Kessler v. Kessler

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THE SUPREME COURT OF THE STATE OF ALASKA
KENNETH ALLEN KESSLER, )
) Supreme Court No. S-16458
Appellant, )
) Superior Court No. 3AN-15-05989 CI
v. )
) OPINION
DIANNA MICHELLE KESSLER, )
) No. 7223 – February 16, 2018
Appellee. )
)
Appeal from the Superior Court of the State of Alaska, Third
Judicial District, Anchorage, Patrick J. McKay, Judge.
Appearances: 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.
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
1
See Burts v. Burts, 266 P.3d 337, 342 (Alaska 2011) (“Alaska uses a
statutory scheme of equitable division codified in AS 25.24.160(a)(4).” (citing Clauson
v. Clauson, 831 P.2d 1257, 1262 (Alaska 1992))).
2
Beals v. Beals, 303 P.3d 453, 458-59 (Alaska 2013).
3
See Horning v. Horning, 389 P.3d 61, 64 (Alaska 2017) (citing Schmitz v.
Schmitz, 88 P.3d 1116, 1124 (Alaska 2004)); Hansen v. Hansen, 119 P.3d 1005, 1009
(Alaska 2005) (citing Lewis v. Lewis, 785 P.2d 550, 558 (Alaska 1990)).
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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
4
Nicholson v. Wolfe, 974 P.2d 417, 423 (Alaska 1999) (citing Johns v.
Johns, 945 P.2d 1222, 1225 (Alaska 1997)).
5
Id.
6
AS 25.24.160(a)(4).
7
Sparks v. Sparks, 233 P.3d 1091, 1094 (Alaska 2010) (citing Sampson v.
Sampson, 14 P.3d 272, 276 (Alaska 2000)), overruled on other grounds by Engstrom v.
Engstrom, 350 P.3d 766, 771 (Alaska 2015).
8
Id. at 1096.
9
Id. at 1094, 1096.
10
Harrower v. Harrower, 71 P.3d 854, 857 (Alaska 2003) (citing Sampson,
14 P.3d at 277; Martin v. Martin, 52 P.3d 724, 727 (Alaska 2002); Green v. Green,
29 P.3d 854, 857 (Alaska 2001)); see also Beals v. Beals, 303 P.3d 453, 460 (Alaska
2013) (quoting Odom v. Odom, 141 P.3d 324, 332 (Alaska 2006)); Odom, 141 P.3d at
332 (quoting Harrower, 71 P.3d at 857).
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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
11
Schmitz v. Schmitz, 88 P.3d 1116, 1125 (Alaska 2004) (citing Harrower,
71 P.3d at 857; Martin, 52 P.3d at 727 & n.8; Green, 29 P.3d at 857; Lundquist v.
Lundquist, 923 P.2d 42, 47 (Alaska 1996)); see also Abood v. Abood, 119 P.3d 980, 984
(Alaska 2005) (quoting Schmitz, 88 P.3d at 1125).
12
See Sparks, 233 P.3d at 1094, 1096; Thomas v. Thomas, 171 P.3d 98, 107
(Alaska 2007) (“Separate property can become marital property where that is the intent
of the owner and there is an act or acts which demonstrate that intent.” (emphasis added)
(quoting Chotiner v. Chotiner, 829 P.2d 829, 832 (Alaska 1992))); 1 BRETT R. TURNER,
EQUITABLE DISTRIBUTION OF PROPERTY § 5:69, at 665 (3d ed. 2005) (“Almost all of the
cases define the key issue as whether the owner of the separate property involved had
actual intent to give that property to the marital estate.”).
13
See 1 TURNER, supra note 12, § 1:1, at 2 (contrasting equitable distribution
with the doctrine of community property, and explaining that while “community property
controls property ownership during the marriage and property distribution upon death
as well as property distribution upon divorce,” equitable distribution “applies only in
(continued...)
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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 over­
emphasized 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
13
(...continued)
divorce cases”).
