Pennsylvania Family Law

Lowry v. Lowry, 375 Pa.Super. 386.

This case gives a complex analysis of the equitable distribution of a house that was built by the parties.  The husband and wife purchased an empty lot.  The husband "gave" his wife his interest in the lot to protect it from his former spouse.  The Wife refinanced and later sold her first house to raise funds for conctruction on the new house.

By the Court:

Our scope of review in equitable distribution matters is limited. We must apply the Divorce Code to the record to determine whether the hearing court abused its discretion. Ganong v. Ganong, 355 Pa.Super. 483, 513 A.2d 1024 (1986). We will find an abuse of discretion only if the hearing court misapplied the law or failed to follow proper legal procedure. Hutnik v. Hutnik, 369 Pa.Super. 263, 535 A.2d 151 (1987); Johnson v. Johnson, 365 Pa.Super. 409, 529 A.2d 1123 (1987).

Husband's first argument centers on the trial court's exclusion of a portion of the value of the marital home from marital property. The trial court adopted the following two recommendations by the master regarding the home:

That a portion of the marital home purchased with funds of Defendant [wife], acquired prior to the marriage, is herewith excluded from Equitable Distribution under Section 401(3)(1) [401(e)(1) ] of the Divorce Code.

That the marital home is excluded from Equitable Distribution under Section 401(e)(3) of the Divorce Code because the land on which the dwelling was constructed was made a gift to Defendant by Plaintiff. The Plaintiff at the time of transfer stated to Defendant "I'd rather you (Defendant) have this property than Claire (Plaintiff's ex-wife)".

Section 401(e)(1) of the Code provides that property acquired in exchange for property acquired prior to the marriage is excluded from marital property except for the increase in value thereof during the marriage. Section 401(e)(3) provides that property acquired by gift is excluded from marital property except for the increase in value thereof during the marriage.

Husband contends that he did not gift the property to wife when he transferred his interest in the property to her in 1972 because he lacked t';he requisite donative intent. He contends that his purpose was not to exclude the property from marital property, but rather to shield the property from his former spouse.

Husband also attacks the trial court's alternative conclusion that the property is excluded from marital property by virtue of the fact that $50,000 of the value of the property was acquired in exchange for property the wife had acquired prior to the marriage. He argues that to the extent that wife contributed her separate funds to construction of the home, those funds had already become marital property through wife's prior deposit thereof in the parties' joint savings account.

Our review of this issue has been rendered much more difficult than it need be by the unclear state of the record, the inartful argument and questionable representations regarding the facts by the parties, and the lack of a complete trial court opinion. In any event, we have arrived at the following analysis.

We agree with the trial court in its finding of a gift of the Hemlock Farms property by husband to wife in December 1972. At that time, the property's value would appear to be around $14,300, consisting of $7,300 in the price of the lot, $4,000 paid for initial construction work and $3,000 for the initial construction materials. All of this was paid for by wife with her pre-marital funds obtained from the refinance of her Long Island home. She gifted these amounts to the marital estate by investing them in the property, which was then held in joint names. Brown v. Brown, 352 Pa.Super. 267, 507 A.2d 1223 (1986) (property acquired prior to marriage that is transferred into property in joint names during marriage becomes marital property unless contrary intent is shown by clear and convincing evidence). However, when husband conveyed his interest in the property to wife by deed dated December 30, 1972, he [375 Pa.Super. 392] made a gift thereof back to wife, thus excluding the property at its then present value from marital property.

It matters not what husband's motive was in deeding the property to wife. As Justice McDermott opined in his concurring opinion in Semasek v. Semasek, 509 Pa. 282, 502 A.2d 109 (1985):  "A gift may be given to anyone. The law is cold in its definition, it does not ask a reason for the giving, only an intention, delivery and acceptance of the thing are required.... The question ought not to be what is the subject or the purpose of the gift, but rather whether was it intended as a gift, delivered and accepted."  Id. at 292, 502 A.2d at 113-14.

The fact that husband states that his only intent in deeding the property to wife was to prevent his former spouse from taking the property does not undermine our conclusion. As the Brown court concluded, the fact that there is some financial gain to be had by the gifting spouse as a result of the gift, like a reduction in taxes, does not negate donative intent, but rather positively suggests it. Id. at 272, n. 3, 507 A.2d at 1225 n. 3. This is because the financial goal will only be attained if the gift is effected. The desire to achieve the financial goal is the source of the donative intent that supports a finding of a gift. ...

Having concluded that husband gifted the property to wife in 1972 does not, however, end our analysis. The result of the gift is to exclude the property from marital property except for the increase in value during marriage. The property was worth approximately $14,300 when gifted, and is now worth $86,000 by stipulation of the parties.

