RENDERED: APRIL 8, 2022; 10:00 A.M.

NOT TO BE PUBLISHED

Commonwealth of Kentucky

Court of Appeals

NO. 2021-CA-0579-MR

GREGORY ALLEN WILLIS APPELLANT

APPEAL FROM PENDLETON CIRCUIT COURT

v. HONORABLE HEATHER FRYMAN, JUDGE

ACTION NO. 19-CI-00123

LAURA ELLEN RANKIN APPELLEES

OPINION 

AFFIRMING

**   **  **

BEFORE: GOODWINE, MAZE, AND MCNEILL, JUDGES.

MAZE, JUDGE: Gregory Allen Willis (Gregory) appeals from an order entered 

by the Pendleton Family Court on April 14, 2021, denying his motion to reconsider 

and from its findings of fact and conclusions of law of March 11, 2021. The issue 

on appeal is the characterization of certain property assigned to Laura Ellen Rankin 

(Laura) in the parties’ dissolution proceeding. On appeal, Gregory argues that the 
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trial court erred by failing to characterize the Oak Hill Road property as marital 

and by failing to consider his nonmarital contribution to that property. 

Gregory and Laura were married on November 23, 2016. They 

separated on July 18, 2019. Laura filed her verified petition for dissolution on July 

30, 2019. At that time, she was seventy years of age and Greg was sixty-seven 

years of age. In her final verified disclosure statement filed March 13, 2020, Laura 

asserted her nonmarital interest in the real estate located at 1053 Oak Hill Road, 

Falmouth, Kentucky, supporting her claims by producing deeds to the three parcels 

that comprised that property. The matter was set for a three-hour final hearing on 

February 24, 2021.

Prior to that hearing, the parties resolved all of the issues between 

them except for the classification and assignment of nonmarital property. Laura 

testified that the residence and 20.45 acre lot was acquired first in 1993, followed 

by a 14.4072 acre tract in 2002, and a 40.0016 acre tract in 2009. All three tracts 

were purchased and paid for prior to the marriage. 

The 40.0016 acre tract was then sold to a relative of Laura’s for 

$60,000 after the marriage. Although Gregory admitted that he had agreed to the 

sale, he testified that he did not know what he was doing at the time as he was in ill 

health. The bulk of those proceeds was spent to pay the parties’ living expenses. 

However, Laura testified that $28,000 of the proceeds was deposited into the 
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parties’ joint checking account, along with the proceeds from the sale of Gregory’s 

nonmarital real estate.

The remaining property was conveyed to the “Feltner and Willis 

Revocable Family Trust,” listing Laura and Gregory as joint trustees. Laura 

testified that this transfer had been made solely for estate planning purposes. 

However, Gregory testified that it was done as part of a bargain between the 

couple.

He also testified that he contributed nonmarital funds to the 

improvement of the Oak Hill Road property in the form of fencing and gravel, an 

enclosed back porch, and side awnings. However, he was unable to produce 

receipts documenting these expenditures or showing any increase in value as the 

result of them. Laura’s expert real estate appraiser testified that any such increase 

was nominal at best, since generally there is no correlation between the amount 

contributed and any added value to the home.

The trial court, relying on Sexton v. Sexton, 125 S.W.3d 258 (Ky. 

2004), concluded that the transfer of the Oak Hill Road property to the trust did 

nothing to alter its “character” as a nonmarital asset. Further, as Greg failed to 

produce any evidence showing an increase in the home’s value due to his 

expenditure of nonmarital funds, he had not demonstrated a nonmarital interest. 

Greg appealed the trial court’s findings of fact and conclusions of law entered 
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March 11, 2021, as well as the trial court’s order denying motion to reconsider 

entered on April 14, 2021.

As the Court stated in Jones v. Livesay, 551 S.W.3d 47, 51 (Ky. App. 

2018): 

The inherent nature of domestic relations 

proceedings tends to breed hostility. Dissension is not 

uncommon, emotions are heightened, and the proffering 

of conflicting evidence is a virtual certainty. Trial courts 

are faced with the difficult task of weeding through 

emotionally-charged testimony and often slanted 

evidence to reach a fair and equitable result. Because of 

this, trial courts are afforded broad discretion in dividing 

marital property and marital debt. We will not disturb a 

trial court’s rulings on these issues in the absence of an 

abuse of its discretion or clearly erroneous factual 

findings.

An abuse of discretion occurs where a court indulges in an arbitrary or 

capricious action. Findings of fact are clearly erroneous where they are not 

supported by “substantial evidence.” Mullins v. Picklesimer, 317 S.W.3d 569, 581 

(Ky. 2010). As noted in Barber v. Bradley, 505 S.W.3d 749, 754 (Ky. 2016), the 

Court’s review on appeal is de novo.

