AND DARLENE GRIPSHOVER v. GEORGE HENRY GRIPSHOVERAnnotate this Case
August 19, 2005; 10:00 A.M.
TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
APPEAL AND CROSS-APPEAL FROM BOONE CIRCUIT COURT
HONORABLE LINDA R. BRAMLAGE, JUDGE
ACTION NO. 02-CI-00044
GEORGE HENRY GRIPSHOVER
AFFIRMING IN PART,
VACATING IN PART,
** ** ** ** **
COMBS, CHIEF JUDGE; HENRY AND TACKETT, JUDGES
COMBS, CHIEF JUDGE:
Darlene Gripshover appeals from the final
judgment of the Boone Circuit Court, Family Division, entered on
January 28, 2004, which dissolved her marriage to the appellee,
Darlene argues that the trial court erred in
failing to award her any interest in real property that had been
transferred to an irrevocable family trust a few months prior to
She also alleges that the trial court erred:
(1) in characterizing a promissory note as primarily non-marital
in nature, (2) in setting the amount and duration of
maintenance, (3) in allowing George to deduct accelerated
depreciation from his income in order to determine the
appropriate amount of child support, and (4) in allowing George
to claim both of their children as dependents in calculating his
George has filed a protective cross-appeal
seeking reconsideration of the issue of maintenance if this
Court should determine that Darlene is entitled to an enhanced
After reviewing the record, we affirm the trial court’s
decision with respect to the promissory note.
As to all other
issues, we vacate and remand.
The Gripshovers were married in 1988.
Darlene had two
children from a previous marriage, who resided with the parties.
Two children were born to George and Darlene in 1990 and 1995,
Both were minors at the time of dissolution.
Darlene was employed as a housekeeper during all but two years
of the marriage.
George worked with his brother, Camillus
Gripshover (Charlie), in a farming operation in Boone County.
George and Darlene separated in December 2001.
The primary contested issue in the dissolution
concerned the proper disposition of the parties’ interests (both
marital and non-marital) in real property.
At the time of the
marriage, George and Charlie each owned an undivided one-half
interest in the farming business, which included more than 200
acres of land in Boone County.
During the Gripshovers’
marriage, the partnership’s real estate holdings increased to
more than 600 acres.
The parties stipulated that this property
was worth $3,124,500 at the time of their separation.
addition, the farming partnership owned other assets -including equipment and livestock -- worth $1,128,170.
held a promissory note in the principal amount of $1,021,925.
A few months prior to the parties’ separation, George
and Charlie consulted an attorney for estate planning purposes.
At the brothers’ direction, the attorney prepared several
documents that were executed by both of the brothers and their
wives in May 2001.
The documents accomplished the transfer of
nearly all of the property owned by the Gripshover families -both real and personal -- into one of two entities: the
Gripshover #1 Family Limited Partnership LTD and the Gripshover
#2 Family Limited Partnership LTD.
The estate planning documents described Darlene and
Barbara Gripshover, Charlie’s wife, as limited partners, each
having a 24% interest in the partnerships.
George and Charlie
were designated as both limited and general partners, possessing
a 26% interest each.
All four Gripshovers executed special
warranty deeds transferring their interests in the real property
to Gripshover #1 partnership.
Acting in their roles as controlling and managing
partners, George and Charlie assigned the partnership’s rights
in the real property to the George Gripshover Family Trust and
the Camillus Gripshover Family Trust.
Both trusts are
George is the trustee of Charlie’s trust, and
Charlie is the trustee of George’s trust.
Although the trial
court found that the parties’ children are the beneficiaries of
George’s trust, the trust instrument itself provides that only
George’s children have a beneficial interest in the trust,
excluding Darlene’s two children from her previous marriage and
leaving open the possibility of inclusion of children born to
George in the future.
Each family signed documents transferring its interest
in the farm equipment, crops, livestock, and the promissory note
to Gripshover #2 Family partnership.
