The Uncertain State of Michigan Equitable Distribution Law Post-Reeves
*with sincere recognition to Mark A. Bank for his contributions
In comparison to the comprehensive and detailed equitable distribution statutes enacted in other states, some have suggested that Michigan’s equitable distribution statutes are vague, confusing, and uninformative. For years the Michigan Court of Appeals and the Michigan Supreme Court have tried to summarize our statutes and bring some semblance of order. Cases such as Johnson v Johnson, 346 Mich 418, 431; 78 NW2d 216 (1956), Charlton v Charlton, 397 Mich 84, 243 NW2d 261 (1976), and Sparks v Sparks, 440 Mich 141; 485 NW2d 893 (1992), provided Michigan lawyers and judges with some guidance in navigating the Michigan equitable distribution statutes. Then, in November 1997, the Court of Appeals’ decision in Reeves attempted to re-write Michigan equitable distribution law.
EXISTING MICHIGAN LAW
The existing state of Michigan’s equitable distribution law can be analyzed in three distinct parts:
1. Does Michigan law recognize a dual-classification system of property division that excludes certain property from Michigan’s equitable distribution laws as a matter of law, or does Michigan law recognize a unitary-classification system of property division that makes all of the parties’ property subject to Michigan’s equitable distribution laws as a matter of law?
2. Assuming arguendo, Michigan law recognizes a dual-classification system of property division that excludes certain property from Michigan’s equitable distribution laws as a matter of law. What property is excluded as a matter of law?
3. Assuming arguendo, property inherited by a party or gifted to a party during the marriage is deemed to be separate property as a matter of law. Do specific exceptions exist that allow a court to equitably distribute that inherited property?
Does Michigan law recognize a dual-classification system of property division that excludes certain property from Michigan’s equitable distribution laws as a matter of law, or does Michigan law recognize a unitary-classification system of property division that makes all of the parties’ property subject to Michigan’s equitable distribution laws as a matter of law?
Answer: Despite Reeves, Michigan law recognizes a unitary-classification system of property division that makes all of the parties’ property subject to Michigan’s equitable distribution laws as a matter of law.
Modern American divorce law recognizes two different types of equitable distribution property division systems.1 Under the ‘‘dual-classification’’ model, a court must divide all of the parties’ assets into two categories—marital property and separate property. Marital property is then divided equitably between the parties, while separate property is awarded to the owning spouse. See, e.g., Ohio Rev Code Ann § 3105.171 and Code of Virginia Ann § 20-107.3. In contrast, under the ‘‘unitary-classification’’ or ‘‘all-property’’ model, a court has broad equitable authority to divide any asset owned by either party, regardless of how and when the asset was acquired. See, e.g., Mass Gen Laws Ann ch 208, § 34 (Supp 1998).
Reeves is based upon the incorrect premise that Michigan is a dual-classification jurisdiction, in which the court lacks jurisdiction to divide assets which are defined as ‘‘separate property.’’ Reeves ignores a contrary line of cases that take precedence. Under these cases, the court has authority to divide any asset owned by either party at the time of divorce, regardless of how and when it was acquired. In other words, under these cases Michigan does not recognize the concept of ‘‘separate property’’ as that term is used in other jurisdictions. Michigan is not a dual-classification jurisdiction; it is a unitary-classification jurisdiction.
The leading case defining Michigan’s equitable distribution system is the Michigan Supreme Court decision in Sparks. The SparksCourt held:
‘‘lt is not desirable, or feasible, for us to establish a rigid framework of applying the relevant factors. The trial court is given broad discretion in fashioning its rulings and there can be no strict mathematical formulations.’’ 485 NW2d at 901.
The strict marital property/separate property system established by the Court of Appeals’ decision in Reeves is precisely the sort of ‘‘rigid framework’’ and ‘‘mathematical formulation’’ the Michigan Supreme Court in Sparks directly disapproved. Divorce cases are actions in equity, and a court has wide discretion to reach any result that is equitable upon the facts. A rule that the court cannot divide ‘‘separate property’’ is an unwise and unwarranted interference with a court’s equitable jurisdiction.
