Tracing Nonmarital Property
A recent Superior Court decision, Childress v. Bogosian, 2011 WL 61616 (2011), illustrates the challenge of tracing nonmarital property in divorce. Under Pennsylvania law, the property owned by a spouse prior to marriage, or acquired by gift or inheritance during the marriage, or acquired after separation, is generally nonmarital property if it has not been converted into marital property by re-titling it in joint names. Still, the law creates a presumption that property acquired during the marriage is marital property, so if a spouse wants to overcome that presumption, he or she bears the burden of producing sufficient credible evidence.
Married people frequently re-invest their nonmarital property in other assets during the marriage. Funds might be withdrawn from a bank account and deposited in a different account. A certificate of deposit or bond might mature, and the proceeds might be reinvested in other assets. Premarital money or inheritance might be used to purchase real estate or other tangible assets. Generally, the property that is acquired in exchange for nonmarital property is still nonmarital if it has not been retitled in joint names.
“Tracing” is the process of proving that property acquired during the marriage was derived from a nomarital source, such as premarital property, gifts or inheritance. Tracing requires a chain of evidence from the original nonmarital property to the new property that was acquired in exchange for the original property. Sometimes there are gaps in that chain of evidence.
In Childress, the spouses lived in a residence that was previously owned by husband’s mother. When she died, husband inherited the home. Husband’s real estate appraiser provided an opinion of what the home was worth when he inherited it, which was more than listed in the deceased mother’s estate; and wife’s appraiser testified to what it was worth at the time of separation and subsequent trial. The court did not accept husband’s appraisal for the trial date, because his appraiser “artificially” limited her search for comparables to a maximum price range. The Superior Court affirmed.
Husband also owned a vacation home, which was purchased during the marriage using the proceeds of husband’s premarital home. In measuring the increase in value from marriage to separation, the trial court started with the value of the proceeds that husband received when he sold his premarital home during the marriage. Note that the premarital home might have increased from the date of marriage to date of sale, but this was not the subject of this appeal.
Husband objected that the trial court did not consider his investment in home improvements, which enhanced the value of the vacation home. In its opinion, the Superior Court held that husband did not adequately prove that he used nonmarital funds to make those improvements. [Note that if he had done so, the court also might have questioned whether to give a dollar-for-dollar credit for those investments, since $1 of repairs or improvements might not result in $1 increase in the home’s value.] While husband did produce cancelled checks and other evidence of what he spent, he did not prove that those expenses were paid with his nonmarital funds.
The Superior Court did not consider husband’s further argument that he should have been given credit for paying down the principal balance of the mortgage loan after separation. Husband argued that the trial court should have taken judicial notice of an amortization table that he attached to a brief for the equitable distribution master and trial court. Since the issue was not specifically raised in the appeal or addressed by the trial court’s opinion, the Superior Court declined the opportunity to weigh in. Normally, the marital component of nonmarital property is measured from the date of marriage or date of acquisition (whichever is later) to the date of separation or date of trial (whichever results in the smaller value).