-COA, ¶20 (Miss. App. 2000), in which the husband’s clock, piano and dining set, all of which had been gifted to him took on a “new personna [sic] of full family use,” and was converted from separate into marital property.
In Rhodes v. Rhodes, decided by the court of appeals on January 11, 2011, the court found that a Florida vacation home purchased by the husband three years before the marriage was converted into marital property under the family use doctrine based on the facts that: the wife engaged in “extensive efforts” in the property’s upkeep and maintenance; the wife “undertook efforts” to improve the property; the wife decorated the home on her own; the husband made payments on the home from his earnings through the marriage; the wife made contributions through deposits into a joint checking account; the wife contributed housekeeping efforts to the home; the wife and “her family” regularly vacationed and spent holidays there; the wife lived there for a considerable time and considered it her second home; and she and her daughter used it as a residence for “several months” after Hurricane Katrina. Rhodes at ¶ 36. The court held that as a result of the combination of factors, “the vacation home lost its character” as separate property of the husband. Thus, as of January 2011, the family use doctrine is alive and well.
On the facts of this case, with the many factors apparently supported by the evidence, it’s hard to quibble with the outcome. Most practitioners and trial judges grasp without any difficulty the equitable principles involved in finding a conversion from separate to marital when there has been financial investment of marital money and/or “sweat equity” in the property.
What gives most of us at the trial level pause, though, is the concept that an item may be converted from separate to marital property simply because it is used in the marriage by the family.
If I were a lawyer whose client just inherited a mortgage-free beach home in Gulf Shores and was concerned about the future of his marriage, would I not be wise to advise him under our current law: to prohibit any use of the property by his wife and children; and to pay all taxes and expenses of the property from entirely separate funds and not from any current income. Or what if the wife inherits an antique Baldwin grand piano from her aunt, would she not be best advised to store it where neither the husband nor the children could touch it and possibly convert it into marital property, even though the daughter has considerable musical skills and would benefit from its use?
Assuming I am correct about the above advice, how in the world does such a policy promote what is best for the family as a whole? Policy and its consequences often have a strong influence on people’s actions. Is this one of those unintended consequences we’ve talked about here before?
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