Johnson v. Johnson
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Cite as 2011 Ark. App. 276
ARKANSAS COURT OF APPEALS
DIVISION I
CA10-842
No.
Opinion Delivered
April 13, 2011
APPEAL FROM THE CRITTENDEN
COUNTY CIRCUIT COURT
[NO. DR-2008-733]
JAMES C. JOHNSON
APPELLANT
HONORABLE RALPH E. WILSON,
JR., JUDGE
V.
NORMA JOHNSON
AFFIRMED
APPELLEE
DAVID M. GLOVER, Judge
The distribution of the parties’ property is at issue in this divorce case. Appellant James
Johnson challenges the trial court’s award to appellee Norma Johnson of interests in the value
of improvements to appellant’s nonmarital real property, some rental income, the proceeds
of the sale of a business, an IRA, a 401(k) plan, and certain funds removed from a joint
account. We find no error and affirm.
The parties, who married in November 1997, were both sixty-nine years old at the
time of trial. For many years before the marriage, appellant was a general contractor and
owned an air-conditioning business. He purchased a lot in Marion for $20,000 in 1995 and
applied for a permit to construct a house there in September 1997. The parties disagreed at
trial about whether they had moved into the new house in 1998 or 1999. They jointly
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purchased some real property on Highway 77 in West Memphis, where they operated an
equipment-rental business. Appellant sold the inventory and equipment from the rental
business in April 2008 without sharing the profits with appellee. He then rented that
building, keeping the rental payments for himself. After a few years of discord, the parties
separated in August 2008.
Appellee sued appellant for divorce on September 9, 2008. Appellant consented to the
divorce but contested the disposition of their property rights. On November 4, 2008,
appellant filed a motion for a temporary restraining order to prohibit appellee from disposing
of her 401(k) retirement plan. On February 17, 2009, the court issued an order awarding
temporary possession of the home to appellee and granting possession of various items of
personal property, including the vehicles, to each party. The court enjoined both parties from
harassing each other and from disposing of any of their property until further orders. On July
13, 2009, appellee filed a petition asking the court to hold appellant in contempt for harassing
her. After a hearing, the circuit court found appellant in contempt; directed him to remove
all nails, screws, and wires that he had applied to the doors in their garage and shop and to
return them to their original condition; and ordered him to refrain from bothering appellee.
At the divorce hearing on December 3 and 4, 2009, the parties, an employee for the
Crittenden County Tax Assessor, and an appraiser testified. In its letter opinion, the circuit
court found that appellant’s lot in Marion remained unimproved until after the marriage in
November 1997; that primary construction of the house did not begin until at least January
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1998; and that, according to the assessor’s office, the house was at least eighty percent
complete in April 1999, by which time, the parties had moved in. It found that they did not
complete construction of the home until the spring of 1999, even though appellant had
testified that it was completed in the spring of 1998. The court found that appellee
substantially contributed to these improvements and to the financial well-being of the
marriage, noting her testimony, which it found credible, that she had helped build the house
by painting, laying tile, wallpapering, installing other materials, and supplying some
furnishings. The court noted that the parties had lived in appellee’s house in Rosemark,
Tennessee, while the new house was being built and found that appellant had induced
appellee to sell that house in 1999. The court added:
As for financial contributions, Plaintiff deposited in the parties’ joint bank account the
sum of $29,000 between June 2000 and March 2003. She may also have deposited
another $4,000 into the joint account from the estate of her deceased mother. Her
employment also paid for the health insurance premiums for Defendant and his adult
son for much of the marriage. Medicare now covers Defendant. This does not
diminish the contributions Defendant also made, financially and by human capital, to
the construction of this home. He stated he had paid about $140,000 for these
improvements and there is no mortgage debt on the house. Some of these funds came
from the sale of the inventory and equipment of the parties’ joint business, Renit,
which also counts as contributions from Plaintiff.
The appraised value of the lot and house is now $205,000, of which the lot’s
value is $35,000. As Defendant purchased the lot prior to the marriage, this is
nonmarital property. However, the court is given broad powers under Ark. Code
Ann. Section 9-12-315 to distribute all property in a divorce, marital and nonmarital,
to reach an equitable division. Based on the facts of this case, I assign Plaintiff a 40%
interest in the value of the improvements of this house, or 40% of $170,000, which
equals $68,000.
