Derr Decision Helps ‘Cut Through the Haze’

By Attorney Gregg Herman
March 30, 2005

This column has criticized appellate courts from time-to-time for inconsistency in their use of language.  Recently, the District IV Court of Appeals used their opinion in Derr v. Derr, No. 03-2181 (Wis. Ct. App. Mar. 17, 2005) (recommended for publication) to clear up years of confusion regarding non-divisible property.  The result is a clear, consistent scheme which will undoubtedly serve as the lodestar for trial courts for many years to come.  This is the first of two articles critiquing the decision.

In Derr, the court of appeals affirmed Dane County Circuit Court Judge David Flanagan’s ruling that categorized an apartment building as the husband’s non-divisible property.  The husband’s parents had gifted the apartment building to the husband.  While the title remained in the husband’s name alone, the husband used the building as collateral to secure a $300,000 loan, which was used for marital expenses.  Approximately $283,000 was still owing on the loan at the time of the divorce.  The court began its analysis of whether the apartment building was divisible property by stating:

“…[S]everal of Michael’s and Martha’s property division arguments employing “identity” and “character” terminology are either misdirected or confusing. We do not fault the parties. A reading of our twenty or so cases addressing WI. Stat. § 767.255(2)(a) and disputes involving divisible/non-divisible categorization leads to the conclusion that two phrases—“loss of identity” and “loss of character”—are the source of considerable confusion, largely because it is too easy to misunderstand what we mean when we use these non-descriptive phrases.” 
The court then engaged in a lengthy review of previous cases involving these terms.

The court noted that the identity and “character” inquiries do not comprise a test. Instead, they are labels for two distinct inquiries—tracing and donative intent—that “may or may not fully resolve the divisible status of property at the time of a divorce.”   “Identity” is a matter of tracing – finding the value and source of an asset, or part of an asset.  While tracing does not totally decide if the asset is divisible, it is a starting point.  After all, if the asset cannot be found, there is nothing to be divided.  The appellate court prefers the term “tracing” rather than “identity” as it more accurately describes the task at hand.

Similarly, the appellate court restated the “character” inquiry into one of donative intent.  As the court stated: “We think it apparent that ‘character’ terminology just adds a layer of haze to a topic that is already sufficiently complicated.  Why not cut to the quick and use the term ‘donative intent’ when talking about donative intent?”

Following an analysis of cases over the years dealing with donative intent, the court concluded that the inquiry should be limited to the owning party’s subjective intent.  The court cited situations which create a rebuttable presumption of donative intent (such as transferring non-divisible property to joint tenancy), but noted that other evidence may rebut the presumption.

Applying these principals to the instant case, the appellate court affirmed the trial court’s finding that the apartment building was non-divisible property.  First, the building still exists in the same form as when gifted, so the tracing analysis is simple.  Second, the appellate court agreed that using the building for collateral for a loan did not evince donative intent.  The two tests being satisfied, the trial’s court’s finding was affirmed.

The appellate court’s analysis is noteworthy for the great deal of research, effort and thought which went into its analysis.  While the court could have easily have simply affirmed the trial court’s ruling, it used the case to, in its own words, “cut through the haze” and provide a road map for trial courts to follow in similar cases in the future.  For this, family law trial courts and lawyers owe a debt of gratitude to the panel which decided this case: the Hon. Charles Dykman, the Hon. Margaret Vergeront and the Hon. Paul Lundsten.

This article originally appeared in Wisconsin Law Journal.

Attorney Gregg Herman is a founding partner of Loeb & Herman S.C. in Milwaukee, WI. He practices family law exclusively, and can be reached via e-mail or by calling (414) 272-5632.