In addition, the Sparks Court directly addressed the role that is properly given to the time and manner in which assets are acquired. The Supreme Court noted that while ‘‘the division of property is not governed by any set rules,’’ id., there are certain factors the court should consider when dividing property:
‘‘We hold that the following factors are to be considered wherever they are relevant to the circumstances of the particular case: (1) duration of the marriage, (2) contributions of the parties to the marital estate, (3) age of the parties, (4) health of the parties, (5) life status of the parties, (6) necessities and circumstances of the parties, (7) earning abilities of the parties, (8) past relations and conduct of the parties, and (9) general principles of equity.’’ Id.
Under this passage, the ‘‘contribution of the parties’’ to their property is certainly one factor for the court to consider; it is not a preliminary analysis to the other eight factors. Quoting Johnson, the Supreme Court said in Sparks:
‘‘The portion of property awarded to each party depends upon all the equitable factors involved, including the following: source of property, contribution towards its acquisition, the years of married life, the needs of the parties, their earning ability and also the cause for divorce.’’
The importance of this quote is that the Supreme Court did not separate ‘‘source of the property’’ from all of the other factors, nor did it make ‘‘source of the property’’ a preliminary step in the analysis. Based on that, Michigan courts must consider facts relating to whether some assets are premarital, whether some assets were acquired by way of inheritance during the marriage, and whether some assets were acquired by way of gift during the marriage. The contributions of the parties to the acquisition of an asset are only one of nine nonexclusive factors listed in the Sparks opinion.
The Reeves position is that the contributions of the parties to the acquisition of an asset are so important that Michigan courts cannot as a matter of law divide property acquired outside the marriage, except in extraordinary circumstances. To accept this position is to permit the tail of the second Sparks factor to wag the dog of the remaining eight. If the contributions of the parties are only one among nine equal factors, as the Sparks Court clearly held, then it was error for Reeves to hold that the contributions of the parties to the acquisition of an asset must be given controlling weight.
Equitable division of property is a discretionary process, and Michigan courts must balance all nine of the factors set forth in Sparks. It is entirely possible in any given case that the weight of the parties’ contributions will be overcome by the weight of the other eight factors. When this is true, a court is not only permitted, but actually required, to divide assets Reeves would define as ‘‘separate property.’’ To determine whether the other eight factors require division of ‘‘separate property’’ in a particular case, a court must hear evidence on all nine of the Sparks factors and make a fact-sensitive determination as to what division of all of the parties’ property is most equitable. This determination inevitably involves many contested issues of fact, and it is not appropriate for summary disposition.
Many Court of Appeals cases have divided property under the flexible, discretionary system established by Sparks. For instance, the Court of Appeals has consistently refused to hold that Michigan trial courts cannot divide pension rights acquired before the marriage or after the divorce. See McMichael v McMichael, 217 Mich App 723; 352 NW2d 688 (1996); Booth v Booth, 194 Mich App 284; 486 NW2d 116 (1992); and Rogner v Rogner, 179 Mich App 326, 445 NW2d 232 (1989).
If Michigan followed the rigid separate property system suggested by Reeves, pension benefits acquired outside the marriage would not be divisible. This is, in fact, the uniform rule in states where ‘‘separate property’’ is recognized. See, e.g., Livingston v Livingston, 633 So 2d 1162 (Fla Dist Ct App 1994); In re Kurtt, 561 NW2d 385 (Iowa Ct App 1997); Gambrel v Gambrel, 943 SW2d 314 (Mo Ct App 1997); and Mosley v Mosley, 19 Va App 192; 450 SE2d 161 (1994). By refusing to adopt such a rigid rule of law, the Court of Appeals, except in Reeves, has refused to recognize ‘‘separate property’’ as that term is defined in other states.
