Lofton v. Lofton

John E. Jennings, Judge, dissenting. I respectfully dissent. The view I take of the case necessarily requires statutory interpretation, which would suggest that this case should perhaps have been certified to the supreme court. I am persuaded that chancery courts in this state have always had the power to equitably divide the joint bank accounts of spouses in divorce and that Ark. Stat. Ann. § 34-1215 was not intended to restrict this power. The statute was enacted as Act 340 of 1947:

Courts of equity, designated Chancery Courts within the State of Arkansas, shall have the power to dissolve estates by the entirety or survivorship, in real or personal property, upon the rendition of a final decree of divorcement, and in the division and partition of said property, so held by said parties, shall treat the parties as tenants in common.

The statute was amended by Act 457 of 1975 to provide that dissolution was automatic if the divorce decree was silent.

The reason for the statute was that the supreme court had held in a line of cases beginning with Roulston v. Hall, 66 Ark. 305 , 50 S.W. 690 (1899), that chancery courts had no power to dissolve an estate by the entireties in a divorce. Warren v. Warren, 273 Ark. 528 , 623 S.W.2d 813 (1981); Jenkins v. Jenkins, 219 Ark. 219 , 242 S.W.2d 124 (1951); James v. James, 215 Ark. 509 , 221 S.W.2d 766 (1949); Ward v. Ward, 186 Ark. 196 , 53 S.W.2d 8 (1932); Heinrich v. Heinrich, 177 Ark. 250 , 6 S.W.2d 21 (1928); Davies v. Johnson, 124 Ark. 390 , 187 S.W. 323 (1916). Chief Justice McCulloch stated the reason for the rule in Davies v. Johnson, supra:

In Branch v. Pope, 61 Ark. 388 , the rule was laid down that under a deed to husband and wife “the entire estate is vested in each of the tenants by the entireties, for they hold, not by moities, but by entireties” that, in fact, conforms precisely to the common law definition of an estate by the entirety. If the entire estate is vested at the time of the conveyance in each of the tenants, how could it be divested merely by the granting of a divorce in the absence of a statute authorizing it to be done? Suppose one of the parties executes a deed to a third party during the coverture, purporting to convey the whole estate, the deed would convey all of the vested interest of the grantor, including the rights resulting from survivorship, and it would be an anomalous situation to hold that such a vested interest could be divested by divorce of the parties.

124 Ark. at 393 , 187 S.W. at 324 .

The Davies court also relied on Roulston:

Where land is conveyed to husband and wife, they do not take by moities, but both are seized of the entirety — the whole in contradistinction to a moiety or part only. . . . Neither tenant by entirety can convey his or her interest so as to affect the right of survivorship in the other. [Citations omitted.]

124 Ark. at 394 , 187 S.W. at 324 .

In Heinrich, supra, the court said:

An estate by entirety, either legal or equitable, cannot be divested out of the husband and invested in the wife, or vice versa, by the courts. The right to the whole estate by the survivor prevents this. [Citing Roulston.]

In Jenkins v. Jenkins, 219 Ark. 219 , 242 S.W.2d 124 (1951), the court recognized that a majority of jurisdictions hold that divorce dissolves the entirety estate but that its holding to the contrary had become a rule of property in this state. This principle, i.e., that a common law tenancy by the entirety cannot be affected by a decree of a court of equity, apart from specific statutory authorization, remains the law in this state and is still recognized as a ruleof property. Warren v. Warren, 273 Ark. 528 , 623 S.W.2d 813 (1981).

It was against this background that the general assembly enacted §34-1215.The emergency clause of the original act (Act 340 of 1947) provided:

The General Assembly of the State of Arkansas finds and declares that numerous injustices have been done because Courts of Equity within the State of Arkansas have lacked the power heretofore, upon dissolutionment of the marital status, to dissolve estates in property created by the marital status; and that, accordingly, an emergency is hereby declared to exist. . . . [Emphasis added.]

It seems clear then that the rule holding that chancery lacked authority to dissolve a tenancy by the entirety derives from the perceived nature of that tenancy at common law. Essential to that nature is the concept that neither tenant can convey his or her interest so as to affect the right of survivorship in the other. Roulston, supra. As the Davies court said, this is a “vested interest” and therefore cannot be divested by the court.

This rule, however, has no application to a tenancy by the entirety in a bank account or certificate of deposit. The majority is quite correct that an estate by the entirety may be created in personal property in this state. Jordan v. Jordan, 217 Ark. 30 , 228 S.W.2d 636 (1950); Union & Mercantile Trust Co. v. Hudson, 147 Ark. 7 , 227 S.W. 1 (1921). It has also been specifically held that a husband and wife may hold title to bank deposits as tenants by the entirety. Black v. Black, 199 Ark. 609 , 135 S.W.2d 837 (1940). This is a matter of common law — it is not the result of statutes governing the relationship between the bank and its depositors, such as Ark. Stat. Ann. § 67-552 (Supp. 1985). Ratliff v. Ratliff, Adm’x, 237 Ark. 191 , 372 S.W.2d 216 (1963); Black v. Black, supra; Hayse v. Hayse, 4 Ark. App. 160 -B, 630 S.W.2d 48 (1982).

