Court of Appeals opinion clarifies transmutation and adultery’s bar to alimony

The August 4, 2010 South Carolina Court of Appeals opinion in Pruitt v. Pruitt, 389 S.C. 250, 697 S.E.2d 702 (Ct. App. 2010), covers numerous issues, a few of which are not that uninteresting or novel.  The uninteresting issues are:

1) Transfers of property to family members close to the time that marital litigation commences that are alleged to pay off interfamily “loans” are going to be treated as illegitimate transfers when there’s no documentation to support these “loans.”

2) When the family court makes simple accounting errors such as failing to include the debts of a business when equitably dividing a business, or double counting assets as both business and personal, such accounting errors will be corrected on appeal (assuming they were preserved).

3) When one party’s adultery leads to the marital breakup and the other party commits adultery after marital litigation commences, the family court does not have to treat the adulteries as equal in determining marital fault [actually that may be a somewhat novel issue].

However there were four issues in Pruitt that I believe are very interesting or novel.  The first involves transmutation of the home the parties lived in during the marriage that Husband and his family owned prior to the marriage.  The family court found the home was transmuted into marital property and the Court of Appeals reversed, finding that Wife only owned a special equity interest in “any appreciation of the marital home’s value resulting from Wife’s contributions.”

The facts that would lead one to think that the marital home was transmuted were significant:

Here, Husband testified that he started clearing the lot on which he built the marital home in 1979 and began construction of the home in 1983.  Husband’s mother, Dorothy Pruitt (Mother), testified that Husband started building the marital home on land owned by his grandmother, but that it was not completed when Husband married Wife in 1988. Wife’s sister also testified that the home was not completed when Wife moved into it, and that Wife helped Husband complete the construction.  However, Mother admitted that the couple were able to live in the home when they first married, as it had a bedroom, a kitchen, a bathroom, and a living room.

Mother also testified that she inherited the land on which Husband built the home when Husband’s grandmother died and that she later conveyed the land to Husband after he married Wife.  Sister also testified that Husband’s grandmother originally owned the land on which the marital home sits and that Mother inherited the property and later conveyed it to Husband.  Husband conveyed the property back to Mother when he suspected Wife was having an affair in 1995, but Mother reconveyed the property to Husband a few months later.  In May 2006, Husband conveyed the property to Sister.

As to Wife’s contributions to the marital home’s improvements, Mother testified that Wife helped with installing fans and adding a carport and another bedroom to the home.  Wife testified that she helped to hang siding, replace the kitchen floor, install glass in the sunroom, paint and install flooring in the master bedroom, and build a carport.  However, she also testified that she did not know where the money to pay for the materials came from and that Husband “always seemed to have cash on him.”  Notably, Husband denied that the cash used to pay for the improvements came from marital funds but rather claimed that the cash came from Sister [note that the Court of Appeals rejected Husband’s claim that Sister had loaned him money during the marriage].

While I would concur that Wife’s direct contributions probably only led to a special equity interest in this home, I find it surprising that the fact that the house appears to have been substantially built after the parties married, and that the Court of Appeals could not establish the source of the funds to complete the house, did not give rise to the conclusion that the house was transmuted.  The Court of Appeals held that “Wife did not carry her burden of showing that the improvements to the home were paid for with marital funds” as “the record does not reflect that marital funds paid for the materials used to improve the home.” Given that the Court of Appeals did not find that the cash that Husband “always seemed to have … on him” was not a loan from his sister, I would have considered this mystery cash to be marital funds.

What I find most interesting about this issue is that the Court of Appeals seems to subtly alter the intent requirement to prove transmutation. At one point in the opinion the Court of Appeals notes that it is the intent of the parties that determines transmutation: “Transmutation is a matter of intent to be gleaned from the facts of each case, and the spouse claiming transmutation must produce objective evidence showing that, during the marriage, the parties themselves regarded the property as the common property of the marriage.”  (emphasis added).  However, in a different section of the opinion, the Court of Appeals seems to indicate that it is the intent of the spouse who owned the property prior to marriage that determines transmutation: “Wife failed to carry her burden of producing objective evidence showing that Husband regarded the home as the common property of the marriage, which is essential for a transmutation claim.”  (emphasis added).   The case cited by the Court of Appeals for this view of whose intent determines transmutation, Murray v. Murray, 312 S.C. 154, 157-58, 439 S.E.2d 312, 315 (Ct. App. 1993), does not support this proposition.

