A Closer Look at Transmutation

A Closer Look at Transmutation

The issue of transmutation has come up on this blog before, when we did a quick overview of how non-marital property can undergo transmutation to be considered marital property. This issue can be critical in cases of divorce, when assets are divided between spouses. Often, one spouse comes into the marriage with an asset (non-marital property) and when it comes time to divide assets in the divorce, the other spouse claims that the asset should now be considered marital property so they can get what they consider their fair share of it.

But determining transmutation is not black and white. The court must look at the evidence to decide. Today we’re going to look at the details of a specific case to better understand what type of evidence courts look for when considering transmutation.

The case in question is Brown v Odom, heard by the South Carolina Court of Appeals in May 2018. (PDF of case) Grady C Odom and Emily S Brown divorced after an 8-year marriage. In the divorce, a family court determined that a company founded by Odom before he and Emily married, Twin Oaks Villas (LLC), had transmuted into marital property over the course of the marriage. It was therefore subject to division in the divorce settlement. Odom disagreed with the lower court and appealed.

Producing Evidence for Transmutation

The SC Court of Appeals affirmed the family court’s decision, finding that the LLC did indeed transmute into marital property. In its decision, it cites previous cases to establish a basis for analysis:

“Nonmarital property may transmute into marital property if ‘[1] it becomes so commingled with marital property that it is no longer traceable, [2] is titled jointly, or [3] is used by the parties in support of the marriage or in some other way that establishes the parties’ intent to make it marital property’” (Wilburn v Wilburn, 2003)

and

“The spouse claiming transmutation must produce objective evidence showing that, during the marriage, the parties themselves regarded the property as the common property of the marriage.” (Jenkins v Jenkins, 2001)

Quoting directly from the decision, Brown provided the follow evidence of her involvement in the LLC, which included:

1. “Loaning the entities [referring to both the LLC and a separate Corporation Odom had also founded before the marriage] over $200,000 during the marriage—including $25,000 to upgrade the LLC’s building’s telephone system and $17,400 to make noncritical repairs to the building;
2. Assisting in obtaining loans, including a HUD loan, and refinancing loans for the entities;
3. Consulting with architects and engineers to implement Department of Health and Environmental Control (DHEC) regulatory codes;
4. Overseeing compliance with structural standards;
5. Purchasing sheetrock and iron needed for DHEC building upgrades”

And more. In addition,

• Brown and her son testified that Odom introduced her as his partner and owner
• Brown testified that Odom had said he intended for the LLC to be marital property
• Brown testified she sometimes worked without pay
• Brown testified she sometimes invested money in the entities rather than her retirement accounts

Shifting Burden of Proof

It isn’t necessarily enough for a spouse to provide evidence that an asset has been treated and considered as marital property. The Court of Appeals again cites a previous case: “If the [spouse] presents evidence to show the property is marital, the burden shifts to the other spouse to present evidence to establish the property’s nonmarital character.’” (Wilburn v Wilburn, 2013)

However, Odom did not present evidence to refute Brown’s evidence. In fact, he didn’t even appear at trial, let alone call witnesses or present evidence that refuted his wife’s evidence. In short, the burden of proof was on him, but he didn’t make any case to show that the property had not transmuted.

Dividing the Assets

The family court divided up the assets equitably, and Brown was awarded her share of the LLC (along with her share of the Corporation and other assets) which she had put time and money into in support of the marriage.

The family court ordered a “constructive trust” for Brown to secure the $590,018 awarded to her in the split. A “constructive trust” is one that doesn’t actually exist, and has no trustee, but is a fiction that orders a person (in this case, Odom) who might otherwise be “unjustly enriched” to transfer property to another party (Brown).

Estate Planning and Protecting Assets

By planning ahead, you can avoid many problems that could arise later on, such as a battle over marital and non-marital assets. Whether you’re considering a pre-nuptial agreement, post-nuptial agreement, a trust, or other estate planning advice, contact the Gem McDowell Law Group in Mt. Pleasant today by calling 843-284-1021. Gem has over 25 years of experience and he and his associatess can solve problems and help you protect your assets.