Divorce Law Journal

Three Published Family Law Opinions from Ky Court of Appeals Today

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.

Published Family Law Opinions from Ky Court of Appeals today

 

 

Fortwengler v. Fortwengler  

A prior appeal affirmed the 50/50 division of debt to husband’s father. Husband sought to garnish wife’s maintenance to satisfy her half of the debt. Trial court’s denial of this request and trial court’s subsequent denial of husband’s father’s motion to intervene for a judgment and payment schedule was affirmed on appeal. Proper procedure is for husband’s father to attempt to collect the debt in a separate action against wife.

C.J.M. v. Cabinet for Health and Family Services 

Termination of parental rights affirmed.

Rights of Third Parties to Enforce Judgment in Divorce Proceeding, Case Digest, Fortwengler v. Fortwengler, Ky Court of Appeals

Fortwengler v. Fortwengler, 2011-CA-0018933-MR and 2011-CA-002077-MR

Published:   Affirming   

County:  Jefferson

Ex-Husband appealed FC’s order terminating his garnishment of maintenance payments to Wife for satisfaction of debt to Ex-Husband’s father as well as FC’s order denying Ex-Husband’s parents’ motion to be joined as parties to the dissolution action in order to collect the debt.

FACTS:

When parties divorced, FC ordered that $20,000 owed to Husband’s father was a marital debt and that each party should be equally responsible.  Ex-Wife appealed from this order.  While the appeal was pending, Ex-Husband filed a non-wage garnishment against Ex-Wife to collect the debt, in the amount of $1,200, the monthly amount of maintenance he had been ordered to pay to her.  Ex-Wife filed motion to quash the garnishment and an affidavit challenging the garnishment, contending that FC did not have jurisdiction of the issue as an appeal was pending, that no judgment had been issued to Ex-Husband’s parents because they were not parties to the case and did not have standing, and that Ex-Husband was attempting to evade his maintenance obligation.  Ex-Husband responded that FC did have jurisdiction because Ex-Wife had not posted supersedeas bond and that FC should set a hearing on the challenge to the garnishment.  After hearing, FC granted Ex-Wife’s motion to terminate the garnishment, noting that no common law judgment has been entered nor had a separate lawsuit been entered by Ex-Husband’s parents; that they could not assign the debt to Ex-Husband to be collected in the dissolution as it appeared to be an attempt to circumvent his maintenance obligation.  Ex-Husband filed a timely appeal of this order.  Subsequently, Ex-Husband’s parents filed a motion to intervene in the divorce proceeding for the limited purpose of setting a payment schedule in order to effectuate Ex-Wife’s payment of her portion of the debt.  FC denied the motion and Ex-Husband timely filed an appeal of that order. 

ANALYSIS:

CA noted that Ex-Husband’s frequent iteration of the phrase “this assignment of error was preserved for appellate review” is insufficient to identify preservation of issues in the record as required by CR 76.12(4)(c)(v), but nonetheless proceeded with review on the merits.

CA disagreed with Ex-Husband’s contention that because the creditor, his father, testified regarding the debt and the debtor, Ex-Wife, had an opportunity to cross-examine the creditor and raise any defenses she may have, his father should not have to obtain a judgment in separate proceeding, and that FC could have joined his father as a party to the case for this purpose under KRS 403.150(6).  CA found the additional parties to be jointed referenced in that statute would not be third-party creditors, but rather parties who may have custody rights to children of the parties.  The proper method for Ex-Husband’s father to collect on the debt is through a common law judgment or through a separate lawsuit.  Regarding his father’s motion to intervene, CA held that denial of the motion was proper as no attempt had been made by Ex-Husband’s father to collect the debt via common law judgment or separate lawsuit. 

Affirmed.

