DIVORCE - Making "Mine" "Ours" - Transmutation of Property

MAKING MINE OURS - The Transmutation of  Property

In my recent post regarding marital property, I made a reference to the concept of transmutation. As I mentioned in that post, this is a rather unusual, made-up lawyer word for what happens when somebody changes a piece of separate property into marital property.

Under the Divorce Code there are certain items of property that are excluded from the marital estate and which are not to be equitably divided by the parties (or the court). These excluded properties basically boil down to the following:

Gifts received during the marriage;

Inheritances received during the marriage;

Property owned prior to the marriage;

Property created after separation; or

Property received in exchange for one of the above, without the contribution of additional marital funds.

For the record, in case anyone is confused, your income (i.e., the income you earned during your marriage) is not, in fact, your income. That is marital income and therefore marital money. So anything you purchased with martial money, no matter how it is titled, is marital in nature regardless of whose name is on your actual paystub.

The 4 things above are our big categories of not marital property. And, while the Divorce Code talks about how these things are excluded from martial property, often times they are not entirely excluded.

For instance, the growth in value of something you are gifted, inherit or bring into the marriage will still be marital property subject to equitable distribution.

So if you come into the marriage with an investment account worth $20,000 and at the end of your marriage it is worth $30,000, there is $10,000 to be accounted for in your marital estate. Those dollars do not have to necessarily come out directly from that investment account, but they do have to come from somewhere, and they are going to be included in the “marital pot.”

Barring a prenuptial agreement, (which can be a very important piece of paper and which is worthy of its own forthcoming blog post), this $10,000 is subject to equitable distribution. You and your spouse can exclude the growth on these things from the marital estate in an agreement, but under the law, that $10,000 and any other growth in your premarital property or gifts or inheritances is up for grabs at the time of equitable distribution.
Now we come to the tricky part--- the transmutation. Your premarital investment account, house, retirement assets, car, etc. are totally yours (save for that pesky increase in value) unless you transmutate it.

How does one transmutate, you ask?

Well it can be quite simple. If you add your spouse’s name to that investment account, it has been transmutated.

If you retitle your car in joint names, it has been transmutated.

If you deed your house to the two of you jointly, it has been transmutated.

Once this transmutation has taken place, now 100% of the asset is marital and is subject to equitable distribution (i.e., the $30,000 in your now jointly titled investment account is subject to equitable distribution, not just the $10,000 growth).

It should be noted that if you transmutate a large amount of property or if you have a particularly short marriage, it might not be equitable to divide such an asset 50/50. It might be equitable to give the transmutating party 80% of that asset, etc., but you have made it marital property. Now it is incumbent upon you, or the attorney you hopefully hire, to argue that even though it is marital property it is not equitable that your spouse get a large share of it.

In any case, you have significantly complicated your financial position. This does not have to be the case. As I mentioned, while the words “prenuptial agreement” often make people very uncomfortable, when two people come to a marriage and each have their own assets, it can be an ideal way to address eliminating this increase in value from the equation or coming up with your own rules to apply to it. I will talk about premarital agreements more in a future post but for now, please be aware that barring such an instrument, turning “mine into ours” is a relatively easy endeavor.

Even if you do not transmutate the property, the Divorce Code will always serve to make a part of “mine” “ours,” by operation of law.