John Smith buys a house before he gets married to Jane Doe. John then gets married to Jane. He wants his to become theirs. She wants hers to become theirs. So they open joint bank accounts. They consolidate their finances. And he deeds the house into their joint names. But their love dwindles. They separate. And they file for divorce. So what happens to the house? Does John get to keep all of the equity in in the property because he owned it before the marriage? Or does Jane get an equitable share in the equity because she clearly owns the property, too?
Virginia Code § 20-107.3 answers these questions in its special tortured way. Virginia Code § 20-107.3(A)(1) starts from the premise that the house was at least initially the husband’s separate property because it was “acquired by [him] before the marriage.” Virginia Code § 20-107.3(A)(2) then modifies this assumption by defining marital property to include “all property titled in the names of both parties . . . except as provided by subdivision A 3.” Virginia Code § 20-107.3(A)(3)(f) then finally addresses the retitling of separate property by explaining that when “separate property is retitled in the joint names of the parties, the retitled property shall be deemed transmuted to marital property. However, to the extent the property is retraceable by a preponderance of the evidence and was not a gift, the retitled property shall retain its original classification.”
So the question appears to be was it not a gift? Sounds easy, right? How could it not be a gift? Surely the intent is for the other spouse to share in the retitled property, right? What can the other spouse say to convincingly show that this was not a gift?
Unfortunately, these are not the right questions. Instead of putting the onus on the retitling spouse to prove that it was not a gift, the law places the onus on the recipient spouse to prove that the property was a gift by proving the other spouse’s “donative intent.”
But why should she have this burden? How often do spouses articulate why they are retitling the property? These transactions almost always happen because it’s what married people do!
In the end, these cases end up being kind of ridiculous. In our example above, it forces Jane to gin up circumstantial evidence of donative intent. He never said he was giving me an interest in the house, but he said he loved me! He called it our home! He let me live there and everything! Now that’s generosity! And it forces John to say that he’s not the good guy we thought all along! He wasn’t being generous when he retitled the property! He was being underhanded all along!
In Parsons v. Parsons, Record Nos. 0521-14-2 and 0548-14-2 (Va. Ct. Appeals 2014) (unpublished), we see this issue writ large. In this case, the husband inherited various investment properties from his mother, with his brother serving as the executor of his mother’s trust that held said properties. The brother, at the husband’s request, distributed the husband’s properties to the husband and his wife as tenants by the entirety. The parties then transferred them to their own trust, from which the parties managed these properties, earned income from them, leveraged them to buy more properties, etc.
The husband, as expected, claimed that these properties remained his separate property. He never intended to gift these properties to his wife. They were retitled to avoid past judgment creditors. In support of this argument, the husband had his attorney/friend testify that the husband intended all along to dodge creditors.
The wife, on the other hand, claimed that these properties were marital property because the husband gifted them to her during the marriage. She said that he intended to share these properties with her, that he wanted her to be involved in managing these properties, and that she was involved in managing these properties. She also said that her husband never once mentioned anything to her about judgment creditors.
Ultimately, the Virginia Court of Appeals upheld the trial court’s decision in favor of the wife. It did not believe that the husband was avoiding judgment creditors, especially given his failure to produce evidence of judgments that actually existed when he inherited the properties. Further, it believed that there was sufficient circumstantial evidence proving donative intent, including the following recitation of facts from the trial court:
“[E]verything that the court has heard in this case suggest that husband was deeply in love with wife at the time these parcels were acquired, and that he wished to share everything he had with her. It appears to the court that husband throughout the course of the marriage was extremely generous both to wife and to his stepdaughter. Wife was not asked to sign any type of prenuptial agreement limiting her property rights. Wife was given signature authority on the checking accounts. Wife had seemingly unlimited authority to spend money as she wished. Nothing about the parties’ relationship suggested that husband wishes to keep anything of his away from wife.
While Dean Parsons conveyed the multiple parcels to property on behalf of the Parsons Irrevocable Inter Vivos Trust as a settlement of the interest between the two brothers, the court can only draw the inference that he would have conveyed title to those parcels in any fashion suggested by husband. The fact that the parcels were conveyed to husband and wife by tenants in the entirety can only lead the court to reasonably infer that husband wished for wife to share in this interest in these parcels.”