Digested by Michelle Eisenmenger Mapes, Diana L. Skaggs + Associates  

Howard v. Howard, Ky. S. Ct., Discharge of Marital Debt, Modification of Child Support Upon Continued Underemployment, Contempt, Attorney Fees

Howard v. Howard

No. 2009-SC-000442-DG on review of COA No. 2008-CA-001059-MR

Published:  Affirmed

County:     Laurel 

        The questions presented in this case include 1) whether a trial court could enforce through its contempt powers, an obligation to pay a creditor on a marital debt after the obligor received a post-decree bankruptcy discharge and his former wife failed to institute an adversary proceeding in bankruptcy court; 2) whether a motion for modification of child support was properly denied when child support established in divorce decree was based upon parent’s imputed income as a result of a finding of voluntary underemployment; and 3) an award of attorney fees.

 

        The parties’ divorce decree provided for joint custody of their minor child with husband required to pay child support calculated from his recent history of earnings as a federal prison guard.  Husband testified that the parties agreed he should quit his job at the prison because the wife was also employed there as a guard.  The wife denied making such an agreement.

 

        The decree also assigned to husband liability for a National City loan on a Dodge Durango which had been repossessed by the time of the decree.

 

        A little more than a year after the decree, husband filed a motion to reduce child support claiming changed circumstances, including health problems, inability to locate correctional work and filing for bankruptcy.  Wife countered with motion for attorney fees and to hold husband in contempt for failure to pay the debt on the repossessed Durango.  Wife acknowledged she received notice of the bankruptcy and that she did nothing to challenge discharge of the debts.  Husband admitted that under the decree, he was responsible for the Durango debt.

 

        The trial court found husband to be in contempt for failure to pay the debt on the Durango, denied his motion to modify child support, and ordered him to pay $500 of wife’s attorney’s fees.

 

        The Court of Appeals affirmed on all issues, as did the Supreme Court.

 

        With respect to child support modification, the court found that the standard for modification was not met because his affidavit did not definitively establish a material and continuing change of circumstances post-decree.  The court explained that KRS 403.212(2)(d) specifically states that a parent may be voluntarily unemployed or underemployed without finding that the parent intended to avoid or reduce the child support obligation.  In order to prevail, husband needed to show a material, substantial, and continuing change of circumstances existing post-decree which made him less capable of attaining his former income level than existed at the time of the decree.  The trial court did not find the requisite showing, the Court of Appeals agreed, and the Supreme Court affirmed.

 

        The trial court held husband in contempt for his failure to pay the loan on the Durango.  The bankruptcy statute was amended in 2005 to provide that a Chapter 7 discharge does not discharge a debtor from an obligation incurred in the course of a divorce or separation.  In addition, since state court has concurrent jurisdiction to determine the dischargeability of a debt, Kentucky state courts have jurisdiction to determine whether the husband’s obligation on the Durango was discharged in his bankruptcy.

 

        Following BAPCPA amendments to the bankruptcy statutes, a non-support divorce debt is excepted from discharge and there is no requirement that a spouse or child participate in the bankruptcy for the debt to be excepted from discharge.  Husband’s payments on the loan were part of the division of marital property and debts, even though in this case there was no hold harmless provision.

 

        Finally, the trial court is not required to make findings on financial resources when awarding attorney’s fees.  The statute requires only that the trial court must simply consider the parties’ finances before awarded fees.

 

Digested by Sandra G. Ragland, Diana L. Skaggs + Associates.

 

Rice v. Rice, Ky. S. Ct., Marital Debt

Rice v. Rice, No. 2009-SC-000730-DG

on review of COA No. 2008-CA-000715-MR and 2008-CA-000716-MR

Published:  Opinion Reversing

County:     Greenup

 

        The Supreme Court accepted discretionary review to determine whether TC abused its discretion in concluding that debt incurred by husband and adult son without wife’s knowledge was marital property and assigning responsibility for one-half the debt to wife.  The CA affirmed, and the Supreme Court reverses.

 

        The parties divorced after 42 years of marriage. The TC held that $6500 in credit card debt was marital and assigned half the debt to each party.  The debt was incurred by the parties’ adult son with the husband’s knowledge and permission, but the wife didn’t learn about the debt until the bill collectors began to call.  The Court of Appeals affirmed and the Supreme Court accepted discretionary review.

 

        The burden of proving that a debt is marital is upon the party who incurred it and claims that it is marital.  The allocation of responsibility for debts acquired during the marriage is reviewed for abuse of discretion.

