Grant v. Zich

DAVIDSON, Judge. The primary question presented by this case concerns whether a marital residence, purchased during marriage and titled as tenants by the entirety, constitutes marital property under Maryland Code (1974, 1984 Repl.Vol.) § 3-6A-01(e) of the Courts and Judicial Proceedings Article. The relevant statutory provisions are § 3-6A-01(e) and § 3-6A-05(a), (b), and (c). Section 3-6A-01(e) provides: “ ‘Marital property’ is all property, however titled, acquired by either or both spouses during their marriage.

It does not include property acquired prior to the marriage, property acquired by inheritance or gift ²⁵⁹ from a third party, or property excluded by valid agreement or property directly traceable to any of these sources.’’ (Emphasis added.) Section 3-6A-05(a) provides in pertinent part: “(a) In granting an absolute divorce or annulment ... the court shall determine which property is marital property if the division of property is an issue.” (Emphasis added.) Section 3-6A-05(b) and (c) provide: "(b) The court shall determine the value of all marital property. After making the determination, the court may grant a monetary award as an adjustment of the equities and rights of the parties concerning marital property, whether or not alimony is awarded. The amount of the award and the method of its payment shall be determined after considering each of the following factors: “(1) The contributions, monetary and non-monetary, of each party to the well-being of the family; “(2) The value of all property interests of each spouse; “(3) The economic circumstances of each spouse at the time the award is to be made; “(4) The circumstances and facts which contributed to the estrangement of the parties; “(5) The duration of the marriage; “(6) The age and the physical and mental condition of the parties; “(7) How and when specific marital property was acquired, including the effort expended by each party in accumulating the marital property, “(8) Any award or other provision which the court has made under this Subtitle 6A with respect to family use personal property or the family home, and any award of alimony; and ²⁶⁰ “(9) Such other factors as the court deems necessary or appropriate to consider in order to arrive at a fair and equitable monetary award. “(c) A monetary award made under this section may be reduced to a judgment to the extent that any part of the award is due and owing.” (Emphasis added.) In 1968, the respondent/cross-petitioner, Robert A. Zich (husband), then unmarried, purchased a house in the District of Columbia (D.C. house). In November 1971, he married the petitioner/cross-respondent, Constance Yvonne Grant (wife).

In December 1971, the husband sold the D.C. house. In February 1972, the parties purchased a marital residence located in Illinois (Illinois marital residence) that was titled as tenants by the entirety. Most of the funds used to purchase the Illinois marital residence were traceable to the proceeds from the sale of the husband’s D.C. house—property acquired by the husband before marriage. Some of the funds used to purchase that residence were funds acquired by the wife before marriage.

Subsequent mortgage payments were made from funds acquired by the parties during the marriage that had been deposited in joint bank accounts. In November 1975, the Illinois marital residence was sold. Proceeds from that sale were used to purchase a marital residence in Potomac, Maryland (Maryland marital residence). The Maryland marital residence was titled as tenants by the entirety.

Subsequent mortgage payments were made from funds acquired by the parties during marriage that had been deposited in joint bank accounts. Thereafter, the parties experienced marital difficulties and voluntarily separated in March 1980. At about that time, the wife removed certain personal property from the Maryland marital residence. In January 1981, the Maryland marital residence was sold and the proceeds placed in escrow.

On 28 October 1980, in the Circuit Court for Montgomery County, the husband sued for divorce. He also sought a ²⁶¹ determination of the ownership of personal property under § 3-6A-03; 1 a determination of the ownership of real property under § 3-6A-04; 2 and a monetary award under § 3-6A-05. In her answer, the wife sought a divorce. She also sought a determination of the ownership of personal property; a determination of the ownership of real property; a monetary award; and alimony.

