RICHARD M. OSBORNE v. DEBRA ANN OSBORNE
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RENDERED: April 7, 2000; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
NO.
1998-CA-001410-MR
AND
1998-CA-001448-MR
RICHARD M. OSBORNE
APPELLANT/CROSS-APPELLEE
APPEALS FROM HARDIN CIRCUIT COURT
HONORABLE HUGH ROARK, JUDGE
ACTION NO. 95-CI-00370
v.
DEBRA ANN OSBORNE
APPELLEE/CROSS-APPELLANT
OPINION
AFFIRMING IN PART AND REVERSING AND REMANDING
IN PART ON APPEAL AND ON CROSS-APPEAL
** ** ** ** **
BEFORE:
GUDGEL, CHIEF JUDGE; BUCKINGHAM AND JOHNSON, JUDGES.
JOHNSON, JUDGE: Richard Osborne has appealed, and Debra Ann
Osborne has cross-appealed from the judgment of the Hardin
Circuit Court resolving various issues of property division,
child custody, and visitation arising from the dissolution of
their marriage.
We believe that both parties have raised
meritorious issues and therefore, we affirm in part, reverse in
part, and remand the matter for further proceedings.
Richard and Debra were married in California in 1981.
Both are college graduates.
Debra is a registered nurse.
For
most of the marriage, Richard was employed as the general manager
of his family’s automobile dealership, Osborne Motors
Corporation.
He also served as the corporation’s president.
The
parties have three children: Ryan, born on May 21, 1983, was 14
years old at the time of the final judgment; Sean, born on June
26, 1985, was 12 years old when the judgment was entered; and,
Kortney, born August 30, 1992, was five years old.
Richard and Debra separated in January 1995, and Debra
filed a petition for dissolution of the marriage on March 1,
1995.
In June of 1995, the parties entered into an agreed order
which provided that they would share joint custody of the
children, pendente lite.
It was further agreed that Debra would
be the primary physical custodian of the two younger children,
Sean and Kortney, and that Richard would have primary physical
custody of Ryan.
Each parent was to have visitation with all
three children every other weekend.
Richard agreed to pay child
support of $838 per month, and Debra was allowed to remain in the
marital residence until it was sold.
Since neither party could
afford the $2000 per month mortgage payment, it was agreed that
the marital residence would be sold, either by a realtor, by a
private auction, or as a last resort, by the commissioner.
It
was further agreed that until the marriage was dissolved, the
children would not go around Dr. Paul Garner, Debra’s paramour
who she later married.1
On August 29, 1995, a decree was entered
1
Garner had previously been charged with the crime of wanton
endangerment after allegedly threatening Richard with a gun in
the parking lot of a Kroger store. The disposition of the
criminal charges is not contained in the record on appeal.
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dissolving the marriage with all other issues reserved for
further adjudication.
A full evidentiary hearing was conducted before the
Domestic Relations Commissioner on several days in October 1996,
and January 1997.
After the trial, but before the judgment was
finally entered on February 5, 1998,2 several events transpired
which impacted the judgment and which bear on the issues raised
in this appeal and cross-appeal.
On April 9, 1997, Richard lost
his employment at Osborne Motors and relinquished his stock in
the corporation to his parents.
Richard also remarried and
problems arose between his son, Ryan, and his new wife.
In the final judgment, entered February 5, 1998, the
trial court divided the liquid assets, the proceeds of the sale
of the marital residence, and Richard’s 401K retirement account,
in equal proportions.
It awarded Richard certain items of
specific personalty and otherwise awarded the remaining
personalty to the party in possession of the property.
Although
Richard had sought custody of the two boys and Debra had desired
2
After the trial before Commissioner John Seldomridge which
ended in January 1997, the parties submitted simultaneous briefs
and proposed findings of fact in March 1997. In October 1997, no
report having been rendered by the Commissioner, Debra moved the
trial court to transfer the matter to another commissioner, or to
take the case under submission itself. At that time the trial
court stated that there was no other commissioner to which the
case could be transferred and that it was about to commence a
capital murder case and could not expedite the case sub judice on
its docket. The trial judge advised that he would suspend ruling
on the motion to transfer for thirty days to give the
Commissioner time to complete his report. On January 1998, Debra
renewed her motion to recuse Commissioner Seldomridge. The trial
court committed itself to read the parties’ briefs and determine
whether to take the case under submission or to refer it to the
newly appointed commissioner. The trial court finally decided
the case itself.
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sole custody of all three children, the trial court split custody
of the children according to the recommendation made by the
expert psychologist:
Richard was awarded sole custody of Ryan,
and Debra was awarded sole custody of Sean and Kortney.
The
trial court found that the parties could not share joint custody
as both demonstrated “a deep personal bitterness and animosity
toward the other” evidenced by “continuing accusations and
recrimination against the other.”
Because Debra was working part time and Richard was
unemployed, child support was set by imputing income to both
parents, $30,000 a year to Debra and $40,000 a year to Richard.
