§ 11.01 Transmutation by Title

• Jurisdiction: United States
• Publication year: 2021

§ 11.01 Transmutation by Title

[1]—In General

After property is acquired, its characterization as marital or separate property is subject to change. Changes can occur, for example, by a gift of property from one marital partner to the other or to the marital estate, or by changing separate property to joint title, or by commingling property.

[2]—Joint Title

Under the original common law title system of property division at divorce, if a spouse changed the record title of property owned by that spouse into joint title (by adding the name of the other spouse to the title), or if property owned by one spouse was used to purchase an item and title was taken jointly, a presumption was created that the owner intended to give the other spouse a one-half interest in the property.¹ If a divorce occurred later, each spouse would be considered an equal owner. This is not surprising, since the focus of the "title" system of property division at divorce was title. Also, the title system was so unfair in most instances that courts must have strained to discover property that could be divided.

Title is no longer determinative under equitable distribution. If property is titled in the name of one spouse, it can be marital property.² Courts have had to decide whether the presumption of gift from joint title survived the adoption of equitable distribution.³ Most equitable distribution statutes do not expressly address this issue.⁴

Many courts allow spouses to transmute property if they expressly agree to do so.⁵ Is it reasonable to infer from a joint title designation that a spouse intends to transmute separate property to marital property, or that a gift is intended? Transmutation normally requires an intention to change the character of property. One way to approach this issue would be to attempt to determine the intention of the owner spouse at the time that title was taken jointly. In some instances, such as when the owning spouse is advised that the law requires joint title,⁶ when both spouses contribute separate property toward the down payment,⁷ or when one spouse contributes separate property for the down payment but a lender requires both spouses to be record owners⁸ and to sign a promissory note that is part of the purchase consideration in order to qualify for a loan,⁹ it seems quite unlikely that the spouse contributing the separate property intends the joint title designation to constitute a gift to the marital estate.

Other circumstances may suggest that the joint title designation was not an act reflecting an intention to make a gift to the other spouse. For example, in one case the non-owning spouse, after the wedding, said that she would not move into the husband's home unless her name was added to title.¹⁰ The husband changed the title designation, and the wife moved into the house. At a later divorce, the court found that the title change was due to duress, and did not reflect an intention on the part of the husband to give the wife a 50% interest in the house.

The situations set forth above suggest that in some instances a spouse fairly clearly does not intend a joint title designation to constitute a gift or transmutation. However, what should be presumed about a spouse's intention when none of the circumstances outlined above exists? In many instances, spouses hold title to property as joint tenants in order to avoid probate complications. In other words, this form of title is selected based upon the assumption that the marriage will continue until one spouse dies. What, if anything, should be inferred about the spouses' intention if the marriage is terminated by divorce? Is the joint title designation intended to constitute a present, completed gift for all purposes, regardless whether the marriage endures until the death of one spouse, or is the title designation intended to become effective only if the marriage endures that long?¹¹

Although in some states, such as Virginia, no presumption arises if a spouse permits separate property to be placed in joint title,¹² courts in most states have concluded that a presumption of gift should arise if a spouse purchases property with separate property but takes title with his or her spouse or if the owner of a separate property account, such as a bank account or brokerage account, adds the other spouse's name as a record owner.¹³ Some courts apparently have reached the conclusion that this is not merely a presumption, but that the transmutation occurs automatically from joint title.¹⁴ If a court determines a gift occurred, it normally is considered a gift to the marital estate, so the property is marital property, not 50% of the separate property of each spouse.¹⁵ So, the property is marital property even if one spouse can prove it was purchased with separate property. The divorce court therefore can divide such property unequally if it chooses. In contrast, in marital property states an equal division would be required if the property were characterized as 50% separate property of each spouse.¹⁶ (Of course, in a kitchen sink state the concept of transmutation is not important, because the court may divide all property owned by the spouses.¹⁷ )

In those states where a presumption of gift is created from joint title, it is unclear what needs to be established to rebut this presumption. For example, the most common explanation is that the joint title form was selected for estate planning purposes. This explanation has been accepted by some courts as sufficient evidence to rebut the presumption;¹⁸ other courts have disagreed.¹⁹ In another case, an owning spouse stated that he transferred stock to joint title to increase the allowable tax deduction regarding dividends received; this explanation was not considered sufficient to rebut the presumption.²⁰ On the other hand, no intention to make a gift was found where separate funds of a blind spouse were placed in a joint account for convenience.²¹ Similarly, the presumption might have been rebutted if it is shown the property was transferred to joint title as a means of obtaining financing.²²

Facts pertaining to the owner's intention obviously should be relevant. For example, if the non-owner forced the owner to consent to joint title, the intention to make a gift would not exist.²³ Similarly, if the owner of separate property funds turns the funds over to the non-owner for management, and the non-owner then causes the funds to be placed in a joint account, this would not be evidence of any intention to make a gift on the part of the owner, unless that spouse approved the new title designation.²⁴

Title designation can raise the issue of duress. When should a spouse's title choice be ignored due to duress? An Illinois court held that it was not duress when the non-owner "nagged" the other to change the title (and the title was changed).²⁵ A Tennessee court held that it was not duress when the non-owner threatened to sue for divorce unless the title was changed.²⁶ An Arkansas court found that it was not duress when one spouse "appeared dominant."²⁷

Maine courts have held that a transfer to joint title for the purpose of obtaining a loan does not rebut the presumption of gift.²⁸

A South Carolina court held that the presumption was rebutted when the owner established that a title change was effected to qualify for a tax exemption, and that the owner spouse had previously refused, for several years, the other spouse's request that the owner convey an interest in the house.²⁹

In still another case, a spouse sold a separate property house and received a note.³⁰ The real estate agent prepared a deed and trust deed that named both spouses as the sellers, even though the husband was the only record owner; both spouses were named payees of the promissory note from the buyers. When the husband saw a draft of these documents, he called the agent and "objected to" the inclusion of his wife's name on the documents. At some later point, he stated that the documents were fine, and the documents were signed as originally prepared. He said he did this because, at the time, he wanted the money to go to his wife if he died. The appellate court stated that, if true, this would tend to rebut an intention to make a completed gift, but that the trial court might not have believed this testimony, so the trial court's conclusion that a gift occurred was affirmed.³¹

In a few cases, the spouses changed title from joint ownership to sole ownership by one spouse. This has not been held to constitute a gift to the sole record owner.³²

In an Alaska case, the husband used separate funds to buy a car for the wife to use for her transportation. The car was titled in the wife's name alone. The appellate court affirmed the trial court's ruling that the car was marital property.³³

Some states do not accept the principle that acquiring property jointly creates a presumption of gift. For example, an Ohio court has stated that "the fact that both parties' names are on [the title] is not determinative of whether the property is marital or separate, but such evidence may be considered . . . ."³⁴ The husband testified in this case that he added the wife's name to the deed for estate planning purposes, and the wife presented no evidence other than the joint title that the husband intended to make an inter vivos gift to her of an interest in the house. The appellate court reversed the ruling of the trial court that the house was marital property and held that it was the husband's separate property.³⁵

The Washington Supreme Court has also rejected the idea that a presumption of gift should arise from joint title. The court said: "There are many reasons it may make good business sense for spouses to create joint title that have nothing to do with any intent to create [jointly owned property]. Allowing a presumption to arise from a change in the form of title inappropriately shifts attention away from the relevant questions of whether a gift . . . is...