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On the same day two separate Court of Appeals panels reverse transmutation findings

On July 13, 2016, the Court of Appeals published two opinions in which the primary issue on appeal was transmutation–the almost alchemical process by which non-marital property turns into marital property: Taylor-Cracraft v. Cracraft417 S.C. 570, 790 S.E.2d 423  (Ct. App. 2016), and McMillan v. McMillan417 S.C. 583 790 S.E.2d 216 (Ct. App. 2016). In both cases the Court of Appeals largely reverses the family courts’ transmutation findings. The timing of these opinions was such that I figured the two cases had the same panel of judges. However both cases have completely independent panels, indicating six separate appellate judges, hearing two different cases, reached similar conclusions. Transmutation is perhaps the hardest issue for family law practitioners to predict. However these two opinions hint that our family courts may be too eager to find transmutation.

In Taylor-Cracraft, the family court found that a piece of investment property Wife had been awarded in her previous divorce was transmuted into marital property. Its primary reason for finding transmutation was that the parties had used the property as part of a jointly-run marina business and intended to use the business income to save for early retirement. The family court ordered the property and business be sold, awarded Wife 61% of the marital estate, ordered that she pay all the marital debt, and denied her claim for attorney’s fees. Wife appealed.

The Court of Appeals reversed the finding of transmutation, finding that Wife had intended to treat this as her own separate property. It relied on two pieces of evidence for this determination. First, Wife leased the property to the marina business. Second, Wife had executed a will leaving Husband a life estate to the property, but leaving the remainder to her children. Given these facts, the Court of Appeals determined Wife did not intend to treat this property as marital. Given its reversal on transmutation, the Court of Appeals remanded the matter for the family court to reconsider equitable distribution and attorney’s fees.

In McMillan, the family court found much of Husband’s property had been transmuted. Ironically, it also found that jewelry Husband had given Wife during the marriage was not marital property but was Wife’s separate property. Husband appealed.

The Court of Appeals ruled that much of the property the family court determined to be transmuted was not. Wife had argued that Husband’s pre-marital business had been transmuted because she worked for the business and business income supported the marriage. The Court of Appeals noted Wife had been fairly compensated by this business for her work, and that no marital funds had been used to support the business. The mere fact that the business had been used to support the parties during the marriage did not render it marital.

Husband also convinced the Court of Appeals that two businesses he established during the marriage were not marital property because the funds to establish these businesses came from his non-marital business. S.C. Code Ann. § 20-3-630(A)(3) states that property acquired during a marriage in exchange for non-marital property is non-marital. Thus the Court of Appeals found that these business were not marital property.

Husband argued that three other businesses he established during the marriage were not marital. However Husband contributed some marital funds to these businesses. Thus, the Court of Appeals held, he failed to meet his burden of proving these businesses were non-marital.

Husband further argued the family court erred in holding his whole retirement account was marital. Finding substantial evidence that Husband had $75,000 in this account prior to the marriage, the Court of Appeals held that $75,000 of this account was non-marital.

Husband also successfully argued that the jewelry he had given Wife during the marriage was marital. S.C. Code Ann. § 20-3-630(A) specifically states, “Interspousal gifts of property, including gifts of property from one spouse to the other made indirectly by way of a third party, are marital property which is subject to division.” The family court’s decision that this jewelry was Wife’s separate property is inexplicable in light of this statute and the Court of Appeals found this jewelry to be marital property.

Finally, the Court of Appeals found that a $47,000 line of credit on the marital home that Wife took out after the separation and commencement of litigation “to live on” was not a marital debt subject to equitable distribution. “When a debt is incurred after marital litigation begins, the burden of proving the debt is marital rests upon the party who makes such an assertion.” Wooten v. Wooten, 364 S.C. 532, 547, 615 S.E.2d 98, 105 (2005). Since Wife incurred this debt for her own post-separation living expenses, the Court of Appeals found the family court improperly treated this debt as marital.

In an issue with little analysis or explanation provided, the Court of Appeals also ordered the record in this case be unsealed. During oral argument, the parties consented to the unsealing of the record. The opinion offers no explanation why the parties wanted the family court to seal the record or why the family court had agreed to seal it. There is little case law on the requirements of Rule of Civil Procedure 41.1 as it regards sealing the record, and it appears the Court of Appeals raised this issue on its own at oral argument. Some analysis might have been useful for the family court bench and bar.

As noted above, the issue of transmutation is one that confounds family law practitioners. Whether the family court will find transmutation when there is some, but not overwhelming, evidence of intent, is one of the hardest issues to predict in family law. The sheer coincidence of two published opinions from two separate panels reversing the family courts’ determinations on transmutation is noteworthy enough for me to discuss these cases in one, rather than separate, blogs. Transmutation claims are significantly harder today than they were yesterday.

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