Grasch v. Grasch . A digest of this published opinion from the Ky Court of Appeals today will follow in a couple of weeks. We are swamped!
Grasch v. Grasch . A digest of this published opinion from the Ky Court of Appeals today will follow in a couple of weeks. We are swamped!
At trial, husband made several nonmarital claims, and argued for a 70/30 split of marital property in his favor, since he cared for the parties adult disabled child. The Family Court found that Husband had nonmarital claims in the home and in a Morgan Stanley account. It also split the parties’ marital Morgan Stanley savings 70/30, did not award the wife maintenance, and did not consider the parties’ vehicles in division of the marital property. The wife appealed these findings of fact and conclusions of law, arguing on appeal the Family Court abused its discretion.
The Appellate Court looks to Sexton for guidance in reviewing the Family Court’s award of nonmarital interest. The Appellate Court reverses the decision awarding Husband a nonmarital interest in the marital home, as there was no source of funds evidence, and no tracing of funds from the sale of one house to the purchase of the next house. The Appellate Court held testimony alone is not sufficient to meet the burden of proof to establish a nonmarital claim. The Appellate Court also reverses the Family Court’s award of the Morgan Stanley bank account as nonmarital property, holding there was no tracing from checks given as gifts to the account itself.
Next the Appellate Court looks to the 70/30 split of the marital Morgan Stanley account. The Appellate Court vacates the Family Court’s award because the Family Court ignored the KRS 403.190(1) factors in dividing the marital property. The Appellate Court also notes that there was never any testimony presented that the Morgan Stanley account was used for the benefit of the parties’ disabled adult son.
The Appellate Court orders the Family Court to consider the values of the parties’ vehicles on remand. Because the Appellate Court reversed the family court’s assignment of non-marital interests and division of marital property, they vacate the family court’s decision on maintenance. However, the Appellate Court notes that the family court improperly considered the Wife’s current standard of living in its decision, and orders the court to use the KRS 403.200(2) factors on remand.
Chief Judge Acree writes separately at the end on procedure, stating that to be in compliance with CR 76.13 parties in an appeal must cite to the certified record and not an appendix created by counsel.
Digested by Elizabeth M. Howell.
The parties’ Settlement Agreement included a provision for the sale of the marital residence. When husband rejected an offer for the purchase of such residence and asserted he intended to buy the home, the trial court ordered wife to sign a quitclaim deed over to husband. For her equity in the home the Trial Court awarded wife the value of half of the offer for purchase of the home less hypothetical closing costs. Wife appealed the Trial Court’s calculation of equity in the home, as well as other matters.
Wife first challenged the Trial Court’s jurisdiction to amend the parties dissolution decree without making the required CR 60.02 findings. The Appellate Court held this argument was waived because it was not brought up prior to the appellate action. The Appellate Court reiterated the Supreme Court’s holding in Commonwealth v. Steadman that while subject-matter jurisdiction cannot be waived, case specific jurisdiction, jurisdiction over a particular case where the court has jurisdiction of the general matter, can be waived.
The Appellate Court next addressed husband’s claim that wife’s argument is estopped by deed. Although wife executed a quitclaim deed and accepted payment from husband, the Appellate Court held wife did not waive her right to appeal. The court looked to the general support for preservation of the right to appeal and wife’s action, which was in compliance with the trial court’s order. Additionally, the Appellate Court held that the acceptance of payment did not waive the right of appeal. AlthoughComplete Auto Transit holds that a party who accepts payment on a judgment is estopped from pursuing an appeal to reverse that judgment, the Appellate Court held Complete Auto Transit does not apply to “acceptance of monetary payments in dissolution proceedings where there is no disagreement or dispute concerning whether the accepting party was entitled to at least the amount accepted and the only issue on appeal concerns whether the accepting party is entitled to additional money.”
The Appellate court concluded that it was an abuse of discretion for the trial court to use hypothetical closing costs to reduce the amount of equity wife received when husband was keeping the house and had no immediate plans to sell. Including closing costs in equity calculations is only appropriate when “(1) the receiving spouse plans or intends an imminent sale of the property without delay; and (2) credible and reliable evidence supports the estimated costs of sale.”
The Trial Court awarded wife attorney fees because husband willfully and deliberately violated the parties’ settlement agreement. The Appellate Court remanded to Trial Court because the Trial Court did not make a finding about financial circumstances which is required in awarding attorney fees. The Appellate Court upheld the Trial Court’s decision not to impose CR11 sanctions, as wife’s motion was well grounded in law.
The Appellate Court first addresses maintenance, holding that income should not be imputed to a spouse when her underemployment is not voluntary. In this case, the child’s medical needs prevented the mother from working.
The Appellate Court did find error with the Family Court’s conflation of child support and maintenance. The Appellate Court held maintenance is for the reasonable needs of a spouse. Expenses for children do not come within a spouse’s reasonable needs, as the children’s expenses are already included in the court’s child support calculation. Including children’s expenses in maintenance is inappropriate as it would ultimately require the obligor to pay all of the children’s expenses.
The Appellate Court also held that the nine year duration of maintenance was not adequately supported by the lower court’s findings when the marriage was 20 years long, the wife was only 48 years old, the wife had a bachelor’s degree, and expert witnesses found the wife to be employable. The Appellate Court remanded the maintenance decision for recalculating the amount and for additional findings supporting the duration.
The Appellate Court then dealt with a slew of other issues, upholding all lower court decisions. They found no error with the court’s consideration of gross vs. net income in setting maintenance, the consideration of gross income in setting child support, and the court’s use of a stock valuation from an expert witness. They held that the lower court had broad authority in assigning attorney fees and did not make an error assigning a portion of wife’s attorney’s fees to husband where the husband was high earning, the wife was unable to seek full time employment, and the court awarded only half the total amount of wife’s attorney’s fees.
The Appellate Court also upheld the lower court’s consideration of future and past earnings in calculating income; and upheld the decision to assign all the residential expenses to the wife, when the obligations were considered in calculating her expenses to determine maintenance. Finally, the Appellate Court affirmed the lower court’s refusal to modify maintenance, as the husband showed no change of circumstances to justify a modification.
Smith v. Smith, Nonmarital property might still be subject to division between parties where there is a partnership, joint venture, or profit sharing agreement. In this case, the parties cohabitated prior to marriage. While the property acquired during cohabitation was nonmarital, the nonmarital property was still a jointly owned asset by agreement of the parties subsequent to a joint venture. Thus, the property lost its nonmarital characterization. The court also concluded the appellant did not properly trace the additional properties she was claiming were nonmarital, therefore there was no clear error in the finding that they were marital property. In addition, the court found no clear errors in the Trial Court’s child support, property division, and debt assignment decisions.
On a procedural note, this case points out that certification of the record must include video recordings. The court cannot look to video recordings for evidence if they are not part of the record on appeal.
Middleton v. Middleton Interesting 50 page opinion and dissent addressing characterization of distributions from family trust, nonmarital tracing and standard of proof, division of marital personalty, assignment of debt, attorney fees and costs.
D.L.B. v. Cabinet for Health and Family Services, et al Conversion of involuntary termination of parental rights action into a voluntary termination action and concurrent dismissal of father from proceedings was abuse of discretion.
Murry v. Murry Denial of attorney fees in grandparent visitation modification affirmed as there is no fee shifting provision in KRS Chapter 405. Findings that prior visitation order had not been working and presents more problems than it resolves falls short of the requirement that necessary facts be found specifically so case was remanded to trial court to make further factual findings.
Posted by Diana L. Skaggs in Attorney Fees, Case Law - Kentucky, Child Abuse and Neglect, Child Support, Civil Procedure and Local Rules, Debt Division, Grandparent Visitation, Maintenance , Marital Property, Nonmarital Property, Termination of Parental Rights | Permalink | Comments (0) | TrackBack (0)
Larry James Ensor v. Deborah Lynn Ensor, 2010-CA-001660-MR, 2010-CA-001699-MR and 2010-CA-002048-MR
Published: Affirming in part, Reversing in part, and Remanding
Husband and Wife were married on June 14, 1980. Husband’s family owned an automotive parts remanufacturing business, which was very successful for many years. When business declined, Husband and his two brothers invested money from the family business into several real estate holdings, which produced significant rental income. Husband and the brothers, in an effort to minimize tax liabilities, utilized the assistance of attorneys and accountants and created a Grantor Retained Annuity Trust (GRAT). A GRAT, according to the Court of Appeals, is an estate planning tool wherein assets are transferred to a trust and ultimately to other beneficiaries so as to avoid estate taxes upon a donor’s death. Husband and his brothers also created a partnership, with all of the brothers and their wives executing general warranty deeds for all of the partnership’s property, which transferred any dower interest the wives had, or might have had, in the properties. Husband created his irrevocable GRAT and transferred his limited partnership interest while retaining a small general partnership interest. Husband received from the GRAT quarterly payments of $72,295 for nine years. The funds were used for the couple’s personal and joint expenditures. Husband’s children were beneficiaries of the GRAT as well, and received their portions of the GRAT; a gift tax return was filed with the IRS. Wife also retained an interest in the GRAT when the annuity payments terminated. Although divorce was not contemplated in the GRAT instrument, Wife would retain an interest in the GRAT if Husband died, until her death or remarriage.This arrangement avoided up to one million dollars in tax liability.
Husband and Wife initiated divorce proceedings in 2004. A limited divorce decree was entered in January 2005, which reserved rulings on the division of marital assets. Wife argued that she did not fully understand the extent of the assets transferred to the GRAT and would have never agreed to release her share of assets valued at millions of dollars. Wife sought her interest in the property of the GRAT.
The court held a five day trial of the property division in April and May of 2006. After additional filings and extensive motion practice followed, the court requested calculations consistent with its draft opinion of the issues. The court issued its opinion May 28, 2008, finding that the GRAT was valid and legally created and that Wife was entitled to a one-half interest in her marital portion of the GRAT. The court held additional hearings on the value of the GRAT property. On February 18, 2010, the court entered findings of fact and conclusions of law on the value of the GRAT and ordered Wife’s was entitled to a payment of $1,769,718.00, which was later reduced by the court to $1,410,106.00 plus post-judgment interest calculated at five percent. Husband appealed, alleging multiple errors; Wife filed a cross-appeal and a direct appeal on the issue of post-judgment interest. ANALYSIS:
The Court of Appeals found that Wife was not defrauded when the GRAT and partnership interests were created. Husband did not defraud Wife into signing any documents or coerce her to release her interest in property, and the trust instrument did not contemplate divorce. Wife also failed to join the GRAT and its trustees, beneficiaries, or contingent beneficiaries, all of whom would have been necessary parties in an action seeking to avoid the trust.
The Court further found that the funding of the irrevocable trust removed the transferred property from the marital estate. KRS 403.190(1) and other relevant case law define whether an asset is marital or non-marital for purposes of division. The court must determine whether the asset is marital or non-marital, assign each party his or her non-marital property, assign each party’s interest in property with both marital and non-marital components based on the evidence and equitably divide all marital property. The formation of the GRAT in this case was for a valid estate planning purpose and is nearly identical to the estate planning scheme in Gripshover v. Gripshover, 246 S.W.3d 460 (Ky. 2008). Wife received an adequate benefit from the GRAT income because she and Husband enjoyed the quarterly annuity payments over the years, which exceeded $2,600,000. It was proper that the trial court accepted Wife’s expert in the accounting of the disbursements.
Because the GRAT was improperly included in the marital estate, the Court remanded for further determination concerning the proper valuation of the marital estate and division thereof without reference to the GRAT. Because property division and equalization payments would be different without inclusion of the GRAT, the issue of maintenance was also remanded, but the Court of Appeals made no finding of whether a maintenance award would be appropriate in this case.
Husband also argued that $60,000 was erroneously assigned to him in the valuation of marital assets because he used those funds for a marital purpose. Trial courts are given wide discretion in this area, and the court did not find Husband’s testimony that the funds were used for a marital purpose credible. The trial court found that those funds had been used for attorney’s fees, non-marital debts and other personal expenditures, which was not clear error.
Wife challenged an award to Husband of accounts receivable for loans made during the marriage. Since Wife was awarded one-half of the accrued interest payable to Husband on a particular loan, any further award to Wife would result in a double recovery. Therefore, the court did not err in preventing a second division of this asset.
Wife also appealed the trial court’s decision to award her an unfinished vacation home in Gulf Shores, Alabama, valued at $2,050,000, and making Wife responsible for all taxes, claims and costs associated with the property. Wife insisted on retaining the home against the advice of trial counsel and the court. Wife argued that Husband should be responsible for his portion of the taxes and other costs associated with the property before he conveyed the property to her in 2010. The trial court allocated unpaid construction costs, insurance premiums and other costs to each spouse at the time of the divorce decree. Since the other costs were incurred after the divorce decree was entered and was incurred solely for Wife’s benefit, the debts were non-marital, and Wife is responsible for all of the costs associated with the property after that date.
On the issue of post-judgment interest, the Court of Appeals upheld the trial court’s order award of five percent post-judgment interest. The trial court concluded that five percent was the rate of return on investments during the litigation and imposing a higher rate would be inequitable. The Court of Appeals agreed, stating that the post-judgment interest rate is mandatory only to money awards containing deferred payments for portions allocated to the non-paying spouse. In this case the trial court weighed the equities, including that Wife’s award was to be paid in a lump sum and Husband was given a relatively short amount of time to make full payment.
Affirmed in part, reversed in part and remanded.
Digested by: McKenzie Cantrell, Attorney, of counsel, Diana L. Skaggs + Associates
Ford v. Perkins, 2011-SC-000330-DGPublished: Affirming in Part, Vacating in Part, and Remanding
SC granted Ex-Husband’s motion for discretionary review regarding the appropriate distribution of his IRA account, which Ex-Husband no longer disputed was marital property.
