GSB Vol. 16, NO. 6, Pg. 24. The Renewed Significance of Title in Dividing Marital Assets.

Author:by John C. Mayoue and Michael P. Hodes

Georgia Bar Journal

Volume 16.

GSB Vol. 16, NO. 6, Pg. 24.

The Renewed Significance of Title in Dividing Marital Assets

GSB JournalVol. 16, NO. 6April 2011The Renewed Significance of Title in Dividing Marital Assets by John C. Mayoue and Michael P. Hodes Divorce actions in Georgia require the factfinder to equitably divide marital property.(fn1)"The purpose behind [this] doctrine of equitable division is to assure that property accumulated during the marriage be fairly distributed between the parties."(fn2) In adopting the concept of equitable division, the Supreme Court of Georgia implicitly rejected the former practice of dividing property based simply on title.(fn3) Recent decisios on title-based considerations. This article examines the evolution of property division and the uncertain significance of title in distributing marital assets.

The Old Rule: Title is Determinative

Divorce litigants possess two means of achieving an award of property: alimony and equitable division.(fn4) Alimony originated in ecclesiastical courts as a requirement that husbands support their wives when they were legally separated.(fn5) Because husbands assumed full control over all property of the marriage, courts found it "flagrantly unjust, as well as morally impolitic" for husbands to retain such property without an obligation to support the former wife.(fn6) Georgia law provided two methods by which a husband paid alimony: a personal obligation to pay a specific, generally periodic, sum from future earnings or a lump sum allowance from the husband's estate.(fn7)

Property division historically has been more limited than alimony. The modern concept of property division is derived from a partition remedy to resolve conflicts over management, use or possession of land between disputing cotenants.(fn8) Ultimately, courts began using property division in divorce not only for partitioning of jointly owned property, but also to determine who owns property when title is disputed.(fn9) In order for a divorcing spouse to make a property division claim, however , he or she was formally required to show title.(fn10)

A non-titled spouse nonetheless had viable alternative legal arguments. A spouse could seek ownership of the asset as lump sum alimony or claim equitable title through resulting trust and inceptive fraud.(fn11) A spouse claiming ownership through a resulting trust could show that he or she purchased the subject asset; however, the spouse making a resulting trust claim was required to rebut the presumption that the property was gifted to the titled spouse.(fn12)

The Emergence of Equitable Division

The doctrine of equitable division was first recognized by the Supreme Court of Georgia in Stokes V. Stokes. Stokes involved the division of a homeplace titled solely in the name of the wife.(fn13) The husband argued at trial that "the purchase money for the house and the property and all mortgage payments were furnished by the joint efforts of the parties" and that, consequently, "the property should be equally divided."(fn14) In approving an award of one-fourth of the marital home to the husband, the

Stokes Court found "jurisdiction to determine the equitable interest of either spouse in the real or personal property owned, either in whole or in part, by the other spouse."(fn15) in Stokes, the Supreme Court of Georgia expressly overruled Hargrett and its progeny, which limited property division to cases involving ownership of property when the title is in dispute.(fn16)

Tracing Under Thomas v. Thomas: The Georgia Approach

Cases involving appreciation of non-titled assets and equitable awards of assets containing both marital and non-marital components further emphasized the limited significance of title. in Halpern V. Halpern, the Supreme Court of Georgia adopted an active/passive appreciation test in which a non-titled spouse could claim that a separate asset appreciated due to marital efforts, thereby creating an equitable division claim to the appreciation.(fn17) In Thomas V. Thomas, the Supreme Court of Georgia adopted the "source of funds" rule in apportioning claims to a pre-marital homeplace to which marital contributions had been made.(fn18) The Thomas Court expressly found that the "source of funds" rule, which allows a spouse who contributes non-marital property to claim an interest in the ratio of the non-marital investment to the total non-marital and marital investment, a "reliable method for classifying property of this sort."(fn19) In applying the "source of funds" rule in the Thomas case, the trial court found that the marital unit would be entitled to claim an interest in the home equal to the amount of marital funds that were used to reduce the principal mortgage balance, as well as a proportionate interest in the home's appreciation.(fn20) in adopting the "source of funds" rule, Thomas explicitly rejected both the inception of title theory, which provides that the status of property as marital or separate is fixed at the time of acquisition and the transmutation of property theory, which holds that separate property becomes marital whenever marital funds are contributed.(fn21)

