Appeal
from the Superior Court of the State of Alaska No. 3
AN-15-05989 CI, Third Judicial District, Anchorage, Patrick
J. McKay, Judge.
Kara
A. Nyquist, Anchorage, for Appellant.
Roberta C. Erwin, Palmier ~ Erwin, LLC, Anchorage, for
Appellee.
Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and
Carney, Justices.
OPINION
BOLGER, JUSTICE.
I.
INTRODUCTION
Kenneth
Kessler purchased a condominium in the summer of 1999,
shortly before he and Dianna Kessler began dating. Kenneth
and Dianna lived in that condominium for nearly all of their
15-year relationship. In its property division order
following the couple's divorce, the superior court found
that the condominium was originally Kenneth's separate
property but that it had transmuted into the couple's
marital property. Kenneth now appeals.
We
reverse and remand. The condominium only became marital
property if Kenneth intended to donate it to the marital
estate, and we agree with Kenneth that the evidence at trial
did not demonstrate he possessed any such intent. We
recognize, however, that our case law on this issue has at
times been confusing and imprecise, so before explaining the
facts of this case in more detail we first take a few moments
to clarify the law in Alaska on transmutation by implied
interspousal gift.
II.
TRANSMUTATION BY IMPLIED INTERSPOUSAL GIFT
Alaska
follows the law of equitable distribution, which is a set of
rules for dividing property upon divorce.[1] When conducting
that division, the court first distinguishes between separate
property and marital property.[2] As a general rule (subject to
various exceptions), property is separate property if it was
acquired by a spouse before the marriage, and property is
marital property if it was acquired by a spouse during the
marriage.[3] This classification process is important
because only marital property is subject to division upon
divorce.[4] Separate property, by contrast, is subject
to "invasion"[5] only "when the balancing of the
equities between the parties requires it."[6]
Property
brought into the marriage as separate property can sometimes
change, or transmute, into marital property.[7] One way this
change can take place is by an implied interspousal
gift.[8] This occurs when one spouse intends to
donate separate property to the marital estate and engages in
conduct demonstrating that intent.[9] We have, however, sometimes
been less than precise in describing this doctrine. Take the
following refrain, repeated in a number of prominent
equitable distribution cases by this court:
"Transmutation occurs when married parties intend to
make a spouse's separate property marital and their
conduct during marriage demonstrates that
intent."[10] Another favored statement of the rule is
similar: "Transmutation occurs when a married couple
demonstrates an intent, by virtue of their words and actions
during marriage, to treat one spouse's separate property
as marital property."[11]
Such
language is inaccurate for two reasons. First, it suggests
that the relevant intent is that of the "married
parties" or the "married couple." That is
incorrect. The question is whether the owning
spouse, not the married couple, intended to make a
gift.[12] Second, and more subtly, it fails to
define what it means to intend to "treat" separate
property "as marital property" or intend to
"make" property "marital." A judge or
attorney not familiar with equitable distribution law could
be forgiven for assuming that a spouse intends to treat
separate property as "marital" when he or she
shares that property during the marriage. But that
assumption would be incorrect. The distinction between
marital property and separate property is simply a way of
categorizing property for purposes of division upon divorce,
not a statement of property rights during
marriage.[13] Thus, the intent that must be shown is
the intent of the owning spouse that his or her separate
property be treated as marital property for the purpose
of dividing property in the event of a
divorce[14] This idea is better captured by framing
the inquiry as an intent to "donate" or
"convey" separate property to the marital unit or
marital estate, [15] rather than as an intent to "treat.
. . separate property as marital
property."[16]
Our
imprecision in describing the donative intent inquiry has
occasionally been compounded by our reliance on the
Cox factors. In Cox v. Cox we drew on
earlier transmutation cases and set out four "relevant
factors" for "determining whether . . . property
should be characterized as marital, " namely, "
'(1) the use of property as the parties' personal
residence, ... (2) the ongoing maintenance and managing of
the property by both parties, ' ... (3) placing the title
of the property in joint ownership and (4) using the credit
of the non-titled owner to improve the
property."[17]
We
recognize now that some later cases applying Cox may
have overemphasized the importance of the Cox
factors in determining whether the owning spouse possessed
donative intent. Indeed, at times we have even appeared to
suggest that the presence of certain factors is independently
sufficient to establish transmutation. For example, we have
written that "transmutation occurs when the non-owning
spouse takes an active role in the operation of the property
as a business"[18] and that the "requirement [of
intent] may be met where a non-owner spouse 'devote[s]
substantial efforts to [the property's] management,
maintenance, or improvement.' "[19]
But
when we first listed the four factors in Cox, we
were simply drawing on prior cases and describing facts which
we, as an appellate court deferentially reviewing a superior
court's factual finding of donative intent, had
previously found relevant in affirming or reversing that
finding.[20] In other words, the Cox
"factors" are merely specific facts that may, in
particular cases, serve as evidence of the owning
spouse's donative intent. We note that the third factor -
placing the property in joint title - is presumptive
evidence of intent and shifts the burden of proof to the
owning spouse.[21] However, the presence or absence of this
or any other Cox factor is not a proxy for the
ultimate question: did the owning spouse intend to donate his
or her separate property to the marital estate? That
determination is case-specific, and we never meant to suggest
that it could be answered by looking at the Cox
factors alone.
We now
examine the facts of this case and the evidence presented at
trial, and we then explain why the superior court clearly
erred when it found that Kenneth intended to donate the
condominium to the marital estate.
III.
FACTS AND PROCEEDINGS
In the
summer of 1999, before he and Dianna started dating, Kenneth
bought a condominium. The couple started living in that
condominium in 2000. The couple married in 2010, and Dianna
filed for divorce in 2015.
After
the parties began living together, Dianna started working for
the Alaska Surgery Center as a surgical technologist. After
14 years with that organization, Dianna's 2015 gross
wages were $51, 911. In 2003 Kenneth was injured while
working at FedEx. To supplement Kenneth's modest
workers' compensation and annuity payments, Kenneth's
father loaned Kenneth money, which Kenneth used to pay debts
and monthly bills.
Kenneth
and Dianna largely kept their finances
separate.[22] Both parties agreed that Kenneth paid
the mortgage payments and condominium dues out of his
personal bank account. Dianna testified that she painted, put
new windows in, installed laminate countertops and new
blinds, and purchased a new washer and dryer for the
property. Dianna also testified that she paid most of the
couple's other living expenses and bills. According to
Dianna, she believed that she was "investing" in
the property by paying for these expenses. But she did not
explain the basis for this ...