The partnership then
transferred all of this personal property to two revocable
trusts, the George Gripshover Living Trust and a similar trust
Each brother designated the other as the trustee
of his trust, naming his children as the beneficiaries of the
The trusts do not pay income to the beneficiaries.
their role as trustees of the reciprocal trust or as the
controlling partners of the two family partnerships, George and
Charlie have complete control over the real property and the
equipment used in the family farming business.
derived by the partnership pays all of their living expenses and
provides the men with a monthly allowance.
After filing her petition for dissolution, Darlene
asked that the trusts be declared invalid.
She alleged that she
did not knowingly convey her interest in the real property.
Alternatively, she argued that the trusts constituted a sham and
that the brothers failed to transfer the property properly in
order to establish a valid trust.
Finally, if the trusts were
determined to be valid, she contended that since George and
Charlie were looking after their own best interests rather than
those of the beneficiaries, they should be removed as the
The trial court bifurcated the proceedings.
January 2003, it conducted an evidentiary hearing pertaining
solely to the estate planning scheme created in May 2001.
Darlene has completed only ten years of education, and she was
enrolled in special education classes for eight of those ten
She testified that on several occasions throughout the
marriage, George had directed her to sign documents without
explaining to her what she was signing.
She also testified that
George had not consulted with her about estate planning prior to
his meeting with the attorney and that she was not informed
about the May 2001 meeting with his lawyer until the night
before it occurred.
She noted that she did not understand the
significance of the numerous documents which she signed at that
George denied Darlene’s claim that the trusts were
created to deprive her of her share of marital property.
Rather, he testified that he and his brother were concerned
about shielding their property from creditors and that they
wanted to insure that the property would be passed on to their
children at their deaths with minimal tax consequences.
The attorney who prepared the documents testified that
he spent two to three hours with the four Gripshovers at the May
He believed that Darlene understood the overall
Nevertheless, he also acknowledged that there was no
discussion of the plan’s implications with respect to the
parties’ respective rights to the property in the event of a
dissolution of marriage.
On February 3, 2003, the trial court entered an
interlocutory order with respect to the real property.
concluded that the land was no longer a marital asset subject to
division in the dissolution action.
The court found:
Darlene had not been fraudulently induced into signing the
documents transferring her interest in the property to the
partnership; (2) that Darlene had ample opportunity to read the
documents, to ask questions, or to seek outside legal
representation if she desired; and (3) that there was no
evidence of “unlawful self dealing” by either of the trustees.
It overruled Darlene’s motion to terminate the trusts or to set
aside the trustees.
Additional evidence was presented to the court at a
hearing conducted on November 24, 2003.
Following this hearing,
the trial court entered a final decree resolving all of the
It found that many of the items of farm
equipment transferred to Gripshover #2 partnership had been
owned by George prior to the marriage and thus constituted his
The marital portion of the personal
property was determined to be worth $163,565 and was encumbered
with $37,129 in debt.
George was permitted to retain possession
of the property and was allocated the debt; Darlene was awarded
cash equal to one-half of the equity in the property.
The trial court also found that George had a nonmarital interest in the promissory note.
The note was given as
partial consideration for the sale of real property owned (in
part) by George and Charlie prior to the parties’ marriage.
Darlene was awarded $92,999, representing one-half of $185,998,
which was the portion found by the court as constituting the
parties’ marital interest in the note.
She was also awarded her
vehicle and some furniture.
In total, Darlene received property
and cash worth $160,892.
George was also ordered to pay maintenance to Darlene
in the amount of $600 per month for five years and to pay
$199.32 weekly for the support of the two children during the
nine months of the year that they reside with Darlene.
support was ordered during the summer months when the children
reside with George.
On appeal, Darlene first argues that the trial court
erred in excluding the property from the marital estate and in
failing to terminate the real estate trust.
She also contends
that the estate planning documents, prepared just a few months
before her separation from George, constituted a sham.
Siter v. Hall, 294 S.W. 767 (1927), she observes that George has
not sufficiently relinquished control over the property as
required by Kentucky law in order to create a valid inter vivos
gift of the property to the trust.
