Glenn Duboise v. Patricia A. Duboise

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ca04-124

ARKANSAS COURT OF APPEALS
NOT DESIGNATED FOR PUBLICATION

DIVISION II

GLENN DUBOISE,

APPELLANT

V.

PATRICIA A. DUBOISE,

APPELLEE

CA04-124

NOVEMBER 10, 2004

APPEAL FROM THE SEBASTIAN COUNTY CIRCUIT COURT,

NO. DR02-19-G,

HON. JIM D. SPEARS, JUDGE

AFFIRMED

Sam Bird, Judge

Appellant Glenn E. Duboise and appellee Patricia Duboise were divorced by order of the Sebastian County Circuit Court on November 3, 2003. The primary issue before the trial court was the validity of a trust and the division of its property, which consisted of a mortgage on a business owned by appellee before she and appellant married. Appellant now challenges the property division, contending that the trial court erred 1) by failing to recognize that the trust agreement was a comingling of assets, 2) by not assigning appellant an equitable interest in the goodwill of the business, and 3) by failing to award him an interest in the trust res due to the fact that marital assets were used to pay off debt on the property. Finding no error, we affirm the decision.

It was not disputed that, before the parties' marriage on March 8, 1990, appellee owned the Cottage Café and all properties where the business was located in Van Buren, Arkansas. The history of her business activities prior to that time included her 1982 ownership and operation of the café; and her 1986 purchase of buildings at 812 and 814 Main Street, as well as purchase of the land upon which the business was located, made by

paying $12,000 down and financing the balance of the $50,000 purchase price. In February 1990 appellee purchased a building at 810 Main Street for $4,000, having already purchased the land in 1989.

In 2000, the Cottage Café was sold and a mortgage was taken on the property. The trial court's letter opinion described these transactions:

Before the sale of the property and before the break-up of the marriage, the parties were informed of a trust mechanism whereby assets could be transferred to what was referred to as a "pure trust." The creation was given the name "Yoestown Ruby." They paid money to some outfit to set this up and continue to pay a fee. The parties deeded the property and the goodwill of the Cottage Café to Yoestown Ruby, who in turn [sold] it to the purchaser Sarah C. Badeaux. They joined in a conveyance of property solely owned by the defendant.

The court, describing this arrangement as a "tax avoidance scheme," found no evidence that appellee intended to make a gift or to comingle her separately owned assets to any extent other than dictated by the existence of the marriage.

The court ruled that the beneficiary of the trust was appellee. The letter opinion set forth the reasons for this ruling:

The documents do not reflect who the beneficiary is. The particular name is "unit holders." That is left blank. This is a defect in the Trust as a trust. The unit holder is the beneficiary and no one is designated. The Court determines that the unit holder is the owner of the asset transferred to Yoestown Ruby, which was then sold to Ms. Badeaux and replaced by a mortgage payable to Yoestown Ruby by Ms. Badeaux. This is the Defendant, Mrs. Duboise.

Additionally, in its letter opinion, the court examined a provision in the trust device for a contract between Yoestown Ruby and the parties to this appeal. Under this provision appellant and appellee, as managing directors, were to provide "management services"; in return they were to receive all housing costs, auto expenses, a reasonable expense account, and the equivalent of $1000 per month. The court found this provision to be a fraud because there were no management services to be provided. The court's written order, entered onNovember 6, 2000, included the following:

The Court finds that Plaintiff [appellant] and Defendant [appellee] sold their mutual interest in the Cottage Café and [realty] situated thereunder to a trust better known as Yoestown Ruby Trust. The parties conveyed their interest in and to the real estate to the Yoestown Ruby Trust. The Yoestown Ruby Trust thereafter conveyed its interest in and to the real estate, the business and goodwill of the Cottage Café to the buyer of the Cottage Café.

The Court finds that there was no real evidence that Defendant intended to make a gift of her pre-marital interest or to comingle her non-marital property to the Plaintiff herein other than the existence of what the marriage itself signified.

....1 The Court finds that the unit holder is owner of the assets transferred to the Yoestown Ruby Trust which was then sold to the buyer of the Cottage Café and replaced by a mortgage payable to Yoestown Ruby Trust by the buyer of the Cottage Café. The Court determines that the unit holder was the Defendant herein.

The court concluded that appellant had established an equitable interest in the real estate transferred to the trust, but he had not proven that he had done anything to contribute to the goodwill associated with the sale.

With respect to the division of property in a divorce case, the appellate court reviews the trial court's findings of fact and affirms them unless they are clearly erroneous, or against the preponderance of the evidence; the division of property itself is also reviewed, and the same standard applies. Gray v. Gray 352 Ark. 443, 101 S.W.2d 816 (2003). A finding is clearly erroneous when the reviewing court, on the entire evidence, is left with the definite and firm conviction that a mistake has been committed. Skokos v. Skokos, 344 Ark. 420, 40 S.W.3d 768 (2001). In order to demonstrate that the chancellor's ruling was erroneous, the appellant must show that the trial court abused its discretion by making a decision that was arbitrary or groundless. Id. We give due deference to the chancellor's superior position to determine the credibility of witnesses and the weight to be given their testimony. Id.

Comingling of Assets

Appellant contends as his first issue on appeal that the trial court erred by failing to recognize that the trust agreement was a comingling of assets, thus making him an equal owner. He relies upon documentary provisions that 1) as managing directors, he and appellee were to be given housing costs, auto expenses, expenses, and monthly payment for services rendered; and 2) the instrument gave them further control by identifying a "protector" of the trust with authority to fire the trustees if they should cut off benefits to the directors. Appellant points to testimony of his expert witness Dennis Sbanotto, a lawyer practicing in the area of trusts, that the trust document was a valid trust instrument because it identified appellant and appellee as the managing directors subject to the trust provisions mentioned even though it did not identify unit holders or beneficiaries. Appellant cites Jablonski v. Jablonski, 71 Ark. App. 33, 25 S.W.3d 433 (2000), and Mathis v. Mathis, 52 Ark. App. 155, 916 S.W.2d 131 (1996), for the presumption that even non-marital property becomes marital property subject to equal distribution if it is placed in the names of both parties, especially if both are given access to the funds and benefits of the property.

