KATHY ANN COX KELLEY v. FLOYD MICHAEL KELLEY
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RENDERED:
AUGUST 26, 2005; 2:00 P.M.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2004-CA-000986-MR
KATHY ANN COX KELLEY
v.
APPELLANT
APPEAL FROM CHRISTIAN FAMILY COURT
HONORABLE JUDY A. HALL, JUDGE
ACTION NO. 03-CI-00109
FLOYD MICHAEL KELLEY
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
HENRY AND VANMETER, JUDGES; MILLER, SENIOR JUDGE. 1
MILLER, SENIOR JUDGE.
Kathy Ann Cox Kelley (Kathy) brings this
appeal from a Final Decree of Dissolution of Marriage, entered
August 12, 2004, from the Christian Family Court.
Before us,
Kathy argues that the family court abused its discretion in 1)
finding that the prenuptial agreement was enforceable; 2)
finding that no marital equity existed in the Pyle Lane real
1
Senior Judge John D. Miller sitting as Special Judge by assignment of the
Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution and
Kentucky Revised Statutes 21.580.
property; 3) assessing the amount of nonmarital interest in the
Pat Avenue real property; 4) failing to award Kathy maintenance;
and 5) failing to award Kathy attorney fees and expenses.
We review questions of fact under the clearly
erroneous standard of Kentucky Rules of Civil Procedure (CR)
52.01 and questions of law de novo.
Bob Hook Chevrolet Isuzu,
Inc. v. Transportation Cabinet, 983 S.W.2d 488, 490 (Ky. 1998).
As we conclude that the findings of the trial court are
supported by substantial evidence and the trial court correctly
applied the law, we affirm.
Kathy and Appellee Floyd Michael Kelley (Mike) met in
1994.
At the time, Kathy was 32, twice-divorced with a minor
child, living in Hopkinsville, and working at her sister's
collection agency.
Mike was 49, in the midst of a divorce,
living in Louisville, and had owned Nationwide Collection
Corporation (NCC) for fifteen years.
In March, 1995, Kathy moved into Mike's east-end
Louisville residence.
She began working at NCC, and was
responsible for managing and collecting accounts at a salary of
$800.00 every two weeks or $1,733.00 monthly.
In the two years they lived together before they
married, Mike testified that Kathy became aware of and had seen
documents relating to his personal finances, including his net
worth and investments.
Kathy, however, indicated that all she
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knew was that Mike owned NCC and some Vencor stock.
In any
event, it was undisputed that because of Mike's pending divorce
Mike and Kathy had discussions regarding Mike's net worth and
property distribution.
Following from discussions as to such in the year
before they married, Mike's attorney prepared a prenuptial
agreement.
Kathy had the document reviewed by an attorney in
Hopkinsville who advised her in writing of interests that she
was waiving by signing it, specifically that in the event of
death or a divorce the parties waived any interest in each
other's estates and marital property, as well as spousal
support.
Per the attorney's advice, the agreement was modified
only insofar as it related to the wording of the circumstance
upon which Kathy would receive $500.00 per month for twelve
months upon leaving the marital home. 2
2
In relevant part, the agreement states:
2. . . . (E)ach party hereby releases and discharges the other
completely and forever from any and all rights of past, present and future
support, (except for child support for children born of this marriage),
division of property, right of dower, right to act as administrator or
executor in either estate, right of distributive share in either estate, or
any other property rights, benefits or privileges accruing to either by
virtue of said marriage relationship or otherwise, and whether the same are
conferred by the statutory law or the common law of Kentucky, of any other
state or of the United States. . .
4. It is the understanding between the parties that this Agreement
except as otherwise provided herein, forever and completely adjusts, settles,
disposes of, and completely terminates, any and all rights, claims,
privileges and benefits that each other now has, or each may have reason to
believe each has against the other, arising out of said marriage relationship
or otherwise, and whether the same are conferred by the laws of the
Commonwealth of Kentucky, of any other state, or of the United States, and
which are now, or which may hereafter be, in force and effect.
5. This Agreement is intended to settle all possible future problems
and lead to a more tranquil marriage and, if it occurs, the dissolution of
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After eight months of marriage, the parties separated.
Kathy returned to Hopkinsville and lived in a house on Pat
Avenue that was purchased for $76,500.00.
