Transmutation of Non-Marital Property in Indiana Divorce

As a general rule, the only property in a divorce proceeding that is subject to division is marital property.

The question of what exactly constitutes marital property is one that family courts continue to wrestle with on a daily basis. For the most part, however, marital property is considered that which was earned or acquired during the marriage – unless you agree otherwise. Separate property is that which belongs to only one spouse, either because it was owned before the marriage, received as a gift during the marriage, was an inheritance or personal injury award or was acquired in one spouse’s name and never used for the benefit of the other.

However, these rules aren’t without exception, and one of those is the transmutation of non-marital property. Those filing for a divorce in Gary should educate themselves on this issue, particularly if they own a small business.

Transmutation of property is when separate property becomes marital property by virtue of the facts and intent of the parties involved.

The South Carolina Supreme Court review of Pittman v. Pittman reveals how this exception can be applied.

According to court records, the husband and wife met in 1991, which is the year they began their relationship. They did not marry, however until 2000, and then divorced seven years later on the grounds that the husband had committed adultery.

When the pair first met, the wife worked as a registered nurse at a local hospital, while the husband was a licensed land surveyor. A couple years into the relationship, the husband moved into the wife’s home (though they were not yet married) and the two pooled their finances, with the wife paying all the couple’s personal and home expenses from the joint account.

In addition to the husband’s full-time job, he took side jobs as a surveyor. Throughout their relationship, the wife helped the husband with these jobs by handling all the billing and accounting for these jobs and even sometimes performing light field duties – in addition to her full-time job as a nurse.

Then in 1996, the man quit his full-time job and started his own surveying business. It was initially operated in the upstairs bedroom of the woman’s home. Both individuals handled day-to-day responsibilities, with the wife continuing to handle all the financial and bookkeeping aspects of the company. Eventually, she whittled down her nursing work to just one day a week and was working nearly full-time at the business.

She continued to do this, taking on a significant role in the company, until about six months after filing for divorce.

Additionally, the couple took on joint debt of about $90,000 – which they were still paying at the time of divorce – for equipment necessary to the business.

Both parties, after they were married, signed an unlimited personal guaranty agreement to secure the company’s financial obligations.

Ultimately, the couple’s divorce was granted. The husband was ordered to pay monthly alimony fees, as well as a portion of debts and $12,500 in attorney’s fees for the wife.

With regard to the business, the court determined that it was indeed a marital asset, as it had been transmuted during the course of their union. The family court noted that both parties had worked there, helped to increase its value, had a plan for developing and growing the firm, made important decisions regarding loans, jobs, employees and other aspects of the company. Clearly, it was treated as a marital asset during the marriage.

The family court also pointed out that while the husband had started the company prior to the marriage, the wife had played an integral role in the formation of the company.

Later, the husband appealed this decision, saying he never intended for the property to be marital property, and that the court had erred in taking into consideration actions that occurred prior to the couple’s marriage.

The appellate court agreed that the lower court had erred in considering actions prior to the marriage. However, there was plenty of evidence to support the conclusion that the business was intended as transmutable marital property based on actions taken after the two were married.

As a general rule, transmutation is a matter of fact, to be gleaned from the facts of each individual case. The party that is claiming transmutation of property has to show objective evidence that during the marriage, both parties considered the property to be common property of the marriage.

It’s not usually enough to show that the property was used by the other party. There has to be evidence of intent to treat it as property of the marriage.

A small business is perhaps the most common application of the transmutation argument. But it could also apply to a home, bank accounts other real property or assets.

Indiana Family Law Attorney Burton A. Padove handles divorce and child custody matters throughout northern Indiana, including Gary, Hammond and Saint John.

Additional Resources:
Pittman v. Pittman, Jan. 15, 2014, South Carolina Supreme Court
More Blog Entries:
Parents Must be Afforded Due Process in Indiana Family Court, Dec. 15, 2014, Gary Divorce Lawyer Blog