Appellant's introduction to this point states that the "trial court held that the trust was not valid and that, as such, there was no comingling of assets by placing the trust in both parties' names." However, as pointed out by appellee, this premise is incorrect.

Appellee responds that the trial court did not find the trust to be invalid2 and that appellant does not challenge the finding that appellee, as owner of the asset transferred to the trust, was the unit holder and the beneficiary. Appellee notes that appellant's legal expert, while testifying that the trust was ambiguous because it did not designate a unit holder or beneficiary, testified that the trust was valid; and that the trial court's finding that this person was appellee resolved the ambiguity.

We agree with appellee that Jablonski v. Jablonski, supra, and Mathis v. Mathis, supra, are not applicable to the present case because there is not a joint account at issue here, nor was appellant deeded any interest as a joint owner of the real estate. See Collins v. Collins, 347 Ark. 240, 61 S.W.3d 818 (2001) (stating that Jablonski and Creson v. Creson, 53 Ark. App. 41, 971 S.W.2d 553 (1996) apply where separate property is comingled with marital property or title to property is held in both spouses' names). Here, appellant was not a beneficiary of the trust, nor does his name appear on the trust document. Further, the trial court's ruling that the contract agreement was a fraud shows that it attached no weight to appellant and appellee's being named managing directors. We affirm the trial court's finding that there was no real evidence of a comingling of appellee's non-marital property.

Equitable Interest

Appellant's second point on appeal is that the trial court erred by finding only that he had an equitable interest in the business's real property that was transferred to the trust, rather than an interest in the entire business and goodwill. The following ruling appears in the court's written order:

The Court finds that Plaintiff is entitled to an equitable interest in the corpus of the trust proceeds equal to the sum of Eighteen percent (18%). Therefore, the Court finds that the unit holder's respective interest shall be Eighteen percent (18%) owned by the Plaintiff and Eighty-two percent (82%) of the Yoestown Ruby Trust owned by the Defendant herein. The Court finds that this allocation shall be retroactive to the date of separation and that an accounting shall be made for all moneys received and disbursed since separation.

The letter ruling states that the sale price for the business was $600,000, with the appraised value of the real estate being $275,000. The court then found that appellant's equitable interest, equaling 40% of the value of the real estate, was equal to about 18% of the corpus of the trust, or $108,000.

Appellant testified that he had acted as general contractor on all improvements to the café during the marriage, directing and paying all subcontractors. He said that the floor had been jacked up, leveled, and replaced, after a foundation was poured beneath it; floors were sanded and refinished; a false ceiling was torn out and a tin ceiling refinished; four to six dumpsters of trash were taken from the basement; and old, red, horsehair-like insulation was removed from meat coolers. He also testified that he quit his $40,000 job at Rainbo Bread to help with the café because appellee said she was going to close the doors if he did not help.

Although our statutes specify that the increase in value of property acquired prior to marriage is not marital property, the trial court may consider a spouse's contribution toward such increased value when making a division of property. Ark. Code Ann. § 9-12-315(b)(5) (Repl. 2002); Smith v. Smith, 32 Ark. App. 175, 798 S.W.2d 443 (1990). Here, after hearing appellant's testimony that he expended time and effort to improve the real property, the court found that he had proven an equitable interest in the property of the business but had not proven that he had done anything to contribute to its goodwill. Appellant cites no legal authority and does not present a convincing argument on appeal that his maintenance and renovation of the property increased the value of business goodwill. We hold that the trial court's findings of fact are not clearly erroneous.

Marital Assets for Payment of Debt

Appellant's final point on appeal is that the trial court erred by failing to award him an interest in the trust res due to the fact that marital assets were used to pay off debt on the property. He points to testimony that a mortgage existed at the time of the parties' marriage, and that over half of the debt was paid after the marriage. He particularly relies upon his own testimony that his earnings from a separate job and from his work at the café paid the debt. Appellant cites Davis v. Davis, 79 Ark. App. 178, 84 S.W.3d 447 (2002), which states that earnings acquired subsequent to marriage are classified as marital property, and that marital property used to pay a debt acquired by one spouse prior to the marriage should be considered in a division of marital and non-marital property. Appellant alleges that in the present case "[n]o interest was awarded based upon the use of marital assets being used to pay off the mortgage on the property."

Again, the premise of appellant's argument is incorrect. In its letter opinion the trial court ruled that appellant was entitled to credit "for one half (½) of the note to First National Bank of Crawford County in the amount of $12,500.00," and it stated that this amount had been considered in determining appellant's equitable interest in the corpus of the purported trust.

Affirmed.

Hart and Baker, JJ., agree.

1 The decree includes the finding that the trust document named both appellant and appellee as unit holders, but that no particular interest was designated and no beneficiary was named. Appellant states in his brief that this finding was a drafting error and should have indicated that there was no designation of a unit holder as specified in the court's letter ruling.

The decree, as reflected above, also states that appellee was found to be the unit holder. Appellant does not argue that both parties were found to be unit holders. The inconsistency between this portion of the court's order and the letter opinion is of no import to our decision.

2 While not finding the trust to be invalid, the trial court stated in its letter opinion that the parties "entered into this cock-a-mayme trust deal to avoid taxes and have failed to even file with the IRS.... The parties should probably terminate this Trust deal, but it is not necessary for purposes of the property division."