At trial, the wife disclaimed ownership of a part of the personal property that she had removed from the Maryland marital residence by conceding that that part belonged to the husband. Subsequent to the trial, the husband filed “Proposed Findings of Fact and Conclusions of Law” in which he stated that he was “willing to waive any interest he may have in all of the personal property [the wife] took control of.” In a written memorandum, the trial court, insofar as here relevant, initially determined the ownership of certain personal and real property. With respect to the personal ²⁶² property removed by the wife from the Maryland marital residence at the time of separation, the trial court said: “[The husband] has filed with his Proposed Findings of Fact and Conclusions of Law a suggested distribution of assets and value in which he states that he is willing to waive any interest he may have in all of the personal property [the wife] took control of except for several personal items that [the wife] now admits belong to him. This suggestion greatly simplified the otherwise item by item decision the Court would have to make and the obvious necessity to order the sale of jointly owned personal property. [The wife] obviously desired to have the personal property as evidenced by her taking possession and control of it____ The Court accepts these pro- posals and has considered them in the Decree entered.” With respect to the proceeds from the sale of the Maryland marital residence, the trial court said: “[B]ecause the home from which these proceeds were derived was owned by the parties as tenants by the entirety, each party owns a one-half interest....” The trial court then said: “The husband has argued that he is entitled to an additional monetary award from the wife pursuant to Section 3-6A-05(b) of the Courts and Judicial Proceedings Article of the Code.

After carefully considering each of the statutorily delineated factors in the context of this case, this Court is in agreement and will therefore grant the husband a monetary award as an adjustment of the equities and rights of the parties.” In determining the amount of the monetary award, the trial court considered the factors delineated in § 3-6A-05(b), including the fact “that the husband was the principal source of funds used to acquire the [Maryland marital residence], the major asset owned by the parties____” However, before determining the amount of the monetary award, the trial court did not characterize the property of the parties as either marital or nonmarital as required by ²⁶³ § 3-6A-05(a). Nor did the trial court determine the value of all marital property as required by § 3-6A-05(b). On 21 December 1981, the trial court entered an order granting the husband an absolute divorce. Among other things, the trial court awarded the wife “[t]he sole ownership of all tangible personal property in her possession ...” and “one half of the proceeds from the sale of the [Maryland marital residence] ...”; granted the husband “one half of the proceeds from the sale of the [Maryland marital residence] ...” and a monetary award in the amount of $55,000; and denied the wife an award of alimony.

On 18 January 1982, the wife appealed to the Court of Special Appeals. Grant v. Zich, 53 Md.App. 610 , 456 A.2d 75 (1983). On 23 July 1982, before that appeal was decided, this Court decided the case of Harper v. Harper, 294 Md. 54 , 448 A.2d 916 (1982). There, we explicated the three-step process to be followed when granting a monetary award pursuant to § 3-6A-05.

We expressly stated that when granting such an award, the trial court is required “to determine the extent to which the property and the marital residence are to be characterized as nonmarital or marital; to determine the value of the marital property; and to make an equitable distribution of the value of the marital property with due regard being given to all of the relevant factors.” Harper, 294 Md. at 82 , 448 A.2d at 930 . Additionally, we held that in characterizing property as nonmarital or marital under § 3-6A-05(a), “the appropriate analysis to be applied is the source of funds theory.” Harper, 294 Md. at 80 , 448 A.2d at 929 . On 3 February 1983, the Court of Special Appeals decided, among other things, that the trial court had erred in awarding all of the personal property then in the wife’s possession to the wife. In reaching this result, the Court of Special Appeals said: “Under § 3-6A-03(a) of the Courts and Judicial Proceedings Article, 'the court may not transfer the owner ²⁶⁴ ship of personal property from one spouse to the other.’ If the court lacks this authority to transfer, a fortiori such a transfer cannot be made contrary to the intent of one of the parties.

Neither could [the husband’s] release of interest in the personal property be considered a gift, since a gift requires acceptance on the part of the donee, Rogers v. Rogers, 271 Md. 603, 607 , 319 A.2d 119, 121 (1974), and acceptance clearly did not occur here.” Grant, 53 Md.App. at 616 , 456 A.2d at 78 . The Court of Special Appeals concluded that, as a result of this error, the trial court did not properly determine “what was marital property” or “the value of the marital property” and was therefore “without authority to make a discretionary monetary award under § 3-6A-05(b).” Grant, 53 Md.App. at 616 , 456 A.2d at 79 . Additionally, that Court concluded that because a monetary award under § 3-6A-05 is a factor to be considered in determining whether to award alimony, 3 the trial court’s error in making its monetary award required reconsideration of its denial of alimony. Grant, 53 Md.App. at 618 , 456 A.2d at 80 .

