The December 21, 2011 Court of Appeals opinion in Sanders v. Sanders, 396 S.C. 410, 722 S.E.2d 15 (Ct. App. 2011), demonstrates the continuing confused jurisprudence regarding transmutation of non marital assets. It also highlights the problems that result when the trial court is provided insufficient information from the parties to make a complete decision.
Sanders involved a cross appeal of equitable distribution issues stemming from the parties’ divorce. The first issue on appeal was whether Wife’s AG Edwards account was transmuted into marital property. The Court of Appeals affirmed the family court’s decision that it was. Wife would typically deposit inherited funds into the parties’ joint checking account, only to transfer these funds into the AG Edwards account a few days later. The Court of Appeals noted this level of commingling did not make these inherited funds transmuted.
Yet the Court of Appeals still found these funds transmuted because Wife frequently transferred funds back from the AG Edwards account into the joint account to assist in paying marital expenses. The Court of Appeals held this usage demonstrated Wife’s intent to make these funds marital. All I see is Wife’s use of these funds demonstrated her intent to be generous with part of her inheritance. While the doctrine of transmutation serves equity when a spouse incurred benefit during the marriage from treating non marital funds as marital, too often transmutation is used to the detriment of a generous spouse. Here, Wife was done an injustice.
She was done a further injustice when the Court of Appeals affirmed an equal division of the marital estate. Too often when our courts transmute marital property, they then reflexively divide it equally. Transmutation is supposed to be based on the owner-spouse’s intent; I doubt Wife ever expected Husband to end up with half her AG Edwards account.
Husband’s first issue in his cross-appeal regarded the date of valuation for the parties’ retirements. The value of both parties’ retirements declined during the litigation process due to “passive market depreciation” (an increasingly common fact pattern). Wife filed an updated financial declaration at trial, listing her lower retirement account value. Because the reduction in the value of Wife’ retirement was passive, the family court valued her retirement as of the date of trial. Husband, however, failed to provide the family court an amended financial declaration reflecting his reduced retirement valuation. The family court valued his retirement as of the date of filing.
Husband argued on appeal that the family court should have valued both retirements as of the date of filing. The Court of Appeals disagreed, noting that because of the passive loss during the litigation period the proper date of valuation was the date of trial. The Court of Appeals remanded this issue, instructing the family court to value both parties’ retirements as of the date of trial. Normally, I’d have no issue with the Court of Appeals’ analysis but the family court’s inability to value Husband’s retirement as of the date of trial is due to the Husband’s failure to provide an updated financial declaration. In two recent appellate decisions, Lewis v. Lewis, 392 S.C. 381, 709 S.E.2d 650, 656, n.11 (2011) and Pittman v. Pittman, 395 S.C. 209, 717 S.E.2d 88 (2011), the courts refused to remand an issue where a party failed to provide the family court necessary evidence because it did not want to give a dilatory party “a second bite at the apple.” Remand gives Husband this second bite.
Husband also appealed the award of the marital residence to Wife at the $235,000 her expert placed upon it. Husband’s appraiser testified that the residence was worth $360,000 and Husband testified it was worth $380,000. On cross-examination, Husband’s appraiser acknowledged a “significant error” that was material to his valuation. Based on this, the family court found Wife’s valuation more credible and the Court of Appeals affirmed. Left unaddressed is whether Husband was willing to keep the marital residence at the $380,000 valuation he placed upon it.
The final issue on Husband’s appeal involved the family court’s distribution of personal property. Evidently Wife provided the family court a schedule of at least 237 items, some of which she claimed were non marital. Husband appealed the family court’s distribution of items 178 through 237. Wife testified that some of these items were gifts from her family and others were gifts of jewelry from Husband’s mother. The family court found the gifts from Husband’s mother were marital property and the gifts from her family were transmuted but still treated some of these items as non marital property. For reasons the opinion does not make clear some of the property items Husband appealed were item the family court awarded to him. Given the contradictory and often inexplicable nature of this assets schedule, the family court’s treatment of this property, and Husband’s challenge regarding property that was actual awarded to him, the Court of Appeals simply remanded this matter back for further determination.