Husband and his employer began contributions to a 401(k) plan in 1992. Husband and Wife married in December 1998. Wife spent most of marriage as a homemaker. Husband’s and his employers’ contributions to the plan continued until January 2001 when Husband resigned; he subsequently rolled the 401(K) over to an IRA. Husband and Wife separated in November 2007 and divorced in December 2008. All matters of support and property division were agreed upon except for the division of Husband’s IRA. At the hearing on this issue, Husband only submitted records of contributions made after the marriage, from August 2000 through January 2001, as both his and his former employers’ other records had been destroyed in a flood. He submitted no records regarding the value of the account on the date of marriage, but he did submit the values when the 401(k) was rolled over to an IRA, in May 2001. Husband argued to the trial court that the contributions from records submitted to the trial court should be extrapolated to establish the amount that was contributed during the marriage and that the remainder should be his nonmarital property. FC found that the entire account was marital as Husband failed to meet the burden of proof as the proponent of a nonmarital property interest. FC then found that the account should be divided equally between the parties as of the date of decree. Husband appealed this ruling to CA, which affirmed FC’s finding that the account was marital property; however, CA determined that because Wife presented no proof that she made any direct or indirect contribution to the account, an equal division of the account was not supported by the record; CA remanded to FC with instructions to award Husband 100% of IRA.
Ex-Wife moved SC for discretionary review, asking 1. Whether FC’s finding that parties were married when an asset was acquired is sufficient to support equal division of the asset under Gaskill v. Robbins; and 2. Whether, on appeal, CA may make a different award of the division of marital property without applying KRS 403.190 factors.
SC found that this premise boils down to requiring FC’s presumption that both parties to a marriage contribute to assets acquired during the marriage. SC disagreed. KRS 403.190 requires FC to consider the contribution of each spouse to acquisition of the asset (including homemaker duties); value of the property set aside to each spouse; duration of the marriage; and economic circumstances of each spouse when the division is to become effective. SC noted that Gaskill emphasized many intangible contributions to acquisition of an asset that FC must consider in its property division determination, but the language does not purport to create a presumption.
2. Whether, on appeal, CA may make a different award of the division of marital property without applying KRS 403.190 factors:
SC agreed with Ex-Wife, noting that FC committed same error as FC when it failed to consider all factors of KRS 403.190 when it awarded 100% of IRA to Husband. CA based its decision on evidence of contribution, but did not consider the other three factors. FC’s findings of fact were insufficient, and CA should have remanded for further proceedings.
Reversed and Remanded for to FC for additional fact-finding regarding KRS 403.190 factors.
Hempel v. Hempel, 2011-CA-000763-MR
Published: Affirming in Part, Vacating in Part, and Remanding
Ex-Husband appealed FC’s order, contending that FC erred by imputing income to him for child support purposes, by arbitrarily reducing his parenting time, and by making an unequal division of the marital estate.
CA agreed with Ex-Husband that there was no substantial evidence to support FC’s finding that he had not regularly exercised the parenting time allotted to him before trial, and that evidence clearly showed that he saw children on an almost daily basis. CA held that FC clearly erred on this issue and remanded for further consideration of the issue.
CA agreed with Ex-Husband that as there was no evidence introduced to show the strength or nature of prevailing job opportunities or the expected earnings levels in the community, and as FC gave no explanation as to how it determined that Ex-Husband could be expected to earn at the same level as Ex-Wife, there were inadequate findings for CA to conduct meaningful review of the decision and the issue was remanded to FC for further findings.
Division of Marital Estate:
CA did not agree with Ex-Husband that FC erred by not giving him equal share of marital estate. CA found no evidence that FC considered any factors other than statutory criteria and that FC did not abuse its discretion in the division.
CA did not agree with Ex-Husband that FC erred by failing to permit him to oversee the Uniform Gifts to Minors Act accounts of the children. CA noted that under statutory provisions, Ex-Wife as monitor of the accounts must keep records available for inspection and that Ex-Husband was permitted to inspect the account.
Affirmed in Part, Vacated in Part, and Remanded.
No. 2010-CA-000229-MR, No. 2010-CA-000272-MR, No. 2010-CA-000849-MR
Published: Opinion Affirming
Timothy Brosnan appeals and Margaret Brosnan cross-appeals from judgment of Jefferson Family Court dividing marital property and debts and awarding maintenance to Margaret. Margaret also appeals from Jefferson Family Court order denying her motion for attorney fees incurred on appe
Timothy alleges that a social worker was erroneously permitted to offer expert opinion, and that the amount and duration of maintenance awarded to Margaret was an abuse of discretion. Margaret argues the trial court awarded insufficient maintenance, improperly divided parties’ bank accounts, improperly divided credit card debt, failed to require Timothy to keep her on his life insurance policy, and erred when it denied her request to withhold dissolving marriage until January 1, 2010 to permit filing of joint tax returns and denied her request to require Timothy to pay her one half the 2008 tax refund prior to sale of marital residence. She also argues that family court erred when it failed to advance her attorney’s fees on appeal and cross-appeal.
The trial court divided the marital property and ordered Timothy to pay Margaret her share from his half of the proceeds from the sale of the marital residence. The trial court found that Timothy dissipated funds from a joint savings account and ordered him to pay the parties’ entire credit card debt. On the issue of maintenance, the trial court permitted, over Timothy’s objection, the testimony of a social worker who diagnosed Margaret with PTSD and incapable of employment because of a variety of symptoms. Margaret was awarded maintenance for fifteen years and $3000 in attorney’s fees.
Both parties filed motions to alter or amend, both of which were denied. Timothy appealed and Margaret cross-appealed. Margaret also filed a motion in family court for an advance of attorney’s fees for the appeal, which the family court denied.
The Court of Appeals held that family court abused its discretion when it permitted the social worker to opine that Margaret has PTSD. Since the social worker lacks training and education to diagnose psychological disorders, her testimony was inadmissible. The Court concluded, however, that since the trial court did not rely on the social worker’s testimony and based its findings on the factors in KRS 403.200, the error was harmless, not requiring reversal. Margaret’s claims that the maintenance award is inadequate was denied, the Court finding no abuse of discretion. The Court found no abuse of discretion in any of the other issues presented on the appeal or cross-appeal.
On the issue of Margaret’s attorney’s fees on appeal, the Court of Appeals held that family court retains jurisdiction over this matter after an appeal is filed. Prospective fees may be awarded and the trial court retains jurisdiction to alter its award and order reimbursement of any unjustified amounts. Therefore, Margaret shall be permitted to file a motion for attorney’s fees as a result of this appeal.
Wife appealed FC’s Findings of Fact, Conclusions of Law, and Judgment regarding valuation and distribution of her oral surgery practice in dissolution proceedings, on remand from appellate court.
FACTUAL AND PROCEDURAL BACKGROUND:
Wife established oral maxillofacial surgery practice during marriage, which was parties’ largest asset at time of divorce. At trial, Wife’s expert presented two separate reports regarding practice’s value, both comparing assets and liabilities. The first report reflected that the practice had a value of $237,000 as of 12/31/03. Wife’s expert also applied a 10% discount for lack of marketability, though he initially had discounted the value by 23%. He testified that this discount represented the ability to quickly convert property to cash at a minimal cost. His second report valued the business as of December 2004 at $114,000, which he testified reflected a significant drop in cash from the prior report. Husband’s expert valued the business using data from Wife’s expert, but averaging the values resulting from four different valuation calculations, and determined the business’ value at $669,075. FC agreed with this value and Husband correspondingly received a large sum of cash. Wife appealed and, ultimately, SC determined that FC erred by failing to recognize the presence of both business and personal goodwill and by using an arbitrary average of numbers to determine the business’ value. On remand and the basis for this appeal, FC determined that the business’ value subject to division was $237,000. On appeal, Wife argues that FC should have adopted valuation performed closest to date of decree; that FC failed to apply a 23% discount rate to 2004 value; and that FC should have awarded her post-judgment interest on the money she overpaid Husband pursuant to FC’s first judgment.
CA noted that there is no presumption that assets should be valued within close proximity to the date of decree and that Kentucky has not adopted one particular method of valuation. CA noted that Wife’s expert testified that 2004 was an unusual year for the practice due to the significant drop in cash; that Wife had dissipated $199,000 by transferring the funds to her mother and FC had considered this as a credibility factor in the valuation; that Wife had made frequent fund transfers from the business without a proper accounting; and that Wife had sole control of the business during 2004. Given these facts, CA found FC had ample evidence to support its decision to base the valuation on the 2003 report. CA also found Wife’s argument that FC should have applied 23% discount for lack of marketability given the lack of cash in 2004 to be moot given the appropriate use of the 2003 valuation. Lastly, CA held that Wife was not entitled to post-judgment interest on amounts over-paid to Husband; given that the original judgment was vacated, there was no judgment from which interest would accrue; and awards of pre-judgment interest on unliquidated claims are within the trial court’s discretion, and FC did not abuse its discretion in refusing to make such an award.
CA’s order affirmed.
Published: Opinion Affirming in Part, Vacating in Part and Remanding
Appellant appeals from the order of Boyd Circuit Court confirming the report and supplemental report of the Domestic Relations Commissioner.
The parties were married in 2001 and separated in 2006. Appellant was sixty-eight years old and retired, and Appellee was sixty-four years old and self-employed. Appellant moved the circuit court for $1500.00 per month in temporary maintenance, claiming her retirement insurance was $1,272.56 while Appellee received more than $3,000.00 per month from retirement in addition to income from his cabinet shop. Appellant was granted temporary exclusive possession of the marital residence which she owned at the time of the marriage, and Appellee was ordered to pay the mortgage and utilities.
A bifurcated decree of dissolution was entered June 25, 2008, reserving issues concerning division of property. After mediation failed, the matter was referred to the DRC for the final hearing which was held on April 22, 2010. The DRC found that the increase in the mortgage on the marital residence was due to Appellant’s premarital debt and that Appellee had invested his premarital funds to improve the residence and to purchase an adjoining lot on which he constructed a cabinet shop. The DRC found that Appellant should be responsible for the mortgage and Appellee was awarded the adjoining lot and cabinet shop.
Appellant filed exceptions to the DRC’s report which used the preponderance standard on the property issues when such decisions must be based on clear and convincing evidence. The circuit court ordered the DRC to provide a supplemental report using the standard of clear and convincing evidence. When the DRC’s original finding was confirmed in the supplemental report, the circuit court adopted the DRC’s findings and this appeal followed.
After discussing the standard of review set out in Hunter v. Hunter, 127 S.W. 3d, 656 (Ky. App. 2003), the Court of Appeals considered the issues. Appellant contended that Appellee failed to sufficiently trace the funds used to purchase and build the cabinet shop and the DRC’s and trial court’s reliance on Appellee’s documents was erroneous. The CA cited Sexton v. Sexton, 125 S.W.3d 258 (Ky.2004) which addressed the classification and division of property and determined that Appellee’s documents failed to adequately trace his contribution of premarital funds to this property. The trial court’s order adopting the reports of the DRC was vacated and remanded for reclassification of the parties’ property as marital or nonmarital.
Because of the reassessment of the classification of property, the trial court must reconsider the division of marital property and debt as well as Appellant’s request for maintenance and attorney fees. The trial court’s rejection of Appellant’s claim for reimbursement of medical bills for treatment of injuries sustained during an altercation with Appellee was upheld because she failed to provide documentary proof of her assertion.
Husband and Wife were married for twenty-one years, during which Husband earned his degree, teaching certificate, and Rank 1 teacher status, earning $44,000 annually at the time of divorce. Husband and Wife married when Wife was pregnant at age 16 with their first child. Wife never obtained finished high school and worked only six years at the beginning of the marriage as a nursing assistant; she was a homemaker and raised the parties’ children for the remainder of the marriage. Husband’s retirement account with Kentucky Teachers’ Retirement Services (KTRS) was the only substantial assets of the parties. FC awarded joint custody to the parties but named Husband as Primary Residential Custodian and ordered Wife to pay Husband child support until children graduated from high school (a total of nine months). FC ordered Husband to pay Wife maintenance of$360 per month for two and a half years on the basis that this duration would provide Wife time to obtain her GED and job training. FC gave one car to Wife and two cars to Husband, reasoning that Children needed the second car for transportation to and from school. Lastly, FC held that KTRS account was exempt from division.
CA held that, per KRS 161.700, KTRS accounts are nonmarital property unless the other spouse has a retirement account of her own, which would then trigger the provisions of KRS 403.190(4) allowing the retirement accounts to be equally offset from division. Without the other retirement account, CA held that KRS 161.700 requires KTRS accounts to be classified as nonmarital property that cannot be divided, nor can such classification be treated as an “economic circumstance” to considered in division of marital property. Thus, FC did not err in setting the KTRS account aside to Husband or in providing a disproportionate amount of marital estate to Wife.
CA found no abuse of discretion in maintenance award nor did FC err in providing additional car to Husband for children’s use.
Lichtenstein v. Lichtenstein, 2008 SC-000661-DG
Issue: Income withholding orders for child support, property division, and reimbursement of marital debt.
Husband’s appeal involved two Income Withholding Orders, each requiring garnishment of his wages. One Order was for child support arrearage, spousal support arrearage, medical care, insurance reimbursement, and attorney’s fees. The other was for wife’s monetary share of marital property and reimbursement for a marital debt she paid. Husband claimed the Order for child support failed to take into account wife’s support arrearage as a result of a change in custody and further claimed that Kentucky’s Uniform Interstate Family Support Act (UIFSA) does not apply to marital debt or property and therefore the Order for property division and reimbursement of marital debt exceeds statutory limitations applicable to ordinary garnishment of non-child support debt.
The parties were married in 1978 and had two children. Husband is a physician and wife is an attorney. Husband filed for divorce in November 1990 and in June, 1996 the court issued a ruling on all financial issues, including child support. This judgment was appealed and on August 28, 1998 the trial court was affirmed on all issues.
Wife served an Order of Wage Garnishment on husband’s employer (Louisville Children’s Eye Specialists, PSC, of which husband was the only shareholder) in September, 1996 and from September, 1996 through February, 2000, the PSC remitted $8817.74 to wife pursuant to the Order.