Finally, the trial court found that there was no imbalance in the
financial resources of the parties that would warrant an award to
either party of attorney’s fees and costs.
Debra filed a motion
to alter, amend or vacate on February 13, 1997, which was granted
in part in the trial court’s order of May 8, 1998.
and cross-appeal follow.
This appeal
Other facts pertinent to the issues
before this Court will be recited as necessary.
In his appeal, Richard argues that the trial court
erred in its division of his 401K retirement account.
Specifically, although he does not quarrel with the trial court’s
finding of the plan’s value on the date of dissolution, or the
manner in which the 401K account was divided, Richard contends
that the trial court erred in awarding Debra the increase in
value of the 401K plan after the dissolution as it relates to her
share of the plan.
Clearly, there was no error in this regard.
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The trial court found that Richard’s 401K plan had a
value of $95,714.94 on the date of dissolution.
From that sum,
the trial court subtracted the value of Debra’s pension account,
$3,708.00, and the value of her retirement account at Hardin
Memorial Hospital, $5,182.19, and the remaining figure, $86,824,
was divided equally between the parties.
The record indicates
that Richard did not have sufficient non-marital funds to pay
Debra a lump-sum amount for her half interest in the 401K plan,
nor were there other marital funds sufficient to offset Debra’s
share of this asset.
Because Debra’s enjoyment of this asset was
required to be deferred, the trial court ordered that Debra was
entitled to a qualified domestic relations order to protect her
interest in the 401K plan.
In her motion to alter, amend or
vacate the judgment, Debra requested that the trial court amend
its order to provide that she also be entitled to any
appreciation of her share of the asset.
In its final order of
May 8, 1998, the trial court concluded that Debra was entitled to
share in any increase in the value of the pension attributable to
the sum she was awarded.
Richard argues that allowing Debra any of the increase
in value of the deferred income plan offends the principle that
all assets must be valued and divided at the time of the
dissolution.
He states that “post-divorce appreciation is not
marital property, and therefore, not subject to division.”
fallacy in Richard’s argument is obvious.
The
Although the 401K plan
remains in his name, $43,812 in that fund was awarded to Debra in
lieu of a lump sum payment.
She is entitled to treat that
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property as her own, including providing for its testamentary
disposition.3
Debra is certainly entitled to the appreciation
attributable to her share.
Under these circumstances, there is
clearly no violation of the law in Stallings v. Stallings4 as
argued by Richard.5
Next, Richard argues that the trial court erred in its
division of the household furnishings.
Richard points to the
Commissioner’s report of September 18, 1995, in which the
Commissioner “noted” that the practice in the Hardin Circuit
Court was to divide personalty by the “list” method, whereby one
party lists the property on two lists and the other chooses the
list he desires, or the “alternate selection” method, that is, a
method in which one party chooses an item, the other party then
chooses an item, and the rotation continues until all the
property is divided.
However, when Debra moved from the marital
residence, she took many of the household goods and furnishings
with her and left other items in the house for Richard.
Nevertheless, at the trial conducted before the
Commissioner, the parties litigated the issue concerning the
appropriate division of the household goods and furniture.
Debra
produced a list of the marital personalty which included the
identity of the party having possession of each item.
3
The trial
Brosick v. Brosick, Ky.App., 974 S.W.2d 498, 504 (1998).
4
Ky., 606 S.W.2d 163 (1980) (holding that marital property
subject to division must be valued as of the date of
dissolution).
5
See generally, Graham and Keller, Kentucky Practice § 1528
(1997).
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court ordered that Richard be given a rug, a desk, and a
grandfather’s clock in Debra’s possession, and that “[a]ll other
household goods and furnishings [be] awarded to the party
possessing said items.”
in a “lopsided” division.
Richard insists that this has resulted
However, our review of the list, which
shows that Debra had several items of furniture which were being
used by the parties’ children, does not reflect any abuse of
discretion that would necessitate our disturbance of the trial
court’s disposition of this property.
We do, however, find merit in Richard’s final
allegation of error, that is, that the trial court abused its
discretion in its resolution of the issue of visitation.
In its
judgment, the trial court essentially continued the same custody
arrangement as the parties had agreed to in 1995, except that
each party was awarded sole custody of the child(ren) in his or
her possession instead of joint custody.
Although the trial
court determined that each party was capable of being the
custodial parent of at least one of the children, it declined to
provide visitation with the child(ren) not in his or her
possession.
Based on the report filed by Dr. Edward P. Berla, a
clinical psychologist, the trial court found that the parties had
“caused mental and emotional harm to the children,” and that
there was “a very strained relationship between each child and
the non-custodial parent and between the children.”
The trial
court concluded that in was not in the best interest of the
children
to be exposed to the arguments, accusations
and recriminations from each parent and their
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continuing hostility toward each other.
Visitation should be carried out because of a
loving relationship and in an enjoyable and
pleasant environment. It if cannot, then
such visitation is not in the best interest
of the child. The Court will not force these
children into visitation that is harmful to
them. Therefore, at the present time, the
Court shall not grant either parent the right
of visitation with the child or children
living with the other parent. The child or
children may upon their own elect to visit
with the other parent.
