Alaska Supreme Court Opinions made Available byTouch N' Go Systems and Bright Solutions

Touch N' Go
, the DeskTop In-and-Out Board makes your office run smoother.


You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Kessler v. Kessler (2/16/2018) sp-7223

Kessler v. Kessler (2/16/2018) sp-7223

          Notice:   This opinion is subject to correction before publication in the P                    ACIFIC  REPORTER.  

          Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,  


          303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email  



                     THE  SUPREME  COURT  OF  THE  STATE  OF  ALASKA  

KENNETH  ALLEN  KESSLER,                                         )  

                                                                 )     Supreme  Court  No.  S-16458  

                              Appellant,                         )  


                                                                 )     Superior Court No.  3AN-15-05989 CI  

          v.                                                     )  


                                                                 )     O P I N I O N  


DIANNA MICHELLE KESSLER,                                         )  



                                                                  )    No. 7223 - February 16, 2018  

                              Appellee.                          )  



                       ppeal from the Superior Court of the State of Alaska, Third  


                    Judicial District, Anchorage, Patrick J. McKay, Judge.  


                    Appearances:  Kara A. Nyquist, Anchorage, for Appellant.  


                    Roberta C. Erwin, Palmier ~ Erwin, LLC, Anchorage, for  



                    Before:  Stowers, Chief Justice, Winfree, Maassen, Bolger,  


                    and Carney, Justices.  


                    BOLGER, Justice.  




                    Kenneth Kessler purchased a condominium in the summer of 1999, shortly  


before  he  and  Dianna  Kessler  began  dating.                            Kenneth  and  Dianna  lived  in  that  


condominium for nearly all of their 15-year relationship.  In its property division order  


following the couple's divorce, the superior court found that the condominium was  


originally  Kenneth's  separate property  but that it had transmuted into the couple's  


marital property.  Kenneth now appeals.  

----------------------- Page 2-----------------------

                                       We reverse and remand.                                                  The condominium only became marital property                                                                        

if Kenneth intended to donate it to the marital estate, and we agree with Kenneth that the                                                                                                                                                         

evidence at trial did not demonstrate he possessed any such intent.                                                                                                                                            We recognize,   

however, that our case law on this issue has at times been confusing and imprecise, so                                                                                                                               

before explaining the facts of this case in more detail we first take a few moments to                                                                                                                                                                

clarify the law in Alaska on transmutation by implied interspousal gift.                                                                                                                           

II.                 TRANSMUTATION BY IMPLIED INTERSPOUSAL GIFT                                                                                                                                  

                                       Alaska follows the law of equitable distribution, which is a set of rules for                                                                                                                                


dividing   property   upon   divorce.                                                                                                                                                                                                         

                                                                                                            When  conducting  that  division,  the  court  first  



distinguishes between separate property and marital property.                                                                                                                       As a general rule (subject  


to various exceptions), property is separate property if it was acquired by a spouse before  


the marriage, and property is marital property if it was acquired by a spouse during the  



                                   This classification process is important because only marital property is  

                    1                  See Burts v. Burts                                     , 266 P.3d 337, 342 (Alaska 2011)                                                                             ("Alaska uses a                             

statutory scheme of equitable division codified in AS 25.24.160(a)(4)." (citing                                                                                                                                                    Clauson  

v.  Clauson, 831 P.2d 1257, 1262 (Alaska 1992))).                                                                         

                   2                   Beals v. Beals, 303 P.3d 453, 458-59 (Alaska 2013).  


                   3                   See Horning v. Horning, 389 P.3d 61, 64 (Alaska 2017) (citing Schmitz v.  


Schmitz, 88 P.3d 1116, 1124 (Alaska 2004)); Hansen v. Hansen, 119 P.3d 1005, 1009  


(Alaska 2005) (citing Lewis v. Lewis, 785 P.2d 550, 558 (Alaska 1990)).  


                                                                                                                          -2-                                                                                                                7223

----------------------- Page 3-----------------------


subject   to   division   upon   divorce.     Separate   property,   by   contrast,   is   subject   to  

                5                                                                                                               6  


                  only "when the balancing of the equities between the parties requires it." 

