An interesting brand new unpublished decision from the Colorado Court of Appeals reversed a trial judge who found that the marital residence allegedly gifted to the wife during the marriage by her parents was the wife’s separate property.
Under Colorado law, property acquired during the marriage is presumptively a marital asset, with an exception for gifts to a spouse:
“‘Marital property’ means all property acquired by either spouse subsequent to the marriage except: (a) Property acquired by gift, bequest, devise, or descent”C.R.S. 14-10-113(2)
Normally, this is pretty straightforward – a spouse’s family or friend gifts that spouse an asset, and as long as she keeps it separately titled, it remains her separate property at divorce (there is a marital interest in any appreciation in value, but that is not pertinent to this case). For more information about separate property vs marital property, see our Division of the Marital Estate article in the Colorado Family Law Guide.
Cannot Gift as Separate Property a House You Don’t Own
The facts in Wuestneck were not quite that straightforward, however. The district court judge found that during the marriage, the wife’s parents helped her to purchase the marital home, and then immediately gifted the home to the wife, who kept title in her name alone. The Court of Appeals found two problems with this analysis:
- As the wife was (at a minimum) a co-buyer with her parents, her portion would be marital since she purchased the home during the marriage.
- The wife’s parents never obtained an interest in the home to give to her.
With respect to the wife’s parents’ interest, what apparently happened is that her parents assisted her in purchasing the house by co-signing the mortgage, but they never actually contributed any money towards the purchase, nor were they on the title – apparently gifting the residence to her at closing before ever being added to the title. Wuestneck, ¶ 11.
A person cannot gift something he never owned:
“Therefore, by wife’s own account, although her parents helped her get a loan, they never owned an interest in the home that they could have gifted to her. Nor did they contribute anything to it. Instead, wife alone owned the home at all times, and she paid the mortgage. Accordingly, the home is a marital asset.”Wuestneck, ¶ 12.
Separate Title & Paying Mortgage Not Create Separate Property
The wife’s argument that she alone was on the title was also not relevant to whether or not the house was marital property or separate property:
“However, the form in which title is held is not dispositive in determining whether property is marital. Rather, property acquired by either spouse during a marriage is presumed to be marital property ‘regardless of whether title is held individually.’ § 14-10-113(3).”Wuestneck, ¶ 13 (Cleaned Up).
The wife tried what can only be characterized as a “Hail Mary” argument – she alone paid the mortgage, an argument that also fell on deaf ears with the appellate court as she used her income, which are marital funds:
“Thus, the evidence that wife contributed her marital earnings toward the home during the marriage does not support that the home was her separate property.”Wuestneck, ¶ 15 (Emphasis in original).
The court of appeals reversed the trial court finding that the marital residence was the wife’s separate property, and then remanded the case back to the trial court to reconsider the entire property and debt division for the divorce.
Finally, how property is titled is critical to determining whether the asset is marital property or separate property. If a spouse has a premarital residence, or during the residence was genuinely gifted to that spouse, and keeps the house separately titled, the house remains that spouse’s separate property. Conversely, if the spouse jointly titled the asset during the marriage, that creates a presumption that the spouse gifted the separate property to the marital estate (and it is rare, but still possible, to overcome the presumption of marital property and have the court find a jointly-titled asset is separate property at dissolution).
But in this case, since the wife’s parents never owned the house so could not gift it to her, the house was never her separate property, so the fact that she kept it separately-titled did not matter. The takeaway? The wife and her parents paid the price for taking a shortcut by having the parents on the mortgage, but not the title. Had they also been on the title, and then gifted the house to the wife, that gift would have been the wife’s separate property, with only the increase in equity since the gift was made being divided as part of the marital estate.
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