Archive for the ‘gifts’ Category

Transmutation of Separate Property into Marital Property

Sunday, March 23rd, 2014

One of the basic theories in equitable distribution and divorce litigation is that of transmutation. Transmutation theory holds that by their actions, the parties are able to modify the status of the property they own from separate property to marital property. Most of the time transmutation occurs when the parties commingle separate property with marital property or place what otherwise be separate property into both parties’ names.  This was demonstrated in Fehring v. Fehring, 58 A.D.3d 1061 (3rd Dept. 2009), where the money received on account of personal injuries by the husband, would be initially classified as his separate property. However, the husband deposited check in brokerage account held and used jointly by the parties. In January 2006, husband used $50,000 from account to purchase real property. The court held that transferring separate property assets into a joint account raises rebutable presumption that funds are marital property subject to equitable distribution and that the husband failed to rebut presumption of marital property given commingling of funds. It held that the lower court providently exercised discretion in distributing equally the value of interest in real property purchased with funds held in joint account.

Another example of how separate property may become a marital asset was addressed in a recent decision from the Appellate Division, Fourth Department. In Foti v. Foti, 2014 N.Y. Slip Op 00835 (4th Dept. 2014), defendant received several pieces of real property as gift from her father. Subsequently, tax losses associated with those properties were taken on the parties’ joint income tax returns. The court held that there was a question of fact whether defendant commingled her interests in the entities with marital property and whether a joint federal tax return in which defendant reported her interest in the entities as tax losses, precluded her from taking “a position contrary to a position taken in an income tax return”.

Unfortunately, the Foti decision does not give us enough facts to find out exactly what the tax returns stated. Nonetheless, this shows that even a seemingly innocuous act of filing a tax return may change the status of the property. In my view, decisions like this one, could have been prevented if the parties had signed either a prenuptial or a postnuptial agreement. If you are contemplating divorce, be careful to avoid taking any action that converts your separate property to marital property. Once transmutation takes place, it is highly unlikely that you would be able to change the property’s status back to separate property, even with a lawyer’s assistance.

Transmutation and Converting Separate Property to Marital Property

Monday, March 16th, 2009

One of the basic theories in equitable distribution and divorce litigation is that of transmutation. Transmutation theory holds that by their actions, the parties are able to modify the status of the property they own from separate property to marital property. In a recent decision, Fehring v. Fehring, 58 A.D.3d 1061 (3rd Dept. 2009), the Appellate Division, Third Department, has provided a perfect illustration of how transmutation may occur.

Parties were married in 1990. In August of 2005, the husband received $50,000 insurance payment. The money was related to his personal injuries and, therefore, would be initially classified as his separate property. Plaintiff deposited check in brokerage account held and used jointly by the parties. In January 2006, husband used $50,000 from account to purchase real property. The court held that transferring separate property assets into a joint account raises rebutable presumption that funds are marital property subject to equitable distribution. Rosenkranse v. Rosenkranse, 290 A.D.2d 685, 686 (3rd Dept. 2002). Presumption may be rebutted by evidence that such deposits were made as matter of convenience with no intention of creating beneficial interest. See, Chamberlain v. Chamberlain, 24 AD3d 589, 593 (2nd Dept. 2005). In Fehring, account was used by both parties for items such as credit card bills. The Appellate Division held that the husband failed to rebut presumption of marital property given commingling of funds. It held that the lower court providently exercised discretion in distributing equally the value of interest in real property purchased with funds held in joint account.

If you are contemplating divorce, be careful to avoid taking any action that converts your separate property to marital property. Once transmutation takes place, it is highly unlikely that you would be able to change the property’s status back to separate property, even with a lawyer’s assistance.

Basics of Identifying Separate Property in Divorce

Monday, November 17th, 2008

New York State Domestic Relations Law 236(B)(1)(d)(1) provides a list of specific types of property that may not be considered marital property and must be considered the separate property of the title-holding spouse. This property is exempt from equitable distribution. The statute addresses the following categories of property:

(1) Pre-marriage property;
(2) Gifted or inherited property;
(3) Compensation for personal injuries;
(4) Property acquired with separate property;
(5) Property identified as separate property by written agreement.

The property falling within the categories above is considered “separate property” under the Equitable Distribution Law. There may also be other types of property, in addition to the statutory list, which may not be considered “marital property”, such as property acquired after commencement of the marital action.