 

        In Neidlinger v. Neidlinger, 52 S.W.3d 513 (Ky. 2001), the SC explained the four factors to determine the nature of a debt as marital or nonmarital:  1) Was the debt incurred to purchase marital property? 2) Was it necessary to maintain and support the family?  3)What was the extent and participation of each party in incurring or benefitting from the debt? and 4) What are the economic circumstances of the parties after the divorce to allow for payment of the debt.

 

        In this case, the wife was unaware of and did not participate in incurring the debt nor did she have sufficient assets to pay it.  The court acknowledged that the husband was attempting to help a financially burdened child, but noted that the law puts the burden of self-support on competent adults.  The wife had no legal obligation to pay since she was not a party to the credit card contract.  If she could not be required to pay through normal legal process, there were no equitable grounds for a Family Court to require her to pay half of it.

 

        Since none of the Neidlinger factors apply, the TC abused its discretion in finding the debt to be marital and assigning any of it to the wife.  Since wife had no legal obligation to support a competent adult child, she may not be required to pay debt incurred for the support without her knowledge, consent and benefit.

 

        Remanded to trial court for proceedings consistent with this opinion.

 

Digested by Sandra G. Ragland, Diana L. Skaggs + Associates.

Published Family Law From Ky Supreme Court Today

Rice v. Rice, division of debt. Credit card debt incurred solely by husband and adult son, without wife's knowledge and in which she did not benefit was improperly assigned to her. Digest to follow

McGregor v. McGregor, Ky COA, Parenting Time Schedule, Imputation of Income in Child Support and Maintenance Awards, Division of Debt, Amount and Duration of Maintenance

McGregor v. McGregor

2009-CA-000614-MR and 2009-CA-000632-MR

Published:  Affirmed

County: Jefferson

Mom appealed from FC's order in dissolution action, arguing that FC abused its discretion by setting a shared-custody schedule for the children, by imputing income to her, by awarding an inadequate amount of child support and maintenance, and by its division of the parties’ debts. Dad cross-appealed, asserting that the amount and duration of maintenance was excessive.

 

Facts

After seven and a half years of marriage, Mom, a homemaker, filed a Petition for divorce from Dad, a pilot.  Subsequently, FC entered temporary orders granting joint custody of their 2 children as well as 50/50 parenting time schedule based around Dad’s work schedule.  FC also ordered Dad to pay Children’s expenses and household bills as well as temporary maintenance of $150 per week.

 

In its final order, FC continued parameters of temporary parenting time order; imputed income to Mom of $2,000 per month in its child support and maintenance calculation; deviated from the child support guidelines based on the shared parenting schedule and determined child support to be $275 per month; awarded Mom maintenance of $2,000 per month for seven years; and ordered Mom to pay the home equity Line of Credit on the marital residence and half of the mortgage payment until the home was sold, as well as be responsible for her personal credit cards.  

 

ANALYSIS:

Parenting Schedule

Due to Dad’s occupation, FC concluded that a rigid parenting schedule would prohibit him from having regular contact with the children.   Mom argued that this schedule was unworkable due to Dad’s failure to communicate with her and because Dad’s work schedule changes constantly and with short notice.  CA held that FC’s findings that shared parenting schedule was in Children’s best interests was supported by substantial evidence and thus not clearly erroneous.

 

Imputation of Income

FC imputed income to Mom in child support and maintenance awards  based on her work history prior to Children’s births as a graphic designer, in which she earned $28,000 per year, and her current status operating two concierge businesses from her home, in which she was earning $515 per month but hoped to someday earn $4,000 to $8,000 per month. 

 

CA noted that KRS allows a court to base child support on a parent's potential income if it determines that the parent is voluntarily unemployed or underemployed, without finding that the parent intended to avoid or reduce the child support obligation.  However, the maintenance statute does not explicitly address imputation of income to a voluntarily underemployed or unemployed spouse. CA held that, as a matter of first impression, maintenance statute implicitly allows FC to impute income to a voluntarily unemployed or underemployed spouse to determine both the spouse’s entitlement to maintenance and the amount and duration of maintenance.  Thus, FC committed no error in finding Mom to be capable of earning $2,000 per month and imputing such income to her in its child support and maintenance awards. 

