How Separate Property May Become Marital Property in Georgia
You owned your home before you ever said “I do.” Shouldn’t that mean it remains entirely yours if the marriage ends?
Not necessarily. Under Georgia law, property that begins as separate property can, in some circumstances, become subject to a claim by the marital estate through a process referred to as transmutation. Accordingly, understanding how Georgia courts distinguish between separate property and marital property, and how certain actions during the marriage can affect that distinction, is critical when determining what property may be subject to division in a divorce.
Georgia’s Equitable Distribution Framework
Georgia follows the doctrine of equitable distribution, which was first formally adopted by the Georgia Supreme Court in Stokes v. Stokes, 246 Ga. 765 (1980).. Under this framework, courts divide marital assets fairly, though not necessarily equally, based on the circumstances of the marriage.
Before a court can determine how property should be divided, however, it must first identify which assets are marital property and subject to division and which are separate property belonging to one spouse alone.
Generally, separate property are assets owned by a spouse before the marriage, along with gifts and inheritances received individually during the marriage. Marital property generally consists of assets acquired during the marriage through the efforts, contributions, or investments of either spouse.
That distinction may sound straightforward. In practice, however, determining whether a separate asset has acquired a marital component can become much more complicated.
Why “Separate” Does Not Always Stay Separate
This is where transmutation comes into play. Georgia courts have recognized that a spouse’s actions during the marriage can create a marital interest in property that originally belonged to one spouse alone. The Georgia Supreme Court addressed this issue in Thomas v. Thomas, 259 Ga. 73 (1989), a case involving a home that one spouse owned separately before the marriage and that was later paid down using marital funds.
In Thomas, the court adopted what is known as the source-of-funds rule. Under this approach, the marital estate may acquire an interest in an otherwise separate asset to the extent the asset’s value is attributable to marital contributions, including a proportional share of any appreciation associated with those contributions.
Common Ways Separate Property Can Become Subject to a Marital Claim
Georgia courts have identified several ways in which separate property may become subject to a marital interest through circumstances such as:
- Commingling separate funds with marital funds, such as depositing an inheritance into a joint account used to pay household expenses;
- Re-titling separate property into joint names, such as adding a spouse to the deed of a home owned before the marriage;
- Using marital funds to pay down debt or make improvements on separate property;
- Making an express or implied gift of separate property to the other spouse or to the marriage itself; and
- Making an express agreement with the other spouse to treat the property as jointly owned.
Importantly, the use of marital funds does not necessarily convert an entire separate asset into marital property. Depending on the circumstances, a court may instead determine that the marital estate acquired an interest in only a portion of the property’s value.
However, when separate and marital funds become so thoroughly mixed that the separate portion can no longer be reliably identified or traced, the classification of the asset can become significantly more difficult to establish, and the entire asset may be treated as marital.
Commingling and the Importance of Tracing
Georgia courts may examine what happened to the asset during the marriage, including whether marital funds were used, whether the property was retitled, whether separate and marital funds were commingled, whether improvements were made, and whether the evidence demonstrates an intent to make a gift of the property to the marriage or the other spouse.
Accordingly, one of the most important issues in a transmutation dispute involving separate property is tracing how an asset was funded, including where money came from and how it was used. Therefore, clear and consistent financial records can be critical to establishing that certain property retained its separate character. For example. a spouse who kept an inheritance in its own untouched account is in a much better position to protect his or her separate property interest in those funds than one who deposited the funds into a joint account used them to cover marital expenses, such as paying the mortgage and utility bills, for years.
Contact Us Today for Guidance
If you are concerned about how property you owned before your marriage may be treated in a Georgia divorce, understanding how transmutation works and the source-of-funds rule is an important first step. Our Atlanta divorce attorneys at Kaye, Lembeck, Hitt & French can review your financial history, help determine the nature of your property interests, and advise you how to protect your rights throughout the divorce process. Reach out to us today at 404-233-2800 to discuss your situation and learn how we can help you.
