ELSIE JANE KING AND BERNARD J. BLAU v. JOSEPH J. KING
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RENDERED: June 4, 1999; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1997-CA-002598-MR
ELSIE JANE KING
AND BERNARD J. BLAU
APPELLANTS
APPEAL FROM KENTON CIRCUIT COURT
HONORABLE STEVEN R. JAEGER, JUDGE
ACTION NO. 1994-CI-00171
v.
JOSEPH J. KING
APPELLEE
OPINION
AFFIRMING IN PART, VACATING IN PART, AND REMANDING
** ** ** ** **
BEFORE:
COMBS, KNOPF, AND KNOX, JUDGES.
KNOPF, JUDGE:
Elsie King appeals from a June 16, 1997, judgment
of the Kenton Circuit Court finalizing the dissolution of her
marriage to the appellee, Dr. Joseph King, and resolving
questions of property division and maintenance.
Elsie objects to
several aspects of the judgment, insisting that the trial court
improperly characterized and failed to characterize property as
nonmarital, improperly divided marital property and debts, and
improperly denied her motion for attorney fees.
We agree with
Elsie that some of the trial court’s decisions do not fully
comport either with the evidence or with the law.
Therefore, we
vacate the property settlement portion of the judgment and remand
for further proceedings.
The Kings’ marriage of thirty-one (31) years was
dissolved by decree on December 13, 1995.
Elsie was fifty-five
(55) years old and Joseph was fifty-seven (57).
raised eight children.
The couple had
All but one of the children had reached
the age of majority prior to the dissolution, and the remaining
minor child attained his majority during the course of these
proceedings.
Throughout the marriage, Joseph was self-employed
as a licensed chiropractor.
nurse.
Elsie is a licensed, registered
At the beginning of the marriage, she was employed in
that capacity, but the success of Joseph’s practice soon enabled
her to devote all of her time and efforts to maintaining the
couple’s home and raising their children.
in good physical health.
Joseph is apparently
During the latter years of the
marriage, however, Elsie has developed some health problems.
She
suffered an injury in the mid-1980's and is still troubled by its
effects.
She also has high blood pressure and suffers from
shortness of breath.
During this long relationship, the Kings acquired
numerous assets.
Among them were a farm, Joseph’s office
building, several cars, and a boat.
Joseph’s practice, too, was
an asset of the marriage, which over the years developed a
significant amount of good will.
Other assets included bank
accounts and an investment account.
During the pendency of this action, both before and
after the entry of the divorce decree in 1995, Elsie and Joseph
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had begun the difficult process of disentangling their affairs
and establishing independent lives.
They had sold the farm which
had been their residence, had divided some of the proceeds from
that sale, and had made arrangements for separate homes.
Elsie
had purchased a new house; Joseph had remodeled an apartment in
his office building.
Most of the couple’s personalty had thus
been divided by agreement prior to the June 1997 hearing on
property division.
Following that hearing, at which the parties presented
evidence concerning the assets just mentioned, the trial court
awarded Joseph’s business and the business premises to Joseph.
It awarded Elsie her new house, her checking account, and the
investment account.
It ruled that the proceeds from the sale of
the farm which the parties had already divided were non-marital
property, and from the remaining proceeds it awarded a nonmarital portion to Elsie.
Given the length of this marriage and both parties’
extensive contributions to it, the trial court felt that the
marital estate should be divided equally.
To that end Joseph was
ordered to pay Elsie some $11,000.00 as an equalization amount,
and he was assigned a $40,000.00 tax liability, about $20,000.00
in other marital debts, and the $71,000.00 mortgage on his office
building.
Joseph was further ordered to maintain a life
insurance policy for Elsie’s benefit and to pay Elsie $2,580.00
per month as maintenance for thirty-six (36) months, at which
time the matter is to be reviewed.
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At first blush, the trial court’s order would seem to
satisfy KRS 403.190 and 403.200, which require marital estates to
be divided “in just proportion,” that is, first, with an eye to
the parties’ reasonable needs, and, second, to meet the parties’
reasonable expectations given the history of the marriage.
Davis
v. Davis, Ky., 777 S.W,2d 230 (1989); Russell v. Russell, Ky.
App., 878 S.W.2d 24 (1994).
