Opinion ID: 2513883
Heading Depth: 4
Heading Rank: 1

Heading: The Kennicott stock

Text: The parties agree that the Kennicott stock was originally James's separate property and that the commission James received for selling the Kennicott holdings is marital property. But they dispute whether James's stock became marital property during the marriage and whether the funds he received for his shares could properly be divided as part of the marital estate. [1] We have previously recognized that a spouse's premarital property can become marital through transmutation or active appreciation. [2] Transmutation occurs when married parties intend to make a spouse's separate property marital and their conduct during marriage demonstrates that intent. [3] Active appreciation occurs when marital funds or marital efforts cause a spouse's separate property to increase in value during the marriage. [4] In contrast to transmutation, which converts an asset completely from separate to marital, active appreciation recognizes that a separate asset can become partly marital by growing in value during the course of a marriage. Under the latter theory, the asset's value at the inception of the marriage retains its separate character, but any subsequent increase in value is treated as marital property to the extent that it results from active marital conduct: Appreciation in separate property is marital if it was caused by marital funds or marital efforts; otherwise it remains separate. [5] As can be seen, then, the essential elements of active appreciation differ significantly from those of transmutation. While transmutation requires an intent to change the property's separate character and conduct corresponding with that intent, active appreciation requires increased value, marital contribution, and a causal link connecting the two: In order to find active appreciation in separate property, the court must make three subsidiary findings. First, it must find that the separate property in question appreciated during the marriage. Second, it must find that the parties made marital contributions to the property. Finally, the court must find a causal connection between the marital contributions and at least part of the appreciation. [6] In the present case, the trial court's findings blurred the distinction between transmutation and active appreciation. Although at trial it was undisputed that James acquired his stock in the Kennicott holdings as separate propertypartly by purchasing it before he married Dolores and partly by later inheritance from his motherthe court found that his stock became marital property in its entirety during the marriage; the court therefore distributed the net proceeds from the stock sale as part of the marital estate. Yet the court's findings fail to mention the necessary elements of transmutation; the court did not expressly find either that the parties intended to treat James's stock as marital property or that they engaged in any conduct demonstrating their intent. Nor could the record sustain a finding of transmutation. Dolores did express her belief that the Kennicott holdings would be part of the couple's retirement. But she acknowledged that James never told her that the property was partly hers. Her subjective belief does not establish an intent to operate jointly. [7] In Green v. Green , we gave examples of conduct that demonstrates an intent to transmute separate property: the property's use as a marital residence; its ongoing maintenance and management by the parties; the listing of its title in joint ownership; or the use of the non-owner spouse's credit to improve the property. [8] Here, the parties did not use James's stock for any marital purpose; James continued to hold it in his own name throughout the marriage; and Dolores did not contribute money, credit, or any appreciable time to the Kennicott holdings. Although James devoted considerable time to his Kennicott holdings, his efforts, standing alone, would not demonstrate an intent to transmute the property. As we have emphasized on other occasions, a finding of transmutation based on management and maintenance of separate property requires significant involvement by both spouses. [9] Instead of finding that the parties' conduct demonstrated their intent to transmute James's stock into marital property, the court based its ruling on grounds that seem more akin to the theory of active appreciation. Pointing to James's testimony acknowledging that he had put his life into the Kennicott project, the court concluded, I think under just about any analysis an asset that had been actively pursued with so much marital effort throughout the period of marriage would have to be considered as part of the marital estate. But under the active appreciation theory, this conclusion is problematic. The court's express finding that James contributed active marital effort to the Kennicott project squarely addresses the theory's requirement of a marital contribution to separate property; but it loses sight of the two other necessary elements of the active appreciation theory: appreciation and causation. In context, these elements would have required the court to determine how much James's stock increased in value during the marriage and what part of that increase resulted from active marital efforts. [10] Yet the court failed to address either of these two additional elements. To prevail under the active appreciation theory, Dolores bore the burden of proof on the first two elements  marital contribution and appreciation. [11] Cases divide as to who bears the burden on the third element, causation. The majority view would assign it to James, requiring him to prove the absence of a causal link between his efforts to market the Kennicott holdings and any appreciation in his stock that occurred during the marriage. [12] Since the majority rule is almost overwhelming among those cases which consider the issue expressly, [13] since it places the burden of proof on the person with the best access to the relevant evidence, [14] and since it allocates the risk of failure of proof in a way that accurately reflects the probabilities of the situation, [15] we choose to follow the majority rule. Here, the record supports the trial court's express finding that James contributed significant marital effort to the Kennicott property. Thus, Dolores met her burden of proof as to the first element of active appreciation. But Dolores did not attempt to establish the extent of any marital increase in the value of James's Kennicott stock. The record fails to disclose the fair market value of James's premarital shares at the time that he married Dolores or the value of his mother's shares at the time he inherited them; and the trial court's findings do not address the issue. Nevertheless, the record would permit a reasonable inference that James's stock experienced a considerable increase in value during the course of the thirty-year marriage. Thus, Dolores arguably met her burden as to the second element of active appreciation by making a prima facie showing that at least some appreciation occurred. As to the third element of active appreciation, causation, the record is almost completely silent. James did not attempt to establish the lack of a causal link between his marketing efforts and the price ultimately paid for the Kennicott holdings; and the trial court failed to address the point in its findings and conclusions. [16] In summary, then, although the record does not support the trial court's conclusion that James's interest in the Kennicott holdings transmuted entirely into marital property, the evidence could conceivably support a narrower finding that a part of the sale proceeds was marital because it reflected an increase in value resulting from James's contribution of active marital effort, as opposed to any increase in value that was passivein other words, appreciation that was not the result of James's marital efforts. But neither the trial court nor the parties addressed all of the elements necessary to support a finding of active appreciation. Accordingly, we must vacate the court's conclusion that the sale proceeds were marital property in their entirety and remand for additional proceedings on the issue of active appreciation. [17]