High net worth divorces often deal with a legal concept called “transmutation.”  Transmutation is the legal term that describes the changing of a separate asset to a marital one.  A new case covering the subject was released on August 8, 2016, and the Court of Appeals upheld a finding that transmutation had not occurred regarding a bank account holding an inheritance for one spouse and reiterated that Smith v. Smith remains the law governing this specific issue.

In Douglas, Husband tried to argue that inherited funds had been transmuted to marital property because the funds were being held in a joint account with right of survivorship until Wife had the parties minor child forge the Husband’s signature to remove him from the account.  This is important because generally speaking, inherited money remains separate property unless it gets incredibly blended with the parties’ joint finances or is gifted to the other spouse.  When the parties treat separate property in a way that manifests an intent that the property become marital property, transmutation occurs.  Placing both names on the account can create a rebuttable presumption that the account is marital property, however, it is just a rebuttable presumption not a definitive finding.

Here, Husband was asking that inherited funds kept in a different account from the normal family operating account be deemed marital just because his name was on the account.  It appeared from testimony of not just the Wife, but also her financial advisors, that the account was jointly held with right of survivorship for tax planning purposes, not because she wanted to gift the funds to the marriage.  He did not withdraw funds from the account personally and did not contribute to its management.  The Court is not going to penalize a person for doing appropriate estate planning with appropriate professionals by transmuting property that was only titled jointly for such purposes, or to make sure that a spouse has access to funds should there be an untimely death.

To reach the full Robert Douglas v. Susan Douglas opinion, click here or cut and paste the following link:

http://www.tba.org/sites/default/files/douglasr_080816.pdf?fid=afa034486e0217c95fba8d8d77d8380a8383d76c

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