Watson v. Watson

BLOOM, Judge. Maryland’s Property Disposition in Divorce and Annulment Act (Act), Subtitle 2 of Title 8 of Maryland Family Law Code Annotated (1984), was originally adopted as §§ 3-6A-01 through 3-6A-08 of the Judicial Proceedings Article of the Code in 1978. The Act became effective as of January 1, 1979. 1 As this case demonstrates, after ten years of litigation arising under the Act, confusion still reigns as to the nature of and distinction between “marital” and “nonmarital” property within the meaning of the statute, and whether an interspousal transfer of property will convert nonmarital property into marital property. ⁶²⁷ Section 8-201 defines various terms as used in Subtitle 2. Subsection (e) defines “marital property” as follows: (e) Marital property.—(1) “Marital property” means the property, however titled, acquired by 1 or both parties during the marriage.

(2) “Marital property” does not include property: (i) acquired before the marriage; (ii) acquired by inheritance or gift from a third party; (iii) excluded by valid agreement; or (iv) directly traceable to any of these sources. This definition is made significant by section 8-205(a), which provides, in pertinent part: (a) Grant of award.—After the court determines which property is marital property, and the value of the marital property, 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. Before determining the amount and method of payment of a monetary award, if it intends to grant one, the court is required by § 8-205(a) to consider each of ten enumerated factors, two of which include “the contributions, monetary and non-monetary, of each party to the well being of the family” and “how and when specific marital property was acquired, including the effort expended by each party in accumulating the marital property.” With those statutory provisions in mind, we turn to the facts of this case. Donald A. Watson, appellant, and Christine E. Watson (now Helfenbein), appellee, were married in September 1967.

In November 1971, the parties purchased a house in Hyattsville, Maryland, titled it in both names as tenants by the entirety, and used it as their marital residence. During the next eight years the Hyattsville house gradually became too small for the parties’ family which, by 1979, had grown to include five children. In order to acquire sufficient funds to purchase a much needed larger home, appel ⁶²⁸ lant asked his mother for an advancement against his eventual inheritance from her. Complying with that request, appellant’s mother gave him a power of attorney to sell certain property she owned.

From the sale of that property, appellant received $40,000, which he deposited into a savings account, subject to the order of either Mr. or Mrs. Watson. Thereafter, the parties sold their Hyattsville house and deposited into the same joint account the net proceeds therefrom. In November 1979, Mr. and Mrs. Watson purchased a new home in Bowie, Maryland, titling it in both names as tenants by the entirety. The new marital residence was bought, for approximately $95,000.

What was left of the money in the joint savings account, after the parties had paid some joint debts therefrom, went toward the purchase price of the new house, closing costs, and new furnishings. A substantial portion of the purchase price was secured by a first mortgage, the monthly payments on which were made from funds subsequently acquired by the parties and deposited in their joint bank account. 2 Eventually, the parties began to experience marital difficulties. They separated in May 1982, and on January 20, 1983, an absolute divorce was granted to the wife. As part of the judgment of divorce, the court awarded appellee the use and possession of the Bowie house and the family use personal property for a period of three years, reserving for later disposition any disputes relating to the sale of the marital home and to any grant of a monetary award.

In March 1985, appellee voluntarily left the Bowie house, and appellant moved in. Appellee then sought determination of ⁶²⁹ the ownership of personal property and real property under what is now § 8-202 of the Family Law Article (formerly §§ 3-6A-03 and 3-6A-04 of the Courts Article), 3 specifically praying to have the use and possession order terminated, a sale in lieu of partition ordered, and an award of half the net sale proceeds of the house. Pursuant to appellee’s petition, an evidentiary hearing was held before the Master for Domestic Relation Causes, Prince George’s County, on the basis of which the master, in a report dated 4 September 1985, recommended, inter alia, that appellant receive a $40,000 credit representing his nonmarital contribution toward the purchase of the Bowie house. Appellee took exceptions to the master’s report, which the circuit court, after a hearing, overruled.

Appellee then obtained a review of that ruling by an en banc panel of the court. Md. Rule 2-551. The en banc court, by written opinion and order, reversed, holding that appellant had made a gift of the $40,000 to appellee, and remanded the case to the master for specific findings of fact relating to the nature of the parties’ joint bank account and transactions made therefrom. Following that remand, the master, in a supplemental report, recommended: 1) that the Bowie house be sold in lieu of partition; 2) that each party receive one-half of the net sale proceeds as titling the house as tenants by the entirety, coupled with appellant’s gift intent, gave appellee an undivided one-half interest in the property; ⁶³⁰ 3) that there was no nonmarital property to be addressed; and 4) that appellant was not entitled to a monetary award.

Appellant’s exceptions to the master’s supplemental report were overruled, and the circuit court entered an order in accordance with the above recommendations. Mr. Watson has appealed from that order. The sole issue he raises is: Whether the circuit court erroneously concluded that appellant made a gift of an undivided one-half interest in the Bowie house by virtue of titling the property as tenants by the entirety. Appellant contends that the $40,000 received from his mother was an advancement on his inheritance and was a gift to him alone and not, therefore, marital property.

He asserts that because the Bowie house was acquired by an expenditure of both nonmarital and marital property—the $40,000 gift to husband alone and some of the sale proceeds from the Hyattsville house—the residence should have been characterized as part nonmarital property and part marital property. He concludes that under the decision of the Court of Appeals in Grant v. Zich, 300 Md. 256 , 477 A.2d 1163 (1984), that portion of the marital residence directly traceable to his $40,000 nonmarital contribution, being non-marital property, is not subject to equitable distribution. Appellee, on the other hand, contends that the Bowie house must be characterized wholly as marital property. She concedes that the $40,000 was a gift to appellant alone, that the Bowie house was purchased in part with funds directly traceable to that $40,000 gift, and that the presumption of gift doctrine does not arise by virtue of titling property as tenants by the entirety.