The Court of Special Appeals vacated the trial court’s order and remanded the case so that the trial court could determine, among other things, “what is marital property, including appropriate components of the personal property transferred from [the husband] to [the wife] over the latter’s protest”; the value of the marital property; whether to make a monetary award and, if so, the amount of the award; and whether to award alimony to the wife. More ²⁶⁵ particularly, with respect to the Maryland marital residence, the Court of Special Appeals said: “We also think that in making these determinations, including determinations as to the disposition of the proceeds of the [Maryland] marital home ... the chancellor should apply the ‘source of funds’ theory, explained in Harper v. Harper, 294 Md. 54 , 448 A.2d 916 (1982). Although that case was decided after the judgment below in this one, it definitively construed the change in the law that was effected before the instant action was filed. Therefore, it is appropriate that its construction of the applicable statute be applied on remand.” Grant, 53 Md.App. at 617 , 456 A.2d at 79 .

The wife filed a petition for a writ of certiorari presenting the question whether the Maryland marital residence, purchased during marriage, titled as tenants by the entirety, constitutes marital property under § 3-6A-01(e). The husband filed a cross petition presenting the questions whether personal property then in the wife’s possession had been properly awarded to the wife; whether an appropriate monetary award had been made; and whether the wife had been properly denied alimony. We granted both. The judgment of the Court of Special Appeals shall be affirmed.

After careful consideration of the questions presented in the cross petition, we agree with the Court of Special Appeals that, in light of the wife’s disclaimer of ownership, the trial court improperly transferred certain personal property to the wife and made an improper monetary award. As a result, it is necessary for the trial court on remand to determine the ownership of the personal property in the wife’s possession; what portion of the personal property is marital property; the value of the marital property; the amount of a monetary award, if any; and whether the wife is entitled to alimony. Manifestly, in characterizing this property as nonmarital or marital, the appropriate analysis to be applied is the source of funds theory. ²⁶⁶ With respect to the question presented in the petition, the wife contends that the Maryland marital residence must be characterized as marital property. She asserts that, because the Maryland marital residence, titled as tenants by the entirety, was acquired during the marriage, it constitutes marital property within the scope of § 3-6A-01(e).

The wife further contends that the Maryland marital residence is not excluded from the statutory definition of marital property by any of the statutory exemptions. She maintains that because the Maryland marital residence was titled as tenants by the entirety, a presumption of gift arose as a result of which she, as well as her husband, acquired ownership of the Maryland marital residence in its entirety. She asserts that although gifts from third persons are exempt from the statutory definition of marital property, interspousal gifts—gifts from one spouse to another—are not. Additionally, the wife concedes that, as a matter of fact, the Illinois marital residence was, in essence, purchased with funds directly traceable to the proceeds from the sale of the D.C. house, property acquired by the husband prior' to marriage.

Nevertheless, she contends that, as a result of the husband’s gift to her of the Illinois marital residence, established by the presumption of gift arising from his titling of the property as tenants by the entirety, the Maryland marital residence is not, as a matter of law, directly traceable to the husband’s nonmarital property. She concludes that, consequently, the Maryland marital residence is not exempt from the statutory definition of marital property. The husband contends that the Maryland marital residence must be characterized as part nonmarital and part marital because it was acquired by an expenditure of both nonmarital and marital property. He asserts that the Maryland marital residence was paid for in part by his nonmarital funds, namely, funds directly traceable to the sale of his D.C. house—property that he had acquired before marriage. ²⁶⁷ He concludes that under §§ 3-6A-01(e) and 3-6A-05 that portion of the property directly traceable to the contribution of his nonmarital property must be characterized as non-marital property and that its value cannot be subject to equitable distribution.

