Kentucky Court of Appeals Considers the Effect of “Gift Letter”

Kentucky Court of Appeals Considers the Effect of “Gift Letter”

      In a recent decision from the Kentucky Court of Appeals, it rejected reliance upon a “gift letter” issued in connection with residential financing. In this instance, it was characterized “a financial maneuver and not a true gift.” Kelien v. Kelien, No. 2019-CA-000045-MR, 2019 WL 5681417 (Ky. App. Nov. 1, 2019). 

      Lance and Angela married in October, 2013; by April 2018 they were separated. Prior to the marriage, Angela owned a house in her own name. She sold that house, receiving net proceeds of $47,067.40. The same day she sold that house, Angela and Lance bought a new house. Essentially the entirety of the down payment was the amount Angela had received from the sale of her prior home. However, Angela, due to being disabled and not having regular income, was not a party to the financing note and mortgage. Rather, Lance was the only borrower (still, both of their names would appear on the deed). In order that Lance would have the funds to make the down payment, Angela executed a “gift letter” evidencing her gift of the proceeds of her house to Lance. When the marriage ultimately dissolved, the Family Court ordered the sale of the marital residence, with Angela to receive first from the proceeds the $47,067.40, traced back to the sale of her own house, as non-marital property. As characterized by the Court of Appeals: 

The [family] court determined that the “gift” from [Angela] to [Lance] was a financial maneuver and not a true gift, and that the gift letter “was done solely because the bank required it to be done for [Lance] to qualify for the bank loan to the parties could purchase the marital residence.”

      From that determination, Lance brought this appeal. 

     Lance's argument would boil down to the position that the gift letter was a contract, and that the parol evidence rule precluded looking outside of its express terms. On that basis, he argued those funds were his non-marital property. The Court of Appeal set aside this argument, finding that because the gift letter does not constitute a contract, the parol evidence rule was not implicated. Freed of the limits of the parol evidence rule and able to look at extrinsic evidence, the court found that the: 

Funds used for the down payment on the [marital] house was [Angela's] nonmarital property, which can be traced to the equity she received from [her nonmarital] house. In fact, those funds could not be more easily traced, as the check received from the sale of the non-marital home was endorsed as the deposit on the marital home. The Greenup Family Court properly characterize these funds as [Angela's] non-marital property, and we find no error.