 KRS1 403.190(1) provides a blue print for the trial court with regard 

to the disposition of property in a dissolution proceeding. First, the trial court must 

characterize the parties’ property as marital or nonmarital and then “assign each 

1 Kentucky Revised Statutes. 
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spouse’s property to him.” Then, the trial court must divide the remaining 

property, presumed to be “marital property” as defined in KRS 403.190(3). This 

presumption applies regardless of “whether title is held individually or by the 

spouses in some form of co-ownership such as joint tenancy, tenancy in common, 

tenancy by the entirety, and community property.” Id. However, that presumption 

may be rebutted by a showing that the property in question was acquired pursuant 

to one of the exceptions provided in KRS 403.190(2)(a)-(e).

As the Court finds the case of Sexton, 125 S.W.3d 258, relied upon by 

the trial court to be dispositive, it will be discussed at some length. Jennifer 

(Appellant) and Larry (Appellee) Sexton were married May 26, 1984. At that 

time, Larry owned an apartment building valued at $165,000 with equity therein of 

$75,100. The amount of the mortgage was reduced during the parties’ marriage by 

the use of rent payments and the application of gifts from Larry’s parents. 

Thereafter, in March of 1992, the parties conveyed the apartment 

building in exchange for a 1/6 interest in a real estate partnership. That interest 

was placed in the parties’ joint names. Upon dissolution, the trial court found that 

at the time of the transfer, Larry’s interest was 94% nonmarital, leaving a 6% 

marital interest for distribution. The court also found that the partnership interest 

was placed in the parties’ joint names for the sole reason that they were married. 

The Kentucky Court of Appeals affirmed the findings of the trial court. The
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Kentucky Supreme Court also affirmed the trial court’s disposition of the 

partnership interest.

The Court recognized that: 

Neither title nor the form in which property is held 

determines the parties’ interests in the property; rather, 

“Kentucky courts have typically applied the ‘source of 

funds’ rule to characterize property or to determine 

parties’ nonmarital and marital interests in such 

property.” “The ‘source of funds rule’ simply means that 

the character of the property, i.e., whether it is marital, 

nonmarital, or both, is determined by the source of the 

funds used to acquire the property. 

Id. at 265 (footnotes and citations omitted).

While Jennifer argued that Larry failed to meet his burden of proving 

a nonmarital interest in partnership, the Court found that he had properly “traced” 

his interest in the nonmarital real estate into the partnership. The Court stated that: 

“Tracing” is defined as “[t]he process of tracking 

property’s ownership or characteristics from the time of 

its origin to the present.” In the context of tracing 

nonmarital property, “[w]hen the original property 

claimed to be nonmarital is no longer owned, the 

nonmarital claimant must trace the previously owned 

property into a presently owned specific asset.” The 

concept of tracing is judicially created and arises from 

KRS 403.190(3)’s presumption that all property acquired 

after the marriage is marital property unless shown to 

come within one of KRS 403.190(2)’s exceptions. A 

party claiming that property, or an interest therein, 

acquired during the marriage is nonmarital bears the 

burden of proof. 

Id. at 266 (footnotes and citations omitted).
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The Court then held that the trial court’s findings with regard to the 

tracing of Larry’s nonmarital interest into the 1/6 interest in the real estate 

partnership were supported by sufficient facts, including the testimony of Larry, 

his parents, and his accountant.

In this case, certified copies of recorded Deeds to the Oak Hill Road 

property were introduced during Laura’s testimony. These records clearly reflect 

the nonmarital nature of the property.

The Sexton Court specifically rejected Jennifer’s assertion that 

Kentucky should adopt the “doctrine of transmutation.” Transmutation is alleged 

to occur when: 

separate property is treated in such a way as to give 

evidence of an intention that it become marital property. 

One method of causing transmutation is to purchase 

property with separate funds but to take title in joint 

tenancy. This may also be done by placing separate 

property in the names of both spouses. The rationale 

underlying [this doctrine] is that dealing with property in 

[this] way[] creates a rebuttable presumption of a gift to 

the marital estate. This presumption is based also upon 

the provision in many marital property statutes that 

property acquired during the marriage is presumed 

marital. The presumption can be rebutted by evidence of 

circumstances or communications clearly indicating an 

intent that the property remain separate. 

Id. at 270 (quoting 2 H. Clark, THE LAW OF DOMESTIC RELATIONS IN THE UNITED 

STATES § 16.2, at 185 (1987)).
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The Court specifically rejected the doctrine of transmutation deeming 

it “inconsistent” with KRS 403.190 as well as the tracing principles and source of 

funds rule set forth above. The Court found that “transmutation through joint title 

would cause spouses not to trust each other. Rather than placing property in their 

joint names for estate planning purposes, they would be careful that their 

nonmarital property remains solely in their individual names and does not 

transmute into marital property.” Id. at 271 (emphasis added). Thus, this Court 

must reject Gregory’s argument that, by placing the funds in question in both 

names, Laura’s nonmarital properly was “transmuted” into marital property.

In cases where nonmarital property has been held to be converted into 

marital property, it has been held to be either the product of a gift to the marital 

estate or part of an agreement between the parties. In Barber, 505 S.W.3d 749, the 

Court found that although the property in question was clearly nonmarital in origin, 

applying the factors set forth in O’Neill v. O’Neill, 600 S.W.2d 493 (Ky. App. 