Mike paid the down
payment of $16,500.00 and the remainder of the purchase price
($60,000.00) was obtained through a mortgage.
Although Kathy no
longer worked at NCC, she continued to draw her salary, and used
this money to make the mortgage payment.
Eight months later, in August, 1998, Mike sold NCC,
netting $399,659.24.
Employment agreements with NCC yielded
$375.00 twice each month and health insurance coverage for Mike;
and $125.00 twice each month and health insurance coverage for
Kathy.
It was also agreed that Mike would be paid $49,000.00
annually not to compete with NCC.
After the sale Mike moved to Hopkinsville.
Mike paid
a down payment of $37,500.00 on a residence and adjoining lot on
Pyle Lane.
Although a mortgage of $180,000.00 secured the
remainder of the purchase price, shortly after the purchase the
mortgage was retired from Mike's NCC proceeds.
Sixty-thousand dollars in improvements (for an inground pool and bath house/shop) were made to the property,
marriage with as few points of contention as possible. The parties
acknowledge that they have had the opportunity of advice of counsel of their
own selection and that they are entering into this Prenuptial Agreement
freely, voluntarily, and with full knowledge of its legal effect.
6. If, during the marriage, the parties separate and the wife moves
from the marital home, the husband will pay the wife $500.00 per month for
twelve months.
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funded by a line of credit on the property.
Mike paid for one-
quarter of these improvements out of his personal account.
Mike and Kathy lived on their income from the
employment agreements, the noncompete clause, and other amounts
owed by the purchase of NCC to Mike.
$400.00 monthly in child support.
Kathy also received
Over a period of time Mike's
payments from the sale of NCC reduced from $6,900.00 monthly to
an inconsistent $2,000.00 monthly.
After five and one-half years of marriage the parties
separated and Mike filed for dissolution.
Kathy later failed in
her attempt to have the prenuptial agreement declared
unenforceable.
The matter came to trial on February 20, 2004.
At the
time of the trial, both parties were driving leased vehicles.
Kathy's lease of a Buick Rendezvous (in Mike's name) was $570.00
per month.
month.
Mike's lease of a Nissan Maxima was $404.00 per
Mike paid both lease payments, the car insurance
premiums, the loan on the indebtedness on the Pyle Lane
property, the mortgage payments on the Pat Avenue property, and
the homeowners insurance on both parcels of real property.
Also at the time of the trial, Kathy was employed
full-time by Pennyrile Collection, earning $8.00 per hour and
working 40 hours per week.
Mike was employed in a consulting
capacity with NCC and had a furniture business on the side.
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Kathy's credit card debt, which was solely in her name,
increased from $5,000.00 at the time of the marriage to
$12,000.00 at the time of the separation to in excess of
$45,000.00 by the time of the final hearing.
Both parties appeared with counsel, and the family
court made findings and conclusions as to real property,
maintenance, and attorney fees/costs now contested on appeal by
Kathy.
Kathy first contends that the family court abused its
discretion in finding the prenuptial agreement enforceable.
Gentry v. Gentry, 798 S.W.2d 928, 936 (Ky. 1990) provides that
while antenuptial agreements are permitted, enforcement of such
agreements is subject to the trial judge employing three
criteria in determining whether to enforce such an agreement in
a particular case:
1) was the agreement obtained through fraud,
duress or mistake, or through misrepresentation or nondisclosure of material facts; 2) is the agreement
unconscionable; and 3) have the facts and circumstances changed
since the agreement was executed so as to make its enforcement
unfair and unreasonable.
Before us, Kathy argues that the
family court's findings are erroneous as to the first criteria
(non-disclosure of material facts) and third criteria (change of
circumstances rendering enforcement unfair and unreasonable).
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On November 20, 2003, the family court entered an
order finding that the prenuptial agreement was not
unconscionable on its' face, finding in relevant part:
Both [Mike] and [Kathy] were previously
married. For over two (2) years during the
pendency of [Mike's] divorce, [Kathy]
cohabitated with [Mike]. During this time,
[Mike] was actively involved in an
acrimonious divorce proceeding with his now
former wife. [Mike] testified that he
talked to [Kathy] on many occasions
concerning property, stocks and assets that
were at issue in his previous divorce.
[Kathy] was employed by [Mike] from
March of 1995 to March of 1997. [Kathy] was
solely responsible for managing and
collecting accounts as well as working with
various layers (sic) and law firms for
collection purposes. [Kathy] had access to,
and opportunity to review documents in
regard to [Mike's] financial statements.