                    Property brought into the marriage as separate property can sometimes  


                                                                 7  One way this change can take place is by  

change, or transmute, into marital property.                                                                                   


an implied interspousal gift.8  This occurs when one spouse intends to donate separate  


property to the marital estate and engages in conduct demonstrating that intent.9                                           We  


have, however, sometimes been less than precise in describing this doctrine.  Take the  


following refrain, repeated in a number of prominent equitable distribution cases by this  


court:  "Transmutation occurs when married parties intend to make a spouse's separate  


property marital and their conduct during marriage demonstrates that intent."10  Another  


favored statement of the rule is similar:  "Transmutation  occurs when a married couple  


          4         Nicholson v.   Wolfe,   974   P.2d   417,   423   (Alaska   1999)   (citing  Johns   v.  

Johns,  945  P.2d   1222,   1225  (Alaska   1997)).  

          5         Id.  

          6         AS  25.24.160(a)(4).  

          7         Sparks  v.  Sparks,  233 P.3d 1091, 1094  (Alaska 2010) (citing  Sampson  v.  

Sampson,  14  P.3d  272,  276  (Alaska  2000)),  overruled  on  other  grounds  by  Engstrom  v.  

Engstrom,  350  P.3d  766,  771  (Alaska  2015).  

          8         Id. at 1096.  


          9         Id. at 1094, 1096.  


          10        Harrower v. Harrower, 71 P.3d 854, 857 (Alaska 2003) (citing Sampson,  


 14 P.3d at 277; Martin  v. Martin, 52 P.3d 724, 727 (Alaska 2002);  Green v.  Green,  


29 P.3d 854, 857 (Alaska 2001)); see also Beals v. Beals, 303 P.3d 453, 460 (Alaska  


2013) (quoting Odom v. Odom, 141 P.3d 324, 332 (Alaska 2006)); Odom, 141 P.3d at  


332 (quoting Harrower, 71 P.3d at 857).  


                                                               -3-                                                        7223

----------------------- Page 4-----------------------

demonstrates an intent, by virtue of their words and actions during marriage, to treat one                                                                                                             

 spouse's separate property as marital property."                                                                  11  

                                Such language is inaccurate for two reasons.   First, it suggests that the  


relevant intent is that of the "married parties" or the "married couple." That is incorrect.  


The question is whether the owning spouse, not the married couple, intended to make a  


gift.12           Second, and more subtly, it fails to define what it means to intend to "treat"  


 separate property "as marital property" or intend to "make" property "marital." A judge  


or attorney not familiar with equitable distribution law could be forgiven for assuming  


that a spouse intends to treat separate property as "marital" when he or she shares that  


property during the marriage.  But that assumption would be incorrect.  The distinction  


between marital property and separate property is simply a way of categorizing property  


for  purposes  of  division  upon  divorce,  not  a  statement  of  property  rights  during  


marriage.13                   Thus, the intent that must be shown is the intent of the owning spouse that  


                11              Schmitz v. Schmitz                           , 88 P.3d 1116, 1125 (Alaska 2004) (citing  Harrower,  

71 P.3d at 857;                        Martin, 52 P.3d at 727 & n.8;                                                 Green, 29 P.3d at 857;                                    Lundquist v.  

Lundquist, 923 P.2d 42, 47 (Alaska 1996));                                                             see also Abood v. Abood                                   , 119 P.3d 980, 984                  

(Alaska 2005) (quoting                                   Schmitz, 88 P.3d at 1125).                      

                12              See Sparks, 233 P.3d at 1094, 1096; Thomas v. Thomas, 171 P.3d 98, 107  


(Alaska 2007) ("Separate property can become marital property where that is the intent  


of the owner and there is an act or acts which demonstrate that intent." (emphasis added)  


                                                                                                                                                                      RETT  R. T             URNER,  

(quoting Chotiner v. Chotiner, 829 P.2d 829, 832 (Alaska 1992))); 1 B 


    QUITABLE DISTRIBUTION OF PROPERTY   5:69, at 665 (3d ed. 2005) ("Almost all of the                                                                                                                 


cases define the key issue as whether the owner of the separate property involved had                                                                                                                 

actual intent to give that property to the marital estate.").                                                                            

                13              See 1 T          URNER,  supra  note 12,  1:1, at 2 (contrasting equitable distribution                                                            


with thedoctrineofcommunity                                              property,and explainingthat while"communityproperty                                                               

controls property ownership during the marriage and property distribution upon death   

as well as property distribution upon divorce," equitable distribution "applies only in                                                                                                                   


                                                                                                    -4-                                                                                            7223

----------------------- Page 5-----------------------

his or her separate property be treated as marital property                                     for the purpose of dividing         


property in the event of a divorce                    .                                                                          

                                                           This idea is better captured by framing the inquiry  


 as an intent to "donate" or "convey" separate property to the marital unit or marital  

           15  rather than as an intent to "treat . . . separate property as marital property."16  