In October, 1996 parties signed Agreed Order giving husband physical custody of children, discontinuing his child support while the children were with him, reserving the issue of child support to be paid by wife and agreement that wife’s child support would be set off as against husband’s arrearage.
On January 30, 2003, wife moved family court to hold husband in contempt for failing to satisfy June, 1996 judgment and hold husband’s PSC liable for failure to respond to the 1996 Order of Wage Garnishment. Husband responded with request that court establish wife’s child support for the period he had custody and determine how much he actually owed under the June, 1996 judgment after offsetting wife’s obligation.
Family Court found that the 1996 Agreed Order had modified the original child support order and that it was an enforceable order, the terms of which were at issue in the pending litigation, and that wife’s off-set applied only to the child support arrearage issues. The court found husband’s PSC liable to wife for funds that should have been withheld plus 12% interest and specifically found that none of the $121,586.76 for “other support” was from child support arrearage. Trial Court decided that child support and other support contempt proceedings would be heard separately as unrelated claims. Nevertheless, the court held husband in civil contempt for failure to pay the entire June, 1996 judgment by an Order dated April 26, 2006.
Husband moved to Illinois in July, 2005 and in August, 2006 wife moved for, and court granted, an Income Withholding Order for $639,773.12 encompassing the entire June, 1996 judgment, with interest, and did not determine amount of child support owed by wife. Husband moved to vacate and argued that property division and marital debt does not constitute support.
In March, 2007, wife requested the court to enter superseding orders because the February, 2009 orders did not comply with
Supreme Court held that the family court’s failure to determine the amount wife owed was an abuse of discretion and remanded for further proceedings. The Court reasoned that since the parties had agreed that wife’s child support would be determined and offset against husband’s arrearage and their agreement was found to be enforceable in the court’s September 2004 Order, it was error to enter an Income Withholding Order before offsetting wife’s obligation.
The Supreme Court disagreed with the Court of Appeals’ holding that the statutory definition of “support order” was sufficiently broad to include all items in the original 1996 trial court judgment, and held that monies owed for interest in marital property or for payment of marital debt cannot be construed as support within the context of the Family Support Act. The court reasoned that the UIFSA does not provide for litigation of matters collateral to child or spousal support, thus reimbursement of a marital debt paid is not child support and cannot be enforced by an Income Withholding Order.
The decision of the Court of Appeals is reversed and matter remanded to Jefferson County Family Court for proceedings consistent with opinion.
Young v. Young, 2008-CA-000845-MR
Issue: Classification and division of firefighter’s pension plan
Published: Affirming in Part, Reversing in Part and Remanding
Husband appealed TC’s classification and division of his firefighter’s pension plan as a marital asset. He claimed his defined benefits plan was exempt from division under KRS 61.690, that premarital contributions were improperly included in its award, and that an incorrect method was used to divide the pension.
The parties were married in 1989, separated in 2003, and a decree of dissolution of marriage was entered on December 12, 2005 reserving the issue of division of husband’s pension administered by the Kentucky Employees Retirement System (KERS). A supplemental judgment was entered April 8, 2008 concluding the pension was a marital asset subject to division and finding the delayed division method set forth in Poe v. Poe, 711 S.W.2d 849 (Ky. App. 1986) to be the most equitable method of dividing the pension. Wife was awarded one-half of 194/240 months of service credit as of November 2, 2007, the 20th anniversary of husband’s participation in the plan.
Husband’s assertion that KRS 61.690 prohibited division of his pension was held to be without merit because the 2000 amendment to the statute which exempted KERS benefits from consideration as marital property was deleted in 2002 and the exemption was not in effect when the divorce was filed or on the date of dissolution.
Husband also claimed that trial court improperly included premarital contributions to the pension, but the CA found that the trial court properly deducted the 24 months of contributions prior to the marriage and the 22 months of contributions made after entry of the decree and thus was unable to conclude the trial court improperly included premarital contribution in its award.
Citing Armstrong, 34 S.W.3d at 86 (citing Clark v. Clark¸782 S.W.2d 56, 62 (Ky. App. 1990), the CA said it is clear “that pension and profit sharing plans should be valued on the date of the divorce decree.” Since the trial court’s award incorrectly set the valuation date at November 2, 2007 (the date of husband’s twentieth anniversary of participation in the plan, this matter was reversed and remanded for entry of an award valuing the pension on December 12, 2005, the decree date and recalculation of the coverture fraction using the earlier date.
Finally, husband argued trial court erred in utilizing the delayed division method in allocating his pension benefits and should have used the net present value method. The CA found that the trial court clearly weighed the evidence to determine the proper method of dividing the pension and there was no abuse in the exercise of its broad discretion.
The 2010 Session of the Kentucky Legislature enacted the following legislation affecting domestic relations matters.
House Bill 1is known as Amanda’s Bill in honor of Amanda Ross who was killed in 2009 in a domestic violence incident. The Act allows judges to order violators of a Domestic Violence Order to wear a global positioning system tracking device to monitor abuses and help make sure they maintain the required distance from their victims. Felony charges may be brought against DVO violators who attempt to remove a court-ordered tracking device.
House Bill 289amends relevant sections of Kentucky Revised Statutes to require the Kentucky Employees Retirement System, the County Employees Retirement System, the State Police Retirement System, the Kentucky Teachers’ Retirement System, the Legislators’ Retirement Plan, and the Judicial Retirement Plan to honor qualified domestic relations orders if the orders meet the requirements established by the retirement systems or plan and by this legislation. Affected statutes are KRS 6.525, 16.645, 61.690, 78.545, 161.700, and 21.540.
The Act amends KRS 16.505, 61.510, 78.510, 161.220, and 21.540 to define a qualified domestic relations order as any judgment, decree, or order issued by a court or administrative agency which relates to the provision of child support, alimony payments, or marital property rights to an alternate payee and to define an alternate payee as a former spouse, child, or other dependent of a member or retired member of the retirement systems; amends KRS 161.620 to clarify that the minimum benefit payment will not apply if the order reduces the member’s payment below the minimum. The bill also amends KRS 161.585 to provide procedures for responding to and providing testimony when an employee of the Kentucky Teachers’ Retirement System is subpoenaed; amends KRS 161.700 to conform to KRS 403.190(4); and amends KRS 21.540 to provide authorization for the Judicial Form Retirement System to promulgate administrative regulations.
Finally, HB 171 amends KRS 382.135 to specify that the in-care-of address is not required in deeds making certain types of conveyances, including deeds which transfer property through a court action pursuant to a divorce proceeding. The link we have to this bill doesn't work. If you have it, please post a comment. Thanks.
Gertler v. Gertler, 2008-CA-001367
Issue: Custody, gifts as marital or non-marital property
Dad appealed from TC’s decree of dissolution, arguing that TC abused its discretion by awarding sole custody of parties’ four children to Mom and that TC erred in its determination that cash gifts from Dad’s parents during the marriage were marital property.
Mom and Dad married in 1996 and had four children. The family followed an Amish-like lifestyle, using no modern conveniences, dressing in plain clothes that completely covered the body (including the head for the females), refusing to seek medical care, and adhering to the rule that the father made all decisions for the family. During their marriage, Dad’s parents made three separate cash gifts, totaling $66,000, each time for the parties to purchase a new home. In December 2007, Mom left Dad and filed Petition for Dissolution and Mom ultimately sought sole custody of children citing the parties’ inability to make joint decisions for the children due to Dad’s disbelief that Mom should be able to participate in those decisions. After trial, TC ordered that Mom would have sole custody and found the cash gifts to be marital property.
The party claiming nonmarital property has the burden of proving the nonmarital character of the property. Property received by gift during the marriage may be nonmarital if it is proven that the property was intended by the donor as a gift to only one of the parties. Per O’Neill, there are 4 factors to be considered in determining whether a gift was intended for one or for both parties: the donor’s source of the funds; the intent of the donor at the time as to the intended use of the property; the status of the marriage relationship at the time of transfer; and whether the parties had agreed that the gift would be nonmarital. The only contested factor here related to the donor’s intent. At trial, both Dad and his parents testified that the cash gifts were meant for him alone, while Mom testified that they were meant for the family. CA noted that while TC was to consider testimony regarding donor’s intent, the intent can also be inferred from surrounding circumstances and other words and actions of the donor, as well as conduct of the parties. Other than the testimony of Dad and his parents, all other evidence pointed to the cash gifts as being intended for the family. TC found that Dad failed to meet his burden of proof on this issue and CA found that TC did not clearly err in this decision.
Dad argued that per Squires, TC could not require parties to have a “cooperative spirit” in order to grant joint custody, so awarding sole custody to Mom because of his failure of cooperation with her in decision-making was an abuse of discretion. CA held that TC correctly looked to the future to predict whether parties would be able to co-parent and appropriately made its award on that basis.
HARRIS, SENIOR JUDGE, PRESIDING; LAMBERT AND VANMETER CONCUR
Ex-Husband appealed from TC’s decree of dissolution, arguing that TC erred by determining that his entire workers’ compensation settlement was marital property.
Husband suffered a work-related back injury four months prior to parties’ separation. He filed application for worker’s compensation (WC) benefits after the separation, and the WC settlement agreement was approved after Wife had petitioned for dissolution of marriage. Husband received a gross settlement of $30,000.00 for his injury, which included compensation for future and past income benefits, waiver of future medical benefits, waiver of his right to reopen, and a waiver of his right to vocational rehabilitation. TC entered a decree thereafter, finding the entirety of the WC settlement marital and awarding half of it to Wife. In amended findings and conclusions of law, TC found that Husband dissipated $11,300.00 of his WC settlement, and he appealed.
Case law has established that WC benefits in either the form of a lump sum settlement or ongoing benefits are marital property. Husband argued that the WC settlement was not divided in just proportions. CA noted that TC divided the WC settlement equally, that TC found that H had dissipated funds from his WC settlement, and that TC recited that it considered the KRS 403.190 factors. CA also noted that TC specifically stated that the marriage was not of a short duration, that Husband had not demonstrated that he was totally disabled, that he had the ability to obtain appropriate job skills but chose not to do so, and that the parties contributed equally to the marriage. CA provided that they may have weighed the evidence differently, but TC did not abuse its discretion in dividing the WC settlement equally.
Husband appealed the trial court’s division of marital property, award of temporary maintenance, award of attorney fees, and denial of relief to quash garnishment writs and judgment lien.
Marital residence: Court awarded husband the residence, but awarded all the equity in the residence to the wife as her non-marital property. Husband argued that the court should have apportioned the equity as set out in
Timeshare: The court ordered that the timeshare be sold. Wife was to receive $1,522.88 of the proceeds as her non-marital property. The remaining proceeds were to be divided equally. Husband argues that the court erred in not taking into consideration the debt associated with the timeshare, which the court assigned to husband. COA found that debt is part of the current mortgage on the marital residence. The court deducted the full amount of both mortgages from the value of the residence to determine the equity in the property. As a result, the court properly considered the debt.
Temporary maintenance: Court ordered husband to pay wife temporary maintenance of $2500 per month. The order included a provision for health insurance and car insurance. Husband argued that the award was excessive and that wife intentionally remained unemployed. COA found the trial court had imputed wife with income in calculating temporary maintenance and found no basis to disturb the trial court’s judgment.
Attorney fees: Trial court awarded wife $10,000 in attorney fees. Husband argued that wife not entitled to any fees due to the amount of assets wife received in the judgment. COA found no abuse of discretion. Wife only awarded half of the fees she asked for, husband retains a higher earning capacity, and husband received the residence and most of the income producing property.
Writs of garnishment and judgment lien: After the trial court ruled on the parties CR 59.05 motions, wife filed non-wage garnishment against three of husband’s accounts and a judgment lien against his real property. Husband moved to quash the writs and lien as premature, but trial court denied the motion. COA found that the garnishment writs and judgment lien were not filed prematurely. The court’s judgment stays in effect until modified, although enforcement is stayed under CR.62.01. When compliance dates have passed by the time the court denies a CR 59.05 motion, the trial court should allow a reasonable amount of time for the obligor to comply with the original order. Here, a reasonable amount of time was given.
Wife’s garnishment of tax-deferred accounts resulted in 10% penalties for early withdrawal, plus taxes and fees. COA found that the garnishment writs subjected husband to penalties that far outweighed his failure to comply with the court’s orders. The penalties and taxes imposed on husband changed the overall allocation of marital assets. COA remanded this issue to the trial court for a determination of the amount of penalties and taxes incurred and an allocation of this amount between the parties.
Rearden v. Rearden, __ S.W.3d __ (
The parties divorced after approximately 6 months of marriage. No children were born during the marriage. Thus, the primary issues at trial and on appeal concerned the classification of assets as marital or non-marital property:
Down payment on marital residence: The trial court classified the husband’s pre-wedding down payment of $3000.00 from his personal money market account on the marital residence as marital. Following the Source of Funds Rule, the COA found that the down payment was an identifiable portion of the purchase price and it was made by the husband prior to the wedding. However, the husband could not trace the $526.87 refund received from the down payment during the marriage as a result of calculations in the closing documents. COA held that $526.87 refund was marital property and that the remaining $2473.13 was husband’s non-marital property.
The treadmill, dining room suite, and bed/mattress: The trial court classified these items as marital property since the husband could not sufficiently prove they were purchased with his non-marital funds. COA agreed. Husband purchased the items with his personal credit card, but paid some of the credit card transactions using funds from the parties’ joint account. The fact that the wife did not challenge husband’s testimony that he used non-marital funds to buy the items does not equate to an admission by the wife. Husband still had to meet his burden of proof.
Husband’s military retirement benefits: The trial court found that since the parties were married for 2 months of husband’s 270 months of service credit, wife was entitled to $8.08 per month for the remainder of husband’s life. Instead of requiring the husband to make such a small monthly payment to the wife, the court ordered husband to pay the wife a lump sum of $3000. The court did not give an explanation of how it arrived at the lump sum amount. COA agreed that the wife would be entitled to $8.08 per month for the rest of the husband’s life and that the trial court had discretion to convert the payments to a lump sum. COA reversed and remanded for an explanation of how the court arrived at $3000.00 as a fair calculation of the wife’s future interest.