During this time [Mike] began negotiations
to sell his company.
Subsequent to [Mike] providing a draft
of the prenuptial, [Kathy] sought separate
counsel from Hon. Robert Ison. On or about
March 12, 1997, [Kathy] and her attorney
telephonically discussed the prenuptial
agreement. On March 13, 1997, counsel for
[Kathy] faxed a follow up letter from his
prior telephonic conversation with [Kathy]
advising [Kathy] of her rights. The letter
sets forth several strong warnings to
[Kathy] concerning the rights she would be
waiving in property, support and/or
maintenance. Hon. Robert Ison encouraged
[Kathy} to contact him if she had further
questions or concerns. [Kathy] did not
communicate further with her attorney. The
prenuptial agreement was modified by [Mike]
to reflect changes requested by [Kathy's]
counsel. The prenuptial agreement is not
unconscionable on its' face.
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Kathy first contends that the family court erred when
it found that prior to the signing of the agreement that Mike's
financial condition was sufficiently disclosed to her by virtue
of the ongoing discussions regarding property, stocks and assets
that were at issue in his previous divorce while they lived
together; his ownership of NCC; and her employment at NCC where
she was solely responsible for managing and collecting accounts
and had access and the opportunity to review Mike's financial
statements.
Having reviewed the record, we cannot conclude that
these findings are clearly erroneous.
It was undisputed that
Kathy was twice divorced; had worked in her sister's collection
agency and was thus knowledgeable of that type of business;
lived in Mike's east-end Louisville residence for two years
before they married; knew that Mike owned NCC, a medium sized
business operating out of two locations and employing fifteen to
twenty people; and at NCC was knowledgeable enough to have been
given the sole responsibility for managing collection accounts.
Although Kathy indicated that she had not seen or knew Mike's
personal finances, he testified that Kathy had seen his
financial statements in the years they were together; that she
knew his net worth; that they lived in a house next to a country
club and went to the club every Friday night; and that they
spoke many time about investments.
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We are to give due regard to
the opportunity of the trial court to consider the credibility
of the witnesses.
Lawson v. Loid, 896 S.W.2d 1, 3 (Ky. 1995).
As the family court's findings are supported by substantial
evidence we can find no abuse of discretion on the disclosure
issue.
Kathy also contends that the prenuptial agreement was
unfair and unreasonable due to changed facts and circumstances,
in that she can no longer meet all of her financial obligations
if she is limited to her income from employment.
According to
Blue v. Blue, 60 S.W.3d 585, 590 (Ky.App. 2001), the emphasis of
the unconscionability inquiry "relates to the reasonable
expectations of the parties as contemplated by the agreement."
Herein, the parties' financial resources were disparate from the
beginning of their relationship, with Kathy entering the
relationship with employment at her sister's collection agency,
a car and $5,000.00 in credit card debt.
She lived with Mike
for two years before the marriage, working in a high level
management position at his company.
After they separated, even
though she moved to Hopkinsville, she still drew her same salary
from NCC.
Following the sale of the company, she participated
in an employment agreement which resulted in her receiving
health insurance and $220.00 monthly which continued at the time
of the hearing.
At the time of the hearing, she had obtained
employment and was earning between $1,600.00 and $1,900.00 per
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month.
Unfortunately, from the time of the separation to the
hearing, Kathy was unemployed and on her own incurred in excess
of $45,000.00 in credit card debt.
Pursuant to Blue at 591:
To set aside the agreement, [Kathy] must
show more than that [Mike's] position has
improved. She must also show that her
position has suffered in a manner which was
beyond the contemplation of the parties when
they signed the agreement. In the
alternative, [Kathy] must establish that the
agreement is oppressive or manifestly unfair
to her at the time of dissolution.
The parties cohabitated for two years.
Kathy entered the
relationship with a full-time job, a car, and $5,000.00 in debt.
Although married for seven years, they were separated for a
large part of their marriage, during which time Kathy alone
amassed a large amount of credit card debt.
Kathy presented no
evidence that Mike's position has dramatically improved since
the agreement, and has presented no evidence indicative of her
inability to obtain full-time employment at the same level as
when she signed the agreement.
We find, therefore, that the
family court's finding is supported by substantial evidence and
it correctly applied the law in holding the prenuptial agreement
enforceable.