                      Our imprecision in describing the donative intent inquiry has occasionally  


been compounded by our reliance on the Cox factors.  In Cox v. Cox we drew on earlier  


 transmutation cases and set out four "relevant factors" for "determining whether . . .  


property should be characterized as marital," namely, " '(1) the use of property as the  


parties' personal residence, . .  .  (2)  the ongoing maintenance and managing of the  


property by both parties,' . . . (3) placing the title of the property in joint ownership and  


 (4) using the credit of the non-titled owner to improve the property."17  


                      We recognize now that some later cases applying  Cox may have over- 


 emphasized the importance of the Cox factors in determining whether the owning spouse  


possessed donative intent.  Indeed, at times we have even appeared to suggest that the  


presence of certain factors is independently sufficient to establish transmutation.  For  


 example, we have written that "transmutation occurs when the non-owning spouse takes  


           13         (...continued)  

 divorce  cases").  

           14         See   Sampson,   14   P.3d   at   276-77   (noting   that   husband's   "belief   and  

representation"   that   his   inheritance   would   be   "available   to   [the   couple]   during   the  

marriage  [did]  not  suffice  to  warrant  a  finding  that  the  assets  were  converted  to  marital  


           15         Sparks, 233 P.3d at 1094.  


           16         Schmitz, 88 P.3d at 1125.  


           17         882 P.2d 909, 916 (Alaska 1994) (citations omitted) (quoting McDaniel v.  


McDaniel, 829 P.2d 303, 306 (Alaska 1992)).  


                                                                    -5-                                                             7223

----------------------- Page 6-----------------------


an active role in the operation of the property as a business"                                                    and that the "requirement       

[of intent] may be met where a non-owner spouse 'devote[s] substantial efforts to [the  

property's] management, maintenance, or improvement.' "                                                       19  


                         But when we first listed the four factors in Cox, we were simply drawing  


on  prior  cases  and  describing  facts  which  we,  as  an  appellate  court  deferentially  


reviewing a superior court's factual finding of donative intent, had previously found  

                                                                                       20   In other words, the Cox "factors" are  

relevant in affirming or reversing that finding.                                                                                                            

merely specific facts that may, in particular cases, serve as  evidence  of the owning  


spouse's donative intent.  We note that the third factor - placing the property in joint  


title - is presumptive  evidence of intent and shifts the burden of proof to the owning  


spouse.21  However, the presence or absence of this or any other Cox factor is not a proxy  


for the ultimate question: did the owning spouse intend to donate his or her separate  


property to the marital estate?  That determination is case-specific, and we never meant  


to suggest that it could be answered by looking at the Cox factors alone.  


                         We now examine the facts of this case and the evidence presented at trial,  


and we then explain why the superior court clearly erred when it found that Kenneth  


intended to donate the condominium to the marital estate.  


             18          Abood v. Abood                , 119 P.3d 980, 988 (Alaska 2005).                    

             19          Thomas v. Thomas                    , 171 P.3d 98, 107 (Alaska 2007) (second and third                                          


alterations in original) (quoting Martin v. Martin, 52 P.3d 724, 728 (Alaska 2002)).  

            20           See Cox, 882 P.2d at 916.  


            21           Sparks v. Sparks, 233 P.3d 1091, 1094 (Alaska 2010) ("[P]lacing separate  


[property] into joint title raise[s] a presumption that the party intended to donate separate  


property to the marital unit."), overruled on other grounds by Engstrom v. Engstrom,  


350 P.3d 766, 771 (Alaska 2015).  


                                                                              -6-                                                                       7223

----------------------- Page 7-----------------------

III.                  FACTS AND PROCEEDINGS                            

                                            In the summer of 1999, before he and Dianna started dating, Kenneth                                                                                                                                                 

bought a condominium.                                                            The couple started living in that condominium in 2000.                                                                                                                                       The  

couple married in 2010, and Dianna filed for divorce in 2015.                                                                                                                            

                                            After the parties began living together, Dianna started working for the                                                                                                                                                               

Alaska Surgery Center as a surgical technologist. After 14 years with that organization,                                                                                                                                                          

Dianna's 2015 gross wages were $51,911. In 2003 Kenneth was injured while working                                                                                                                                                                                 

at   FedEx.     To   supplement   Kenneth's   modest   workers'   compensation   and   annuity  

payments, Kenneth's father loaned Kenneth money, which Kenneth used to pay debts  

and monthly bills.                                            

                                                                                                                                                                                                                                           22        Both parties  

                                            Kenneth and Dianna largely kept their finances separate.                                                                                                                                                                  

agreed that Kenneth paid the mortgage payments and condominium dues out of his  


personal bank account.  Dianna testified that she painted, put new windows in, installed  


laminate countertops and new blinds, and purchased a new washer and dryer for the  


property.  Dianna also testified that she paid most of the couple's other living expenses  


and bills. According to Dianna, she believed that she was "investing" in the property by  


paying for these expenses.  But she did not explain the basis for this belief.  Neither  


Kenneth nor Dianna testified that Kenneth ever made any statements indicating his intent  


to donate the condominium to the marital estate.  


