In a recent divorce proceeding, the Court of Appeals of Tennessee addressed issues surrounding the separate and marital property of the parties, as well as the doctrine of transmutation. In Douglas v. Douglas (Tenn. Ct. App. Aug. 8, 2016), the husband appealed the lower court’s classification of a brokerage account as the wife’s separate property. The husband argued on appeal that the account was marital property, based on the doctrine of transmutation.
In Douglas, the account at issue was funded solely by money that the wife inherited from her late father in 2010. Although the husband was not involved with the creation of the account, the wife established it as a joint account with a right of survivorship in both her husband’s and her names. The wife testified that she titled the account in both parties’ names for estate planning purposes and to avoid estate taxes. After establishing the account, the wife began withdrawing approximately $5,000 per month to support the family, make home improvements, and buy adjacent property. The husband did not make any deposits or withdrawals from the account. In 2012, the wife contacted the bank to remove her husband from the account and provided the necessary paperwork to her husband for his signature. After several weeks had passed, the parties’ daughter signed the husband’s name on the documents. The husband testified that he had no knowledge that he had been removed from the account until the parties separated in 2013.
Since Tennessee law distinguishes between separate property and marital property in divorce proceedings, the trial court must first classify the parties’ property as marital or separate. Generally, property that is acquired during the marriage is deemed marital property. Separate property is that acquired by gift, bequest, devise, or descent. Separate property can become marital property subject to division, however, through the doctrine of transmutation. In Tennessee, transmutation occurs when the parties treat separate property in a way that manifests an intention that the property become marital property. The party claiming that the separate property has been transmuted into marital property must prove that this has occurred.