Interest in marital property vests when marital litigation is filed

Real estate lawyers, consider these fact patterns:

• James Franklin owns 200 acres of property under contract with your developer client. Your client intends to use the property to develop a residential subdivision. Your title examination reveals Franklin’s wife recently filed a petition for divorce. Can your closing proceed without involving Franklin’s wife?
• Let’s make the facts more difficult.  A divorce has been filed, but your title examination misses it.
• Finally, let’s make the facts even more difficult. A divorce has been filed, your title examination misses it, and Mrs. Franklin dies before your closing.

Seels v. Smalls* answers these questions. And the involvement of Mrs. Franklin or her personal representative is required for your closing in each instance. In fact, the involvement of the family court and probate court may also be required.

In this South Carolina Supreme Court case, Olivia Seels Smalls and Joe Truman Smalls had been married for more than thirty years, living in Goose Creek, and accumulating significant assets. Mrs. Smalls filed marital litigation on July 2, 2014 and died unexpectantly on December 17, 2015. Mrs. Smalls’ brother, Randall Seels, was appointed personal representative. He moved to be substituted as plaintiff in the family court case. Mr. Smalls sought dismissal of the action, arguing the entire matter had abated upon the wife’s death.

It took our Supreme Court thirteen pages to ruminate over what I thought was settled law in South Carolina. The personal representative was entitled to the wife’s interest in the marital property. One paragraph from page 46 summarizes the holding:

“In summary, section 63-3-530, governing the family court’s subject matter jurisdiction, provides in subsection (A)(2) that the family court has ‘exclusive jurisdiction’ to settle all legal and equitable rights regarding marital property, importantly in section 20-3-610, the General Assemble has confirmed that each spouse has a ‘vested special equity and ownership right in the marital property’ that is subject to apportionment by the family court at the time marital litigation is filed. Further, the definition of ‘marital property’ in subsection 20-3-630(A) provides ‘marital property’ is all property acquired or owned by the parties as of the date marital litigation is filed, regardless of how it is titled, so marital property essentially springs into existence as a legally defined concept at that moment in time.”

The bottom line, dirt lawyers, is that marital litigation involving your seller should stop you in your tracks. Don’t close until you carefully examine the family court implications. And, if your client’s spouse has died, you will also need to deal with probate court implications. If you have concerns, call your friendly title insurance company underwriter for assistance.

This blog often ends with these words, and today is no exception. Be careful out there!

*South Carolina Supreme Court Opinion 28103 (August 3, 2022).