There is a presumption that property acquired during the marriage and prior to execution of a separation agreement or commencement of a matrimonial action is marital property. Therefore, the party who claims that the property acquired within those time frames is separate property has the burden of proof. Even though separate property is not subject to equitable distribution, it may be considered in making such distribution.

PREMARITAL PROPERTY

Property acquired before the marriage is separate property because the economic partnership created by marriage is not established until the marriage has taken place. This means that even if the parties cohabitated before marriage, the property acquired before marriage and the appreciation to that property to date of marriage, is not marital property.

Wedding gifts are considered to be marital property, unless the gift was something that could be used only by one spouse, or was specifically earmarked as exclusively intended for one spouse. Gifts given by one prospective spouse to the other prior to marriage are the separate property of the recipient spouse. As discussed in a previous post, engagement rings are the separate property of the recipient spouse.

GIFTED OR INHERITED PROPERTY

Property acquired by gift or inheritance by a party from an inheritance, is separate property. Where the gift or inheritance, however, is to both spouses jointly, the property should be viewed as marital. However, interspousal gifts are marital property. With respect to any gift claimed as separate property, the party making such claim will have to show that the property was intended for that spouse alone. Income from separate property is considered to be separate property.

PERSONAL INJURY COMPENSATION

Personal injury includes compensation for personal injury, libel, slander, and malicious prosecution; also assault, battery, false imprisonment or other actionable injury to the person.

PROPERTY ACQUIRED WITH SEPARATE PROPERTY

Property acquired in exchange for separate property is separate property, so long as it has not been commingled with marital property or an interest gifted to the other spouse.

PROPERTY BY AGREEMENT

The parties’ may by a written and acknowledged agreement define property to be separate, no matter what a court might determine.

COMMINGLED PROPERTY

Separate property co-mingled with marital property remains separate if it can be traced to its source and there has been no valid gift or agreement to the contrary. However, separate property that is commingled with marital assets, or placed in the spouses’ joint names, can become marital property. For example, if a spouse places his or her separate property into joint names, such as a house or a bank account, a presumption of a gift arises which, unless rebutted, results in the conclusion that the property is to be treated as marital property. This presumption, if not rebutted, is that the entire amount of the asset will be treated as separate property.

It should be noted that the spouse who contributed separate property may receive a credit for the amount of property contributed to the creation of the marital asset. Recent decisions have extended this concept to include the appreciation of the separate property as a credit to the spouse who contributed it. Similarly to a situation where marital property is used to pay a separate debt, where a spouse uses separate property to pay a loan on marital property, that spouse is entitled to a credit for such payment when the marital property is distributed.

The Return of Engagement Gifts

Monday, September 22nd, 2008

A person’s right to the return of wedding presents given in contemplation of a marriage that fails to materialize is governed by §80-b of the Civil Rights Law, which permits the recovery of such gifts. The statute provides that:

Nothing in this article contained shall be construed to bar a right of action for the recovery of a chattel, the return of money or securities, or the value thereof at the time of such transfer, or the rescission of a deed to real property when the sole consideration for the transfer of the chattel, money or securities or real property was a contemplated marriage which has not occurred, and the court may, if in its discretion justice so requires, (1) award the defendant a lien upon the chattel, securities or real property for monies expended in connection therewith or improvements made thereto, (2) deny judgment for the recovery of the chattel or securities or for rescission of the deed and award money damages in lieu thereof.

This statute permits recovery when the sole consideration for the transfer of the chattel, money or securities or real property was a contemplated marriage that has not occurred. It has been held that there is a strong presumption that any gifts made during the engagement period are given solely in consideration of marriage. This presumption is rebuttable, but clear and convincing proof is necessary to overcome it.
In Gaden v. Gaden, 29 N.Y.2d 80 (1971), the Court of Appeals held that fault was irrelevant under Civil Rights Law §80-b, which contemplates situations where one party has directly transferred property to another, as well as situations where the transfer was made by a third party to both of the parties. The Court held that just as the question of fault or guilt has become largely irrelevant to modern divorce proceedings, so should it also be deemed irrelevant to the breaking of the engagement. The purpose of §80-b was to return the parties to the position they were in prior to their becoming engaged, without without rewarding or punishing either party for the fact that the marriage failed to materialize.
Thus, if an engagement does not result in a marriage, the ring or any other gifts given in contemplation of the marriage, should be returned to the party who made the gift. Alternatively, one should be prepared to fight a law suit.