In Re the Marriage of Murphy
225 P.3d 820, 2010 OK CIV APP 1, 2009 WL 5437357 (2009)
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Rule of Law:
When a spouse conveys separate property to a joint revocable trust where both spouses are co-trustees, income beneficiaries, and exercise joint management and control, the property is treated as jointly acquired and becomes part of the marital estate subject to equitable division upon divorce.
Facts:
- Prior to her marriage to Michael Murphy (Husband), Kyong Murphy (Wife) owned real property consisting of a home on a six-acre tract and an adjoining nine-acre tract (collectively, Richland Road) as her separate property.
- Husband and Wife married in April 1999.
- In July 2000, Husband and Wife created the 'Michael O. Murphy and Kyong S. Murphy Family Trust,' a joint revocable trust.
- On the same day, Wife conveyed her separate Richland Road property into the trust, and Husband also transferred some of his separate property into the same trust.
- Under the terms of the trust, Husband and Wife were named co-trustors, co-trustees, and the lifetime income beneficiaries, with joint power to manage and dispose of the trust property.
- In April 2003, to facilitate a refinance of the home, Husband and Wife, as co-trustees, temporarily conveyed one tract out of the trust to themselves as joint tenants, and then immediately conveyed it back into the trust after securing the loan.
- During the marriage, as co-trustees, they sold some of Husband's separate property that was in the trust and deposited the proceeds into a personal joint checking account.
Procedural Posture:
- Kyong Murphy (Wife) filed a petition for dissolution of marriage against Michael Murphy (Husband) in the Oklahoma trial court.
- Following a trial, the court issued a Memorandum Opinion finding that Wife's separate real property had become part of the marital estate.
- Both parties filed motions to reconsider, which the trial court sustained in part, issuing a second Memorandum Opinion that affirmed the classification of the real property as marital.
- The trial court entered a final Decree of Dissolution of Marriage incorporating its findings.
- Michael Murphy (Husband) appealed the decree, and Kyong Murphy (Wife) filed a counter-appeal to the Oklahoma Court of Civil Appeals.
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Issue:
Does a spouse's separately owned real property become part of the marital estate when that spouse conveys it to a joint revocable trust where both spouses serve as co-trustees and co-beneficiaries with joint authority over the trust's assets?
Opinions:
Majority - Buettner, J.
Yes, a spouse's separate property becomes part of the marital estate when it is conveyed to a joint revocable trust under which both spouses exercise joint control and receive beneficial interests. The court found that spouses may treat separate property in a manner that alters its legal character, making it property of the marital estate. Here, by conveying her separate property into a joint trust where she and Husband were co-trustors, co-trustees, and lifetime income beneficiaries, Wife demonstrated an intent to jointly use and manage the property. The commingling of her separate property with Husband's separate property into a single trust estate, over which they had joint control and from which they derived joint benefits, was the 'functional equivalent of a transfer into joint tenancy.' This joint use, management, and beneficial interest during their lifetimes transmuted the separate nature of the property into marital property, making the trial court's classification not clearly contrary to the weight of the evidence.
Analysis:
This decision clarifies how modern estate planning instruments, specifically joint revocable trusts, can impact the characterization of property in a divorce. The court establishes that the structure of such a trust—granting joint control, management, and beneficial interests—is strong evidence of intent to transmute separate property into marital property. This extends the principle of transmutation through joint use and management to assets held in a JRT, serving as a significant precedent for family law practitioners. It underscores that the actions of the parties and the legal structures they create can override their subsequent claims about their original intent to keep property separate.