The final issue on appeal concerned whether the trial court erred in not awarding the husband attorney fees after finding the wife to be in contempt of court more than once. COA affirmed, finding that the trial court is not authorized to consider any other factors beyond the financial positions of the parties when awarding attorney fees. COA also noted that the husband was awarded attorney fees in the companion appeal, specifically addressing the finding of contempt.
TO BE PUBLISHED: AFFIRMED
PANEL: ACREE PRESIDING; NICKELL AND KNOPF CONCUR
DATE RENDERED: 7/2/2009
Ex-Husband appealed TC’s order finding that he waived his objection to improper venue and dividing marital assets and awarding maintenance, claiming error.
The parties separated after 20 years of marriage. They had one teenage child. At the time of separation, the parties resided in Oldham County near the Jefferson County line. The most Ex-Husband earned in one year was about $35,000, while Ex-Wife was earning $235,000 at the time of separation in addition to receiving bonuses, stocks, and stock options. Ex-Husband did not work and provided primary care for the parties’ son for a period of time.
Ex-Wife filed for divorce in Jefferson County. Subsequently, she filed a domestic violence petition in Oldham County and an emergency protection order was entered. Ex-Husband filed his response to the divorce petition in Jefferson County, noting that neither party resided in Jefferson County and that the proper venue was Oldham County; but rather than objecting to the venue, stated that he “reserves the right to ask [the] court to transfer [the] case to the Oldham Circuit Court.” He then filed his mandatory case disclosure in Jefferson County.
A case management conference was scheduled by the Jefferson family court and mediation was also scheduled. Both parties also filed other motions with the Jefferson court, as well as an Agreed Order dismissing the Oldham County domestic violence order. Only after these filings did Ex-Husband then file a motion requesting a transfer of the case from Jefferson County to Oldham County on grounds of improper venue. The Jefferson family court proceeded with the case management conference, finding the motion for transfer to be untimely and denied it on that basis. After final hearing, the Jefferson family court awarded Ex-Wife 57% of the marital assets and 43% to Ex-Husband, awarded Ex-Husband maintenance of $2,000 per month for a period of six Years, and required Ex-Wife to continue providing health insurance coverage for Ex-Husband through COBRA for three years, which the court reduced to eighteen months in response to Ex-Wife’s motion to alter, amend or vacate, as this was the period of allowable coverage under Ex-Wife’s health insurance plan.
Ex-Husband then appealed.
Venue. At the time the case was filed, Oldham County was the proper venue.
“Improper venue” is a defense, CR 12.02(c), which a party must assert, either in a responsive pleading or by motion, within 20 days after service
of the summons upon him/her. If the defense is not so asserted, it is waived. As Ex-Husband did not timely raise his objection under the Rules, he waived the objection.
Furthermore, Ex-Husband availed himself of the Jefferson family court’s time and judicial resources by filing documents with the court and entry of Agreed Orders with that court. Were the court to allow Ex-Husband’s “reservation” as an assertion of the improper venue defense beyond the time allotted by the Civil Rules, the court would enable a form of forum shopping, allowing a party to subjectively assess how the litigation is progressing before seeking a different venue. If Ex-Husband wanted the case transferred to another county after failing to object to improper venue in his responsive pleading, the legal basis of such a post-pleading motion was the doctrine of forum non conveniens. Even if Ex-Husband’s motion were viewed under this doctrine, the Jefferson family court did not err in denial of the motion, as it had already expended judicial resources in the case and the parties’ residence was far from inconvenient.
Distribution Of Marital Assets. Ex-Husband also claims TC erred by failing to distribute the marital assets equally. CA found that, in determining the division, TC followed the statute and considered “all relevant factors,” including those listed in KRS 403.190(1)(a)-(d), and found no error.
Award Of Maintenance. Ex-Husband also contended TC abused its discretion by awarding him maintenance of only $2,000 per month for six years. He argued the
CA found that TC properly considered the nature of Ex-Wife’s financial resources, the standard of living established by the parties during the marriage, the duration of the marriage, and the ability of Ex-Husband to meet his own reasonable needs, and found no error.
GASKILL V. ROBBINS DIVISION OF MARITAL PROPERTY, GOODWILL 2007-SC-000190-DGE PUBLISHED: AFFIRMED PANEL: NOBLE PRESIDING; CUNNINGHAM, SCHRODER, VENTERS AND SCOTT CONCUR; ABRAMSON CONCURS IN PART AND DISSENTS IN PART COUNTY: WARREN DATE RENDERED: 2/13/2009
SC considered whether the goodwill of a closely held or sole proprietorship business can have both personal and enterprise values, and whether TC improperly assumed that it must make a 50-50 division of the marital assets.
FACTS: During the marriage, Wife worked as owner and sole practitioner of an oral and maxillofacial surgery practice, while Husband worked as a salaried employee with several businesses. At the time of trial, the parties had amassed a marital estate of over $4 million, including the value of the practice at about $670,000. Wife earned about 90% of the income during the marriage, and testimony indicated that she was very hard-working and responsible both for management of the office and patient acquisition, although Husband did provide minor assistance with the business. At trial, Wife’s expert testified that, on an asset-based analysis, the practice was worth about $221,000, which included a value of $0 for goodwill of the business because Wife’s role in the business amounted to a “non-marketable controlling interest.” Husband’s expert used the average of the values derived from four different methodologies, assuming the existence of Wife’s non-compete agreement and goodwill, and arrived at a value of $670,000. TC accepted Husband’s expert’s valuation, relying on the premise that there was no authority for the distinction between personal and enterprise goodwill in Kentucky law. CA reversed on TC’s goodwill ruling because it believed TC was under incorrect impression that goodwill must be assigned a value greater than $0, and it recognized that not all businesses have goodwill. TC determined that marital property should be divided 50-50, relying on the parties’ equal contribution to the marital estate, including duties at home and raising their child, as well as Wife’s greater ability to rebuild her estate.
Valuation of Goodwill:
If the reputation of a business will draw customers and get them to return, the business has goodwill. Previous KY cases recognize that everything of value in a business, including transferable goodwill, must be counted. None of those cases recognized a distinction between personal and enterprise goodwill, but they did not prohibit the distinction. Enterprise goodwill is based on the intangible, but generally marketable, existence in a business of established relations with employees, customers, and suppliers. On the other hand, much like professional degrees, personal goodwill is nontransferable, belonging primarily or only to the individual. If the value of a business is to be decided on a fair and reasonable basis, and property divided equitably, this must be considered. SC found that the skill, personality, work ethic, reputation, and relationships developed by Wife are hers alone and cannot be sold to a subsequent practitioner. This personal goodwill is nonmarital property that will continue with her regardless of the presence of any spouse. SC held that to consider this personal goodwill as marital property would effectively attach her future earnings, to which Husband has no claim. Further, if Husband were then awarded maintenance, this would amount to double-dipping and cause a dual inequity to Wife. Lastly, SC recognized that the distinction between enterprise and personal goodwill is as susceptible to expert valuation as goodwill on the whole is.
Valuation Methods: SC held that using an average of values to obtain a value of a business, without some basis other than an inability to choose between conflicting and competing valuation methods, is nothing more than making up a number, for there is no evidentiary basis to support that specific number. The trial court must fix a value, and there should be an evidence-based articulation for why that is the value used. Further, the business must be valued in its existing state, and a non-existing non-compete clause cannot be considered.
Equitable Division of Marital Property: TC recognized that there is no presumption of a 50-50 division without regard to the evidence. However, SC held that because a court must divide the property in “just proportions,” starting the parties off in an even position in order to determine how to apportion is not unreasonable, provided that TC considers all the relevant factors of KRS 403.190. This statute requires consideration of each spouse’s contribution to acquiring the marital estate, and here, Wife clearly contributed more monetarily than Husband did. However, the ability to work with the support of a spouse/co-parent is an intangible that goes beyond dollars. Within the marital arrangement, abilities are often unequal, the use of one’s time varies according to present need, and each spouse does things to accommodate the other. How the parties earn money and build wealth is affected by these variables, but is done for common purpose. Thus, SC held, the term “contribution” has tangible and intangible components that must be weighed by TC. Furthermore, in its division of property, TC should also consider parties’ ability to earn after divorce, and Wife clearly has the advantage here.
CA’s decision re goodwill and TC’s valuation and division of practice affirmed on other grounds, and TC’s 50-50 division of property affirmed. Remanded to TC to determine value of practice and divide marital estate.
DISSENT IN PART BY ABRAMSON: If expert testimony establishes that covenants not to compete are an integral part of a sale of a profession practice, as they typically are, the expert should be able to take them into account in assessing the value of the practice.
FEHR V. FEHR
PUBLISHED: AFFIRMING IN PART AND REVERSING AND REMANDING IN PART
DATE RENDERED: 10/3/2008
Ex-Husband appealed TC’s decision awarding Ex-Wife a villa and a one-half marital interest in a mini-storage warehouse located in the Netherlands Antilles, alleging that he should have received his nonmarital interest in those properties. Ex-Wife contended that TC lacked subject matter jurisdiction over the property located in the Netherlands Antilles, or alternatively, that the law of that country should apply to the division of the property. She also challenged the admission of appraisals performed by an unlicensed real estate agent.
The parties were married on August 7, 2000, in the Netherland Antilles. Both were KY residents at the time and Ex-Husband continued to reside in KY throughout the marriage. During the marriage, Ex-Wife primarily resided in St. Maarten but did not change her United States citizenship. In June 2004, Ex-Husband filed a petition for dissolution in KY, asserting his KY residence. Ex-Wife admitted in her Response that she had been a KY resident for several years, and subsequently filed documents in the record demonstrating that her domicile was within the U.S. Ex-Wife did not object to the jurisdiction of the Oldham TC until two years after the petition was filed. The parties were equal shareholders a mini-warehouse storage company, incorporated pursuant to the laws of the Netherlands Antilles. The corporation was formed prior to the marriage. Ex-Husband made a total pre-marital investment of $110,693 to this property, while Ex-Wife invested $60,000 in the purchase of the property prior to the marriage and managed the property since the purchase. The parties also owned a villa in St. Maarten, titled in a company organized under the laws of the country of Anguilla and of which Ex-Wife was the sole director. Ex-Wife invested $101,000 from the sale proceeds of her pre-marital home towards the purchase of the villa, while Ex-Husband contributed $217, 000 of non-marital funds to the purchase. A St. Maarten real estate broker appraised the villa at $705,000 and the warehouse business at $585,000. He was not a licensed appraiser but testified that licensure is not customary in the Netherland Antilles.
TC found that the warehouse was a joint business venture, declared it to be marital property, and equally divided the parties’ interests. Despite the evidence that both parties contributed nonmarital funds toward the purchase of the villa, TC made an “equitable decision to award the entirety of the property to Ex-Wife, stating that such a decision was made in consideration of several factors, including the contribution of each party to the home, the difficulties in enforcing a Kentucky judgment as it relates to the St. Maarten property; and that TC ordered no maintenance paid from Ex-Husband to Ex-Wife.
Because both parties were Kentucky domiciliaries, CA concluded that TC had subject matter jurisdiction and personal jurisdiction over the parties to grant the dissolution. Ex-Wife objected to the assertion of TC’s jurisdiction, due to TC’s lack of power to decide the parties’ interest in the St. Maarten property, thus claiming TC’s lack of subject matter jurisdiction. Subject matter jurisdiction cannot be waived or otherwise conferred by the parties. It either exists or it is absent. Although it is well established law that KY courts are without jurisdiction to settle title or possessory rights to land outside the Commonwealth, it is equally accepted that a court may, through an in personam decree, affect title to land in another state. CA held that by virtue of TC’s personal jurisdiction over the parties, it had the authority and power to indirectly affect the property by compelling the conveyance of the interest, though an action to enforce a foreign decree so as to transfer title in accordance with the decree generally requires a separate action in the jurisdiction in which it is located.
REAL ESTATE EXPERT QUALIFICATIONS:
Ex-Wife contended that the testimony of the real estate broker was inadmissible because he was not licensed in accordance with Kentucky law. CA held that KY statutory regulation of real estate appraisers does not supersede the Rule of Civil Procedure placing qualification of expert witnesses within the discretion of TC based on the witnesses’ knowledge, skill, experience, training, and education. Although a statutory license requirement is relevant to TC’s determination, the lack of a license does not render the testimony inadmissible.
ALLOCATION OF NONMARITAL PROPERTY
A proper inquiry into the division of property begins with a three-step process: (1) TC first characterizes each item of property as marital or nonmarital; (2) then assigns each party's nonmarital property to that party; and (3) finally, equitably divides the marital property between the parties. When property consists of both marital and nonmarital contributions and has increased in value during the marriage, the reason for the increase in nonmarital property value must be determined. If attributable solely to economic conditions, the increase is nonmarital. If the increase is the result of the joint efforts of the parties it is considered marital property subject to division in equitable proportions.
With regard to the division of the warehouse business, CA held that while Ex-Husband contributed more than Ex-Wife financially, she contributed a corresponding amount in her effort as manager of the business both before and during the marriage so that her nonmarital contribution as manager of the property was equal to the monetary contribution of non-marital funds contributed by Ex-Husband. Thus, TC did not err in awarding each party a one-half interest in that asset.
With regard to the villa, CA held that TC’s award of the villa to Ex-Wife is inconsistent with KRS 403.190 and the three-step process required to be applied. Because TC found that Ex-Husband and Ex-Wife made nonmarital contributions to the purchase of the villa, it was required to award each their respective nonmarital interests in the property. Only after it has restored each party their nonmarital interest are the factors delineated in KRS
403.200 and an award of maintenance, if any, appropriate. CA stated that TC is not permitted to circumvent KRS 403.190 in lieu of a maintenance award.
