Transmutation and Converting Separate Property to Marital Property

One of the basic theories of inequitable distribution and divorce litigation is that of transmutation. Transmutation theory holds that by their actions, the parties are able to modify the status of the property they own from separate property to marital property. In a recent decision, Fehring v. Fehring, 58 A.D.3d 1061 (3rd Dept. 2009), the Appellate Division, Third Department, has provided a perfect illustration of how transmutation may occur.

Parties were married in 1990. In August of 2005, the husband received a $50,000 insurance payment. The money was related to his personal injuries and, therefore, would be initially classified as his separate property. Plaintiff deposited a check-in brokerage account held and used jointly by the parties. In January 2006, the husband used $50,000 from the account to purchase real property. The court held that transferring separate property assets into a joint account raises a reputable presumption that funds are marital property subject to equitable distribution. Rosenkranse v. Rosenkranse, 290 A.D.2d 685, 686 (3rd Dept. 2002). The presumption may be rebutted by evidence that such deposits were made as a matter of convenience with no intention of creating beneficial interest. See, Chamberlain v. Chamberlain, 24 AD3d 589, 593 (2nd Dept. 2005). In Fehring, the account was used by both parties for items such as credit card bills. The Appellate Division held that the husband failed to rebut the presumption of marital property given the commingling of funds. It held that the lower court providently exercised discretion in distributing equally the value of interest in real property purchased with funds held in a joint account.

If you are contemplating divorce, be careful to avoid taking any action that converts your separate property to marital property. Once transmutation takes place, it is highly unlikely that you would be able to change the property’s status back to separate property, even with a lawyer’s assistance.

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