As is often the case where a
divorcing couples’ principal asset is a small business, the trial
court here faced the difficult task of trying to ensure the
business’s continued viability for the active spouse while giving
to the nonparticipating spouse assets of comparable value.
The
trial court’s order provides for the continuance of Joseph’s
business not only by settling upon him the business’s equipment
and realty, but also by giving him enough cash to meet his
immediate tax liability and operating expenses.
Elsie was awarded about $90,000.00 in both marital and
non-marital cash, an investment account worth more than
$20,000.00, and her new residence.
As substantial as these
assets are, they do not promise the sort of income Joseph’s
business is apt to produce.
Accordingly, the trial court’s order
provides that Joseph must supplement Elsie’s income for three (3)
years, during which time--her health permitting--Elsie will have
an opportunity to prepare herself for and to seek meaningful
employment.
Joseph was also ordered to maintain a life insurance
policy with Elsie as beneficiary.
The parties’ needs and
reasonable expectations would thus seem to have been addressed.
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Elsie disagrees.
Looking at the details of the trial
court’s order instead of its overall effect, she insists that the
trial court’s numerous mistakes deprived her of a fair
settlement.
Although we agree with Elsie that the details of a
property settlement must be scrutinized in light of the statutory
standards and that such scrutiny is the only way to ensure that
settlement rulings attain a measure of objectivity (see Weakley
v. Weakley, Ky., 731 S.W.2d 243 (1987) (dissenting opinion by
Justice Leibson)), we believe, nevertheless, that our review of
the trial court’s judgment must also consider the settlement’s
overall effect.
Trial courts are vested with broad discretion to
fashion property settlements; their efforts are not to be
disturbed on appeal unless the result raises a serious doubt that
the statutory purposes have been met.
Cherry v. Cherry, Ky., 634
S.W.2d 423 (1982).
Elsie first complains that Joseph should not have been
given credit for the office building’s $70,000.00 mortgage.
agree.
We
Joseph was given the asset underlying the mortgage, and
those two (2) items offset each other.
That fact, however, was
not reflected in the trial court’s calculations.
The trial court
credited both Elsie and Joseph with one-half (1/2) the office
building’s equity.
It should not then have deducted the amount
of the mortgage from Joseph’s share, at least not without also
adding back an equal amount to account for the value of the
building.
Joseph argues that the trial court did not award the
office building to him, but left it in the estate to be divided
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later.1
Suffice it to say that this would be an unorthodox
method of settling an estate.
In the absence of a much clearer
intention to adopt such a method than appears in this record, we
decline to impute such an intention to the trial court.
Elsie next complains that the court erred by deeming a
$40,000.00 bank account Joseph’s non-marital property.
Apparently, when Elsie and Joseph sold their farm they received,
after settling the mortgage, at least $260,000.00.
This money
was to come to them in three (3) installments, and they had
received two (2) of the installments prior to the hearing.
The
trial court found that the couple had fairly divided the money
they had already received and had thus converted those funds to
non-marital property.
Although much of the money had been spent,
Joseph had retained $40,000.00 of his portion, and the trial
1
The dissenting Judge understands the record to support
Joseph’s interpretation. If he is right, if the trial court’s
intention was to leave the marital estate open with the office
building its sole asset to be divided at some point in the
future, then he is also right that the outstanding mortgage was
properly deemed a marital debt for which Joseph could be given
credit. Although the trial court’s order does not expressly so
hold, we concede that the order can be read the way Joseph and
the dissenting Judge read it. Indeed, this approach, although
delaying the parties’ disentanglement, would provide Elsie with
an interest in the office building’s appreciation. The point,
however, with which the dissent seems to agree, is that if Elsie
is to bear a portion of the outstanding mortgage, which is the
effect of giving Joseph credit for it, then she is entitled to an
interest in that portion of the asset covered by the mortgage.
If her interest in the asset has been terminated, which is how
she understands the trial court’s order, and is, we believe, the
interpretation recommended by the usual practice of closing a
marital estate upon entry of the dissolution decree, then she
should bear no portion of the mortgage, and Joseph should receive
no credit. We leave it to the trial court on remand to clarify
its choice between these alternatives.
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court rejected Elsie’s claim that this money should be included
in the marital estate.