                                            After the trial, the superior court found that the condominium had been  


transmuted into marital property. The superior court relied primarily on the fact that the  


couple used the property as the marital home and on Dianna's contributions to the  


                      22                    The parties' finances were not entirely separate.  They consolidated their                                                                                                            

credit card debts, although the superior court found that only a "small portion" of the                                                                                                                                                                                            

consolidated debt was "attributable" to Kenneth. The parties also maintained joint bank                                                                                                                                                                                      

accounts in addition to their individual accounts.                                                                                                                  

                                                                                                                                          -7-                                                                                                                                7223

----------------------- Page 8-----------------------

management and maintenance of the property.                                                  The superior court also relied on a                               

finding that Kenneth would have been unable to pay the mortgage from his separate                                                                 

account without Dianna's financial contributions to other parts of the marriage.                                                                      

IV.         DISCUSSION  

                         Whether a spouse intended to donate his or her separate property to the  


marital estate is a factual finding that we review for clear error.23                                                        A factual finding is  


clearly erroneous when, after reviewing the entire record, we are "left with a definite and  


firm conviction that the trial court has made a mistake."24   We conclude that the superior  


court clearly erred in this case.  


                         Dianna  had  the  burden  to  prove  that  Kenneth  intended  to  donate  the  


                                                                25   The best evidence of Kenneth's intent would have  

condominium to the marital estate.                                                                                                                       


been "an express statement by [Kenneth] that he intended to give [Dianna] an interest in  


the property."26                 But no such statement was presented in this case.   Instead, Dianna  


testified that she "believe[d]" that she was investing in the property by making other  


            23           Beals  v.  Beals,  303  P.3d  453,  459  (Alaska  2013).  

            24           Abood  v.  Abood ,   119  P.3d  980,  984  (Alaska  2005).   

            25           1   TURNER,   supra   note   12,      5:69,  at   665   ("The   burden   of   proving   an  

implied   gift   lies   upon   the   party   who   claims  one.");   cf.   Abood ,   119   P.3d   at   984  

("Commingling  separate  property  with  marital  property  does  not  automatically lead to  

a  finding  of  transmutation.   But  placing  property  in  joint  title  raises  a  presumption  of  

transmutation."  (footnote  omitted)).  

            26           Sparks, 233 P.3d at  1096 (quoting  1   TURNER,  supra  note   12,      5:69,   at  



                                                                              -8-                                                                       7223

----------------------- Page 9-----------------------

contributions to the marriage. Dianna's unexplained and unilateral belief is not evidence                                                                         

of Kenneth's donative intent.                                27  

                            The other evidence supporting a finding of donative intent was minimal.  


First, there was evidence showing that Dianna participated in some maintenance and  


upkeep on the property.  But as we have previously held, in order for the non-owning  


spouse's "ongoing management and maintenance" of the property to be relevant to the  


owning  spouse's  donative  intent,  "the  non-owning  spouse's  'participation  must  be  


significant and evidence an intent to operate jointly.' "28   Dianna's participation was not  


"significant"; indeed, even the superior court called the upgrades performed on the  


residence "minor."  


                            Second, the superior court appeared to rely in part on Dianna's financial  


contributions to  other  aspects of the marriage,  noting  that "the parties realized  the  


monetary contributions of each other in order to support themselves" and that Kenneth  


"would not have been able to [pay the mortgage or condominium fees] without the  


financial contributions" from Dianna.  But neither Dianna nor the superior court ever  


explained how Dianna's contributions to other parts of the marriage demonstrated that  


Kenneth  intended to donate the condominium to  the marital estate,  and  we see  no  


obvious reason why this would be the case.  This fact is therefore of little relevance to  


determining whether Kenneth possessed donative intent.  