Although spouses may hold title to funds in a bank account as tenants by the entirety for some purposes, this is not a true common law tenancy by the entirety. The distinction was explained in McGuire v. Benton State Bank, 232 Ark. 1008 , 342 S.W.2d 77 (1961):

A joint bank account such as this one has been held to constitute an estate by the entirety in the sense that upon the death of either spouse the title passes to the survivor. . . .But while both spouses are alive the estate is not a true common-law tenancy by the entirety, for, as we observed in the cases cited, either of the owners may extinguish the joint estate as to any part of the money that is withdrawn from the account and reduced to separate possession. Hence in a case like this one the intention of the parties and all other pertinent circumstances must be considered in determining the question of ownership.

See also Black v. Black, supra; Dixon v. Jonesboro Trust Co., 154 Ark. 155 , 242 S.W. 57 (1922).

In Davis v. Jackson, 232 Ark. 953 , 341 S.W.2d 62 (1961), Mr. Davis, a widower, deposited $10,000.00 in a savings and loan and received a certificate of deposit issued in his name “or” his granddaughter’s. After he remarried he had the certificate changed to remove his granddaughter’s name and to insert his new wife’s name. The court held that the granddaughter had no vested interest in the property. Although this was a joint tenancy rather than a tenancy by the entirety, the principle is the same.

Because tenancies by the entirety in bank deposits may be destroyed by the unilateral act of either tenant and create no vested interest in the other, equity has always had the power to divide them in divorce, apart from statute. The reasons for the rule announced in Davies v. Johnson do not exist here. Clearly, in passing Ark. Stat. Ann. § 34-1215, the legislature intended to grant certain powers to chancery courts which had not existed before. Certainly the legislature did not intend to restrict the preexisting authority of chancery courts. Section 34-1215 was intended to apply only to those true common law tenancies by the entirety and joint tenancies with right of survivorship which the court had previously held chancery was without power to dissolve. It is significant that in the forty years since the passage of § 34-1215, the supreme court has never held it applicable to joint bank accounts.

In deciding Warren v. Warren, supra, the supreme court gave due consideration to policy:

There is also an apparent consideration of public policy by the General Assembly, and that is the recognition that there ought to be reckonability in the law. When a husband and wife cause a marital survivorship instrument to be created they ought to know that if they remain married the survivor will own the property, and they ought to know that if they divorce the property will be divided equally, and they ought to know that they will not be subjected to the eight variables of the 1979 act.

273 Ark. at 533 , 623 S.W.2d at 816 .

These policy considerations are quite valid if we are discussing the preparation of a marital survivorship instrument such as a deed. They are considerably less relevant to the situation where one spouse deposits separate funds in a joint account. It follows that such accounts are divisible by chancery courts in divorce under the provisions of Ark. Stat. Ann. § 34-1214, our divorce property division statute.

We are also faced with the question of whether the establishment of a bank account in both spouses’ names creates a presumption of gift when the account is funded, in whole or in part, with one spouse’s separate funds. In Ramsey v. Ramsey, 259 Ark. 16 , 531 S.W.2d 28 (1975), the husband sold cattle and equipment and in return took promissory notes payable to the husband and wife. In divorce, he contended that the cattle and equipment had been his separate property and that the note had been made payable to both spouses by mistake. The Ramsey court said that when real or personal property is acquired by husband and wife, by an instrument running to them conjunc-tively, a presumption arises that the taking is as tenants by the entirety, and that if the property is acquired by one party’s separate funds there is a presumption of gift. The court in Ramsey held that the parties held the note as tenants by the entirety and also that it was subject to division under Ark. Stat. Ann. § 34-1215.

The decision in Ramsey was based, at least in part, on earlier supreme court cases involving a deed to land. For instance, in Harrison v. Knott, 219 Ark. 565 , 243 S.W.2d 642 (1951), cited in Ramsey, the court held that where a husband purchases land and procures the deed to be made to his wife, the presumption is that he intended it as a gift, and a trust does not result in his favor. See also Carpenter v. Gibson, 104 Ark. 32 , 148 S.W. 508 (1912). The presumption of gift arising when one spouse causes a deed to land to be made out in the names of both spouses is grounded in both reason and policy. Perhaps it is probable that ordinarily a gift is intended, and there are strong policy considerations favoring relative certainty in the law of title to real estate. This rule was reasonably extended in Ramsey to apply to a promissory note, taken in the names of both spouses. But neither reason nor policy support the application of such a presumption when one spouse deposits separate funds in a joint account. Such deposits may be made for many reasons. The joint account may be intended to serve as a will substitute. See, e.g., Ratliff v. Ratliff, 237 Ark. at 195 , 372 S.W.2d at 218 . The purpose may be merely to accommodate the other spouse in some way, for instance, to permit him to use the funds as collateral for a loan. See, e.g., Hayse v. Hayse, 4 Ark. App. 160 -B, 630 S.W.2d 48 (1982). A gift may be intended, or the deposit may be made because there is no other account available.