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The court made extensive findings of fact about appellant’s disposition of the rental
business, and specifically found that he was not credible:
The business previously known as Renit is marital property. . . . Defendant said
he paid Harold Hickey $70,000 for this business which the seller financed until the
debt was refinanced and converted to a bank loan by First Community Bank.
Defendant also indicated he used funds from the sale of his premarital property, the
sale of some of his air conditioning business inventory and the sale of his shop metal
building in Memphis, to purchase equipment and inventory for this rental
business. . . . As best I can glean from the evidence, Defendant bought and sold
inventory and equipment for lease in the ordinary course of business and used some
of his profits to pay off his bank loans and lines of credit at the end of every year. For
example, Defendant sold a backhoe for $13,500 prior to the liquidation auction in
April 2008, and used these proceeds to pay the bank. Parenthetically, to say that
Defendant was not forthcoming in his examination by Plaintiff’s attorney would be
an understatement. Getting specific, reliable, and consistent information from
Defendant at trial when examined by Mr. Rainey was like pulling teeth. He was
obstructive, vague, and to a significant degree, unhelpful during that examination.
However, he was a little more understandable and plausible in his testimony upon
being questioned by his attorney. In any event, a liquidation auction of this rental
business by Devazier Auctioneers occurred in April 2008. The distribution of the
proceeds of this auction is subject to dispute by the parties.
Defendant conceded that Plaintiff received nothing directly from the
sales/auction proceeds. Initially, Defendant said he could not document where the
proceeds of the Devazier auction went; i.e., no paper trail. He operated this business
as a sole proprietor, and in fact filed married, but separate federal and state income tax
returns in 2006, 2007, and 2008. Apparently, the parties had filed joint tax returns
before 2006. Furthermore, Defendant benefited from some substantial depreciation
credits on these returns. However, there is no evidence of Plaintiff’s income tax
returns for those years, so I am unable to determine to what extent she could have
benefited from one half of these credits on her return, or hypothetically, if they had
continued to file joint returns.
. . . [Defendant] netted $127,787.16 from the auction proceeds, which was a
total liquidation of the business including the buybacks from Defendant. Defendant
indicated he received only an additional $2,000 from these buybacks from a person
named Marshall. I don’t find that testimony to be particularly credible. Giving a better
explanation of where these proceeds went, Defendant stated that he put $40,000 into
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certificates of deposit at Regions Bank (one $20,000 and two $10,000 CDs). . . . He
said he used another $10,000 to purchase a Kubota tractor; $8,000 down payment
toward a $21,000 purchase price on his 2008 Chevrolet pickup truck; and $10,000 to
improve the Highway 77 marital property. He further indicated he used the proceeds
(without giving specific figures) to pay taxes, contractor’s insurance, and that he paid
off the home mortgage on 113 Morningside Drive in Marion, which also benefited
Plaintiff based on my finding that she has a 40% interest in the value of the house
minus the lot.
Form 4797 of Defendant’s 2008 federal income tax return appears to
substantiate the net profit (the $40,000 put in CDs) Defendant made from the sale of
this business property in April 2008. Specifically, this form indicates that Defendant
gained or profited $40,180 from this sale. As this is marital property, I find it equitable
that Plaintiff receive one-half of this sum, which is also evidenced by the placement
of $40,000 in CDs in Regions Bank in May 2008.
The court made the following findings about the parties’ cash:
Plaintiff’s liquid assets include an IRA worth $3,000; a CD worth $11,000; a
401(k) account worth $60,000; and a bank account worth $3,500. Plaintiff candidly
admitted this is all marital property as it has accrued subsequent to the marriage,
although it appears that she alone funded these accounts.
Defendant lists one bank account of $2,500 in his Affidavit of Financial Means.
