Opinion ID: 900879
Heading Depth: 1
Heading Rank: 3

Heading: The Straw Transactions

Text: [¶ 7.] This case requires us to examine statutory language to decide whether Cheryl's straw transactions converting property held in joint tenancy to a tenancy in common violated the automatic restraining order in SDCL 25-4-33.1. Where possible, we give words and phrases in a statute their plain meaning and effect. See Faircloth v. Raven Industries, Inc., 2000 SD 158, ¶ 6, 620 N.W.2d 198, 201 (citations omitted). When the language of a statute is clear, certain, and unambiguous, there is no need for interpretation: our sole function is to declare the meaning of the statute as clearly expressed. Zoss v. Schaefers, 1999 SD 105, ¶ 6, 598 N.W.2d 550, 552 (citation omitted). [¶ 8.] According to SDCL 43-4-1, Transfer is an act of the parties, or of the law, by which the title to property is conveyed from one living person to another. To decide to what extent property rights have been transferred from one person to another here, we examine the intent of the parties to the conveyance. See Mamalis v. Bornovas, 112 N.H. 423, 297 A.2d 660, 662 (1972) (citations omitted). The circuit court looked solely to the first transfer of the property from Cheryl to her father and disregarded the reconveyance of the property from her father back to Cheryl. When we view the two transfers together, we see that Cheryl intended to dissolve the joint tenancy and to hold title to the property as a tenant in common. She did not intend to convey the property to a third person permanently. Viewed holistically, the straw transactions did not transfer title of the property from one living person to another. [¶ 9.] A joint tenancy exists when the four unities of time, title, interest, and possession are present. See Zulk v. Zulk, 502 N.W.2d 116, 118 (S.D.1993) (citations omitted). Destruction of one of the four unities terminates a joint tenancy and converts it into a tenancy in common. See Schimke v. Karlstad, 87 S.D. 349, 208 N.W.2d 710, 711 (1973). Under South Dakota law, a joint tenant with right of survivorship has the right to unilaterally terminate the joint tenancy at any time without the knowledge or consent of the other joint tenants. Id. A joint tenancy can be dissolved in several ways. Matter of Estate of Steed, 521 N.W.2d 675, 682 (S.D.1994) (citations omitted); see also W.W. Allen, Annotation, What Acts by One or More of Joint Tenants Will Sever or Terminate the Tenancy, 64 ALR2d 918 (1959). Although its use is becoming outmoded, one common law method for terminating a joint tenancy is to arrange a straw transaction, in which the grantor conveys the property to a third party who immediately conveys it back to the grantor. [1] See Wendy Evans Lehmann, J.D., Annotation, Severance or Termination of Joint Tenancy by Conveyance or Divided Interest Directly to Self, 7 A.L.R.4th 1268 (1981). [¶ 10.] If a joint tenant has the unilateral right to sever a joint tenancy, then what effect did the statutory restraining order have in this instance? SDCL 25-4-33.1 provides, in part: Upon the filing of a summons and complaint for divorce or separate maintenance by the plaintiff, and upon personal service of the summons and complaint on the defendant, a temporary restraining order shall be in effect against both parties until the final decree is entered, the complaint dismissed, or until further order of the court: (1) Restraining both parties from transferring, encumbering, concealing or in any way dissipating or disposing of any marital assets, without [either (a)] the written consent of the other party or [(b)] an order of the court, except as may be necessary in the usual course of business or for the necessities of life . . . This measure obviously prohibits spouses from transferring assets while a divorce is pending, but courts interpreting similar language in temporary restraining orders have found that the purpose is not to freeze the parties' estate plans, but to forbid either party from dissipating marital property and removing marital assets from the jurisdiction of the court. [2] [¶ 11.] Although this is an issue of first impression in South Dakota, courts in other jurisdictions have answered the question whether a severance of a joint tenancy violates a temporary restraining order. These courts have uniformly held that one spouse may terminate a joint tenancy with the other spouse during the pendency of a dissolution action without violating the restraining order. See Estate of Mitchell, 76 Cal.App.4th 1378, 91 Cal.Rptr.2d 192, 202 (1999) [3] (unilateral transfer of property by decedent to convert joint tenancy into a tenancy in common did not violate automatic court order because it was not a transfer or disposition of property; right of survivorship is not propertyit is a mere expectancy); Lonergan, 145 Ariz. 195, 700 P.2d 893 (straw transaction to sever joint tenancy did not violate automatic order); In re Estate of Knickerbocker, 912 P.2d 969, 976 (Utah 1996) (joint tenancy can be unilaterally terminated by one spouse and the termination of the joint tenancy does not violate court order against selling, encumbering, or mortgaging assets during pendency of dissolution proceeding). Indeed, we can find no case that prohibits this type of transaction while a divorce restraining order is in effect, and counsel has cited none. [¶ 12.] Applying the same reasoning as these courts, we conclude that Cheryl Hoffman did not transfer marital assets in violation of the statutory restraining order by merely changing the form of her title. Looking at the straw transactions as a whole, we think it clear that her intent was not to permanently convey the property to a third party, but rather only to sever the joint tenancy. After the straw transactions, she continued to hold title to the property as a tenant in common with her husband. Because she did not transfer property as defined in SDCL 43-4-1, she did not violate the restraining order. SDCL 25-4-33.1. All the marital property conveyed in the straw transactions was still available for appropriate disposition, either in probate or, were it possible, in the divorce proceeding. [4] The court erred in concluding otherwise. [¶ 13.] Although Cheryl did not transfer assets, did her straw transactions violate the restraining order by encumbering or dissipating marital assets? SDCL 25-4-33.1. Bruce argues that by conveying the property by deeds and a bill of sale to a strawman, the property became subject to automatic encumbrances: (1) any existing judgments would attach to Jack Ehrich's interest in the real estate however brief his ownership may have been; [5] (2) because there was a home on one of the parcels and Ehrich's spouse did not sign the deeds, the real property became subject to a homestead exemption under SDCL 43-31-1; and (3) if the property was mortgaged, a due on sale provision might be triggered. [¶ 14.] Bruce insists that to prevent these possible encumbrances, all the straw transactions must be invalidated from their inception. We think a more prudent solution is to remand the question to the circuit court for a determination whether, in fact, any encumbrance did attach to the property by virtue of some judgment against Ehrich, by a violation of a mortgage provision, or through a claim by Ehrich's wife to a homestead interest. [6] If any property was encumbered by Cheryl's transactions, thus violating the restraining order, then the court is empowered to void that particular transaction. Otherwise, if no encumbrance exists, the transactions are valid. [¶ 15.] We think it vital to emphasize that our holding today should not be seen as an invitation to divorcing spouses to find creative ways to evade the statutory automatic restraining order. By far, the best procedure is for a party to seek consent from the other spouse or court permission before attempting any conveyance. Nonetheless, the language of our statute does not explicitly prohibit the transactions in question here.