KRS 403.190(2)(d) excepts from the definition of
marital property, “property excluded by valid agreement of the
parties.”
We are persuaded that this provision applies here.
The parties’ testimony supports the trial court’s ruling that
they had validly agreed to exclude from their marital estate the
proceeds from the sale of their farm that they had already
received.
There is no dispute that the $40,000.00 was a part of
those proceeds.
Joseph explained that he had retained this money
in anticipation of a large tax bill.
The trial court did not
clearly err by so finding.
The parties also testified, however, that Elsie used
part of her share of the farm-sale proceeds to make a down
payment on a new house.
The court ruled, nevertheless, that the
house was marital property.
It may have based its ruling on the
fact that Elsie was unable to obtain financing for the purchase
without Joseph’s co-signing, but we believe the testimony clearly
establishes the Kings’ intent that the house be Elsie’s nonmarital property and that it was acquired with her non-marital
funds.
The trial court erred, therefore, by including the equity
on the house in the marital estate.
Additionally with respect to the sale of the farm,
Elsie maintains that she was awarded an insufficient non-marital
share of the proceeds.
She traced approximately $15,500.00 of
non-marital funds into the $67,000.00 purchase price of the farm.
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She claims that she was thus entitled to a proportionate nonmarital share of the total equity.
As mentioned above, however, by the time of the
hearing, the Kings had already received all but one of the
installment payments due from the purchasers of the farm, and
they had divided those payments equally between themselves.
The
trial court deemed that division a full and valid settlement of
the parties’ rights to those payments and so limited its
consideration of Elsie’s non-marital interest in the farm
proceeds to the one installment payment still outstanding.
Applying the so called “Brandenburg formula,”2 to that
installment, it determined that Elsie’s non-marital share of the
farm proceeds was about thirty-one thousand dollars ($31,000.00).
Elsie contends that this was an error, that the trial court
should not have read into the prior division of proceeds her
agreement to disclaim her non-marital share of them, but should
instead have applied the “Brandenburg formula” to the entire farm
equity and awarded her a non-marital share of approximately onehundred-twenty thousand dollars ($120,000.00).
Even were we to agree with Elsie that the trial court
misinterpreted the couple’s agreement to divide the first and
second farm payments, we would still be obliged to affirm the
trial court’s division of the proceeds because we are not
persuaded that Elsie succeeded in making waiver of them a genuine
issue: she did not establish the non-marital interest in them she
2
Brandenburg v. Brandenburg, Ky. App., 617 S.W.2d 871
(1981).
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claims not to have waived.
Tamme v. Commonwealth, Ky., 973
S.W.2d 13 (1998); Newman v.Newman, Ky., 451 S.W.2d 417 (1970);
Clark v. Young, Ky. App., 692/285 (1985).
Elsie relies on Brandenburg for the proposition that
she is entitled to a non-marital share of the farm equity in
proportion to her non-marital contribution to the farm’s price.
Brandenburg involved an application of KRS 403.190(2)(e).
That
statutory section excepts from marital property, “[t]he increase
in value of property acquired before the marriage to the extent
that such increase did not result from the efforts of the parties
during marriage.”
(Emphasis added).
In Goderwis v. Goderwis, Ky., 780 S.W.2d 39 (1989), our
Supreme Court warned that sub-section (2)(e) and Brandenburg do
not apply when the increase in value can be attributed to the
parties’ efforts during the marriage:
An increase in the value of nonmarital
property during marriage which is the result
of a joint effort of the parties establishes
the increase in value of the nonmarital
property as marital property.
780 S.W.2d at 40.
Property acquired during the marriage is presumed to be
marital.
Chenault v. Chenault, Ky., 799 S.W.2d 575 (1990).
To
be entitled to a fully proportionate non-marital share of the
farm’s equity, therefore, Elsie bore the burden of proving that
the substantial increase in the farm’s value was not due at all
to her and her husband’s efforts.
She presented no such evidence
and so is in no position to complain that the trial court’s
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determination of her non-marital share was inadequate.3
Thus,
although for reasons different from the trial court’s, we are
persuaded that the trial court did not err by limiting Elsie’s
non-marital share of the farm-sale proceeds to an amount less
than that derived from applying the so called “Brandenburg
formula” to the entire farm equity.
Elsie also failed to meet her burden of proving that a
tort settlement award was her non-marital property.