We agree. Maryland’s Property Disposition in Divorce and Annulment Act (Act), Md.Code (1974, 1984 Repl.Vol.) §§ 3-6A-01 through 3-6A-08 of the Courts and Judicial Proceedings Article became effective 1 January 1979. Since that time, this Court has considered the definition of “marital property” contained in § 3-6A-01(e) on only one occasion—the case of Harper v. Harper, 294 Md. 54 , 448 A.2d 916 (1982). In that case, this Court considered the question whether real property, titled solely in a husband’s name for which he paid in part before marriage and in part during marriage, constituted marital property within the scope of § 3-6A-01(e).

There, we reviewed the various theories utilized by courts in other states that had considered similar questions. In Harper , we expressly rejected the inception of title theory utilized by the majority of courts in community property states. Under that theory, real property, titled in one spouse and paid for by that spouse partly before marriage, is characterized as the separate property of that spouse. The community, however, is entitled to compensation in the form of an equitable lien or a right of reimbursement for the expenditure of community funds or efforts.

There, we said: “[T]he language of § 3-6A-01(e) of the Courts and Judicial Proceedings Article that ' “marital property” is all property, however titled,’ expressly establishes that a determination of what constitutes marital property under § 3-6A-05(a) is not dependent upon the legalistic concept of title. We reject the inception of title theory employed by a majority of community property states and at least one equitable distribution state.... Thus, we effectuate our Act’s purpose of ‘end[ing] the inequity inherent in Maryland’s old “title” system of dealing with the marital property of divorcing spouses.’ ²⁶⁸ Report of The Governor’s Comm’n on Domestic Relations Laws, at 1 (1.982).” Harper, 294 Md. at 78-79 , 448 A.2d at 928 (emphasis added). Additionally, we expressly rejected the transmutation of property theory utilized by the Supreme Court of Illinois in that equitable distribution state.

Under that theory, where there has been a contribution of marital property to non-marital property, a rebuttable presumption arises that the owner of the nonmarital property intended that the commingled property be treated as marital. Consequently, the entire property is transmuted to marital property regardless of the status of title. More particularly, in Harper , we said: “Unlike the Illinois court, we are not persuaded that either the statutory scheme embodied in our Act or its express requirement that the trial court consider the monetary and nonmonetary contributions of each spouse,' the value of the property interests of each spouse, and the effort expended by each spouse in accumulating the marital property indicates a legislative preference for the classification of property as marital. Indeed, the language of § 3-6A-01(e), which sets forth an exclusive list of nonmarital property, indicates a legislative intent that the value of certain property not be subject to equitable distribution, and that the interests of spouses making nonmonetary contributions be protected without depriving the other spouse of nonmarital property.

To permit nonmarital property to be ‘transmuted’ into marital property and, therefore, to be subject to equitable distribution deprives a spouse of nonmarital property and is, therefore, contrary to that legislative intent.” Harper, 294 Md. at 79-80 , 448 A.2d at 929 (emphasis added). In Harper , we concluded that under the Act, the appropriate analysis to be used was the source of funds theory, then utilized in at least one community property state—California, and in one equitable distribution state—Maine. Under that theory, when property is acquired by an expendi ²⁶⁹ ture of both nonmarital and marital property, the property is characterized as part nonmarital and part marital, regardless of how titled. The property is nonmarital in the ratio that the nonmarital investment in the property bears to the total nonmarital and marital investment in the property, and its value is not subject to equitable distribution.

More particularly, in Harper , we said: “We recognize that in order to apply the source of funds theory in Maryland, it is necessary to adopt, as did the Supreme Judicial Court of Maine, an interpretation that defines the term ‘acquired, ’ appearing in § 3-6A-01(e), as the on-going process of making payment for property.... Under this definition, characterization of property as nonmarital or marital depends upon the source of each contribution as payments are made, rather than the time at which legal or equitable title to or possession of the property is obtained. “The utilization of this definition of the term ‘acquired,’ coupled with the application of the source of funds theory, produces a result that comports with both the language and the purpose of the Maryland Act. Because the definition of the term ‘acquired’ and the application of the source of funds theory produces results consonant with