Losing Your Home to Divorce
by Daniel A. D’Auteuil, Jr.
The prevalence of divorce is an unfortunate reality in today’s society. A large part of society marries at least once, and sometimes two and three times. Additionally, people are putting off marriage until a much later age. Both of these trends have created marriages where either one or both individuals come into the marriage already owning assets, such as a home.
For many such individuals, the romantic idea of marriage leads them to consider, at some point, placing the home into joint names with the new spouse. They often consider doing so for estate planning or probate reasons, as well. Prior to transferring any asset into joint ownership with a new spouse, the individual should consider the effects of such a transfer on a subsequent divorce.
The State of Maine is a so-called “marital property” state. Basically, property acquired prior to the marriage is “nonmarital property” and must be set aside to the spouse who acquired it prior to the marriage. Property acquired after the marriage is “marital property” and must be equitably divided between both spouses.
The presumption of marital property can be overcome by establishing one of the following:
1) the property was acquired by gift or devise; 2) the property was exchanged for non-marital property; or 3) the property was excluded by valid agreement of the parties (i.e., prenuptial agreement)
So, where does jointly owned property fall? Over time, the Maine Supreme Court’s decisions have inconsistently dealt with jointly owned property between divorcing spouses. One of the Court’s earlier interpretations in Tibbets v. Tibbets, resulted in the adoption of a “source of funds rule.” Essentially, if marriage partners purchased a home and each individual used so-called nonmarital funds to purchase the home, the Court would overlook the fact that the home was owned jointly. Instead it would look to separate as nonmarital assets the portion of the home that was attributable to each individual’s nonmarital contributions.
Next, in the case of Carter v. Carter, the Court established the “transmutation doctrine” for situations where one spouse transfers nonmarital real estate to a new spouse in joint names. For the first time, the Court attached legal significance to the form of ownership of the real estate. By adding the new spouse’s name to the home, the homeowner converted an otherwise nonmarital asset into a marital asset.
Ten years later, the Court retreated from its transmutation doctrine in the case of Dubord v. Dubord. The decision in Dubord intertwined the source of funds rule and the transmutation doctrine leaving the transfers of nonmarital property in a state of confusion.
Finally, in 1997, the Maine Supreme Court decided the case of Long v. Long. The facts of Long present a typical second marriage situation. The husband sold his nonmarital home, which he had purchased prior to the marriage to his current wife. The proceeds of the sale were then used to purchase a new home. As commonly done, husband and wife accepted title to the new home as joint tenants. Rather than looking to the source of the funds, the Court treated all jointly owned real property as marital property.
Based on the Court’s reasoning, adding a new spouse’s name to bank accounts, stocks, annuities, and other assets, regardless of the reason for the transfer, essentially converts the otherwise nonmarital property into marital property. This result occurs even if both individuals originally agreed that the transfer was to be in name only for financing reasons or for estate planning considerations. On the other hand, it is highly doubtful that the recipient spouse would remember any agreement to the contrary at the time of a divorce. The practical result of the Long decision on transfers of nonmarital property to a new spouse is the creation of a half interest in the property for the new spouse in the event of a divorce.
Because so many marriages end in divorce, a decision to transfer a nonmarital home or other assets into joint names with a new spouse should be cautiously considered. Otherwise an unintended loss of individual assets may occur.
As sensitive as the subject may be, persons intending to marry should seriously consider a prenuptial agreement. A well-drawn agreement may become an invaluable document.
An attorney with the firm, Dan D’Auteuil provides a variety of legal services to individuals and businesses in Androscoggin, Oxford and Franklin counties.
[from The I & R Connection Volume 1; Issue 2 - Summer 1999]