In 1984,
apparently, Elsie was involved in an automobile accident in which
she suffered a serious leg injury.
claim for damages.
She subsequently settled her
She and Joseph deposited the money,
approximately $20,000.00, in an investment account.
The trial
court awarded this account to Elsie, but deemed it a part of the
marital estate.
Elsie claims that this account should have been
deemed non-marital.
In Weakly v. Weakly, Ky., 731 S.W.2d 243 (1987), on
which Elsie primarily relies, our Supreme Court held that damages
awarded for pain and suffering are not marital property.
The
Court went on to say, however, that it
d[id] not attempt to decide here the proper
procedure for the allocation between marital
and nonmarital property of a personal injury
award for an injury sustained during the
3
Apparently, during the marriage Elsie received a fiftythousand-dollar ($50,000.00) inheritance. Although only ten
thousand dollars ($10,000.00) of that inheritance was used to
purchase the couple’s first house and was traceable into the
farm, Elsie maintains that at the very least she should receive a
fifty-thousand-dollar ($50,000.00) non-marital share of the farm
proceeds. Elsie made no attempt, however, to trace the balance
of her inheritance, and thus the trial court did not err by
refusing to give her additional non-marital credit on the basis
of it. Chenault v. Chenault, Ky., 799 S.W.2d 575 (1990).
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marriage where the settlement or judgment
does not indicate what portion of the award
applies to earning capacity and what portion
is allocated to pain and suffering.
731 S.W.2d at 245.
Elsie maintains that her entire settlement
may be presumed to have been for pain and suffering because at
the time of the accident she was not employed outside the home.
The fact that Elsie was unemployed outside the home,
however, has little bearing on the propriety of a settlement for
medical expenses, for lost past wages (which can be estimated
from the value of home making services), and for lost future
wages (which can be based on the loss of earning capacity).
Her
lack of a job, therefore, does not permit a presumption that her
settlement award was exclusively for pain and suffering.
Because
Elsie did not otherwise introduce evidence indicating how her
settlement had been apportioned, she again runs up against the
presumption that property acquired during the marriage is
marital.
The trial court’s ruling, therefore, was neither
clearly wrong nor an abuse of discretion.
As noted above, at the time of the hearing Joseph
estimated that he owed the Internal Revenue Service $40,000.00
for unpaid income tax on his 1995 income.
The trial court
characterized this tax debt as marital and credited Joseph for it
in the settlement.
Elsie maintains that this debt should have
been assigned to Joseph as nonmarital.
She notes that Joseph
earned the income after their separation.
She points out that
the couple filed separate income tax returns for both 1995 and
1996.
And she contends that in O’Neill v. O’Neill, Ky. App., 600
S.W.2d 493 (1980), the Court deemed similar tax debts nonmarital.
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We are not persuaded that the trial court erred in this
instance.
In Underwood v. Underwood, Ky. App., 836 s.W.2d 439
(1992) and Daniels v. Daniels, Ky. App., 726 S.W.2d 705 (1986),
this Court ruled that under KRS 403.190, debts incurred during a
marriage, even during the period of separation prior to a divorce
decree, are rebuttably presumed to be marital.
The presumption
may be overcome by a showing that the property or service
acquired in exchange for the debt was devoted to a nonmarital
purpose.
Daniels, supra.
O’Neill v. O’Neill, supra, is not to the contrary.
Although in that case the Court declined to presume that a debt
incurred during the separation period prior to divorce was
marital, there was evidence that the tax debts deemed nonmarital
were owed on income that the recipient had devoted exclusively to
his own use.
Here, however, there is no suggestion that Joseph’s
1995 income was used for anything but marital purposes.
The
couple paid off many joint debts that year, and it is undisputed
that Joseph paid Elsie $400.00 per week throughout that period
and paid most of her bills.
The trial court did not err by
deeming the 1995 income tax debt to be marital.
Finally, Elsie insists that the trial court abused its
discretion by denying her motion for attorney fees.
Joseph’s
large income, she argues, and her own lack of income make a fee
award necessary.
She cites Beckner v. Beckner, Ky. App., 903
S.W.2d 528 (1995) and Glidewell v. Glidewell, Ky. App., 859
S.W.2d 675 (1993).
