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
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.
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.
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.
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
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.
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
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.
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
Smith v. Smith, __ S.W.3d __ (Ky. App. 2006), 2006 WL 140577 (Ky. App.) Motion for discretionary review pending.
An Alaska case last month is causing quite a stir.
Krize v. Krize, Alaska Supreme Court, September 29, 2006
"Where the beneficiary remains on generally good terms with the donor, and particularly where the donor is a parent or other close family member, it is a rare case where the expected gift or inheritance will completely fail to yield any benefits at all. The better position, therefore is that the court may consider an expected gift or inheritance as one relevant factor in dividing the marital estate. Of course, the weight of a future gift or inheritance as a division factor should depend heavily upon the degree of likelihood that benefits will actually be received...
We therefore conclude that it is not inherently improper for a court to consider the possibility of inheritance in some cases. Because property divisions cannot be reopened, however, courts must be cautious in using this factor. On remand, the court should permit further discovery on this issue and on the extent to which Robert's interests have vested. Interests that have already vested may be considered as an asset of the beneficiary when the superior court divides the property."