The supreme court held, in effect, that such a presumption of gift did not apply to the establishment of a bank account in both spouses’ names in McEntire v. McEntire, 267 Ark. 169 , 590 S.W.2d 241 (1979). In that case Mr. McEntire established a joint account with his wife and both parties withdrew funds from the account from time to time. Two years later McEntire had a new signature card issued, withdrawing Mrs. McEntire’s authority to draw on the account. At his death she argued that funds were hers as the surviving tenant by the entirety. The court affirmed the trial court’s grant of summary judgment, stating:

An estate by the entireties in a bank account differs in one significant aspect from an estate in real property in that the estate exists in the account only until one of the tenants withdraws such funds or dies leaving a balance in the account. Funds withdrawn or otherwise diverted from the account by one of the tenants and reduced to that tenant’s separate possession ceases to be a part of the estate by the entireties.

A dissenting opinion in McEntire argued that Ramsey v. Ramsey controlled. It argued that there was a presumption that the parties held as tenants by the entirety and that there was a presumption of gift. This argument was impliedly rejected by a majority of the court.

We relied on McEntire in Hayse v. Hayse, supra. There the wife had inherited money from her father and bought a certificate of deposit in the name of husband or wife. She testified that she had taken the certificate out in both names so if her husband needed to borrow money he would have collateral. The husband contributed nothing to the purchase money and never made any claim to it during the marriage. She retained possession of the certificate. The trial court awarded the certificate of deposit to the wife upon divorce, and the husband appealed. We held that the wife’s inheritance would not be subject to equal division in the divorce unless by some action she had destroyed its status as non-marital property by creating an interest therein in her husband. We held that the burden was upon the husband to prove a gift and that, on the facts presented, the chancellor was not wrong in finding that a gift had not been intended. We recognized that the property was divisible under Ark. Stat. Ann. § 34-1214 and made no mention of § 34-1215.

Ramsey was decided before Potter v. Potter, 280 Ark. 38 , 655 S.W.2d 382 (1983). In that case the court said that separate funds remain separate unless it became impossible to trace the source of the funds. “This is true even if separate funds were commingled with other funds in a common account.” 280 Ark. at 46 , 655 S.W.2d at 387 . The court also said that property acquired for a consideration paid in part out of community funds and in part out of separate funds of one of the spouses is in part community and in part separate property.

In Gorchik v. Gorchik, 10 Ark. App. 331 , 663 S.W.2d 941 (1984), we followed Hayse, but in Gorchik we held that the husband had destroyed the status of his separate property because both spouses had utilized his inherited funds, deposited in a joint account, during the course of their marriage. In other words, the parties had treated the property as marital property.

In McDonald v. McDonald, 19 Ark. App. 75 , 716 S.W.2d 788 (1986), we held that a certificate of deposit titled in the name of husband or wife was tenancy by the entirety property and was required to be divided under Ark. Stat. Ann. § 34-1215. We did not mention Hayse v. Hayse or Gorchik v. Gorchik. We thought Warren v. Warren controlled. I would overrule McDonald.

To summarize, it is my view that money held by spouses in a joint account is subject to division in divorce under Ark. Stat. Ann. § 34-1214. If the account contains what were the separate funds of one spouse and the amount of the separate funds can be ascertained, this money may be returned, in equity, to the spouse who contributed it. If the other spouse claims that a gift has been made, he has the burden of proving it. This is largely a matter of intent. McGuire v. Benton State Bank, 232 Ark. 1008 , 342 S.W.2d 77 (1961); Neal v. Neal, 194 Ark. 226 , 106 S.W.2d 595 (1937). We have said his burden of proof is by clear and convincing evidence. Hayse v. Hayse, supra. This measure of proof lies somewhere between a preponderance of the evidence and proof beyond a reasonable doubt. Kelly v. Kelly, 264 Ark. 865 , 575 S.W.2d 672 (1979).

Here, the certificate of deposit was purchased in part from marital funds and in part from separate funds. The fact that appellee had the certificate made out in both names is some evidence of a gift. The marital relation, in itself, is a factor which makes a gift more likely. However appellee testified that he claimed the inherited funds as separate property and there was no testimony that a gift was intended. The fact that the appellant did not make use of the principal funds held on deposit is relevant. See Hayse v. Hayse and Gorchik v. Gorchik. The money was recently inherited and clearly traceable. The chancellor’s implied finding that no gift was intended is not clearly erroneous.