There are three different and distinct applications that may be made of Thomas. One is simply Thomas applies only to a home brought into the marriage by one spouse subject to a mortgage that was paid during the marriage with marital funds.(fn22) Another is the "source of funds" rule applies to any property that contains both marital and separate property components. There is at least some support for this second and broader view in the case of Wilson v. Wilson.(fn23) A third view is the "source of funds" rule applies to any property purchased or acquired over time.(fn24)

Thomas has not been extended to all commingled assets. The tracing of commingled accounts, for example, is a notoriously difficult task that has led a number of jurisdictions to create special tracing rules to resolve disputes concerning such assets. A minority of jurisdictions prohibit the tracing of commingled banking accounts(fn25) In other jurisdictions, the common law creates a presumption about withdrawals. Of jurisdictions creating a presumption, some presume marital funds are withdrawn before separate property, and in other jurisdictions, the reverse istrue.(fn26) Some jurisdictions employ the "family expense" method to each withdrawal; if the withdrawal went toward a family expense, then it is credited against the marital or community interest.(fn27) Others apply the "clearinghouse" or "identical sum inference" method to examine similarities between the dates and amounts of deposits and withdrawals.(fn28) Under the clearinghouse method, if a withdrawal from a commingled account is made at approximately the same time and in an amount similar to a recent deposit, then courts will presume that the withdrawn funds are of the same character as the funds deposited.(fn29)

Although the methodology is unclear,(fn30) Georgia appears to permit some form of tracing with regard to commingled accounts. In Bloomfield v. Bloomfield, the wife claimed a $10,000 gift as separate property although such funds had been deposited into a joint account with her husband.(fn31) The $10,000 was awarded to the wife as her separate property. The Supreme Court of Georgia affirmed, noting that the husband did not permit the wife to hold an individual banking account and thus she had no other account in which to place the funds.(fn32)

The New Rules: Issues Ralsea by Lerch, Grissom, Coe ana Miller

Four recent Supreme Court of Georgia decisions have arguably resurrected the significance of title in dividing marital assets

Lerch v. Lerch

Lerch involved the division of a home that the husband purchased prior to the parties' marriage.(fn33) Although the parties entered into a prenuptial agreement stating that the wife would not make any claims to the husband's property (which would have included the home), the trial court nonetheless found that the wife had an interest in the home by virtue of a gift from the husband.(fn34) In 1999, the husband executed and recorded a gift deed transferring ownership of the home to both him and his wife as "tenants in common with right of survivorship."(fn35) Relying on the gift deed, the trial court found that the husband had made a gift to the marital unit and thus determined that half of the home was marital property and half of the home was the husband's separate property.(fn36) On appeal, the Supreme Court of Georgia reversed, holding that the entire home should have been treated as marital property subject to equitable division.(fn37)

Although the Lerch decision has been interpreted by many family law attorneys to represent a sea change from the equitable division principles set forth in Stokes, it might reasonably be interpreted as simply observing Georgia's law on gifts: a gift is made if the donor intended to give the gift, and there is acceptance and deliver.(fn38) In Lerch, the Supreme Court of Georgia determined the intent prong of the gift test was satisfied because the husband "manifested an intent to transform his separate property into marital property" by transferring title to the home in joint tenancy with the wife.(fn39) Because there is no indication the wife ever refused title and the gift deed was fully executed, the acceptance and delivery requirements may have been...

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