The trial court determined that $50,000 of the value of the property was not marital property subject to equitable distribution. The trial court arrived at this figure by taking the total value of the property, $86,000, and deducting therefrom $36,000, the increase in value of the property due to the parties' joint construction efforts. The court reasoned that the $50,000 was actually property acquired in exchange for the wife's pre-marital assets and, therefore, excludable from marital property under Section 401(e)(1). The master concluded that the wife had expended a total of "at least $50,000" of her pre-marital assets, i.e., monies she obtained by refinancing and then selling her pre-marital home, in constructing the Hemlock Farms home. This amount the master and the trial court found to be non-marital property under Section 401(e)(1).

We disagree with this conclusion. It was wife's burden to prove that a portion of the value of the Hemlock Farms property was non-marital property because it was acquired in exchange for her pre-marital assets. Sutliff v. Sutliff, supra, at --- - ---, --- A.2d at 537-539 (party asserting that property acquired during marriage is not marital must prove by preponderance of the evidence that property falls within one of the exceptions to marital property enumerated in Section 401(e) of Code). We find that the evidence, even when taken in a light most favorable to wife, only reveals an investment in the Hemlock Farms property of a total of approximately $41,300 traceable to wife's separate funds. The record reveals the following investments:

      $7,300  cost of lot
      $4,000  initial construction work
      $3,000  intial building materials
     $27,000  proceeds of sale of Long Island
              home used for additional building
              materials
TOTAL_______
     $41,300

Thus, on the present state of the record, we do not know how the master concluded that the amount she contributed to the property was "at least $50,000", since the difference of $8,700 ($50,000 minus $41,300) is not directly accounted [375 Pa.Super. 394] for. ⁴ Moreover, as to the $27,000 that wife contributed to the construction of the home, we agree, at least in part, with husband's argument that a portion of these funds became marital property when wife deposited it in a joint savings account with husband on December 24, 1975.

Husband argues that all of this money was deposited by wife in the parties' joint savings account when wife first received it. There is no support in the record for this assertion. In fact, the record clearly shows that wife deposited the $27,000 in her personal savings account when she first received it and that husband could not remember where the money was put. Approximately one year later, when the balance in wife's account had diminished to almost $13,000, she transferred that amount to a joint savings account in both parties' names. The balance in that account was then used, according to wife, to continue to fund the construction of the Hemlock Farms property.

We find that when wife transferred the $13,000 to the joint account, she thereby contributed that amount to marital property. Where a spouse places separate property in joint names, a gift to the entireties is presumed absent clear and convincing evidence to the contrary. See Brown, 352 Pa.Super. at 273, 507 A.2d at 1225...  Our conclusion that wife made a gift of this $13,000 to the marital estate when she deposited it in joint names is further buttressed by the fact that the money was thereafter used to make further improvements to the Hemlock Farms property which, although held in wife's name, was the joint project and marital residence of the parties.  In summary, we can conclude, even from the incomplete and unclear state of the record before us, that wife actually proved only that the Hemlock Farms property was gifted to her during the marriage when it was worth $14,300 and that she thereafter exchanged a total of $14,000 ($27,000 minus $13,000) in pre-marital assets for materials used in improving the property. This totals $28,300 of the value of the home that is non-marital property. The remaining $13,000 of wife's pre-marital assets that were invested in the Hemlock Farms property were contributed to the marital estate when transferred to joint names.

Thus, we must reverse the trial court's conclusion that only the $36,000 of the value of the home due to the parties' joint efforts in constructing it is marital property. At least an additional $13,000 worth of value in the home is also marital property. Moreover, since the state of the record regarding the additional $8,700 in value in the home is unclear, we must remand to the trial court for reconsideration and clarification of its decision regarding this portion of the home's value. In reconsidering this aspect of its decision, the trial court should consider that if this aspect of the value of the home is simply post-separation increase in value, and not attributable to a proven exchange by wife for pre-marital assets, it too may be considered marital property and equitably distributed between the parties.

Husband also challenges the trial court's distribution to wife of eighty percent (80%) of the $36,000 increase in value of the Hemlock Farms property due to the parties' efforts in constructing it. Husband argues that since the evidence clearly shows that both parties contributed equally in working on the home, the division should also have been equal.

Since we must remand for a reconsideration of the trial court's determinations regarding the amount of the value of the marital home that is to be classified as marital property, we will also remand for a reconsideration of the division of the $36,000 increase in value. In this manner, we will insure that the trial court will give complete reconsideration to all issues pertinent to the home in light of this Opinion. We underscore that the trial court correctly determined that it was not required to divide the $36,000 equally between the parties. The record reveals that the master properly considered the factors listed in the Divorce Code in distributing the $36,000, and clearly based its decision in part on the fact that husband's earning power now substantially exceeds wife's and in part on the fact that the contributions of the parties to the construction of the home is only one of many factors the Code requires a court to consider in distributing the property. 23 P.S. § 401(d)(7).