FORGET THE ENGAGEMENT RING, GIVE ME BACK MY DEPOSIT FOR THE HOUSE

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The Pennsylvania Superior Court recently addressed how gifts in anticipation of marriage should be distributed when the marriage does not take place.  Usually, we are thinking about engagements rings, but what about the down payment for a house? In McGoldrick v. Murphy, 2020 Pa. Super 24 determined whether the down payment was recoverable once the parties split.

The parties, Megan and Joseph, began dating in July 2010 and started living together a few months later. They lived together in Joseph’s residence for 6.5 years. In approximately December of 2015, Megan and Joseph decided to marry. They also decided to look for a home to purchase together and put Joseph’s plan on buying an engagement ring on hold.   In late 2016, the couple purchased a home for $205,000. Because Joseph had the financial means necessary to close on the home and Megan was more creditworthy than Joseph, the two agreed that Joseph would withdraw the needed money from his retirement fund and Megan would solely execute the mortgage note, though the record reflects that both parties executed the mortgage. 

JOSEPH WITHDRAWS $52,000 FROM HIS RETIREMENT ACCOUNT FOR THE DOWN PAYMENT AND SIGNS LETTERS STATING THAT HE DID NOT EXPECT REPAYMENT.

As part of the mortgage loan application, the bank required Megan and Joseph to sign gift letters to document the source of approximately $52,000 that Joseph withdrew from his retirement account in two transactions. In the letters, Joseph referred to Megan as his This “fiancé” and stated that “no repayment of the gift is expected or implied in the form of cash or by future services of the recipient.”

On December 29, 2016, Megan and Joseph closed on the home, taking it as joint tenants with the right of survivorship. They began to share in the home-related expenses and made renovations.  They moved in in March of 2017.  Joseph gave Megan an engagement ring in June of 2017.  On March 10, 2018, however, Megan ended the engagement and returned the ring to Joseph. Joseph remained in the home and stopped paying his share of the expenses.  Megan assumed payment of all of those expenses until she permanently moved out in August 2018.

THE PARTIES AGREE TO SELL THE HOUSE BUT CAN’T AGREE ON WHO GETS THE WHAT.

Shortly after Megan returned the ring in March of 2018, Joseph filed a complaint in equity- partition. In September of 2018, the parties agreed to list the home for sale and that the proceeds would be placed in escrow with the title company and that the trial court would determine the division of the assets.  The home sold at a loss yielding $41,884.86 and they received a homeowner’s credit of $101.  The parties could not agree on the division. The court then award $5688.43 to Megan, which was 50% of the money she spent on home-related expenses from April through to October 2018.  Joseph was awarded $36, 297.42 to Joseph which was the remaining amount.  

Megan filed a post-trial motion, which was denied.  Megan then filed a notice of appeal.  Megan raised the following issues:

1. With all parties and the trial court in agreement, have the requirements of a Part 1 Partition Order been met?

2. Does a signed writing, “Gift Letter,” which expressly identifies the donee as “Fiancé,” and states that “no repayment of the gift is expected or implied in the form of cash or by future services of the recipient” trump prior court holdings of gifts in contemplation of marriage which did not involve express, written waivers?”

Pennsylvania Rules of Civil Procedure 1551-1574 split a partition action into two, distinct, chronological parts.  The first part of the Partition is to “a possessory action; its purpose and effect being to give to each of a number of joint owners… his [or her] share in severalty.”  See Johnson v. Gaul, 228 Pa. 75, 77 A. 399, 400 (Pa. 1910).  

The second order, does one of three things: “(1) divide the partitioned property among the parties to sell their interest in the land to one or more parties, or (3) sell the land to the general public and distribute the proceeds among the parties.”  Kapcsos v. Benshoff, 194 A.3d at 141-142. 

Megan theorized that by Joseph starting the partition  action and the parties then agreeing to sell the home and, if necessary, have a judge determine the division of the proceeds, the sale and the agreement now changes the ownership of the proceeds to a tenants in common, which means that they should equally split the the proceeds.  The trial court did not agree with this argument. 

WAS THE $52,000 THAT JOSEPH CONTRIBUTED A  CONDITIONAL GIFT?

The next issue is whether the $52,000 that Joseph contributed was actually a conditional gift in contemplation in marriage.  Recall the letters that Joseph and Megan signed that indicated that it was a gift and there was no intention to repay back the money.  The court turned to Nicholson v. Johnston, 855 A.2d 97, 101-102 (Pa. Super. 2004) which affirmed previous caselaw and Restatement (First) of Restitution Section 58 (1937) which provides hat gifts made in the hope that a marriage contact will result are not recoverable absent fraud.  However, there is an exception for engagement rings, family heirlooms, or things intimately connected with the marriage.  The Reporter’s note suggests that the focus is on whether the money or things transferred in contemplation of marriage in the sense that they were to be used by the parties in marriage. Gifts of considerable size are assumed to be conditional.  Fault is also not an issue.

The Court held that the $52,000 gift was clearly for the purpose of purchasing a marital residence for Joseph and Megan to live in as husband and wife. The gift letters were necessary to achieve that purpose and did not extinguish the condition of the occurrence of marriage. Therefore, when the relationship between Megan and Joseph ended, the gift’s purpose could no longer be achieved. When the house sold, Joseph was entitled to recover the remaining escrow balance in the amount of $36,297.42 which represented partial reimbursement of his payment of the money needed to purchase the home.

What does this mean for you? If you are considering a large purchase with your fiancé, consider options to protect both of you in the event the marriage does not take place. If you have questions regarding this issue, call Kinchloe Law at 215-564-1580 so that we can assist you in the assessment of your current situation and to discuss your options.