 

Deviation from Child Support Guidelines

CA held that FC justified its deviation from child support guidelines based on the shared-parenting schedule; that the period of time during which children reside with each parent may be considered in determining child support; and a relatively equal division of physical custody may constitute valid grounds for deviating from the guidelines.  CA held that FC committed no error. 

 

Maintenance

Amount and duration of a maintenance award are matters within the sound discretion of FC.  As noted above, FC was authorized by statute to impute income to Mom.  Although CA noted that evidence may have supported Dad’s suggested award of maintenance in declining amounts, such a result was not required.  Because of Mom’s long gap in employment history while caring for Children, parties’ comfortable lifestyle during marriage, and Dad’s current earning ability, FC found seven years was reasonable duration for full amount of maintenance, and CA found no error.

 

Assignment of Debt

FC found that Mom took out the home equity line by forging Dad’s signature on the documents, and that funds were not used for home renovations as Mom testified; FC also found that Mom’s personal credit card debts were non-marital as Mom produced no evidence regarding what items she purchased.  CA found no error in finding these debts to be nonmarital.  FC also noted Mom’s ability to pay for home equity line with proceeds from sale of marital residence and thus found allocation of this debt to not be manifestly unfair. 

Digested by Michelle Eisenmenger Mapes, Diana L. Skaggs + Associates  

Guffey v. Guffey, Division of Debt, Continuances

 

Guffey v. Guffey, 2009-CA-000932

Published:   Affirming in Part, Reversing in Part, and Remanding

County: Boone

Wife appealed FC’s Decree of Dissolution, contending that TC erred in denying her motion for continuance and in equally dividing debt.

 

FACTS:

Parties were married for 5 years.  Husband owned home at time of marriage.  After divorce was filed, FC ordered Husband to maintain mortgage payments on home.  Husband ceased making mortgage payments and filed for bankruptcy.  Divorce was stayed while bankruptcy petition was pending.  Meanwhile, home went into foreclosure.  Husband’s bankruptcy petition was dismissed, but Husband expected to receive deficiency judgments from the foreclosure.  Husband filed a motion to schedule a trial date for the divorce.  Four weeks prior to the hearing, FC granted motion of Wife’s counsel to withdraw.  Wife testified that she contacted Judge’s secretary the weekend before trial to obtain a continuance, but secretary told her she would have to obtain consent of Husband’s counsel.  Husband’s counsel refused.  Wife again requested a continuance at the trial.  FC refused.  In its determination, FC determined that the credit card debt and the deficiency judgments were marital debt to be divided equally between the parties.  Wife appealed.

 

ANALYSIS:

CA found that denial of a continuance is reviewed per the factors in Snodgrass, including the parties’ responsibilities for creating the situation, whether bad faith conduct was a factor, past behavior, the possibility of prejudice, the availability of alternative solutions, as well as the totality of the circumstances.  CA determined that FC did not abuse its discretion, as FC’s decision was fair and equitable under the circumstances, and “While litigants may perceive the need to act pro se as a handicap, in reality a court makes an extra effort to compensate for the lack of representation by affording special courtesy and attention to the pro se litigant.” 

Regarding division of debt, CA noted that there is no presumption that debt acquired during the marriage is marital, but that when assigning the marital debt, courts should consider:

1. whether the debt was incurred purchasing marital assets;
2. whether it was necessary for maintenance and support of the family;
3. economic circumstances of the parties; and
4. extent of participation and receipt of benefits.

 

Because Husband was responsible for the deficiency judgments on the home and had 81% of the parties’ income, FC’s equal division of debt was an abuse of discretion. 

 

Digested by Michelle Eisenmenger Mapes, Diana L. Skaggs + Associates  

Lichtenstein v. Lichtenstein, Ky. S. Ct., Income Withholding Orders For Child Support, Property Division And Marital Debt

Lichtenstein v. Lichtenstein, 2008 SC-000661-DG

Issue:  Income withholding orders for child support, property division, and reimbursement of marital debt.