Digested by Michelle Eisenmenger Mapes, Diana L. Skaggs + Associates
ALLISON V. ALLISON
DIVORCE: MARITAL/NONMARITAL CHARACTERIZATION OF PROPERTY AND DEBTS; ATTORNEY FEES
PUBLISHED: AFFIRMING IN PART AND VACATING IN PART AND REMANDING
PANEL: BUCKINGHAM, PRESIDING; THOMPSON AND HENRY CONCUR
DATE RENDERED: 02/15/2008
Ex-Husband appealed from TC’s orders relating to marital/nonmarital nature of his family's business, the marital/nonmarital nature of a $66,714 debt allegedly owed by Ex-Wife to her mother, and the award of attorney and expert witness fees.
Ex-Husband and Ex-Wife were married on September 5, 1986. In the early 1970's, Ex-Husband's mother and father acquired all stock in an office-supply business. Ex-Husband owned all shares of stock in the business at the time of trial, which he claimed to be his nonmarital property. He claimed that prior to the marriage he entered into an agreement that gave him an 8% interest in the business in exchange for a promissory note from him for $32,000. Ex-Husband never paid the note, and TC found that his father had forgiven the debt. Ex-Husband contended that he owned this portion of the outstanding business shares as his nonmarital property because the forgiveness of the debt constituted a gift to him. Alternatively, he contended that this ownership interest is his nonmarital property because he acquired it before marriage.
As to the remaining shares of corporate stock, during the marriage, there was a stock redemption agreement between Ex-Husband's parents and the corporation whereby the parents sold their 84,800 shares of stock to the corporation for a sum that was paid to them over a ten-year period by corporate earnings. Ex-Husband claimed that these shares were also his parents' gift to him and that he never paid any money, from marital funds or otherwise, for the stock.
Ex-Husband ultimately argued to CA that he had at least an 8% nonmarital interest in the business due to the forgiveness of the payment for the stock by his father, citing KRS 403.190(2)(a) which expressly excludes property acquired by gift from the definition of “marital property” unless “there are significant activities of either spouse which contributed to the increase in value of said property and the income earned therefrom.” Alternatively, Ex-Husband stated that the 8% interest is nonmarital because it was acquired before marriage.
CA provided that if Ex-Husband acquired his ownership interest in exchange for the note, and that indebtedness was later forgiven, then the forgiveness of the indebtedness would be a gift to Ex-Husband and would constitute a nonmarital interest in the corporation. CA thus vacated TC’s determination that Ex-Husband did not have a nonmarital interest in the corporation and remanded the matter for TC to determine the extent of Ex-Husband's interest prior to the redemption agreement and whether such interest was marital or was proven by Ex-Husband to be nonmarital as a result of a gift or nonmarital as having been acquired before marriage.
CA further noted that if, on remand, TC determined that Ex-Husband's interest prior to the redemption was marital, then any increase in ownership interest because of the redemption agreement was also necessarily marital. If TC determined that Ex-Husband's interest prior to the redemption was nonmarital, then it must determine whether any increase in value was marital or nonmarital. CA noted that, in this regard, the case was one of first impression in Kentucky.
CA recognized that under the “source of funds” rule used by Kentucky courts to determine whether property is marital or nonmarital, property is considered to be acquired as it is paid for; thus, the shares of stock sold to the corporation in the stock redemption agreement were not “acquired”, within the meaning of KRS 403.190 and the determination of marital/nonmarital interest, until they were paid for. CA found that these shares were paid for during the marriage over a period of years by corporate earnings and therefore were “acquired” during the marriage and are presumed to be marital property. Ex-Husband attempted to avoid the presumption by arguing that he exchanged his 8% interest for a 100% interest when the stock redemption occurred. CA agreed with Ex-Husband that the value of his ownership interest did not increase at the time of the stock redemption because while the percentage of ownership interest increased, the value of the corporation decreased because of the debt liability created to pay Ex-Husband's parents for their shares. However, although Ex-Husband's ownership interest at the time of the redemption of his parents' shares increased, the value of Ex-Husband's shares did not. Rather, the value of Ex-Husband's shares increased during the marriage as the corporation gradually paid the debt to Ex-Husband's parents. CA provided that if Ex-Husband had a nonmarital interest in the corporation at the time of marriage, the value of that interest likely increased in time as the years passed and the corporation paid off the debt owed to Ex-Husband's parents. CA held that to the extent the increase was due to Ex-Husband's efforts as the primary operator of the business and Ex-Wife's efforts as homemaker, it was marital property. However, to the extent the increase in value was due to general economic conditions, the increase was not marital property.
Ex-Husband's second argument was that TC erred in finding that checks from Ex-Wife's mother written to Ex-Wife after she and Ex-Husband separated constituted a marital debt. After the parties separated, Ex-Wife was awarded $2,000 per month for temporary maintenance and $1,000 for child support. Thereafter, as power of attorney for her mother, Ex-Wife wrote checks totaling $66,714 on her mother's checking account. Some of the checks were written before the maintenance and child support awards to Ex-Wife, and some were written after the awards. Of this amount, $27,300 in checks apparently were written to Ex-Wife herself for cash. Ex-Wife claimed that all the checks were loans from her mother that were needed because she could not meet her living expenses despite her maintenance award of $3,000 per month. She claimed that much of the money went for home maintenance and repair and that the remainder went for living expenses for her and her daughter. Ex-Husband was not aware of the alleged loans, and he argued that the checks were likely to be gifts from Ex-Wife's mother and that Ex-Wife's testimony that the checks were loans and the notations of “loan” on some of the checks were insufficient to prove the existence of a loan. Ex-Wife testified as to the nature of the debts and had documentation in the form of checks from her mother that supported her testimony that there was actually a loan. TC accepted Ex-Wife's claim of indebtedness to her mother based on her testimony and copies of the checks and CA concluded that the evidence was sufficient to support the determination that the checks represented loans, not gifts. However, CA held that to the extent that Ex-Wife may have used loan proceeds for her personal expenses and expenses for her child after being awarded temporary maintenance and child support, those debts should be held to be Ex-Wife's personal debts. To do otherwise would be to increase Ex-Husband's temporary maintenance and child support obligations during that period of time.
Ex-Husband's third and final argument was that TC erred in ordering him to pay 25% of Ex-Wife's attorney fees and expert witness fees because there was not an imbalance in the financial resources of the parties. Ex-husband stated that the marital property was equalized but that the majority of his assigned marital property ($1.2 million) was the family business. Ex-Wife asserted that while Ex-Husband had a salary of over $100,000 per year, as well as potentially more due to retained corporate earnings not paid by the corporation, she was 55 years old at the time, had been out of the work force for 10 years, and had only a high school education, so although the marital property was divided equally, the financial resources of the parties were not balanced due to these additional facts. Ex-Husband also correctly stated that TC made no specific finding that there was an imbalance in the financial resources of the party, but that it appeared to base its award on Ex-Husband's obstructive tactics in failing to comply with discovery requests and orders of the court. Also, Ex-Husband argued that attorney fees may be awarded pursuant to KRS 403.220 only when there is an imbalance in the parties’ financial resources, even though attorney fees may be warranted otherwise under CR 37.01 due to obstruction tactics. CA found that it was not entirely clear whether TC based its award of attorney fees under KRS 403.220 on the financial resources of the parties as well as Ex-Husband's obstructive tactics. CA found that while TC did not specifically address the parties' financial resources prior to making the award, it did cite the statute, which requires the court to consider such resources. CA held that, in light of Ex-Husband's failure to seek a more specific finding from the court, and in light of the fact that a finding of disparity in the parties' financial resources due to the parties' respective incomes was supported by the evidence, TC did not abuse its discretion in awarding Ex-Wife 25% of her attorney fees and expert witness fees.
As digested by Michelle Eisenmenger Mapes, Diana L. Skaggs + Associates
Gripshover v. Gripshover, __ S.W.3d __ (Ky. 2008), 2005-SC-000729-DG and 2006-SC-000256-DG
Husband and his brother owned a farming operation, realty totaling over 600 acres, and a promissory note for more than a million dollars. They formed two limited partnerships: 1) a real estate partnership with their wives that would hold and manage the realty, and 2) a partnership to manage the farming operation. The brothers also assigned their partnership interests to two trusts. The wife signed documents allowing said transfers. The Supreme Court granted discretionary review to consider the validity of the partnership and trust into which the parties transferred a large portion of their estate less than a year prior to the filing of the petition for divorce, as well as to review the child support and maintenance awards.
Real estate partnership and trust: There was no evidence that either party was contemplating divorce at the time the estate plan was executed or that the husband’s intent was to impair the wife’s marital rights. Therefore, the wife had not been defrauded, as she knowingly and voluntarily consented to the estate plan. The COA erred in holding that the wife retained an interest in the realty and that it was subject to division as marital property. The wife’s argument that the estate plan should be set aside due to the husband retaining control over the realty and not truly giving it to the trust is without merit. SC noted that the wife did not join the necessary parties to challenge the validity of the partnership and trust. Moreover, SC held there was nothing wrong with the brothers retaining control of the realty for the purpose of use in the farming operation. The realty was not transferred to the trust, but instead the partner’s interest in the partnership. Thus, the realty was validly removed from the marital estate and was not subject to division.
Husband’s nonmarital interest in the promissory note: Wife argues that husband’s entire half of the note is marital, since the other siblings quit-claimed their interests to the three remaining siblings (one being the husband) in 1987 (parties married in 1988) for no consideration. Wife argued that because the siblings gave up their interests for no consideration, the property should be regarded as having no equity at that point, and that all equity in the property was acquired after the marriage. The court rejected this argument, especially since in 1989 a small portion of the land was sold for more than the outstanding indebtedness which adequately established that the property increased in value as a result of economic factors alone.
Child support and maintenance: The parties’ incomes were wrongly determined. TC erred in allowing the husband to calculate his income for child support purposes using 26 U.S.C. sec. 179 expense deductions. Section 179 provides an alternative to standard, straight line depreciation, which KRS 403.212(2)(c) mandates as the only allowable method. TC also erred in imputing the wife with $360 per week of income, a level of income well above what she achieved when she was younger and in much better health. TC did not adequately consider all of the statutory factors in KRS 403.212(2)(d). Therefore, SC held that both child support and maintenance must be reconsidered.
Digested by Sarah Jost Nielsen, Diana L. Skaggs + Associates
Jones v. Jones, ___S.W.3d___ (Ky. App. 2008)
Ex-Husband appealed TC’s orders classifying his Tobacco Transition Payment Program (TTPP) payments and a portion of the increase in value of his life estate as marital and awarding maintenance and attorney’s fees to Ex-Wife in divorce proceeding.
Prior to the parties’ 18 year marriage, Ex-Husband inherited from his grandfather a life estate in a farm consisting of 215 acres. During the marriage, the parties resided in a residence located on the farm, and Ex-Husband conducted farming operations thereupon. The parties entered into a prenuptial agreement prior to marriage.
In its orders regarding division of property, TC treated future TTPP payments to be made to Ex-Husband as owner of the life estate as marital property in order to effectuate an equitable division of property. CA found that TC erred as a matter of law by classifying the TTPP payments as marital property in order to effectuate a fair distribution of property. The classification of property as marital or nonmarital is not discretionary. CA further found that TTPP owner payments should have been classified as Ex-Husband’s nonmarital property. The TTPP owner payments represent compensation from the government for the taking of the property interest in the tobacco grower’s tobacco quotas. As Ex-Husband inherited the tobacco quotas from his grandfather, they were nonmarital, and the compensation received for them is also nonmarital.
CA also found that future TTPP payments to be made to Ex-Husband as a grower of tobacco should also be classified as Ex-Husband’s nonmarital property. Finding that these TTPP payments supplant income traditionally received from the sale of tobacco, CA found these payments to be properly classified as income. As the income from the sale of tobacco would have been classified as Ex-Husband’s nonmarital property pursuant to the parties’ prenuptial agreement, the grower TTPP payments were also his nonmarital property.
TC found that the parties made substantial improvements to the farm with marital assets, thus the life estate in the farm had a marital component. TC found the actual cost of improvements to the farm totaled $67,000.00, that these improvements were paid for with marital assets, and then adjusted the $67,000 by Ex-Husband's “life estate valuation formula” and concluded the marital property interest was $44,648.00. CA noted that under KRS 403.190(2)(e), any increase in value of property acquired before marriage is nonmarital unless the increase in value is attributed to “the efforts of the parties during marriage.” CA found that TC clearly erred when it equated actual cost of improvements to the life estate in the farm with increase in value to the life estate in the farm. To properly calculate the increase in value attributed to marital improvements upon property acquired before marriage, CA provided that the court must subtract the fair market value of the property at the time of dissolution without marital improvements from the fair market value of the property at the time of dissolution with marital improvements. The difference between such fair market values yields the increase in value attributed to marital improvements upon the property. As to a life estate acquired before marriage, a party may be compensated for the increased value attributed to marital improvements thereon, not to exceed the value of the improvements. Furthermore, when determining the fair market value (FMV) of real property with improvements and without improvements, expert opinion is ordinarily necessary. To be qualified to express an opinion upon FMV of real property, a witness, including the owner thereof, must possess some basis for knowledge of market values. The mere ownership of property does not qualify a lay person to give an opinion upon market value. The actual cost of improvements may be considered as evidence bearing upon FMV but should not be the sole factor. CA noted that if the parties come to the end of their proof with grossly insufficient evidence on the value of the property involved, TC should either order this proof to be obtained, appoint his own experts to furnish this value, at the cost of the parties, or direct that the property be sold. CA directed TC, upon remand, to calculate the marital increase in value of the life estate in the farm by subtracting FMV of the farm at the time of dissolution without marital improvements from the FMV of the farm at the time of dissolution with marital improvements, then, adjust this amount by a life estate valuation formula, but in no event shall the compensation for the marital increase in value to a life estate exceed the value of the improvements thereon.
Ex-Husband also contends TC erred by awarding maintenance to Ex-Wife. As entitlement and amount of maintenance are dependent upon the marital and nonmarital property allocated to the party for a determination of whether the claimant has sufficient resources for her support, CA ruled that Ex-Wife’s maintenance award must also be vacated for reconsideration as part of the underlying property award was reversed on appeal.
