Inherited property is generally characterized as separate property in a Washington divorce, but what if the spouse signs a quitclaim deed adding the other spouse to the title? The Washington Supreme Court has clarified that the joint title gift presumption does not apply when a court divides property in a divorce. The court must instead determine whether the spouse intended to convert the property to community property.
According to the opinion, the wife’s mother died the year after the parties married and left half her estate to the wife, some of which would be through future distributions. The wife inherited a 50% interest in a property in Arlington and the parties moved there.
In 2003, the parties started a horse breeding and training business. They decided to purchase property in Ford in 2005 with a loan secured by the Arlington property. The lender required the husband to be added to the Arlington property title. The wife executed a quitclaim deed conveying her interest to her husband and herself “to establish community property.” She did not remember signing the deed and said she had only done so because it was required by the loan. She claimed they only intended to keep the loan until they could sell the Arlington property. She testified she did not intend to convert it to community property.
The parties used the wife’s separate funds to buy more property adjacent to their property in Ford.
In 2015, the parties bought three parcels in Clayton. One parcel was purchased from the joint account and the others from the wife’s separate account. Both names were listed on the warranty deeds for all of parcels.
The parties separated in 2016. At the divorce trial, the court found the property in Ford was the wife’s separate property. The court found there was not sufficient community income to pay toward that purchase. Additionally, the court concluded the wife had not intended to convert her separate property interest in the Arlington property to community property. Furthermore the additional Ford property and two of the parcels in Clayton had been purchased with the wife’s separate property and were therefore also separate property. The third parcel in Clayton, however, had been purchased from the joint account and therefore was community property.
The husband appealed, but the court of appeals affirmed the judgment, finding the funds used to purchase the Ford and Clayton properties were traceable to the wife’s separate property. The appeals court also found that the joint title gift presumption no longer applied. Additionally, the appeals court pointed out that the husband had not shown the property division would have even if the trial court erred in characterizing the Ford property as separate.
The Washington Supreme Court granted review.
The Washington Supreme Court previously held in In re Estate of Borghi that no presumption arises based on the names on a deed when the court is characterizing property. The court pointed out a conflict between the joint title gift presumption and the presumption that separate property stays separate unless there is clear and convincing evidence of an intent to convert it to community property. The name or names on the deed are not determinative of the property’s characterization. Other evidence must show intent.
The husband argued that the holding in Borghi only applies when a spouse is added to the title of property owned as separate by the other spouse before the marriage.
The Washington Supreme Court agreed with the wife, however, that the conflict between the two presumptions exists even when property is acquired during the marriage.
Property acquired during the marriage is generally presumed to be community property, but property acquired through inheritance is separate property. The Washington Supreme Court noted that property that is separate when it is acquired remains separate as long as it can be traced and identified. There is a presumption that property established as separate remains separate unless there is direct and positive evidence there was intent to convert it to community property.
The wife inherited the Arlington property, so it was separate at the time she received it. The trial court also found there was not sufficient community cash flow or income to purchase the Ford property and concluded it had been bought with funds deriving from the wife’s separate assets.
The quitclaim deed for the Arlington property stated a purpose of establishing community property. The trial court found, however, that the wife did not intend to convert the Arlington property to community property. The Supreme Court found the facts supported the trial court’s finding, noting the lender had drafted the deed, the lender required the husband be added to the title, and the wife testified she did not remember signing the deed and that no one explained what it meant to her.
The husband argued the Ford property had been purchased with a loan using community credit. The trial court found, however, that there was insufficient community income, so the funds used for the purchase had derived from the wife’s separate assets.
The Supreme Court found the trial court had correctly characterized the property as separate because it had been purchased with only separate funds. The husband failed to show the wife had actually intended to convert the property to community property.
The Supreme Court also rejected the husband’s argument the trial court should not have considered extrinsic evidence when the language in the deed was clear. The court could hear extrinsic evidence to establish the wife’s intent in executing the deed.
The Washington Supreme Court held that the joint title gift presumption does not apply in divorce cases, whether the property was acquired before or during the marriage. The appeals court’s decision was affirmed.
Inherited property can lose its separate character. Although that did not happen in this case, slightly different circumstances could change that result. If you are facing a divorce with significant assets, a skilled Washington divorce attorney can help protect your rights. Call (206) 622-6562 to schedule a consultation with Blair & Kim, PLLC.