Along similar lines, in Charlton, the Michigan Supreme Court held that a trial court could divide inherited property. The Court recognized the provisions of MCL 552.401; MSA 25.136, but held that that statute was only one among many factors the court was required to consider. In other words, the Michigan Supreme Court held that the statute only codified what would ultimately become the second Sparks factor for dividing marital property. This construction is in accordance with the plain language of the statute, which says only that a court can divide property which is a product of the nonowning spouse’s contributions. The statute does not say what Reeves effectively advocates—that a trial court cannot divide property that is not a product of the nonowning spouse’s contributions. Thus, Michigan trial courts remain free to consider factors other than contributions to the acquisition of an asset.
One such factor is set forth in MCL 552.23; MSA 25.103, which allows a trial court to divide property as needed for the ‘‘suitable support and maintenance of either party.’’ Relying upon this statute, the Court of Appeals held in Demman v Demman, 195 Mich App 109, 489 NW2d 161, 163 (1992) that ‘‘the decision to include inheritance[s] in the valuation of marital assets is discretionary and is dependent upon the particular circumstances of a given case.’’ This holding directly rejects Reeves’ rigid insistence that a trial court can never divide separate property.2 Another relevant factor is set forth in MCL 552.19, which allows the court to divide any property ‘‘that shall have come to either party by reason of the marriage.’’ Each of these statutes is only permissive. It allows division if its requirements are met, but it does not prevent division if its requirements are not met.
The factors the court must consider in dividing property upon divorce, however, go beyond the very limited bounds of the Michigan statutes. Michigan lawyers and judges should compare the list of factors set forth in Sparks with the terms of the various statutes quoted above. Most of the factors have no statutory basis.
For instance, no statute expressly states that the court shall consider the ages of the parties, the health of the parties, or the reasons for the marital breakdown. Yet each of these points is unquestionably a factor a trial court must consider. Therefore, the Michigan Supreme Court inevitably rejected the entire premise that the division of property is controlled by statute. By permitting the trial court to consider numerous factors not expressly stated in any statute, the Sparks Court necessarily held that the trial courts have independent, common law power to divide property upon divorce.3
The foregoing fact distinguishes the erroneous reasoning behind Reeves. Reeves assumes that a trial court has power to divide property only to the extent permitted by statute. By allowing the trial courts to consider factors not set forth in any statute, Sparks rejected this premise. Michigan does not have a purely statutory property division system; it has a common law property division system. That system is supplemented to some extent by statutes stating the conditions under which certain assets may be divided. None of these statutes, however, state the conditions under which property cannot be divided. They do not, therefore, constitute a comprehensive statutory property division system.
It is useful to compare the Michigan statutes with the statutes in other states that do recognize the concept of ‘‘separate property.’’ See, e.g., Code of Virginia Ann § 20-107.3. In contrast to the Michigan statutes, this statute states not only that the court may divide marital property, but also that the court cannot divide separate property. See also Mo Rev Stat Ann § 452.330(1) (‘‘the court shall set apart to each spouse his nonmarital property’’); Va Code Ann § 20-107.3(C) (‘‘the court shall have no authority to order the division or transfer of separate property’’). Michigan trial courts have the power to divide any asset owned by either party, regardless of when and how acquired, subject only to the requirement that it first consider the factors set forth in the Sparks decision.
This rule of property division is not in any sense unique to Michigan. While some states have enacted statutes providing that a court cannot divide separate property, other states allow their courts to divide any asset owned by either party. This ‘‘unitary-classification’’ or ‘‘all-property’’ system is well-recognized by commentators. In addition to Michigan, there are 16 unitary-classification states: Alabama, Connecticut, Hawaii, Indiana, Iowa, Kansas, Massachusetts, Montana, Nebraska, New Hampshire, North Dakota, Oregon, South Dakota, Vermont, Washington, and Wyoming.
In light of the fact that Michigan is a ‘‘unitary-classification’’ or ‘‘all-property’’ equitable distribution system, summary disposition excluding a premarital, gifted, or inherited asset from a trial court’s equitable distribution powers is always impermissible as a matter of law. As the courts held in Charlton and Demman, contributions to specific assets are only one relevant factor, and the weight of such contributions can be overcome by other evidence. Moreover, evidence regarding these other factors will almost inevitably be in conflict.