This reasoning is based on
that George and Charlie continue to use the
property in their farming operation -- rent free -- as they did
prior to the creation of the family trusts; that they continue
to retain complete control and dominion over the property; that
they alone receive the income generated by the use of the
George responds that the parties made a complete
transfer of the property because the documents which they
executed created an irrevocable trust.
The fact that George and Charlie continue to
farm the trust property in order to make a
living for themselves and their children
does not defeat the trust, nor does it make
George’s control unfettered. . . The trustee
is governed by the terms of the trust, and
the beneficial interest has been irrevocably
transferred to the parties’ children. Since
the trust is irrevocable, [George] has lost
the ability to defeat the transfer by any
(Appellee’s brief at p. 5.)
After reviewing the record, we agree that the trial
court’s findings which address the creation of the trusts are
supported by the evidence and that they are not clearly
Reichle v. Reichle, 719 S.W.2d 444 (Ky., 1986).
However, given the circumstances of the transfer, we conclude
that the trial court erred as a matter of law in determining
that the transfer of title to the property extinguished
Darlene’s rights to an equitable share of the property as
provided by KRS1 403.190, which provides as follows:
In a proceeding for dissolution of the
marriage . . . the court shall assign
each spouse’s property to him. It also
shall divide the marital property
without regard to marital misconduct in
just proportions considering all
relevant factors . . .
Kentucky Revised Statutes.
For the purpose of this chapter,
“marital property” means all property
acquired by either spouse subsequent to
the marriage . . .
The evidence is undisputed that at the time the trust
was created, a divorce was not contemplated by either George or
All the witnesses agreed that there was no discussion
of marital dissolution by the attorney.
themselves do not mention or contemplate dissolution.
did not impliedly or expressly waive her equitable rights that
were created by KRS 403.190.
Rather, in conveying their
respective interests in the property to the partnership #1, the
parties intended to continue to enjoy the income generated by
the property throughout their lives.
However, ever since the
dissolution, George alone has had the use of the property; he
alone will derive the income generated by its use; and only his
children will enjoy the beneficial interests in the trust.
The court’s ruling to exclude the property from the
marital estate has resulted in a highly disproportionate and
inequitable division of property.
The fact that legal title to
the property was assigned to a family trust does not eliminate
Darlene’s equitable share of the property.
In Kentucky, a
spouse is entitled to an equitable share of the property
accumulated through joint efforts -- regardless of how the
property is titled, categorized, or characterized.
Goderwis v. Goderwis, 780 S.W.2d 39 (Ky. 1989); Sexton v.
Sexton, 125 S.W.3d 258 (Ky., 2004).
The pertinent statute
provides unequivocal language in defining marital property,
creating a presumption that property acquired after marriage but
before a legal separation is deemed to be marital:
All property acquired by either spouse after
the marriage and before a decree of legal
separation is presumed to be marital
property, regardless of whether title is
held individually or by the spouses in some
form of co-ownership such as joint tenancy,
tenancy in common, tenancy by the entirety,
and community property. (Emphasis added.)
We agree that the trial court erred in failing
to fashion a remedy to award Darlene the portion of this
property to which she is clearly entitled.
Therefore, we vacate
the judgment and remand on this issue.
There is no question that George has a non-marital
interest in some portion of the real estate transferred to his
On remand, he may present evidence to establish
his non-marital interest in the property.
The law dictates that
during the time of the marriage, the joint efforts of the
parties caused George’s one-half undivided interest in the
property to increase in value.
Darlene is entitled to an
equitable share of that increase -- as well as to a share of the
increase in the equity attributable to a reduction of the
mortgages on the property paid with marital funds.
v. Brandenburg, 617 S.W.2d 871 (Ky., 1981).
Because we conclude that Darlene is entitled to a
share of the property pursuant to KRS 403.190, it is not
necessary to address Darlene’s argument that the trust should be
declared a sham pursuant to the reciprocal trust doctrine.
trial court is not required to terminate the trust in order to
make an equitable division of the property.