14
See Sampson, 14 P.3d at 276-77 (noting that husband’s “belief and
representation” that his inheritance would be “available to [the couple] during the
marriage [did] not suffice to warrant a finding that the assets were converted to marital
property”).
15
Sparks, 233 P.3d at 1094.
16
Schmitz, 88 P.3d at 1125.
17
882 P.2d 909, 916 (Alaska 1994) (citations omitted) (quoting McDaniel v.
McDaniel, 829 P.2d 303, 306 (Alaska 1992)).
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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.
18
Abood v. Abood, 119 P.3d 980, 988 (Alaska 2005).
19
Thomas v. Thomas, 171 P.3d 98, 107 (Alaska 2007) (second and third
alterations in original) (quoting Martin v. Martin, 52 P.3d 724, 728 (Alaska 2002)).
20
See Cox, 882 P.2d at 916.
21
Sparks v. Sparks, 233 P.3d 1091, 1094 (Alaska 2010) (“[P]lacing separate
[property] into joint title raise[s] a presumption that the party intended to donate separate
property to the marital unit.”), overruled on other grounds by Engstrom v. Engstrom,
350 P.3d 766, 771 (Alaska 2015).
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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 belief. Neither
Kenneth nor Dianna testified that Kenneth ever made any statements indicating his intent
to donate the condominium to the marital estate.
After the trial, the superior court found that the condominium had been
transmuted into marital property. The superior court relied primarily on the fact that the
couple used the property as the marital home and on Dianna’s contributions to the
22
The parties’ finances were not entirely separate. They consolidated their
credit card debts, although the superior court found that only a “small portion” of the
consolidated debt was “attributable” to Kenneth. The parties also maintained joint bank
accounts in addition to their individual accounts.
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management and maintenance of the property. The superior court also relied on a
finding that Kenneth would have been unable to pay the mortgage from his separate
account without Dianna’s financial contributions to other parts of the marriage.
IV. DISCUSSION
Whether a spouse intended to donate his or her separate property to the
marital estate is a factual finding that we review for clear error.23 A factual finding is
clearly erroneous when, after reviewing the entire record, we are “left with a definite and
firm conviction that the trial court has made a mistake.”24 We conclude that the superior
court clearly erred in this case.
Dianna had the burden to prove that Kenneth intended to donate the
condominium to the marital estate.25 The best evidence of Kenneth’s intent would have
been “an express statement by [Kenneth] that he intended to give [Dianna] an interest in
the property.”26 But no such statement was presented in this case. Instead, Dianna
testified that she “believe[d]” that she was investing in the property by making other
23
Beals v. Beals, 303 P.3d 453, 459 (Alaska 2013).
24
Abood v. Abood, 119 P.3d 980, 984 (Alaska 2005).
25
1 TURNER, supra note 12, § 5:69, at 665 (“The burden of proving an
implied gift lies upon the party who claims one.”); cf. Abood, 119 P.3d at 984
(“Commingling separate property with marital property does not automatically lead to
a finding of transmutation. But placing property in joint title raises a presumption of
transmutation.” (footnote omitted)).
26
Sparks, 233 P.3d at 1096 (quoting 1 TURNER, supra note 12, § 5:69, at
665).
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contributions to the marriage. Dianna’s unexplained and unilateral belief is not evidence
of Kenneth’s donative intent.27
The other evidence supporting a finding of donative intent was minimal.
First, there was evidence showing that Dianna participated in some maintenance and
upkeep on the property. But as we have previously held, in order for the non-owning
spouse’s “ongoing management and maintenance” of the property to be relevant to the
owning spouse’s donative intent, “the non-owning spouse’s ‘participation must be
significant and evidence an intent to operate jointly.’ ”28 Dianna’s participation was not
“significant”; indeed, even the superior court called the upgrades performed on the
residence “minor.”
