Macdonald v. Macdonald
532 A.2d 1046, 1987 Me. LEXIS 832 (1987)
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Rule of Law:
Income generated from separate, non-marital property during a marriage is marital property. Furthermore, any increase in the value of separate property attributable to marital effort is also marital property under the "source of funds" rule.
Facts:
- Ann A. Macdonald and James R. Macdonald were married in 1957, divorced in 1969, and remarried in 1971.
- During the marriage, Ann was primarily a homemaker and caretaker for the parties' children.
- In 1973, James's father gifted him and his brother the real estate for the family automobile business, Macdonald Motors.
- In 1975, James's father gifted them the ongoing business itself.
- James and his brother operated Macdonald Motors as a partnership, and James actively managed the business.
- The partnership profits were not distributed to the partners but were allowed to accumulate within the business.
- Between 1976 and 1984, these accumulated profits were used to purchase five cottage lots and to establish a new automobile dealership in New Hampshire.
Procedural Posture:
- Ann A. Macdonald filed a complaint for divorce against James R. Macdonald in the Superior Court, Cumberland County (trial court).
- The trial court granted the divorce.
- In its property division, the trial court found the husband's gifted business interest was his separate property, but that assets purchased with the business's profits were marital property.
- The husband, James R. Macdonald, appealed the trial court's judgment to the Supreme Judicial Court of Maine.
- The wife, Ann A. Macdonald, filed a cross-appeal, challenging the trial court's classification of the entire appreciation of the gifted business as separate property.
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Issue:
Does income generated from separate, non-marital property during a marriage, and any increase in the value of that separate property attributable to marital effort, constitute marital property subject to equitable division upon divorce?
Opinions:
Majority - Scolnik, Justice
Yes, income generated from separate property and the appreciation of separate property due to marital effort are both marital property. First, assets purchased with income from the non-marital business are marital property. Partnership profits are personal income to the partners when earned, regardless of whether they are distributed. Following the majority rule and the comments to the Uniform Marriage and Divorce Act, income from separate property that accrues during the marriage is marital property. Therefore, the cottages and the New Hampshire dealership, purchased with such income, are part of the marital estate. Second, the increase in value of the original gifted business is also marital property to the extent it is attributable to marital effort. The court applies the 'source of funds' rule, which provides that the marital estate has an interest in the appreciation of separate property that results from the investment of marital funds or labor. The spouse claiming the appreciation is separate bears the burden of proving it resulted from the property's inherent value or market forces, not from marital effort. James Macdonald failed to meet this burden, so the trial court erred in treating the entire value of the dealership as his separate property.
Analysis:
This decision significantly clarifies the treatment of separate property in Maine divorces by adopting two key principles. First, it establishes that income from separate property is marital, aligning Maine with the majority of jurisdictions and preventing spouses from shielding earnings by retaining them in a separately-owned business. Second, it extends the 'source of funds' rule beyond monetary contributions to include marital labor, reinforcing the concept of marriage as a shared enterprise. This places a substantial burden on the owner of a separate business to prove that its appreciation during the marriage was passive, rather than the result of their active management and effort.