This, too, is marital property. In 2006, he liquidated an IRA in the amount of
$58,753. Of the sum, he stated $37,000 was premarital which means $21,000 is marital
property, for which Plaintiff is awarded one half. [Defendant] was vague on other
liquid assets. He said he had a previous money market account at First Community
Bank, but that he sold it in 2007 or 2008, and paid household expenses and property
taxes with the proceeds. There was also evidence of Defendant’s $15,000 CD funded
by an IRA opened in the 1980s; a $10,000 CD at Sun Trust Bank which was funded
by his interest in his mother’s decedent’s estate; on March 31, 1998 Defendant had
an IRA solely in his name at Oppenheimer Funds of $38,724.01; a $24,000 deposit
was made by Defendant into the parties’ joint account at NBC, representing part of
the proceeds from the sale of Defendant’s metal shop building (premarital property)
that was later used to purchase inventory and equipment for the marital Renit
business; and there was a balance of $38,724.16 in the parties’ joint account at First
Community Bank, as of April 11, 2005, which account was closed on February 1,
2007, with a balance of $9,790.26; and that he sold two houses prior to the marriage
netting him $155,500 at the time. Except for the $21,000 portion of the liquidated
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IRA above, and the former joint account at First Community Bank, these other assets
appear to be nonmarital, having belonged or now belonging to Defendant. As for the
difference in the April 2005 balance of $38,724.16 and the closed account balance of
$9,790.26 in February 2007, Defendant’s explanation was that it “probably” went
toward household expenses, improvements, insurance, and taxes. However, there was
no specific accounting given. Therefore, I allocate to Plaintiff one half of the
difference between $38,724.16 and $9,790.26 ($28,933.90), which is $14,466.95.
In the decree awarding appellee a divorce, the circuit court granted appellee a fortypercent interest in the value of the improvements (the house) on appellant’s property in the
amount of $68,000 (forty percent of $170,000). The court found that appellant was currently
receiving $1,500 per month in rent on the property located on Highway 77 and awarded
appellee one-half of the rental income from the beginning of the lease until the property was
sold. The court directed the parties to sell the property privately within 120 days, after which
it would be sold by the circuit clerk, with the parties sharing equally in the proceeds. The
court also found that appellant had placed $40,000 into a CD in Regions Bank from the net
proceeds of the sale of the rental business ($40,180), of which it awarded appellee one-half
($20,090). The court also awarded appellee one-half ($10,500) of appellant’s liquidated IRA
of $21,000; one-half ($14,666.95) of the $28,933.90 that appellant spent from the First
Community Bank joint account; one-half ($1,250) of appellant’s bank account containing
$2,500; and one-half ($1,000) from the buy-back proceeds of $2,000 from the auction. The
court awarded appellant one-half ($30,000) of appellee’s $60,000 401(k); one-half ($5,500)
of appellee’s CDs totaling $11,000; and one-half ($1,750) of appellee’s bank account
containing $3,500.
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The court found that a lot at Horseshoe Lake and two rental houses in West Memphis
were appellant’s nonmarital property and that thirty-four acres of pasture land near
Rosemark, Tennessee, were appellee’s nonmarital property. The court awarded a 2008
Mercury Marquis, various items of household furnishings, and a lawnmower to appellee. It
awarded appellant a 2008 Chevrolet pickup truck, a Dodge van, a 1946 Chevrolet truck, a
1941 Ford automobile, various items of furnishings, guns, tools, a lawnmower, a tractor, a
refrigerator, a john boat, and equipment to appellant. The court awarded additional items of
personal property as the parties had agreed. It found that appellant owed appellee $76,716.95
and granted $3,500 in attorney’s fees to appellee. It did not award her any alimony. The
court ordered appellee to move from the marital residence within thirty days. Appellant then
pursued this appeal.
With respect to the division of property in a divorce case, we review the circuit
court’s findings of fact and affirm unless those findings are clearly erroneous. Dial v. Dial, 74
Ark. App. 30, 44 S.W.3d 768 (2001). On appeal, we review divorce cases de novo, giving
due deference to the circuit court’s superior position to determine the credibility of witnesses
and the weight to be given their testimony. Friend v. Friend, 2010 Ark. App. 525, ___
S.W.3d ___.