Published:   Reversing

County: Jefferson

 

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 Illinois law, to which husband objected.  He asserted that the failure to determine the amount to be offset before entering orders constituted an abuse of discretion or a violation of due process and that UIFSA does not support issuance of orders for property division or reimbursement of marital debt.

 

Analysis

 

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.

 

Digested by Sandra G. Ragland, Diana L. Skaggs + Associates

Kentucky Supreme Court Family Law Minutes Today

Discretionary review was granted in Rice v. Rice, a 2-1 unpublished opinion of the Court of Appeals affirming classification of debt as marital and dividing it equally.  The husband had amassed $65,000 in debt for the benefit of the parties’ adult son, some of which was for luxuries, all without the knowledge of his wife. When she learned of the debt and other monies transferred to their son, she took over the finances and threatened divorce. She filed for divorce after her husband opened yet another credit card for their son’s use.  

 

No published family law opinions were released by the Kentucky Supreme Court today.

Howard v. Howard, Ky COA, Child Support Modification, Discharge Of Debt In Bankruptcy

HOWARD V. HOWARD

CHILD SUPPORT MODIFICATION; DISCHARGE OF MARITAL DEBT IN BANKRUPTCY
TO BE PUBLISHED:  AFFIRMED

PANEL:  SENIOR JUDGE LAMBERT PRESIDING; CLAYTON AND THOMPSON CONCUR

COUNTY: LAUREL
DATE RENDERED: 6/12/2009

Dad appealed TC’s finding that he was voluntarily underemployed and corollary order denying his motion for modification of child support, as well as TC’s finding that Dad was in contempt for his failure to pay a deficiency judgment related to a marital debt. 

Motion for Modification of Child Support:  While parties’ divorce was pending, Dad quit federal job, claiming medical grounds, but TC found after trial that Dad was voluntarily underemployed and imputed income to him based on his prior earnings.  The following year, Dad filed his Motion for Modification of Child Support, claiming that his income had dropped to less than half that of his former employment.  TC reiterated its previous finding that Dad was voluntarily underemployed and held that he had presented no new evidence since the prior determination.

CA held that Dad failed to make a showing of a substantial and continuing material change in circumstance, as required by statute for child support modification, as the circumstance he presented to the court at the modification hearing was not materially different than that presented to the court at the trial. 

Finding of Contempt regarding failure to pay Debt:  The parties’ divorce decree provided that Dad was to pay a deficiency judgment arising from repossession of an automobile.  Dad subsequently sought bankruptcy protection, listing the automobile debt as an obligation.  At the modification hearing, Dad was held in contempt for failure to pay this debt.  Dad appealed the finding of contempt, claiming discharge in bankruptcy, in part because Mom did not object in bankruptcy court.  Mom argued that Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 precludes bankruptcy discharge of all marital and domestic relations obligations. 

After noting that state courts have concurrent jurisdiction with federal courts over whether a debt has been discharged, CA held that because the automobile debt was agreed to by the parties and imposed on Dad by decree, it was “in connection with a divorce decree” and was therefore non-dischargeable in bankruptcy.  Thus, TC used its power of contempt to enforce its orders, and did so without error. 

TC affirmed.

Digested by Michelle Eisenmenger Mapes, Diana L. Skaggs + Associates

Allison v. Allison, Marital/Nonmarital Propert And Debts, Attorney Fees

ALLISON V. ALLISON
DIVORCE: MARITAL/NONMARITAL CHARACTERIZATION OF PROPERTY AND DEBTS; ATTORNEY FEES
2006-CA-001967.
PUBLISHED: AFFIRMING IN PART AND VACATING IN PART AND REMANDING
PANEL: BUCKINGHAM, PRESIDING; THOMPSON AND HENRY CONCUR
COUNTY: FAYETTE
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

Brenzel v. Brenzel (Ky) Valuation Of Buisness/Draws From Buisness Not Supported By Note

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.

