Transmutation: When Non-Marital Property Becomes Marital Property
December 2, 2016 4:38 pm,
Sandra and James have been married for 25 years. Once they were married, she gave up her job to become a stay-at-home mom. When the kids were old enough, she began to work in her husband’s dental practice, which he established before they married, becoming an integral part of the business. If Sandra and James get divorced, does she deserve compensation for any part of the dental practice that she helped grow?
Marital And Non-Marital Property, And How Non-Marital Becomes MaritalBefore answering that question, it’s important to understand the difference between marital and non-marital property. Marital property is property that belongs to the marriage, i.e., to both spouses. In a divorce, it is subject to equitable division by the court (if the couple has not come to an agreement about how to split up the property). A common example of marital property is a house that the couple purchases together during the marriage.
Non-martial property is owned by one spouse or the other, and is not considered to belong to the marriage. In a divorce, it will remain in the hands of its original owner. Examples of non-marital property include gifts made to one spouse only, inheritance, and assets that were brought into or existed before the marriage, such as cars, real estate, and investments, to name just a few examples. Property that was excluded through a pre- or post-nuptial agreement is also considered non-marital.
Although the law gives clear definitions of the two, the application becomes difficult in situations where non-marital property becomes marital property through the process of transmutation.
How Transmutation of Marital Property HappensIf non-marital property becomes “commingled” with marital property to the point that it can’t be distinguished, or it’s used by the spouses in support of the marriage, it can become marital property.
However, determining how much commingling is enough, or what use constitutes “support of the marriage” is not straightforward. The Supreme Court of South Carolina has heard a number of cases where application of the law has depended on how and when transmutation occurs.
Here are three cases from the last few years as examples:
Case #1: Wife works in husband’s business and argues that it’s transmutedPittman v. Pittman (PDF), Feb. 2014
Gloria Pittman separated from husband Jetter Pittman after seven years together. Over the course of their marriage, she reduced her hours at her job as a nurse and instead spent more time working in her husband’s surveying business, until she was no longer eligible for health benefits or a retirement savings plan through her nursing job. Instead, she became an integral part of her husband’s business. When they divorced, she argued that the business, which her husband owned before coming into the marriage, had become marital property.
The Court agreed. A few key factors in the decision: the husband and wife agreed that she should essentially give up her nursing career to help with his business, the wife was involved in making major decisions regarding the business with her husband, and they structured her pay to benefit the two of them.
Case #2: Wife argues that husband’s inherited land is transmutedWilburn v. Wilburn (PDF), May 2013
Harriet and Paul Wilburn were married for over 30 years. They had a unique situation: he had a stroke in his mid-40s that left him partially paralyzed. He granted his wife power of attorney and she took control of some of his accounts. She later got breast cancer and then decided to seek divorce. In the split, she argued that a tract of land he inherited had transmuted and was marital property.
The Court disagreed. Although the Court found wife’s testimony that she had contributed to the management of the property to be credible, that wasn’t enough to establish transmutation. The Court also found that even though income from the land was used in support of the marriage, the property had not transmuted.
Case #3: Husband argues properties are non-maritalConits v. Conits (PDF), Mar 2016
Peggy and Spiro Conits were married over 30 years before seeking divorce. He owned a number of properties prior to the marriage. She argued that the properties should be considered marital property.
The Court agreed. The income from a property he owned in the U.S. was used to support the marriage and to extinguish debts. He also owned a property in Greece, which the Court determined was marital property. In both cases, loans taken out on the properties were fully paid during the course of the marriage.
Keeping Marital and Non-Marital SeparateWith the Court’s interpretation of what constitutes transmutation varying so widely between cases, it’s hard to know exactly what will and won’t qualify as transmutation. If you want to avoid transmutation of property, there are ways you can protect certain assets, for example, through a pre- or post-nuptial agreement.
For advice on protecting your assets, and on other issues of estate planning, contact estate planning attorney Gem McDowell at his Mount Pleasant office today. He and his associate Lauren can help you create a robust estate plan that takes care of your future needs and the needs of your whole family. Get in touch by calling (843) 284-1021 or by filling out this contact form online.