Gifts from one spouse to the other usually are marital property and not separate property.

June 17, 2021

Mahanthi v. Nakkina, UT Ct. App. No. 20190750-CA (Filed June 17, 2021). The trial court awarding Mother the jewelry Father gave her during the marriage. The court of appeals reversed as error.

Regarding the couple’s personal property, Mother testified about pieces of jewelry she claimed Father gave her as gifts during the marriage. She described a diamond necklace, a pair of earrings, and another necklace and set of earrings, which, according to Mother, have a combined estimated value of between $15,000 and $18,000.  The trial court awarding Mother the jewelry Father gave her during the marriage. The court of appeals reversed as error, and explained:

In distributing property in a divorce proceeding, “[t]he presumption is that marital property will be divided equally while separate property will not be divided at all.” Lindsey v. Lindsey, 2017 UT App 38, ¶ 32, 392 P.3d 968. Thus, a trial court “must identify the property in dispute and determine whether each item is marital or separate property.” Stonehocker v. Stonehocker, 2008 UT App 11, ¶ 15, 176 P.3d 476. Father contends that the trial court applied the wrong legal standard to conclude that his gifts to Mother are not marital property subject to division. We agree. ¶27 Citing Burke v. Burke, 733 P.2d 133 (Utah 1987), the trial court concluded that “gifts given during the marriage are not marital property and need not be divided in the event of divorce.” But Burke involved an inheritance received by one spouse during the marriage, not a gift from one spouse to the other purchased with marital funds. See id. at 134–35. As a general rule, courts “award property acquired by one spouse by gift and inheritance during the marriage (or property acquired in exchange thereof) to that spouse, together with any appreciation or enhancement of its value,” unless the property has been commingled or the other spouse has acquired an equitable interest in the property by contributing to its enhanced value. Mortensen v. Mortensen, 760 P.2d 304, 308 (Utah 1988). Gifts and inheritance to an individual spouse are treated as separate property because they are “not acquired through the joint efforts of the parties.” See Preston v. Preston, 646 P.2d 705, 706 (Utah 1982) (cleaned up); see also Mortensen, 760 P.2d at 307 (explaining that “property which comes to either party by avenues other than as a consequence of their mutual efforts owes nothing to the marriage and is not intended to be shared” (cleaned up)).

But this rule applies only to gifts received during the marriage from an outside source. It does not apply when one spouse uses marital funds to purchase property, regardless of whether those purchases are designated as a “gift” from one spouse to another. See Morris v. Morris, 2005 UT App 435U, para. 3 (holding that the district court acted within its discretion in valuing “gifts” from one spouse to another as marital property when one spouse “purchased the gifts during their marriage, using marital funds to do so”). In such circumstances, both the gifting and receiving spouse have a pre-existing right of ownership in the marital assets used to acquire the property. A purchase financed with marital funds already belonging to both spouses is not a “gift” in the sense used in our case law. ¶29 In light of this precedent, it was error for the trial court to conclude, as a matter of law, that the jewelry Father gave Mother during the marriage was necessarily Mother’s separate property and not subject to division in the divorce. The property was acquired during the marriage, with marital funds, and as such was presumptively marital. See Lindsey, 2017 UT App 38, ¶ 31 (“Marital property ordinarily includes all property acquired during marriage, whenever obtained and from whatever source derived.” (cleaned up)). We therefore vacate the court’s award of the jewelry and remand to give the trial court the opportunity to reconsider its award and, if necessary, to amend its order awarding the jewelry in its entirety to Mother.

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