As digested by Michelle Eisenmenger Mapes, Diana L. Skaggs + Associates

Blogging About Debt

The New York Times last Sunday featured an article about people who blog about their debt. What made the topic most interesting was the post at Credit Slips which describes itself as a blog on all things about credit and bankruptcy. We are six academics who will use this space to do what we like to do when we get together--discussing and debating what does happen and what should happen when consumers and businesses borrow money. From Angie Littwin, who is writing a law review article on the topic:

For those of us who are interested in debt, a few interesting points emerge. First, for these bloggers, stigma is alive and well. They are using the Internet as a clever way to circumvent it and still obtain the help they need. Many of these bloggers are revealing private information they conceal from their families and friends....Second, these bloggers have developed a self-control mechanism that aligns perfectly with cutting-edge research in behavioral economics. Just yesterday, I read an article by economists George Lowenstein and Ted O’Donoghue in the Chicago Law Review's Winter 2006 Symposium. In "We Can Do This the Easy Way or the Hard Way": Negative Emotions, Self-Regulation, and the Law, Lowenstein and O’Donoghue explain that people use negative emotions to help resist temptation. When the benefits of a decision will be realized immediately, but the costs will not occur so soon, people experience temptation, because we tend to weigh present costs and benefits more heavily than future ones....A final point is to notice what an extreme measure this is. People are revealing information they find humiliating to strangers in order to prevent themselves from spending and accumulating more debt. Perhaps these bloggers and other debtors like them could use a little help....Credit-card issuers don’t need to continue giving these borrowers enough rope to hang themselves. At least one blogger's credit-card debt exceeded her annual income. That seems like a reasonably extreme point to cut off somebody’s credit. Another option is to create easy ways for credit-card users to decline credit raises. If some debtors are resorting to blogging to resist temptation, I’m willing to bet that plenty of others would welcome less dramatic willpower reinforcements.

Some of the most difficult divorces involve division of debt.

Till Debt Do Us Part

The San Francisco Family Law Blog reprints an article from Gannett, Till Debt Do Us Part. "Which financial issues most often cause strife? Spending too much and saving too little, according to couples who responded to a USA TODAY/CNN/Gallup Poll in March....Making matters worse is that couples don't talk much about money before committing to each other. Nearly two-thirds of married couples who responded to USA TODAY's poll said they talked little or not at all before the wedding about how to combine their finances."

That is part of the reason the AAML has launched its Forcus On Forever initiative. This 43-page workbook is designed for those entering long term, committed relationships, to develop skills needed for success. Created with Academy Fellows, along with two nationally recognized psychologists and a CPA-CFP. it includes vignettes, exercises, budget worksheets and suggested readings. It's available for purchase though the AAML for $11.50.

Gomez v. Gomez, 168 SW3d 51 (KY. App., 2005)

Gomez v. Gomez, 168 SW3d 51 (KY. App., 2005)
Hospital based medical practice valuation which included
no goodwill value was reluctantly affirmed because, while
capitalization of excess earnings method is an acceptable
approach, the trial court is not required to use this method
and trial court ruling as to valuation will not be disturbed
unless clearly contrary to the evidence submitted. The
Court of Appeals reversed the maintenance award ($5,000
per month for three years + $2,424 per month for first and
second mortgages where husband grossed $600,000) to
$800,000 per year. Assignment of $52,000 credit card debt to
wife was also reversed because at least $18,000 of the debt
was for two rugs, of which the husband received one and the
debt was in the husband's name. The Court of Appeals also
reversed the attorney fee award of only 22% of wife's attorney
fees as the trial court did not enumerate any of the factors set
out in Sexton v. Sexton.

Dobson v. Dobson, 159 SW3d 335 (Ky.App., 2004)

Dobson v. Dobson, 159 SW3d 335 (Ky.App., 2004)
Spouse granted innocent spouse relief by the IRS is
not entitled to res judicata and trial court assignment
of tax deficiency 40% to innocent spouse was upheld.
Tax audit has uncovered a tax deficiency, but trial court
reasoned that the parties benefited from the lower tax burden
and innocent spouse was later required to pay the share of
taxes for which she would have been responsible had the
deductions not been disallowed.