              27            See  1T       URNER,  supra  note 12,  5:69, at 668 ("When the nonowning spouse                                                          

givesself-interestedtestimony                                  indicating his              or her own personal belief orunderstanding                  

that property was given to the marital estate, the testimony is unlikely to receive much                                                                                


              28           Abood , 119 P.3d at 988 (quoting Keturi v. Keturi, 84 P.3d 408, 417 (Alaska  




                                                                                       -9-                                                                               7223

----------------------- Page 10-----------------------

                     Finally, the couple's use of the condominium as their shared residence is                         

of little probative value in this case.                    Although this is a factor that we have previously              

                                                                                                   29 it must be considered  

identified as potentially relevant to the donative intent inquiry,                                                      

in the context of the entire case. As we have previously held, "the mere use of a separate  


asset for marital purposes cannot transform the separate asset into a marital asset."30  


Given  the lack of further evidence of donative intent, we conclude that the couple's use  


of the property as the marital residence shows only that the condominium served an  


important marital purpose.  


                     In sum, the record reveals almost zero evidence that Kenneth intended to  


donate the condominium to the marital estate.  We therefore conclude that the superior  


court clearly erred when it found otherwise.   We reverse the court's transmutation  


                                                                                     31  We clarify, however, that this  

finding and remand this case for further proceedings.                                                                               


holding does not preclude Dianna from being awarded a share of the condominium.  


First, some portion of the home might be marital property under the doctrine of active  


appreciation if the home increased in value as a result of marital contributions to the  


           29        Cox  v.  Cox,  882  P.2d  909,  916  (Alaska   1994).  

           30        Odom  v.  Odom,   141  P.3d  324,  333  (Alaska  2006).   

           31        Dianna   suggests  that  we   could   affirm  the   superior   court's  ruling   on  the  

ground that "Kenneth . . . purchase[d]  the property  after  the  parties  were cohabiting in  

a  domestic  partnership."   Dianna  does  not  explain  why  the  law  of  domestic  partnership  

should   apply   despite   the   parties'   later   marriage.     See   generally   Boulds   v.   Nielsen,  

323 P.3d 58, 63-65 (Alaska 2014) (explaining the principles  that  apply to  the division  

of  property  of  an  unmarried  couple).   And  in  any  case  the  argument  is  undermined  by  the  

superior  court's factual  finding  that  Kenneth  purchased  the condominium "before [the  

parties]  began  dating  or  cohabitating."   

                                                                 -10-                                                            7223

----------------------- Page 11-----------------------


property.                     Second, in most equitable distribution states the use of marital funds to pay                                                                                                                  


down the mortgage on separate property creates a marital interest in that property.                                                                                                                                                      

While Kenneth paid the mortgage and condominium dues out of his personal bank  


account, the record does not reflect whether the funds in that account were marital or  


separate.  Finally, the superior court can invade Kenneth's separate property, including  


the condominium, if the equities so require.34   The parties are free to litigate these issues  


on remand.  


                                    We also note that the superior court determined that the loans Kenneth  


received from his father were marital loans because "they were necessary to keep the  


residence."  This reasoning no longer stands if the condominium is Kenneth's separate  


property.  Because  we  are  reversing  the  superior  court's  determination  that  the  


condominium  was  transmuted  to  marital  property,  the  superior  court  should  also  


reconsider its characterization of the loans from Kenneth's father.  


V.                CONCLUSION  


                                    We REVERSE the judgment of the superior  court and  REMAND for  


further proceedings consistent with this opinion.  


                  32               See Odom                    , 141 P.3d at 333-34 ("For this doctrine to apply, there must be                                                                                                 

(1)  appreciation of separate property during marriage; (2) marital contributions to the                                                                                                                                      

property; and (3) a causal connection between the marital contributions and at least some                                                                                                                                

part of the appreciation.").                                             "Marital contributions" can consist of both "marital funds                                                                                    

and marital efforts," including the expenditure of "time and energy."                                                                                                                Schmitzv. Schmitz                               ,  

88 P.3d 1116, 1125 (Alaska 2004).                                            

                  33               See  1 T            URNER,  supra  note 12,  5:26, at 399-400;                                                                         see also id.                   ,  5:24, at           


385-86 (illustrating effect of paying down mortgage with marital funds).   The parties                                                                      

have not briefed this issue; we do not decide at this time whether to adopt this approach.                                                                                                                  

                  34               See AS 25.24.160(a)(4).  


                                                                                                              -11-                                                                                                       7223

Case Law
Statutes, Regs & Rules

IT Advice, Support, Data Recovery & Computer Forensics.
(907) 338-8188

Please help us support these and other worthy organizations:
Law Project for Psychiatraic Rights