Given the broad scope of the inquiry required by Sparks, summary disposition is inappropriate for property division cases in Michigan. Such a rule is consistent with longstanding Michigan public policy. The Michigan Supreme Court called attention to the impropriety of trying divorce cases piecemeal and subjecting the parties to an unnecessary multiplicity of suits and appeals. Ritzer v Ritzer, 243 Mich 406, 220 NW 812, 814 (1928).
Assuming arguendo, Michigan law recognizes a dual-classification system of property division that excludes certain property from Michigan’s equitable distribution laws as a matter of law. What property is excluded as a matter of law?
Answer: Premarital property only.
Nowhere do the Michigan statutes define ‘‘separate property.’’ In fact, the term ‘‘separate property’’ cannot be found in the Michigan Compiled Laws or the Michigan Statutes Annotated. MCL 552.19 specifically provided as follows:
‘‘Upon the annulment of a marriage, a divorce from the bonds of matrimony or a judgment of separate maintenance, the court may make a further judgment for restoring to either party the whole, or such parts as it shall deem just and reasonable, of the real and personal estate that shall have come to either party by reason of the marriage, or for awarding to either party the value thereof, to be paid by either party in money.’’ (Emphasis added.)
A determination of the meaning of the phrase ‘‘by reason of the marriage’’ is key to a determination of what is separate property. A reading of Reeves and Byington v Byington, 224 Mich App 107 (1997), compels the conclusion that ‘‘marital property’’ is any and all property that comes to the parties from the beginning of the marriage to its end, from whatever source. Stated differently, from the time the parties say ‘‘I do’’ until a court enters a judgment of divorce, the parties are married and property that comes to them in this period is marital property. See, e.g., Barron v Barron, Genesee County Circuit Court case no. 97-184807-DM. Thus, the phrase ‘‘by reason of the marriage’’ really means ‘‘during the marriage.’’ This conclusion is drawn from the connection, or lack thereof, between the Court of Appeals’ decisions in Reeves and Hanaway v Hanaway, 208 Mich App 278 (1995).
Reeves dealt with premarital property being separate, with invasion of that separate property possible only for statutory exceptions, and with the difference between passive and active appreciation of that premarital property during the marriage. Reeves does not state nor contemplate that any property acquired during the marriage is separate. Reeves does not address inherited property nor gifted property, and more specifically, Reeves does not address property inherited nor gifted during the marriage. Reeves only dealt with premarital property being separate.
In contrast, Hanaway dealt with stock given to the parties during the marriage. Id. at 281 (marriage in 1967, yearly gifts beginning in 1968). In the entire Hanaway opinion, there is not a single utterance of MCL 522.23, or 552.401, the statutory exceptions made such a big deal of in Reeves.
Hanaway is not an ‘‘invasion of separate property’’ case; it is a Sparks case, i.e., a distribution of marital property based on Sparks factors. This conclusion is based on 1) the factual distinctions between Reeves and Hanaway, 2) Hanaway’s express reference to Sparks and not the statutes, and 3) the nature of Judge Neff’s participation in both cases (she was the majority in Hanaway and does not cite it in her dissent in Reeves, except as to attorneys fees).
From these cases and Byington, it is proper to treat all property that comes to the parties during the marriage as marital and to divide it according to and Sparks and Byington from 0/100 to 100/0. This approach honors the sanctity of the marriage. This approach also relieves the courts and counsel of having to look at the nature of the property, e.g., inheritances, gifts, personal injury settlements, and determine whether it is separate based on considerations external to the marriage, i.e., a donor’s intent.
Once in the marital pot, a Michigan trial court using the Sparks factors should divide the property equitably in any fashion (Byington at 115-116.) Such an approach pays due deference to the sanctity of the marriage. Conversely, categorizing property received by a spouse during the marriage as separate by, for example, a third party’s intent, contradicts the importance of marriage. Interpreting the statutory phrase about property coming ‘‘to either party ‘by reason of the marriage,’’’ as coming to either party ‘‘during the marriage,’’ is consistent with common sense.