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In Beckner, the more pertinent of these cases, the
Court held that the disparity in the parties’ resources could be
so great as to mandate an award of attorney fees.
Ordinarily,
however, fee awards are not mandatory and are entirely within the
trial court’s discretion.
Wilhoit v. Wilhoit, Ky., 521 S.W.2d
512 (1975); Underwood v. Underwood, supra.
Elsie was awarded more than $90,000.00 in marital and
nonmarital cash.
She was also awarded more than $2,000.00 per
month in maintenance.
These resources are adequate, we believe,
to distinguish this case from Beckner and Glidewell, and to
justify the trial court’s decision not to award Elsie her
attorney fees.
To summarize, we are fully persuaded that the trial
court understands the purposes of the divorce provisions of KRS
Chapter 403, which are to ensure the post-divorce support of
marital dependants and to uphold, to the extent reasonably
possible, the expectation interests of the parties.
In
furtherance of those purposes, the trial court sought to preserve
the viability of Joseph’s chiropractic practice and to provide
Elsie with support during the period of transition to an
independent life.
Given Elsie’s age, her health problems, and
her long absence from employment, her transition is apt not to be
altogether smooth.
The trial court was fully justified,
therefore, in leaving open the possibility that Joseph’s support
obligation would extend beyond the three (3) years initially
provided.
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In light of the long duration of this marriage the
trial court appropriately, we believe, stated its intention to
divide the marital estate evenly between the parties.
We are
concerned that this intent may have been frustrated by the errors
noted above with respect to the mortgage debt on Joseph’s office
building and the equity on Elsie’s house.
It appears that as a
result of these errors, Joseph was awarded about $80,000.00 more
in marital property than was Elsie.
She would need an additional
award of $40,000.00, therefore, to equalize the settlement.
An equitable settlement is not necessarily an equal
one, of course.
In the circumstances of this case, where the
business asset is the most valuable item in the estate but admits
of neither precise valuation nor easy division, we can not say
that this disparity in the division of marital property would
necessarily amount to an abuse of discretion.
Here, however, the
disparity is so contrary to the trial court’s stated intention to
divide the estate evenly that it renders the court’s findings
both inaccurate and unsupportive of the result.
CR 52.03.
Accordingly, for the reasons discussed above, we vacate
the June 16, 1997, property settlement order of the Kenton
Circuit Court, and remand for the purpose of allowing the trial
court either to modify its order in light of the errors we have
identified, or to justify more fully than it has done, pursuant
to KRS 403.190, the disparity we have noted in the awards to
Elsie and Joseph.
There is no requirement that the court hear
new evidence or entertain new arguments, although it may do so if
it wishes.
The court’s new order shall contain findings to
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support and conclusions to explain its decision regardless of
whether that decision is to modify the property settlement or to
leave it undisturbed.
In all other respects, the Kenton Circuit
Court’s June 16, 1997, judgment is affirmed.
COMBS, JUDGE, CONCURS.
KNOX, JUDGE, CONCURS IN PART AND DISSENTS IN PART AND
FILES SEPARATE OPINION.
KNOX, JUDGE, CONCURRING IN PART AND DISSENTING IN PART:
I respectfully dissent only from so much of the Majority Opinion
that addresses appellant’s argument that the trial court’s
recapitulation sheet deprived appellant of a $71,000 credit by
reducing appellee’s assets by $71,000.
My dissent is based upon
the assumption that the business property was not awarded to
appellant, but was left to be divided later.
I believe that any error in the recapitulation sheet
occurred when the trial court assigned each party one-half of the
current equity in the business property, rather than one-half of
the current value, particularly since the trial court assigned
the entire debt on the business property to appellee.
What seems
to me to be advantageous to appellant is the fact while appellee
is paying the entire debt on the business property which will
continue to be jointly held, appellant will be building a nest
egg in the equity being built up by virtue of appellee’s mortgage
payments.
I assume that the trial court’s resolution of this
issue means that, in the event this property is sold prior to the
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mortgage payoff, appellant will still receive one-half of the
total proceeds, exclusive of any mortgage debt.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Bernard J. Blau
Jolly & Blau, P.S.C.
Cold Spring, Kentucky
Thomas L. Rouse
Rouse & Grisham
Covington, Kentucky
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