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Kessler v. Kessler

Supreme Court of Alaska

February 16, 2018


         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.


          BOLGER, JUSTICE.


         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.


         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.


         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 ...

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