The Pruitt court’s seeming determination that it is the intent of the party that owned the property prior to marriage that decides whether that property is transmuted makes logical sense.  If intent is what is required to turn non-marital property marital, why should the other spouse’s intent matter?  In marital litigation a spouse almost always wants all the other spouse’s property to be marital. However, if Pruitt represents a view that it is the intent of the property-owning spouse that determines transmutation, it appears to be a break with previous case law.

The second issue I found fascinating is the court’s language on whether debts are marital or not.  Husband argued on appeal that the family court had failed to credit many of his debts as marital and the Court of Appeals agreed with him on some, but not all, issues.  The test the Pruitt court looked at for determining whether debt is marital cited language from Hardy v. Hardy, 311 S.C. 433, 436-37, 429 S.E.2d 811, 813 (Ct. App. 1993), “For purposes of equitable distribution, marital debt is debt incurred for the joint benefit of the parties regardless of whether the parties are legally jointly liable for the debt or whether one party is legally individually liable.”

I was unfamiliar with the Hardy case and typically look to the case of Hickum v. Hickum, 320 S.C. 97, 463 S.E.2d 321, 324 (Ct.App. 1995), in determining whether a party’s debt is non-marital.  The test under Hickum is if “a spouse’s debt was not made for marital purposes, it need not be factored into the court’s equitable apportionment of the marital estate, and the trial judge may require payment by the spouse who created the debt for nonmarital purposes.”

I see a subtle distinction between Hickum and the test endorsed by Pruitt.  Some debt that may have been made for “marital purposes,” which means the court should equitably divide it, may not have been for the parties’ “joint benefit,” which means that the court should not equitably divide it.  I am specifically thinking about student loans: improving a spouse’s earning capacity may have marital purposes but it is typically only beneficial to the spouse obtaining the education, especially when the spouse who obtains the student loans seeks a marital dissolution before or shortly after the desired degree is obtained.  Is there a distinction between the test of Hickum and the test of Pruitt or am I reading too much into this?

The third novel issue is when pendente lite adultery stops entitlement to alimony.  Wife was awarded temporary alimony but committed adultery during the litigation.  At trial the family court failed to grant Husband any credit for alimony he paid during the litigation.  Upon Husband’s motion for reconsideration, the family court gave Husband credit for all alimony he had paid after wife committed adultery.  Husband argued that he was entitled to credit for all alimony paid, including alimony that he paid prior to Wife committing adultery.  The Court of Appeals looked to S.C. Code § 20-3-130(A) which states:

No alimony may be awarded a spouse who commits adultery before the earliest of these two events: (1) the formal signing of a written property or marital settlement agreement or (2) entry of a permanent order of separate maintenance and support or of a permanent order approving a property or marital settlement agreement between the parties.

Based on this, the Court of Appeals held “that the family court acted within its discretion in allowing Husband a credit for temporary alimony payments made after Wife’s act of adultery.” This holding is poorly reasoned.  I would think there is no discretion under S.C. Code § 20-3-130(A): alimony prior to adultery is not barred by this statute and should not require reimbursement; alimony after adultery is barred by this statute and reimbursement is mandated. How this becomes a “discretionary” issue is something the Pruitt court should have explained.  It is more likely that the opinion was loose in its language in employing an “abuse of discretion” standard when it should have applied an “error of law” standard.

The final novel issue is whether a temporary consent order triggers the provision of S.C. Code § 20-3-130(A)(1), which allows the family court to award alimony if adultery is committed after “the formal signing of a written property or marital settlement agreement.”  D. Dusty Rhoades used to frequently argue that such temporary consent orders trigger this provision.  I used to counter that such temporary consent orders were not what was contemplated by “a written property or marital settlement agreement.” There has never been a reported decision resolving that issue.  Pruitt, in dicta, indicates that an oral agreement regarding temporary relief, which is subsequently incorporated into a consent order, does not trigger S.C. Code § 20-3-130(A)(1).  A spouse who commits adultery after a temporary consent order but prior to one of the two items in S.C. Code § 20-3-130(A) is not entitled to alimony.

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