Transmutation is always a tricky issue to litigate. One thing I did find interesting in the court’s opinion, which wasn’t an issue in the case, is the fact that Husband did not file a responsive pleading, however it appears that he was allowed to offer evidence and call his own witnesses at trial. In my opinion, this further highlights the confusion or vagueness of how a default (or, if there is no formal affidavit of default filed, a party’s failure to plead in response) is treated in Family Court. From talking to several different local family law attorneys, it seems most think that a defaulting party himself/herself can be heard on certain issues (Rule 17(a), SCRFC), but not call his or her own witnesses or offer other his or her own evidence at a merits hearing. I’m involved with 2 cases right now where the defendant did not file a responsive pleading (one of which will likely go to trial), and I wish the Supreme Court would clarify this, preferably by amending the Rules of Family Court.
I represented Mr. Sanders in the trial court and on the appellate court level. Maybe I can shed some light on the Court of Appeals ruling. As to the issue of transmutation, there were three accounts in play: the Husband’s business account, the joint checking account, and the AG Edwards account. The Court makes clear that if the wife had placed the inheritance proceeds in the joint account briefly and then transferred them to the AG Edwards there would not have been any tranmutation. However, in this case money flowed like this – the Husband owned a business and his income was initially placed in the business account then transferred into the parties joint checking account. The Wife who was a bookeeper handled the parties finances. She would transfer money from the Joint checking account into the AG Edwards monthly along with money coming from the AG Edwards into the joint checking monthly. We were able to document significant money from the Husband’s business, which wound up in the AG Edwards. Although the opinion mentions the Wife’s use of the AG Edwards account for marital purposes such as to buy items which were used by both parties, I believe the real problem was the continuous transfers (monthly) of money going back and forth between the joint checking account and the AG Edwards Account. At trial we referred to this issue as “How do you tell a ******* dollar, from a *** dollar.”
As to the equal division of the parties marital estate. During the marriage the Husband was the primary wage earner. His contribution to the accumulation of assets came from the income he derived from his business. The Wife’s direct contributions came primarily from transfers made from the AG Edwards account. An exhibit was prepared by the Wife showing her transfers yearly from the AG Edwards account along with the Husband’s income. The parties in essence contributed roughly equally to the accumulatoin of marital assets.
As Family Court attorney’s everyone recognizes that the attorney who prepares the Order will frequently try to slant the judges ruling his/her way as much as possible. This is how the issues concerning when the retirement assets should be valued and the specific items of personal property developed. Our asset and debt submitted at trial did not provide for updated numbers concerning the retirement accounts and instead relied on the values as of date of filing. The IRA retirement accounts for Husband and Wife were invested with the same entity and changed similarly. Since this issue has been remanded we are now filing updated financial declarations. Going forward all attorney’s must ask themselves should I submit two financial declarations at the final hearing, one based on the date of filing and one based on the date of the final hearing or should the financial declaration form be amended by the state to provide a space for both figures, since passive gains or losses can be considered by the court? The personal property issue has been remanded and will get sorted out by the trial court. However, in essence the vast majority of items in question were purchased out of the joint checking account by the parties. The Husband has receipts to document same. (Yes astonishingly these parties kept almost all their receipts over a very long term marriage.) These items will become marital and their values will effect the overall apportionment between these parties.
I was not the attorney of record for Mr. Sanders at the beginning of this case, when an Answer should have been filed. Mr. Sanders was in default when I received the case. At trial our local judges have always allowed a party who did not submit an Answer to be heard on all the issues, including calling witnesses and presenting evidence, except for the issue of the divorce. I am surprised to hear that same is not always the practice throughout our state. I agree that clarificaition of the rules may be in order.
As anyone who has handled an Appeal knows for the parties it is a long and costly process for clients. My client is anxious to have this matter permanently resolved.