EQUITY OVERCOMES THE LAW IN A LAND TITLE CASE
First, foremost, the case decided on October 12, 2022 is non-precedential, leaving the bench and bar to debate whether it matters.* But, the decision in Nally v. Nally, 163 EDA 2022 is going to make the real estate community quiver with uncertainty because it suggests in a divorce setting, how title is held by a couple may not really matter.
We digress to review the law that brings us here. Historically, the language recited in a deed related to who owned a property was essentially incontrovertible. Absent proof of fraud, if the deed said you owned a parcel of real estate, it was your property. Until the 1980 Divorce Code, there was no such thing as marital property. If one spouse held title, how that title was acquired or how it was managed was immaterial. The titleholder was the exclusive owner vested with the unfettered right to sell, mortgage, ease or do anything he/she wanted with it.
1980 brought equitable distribution to Pennsylvania. If the property was acquired during marriage it was presumed to be subject to distribution in divorce no matter how it was titled unless an exception to the presumption was established. 23 Pa.C.S. 3501. That remains the law today.
In Nally, the parties were married in 1997. In 1999 Husband’s father bought a home in Bucks County and titled it with his son (husband) as joint tenants with rights of survivorship. The panel opinion notes that this was essentially a charitable act on the part of Michael Nally’s father. He wanted to contribute to his son’s new marriage and the property he bought for $176,000 was selected by his son and daughter in law. Husband and wife instantly moved in and stayed there until the date of separation in 2018. In 2003 Pere Nally died and his half interest in the title became the property of his son by operation of law. The son mortgaged the property to pay just over $100,000 in estate taxes due by reason of his inheritance from his father.
When the divorce was filed, Mrs. Nally asserted that the residence was marital property notwithstanding the title arrangement at acquisition including the gift of half the value of the residence when it was placed in joint names and the estate tax due when Pere Nally met his maker in 2003. Her argument was that she and her husband had occupied the property since it was purchased and paid the costs of its maintenance.
Mr. Nally’s argument is what one would expect. The parties paid nothing for the property when it was acquired. The title clearly stated it was Father and Son as joint tenants with rights of survivorship and unlike some other assets he inherited, the son never placed this property in any form of joint title with his wife.
The Superior Court opinion correctly notes the presumption that property acquired during marriage is marital. But the documents recorded at the time of acquisition make quite clear that the presumption has no factual basis. The Court then reaches to a 1988 case Fitzpatrick v. Fitzpatrick, where it was decided that an auto could be maritalproperty if both spouses drove it even if the auto was titled to a corporation. The language from that case says that “bare title” is not dispositive where it is clear that the asset otherwise “belongs to the marriage.” Title may be rendered meaningless in circumstances where the property is “treated” inconsistently with recorded ownership. The parole evidence rule and the Statute of Frauds may be avoided where the husband’s title theory was “thinly developed.” Joint use of an asset may overcome registered ownership. Title may be ignored where a Court decides that a donor intended to make a gift to the marriage even though the donor was himself divorced (Pere Nally) and clearly elected to title the property without any reference to creating rights in his daughter in law.
We looked at Fitzpatrick 547 A.2d 362 (Pa.Super. 1988) and found that controversy revolved around a station wagon purchased by husband’s business one year prior to the divorce. It was used “99% of the time” for family rather than business purposes. The Court concluded the car was marital for that reason. But, in that situation, it would appear that husband acquired the car in the name of the corporation but turned it over to his family for its use.
In Nally, a third party who had every ability to gift title to his son and daughter in law decided to withhold that form of gift and title the property jointly between himself and his son. Yes, he permitted his son and daughter in law to occupy the property notwithstanding his continued half ownership but, for whatever reason, he chose not to convey his half interest during the balance of his lifetime. The Commonwealth would have assessed estate taxes on the half interest held by Pere Nally’s estate at the date of his demise. Yet, the spouse, who lived in the property rent free for 20+ years and who was never given any interest in the property can claim it as her own despite the title, the estate tax and the absence of any conveyance demonstrating that either her husband or her father in law wanted her to share in this generous gift. It cannot be challenged that she is entitled to increase in value on husband’s half interest from the date of the purchase and from the remaining half husband secured when his father died. But the Courts chose to ignore the law entirely and hold that because she occupied the residence, it was hers as a matter of law regardless of title.
The complexities created by this kind of ruling are noteworthy. In Fitzpatrick, if husband’s business had a bank loan secured by all of the corporation’s assets, does the lender lose its secured interest in the corporately owner car if the car is used 99% for non-corporate purposes? Can wife enjoin the lender and the repo company by showing that the car is “marital” based on assertions that its use is personal? In Nally, when husband went to the bank to borrow the $114,000 to pay the estate tax due using the equity in the home now titled soley in his name but occupied by his wife, should the bank have insisted that the property be re-titled and the mortgage become a joint one? If husband defaulted on that loan, is wife an indispensable party to the foreclosure either before or after she files for divorce?
Equity may have a place in these transactions but cases like Fitzpatrick and Nally give us no guidance as to when and how non-marital property becomes marital absent a transaction. For example, Bold v. Bold 516 A.2d 741 (Pa.Super. 1986) makes clear that if a donee places a gift in a joint account, a presumption of “gift to the marriage” arises. But, if Mrs. Fitzpatrick prefers to drive the corporation’s Olds wagon instead of her car, it would appear the corporation could be losing an asset on its books and the corporate lender is losing it security. Similarly, the Pere Nallys of the world need to understand that a gift to a child may also convey more than squatters rights to that child’s spouse. Recall the maxim that “Equity follows the law.” The inverse of that should be “Law does not follow equity.” We register cars, boats and houses using title for a reason.
*Non-precedential decisions filed after May 1, 2019, may be cited for their persuasive value, pursuant to Pa.R.A.P. 126(b)
