Transmutation in an economic downturn

In the time before housing prices collapsed it was easy to get many separating homeowners’ property divided.  They would either sell their home and divide the proceeds or one spouse would refinance the house and withdraw equity to buy out the other spouse’s interest.  Today, spouses are often fighting over how to divide the debt rather than how to split the equity.  With no easy method to resolve the house issue, it is much harder to disentangle separating spouses’ fiances.

This week’s Court of Appeals opinion in King v. King384 S.C. 134, 681 S.E.2d 609 (Ct.App. 2009) is a sign of these new times.  King affirms a family court decision in which one party argued that a home that was owned prior to the marriage [which would make it “nonmarital” property] was transmuted into marital property. Nonmarital property may be transmuted into marital property if: (1) it becomes so commingled with marital property as to be untraceable; (2) it is jointly titled; or (3) it is utilized by the parties in support of the marriage or in some other manner so as to evidence an intent by the parties to make it marital property.  The Court of Appeals noted that the home had been transmuted and affirmed the family court’s equitable division award.

In more than fifteen years of family law practice, I have often seen–and used, or at least attempted to use–the concept of transmutation to turn a nonmarital home into a marital home in order to obtain some of the equity in that home.  However, in over fifteen years of practice, it has always been the spouse who did not own the property prior to the marriage arguing that the property had been transmuted.  I cannot even recall a published opinion in which a spouse had argued that his or her own property had been transmuted: why give your soon to be ex-spouse some of your own property?

Yet in King it was the pre-marriage homeowning wife who argued, successfully, that her own home had been transmuted into marital property.  She did so in order that the negative equity could be equitably divided wherein her husband would be on the hook for some of this debt.  As a result of his being held responsible for some of this debt, she obtained more of his retirement funds in equitable division.

King is silent on the facts leading to transmutation (I would love to know whether the parties did a cash out refinancing during the marriage) and Mr. King did not appeal the family court’s decision that his wife’s home had been transmuted.  King may be a harbinger of a future in which many couples’ homes are upside down and in which the spouse who brought the home into the marriage is the one arguing for transmutation.

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