§ 11.04 Transmutation by Interspousal Gift

• Jurisdiction: United States
• Publication year: 2021

§ 11.04 Transmutation by Interspousal Gift¹⁷⁵

Most courts accept that separate property can be transmuted into marital property if the owning spouse designates joint title,¹⁷⁶ or if the owning spouse commingles separate and marital property and the funds cannot be uncommingled.¹⁷⁷ There is less agreement regarding the effect of an interspousal gift, where the item given was purchased with marital property.

Most "marital property"¹⁷⁸ equitable distribution systems exclude property acquired during marriage by one spouse by gift from the divisible estate of the parties. If a spouse uses savings from salary earned during marriage to purchase an interspousal gift, and the property exists at the time of divorce, this presents the question whether the item should be characterized based upon the original source (salary earned during marriage) or based upon the subsequent gift. In other words, does the "gift" transaction change the character of the property?

Spouses rarely fight over the character of "gifts" unless the value of the gift is substantial. Disputes in this area generally relate to the character of realty, boats, cars, furs and jewelry, not about the character of ties, slacks or dresses. One spouse has little use for personal items of the other spouse, unless such items have a significant market value. Interspousal gift rules should be created to deal with the subject of potential disputes, spousal gifts of valuable items.

From one perspective, an interspousal gift has all the appearances of a "gift," and should be treated like any other gift. Still, viewed from a marital partnership perspective, one might want to distinguish between interspousal gifts and gifts from third parties. Gifts from third parties to one spouse are excluded from the divisible estate because the property is not the fruit of the marital partnership. A gift to one spouse from a third party is generally not facilitated by the efforts of the other spouse. Spousal gifts obviously are different, if marital partnership assets are used to purchase them.

The intention of the spouses also seems relevant to this analysis. When a "gift" is made to a person who is not a member of the family of the donor, the expectation certainly is that the donor is thereby relinquishing all ownership rights in the property transferred. The intention of the spouses regarding spousal gifts is less clear. For example, particularly when an expensive item is involved, such as a boat, car, fur, jewelry or real estate, it seems likely that a spouse views the "gift" as merely a decision regarding how to use or invest marital assets, rather than as a decision to relinquish all ownership interest in the item for all purposes.¹⁷⁹

No consensus has yet been reached in this area. Some states have concluded that interspousal gifts should be treated like gifts from third parties.¹⁸⁰ In such states, if property is purchased with marital property and then "given" to the other spouse, the property becomes the separate property of the recipient.¹⁸¹ This view has been rejected in other states;¹⁸² in these states, interspousal gifts purchased with marital property remain marital property. California has reached a reasonable compromise on this issue; spousal gifts generally do not transmute property, but gifts of clothing or jewelry do become the separate property of the recipient unless...