Ex-Husband finally contends TC abused its discretion by awarding attorney’s fees to Ex-Wife. Based upon the apparent imbalance of financial resources between the parties, CA found no abuse of discretion in TC’s award to Ex-Wife of a portion of her attorney’s fees.
Heskett v. Heskett, ___S.W.3d___(Ky. App. 2008)
Wife appealed TC’s decision arguing that the court failed to restore her non-marital property. CA reversed and remanded, on a separate issue. CA opined that the TC was correct the property was marital but the TC erred because it failed to consider the issue of dissipation.
Husband and Wife separated in 2002. They drafted a settlement agreement but never signed the agreement. They did, however, divided the property and then began a physical separation. After several months of separation the couple reconciled and bought a house. As a down payment on the house Wife withdrew over $60,000 from CD’s purchased with her share of the previous property division. Husband contributed $8,500 to the purchase of the house from his portion of the property division. Again, however, the couple separated and Wife filed for divorce.
At the conclusion of trial the TC ordered Wife to pay Husband an equal share of the equity in the martial residence. Wife appealed and argued that the settlement agreement from the previous separation should control the classification and distribution of property. Therefore, she argued the money she used as a down payment on the house was her non-marital money and should be restored to her. CA opined that the TC was correct in its determination that the money was marital. CA reasoned that while the parties drafted an agreement during the first separation they never signed the agreement. Therefore, the agreement was not valid under KRS 403.180. Furthermore, when the couple reconciled the previous agreement was voided and not revived by the second separation. However, the CA went on to say that the TC erred because it did not consider the issue of dissipation.
At trial, Wife presented extensive evidence tracing her share of the assets received as a result the first separation. Husband, however, introduce virtually no evidence tracing his share of the assets. In fact, the trial court noted that it was unclear what Husband had done with his share. However, the TC divided the couple’s assets equally. The CA opined that, in the instant case, an equal distribution was not a just distribution. Husband’s inability to account for the majority of his share of the assets received during the first separation constituted dissipation of the marital estate. Therefore, Wife was entitled to have the money she used as a down payment on the marital residence restored to her. Digested by Linda Dixon Bullock, Diana L. Skaggs + Associates
Brenzel v. Brenzel, ___ S.W. 3d____ (Ky. App. 2008)
Husband appealed TC’s Order resulting from distribution of property in dissolution action, alleging that TC erred when it valued his interest in businesses partially owned by him and when it denied his CR 60.02 motion. Wife cross-appealed, alleging that TC erred when it determined Husband's income and that the amount of her maintenance award was an abuse of discretion.
Husband and Wife were married for sixteen years and have 2 minor children. Throughout the marriage, Husband was involved in several business ventures with his father and brother. Husband alleged that TC erred when it determined that he would not have to repay draws and advances made against the capital account of the family-owned businesses and, thus, were not properly characterized as debts owed by Husband nor debts that decreased the value of his business interests. In addition to his salary, there was evidence that Husband had taken draws from the partnership and had decreased its capital account in the amount of $324,508.
Wife’s CPA utilized the asset approach to value Husband's interest in the family businesses, but did not deduct draws and advances by either brother as there were no promissory notes or evidence that debts were owed to a third party as a result of the draws and advances. He concluded that the businesses were worth $13,500 and $183,150. One of Husband’s financial experts deducted the value of the draws and advances and a negative capital account from one business’ value and concluded that it had a negative value of $656,846, and he testified that if that business was dissolved or sold, the partners could require Husband to repay his portion of the money, which totaled $324,508. Husband’s other expert testified that real estate owned by the other business was worth less than the amount it appraised for a few years prior, even though Husband received his full portion of the appraised amount when the property was sold. TC concluded that the values of Husband's interests in the businesses were $162,800 and $13,500, as there was no credible evidence that upon dissolution of the partnership or its sale, Husband would be required to pay back the approximately $324,508 he received in draws and advances against the capital account as suggested by Husband's expert. The court then awarded $80,000 to Wife as her marital interest in the businesses and Husband $96,300.
CA found significant the absence of promissory notes signed by Husband, any specific evidence in the record that Husband was obligated to repay the money, or evidence that Husband had made any past payments toward the amount and agreed with Wife that there was no abuse of discretion in TC’s refusal to deduct that amount from the value of Husband's interest in the family businesses.
After receiving TC’s original ruling and rulings on CR 59.05 motions filed by both parties, Husband filed a CR 60.02 motion alleging that Wife had made a substantial down payment on a residence and possibly failed to disclose marital assets or had additional income, and that he had a non-marital interest in property included in the marital estate. He cited health issues as the reason for his failure to raise the issue earlier. Prior to the ruling on the motion, Husband filed this appeal. Husband contends that TC denied his CR 60.02 motion based on its erroneous interpretation of the law that since he had filed a notice of appeal prior to TC’s ruling on the motion, the court lost jurisdiction. However, he failed to cite to the record where TC expressed the basis for its denial of his motion. CA found that that the grounds alleged in Husband's motion and affidavit were insufficient to warrant the relief requested and, therefore, it was properly denied.
Wife challenged TC’s calculation of Husband’s income, asserting that TC should have calculated the businesses’ projected future earnings based on the past few years’ performance, rather than setting a lower amount based on predicted downturns in profitability. TC found, in agreement with Husband’s testimony, that Husband’s gross monthly income was $4,847.17. Wife argued that Husband's income should have been based on the years immediately preceding the dissolution hearing during which Husband's income was higher than $4,847.17. CA disagreed, finding that there was persuasive evidence that the profits from the family businesses had steadily declined over the past five years, and the fact that real estate owned by the businesses was listed for sale indicated that Husband’s future income was speculative.
Wife also challenged the amount of maintenance awarded on the basis that her reasonable living expenses exceed her income and the maintenance awarded. Wife is a 40 year-old high school graduate who receives Social Security Disability benefits of $804 per month. TC awarded permanent maintenance of only $250 per month, though her reasonable needs total $2,201 per month. CA disagreed with Wife, noting that Wife received $107,130.20 in marital property and that Wife was assigned a comparatively small amount of the marital debt. Thus, when it determined the amount of maintenance to award, TC properly considered the factors set forth in KRS 403.200(2). Affirmed.
Hibdon v. Hibdon, ___ S. W. 3d ___(Ky. App. 2007)
Husband appealed from order of the Bullitt County Circuit Court (TC), confirming Domestic Relations Commissioner’s (DRC's) report, dividing his pension plan with Ex-wife, contending that TC erred in its computation of the present value of the plan.
Husband and Ex-Wife were married for 27 years. Husband began earning his pension benefits shortly after the parties married. The primary disagreement between the parties concerned the present value of Husband’s defined benefits pension plan. However, at the hearing on this issue, only Ex-Wife offered evidence in regard to the calculation of the plan's value. Included in Ex-Wife's evidence was a pension valuation which utilized the monthly benefit amount Husband would receive if he continued to work until his normal retirement age, multiplied by 174 months (Husband’s post-retirement life expectancy), and then discounted to present value by 2.25% per local rule. DRC’s findings of fact and conclusions of law concluded that Husband’s pension plan had a value equal to that calculated by Wife, to be discounted for present value by 2.25%, and the entirety of that amount was marital property. DRC did not explain how he arrived at a 2.25% annual discount rate, nor does the rule allow for the Commissioner to explain the influence of the annual inflation rate or other essential data required to provide a competent analysis of the pension plan's present value.
After no exceptions were filed within ten days, TC adopted DRC’s report in its entirety. Husband then filed a motion pursuant to CR 59.05 to alter or amend TC’s order adopting DRC’s report, asserting that DRC accepted Ex-Wife’s erroneous evidence regarding the value of his pension plan. TC assigned matter to DRC for a recommendation as to whether TC’s order should be altered or amended. After hearing, DRC filed his report recommending that Husband’s CR 59.05 motion be denied because he had not offered any new evidence which was not readily available to him at the property division hearing. Before TC could act on the recommendation, Husband filed a motion for a hearing to contest DRC’s valuation of his pension plan. TC adopted DRC’s recommendation to deny the first CR 59.05 motion and denied Husband’s motion for hearing. This appeal followed.
Ex-Wife argues that Husband’s failures to offer evidence of the present value of the pension and to timely file exceptions to DRC’s report are fatal to his appeal. CA disagreed, finding that TC abdicated its discretion to DRC and erred by adopting a present day value of Husband’s pension plan which was not supported by competent evidence. Further, even if Husband insufficiently preserved the issue for review, a palpable error affecting the substantial rights of an individual resulting in manifest injustice is reviewable, even if insufficiently raised or preserved.
Although the evidence as to the value of the pension was limited and offered only by Ex-Wife, CA held that, as a matter of law, the value assigned to the pension plan was clearly erroneous and the error so serious that it must be considered palpable. TC miscalculated the present value of his pension plan by allowing Husband’s post-divorce earnings to be included in the calculation of the present value of the pension plan. Because Ex-Wife's share of the pension was limited to her interest in its accumulated value earned during the marriage, TC abused its discretion by allowing Ex-Wife to receive a share of the pension which included Husband’s post-divorce earnings. Reversed and remanded for a new hearing to determine the marital distribution of Husband’s pension as of the date of the parties’ divorce.
CA noted that Bullitt County’s local rule regarding establishment of present day value of a pension negates the requirement of expert testimony and is not based upon accepted accounting or economic principles, and that entry of a QDRO dividing the pension would be simpler and is a preferable method of division of pensions.
We previously posted here about oral arguments and posted the briefs in Gripshover. Thanks to Kentucky Court Reports for posting the updated schedule for oral arguments, now set to be held December 14, 2007 at 10:00 a.m. Here's the link to check out the oral arguments online. From KCR:
GRIPSHOVER V. GRIPSHOVER (2005-SC-000729-DG)
AND (CROSS-MOTION) GRIPSHOVER V. GRIPSHOVER
"Domestic Relations. Dissolution of Marriage. Division of Real Property. Issues include the extent and divisibility of marital interest in real property that has been placed in an irrevocable trust and the application of Brandenburg v. Brandenburg, 617 S.W.2d 871 (Ky. App. 1981)."
Discretionary review granted 3/15/2006 and 6/7/2006
Boone Circuit Court, Judge Linda Bramlage
For Movant/Cross-Respondent: David A. Koenig
For Respondent/Cross-Movant: D. Anthony Brinker
(Note: Justice Schroder is recused)
(Rescheduled from August 15, 2007)
Croft v. Croft, ___S.W.3d__(Ky. App. 2007)
Wife appealed an order dividing marital property, denying maintenance, and restoring non-marital property. First, Wife argued that the TC erred in finding that the marital residence was Husband’s non-marital property. CA agreed with Wife and reversed and remanded on this issue. Husband purchased the house and adjoining lot before the couple was married. However, the mortgage was paid off after the marriage, with marital funds. CA reasoned that the TC should have acknowledged this fact and apportioned some of the value of the property as marital. Also, the couple made several, post marriage, improvements to the house. Therefore, Wife claimed the increase in value should be considered marital property. Husband argued that the improvements were just regular maintenance and “were not substantial enough to warrant an increase in value.” CA opined that a TC needs only to determine that the increase in value was due to improvements and not just economic conditions in order for the property to qualify as marital property. Absent clear and convincing evidence that the increased value was due to economic conditions alone the property should be considered marital.
Next, Wife argued it was error for the TC to deny her claim for permanent maintenance. TC held that considering the length of the marriage ( the parties were married in 1997) and the division of property maintenance was not appropriate. CA held that the TC’s decision was not an abuse of discretion because it was supported by substantial evidence.
Finally, Wife argued that the TC erred because it did not divide the property proportionately. CA held that the TC did not err in its division of property. CA opined that husband had presented sufficient evidence that certain items in his possession were his non-marital property. Additionally, wife provided no evidence that any of that property was marital.
Digested by Linda Dixon Bullock, Diana L. Skaggs + Associates
The Kentucky Supreme Court accepted discretionary review of Gaskill v. Robbins, digested here, and about which we reported here and here. It was announced at the UK Biennial Family Law Institute in Lexington today that the briefing schedule is expedited. (And, Justice Keller, Professor Graham did communicate your views, as ordered.)
On September 11, 2007 California Governor Arnold Schwarzenegger signed into law SB 353 amending Family Code §6320 to provide that a Court, upon a showing a good cause, may grant exclusive care of any animal to a party, and may further restrain the other party from taking, attacking or harming the animal.
Clark v. Clark, ___ S. W. 3d ___ (Ky. App. 2007)
DESIGNATED TO BE PUBLISHED: AFFIRMING IN PART; VACATING AND REMANDING IN PART
PANEL: ACREE PRESIDING; KELLER AND LAMBERT CONCURRING;
DATE RENDERED: 9/21/2007
Ex-Wife appealed from TC’s Order assigning value to a 2002 Ford Taurus, not valuing or dividing certain certificates of deposit (CD’s) and reducing her maintenance. Parties separated after eighteen years of marriage. At the time of their divorce, Ex-Wife was 70 years old and Ex-Husband was 78. Prior to their marriage, Ex-Husband owned a home, land and livestock. Ex-Husband sold his livestock shortly after the marriage and purchased CD’s with the proceeds. During their marriage, the parties lived on Ex-Husband's social security and pension benefits and, once Ex-Wife reached 62, her social security benefits.
While Ex-Wife's dissolution petition was pending, Ex-Husband was ordered to pay $300.00 per month pendente lite maintenance. After trial, TC found a Taurus to be marital property and awarded it to Ex-Wife with a value of $12,000.00. The CD’s were neither assigned nor awarded since Ex-Wife failed to present any evidence that they existed at the time of the parties' divorce. After dividing all marital property, TC reduced Ex-Wife's maintenance award to a monthly sum of $100.00. Ex-Wife filed this appeal. Subsequently, Ex-Wife filed a CR 60.02 Motion for TC to consider new evidence reflecting that Ex-Husband had cashed out CD’s prior to dissolution but after separation. TC denied this motion. CA indicated that any appeal of that Motion must be separate from this appeal.