1980), Barber did, in fact gift his nonmarital interest to Bradley.

The O’Neill factors are: (1) the source of the funds, (2) the intent of 

the donor, (3) the “status of the marriage relationship at the time of the transfer,” 

and (4) “whether there was any valid agreement that the transferred property was 

to be excluded from the marital property.” Id. at 495. The Barber Court found 

that the funds in question were gifts from his parents and, therefore, clearly 
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nonmarital. The Court then found that the evidence demonstrated that Barber had 

contributed his nonmarital funds to the construction of the residence, intending that 

it become “a marital asset that the couple owned jointly.” Id. at 758. Indeed, the 

testimony reflected repeated assurances by Barber that Bradley would be the owner 

of a one-half interest in the home. The deed ultimately executed named the couple 

as joint tenants with right of survivorship. Although the testimony as to this factor 

was challenged, the Court recognized that issues as to the weight and credibility 

were for the trial court to resolve. The Court further found that there was no 

evidence that the “status” of the marriage was in any way questionable at the time 

of the transfer. The Court then addressed the final factor of the O’Neill test, the 

existence of an agreement as to the characterization of the property. Although this 

issue was hotly contested, the trial court found Bradley’s testimony that Barber 

intended to make the property “half his and half hers,” was more persuasive.

In this case, the trial court found that it was Laura’s intention, in 

establishing the revocable trust, to provide for Gregory and his family in the event 

of her death. Indeed, this is precisely the scenario envisioned by the Court in 

Sexton, 125 S.W.3d at 271, and formed the basis for its rejection of the doctrine of 

transmutation. Laura also testified that the property was never transferred directly 

to Gregory, but directly into the revocable trust. Gregory, however, stated in his 

Answers to Interrogatories #6 that his claim that the property was marital was 
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based upon his belief that the property had been “deeded to a trust in both of our 

names in consideration of me putting my money and proceeds from the sale of my 

home into the joint bank account.” At trial, he testified that he told Laura that she 

needed to be “all in” and that she could become so by adding his name to the title 

of her property. Laura testified that there was no such bargain between them. 

Based on this testimony, the trial court having judged the weight and credibility of 

the evidence concluded that there was no agreement as to the nature of the 

property. 

However, Gregory has also argued that the proceeds from the sale of 

his nonmarital property were used for the improvement of 1053 Oak Hill Road. 

Laura agreed that awnings had been installed on the home for an expenditure of 

$4,750. However, she also testified that the back porch was partially completed 

prior to the improvements commenced by Gregory. She stated that no weather 

proofing was used to protect the structure. She concluded that the remaining 

improvements were performed by people who were not professional remodelers

and she found that the work on the side room and deck was incomplete.

Gregory testified that he had fencing installed and gravel spread on 

the driveway. He estimated the cost for the gravel at $3,000. He also indicated 

that the cost of enclosing the back porch was approximately $15,000. He 

confirmed Laura’s testimony as to the cost of the awnings. However, he presented 
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no documentation of the other expenditures since he was just “an old hippy” who 

didn’t keep records. Further, he presented no testimony as to the value added to 

the property as the result of these improvements.

Laura, however, produced Angela Jacobs, a certified real estate 

appraiser, as an expert witness. She testified that due to the poor quality of the 

work performed, the improvements commenced by Gregory were merely nominal. 

The trial court rejected Gregory’s claim of a nonmarital contribution and 

concluded that the Oak Hill Road property was entirely Laura’s nonmarital

property. Based upon Gregory’s inability to properly trace the proceeds of the sale 

of his nonmarital property to improvements resulting in an increase in value to the 

Oak Hill Road property, the Court finds no error in the trial court’s conclusion. 

In Jones v. Livesay, 551 S.W.3d 47 (Ky. App. 2018), the trial court 

awarded husband a $45,000 nonmarital interest in a farm purchased after the 

parties’ marriage, based upon “the amount of the increase in value of the real estate 

due to the work[.]” Id. at 53. Wife challenged husband’s tracing of nonmarital 

assets as “unclear and incomplete.” Id. On appeal, the Court found that husband’s 

testimony as to his inheritance upon the death of his mother as the “source of the 

funds,” and his production of bank records revealed that the inheritance had been 

deposited into the marital account in order to reimburse the costs of remodeling the 

farmhouse. Id. He testified that he knew that the inheritance would be 
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forthcoming and that the remodeling would not have been possible without it. As a 

result, the Court found that the evidence presented was “sufficient to require a

finding the increase in the value of the farm was due to Sam’s expenditure of 

nonmarital funds and should be assigned to him.” Id. at 53. Since Gregory neither 

demonstrated the amount of his nonmarital investment nor the amount by which it 

increased the property, there was no error in the trial court’s classification and 

distribution of property herein.

Accordingly, we affirm the findings of fact and conclusions of law of 

the Pendleton Circuit Court as well as its order denying reconsideration.

ALL CONCUR.

BRIEF FOR APPELLANT:

John Hayden

Dawn M. Gentry

Newport, Kentucky

BRIEF FOR APPELLEE:

Claude J. Victor

Florence, Kentucky