Appellant argues that the trial court erred in awarding appellee a forty-percent interest
in the value of the improvements (the house), which was built during the marriage on his lot
and that the trial court’s findings on this issue were clearly erroneous. He refers to his
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testimony that he obtained the building permit, which was valid for six months, two months
before the wedding; that he began construction before the marriage; that he did much of the
work himself; that he paid for the slab and plumbing and many other materials himself; that
he hired subcontractors for the framing, plumbing, roof, dry-wall, and electrical work; that the
roof was on the house by February 1998; and that he installed the air-conditioning and did
most of the finish work. Appellant asserts that he paid approximately $140,000 for the
construction of the house with funds from the sale of his previous residence and a rent house
before the marriage. He states that appellee’s only contributions to the home “were aesthetic
and superficial” and that she offered no evidence that any of her contributions were directly
attributable to the increase in the property’s value. We agree with appellant that the trial court
made a mistake in finding that some of the $140,000 came from the 2008 sale of the parties’
rental business. Apparently, the trial court was confused when it stated in the opinion that the
auction’s proceeds were partially used to pay off the mortgage on the home; instead, appellant
testified that these proceeds paid off the mortgage on the business. However, in light of all the
facts and the overall distribution of property, this error does not warrant reversal.
The burden was on appellant to establish that the property was his separate nonmarital
property. Davis v. Davis, 79 Ark. App. 178, 84 S.W.3d 447 (2002). Arkansas Code Annotated
section 9-12-315 (Repl. 2009) provides in subsection (a) that all marital property shall be
distributed one-half to each party unless the court finds such a division to be inequitable. The
court may make some other division that it deems equitable; however, when it decides not
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to divide the property equally between the parties, it must recite its basis and reasons for the
unequal division in its order. Ark. Code Ann. § 9-12-315(a)(1)(B). The court has broad
powers to distribute property in order to achieve a distribution that is fair and equitable under
the circumstances; it need not do so with mathematical precision. Coatney v. Coatney, 2010
Ark. App. 262, ___ S.W.3d ___.
From the definition of marital property, section 9-12-315(b)(1) excludes property that
is acquired prior to the marriage. The definition of marital property also does not include
property acquired in exchange for property acquired prior to the marriage or the increase in
value of property acquired prior to the marriage. Ark. Code Ann. § 9-12-315(b)(2) and (5).
However, case law has articulated an exception to this rule for the active appreciation in value
of nonmarital assets. Coatney, supra. When one spouse makes significant contributions of time,
effort and skill that are directly attributable to the increase in value of nonmarital property, the
presumption arises that such increase belongs to the marital estate. Brown v. Brown, 373 Ark.
333, 284 S.W.3d 17 (2008); Layman v. Layman, 292 Ark. 539, 731 S.W.2d 771 (1987). The
appellate courts follow an “active appreciation” analysis in determining if one spouse’s efforts
significantly contributed to the increase in value of nonmarital assets. Farrell v. Farrell, 365 Ark.
465, 476, 231 S.W.3d 619, 627 (2006).1 Additionally, the court may consider a spouse’s
1
Our appellate courts have long held that a non-owning spouse is entitled to some
benefit when marital funds have been used to improve or reduce the debt on the other
spouse’s nonmarital property. See Box v. Box, 312 Ark. 550, 851 S.W.2d 437 (1993); Williford
v. Williford, 280 Ark. 71, 655 S.W.2d 398 (1983); Camp v. Camp, 18 Ark. App. 87, 710
S.W.2d 842 (1986).
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services to the family that not only directly, but also indirectly, contribute to the nonmarital
property’s appreciation in value. See Davis, supra.
Appellant contends that the “active appreciation” analysis of Coatney and Layman does
not support the award to appellee because there was no evidence that marital funds or
appellee’s nonmarital funds were directly attributable to any increase in the property’s value.
We disagree. It is apparent that appellant misunderstands the holdings in those cases; “active
appreciation” of the value of the nonmarital property can result from the efforts of both, or
either, of the parties. Through both parties’ efforts during the marriage, the land in dispute
actively appreciated in value.
Appellant had little documentation to support his testimony, of which the trial court
was extremely skeptical. It is an appellant’s burden to bring up a record sufficient to
demonstrate error. Coatney, supra. Appellee’s testimony, which the trial court credited,
however, fully supported the court’s findings about her contributions. She testified that she
helped work on the new house; that she paid for tile and other materials; that they did not
move into the house until 1999; and that the parties lived in her nonmarital residence while
the house was under construction. She said that she essentially supported them during this
time, while appellant put his time and earnings into the house. A spouse’s earnings acquired
subsequent to marriage are classified as marital property. Davis, supra. Appellee also stated that
she made significant, regular deposits into their joint account for years; that she paid for
appellant’s and his son’s medical insurance; that she had the maximum amount of taxes
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withheld from her paychecks to improve the parties’ tax situation; that she may have deposited
some of her mother’s estate into the joint account; and that, even after she stopped
contributing to the joint account, she paid marital expenses from her personal account. We
affirm on this point.