Based on the foregoing analysis, summary disposition excluding an asset acquired during the marriage from a trial court’s equitable distribution powers is always impermissible as a matter law.
Assuming arguendo, property inherited by a party or gifted to a party during the marriage is deemed to be separate property as a matter of law. Do specific exceptions exist that allow a court to equitably distribute that inherited property?
I recognize that a number of recent Michigan Court of Appeals decisions, including Reeves, in conflict with prior Supreme Court and Court of Appeals decisions, seem to accept the concept of ‘‘separate property.’’ Since these cases are inconsistent with Sparks, these authors suggest that they are not controlling. Assuming, for the sake of argument, that the trial court follows Reeves, however, premarital, gifted, and/or inherited property is subject to the ‘‘invasion’’ powers set forth in the Michigan statutes. The statutory exceptions that allow the court to invade ‘‘separate property’’ and equitably distribute same are as follows:
Upon entry of a judgment of divorce or separate maintenance, if the estate and effects awarded to either party are insufficient for the suitable support and maintenance of either party and any children of the marriage as are committed to the care and custody of either party, the court may further award to either party the part of the real and personal estate of either party and alimony out of the estate real and personal, to be paid to either party in gross or otherwise as the court considers just and reasonable, after considering the ability of either party to pay and the character and situation of the parties, and all the other circumstances of the case.
The circuit court of this state may include in any decree of divorce or of separate maintenance entered in the circuit court appropriate provisions awarding to a party all or a portion of the property, either real or personal, owned by his or her spouse, as appears to the court to be equitable under all the circumstances of the case, if it appears from the evidence in the case that the party contributed to the acquisition, improvement, or accumulation of the property. The decree, upon becoming final, shall have the same force and effect as a quitclaim deed of the real estate, if any, or a bill of sale of the personal property, if any, given by the party’s spouse to the party.
For the reasons set forth above, Michigan is a unitary, equitable distribution jurisdiction and does not recognize the concept of ‘‘separate property.’’ The phrase ‘‘separate property’’ appears nowhere in the Michigan statutes or in the Sparks decision. To recognize ‘‘separate property’’ would be to give controlling weight to only one of the nine Sparks factors—the contributions made by the parties to the marriage. Certainly Reeves does not overrule Sparks or Johnson.
There is no doubt that Michigan equitable distribution statutes and cases are confusing and contradictory, but at the end of the day that may be good. While some believe that our system should have absolute order, that is really preposterous in legal matters; difficult decisions should be left to turn on facts and argument. In our computer literate society where many lawyers and judges would prefer to have a mindless model for determining a division of property, particularly in nonroutine matters, thankfully we still have to think.
1. In addition to equitable distribution jurisdictions, there are also community property jurisdictions. Thus, there are three possible frameworks from which American courts divide property upon divorce: (1) community property, (2) unitary-classification equitable distribution, and (3) dual-classification equitable distribution.
2. The Reeves case is subordinate to the Michigan Court of Appeals decision in Demman. Supreme Court Administrative Order 1994-4 ‘‘Resolution of Conflicts in Court of Appeals Decisions’’ provides:
A panel of the Court of Appeals must follow the rule of law established by a prior published decision of the Court of Appeals issued on or after November 1, 1990. The prior published decision remains controlling authority unless reversed or modified by the Supreme Court or a special panel of the Court of Appeals as provided in this order.
Supreme Court Administrative Order 1994-4 mandates that the 1992 Demman opinion controls over the 1997 Reeves opinion.
3. Sparks necessarily overruled the statement in Charlton, that division of property is limited to the strict language of the controlling statutes. If that were true, then the Sparks factors would be invalid, for most of those factors enjoy no specific statutory support. Because Sparks itself departed from the strict language of the statutes, the strict language of those statutes cannot be deemed controlling.