One issue that often comes up in divorce cases has to do with the transformation of separate property into marital property. This situation was dealt with by the Appellate Division, Fourth Department, in Bailey v. Bailey, 48 AD3d 1123 (4th Dept. 2008). In Bailey, the Appellate Division held that although the court properly determined that the plaintiff was entitled to retain the amount of $43,000 she had removed from the parties’ joint HSBC checking accounts containing $66,000, the court erred in allocating the entire amount as separate property. “The creation of a joint account vests in each tenant a present unconditional property interest in an undivided one-half of the money deposited, regardless of who puts the funds on deposit. The creation of a joint account vest in each tenant a present unconditional property interest in an undivided one-half of the money deposited, regardless of who puts the funds on deposit” (Parry v. Parry, 93 A.D.2d 989, 990; see Nasca v. Nasca, 302 A.D.2d 906). Therefore, each party was entitled to a distributive award of $33,000 from that account.
The issue of transmutation, as the process of changing the status of the property from separate to marital is commonly referred to, may appear in many cases and under many different circumstances. It is not uncommon for such separate property as gifts, inheritances, and personal injury awards to lose their status as separate property. Therefore, if a party has even a suspicion that there may be a divorce in foreseeable future, that party would do well to discuss these issues with a divorce lawyer and to keep that property in an account titled solely in that party’s name. The alternative is if that property is placed in a joint account for reasons other than convenience, as defined by the courts, that party will likely be making a gift of one-half of the property if divorce is commenced. Any such issues should be discussed with an experienced family law lawyer. Once transmutation takes place, it is highly unlikely that you would be able to change the property’s status back to separate property, even with a lawyer’s assistance.