Appeal from the Judgment entered in the Court of Common Pleas of Cumberland County, Civil Division, No. 333 Civil 1982
Bonnie D. Menaker, Harrisburg, for appellant (at 354) and appellee (at 361).
Ronald Katzman, Harrisburg, for appellant (at 361) and appellee (at 354).
Cavanaugh, Tamilia and Cercone, JJ.
[ 361 Pa. Super. Page 509]
Gregory and Carlene Sutliff were married in 1960. The parties separated in October of 1981 and Gregory Sutliff filed a complaint in divorce on February 5, 1982. A master was appointed in April of 1982 and ten hearings were held before a report was filed on April 2, 1984. Appellant/husband filed eighty (80) exceptions to the report and appellee/wife filed fifty (50) exceptions. On December 26, 1984, a stipulation entered into by the parties was filed providing for, among other things, a bifurcated divorce. A final divorce decree was entered that same day.
[ 361 Pa. Super. Page 510]
On May 7, 1985, the Opinion and Order of the Court providing for equitable distribution was filed. Appellant/husband filed his notice of appeal and appellee/wife cross appealed from this Order. The issues raised therein are presently before us.
The provisions of 23 P.S. § 401(e)*fn1 and (f)*fn2 are at the core of appellant/husband's initial objections to the equitable distribution Order. Specifically challenged are the application of the tracing concept to property covered by sections 401(e)(1) and 401(e)(3) along with the standard of proof required by the court to overcome the presumption of marital property established in section 401(f).
In order to properly discuss appellant's specific objections to the court's actions, we think it appropriate to initially
[ 361 Pa. Super. Page 511]
review the concept of tracing and the standard of proof required to overcome the presumption of marital property.
23 P.S. § 401(e)(1) establishes the concept of tracing by providing an exclusion to the rule that all property acquired during the marriage is marital property. This section states that property exchanged for property acquired prior to marriage is non-marital except for the increase in value. Thus to categorize an asset as non-marital within this section, a party must be able to show that a specific piece of property was obtained in exchange for another specific piece of property. This systematic following of one asset into another is "tracing".
Although 23 P.S. § 401(e)(3) does not have a specific provision calling for tracing, we have applied the concept to it because even though there was not a provision excepting property acquired in exchange for property acquired by gift, bequest, devise or descent, the exchange of property excluded under property set forth within the section did not change its character as separate property. In Winters v. Winters, 355 Pa. Super. 64, 512 A.2d 1211 (1986), the appellant asserted section 401(e)(3) would destroy the identity of the property and remove it from the statutory exclusion. We rejected this argument and concluded, based upon an overall reading of the statute, that an exchange does not destroy the character of the gift or inheritance.
This is a rational and necessary conclusion in the interpretation of these sections. In providing for the exchange factor in section 401(e)(1) the legislature made clear that prior owned property did not lose its character by an exchange for other property during the marriage. It could easily be argued otherwise that under section 401(e) and (f) it could be construed marital property since this would be the first instance when activity concerning vesting or ownership occurred during the marriage.
The significant difference between the two is that prior owned property came into possession of the acquiring spouse before the marriage, whereas the gifts and devise
[ 361 Pa. Super. Page 512]
came into possession subsequent to the marriage, and unlike other property acquisitions, were specifically excluded. In section 401(e)(1) the legislature needed to make clear prior owned property did not change its character by changing its form during the marriage. In section 401(e)(3), the character of the property was established as separate property during the marriage and there was no need to clarify the fact that a subsequent change of form did not alter its character.
Winters 355 Pa. Superior Ct. at 71, 512 A.2d at 1215.
Having established that tracing is appropriate under the statute, the standard of proof necessary to invoke the exemption from marital property available under sections 401(e)(1) and (3) must be addressed.
It is clear under section 401(f) that a presumption is established in favor of classifying property as marital when it is acquired during the marriage. The section requires that in order to overcome this presumption, a showing must be made that the property was acquired by a method listed in 23 P.S. § 401(e).
The standard of proof necessary to make this showing has not been specifically addressed by this Court. After a review of applicable case law, we think that a clear and convincing standard should be required to overcome the presumption of marital property.
The establishment of a presumption, by its very nature, indicates a preference by the legislature for facts to be construed in a certain manner. Absent a presumption in this statute, it would be a question of whether, by a preponderance of the evidence, a party could demonstrate that property was acquired through one of the methods listed in section 401(e). By incorporating section 401(f) into the divorce code, it follows that a result different from that which would occur in its absence was desired. See Fireman's Fund Insurance v. Nationwide Mutual Insurance, 317 Pa. Super. 497, 464 A.2d 431 (1983); see also 1 Pa.C.S.A. §§ 1921, 1922.
[ 361 Pa. Super. Page 513]
In further support of this holding, we note that the clear and convincing standard has been applied when dealing with other closely related presumptions.
This Court, in Madden v. Madden, 336 Pa. Super. 552, 486 A.2d 401 (1985), discussed the presumption of a gift and creation of an estate by the entireties when property or an account is placed in the names of a husband and wife. In order to overcome this presumption, the court determined clear and convincing evidence to the contrary was required. Madden, supra, citing In Re Holmes Estate, 414 Pa. 403, 200 A.2d 745 (1964). See also Brown v. Brown, 352 Pa. Super. 267, 507 A.2d 1223 (1986). Clear and convincing evidence has also been required before severing rights of parents in natural children. In Re Adoption of Michael J.C., 506 Pa. 517, 486 A.2d 371 (1984).
Additional examples of the application of a clear and convincing standard were set forth by the Common Pleas Court of Mercer County in Fox v. Fox, 22 D. & C.3d 1 (1982). In a well reasoned Opinion in support of finding the need for clear and convincing evidence to overcome the presumption of marital property in 23 P.S. § 401(f), the court noted instances where such proof is required:
7. Clear and convincing proof is required: to establish a claim for wages for personal services to a decedent: Mooney's Estate 328 Pa. 273, 194 Atl. 893 (1937); to establish fraud, Gilberti v. Coraopolis Trust Company, 342 Pa. 161, 19 A.2d 408 (1941); to establish reformation of a contract on grounds of a mistake, Boyertown National Bank v. Hartman, 147 Pa. 558, 23 Atl. 842 (1892); to establish a resulting trust, Hale v. Sterling, 369 Pa. 336, 85 A.2d 849 (1952); to establish adverse possession, Stevenson v. Stein, 412 Pa. 478, 195 A.2d 268 (1963); to overcome the presumption of gift, Butler v. Butler, 464 Pa. 522, 347 A.2d 477 (1975), and Dzierski Estate, supra; to set aside a transaction on the basis of incompetency, Elliott v. Clawson, 416 Pa. 34, 204 A.2d 272 (1964); and to establish that an inter vivos gift to an attorney from a
[ 361 Pa. Super. Page 514]
client was not based on fraud or undue influence, 7 Am.Jur.2d Attorney at Law, § 123.
Fox, supra at 9, footnote 7.
In order to implement the policy of the Divorce Code to "effectuate economic justice . . . and insure a fair and just determination and settlement of (their) property rights", 23 P.S. § 102(a)(6), we think it proper to require clear and convincing evidence to overcome the presumption in section 401(f) that property obtained during the marriage is marital property.
Although exemptions have been statutorily created and tracing of assets approved, we think it appropriate to require a higher standard of proof before depriving one spouse of an interest in property acquired during the marriage.
Clear and convincing proof is a standard frequently imposed in civil cases where the wisdom of experience has demonstrated the need for greater certainty . . . to sustain claims which have serious social ...