L. Elizabeth F. Hanbidge, Esquire, an attorney in our Blue Bell office and a new contributor to our blog, writes:
An issue which comes up frequently between divorcing couples is the disposition of jewelry, and whether it is marital property subject to equitable distribution. While the rule of thumb remains that items belonging to one spouse prior to marriage belong to that spouse following divorce, the disposition of jewelry given after the parties marry can be a tricky issue because seminal case law and the Pennsylvania statutes appear to contradict one another.
At the root of the question of how jewelry should be classified for equitable distribution purposes is the issue of how inter-spousal gifts should be distributed. For instance, which spouse owns the expensive watch that was given as a birthday present between the spouses? Recall that the issue of whether a party retains a particular item is a different question than whether the value of such an item should be included for equitable distribution purposes. While a close reading of the Pennsylvania statutes gives one answer, seminal case law gives another.
Historically, gifts between spouses were seen as gifts to the recipient without regard to the spousal relationship. This reasoning is somewhat flawed to the degree that marital assets, otherwise subject to equitable distribution, were used to purchase the gift. The seminal case on this issue is Semasek v. Semasek, 509 Pa. 282 (1985). In Semasek, the Pennsylvania Supreme Court held that the lower court had made an error of law in determining that the wife’s rings were marital property subject to equitable distribution. At the time Semasek was decided, the governing law with regard to equitable distribution stated that gifts to one spouse were not subject to equitable distribution. The Semasek court reasoned that because the legislature had not created a provision excluding inter-spousal gifts from the general gift provision, such gifts were not marital property and were to be considered the sole property of the recipient spouse. This analysis was based on 23 Pa. Stat. Ann. § 401(e)(3) (1980). While this case has not been explicitly overturned, subsequent legislation has nullified this decision.
The current statutory provision regarding the classification of marital property is 23 Pa. C.S. § 3501(a)(3) which states, in relevant part: “As used in this chapter, ‘marital property’ means all property acquired by either party during the marriage. However, marital property does not include: …Property acquired by gift, except between spouses, bequest, devise or descent or property acquired in exchange for such property…" (emphasis added). The default provision under 23 Pa. C.S. § 3501 is that all property acquired during a marriage is marital property. While gifts are generally excluded from marital property under §3501(a)(3), gifts between spouses are explicitly excluded. Therefore, gifts between spouses are marital property and should be subject to equitable distribution. While the value of such gifts should be included as martial property for equitable distribution purposes, commonly the recipient spouse inevitably retains the item. In some instances, for example where a gift was a family heirloom, items will be returned to the gift-giving spouse, however, the value of such property should be included as a marital asset subject to distribution.
Given the language of 23 Pa. C.S. § 3501(a)(3), and the reasoning upon which the Semasek court based it decision, inter-spousal gifts are subject to equitable distribution. However, it is not unusual for attorneys, and even for courts, to find that such gifts are the sole property of the recipient spouse. For instance, in In Re: Gregorchik, 311 B.R. 52 (2004), despite the language of § 3501(a)(3), the bankruptcy court followed the holding rendered five years earlier in Semasek and stated that the Semasek ruling, “…is preserved by the present Divorce Code, which provides that a gift from one spouse to the other is not marital property.” Id. at 56, citing, 23 Pa. C.S.A. § 3501(a)(3).
Parties and their attorneys should be cognizant of the issues surrounding the disposition of inter-spousal gifts. Regardless of which party retains physical possession of the gift, the value of the gift should be included as an asset of the marriage for equitable distribution purposes. Of course, how to value such items frequently becomes an issue and one best reserved for a later blog entry.