She contends, nevertheless, that appellant’s testimony shows that he had the requisite donative intent to make a valid gift to her without regard to any gift presumption. Appellee concludes that her husband had made a gift to her of one-half of the Bowie house and that it was, therefore, marital property owned in equal shares. Based on its interpretation of the decision of the Court of Appeals in Dorsey v. Dorsey, 302 Md. 312 , 487 A.2d 1181 ⁶³¹ (1985), the en banc court, in remanding the case to the master to make a supplemental report, stated: It is clear that the Court of Appeals has abrogated the common law presumption of gift created by the titling of property. It is equally clear that the Court of Appeals nor the Marital Property Act did not and has not created a contrary presumption____ The chancellor, in turn, based upon the findings set out in the master’s supplemental report, stated that: [T]he act of titling, under the circumstances, set forth in the testimony, constitutes a clear intent on the part of the Defendant to make a gift of an undivided one-half (V2) interest in the property to the Plaintiff and therefore, there is no nonmarital property to be addressed by this court.

Both the en banc court and the chancellor were wrong. Dorsey followed Grant v. Zich, supra, in which, contrary to the en banc court’s belief, the Court of Appeals observed and reconfirmed that “under the common law of Maryland, when a spouse titles property as tenants by the entirety, a presumption of gift arises and upon dissolution of the marriage, one-half of the property constitutes the donee spouse’s separate property.” 4 The gift is one of a present legal interest in the property. The fact that one tenant by the entirety cannot unilaterally sever the tenancy because it is per tout et non per my does not make the transaction any less of a gift of a present property interest than if the donor spouse had caused the property to be titled in both names as joint tenants or tenants in common. ⁶³² Once the gift is complete, ordinarily the donee spouse has a vested interest in the property that cannot be divested. A divorce court cannot later take away the legal interest that had been given earlier, on the theory that the property remains “nonmarital,” because to do so would violate § 8-202(a)(3), which expressly forbids the divorce court to “transfer the ownership of personal or real property from one party to the other.” See, Nisos v. Nisos, 60 Md.App. 368, 380-81 , 483 A.2d 97 (1984).

In this case, both parties, as well as the master, the chancellor, and the en banc court, appear to have gone astray by confusing the concepts of marital and nonmarital property with rights and estates in property. Appellant sought a return of his $40,000 contribution on the theory that it remained his property because it was nonmarital; appellee resisted on the theory that “it”—either the $40,000 or the property purchased with that sum—had been given to her. The master, chancellor, and en banc court dealt with the issue as one of a gift of property. The use of the word “gift” in Grant v. Zich and later in Dorsey may have contributed to the confusion, because “gift” connotes a transfer of some type of estate or ownership or possessory interest in real or personal property.

But in Grant v. Zich the Court used the word “gift” in connection with marital property only because it was rejecting the concept, adopted in several other states, that titling nonmarital property in the names of both spouses as tenants by the entirety constituted a gift to the marital unit of the nonmarital status of the property as well as the legal title. Judge Davidson, writing for the Court, was careful to refer to that concept as a “transmutation” of nonmarital property to marital property. Then, following the “source of funds” rule adopted in Harper v. Harper, 294 Md. 54, 80 , 448 A.2d 916 (1982), the Court rejected that concept of transmutation. Dorsey reconfirmed the holding in Grant v. Zich that the presumption of gift arising from the titling of property in both spouses so that in the event of divorce the donee spouse legally owns a one-half interest as his or her ⁶³³ sole and separate property “has no application when characterizing property as nonmarital or marital under § 8-201(e) for the purpose of granting a monetary award under § 8-205(a).” 302 Md. at 317 , 487 A.2d 1181 .

In Dorsey the trial court had erroneously held that there was a presumption of a “gift” of the nonmarital status of the property, i.e., a gift not only of the legal estate but of the equities created by the Act, effecting a conversion of nonmarital to marital property. The Court of Appeals reversed and remanded to determine whether in the absence of a presumption such a gift was intended. It would appear that the Court continued to use the word “gift” because that was the word earlier used in Grant v. Zich and was also the word erroneously used and applied by the trial court. What the Court did in Dorsey that took it one step further than Grant v. Zich was to draw a distinction between the presumption of gift arising from titling property in both names and actual proof of all of the elements of a gift: donative intent, delivery or relinquishment of dominion, and acceptance (which is presumed in the absence of evidence to the contrary). 302 Md. at 318 , 487 A.2d 1181 .

With respect to the legal estate alone, the presumption continues to suffice; to establish a gift of the status of the property under the Act in addition to the legal estate, thereby effecting a transmutation of the property from nonmarital to marital or vice versa as part of the gift, proof of all of the elements of such a gift is required. That includes, of course, proof of an intention to give or relinquish the contingent equitable claim that arises from the marital/nonmarital status of the property, which is an intention that cannot be presumed from the titling of the property in both names. A question as to whether property is either marital or nonmarital (or partly marital and partly nonmarital, as in this case) arises only in connection with a divorce, and is of consequence only if the divorce court deems it appropriate to “grant a monetary award as an adjustment of the equities and rights of the parties concerning marital property ____” § 8-205(a). The status of property as either mari ⁶³⁴ tal or nonmarital, therefore, is not “property” in the traditional sense of a legal estate or interest in real or personal property that is capable of being owned, leased, conveyed, given, or otherwise transferred.

It merely confers authority on a divorce court, when it severs the bonds of matrimony, to grant a monetary award to adjust the equities and rights of the parties if a division of property according to legal title would be inequitable. In Herget v. Herget, 77 Md.App.