§9.5 Third-Party Property Interests In Family Law Litigation
| Jurisdiction | Oregon |
There are myriad scenarios in which a third party claiming an interest in marital property may be joined or should be joined as a party to a dissolution or separation action for the limited purpose of adjudicating all rights claimed. Generally, in Oregon's equitable distribution system, each spouse's marital property rights vest when a judgment of dissolution of marriage is entered. During the marriage, each party acquires an interest in the marital estate, including legal rights to marital property subject to division by the court in a dissolution action. See Brett R. Turner, 1 Equitable Distribution of Property § 2:7 (4th ed 2020-21). On the contrary, in a community property state, each spouse's respective rights in community property are generally considered vested in 50 percent of any community property immediately upon acquisition. See Turner, 1 Equitable Distribution of Property at § 2:5.
When modern equitable distribution systems (including Oregon's hybrid style of equitable distribution) define property rights upon dissolution, problems with nominal title and third-party possession of property to which marital interests apply can come to a head during the dissolution process, requiring third-party participation in the dissolution or separation. The adjudication of marital interests in a dissolution or separation involves a process of identifying marital property, classifying the property, and then applying equitable considerations to the presumptive distribution of the marital estate. See ORS 107.105(1)(f). In each stage of this process, when a third party holds nominal title or possesses marital property, the question arises whether the third party should be joined to obtain complete relief.
It is common practice for spouses to hold title to marital property in names other than joint for many nonmarital purposes or no purpose at all. Sometimes, property may be titled in a third party's name to hide marital property, and sometimes it is in a third party's name for legitimate business reasons—all of which present circumstances in which a third party's interest may need to be adjudicated in the dissolution or separation for efficient and complete administration of the equitable distribution system.
Once the assets are classified by the court, and before a distribution is made of marital property, the court must consider what is "just and proper in all the circumstances." ORS 107.105(1)(f). This last level of the equitable distribution process in Oregon grants the court considerable discretion in achieving a just and proper distribution even when a third party has not been joined as a party and when that third party has possession of alleged marital property. Many cases with third-party claims to marital interests are simply resolved at the trial level with an adjusting award to one spouse using the "just and proper in all the circumstances" requirement found at ORS 107.105(1)(f). See In re Marriage of Jones, 158 Or App 41, 49-50, 973 P2d 361, adh'd to on recons, 159 Or App 377, 981 P2d 338, rev den, 328 Or 666 (1999) (noting that the court has authority to "enter equalizing money judgments that are based in whole or in part on the value of trust assets or interests that cannot be (or are not ordered to be) reached directly").
That being said, it is also the case that third-party claims can often prevent the court from reaching a just and proper distribution without the joinder of third parties, or otherwise have impact on interests held jointly with third parties. Examples of scenarios that would be better resolved by joining a third party include the scenario in which a divorcing person transferred property to a third party during dissolution proceedings for the purpose of defrauding the person's spouse (In re Marriage of Cortese, 260 Or App 291, 317 P3d 340 (2013), rev den, 355 Or 317 (2014)); in which a spouse transferred property to a third party as trustee to hold for the benefit of the transferring spouse (Wetmore v. Wetmore, 5 Or 469, 471-72 (1875)); or in which the real estate where the wife's mother and stepfather resided was purchased in the wife's and wife's mother's name during the marriage and in which the wife claimed the property was placed in her name only so that she could care for her stepfather if anything were to happen to her mother (In re Marriage of Kirkendall, 211 Or App 566, 568, 156 P3d 84 (2007)). The list does go on, and the Oregon Rules of Civil Procedure contemplate the joining of third parties in all types of civil litigation.
A third party who is subject to service of process must be joined in the dissolution proceedings when failure to do so will (1) lead to incomplete relief among the existing parties, (2) impair the third party's ability to protect its interest, or (3) leave the existing parties to the dissolution action at risk of incurring "double, multiple, or otherwise inconsistent obligations." ORCP 29 A; see ORCP 31 A.
§ 9.5-1 Permissive and Mandatory Joinder
In addition to being joined by another party or the court (see § 9.5), a third party can also intervene on its own motion as a necessary party under ORCP 28 or ORCP 29.
Involuntary joinder of a third party can be accomplished by filing either a motion to include the third party as a necessary or indispensable party under ORCP 29 or a third-party claim against the third party under ORCP 22 C. The goal is to bring to the court all parties that do or may claim an interest in a certain item of property so that the court can make a full and final determination of each party's various rights in it.
Joinder of a party to a family law petition involves all the considerations of joining a party to any conventional civil litigation, including subject-matter jurisdiction, personal jurisdiction, service, pleading a cause of action, and the like.
When deciding whether to join a party, consider the tactical advantages or disadvantages, including that (1) adding a party significantly adds to service, scheduling, and other tactical concerns; (2) adding a party might give one side a "two-to-one" advantage at hearings and depositions; (3) if your client does not want joinder, you may be de facto required to defend the third party's position, resulting in a possible conflict; and (4) a third party, such as a parent who is a business partner, may have privacy or other concerns different from your client's interests. In the latter scenario, what affect will joinder have on that potential third party's ability to protect their interests, and what affect will it have on your ability to protect your client's interest?
When third-party claims may be present, the lawyer should consider...
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