Ex-Wife first argues the trial court abused its discretion when it assumed facts not in evidence about the value of the 2002 Ford Taurus, and further arguing that Ex-Husband had purchased the car as a gift for her and, thus, it was not marital property within the definition of Kentucky Revised Statute (KRS) 403.190(2). At trial, Ex-Husband disputed that the Taurus was purchased as a gift to Ex-Wife and, indeed, the car was titled in both parties' names. At trial, neither party testified as to the current value of the Taurus. TC found that Ex-Wife failed to meet her burden of proving that the car was her nonmarital property. The car was awarded to Ex-Wife and assigned the $12,000.00 value listed as its NADA book value in Ex-Husband's mandatory case disclosure. Ex-Wife contends it was incumbent upon Ex-Husband to introduce evidence of the car's value at trial, since he argued it was a marital asset, citing CR 43.01(1), which states, “The party holding the affirmative of an issue must produce the evidence to prove it.” Ex-Wife claimed Ex-Husband’s failure to introduce evidence of its value at trial deprived her of the opportunity to refute this figure. Thus, she argues the burden of refuting the Taurus' supposed value of $12,000.00 never fell to her. She asked CA to assign a value of zero dollars to the car or, in the alternative, to allow her to present evidence contradicting the value assigned by TC. CA disagreed with Ex-Wife’s contentions. CA noted that Ex-Wife had filed her own MCD but failed to assign any value to the Taurus because she contended it was her nonmarital property value as $12,000.00, was filed in the record on June 30, 2004. Ex-Wife had notice that Ex-Husband was characterizing the car as marital property and also of its asserted value. It appears that, instead of introducing her own evidence regarding the car's value, Ex-Wife relied on her ability to persuade TC of the car's nonmarital character. CA found no error in TC’s decision on this issue.
Ex-Wife next argues that TC’s division should have recognized and divided the CD’s between the parties. At trial, Ex-Wife introduced records showing existence of CD’s in 2001. She did not testify to the source of the funds, and offered no proof that the CD’s still existed. Ex-Husband testified that all of the funds used to purchase the CD’s came from the sale of his nonmarital livestock and that the CD’s were exhausted during the marriage.TC found that it was unable to award or assign an asset whose existence was unproven. Ex-Wife asked CA to consider evidence she presented in support of her CR 60.02 motion that Ex-Husband had cashed out the CD’s shortly after the parties separated. However, CA noted that it had issued a previous order that issues related to this Motion must be contained to a timely appeal of that Motion, and Ex-Wife failed to timely appeal that Motion. CA found no error in TC’s order on this issue.
Finally, Ex-Wife argued TC abused its discretion when it reduced her maintenance award, as it set her permanent maintenance so low that she would be dependent upon others for the means to meet her basic needs. At trial, Ex-Wife told TC that she was currently obliged to live with her daughter, and, as a result, TC subtracted her rent and telephone bills from her monthly living expenses. CA held that a TC’s failure to award a sum sufficient to allow a spouse to meet her needs without requiring that she depend on the generosity of family and friends was plainly an abuse of discretion. CA held that TC clearly erred, as its Order did not address the issue of Ex-Wife's current standard of living versus the lifestyle she shared with Ex-Husband during their marriage. TC’s order affirmed in part, vacated in part, and remanded with instructions to TC to review maintenance award.
As digested by Michelle Eisenmenger Mapes, Diana L. Skaggs + Associates.
Shown v. Shown, ___S.W.3d__ (Ky. 2007)
PANEL: SCOTT PRESIDING; MINTON, NOBLE AND SCHRODER CONCURRING; CUNNINGHAM CONCURRING IN RESULT ONLY; ABRAMSON NOT SITTING
DATE RENDERED: 9/20/2007
Ex-Wife appealed to SC from CA opinion that affirmed TC’s order providing that Ex-Husband’s Kentucky Teacher's Retirement Account would be fully excluded from classification and division of the parties’ marital property pursuant to KRS 161.700(2). Ex-Wife argued to SC that both TC and CA erred in failing to give effect to the provisions set forth in KRS 403.190(4).
At time of trial, Ex-Husband had approximately $81,410 in his KTRS account while Ex-Wife had approximately $1,896 in her Fidelity Simplified Employee Pension (SEP-IRA). Ex-Husband argued to TC that his KTRS account was exempt from classification and division as marital property under KRS 161.700(2), while Ex-Wife argued her SEP-IRA qualified as a retirement account and therefore KRS 403.190(4) overrode KRS 161.700(2) and operated to limit the amount of the KTRS funds that Ex-Husband could claim as exempt. CA affirmed TC’s opinion, holding that KRS 403.190(4) and KRS 161 .700(2) were in conflict, and thus, pursuant to principles of statutory construction, the exemption provisions set forth in KRS 161.700(2) would control over the provisions set forth in KRS 403.190(4). CA held that, alternatively, KRS 403.190(4) is inapplicable unless both spouses have an account that qualifies as a "retirement-benefit" as is defined in KRS 403.190(4), and held that Ex-Wife’s SEP-IRA was not such a "retirement benefit" as defined in that statute.
SC found no conflict between the two statutes. SC held that KRS 161.700(2) specifically exempted the KTRS retirement benefits accumulated by Ex-Husband during the marriage from being classified and divided upon divorce, but that the language set forth in KRS 403.190(4) clearly anticipates statutes such as KRS 161.700(2) and thus, by the plain language of the statute, KRS 403.190(4) is meant to be read in conjunction, not in conflict with, KRS 161.700(2). Furthermore, SC held that any retirement plan that is covered by ERISA is subject to the application of KRS 403.190(4), and as Ex-Wife’s SEP IRA was an employer funded plan covered by ERISA, KRS 403.190(4) applied to the classification and divisibility of the parties’ retirement accounts.
Digested by Michelle Eisenmenger Mapes, Diana L. Skaggs + Associates.
Shively v. Shively,___S.W.3d___(Ky. App. 2007)
Ex-Wife appealed TC’s division of marital property, arguing that division was not in “just proportions,” as TC’s division of property earned between date of separation and date of decree was not equal. While working full-time for Brown & Williamson during marriage, Ex-Husband attended law school and Brown & Williamson paid his law-school tuition and expenses. In 2003, he began work at a law firm where B&W was his primary client while B&W closed its Louisville, KY offices to move out of state. Ex-Husband’s income drastically increased as a result of this work to over $500,000 in 2004. However, by the time of the trial, B&W’s move was nearly complete and Ex-Husband received very little income from this source and was building up a construction law practice. During the marriage and at the time of the trial, Ex-Wife was employed as a senior tax manager, earning approximately $115,000 annually. After the parties’ separation in October 2004, Ex-Wife discontinued contributions to utilities and mortgage payments on the marital residence, and both parties continued to share homemaker and parenting duties until the time of trial. TC equally divided property earned up to the date of separation; however, although it declared that the property earned between the date of separation and the date of decree was marital property, it allocated a substantially larger portion of this marital property to Ex-Husband. TC found that equal division of the property earned up to the date of separation would leave each party in good financial circumstances and that it was “just” to allow each party to keep the income earned after the date of separation and the assets purchased with that income.
Ex-Wife first contended to CA that unequal distribution of post-separation income and assets did not represent a division in “just proportions.” CA disagreed with Ex-Wife that post-separation assets must be divided in same proportion as pre-separation assets or divided equally. Citing Stallings v. Stallings, CA noted that making a division in “just proportions” requires TC to consider the factors of 403.190(1)(a)-(d), one factor of which requires consideration of the contribution of each spouse to the acquisition of the property. CA found that TC properly considered these factors in making its division, and found no error.
Ex-Wife also contended that TC failed to consider her contribution to Ex-Husband’s law degree when dividing the post-separation assets. CA noted that, although a professional degree is not marital property, it can be considered an asset of the marriage in determining the parties’ respective contributions when dividing marital property. CA held that TC appropriately considered Ex-Wife’s claim to contribution towards the law degree, and that TC properly rejected her claim, as Ex-Husband’s law school tuition was paid for by B&W, the degree was obtained without a break in his employment, he continued parenting duties while in law school, and Ex-Wife continued to advance her career during that time. TC’s division of property affirmed.
Digested by Michelle Eisenmenger Mapes, Diana L. Skaggs + Associates.
Husband appealed circuit court order awarding wife 80% of marital assets actually in the possession of the parties at the time of the divorce. Husband made four major claims. First, husband claimed the court erred in not awarding him his non-marital assets and holding that he had failed to meet his burden of proving those assets were non-marital. Husband produced some documentation with regards to the non-marital assets. The circuit court, however, found that he selectively produced documents and claimed not to be able to produce other documents. CA opined that this was not clearly erroneous and also upheld the circuit court’s finding that husband’s expert witness’ testimony was flawed. The expert did not attempt to do a traditional tracing. Instead, she used an approximate growth rate, the parties’ joint tax returns, depositions of each party, and interviews with husband to produce a forensic tracing. According to the CA, she testified that, “by taking the income during the marriage and subtracting out the estimated yearly living expenses during the years of marriage, a percentage of non-marital to marital assets could be determined.” She then used the calculated percentage to determine marital and non-marital interest in stock purchased during the marriage. CA found this tracing method unsatisfactory and held that if husband failed to receive all of his non-marital property it was because he failed to meet his burden of proof.
Second, husband claimed it was error to find that he had dissipated marital assets. Husband gave two million dollars to his sister, brother-in-law, and accountant. Husband claimed he had always given monetary gifts and this was not dissipation. CA, however, found that husband was aware that there was a real possibility divorce was eminent and that he never informed wife of the gifts. Additionally, husband did not report the gifts on his gift tax return until after discovery. There was substantial evidence that husband tried to hide the gifts from wife.
Third, husband claimed the family court erred in dividing the property. Husband claimed wife was unsupportive and did not contribute to the marital home. Husband also claimed error in the family court finding that he had an interest in a Florida condominium. CA opined that the family court was in the best position to judge the evidence as to both of these facts and would not find the lower courts holding to be clearly erroneous.
Finally, husband claimed the family court failed to credit him monies paid to wife during litigation. CA found that this too did not constitute error. CA opined that they might have divided the martial assets differently. Regardless, they did not find the trial court abused its discretion in dividing the assets.
Digested by Linda Dixon Bullock, Diana L. Skaggs + Associates
Kentucky Supreme Court oral arguments are set for August 15, 2007 in Gripshover v. Gripshover, which we digested here. You will have to scroll down to "Marital Property" to read the digest, as that was posted when we were catching up on all 2005 Kentucky Court of Appeals decisions, as this blog wasn't in existence until February, 2006. From KyCases:
10:00 a.m. GRIPSHOVER v. GRIPSHOVER (2005-SC-000729-DG)
AND (CROSS-MOTION) GRIPSHOVER V. GRIPSHOVER
"Domestic Relations. Dissolution of Marriage. Division of Real Property. Issues include the extent and divisibility of marital interest in real property that has been placed in an irrevocable trust and the application of Brandenburg v. Brandenburg, 617 S.W .2d 871 (Ky. App. 1981)."
Discretionary review granted 3/15/2006 and 6/7/2006
Boone Circuit Court, Judge Linda Bramlage
For Movant/Cross-Respondent: David A. Koenig
For Respondent/Cross-Movant: D. Anthony Brinker
RHODES V. PEDERSON
FAMILY LAW: ORDER ENTERED AFTER DEATH OF PARTY
PANEL: KELLER PRESIDING; COMBS, BUCKINGHAM CONCUR
DATE RENDERED: 7/6/2007
Wife’s daughter, also the personal representative of Wife’s estate, appealed TC’s order dismissing Wife and Husband’s dissolution action and denying her motion to be substituted as a party and to revive the dissolution action. The primary issue was whether TC could and should have entered a nunc pro tunc decree dissolving the marriage after Wife’s death and allowing her portion of the marital property and past due temporary maintenance payments to go to her estate. CA affirmed.
In April 2004, TC awarded Wife $6000 per month in temporary maintenance and ordered the sale of Husband’s business and the parties’ vacation home, noting that both constituted marital property. About one month later, Wife died. A few days after her death, TC entered an order noting Wife’s reported death the previous day and abating all orders requiring future action, including the sale of the marital assets. Subsequently, TC found that the real party in interest was Wife’s estate and provided the estate thirty days to enter an appearance for any matters pertaining to the claims of or against the estate. In August, Daughter notified TC that she was the personal representative of Wife’s estate and that she intended to revive the action.
Daughter argued that TC had already decided to dissolve the parties’ marriage and divide the property, and therefore, it erred when it failed to revive the action, to enter a decree of dissolution, or to equally distribute the marital property. She urged the application of principles of equity to prevent an injustice from occurring. She also contended that Wife’s right to maintenance had vested at the time of her death, despite Husband’s attempt to terminate this obligation. However, she backed her contentions with only one 1897 case involving a bigamous marriage.
CA noted that all of the remaining case Kentucky law clearly stands for the proposition that a divorce case is strictly personal, and that all other issues attending thereto are terminated upon the death of either party. The law is clear that only after a decree in divorce is granted, or perhaps a written separation agreement has been entered into by the parties, can the court continue to litigate the attending issues, including the equitable distribution of property. Only after a decree in divorce is granted, and thereafter one of the parties dies, can the court continue with the equitable distribution of marital property. If, on the other hand, TC had entered a decree, or if the judicial function had terminated without the formal entry of a decree, the death of a spouse would not affect the matter. CA noted one unpublished case in which CA approved entry of a nunc pro tunc order, but in that case, TC had orally granted a decree but the death occurred before the written decree could be prepared and signed. In that case, CA noted that the entry of the nunc pro tunc decree was proper to give the court's judicial act its proper meaning and effective date.
CA noted that there may remain other avenues of relief for Daughter, as existing orders for maintenance and property distribution may be pursued in a different forum. In essence, TC lost jurisdiction of the subject matter upon Wife’s death. CA provided that the nunc pro tunc rule may be used to make the record speak the truth, but not to make it speak what it did not speak but ought to have spoken.