Kathy next asserts that the family court abused its
discretion in finding that no marital equity existed in the Pyle
Lane real property.
With regard to this property, the family
court found:
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The parties acquired the Pyle Lane
residence and lot in July 15, 1998. The
property was purchased with funds from the
sale of [Mike's] business, Nationwide
Collection Corporation, a collection agency
in Louisville which [Mike] owned from 1979
until the sale of the business on August 31,
1998. This Court being satisfied that
[Mike's] business, Nationwide Collection
Corporation, was non-marital and the funds
derived from the sale of said corporation
having been deposited into [Mike's] personal
account, also held solely in his name, and
used within one (1) day of the deposit to
purchase the residence at 1051 Pyle Lane and
the adjacent lot, said real property and
home are found to be [Mike's] non-marital
real property derived from a traceable nonmarital asset. [Kathy's] name appearing on
the deed did not change the character of the
property. (Angel v. Angel, Ky.App., 562 SW
661, 665 (1978)).
On December 31, 1998, an equity line
mortgage was taken on the Pyle Lane property
for improvements to the property represented
by addition of an in ground swimming pool,
bath house and shop. Proceeds of the loan
were additionally applied to payment of
taxes and improvements to the exterior and
interior of the residence. [Mike] testified
that $10,000.00 was expended by [Kathy] as
start-up money for her personal business.
The current balance of the equity loan is
$139,724.88. The balance of the equity loan
in December of 2002. (sic) at the time of
the parties' separation, was $77,030.17.
Loan funds in the amount of $54,000.00 are
currently frozen by the Court. The fair
market value of the Pyle Lane property is
$291,000. The difference between the fair
market value and the purchase price is
$74,000. The current indebtedness on the
property is $139,724.88. The Court finds
there is no marital equity in the Pyle Lane
property. [Mike] is restored his nonmarital interest in the Pyle Lane property
and [Mike] shall take and own the Pyle Lane
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property and shall assume and pay any
indebtedness thereon and hold [Kathy]
harmless. Additionally any and all funds
that are currently frozen by this Court are
unfrozen and awarded to [Mike] and [Mike]
shall assume and pay any and all
indebtedness associated therewith and hold
[Kathy] harmless thereon.
Kathy does not dispute that the Pyle Lane property was
bought with the proceeds from the sale of Mike's non-marital
business, and was thus at the onset, non-marital property.
Instead, Kathy argues that the family court erred by failing to
find marital property in the increase in the value of the
property during the marriage, specifically $60,000.00 for an inground swimming pool, bath house, shop, fencing and paving.
Shortly after Mike's purchase of the property with
non-marital funds, a line of credit on the property was secured.
Approximately $45,000.00 of this line of credit ($60,000.00 less
$15,000.00 in non-marital contributions from Mike) may have been
used for the above-mentioned improvements to the property.
Due
to the improvements, the fair market value of the property
increased $74,000.00.
Typically, the $45,000.00 in improvements that cannot
be traced to non-marital funds are subject to apportionment in a
manner consistent with Brandenburg v. Brandenburg, 617 S.W.2d
871 (Ky.App. 1981).
Because, however, the debt on the property,
all of which was assigned to Mike in the decree, far exceeds the
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improvements and any marital share that would be attributed to
Kathy under the Brandenburg formula, we conclude that the family
court's conclusion is supported by the evidence and it correctly
applied the law.
Kathy next contends that the family court abused its
discretion in the amount of marital equity found in the Pat
Avenue property.
The family court made the following findings:
The parties purchased a residence
located at 716 Pat Avenue, Hopkinsville,
Kentucky on January 16, 1998.
Approximately, $17,905.59 was made as a down
payment on Pat Avenue from a personal
checking account held solely in [Mike's]
name from funds derived from the sale of
non-marital assets. The purchase price of
said residence was $76,500.00 and [Mike's]
contribution of non-marital funds to provide
[Mike] a 23.40% non-marital equity interest
in said property. The fair market value of
said property is $81,000.00. The mortgage
indebtedness is $53,891.79, with net equity
in the amount of $27,109.00. Using the
Brandenburg formula, the Court determines
that 23.40% of the $81,000.00 is $18,954.00
which represents [Mike's] non-marital equity
in the property. Subtracting [Mike's] nonmarital equity from the present equity in
the amount of $27,109.00, there remains
$8,155.00 as marital equity in the Pat
Avenue residence. Equally dividing the
marital equity, between the parties,
$4,077.50 represents [Kathy's] equity in the
Pat Avenue residence and [Mike's] nonmarital and marital interest total
$23,031.50. During the pendency of this
action, [Kathy] has resided in the Pat
Avenue property. [Mike] has been kept
current the mortgage payment and insurance.