Darlene next argues that the trial court erred in
calculating the marital portion of the $1,021,925 promissory
There is no dispute that the note was given as
consideration for 283 acres of property known as the “Richwood
The property was purchased in 1982 -- six years prior to
the marriage -- for $347,201 ($1,225 per acre) by George, his
father, Charlie, and two other siblings.
The property was the subject of numerous transactions
both before and after the Gripshovers married in 1988.
George’s father died, leaving his one-fifth interest to all nine
of his children.
Both before and after the marriage, George and
Charlie acquired the interests of all their siblings either by
purchase, inheritance, or gift.
three separate transactions:
They later sold the farm in
in 1989, 60 acres were sold for
$210,000 ($3,500 per acre); in 1995, 99.75 acres were sold for
$480,000 ($4,812 per acre); in 1996, the remaining 104.8 acres
were conveyed for $1,916,925 ($18,191 per acre).
Some of the
proceeds of the last sale were used for an exchange of property
in Mason County.
The remaining amount due ($1,021,925) was the
subject of a promissory note payable to George and Charlie.
Two payments were made on the outstanding mortgage
indebtedness against Richwood Farm during the marriage.
payment, which was made two or three days after the marriage,
was determined by the trial court to have been made with nonmarital funds –- sums earned by George prior to the marriage.
The court’s finding regarding this payment is supported by the
evidence and will not be disturbed.
The court determined that the second payment was made
with marital funds.
Pursuant to the formula in Brandenburg,
supra, the court concluded that a small portion of the farm
(about 2%) constituted marital property based on this reduction
in the mortgage.
With the exception of these two payments,
there was no evidence that any other reduction in the principal
indebtedness on Richwood Farm was made with marital funds.
George and Charlie used the proceeds from the various sales of
the property to reduce the principal.
The trial court also found that one-third of the
parties’ interest (the portion of Richwood Farm purchased from
George’s sister, Kathy) was purchased with marital funds.
all, the court determined that the parties’ one-half interest in
Richwood Farm -- and ultimately the note -- was 36% marital and
Darlene was awarded $92,999, one-half of the
marital portion (18%).
We can find no error in the trial
court’s analysis of the facts or in its application of the law
with respect to George’s claim that the note was (in major part)
obtained in exchange for his non-marital property.
However, Darlene contends that the parties’ one-half
interest in Richwood Farm was entirely marital in nature.
argument is based on the theory that the property had decreased
in value from the time that it was purchased in 1982 until 1988,
the year of the marriage, extinguishing any equity in the
property and eliminating George’s claim to a non-marital
Some of George’s siblings had gratuitously
transferred their interests to him and to Charlie near the time
of the marriage.
Therefore, Darlene believes that the property
was worth no more than the amount of the mortgage indebtedness
then in existence and that such a finding was both substantiated
We disagree that the trial court’s findings are
The gifts of the property made by George’s
siblings did not necessarily warrant a finding that there was no
equity in the property at the time of the marriage.
siblings who gave their interests to George and Charlie
possessed only a very small interest in the property -– a 1/45th
share inherited from their father.
business of farming.
They were not engaged in the
We have reviewed the undisputed evidence
of the amount for which the property was purchased and the
amounts paid for the various parcels when sold.
that the trial court was justified in finding that the property
steadily increased in value -– an increase that was triggered by
economic factors alone according to the evidence.
Darlene next challenges both the amount and the
duration of the maintenance award.
Because of our remand as to
an equitable division of the marital estate, the trial court
will also need to re-assess its award of maintenance.
deciding the amount and duration of maintenance, a trial court
is required to consider all of the relevant factors contained in
A court is accorded a great deal of discretion
in making an award of maintenance, and its decision will be
reversed only upon a showing that it abused its discretion or
that it relied on findings that are clearly erroneous.
Combs, 622 S.W.2d 679 (Ky.App., 1981); Perrine v. Christine, 833
S.W.2d 825 (Ky. 1992).
With respect to the maintenance issue upon remand, we
agree with Darlene’s argument that there is no evidence to
support the court’s finding that she has “an average gross
potential weekly income of $360.00” -- a sum that amounts to
$18,720 per year.