Many equitable division states, including Kentucky, do not have an automatic equal division of marital property. Rather, marital property is divided in just proportions. Generally where wealth is involved, the greater the estate earned by the working spouse, the less likely the non-working spouse will receive 50%, particularly when their are no children. Some quotes from CNN.com:
Michael Polsky's attorneys contended that he was responsible for the couple's great wealth and said they will likely appeal Monday's decision.
"He intends to test this decision on appeal because he's always believed that this shouldn't have been a 50-50 split," attorney Joseph Tighe said.
David Meyer, a law professor at the University of Illinois at Urbana-Champaign, said the Polsky case is "remarkable and historic" because of the size of the award and Boyd's decision to split the estate equally.
"Those are huge numbers," Meyer said. "When you get these cases of extraordinary wealth, it really puts to the test this notion of marriage as a complete partnership."
Gaetano Ferro, president of the American Academy of Matrimonial Lawyers, said he wasn't aware of a bigger award in the U.S.
Michael Polsky launched the company that eventually would become Northbrook-based SkyGen Energy, a leading independent power producer that sold in 2000 for about $450 million. He is now president and CEO of Invenergy Wind LLC, a Chicago-based wind energy company.I share the sentiments of New YorK Divorce Report :"It is disappointing that this couple did not follow the lead of Blixseths, who divided their fortune amicably 'over a bottle of wine." He is referring to Tim and Edra Blixseth, the Beverly Hills couple who amicably divided their $2 billion fortune amassed during 25 years of marriage, as the Wall Street Journal reported:
Rather than fighting over every piece of silver, the Blixseths decided to keep what's most important to each of them and split the difference. Life's too short, they figured. And why give the lawyers all the money if you can work it out yourselves?
What does Intellectual Property have to do with divorce law? Well, if it is property and it has value the IP belongs on the asset division spreadsheet. Mediator Victoria Pynchon has launched the new IP ADR Blog on which she posts about the value of domain names, And While You're At It, Throw In The Domain Name.
BOONE V. BALLINGER___S.W.3d___(Ky. App. 2007)
De facto custodian; doctrine of waiver and estoppel; Rebuttable presumption of paternity; Marital property (401k account)
TO BE PUBLISHED: REVERSING AND REMANDING (ABRAMSON)
DATE RENDERED: 5/4/2007
Several months into dissolution proceedings, Kelly learned for the first time that the two youngest children born during his fifteen-year marriage to Melinda were not his biological daughters. Kelly had been a devoted father to the three-year-old and six-year-old girls, performing the majority of the everyday tasks related to their upbringing and essentially serving as their primary parent. Genetic testing revealed that the girls’ biological father was Melinda’s boss, Daniel, with whom Melinda had been having an affair for seven years. Daniel was a friend of the family and the godfather of the older girl. Both Melinda and Daniel acknowledged that when Melinda became pregnant with each girl, they realized that Daniel might be the father, but neither took any steps to learn the truth and they continued to allow Kelly to believe that he was the father of the girls and to act in that role until Melinda instigated divorce proceedings. Confronted with certified DNA results that established that Daniel was the biological father, Kelly sought de facto custodian status, relying on his central parenting role throughout the girls’ lives. The trial court concluded, after an evidentiary hearing, that Kelly was indeed the de facto custodian and further that Daniel and Melinda were estopped from denying that Kelly was the legal father of the girls.
De Facto Custodian:
On appeal, Melinda and Daniel challenged the trial court's application of KRS 403.270 and its resulting conclusion that Kelly is the girls' de facto custodian. They contend this statute was unavailable to Kelly since he was not the sole caregiver for the two girls but rather provided for them “alongside the natural parent (Melinda).” Following Consalvi v. Cawood, CA agreed with Daniel and Melinda, holding that “it is not enough that a person provide for a child alongside the parent” in order to qualify as a de facto custodian, but rather he must “literally stand in the place of the natural parent.” 63 S.W.3d 195 (Ky. App. 2001)
Waiver of Superior Custody Rights:
Though Kelly did not qualify for de facto custodian status under Kentucky law, CA held that Daniel’s conduct may preclude him from displacing Kelly altogether in the girls’ lives. Even after the adoption of the de facto custodian statute, Kentucky courts continue to recognize the applicability of the doctrine of waiver in a child custody dispute. Accordingly, CA held that on remand the trial judge should address whether Daniel has waived the typically superior custody rights of a biological father. The waiver of a parent's superior custodial right has previously been recognized in two distinct scenarios. CA held that this case presented a third factual scenario: waiver of a biological father's custodial right as against the husband to whom the mother was married when the child was born and who has been led to believe that he is the child's father. Daniel maintained that waiver cannot apply in this case because waiver necessarily entails a knowing and voluntary surrender of a known right. He claims no waiver could occur until he knew the girls were actually his biological daughters. CA disagreed, because Daniel was aware of the possibility at the time each child was born.
Emphasizing that the girls were always in their mother's custody, Daniel also sought to forestall application of the waiver doctrine by citing B.F. v. T.D., 194 S.W.3d 310 (Ky. 2006) for the proposition that waiver can only apply if the children are not in either parent's physical custody. B.F. involved a same-sex couple, one of whom adopted a child who was then raised by both of them. There was no marital dissolution involved when the couple discontinued their relationship, so the non-adopting partner tried to establish her de facto custodian status. She was unsuccessful and the trial court held that she had no standing to pursue custody. CA and the Kentucky Supreme Court affirmed, citing KRS 403.260(4) (repealed in 1980) which limits standing to initiate a custody proceeding to the parents and those who have physical custody of the child. However, CA held that B.F. did not preclude application of waiver in this case. Unlike the domestic partner in B.F who had no standing to initiate a custody proceeding and thus place the issue before a court, Melinda placed the custody issue before the trial court when she filed for dissolution; she and Kelly were parties to the proceeding as the girls' parents and Daniel, deemed a “necessary party” by the trial court, was allowed to intervene. At that juncture, all three adults were properly before the court and the issue of waiver was relevant to the standard required to gain custody. The factors to be considered when determining whether a parent has waived his or her superior custody right include: the length of time the child has been away from the parent, circumstances of separation, age of the child when care was assumed by the non-parent, time elapsed before the parent sought to claim the child, and frequency and nature of contact, if any, between the parent and the child during the non-parent's custody.
Doctrine of Paternity by Estoppel:
CA held that the doctrine of paternity by estoppel adopted in S.R.D. v. T.L.B., 174 S.W.3d 502 (Ky. App. 2005), would not apply so as to estop Daniel and Melinda from seeking a paternity determination. The trial court relied on S.R.D. v. T.L.B. in estopping Daniel and Melinda from challenging Kelly's legal father status. However, that case involved estopping a husband from severing a parental relationship with a daughter born during his marriage who was eventually determined not to be his biological child. Although that case had the same “misled husband” scenario as this case, estoppel was employed to preserve the relationship (both emotional and financial) between the child and the only father she had ever known, not to sever the biological father's rights to establish his genetic connection to the child. Moreover, if a biological father is to be precluded from establishing any legal relationship to his child born during the mother’s marriage to another man, or if he is to be limited in his options, CA stated that such preclusion or limitation must be established by the legislature. The Kentucky General Assembly has not adopted either Uniform Act or any other statutory mechanism curtailing the legal rights of a biological father where his child is born during the mother’s marriage to another man.
CA recognized that an inconsistency exists between Consalvi and the doctrine of paternity by estoppel that was adopted in S.R.D. The focus of “paternity by estoppel” is on the child and the parent-child relationship that has developed. On the other hand, Consalvi holds that a man who provides care and financial support alongside the mother cannot acquire de facto custodian status so as to maintain a father-child bond after the parties' divorce. This result, of course, completely ignores the parent-child relationship that may have developed, a relationship which S.R.D. considered paramount Therein lies the irony: if a misled husband decides to “run” in order to avoid any parental support obligations, he would be prohibited from doing so by S.R.D. and would remain financially bound to the child, but should he desire to “stay” and maintain a relationship with the child, Consalvi, literally applied, says that he cannot be the de facto custodian and is not entitled to custody or visitation. Fortunately, a man who was led to believe he is the father of a child born during his marriage may be able to maintain a relationship with the child in those instances where the biological father has waived his superior right to custody.
If the trial court, on remand, finds that Daniel waived a biological parent's superior right to custody, the result would be to place Kelly, a non-parent who would otherwise have no equivalent right, on an equal footing with Melinda and Daniel in matters concerning custody and visitation. Conversely, such a finding, though conveying standing on Kelly to seek custody and visitation, does not necessarily result in Daniel’s loss of his right to seek the same. Once a non-biological parent is deemed to have standing to seek custody vis-à-vis the biological parents, the ultimate decision by the trial court as to who will be awarded physical custody of a child is dependent upon the best interests of that child.
Division of 401(k) account and exempt KTRS account:
CA held that the trial court erred in deeming it marital property without considering Kentucky Revised Statute (KRS) 403.190(4). By application of KRS 161.700(2), Kelly's entire Kentucky Teachers’ Retirement Services account is exempt. The amount to which Melinda's 401(k) account may be exempted is governed by the limitation found in KRS 403.190(4), i.e. her account is exempt up to an amount that does not exceed the value of Kelly's KTRS account.
Shown v. Shown, 2004-CA-000988-MR. Discretionary review granted June 7, 2006; not for publication by operation of CR 76.28(4).
Here's the digest of the Court of Appeals decision:
Issue and Holding:
Whether husband’s entire Kentucky Teacher’s Retirement Account is exempt from division as marital property pursuant to KRS 161.700. The Court held yes, such retirement is exempt.
The husband’s KTRS account was valued at $81,410.27 and the wife’s Fidelity SEP-IRA was valued at $1895.97. The husband argued that his account was exempt pursuant to KRS 161.700. The wife argued that only the portion of his account up to the amount of her IRA was exempt from division as a marital asset, pursuant to KRS 403.190(4). The trial court held that KRS 161.700 controlled and found that the husband’s entire account was exempt. The wife appealed.
This is a case of first impression for Kentucky. There is a conflict between the two statutes. KRS161.700 (2) states that KTRS benefits are exempt from division as marital property in divorce proceedings. Yet, KRS 403.190(4) states that the level of exception provided to the spouse with the greater retirement benefits shall not exceed the amount of exemption provided to the other spouse. Since KRS161.700 (2) is more specific, it controls. Furthermore, two amendments were made to KRS161.700 after the amendment to KRS 403.190 (4), neither of which addressed the conflict herein. The amendments omitted any language permitting attachment for either court-ordered division of marital property or maintenance. The Court found this to be a clear indication of legislative intent. The Court declined to decide whether the result, the husband’s entire account being exempt, was equitable.
In the alternative, the Court held that the wife’s IRA did not qualify as retirement benefits under KRS 403.190(4), as it is not regulated by ERISA, not regulated by state or local government, and not a plan qualified under Section 401(a) of the IRC.
Digest by Sarah Jost Nielsen, Diana L. Skaggs + Associates
Keeney v. Keeney, -- S.W.3d – (Ky. App. 2007), decided March 16, 2007, designated to be published, not yet final.
Issues and Holdings:
1) Whether the trial court erred in imposing a constructive trust. The Court held no, the trial court did not err.
2) Whether the trial court erred by finding that the wife was entitled to half the proceeds of the couple’s business inventory sold by the husband to his parents with the proceeds applied directly to an indebtedness. The Court held no, the trial court did not err.
Barbara Keeney filed a petition for dissolution of her marriage to Milton Keeney. Barbara then amended her petition to name Milton’s parents as additional defendants, to establish her rights to 6.6629 acres near Nancy, Kentucky, titled in his parents’ names, and to ask the court to impose a trust upon the
Smith v. Smith, __ S.W.3d __ (Ky. App. 2006), 2006 WL 140577 (Ky. App.) Motion for discretionary review pending.
Many corporations are feeling the heat and have been in the news for back-dating stock options. This Forbes article posits that the issue may have a gnarly impact on such options in the event of divorce. It doesn't suggest solutions, but sometimes the important thing is to be aware that there may be a problem so your expert can make that part of the analysis.
"As soon as the divorce papers are served, the asset shuffling begins. It's amazing what angry spouses try to do--and what they can get away with" is the distressing title of an article the November 13, 2006 edition of Forbes, published online last week.
A correction to the article: the third edition of Equitable Distribution of Property by Brett R. Turner, was published in 2005 and the dissipation section is now up to 69 pages. It is published by Thomson/West.
Oh, dear; this cannot be good public policy. Divorce courts should be requiring no-holds-barred open disclosure. This decision will create or perpetuate a culture of trickery in litigation.
It is beyond comprehension that the sale of business for $225 million could take place in one month. When the seller signed this divorce agreement he had to have known there was a buyer in the wings or a contract pending. Those of us doing divorce work for many years would probably be willing to bet our homes that the deal was really done long before, but pen not put to paper until the divorce was a done deal. How often is the non-owner supposed to do discovery? Must we negotiate a deal, then take a final round of depositions? Sorry to report two poor decisions in the same week.
Here's the entire digest of Kojovic v. Goldman, NY App. Div. October 19, 2006.from the Family Law Prof Blog:
"The New York Court of Appeals dismissed an action to set aside a divorce settlement in a high-dollar divorce between Actress Lora Kojovic and her husband Neal Goldman, who owned a minority share of an Internet information service Capital IQ. Wife signed a divorce settlement agreement in August 2004 that gave her nearly $1.5 million. However, about one month later, Standard & Poor's purchased her husband's company for $225 million, with his share being $18 million. Wife then brought an action to set aside the settlement agreement on the basis of fraud and unconscionability.
Wife argued that husband affirmatively misrepresented the liquidity of the company and the talks that were underway for purchase of the company. However, the court disagreed, finding that husband had disclosed the assets and that it was up to wife to inquire further. However, wife, who had been represented by counsel in negotiating the agreement, had acknowledged that she had the right to inquire