[Mike] shall take and own the Pat
Avenue property and assume and pay any
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indebtedness there on and hold [Kathy]
harmless, subject to payment by [Mike] to
[Kathy] of her non-marital and marital
equity interest therein in the amount of
$4,077.50 within sixty (60) days of entry of
this order.
[Kathy] shall be entitled to retain
possession of the Pat Avenue property until
June 30, 2004. [Kathy] shall pay the
mortgage indebtedness for May and June of
2004. And any and all expenses associated
with occupancy.
Kathy contends that the family court improperly
applied the percentage arrived at from the division of the nonmarital contribution by the total contribution to the fair
market value of the property, instead of the equity therein.
Having reviewed the family court's analysis, we see no error in
its evaluation and distribution of the Pat Avenue property.
Kathy also contends that the family court abused its
discretion by following the prenuptial agreement and failing to
award her maintenance, arguing that, given the substantial
indebtedness assigned to her, she did not receive sufficient
marital property to provide for her reasonable needs nor will
she be able to support herself through employment.
We fail to
see, however, how this issue was preserved for our review.
Kathy failed to include a statement regarding issue preservation
at the beginning of this argument pursuant to CR 76.12(4)(c)(v).
She further admitted in her proposed "Findings of Fact and
Conclusions of Law," tendered to the family court at the
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conclusion of the trial, that she was not entitled to
maintenance either under the terms of the prenuptial agreement
or under the relevant statutory factors, and that she should
assume all indebtedness incurred in her name, specifically
acknowledging the $45,000.00 in credit card debt.
Moreover, in any event we fail to see how the family
court abused its discretion in failing to award maintenance.
The family court's specific findings are as follows:
Indebtedness. There are a number of debts
that each party has incurred in their own
name both during the marriage and after
separation, and pursuant to the terms of the
Prenuptial Agreement, specifically numerical
paragraphs two (2) and four (4), each party
is to assume and be responsible for all debt
incurred solely in their names.
Maintenance. The parties entered into a
Prenuptial Agreement on or about the 14th day
of March, 1997. By Order entered November
20, 2003, said Prenuptial Agreement was
found to be conscionable and enforceable.
Pursuant to the terms of the Prenuptial
Agreement, [Kathy] was entitled to and has
received $500.00 a month for twelve (12)
months from February 2003 until February
2004. This Court having determined that
both parties are gainfully employed pursuant
to the terms of the Prenuptial Agreement
neither party is henceforth entitled to any
form of future support or maintenance.
Having reviewed the record, it appears that the financial
condition of the parties remained as disparate at the time of
the agreement as at the time of the dissolution.
Thus, even if
this issue had been preserved for our review, or not disposed of
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by the prenuptial agreement, we conclude that the family court
did not abuse its broad discretion by enforcing the terms of the
prenuptial agreement.
Kathy lastly contends that the family court abused its
discretion in failing to award her attorney fees and the costs
in defending the action.
Again as above, it does not appear
that Kathy preserved this issue.
There is no statement
regarding issue preservation as required by CR 76.12(4)(c)(v).
Also, her tendered "Findings of Fact and Conclusions of Law"
specifically indicates as a conclusion that "(n)o attorneys'
fees are awarded to either party."
Moreover, we cannot consider
attorney fees because Kathy's counsel was not made a party to
the appeal.
Kentucky Revised Statutes (KRS) 403.220, Beaver v.
Beaver, 551 S.W. 2d 23, 25 (Ky.App. 1977).
In any event, noting that pursuant to KRS 403.220 and
Gentry, supra, it is within the trial court's discretion as to
the award of attorney fees, we fail to find any abuse of
discretion by the family court.
For the foregoing reasons, the judgment of the
Christian Family Court is affirmed.
ALL CONCUR.
BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEE:
Julia T. Crenshaw
Hopkinsville, Kentucky
Stephen E. Underwood
Hopkinsville, Kentucky
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