On the contrary, the record reveals that
Darlene currently earns less than $150 per week.
than fifty years of age.
She is more
She has some health problems and a
tenth-grade education; she possesses no tangible marketable
Her employment history has consisted entirely of
cleaning other people’s houses.
The highest income that Darlene ever earned in a
single year was $13,000 when she was much younger.
In the last
several years of the marriage, she earned about one-half of that
At the time of dissolution, she was living in Mason
As the evidence of record reveals, there are fewer
potential clients for her services in largely rural Mason County
than there would be in a more heavily populated area.
George is somewhat younger than Darlene and is in good
His farming operation grosses more than $300,000 per
His taxable earnings exceed $64,000 annually.
of these disparities, we conclude that the trial court abused
its discretion in improperly imputing income to Darlene for
which there is no evidentiary basis and in limiting the duration
of the award to five years.
On remand, the trial court should
assess the evidence concerning Darlene’s abilities to meet her
own needs without requiring that she exhaust her property in
order to determine an award more reflective of the financial
realities of their respective situations.
Darlene also argues that the trial court erred in
calculating George’s income for purposes of setting child
Specifically, she contends that the court erred as a
matter of law in allowing George to reduce his income by
utilizing the accelerated depreciation provision of 26 U.S.C.A.
§ 179, a provision of the federal tax code.
KRS 403.212(c), the applicable portion of the child
support statute, provides:
For income from self-employment, rent,
royalties, proprietorship of a business, or
joint ownership of a partnership or closely
held corporation, “gross income” means gross
receipts minus ordinary and necessary
expenses required for self-employment or
business operation. Straight-line
depreciation, using Internal Revenue Service
(IRS) guidelines, shall be the only
allowable method of calculating depreciation
expense in determining gross income.
Specifically excluded from ordinary and
necessary expenses for purposes of this
guideline shall be investment tax credits or
any other business expenses inappropriate
for determining gross income for purposes of
calculating child support. Income and
expenses from self-employment or operation
of a business shall be carefully reviewed to
determine an appropriate level of gross
income available to the parent to satisfy a
child support obligation. In most cases,
this amount will differ from a determination
of business income for tax purposes. . . .
The deduction allowed by § 179 is not the straightline depreciation discussed in the statute.
The court, however,
reasoned that § 179 does not relate to depreciation of any kind.
We believe that it erred in failing to recognize that § 179 is
essentially a provision allowing for accelerated depreciation
relating to “tangible property . . . which is acquired by
purchase for use in the active conduct of a trade or business.”
§ 179(a) provides as follows:
A taxpayer may elect to treat the cost of
any section 179 property as an expense which
is not chargeable to capital account. Any
cost so treated shall be allowed as a
deduction for the taxable year in which the
section 179 property is placed in service.
Without the election allowed under § 179, George would
be limited to recovering the cost of the property purchased for
use in his farming business by treating it as a capital
expenditure and depreciating it over a period of years.
deduction from income calculated on the basis of straight-line
depreciation would be significantly less than the deduction
possible under § 179.
The deduction allowed by § 179 is
precisely the type that Kentucky’s statute has prohibited from
being used to calculate an obligor’s income in determining the
proper amount of child support.
Thus, the trial court erred in
allowing George to utilize the accelerated depreciation formula.
Darlene also argues that the trial court erred in
allowing George to claim both children as dependents for income
In general, a trial court must allocate the tax
exemptions so as to maximize the amount of support available to
care for the children.
Hart v. Hart, 774 S.W.2d 455, 457
Such a savings is not always achieved by
granting the exemption to the parent with the greater income.
On remand, after revising its awards of maintenance and child
support as indicated earlier, the trial court is directed to
reconsider and to allocate the tax exemptions after a
determination of how to effectuate the greater overall tax
The judgment of the Boone Circuit Court is affirmed in
part, vacated in part, and remanded for further proceedings
consistent with this opinion.
BRIEF FOR APPELLANT/CROSSAPPELLEE:
BRIEF FOR APPELLEE/CROSSAPPELLANT:
D. Anthony Brinker
David A. Koenig