Appellant argues that the trial court erred in awarding appellee one-half of the rental
income he received from the Highway 77 property, which was clearly property held jointly,
from the beginning of the lease until it is sold because he only used that money to pay his
bills. He argues that, in the absence of a finding of fraud or overreaching, which appellee did
not assert, a spouse is not entitled to such an offset or reimbursement. We disagree. In
exercising its broad powers to distribute property in order to achieve a distribution that is fair
and equitable under the circumstances, the trial court may order credits and set-offs as appear
equitable and just. Hodges v. Hodges, 27 Ark. App. 250, 770 S.W.2d 164 (1989). We have
long recognized the trial court’s authority to surcharge a spouse for expenditures of marital
funds before the filing of the divorce action in order to make an equal division of the marital
property. Id.; see also Friend, supra. By 2007, appellant had become very secretive about
finances and deliberately kept appellee in the dark, keeping the proceeds of the auction and
the rental payments for himself. The trial court simply did not believe his version of events.
We also affirm on this point.
Appellant next argues that the trial court erred in awarding $20,090 to appellee as her
one-half interest in the net proceeds of the sale of the business, which were deposited into a
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$40,000 CD in Regions Bank. He notes his testimony that he bought a $20,000 CD and two
$10,000 CDs after the sale and that he liquidated one $10,000 CD on May 26, 2009, for
living expenses; at the time of trial, a $20,000 CD and a $10,000 CD were still in existence.
Appellant asserts that the proceeds from the auction were nonmarital. He claims that the
equipment used in the rental business came from the inventory of his air-conditioning
business and the sale of his shop in Memphis before the marriage. In any event, he argues, he
owes appellee nothing from the $10,000 CD that he liquidated during the marriage. When
the issue is whether a source of funds is marital or nonmarital, we defer to the trial court’s
superior position to resolve credibility questions pertaining to the issue. Dalrymple v.
Dalrymple, 74 Ark. App. 372, 47 S.W.3d 920 (2001). This is another example of the circuit
court’s lack of belief in appellant’s veracity about the source of the business’s inventory and
how he spent the proceeds. Noting that appellant cashed in the CD after he had been
enjoined from disposing of property, we also affirm on this point.
Appellant further argues that the trial court erred in awarding appellee $1,000 for her
one-half interest in the $2,000 buy-back proceeds from the April 2008 auction because there
was no evidence that they were still in existence and, therefore, “property owned by the
parties at the time of the divorce” as provided in section 9-12-315. He contends that the
statute does not authorize the court to “conduct an accounting of the entire marriage and
order a party to reimburse the other for any and all funds he or she received during the
marriage.”As discussed above, the circuit court had authority to make this award.
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Appellant next challenges the trial court’s award of $10,500 to appellee for her one-half
interest in his liquidated IRA totaling $21,000. He refers us to his testimony that, when he
liquidated his IRA in 2006, he placed $20,000, which he admitted was marital property, in
a CD, and that, at the time of the divorce, that CD was worth only $15,000. Again, appellant
argues that the trial court lacked authority to distribute marital property that no longer existed
at the time of the divorce. For the same reasons expressed above, we affirm on this point.
Appellant also asserts that the trial court’s award to him of $30,000 of the $60,000 in
appellee’s 401(k) was based on an erroneous finding of fact. He states that appellee testified
at trial that her 401(k) was valued at $66,000, not $60,000, at the time of the divorce, and asks
us to modify the award to one-half of $66,000. It is true that, when the trial court asked
appellee if there was $66,000 in her 401(k), appellee responded affirmatively. However,
appellee had already testified that her 401(k) contained $60,000. We therefore cannot say that
the trial court’s finding is clearly erroneous and affirm on this point.
In his last point, appellant argues that the trial court erred in awarding appellee
$14,666.95 as her one-half interest in the $28,933.90 missing from the First Community Bank
joint account because those funds were spent between 2005 and 2007 and were not in
existence at the time of trial. As expressed above, the trial court had discretion to make this
award. See Hodges, supra.
Affirmed.
G LADWIN and W YNNE, JJ., agree.
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