Second, the superior court appeared to rely in part on Dianna’s financial
contributions to other aspects of the marriage, noting that “the parties realized the
monetary contributions of each other in order to support themselves” and that Kenneth
“would not have been able to [pay the mortgage or condominium fees] without the
financial contributions” from Dianna. But neither Dianna nor the superior court ever
explained how Dianna’s contributions to other parts of the marriage demonstrated that
Kenneth intended to donate the condominium to the marital estate, and we see no
obvious reason why this would be the case. This fact is therefore of little relevance to
determining whether Kenneth possessed donative intent.
27
See 1 TURNER, supra note 12, § 5:69, at 668 (“When the nonowning spouse
gives self-interested testimony indicating his or her own personal belief or understanding
that property was given to the marital estate, the testimony is unlikely to receive much
weight.”).
28
Abood, 119 P.3d at 988 (quoting Keturi v. Keturi, 84 P.3d 408, 417 (Alaska
2004)).
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Finally, the couple’s use of the condominium as their shared residence is
of little probative value in this case. Although this is a factor that we have previously
identified as potentially relevant to the donative intent inquiry,29 it must be considered
in the context of the entire case. As we have previously held, “the mere use of a separate
asset for marital purposes cannot transform the separate asset into a marital asset.”30
Given the lack of further evidence of donative intent, we conclude that the couple’s use
of the property as the marital residence shows only that the condominium served an
important marital purpose.
In sum, the record reveals almost zero evidence that Kenneth intended to
donate the condominium to the marital estate. We therefore conclude that the superior
court clearly erred when it found otherwise. We reverse the court’s transmutation
finding and remand this case for further proceedings.31 We clarify, however, that this
holding does not preclude Dianna from being awarded a share of the condominium.
First, some portion of the home might be marital property under the doctrine of active
appreciation if the home increased in value as a result of marital contributions to the
29
Cox v. Cox, 882 P.2d 909, 916 (Alaska 1994).
30
Odom v. Odom, 141 P.3d 324, 333 (Alaska 2006).
31
Dianna suggests that we could affirm the superior court’s ruling on the
ground that “Kenneth . . . purchase[d] the property after the parties were cohabiting in
a domestic partnership.” Dianna does not explain why the law of domestic partnership
should apply despite the parties’ later marriage. See generally Boulds v. Nielsen,
323 P.3d 58, 63-65 (Alaska 2014) (explaining the principles that apply to the division
of property of an unmarried couple). And in any case the argument is undermined by the
superior court’s factual finding that Kenneth purchased the condominium “before [the
parties] began dating or cohabitating.”
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property.32 Second, in most equitable distribution states the use of marital funds to pay
down the mortgage on separate property creates a marital interest in that property.33
While Kenneth paid the mortgage and condominium dues out of his personal bank
account, the record does not reflect whether the funds in that account were marital or
separate. Finally, the superior court can invade Kenneth’s separate property, including
the condominium, if the equities so require.34 The parties are free to litigate these issues
on remand.
We also note that the superior court determined that the loans Kenneth
received from his father were marital loans because “they were necessary to keep the
residence.” This reasoning no longer stands if the condominium is Kenneth’s separate
property. Because we are reversing the superior court’s determination that the
condominium was transmuted to marital property, the superior court should also
reconsider its characterization of the loans from Kenneth’s father.
V. CONCLUSION
We REVERSE the judgment of the superior court and REMAND for
further proceedings consistent with this opinion.
32
See Odom, 141 P.3d at 333–34 (“For this doctrine to apply, there must be
(1) appreciation of separate property during marriage; (2) marital contributions to the
property; and (3) a causal connection between the marital contributions and at least some
part of the appreciation.”). “Marital contributions” can consist of both “marital funds
and marital efforts,” including the expenditure of “time and energy.” Schmitzv. Schmitz,
88 P.3d 1116, 1125 (Alaska 2004).
33
See 1 TURNER, supra note 12, § 5:26, at 399–400; see also id., § 5:24, at
385–86 (illustrating effect of paying down mortgage with marital funds). The parties
have not briefed this issue; we do not decide at this time whether to adopt this approach.
34
See AS 25.24.160(a)(4).
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