Richard argues that his visitation rights are “absolute
and not dependent upon a finding that visitation is in the
child’s best interest.”
He further contends that children should
not “have the final say-so on the exercise of visitation rights,”
and that “[t]here is no practical nor legal justification to
permit young children to decide when and if they will visit with
their noncustodial parent - especially when that same parent has
been joint custodian of the same children for almost three
years.”
Debra insists that the trial court’s ruling that allowed
the children to decide when and if they would visit with their
father was “perhaps the wisest decision rendered by the trial
court in this entire unpleasant dispute,” and suggests that the
decision was not an abuse of discretion.6
We agree with Richard
that the judgment in this regard does constitute an abuse of
discretion, but for reasons somewhat different than those
advanced by Richard.
6
While at the time the judgment was entered the ruling
affected Debra’s rights to visitation with Ryan, by the time this
issue was briefed in this Court, all three children were living
with Debra. Thus, the issue of visitation only affects Richard’s
rights.
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In this jurisdiction there is a statutory presumption
“that visitation is in the child’s best interest for the obvious
reason that a child needs and deserves the affection and
companionship of both [] parents”[emphasis original].7
We
disagree with Richard’s argument that he has an “absolute” right
to visitation, although he is correct that the standard for
restricting visitation is more stringent that the best interest
standard.8
The evidence of record supports the trial court’s
finding that the children have been harmed by both parties’
inability to control their behavior and their failure to
appreciate the effect that their conduct and open animosity for
one another have on their children.
While this evidence would be sufficient to support an
order restricting visitation in some manner, for example,
requiring the parties to undergo counseling, or even requiring
supervised visitation, there was no evidence that would support
the trial court’s denial of visitation by either parent with the
child or children residing with the other, or which permit
visitation only at the whim of the child(ren).
The denial of a
noncustodial parent’s visitation with his or her child should
occur in only the most compelling of circumstances, and when
7
Smith v. Smith, Ky.App., 869 S.W.2d 55, 56 (1994).
8
Kentucky Revised Statutes (KRS) 403.320 provides that a
noncustodial parent “is entitled to reasonable visitation rights
unless the court finds, after a hearing, that visitation would
endanger seriously the child’s physical, mental, moral, or
emotional health.”
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other alternatives have failed.9
This was recognized by the
expert upon whom the trial court relied.
Indeed, the trial
court’s ruling in this regard is contrary to Dr. Berla’s
recommendation that the children have visitation with their noncustodial parent, a recommendation with which Debra testified she
agreed.
In this Court’s opinion, having reviewed the record, the
trial court’s refusal to provide Richard with visitation was
unreasonable and a clear abuse of discretion.
While we are reluctant to criticize the trial court in
its handling of this very frustrating situation, we are
particularly disturbed by the trial court’s ruling which puts the
onus on each of the children to determine whether there will be
visitation.
As is often the result in a bitter divorce, the
record indicates that the parties’ children have suffered
emotional trauma as a result of their parents’ efforts to get the
children to “take sides” with one or the other.
It is apparent
to this Court that the trial court was very concerned with how it
could best accomplish a reconciliation between the children and
their non-custodial parent.
While we appreciate the trial
court’s dilemma in attempting to balance the parents’ rights to
visitation with the need to protect the child(ren) from further
emotional or psychological harm, in our opinion, putting the
responsibility for visitation on the children has the potential
to exacerbate the anxiety, stress and insecurity experienced by
the children, particularly the younger ones, and places them in a
9
Smith, supra.
-10-
position inherently conducive to an increase in the pressure to
divide their loyalties between the parents.
Considering the length of time since the hearing in
this matter, the trial court may, on remand, hear further proof
to determine the appropriate orders that should be entered
concerning visitation between Richard and the children, and to
determine whether supervision, or other restrictions are
necessary to protect the children.
In no event should the issues
concerning visitation be delegated to the children.
In her cross-appeal, Debra first argues that the trial
court erred in failing to allow her to discover evidence relevant
to the value of Richard’s shares of stock in Osborne Motors, a
subchapter-S corporation founded by Richard’s parents.
At the
time of the dissolution, Richard owned approximately 40% of the
stock of Osborne Motors, which he estimated on financial
statements to be worth $440,000.
Debra attempted to discover
evidence from Richard and/or Osborne Motors, which would rebut
Richard’s claim that his ownership interest in the corporation
was non-marital in nature as either having been acquired prior to
the marriage and/or gifted solely to him during the marriage
without consideration.
In June 1996, Debra’s attorney attempted
to depose Richard and a representative of Osborne Motors and to
obtain the documents that would evince when, and for what
consideration, if any, Richard was transferred the shares of
stock by his parents.
No one from Osborne Motors appeared at the
deposition scheduled for June 4, 1996, or answered the subpoena
duces tecum issued for the same day.
-11-
Debra moved to compel the
discovery and Osborne Motors moved for a protective order.
trial court referred both motions to the Commissioner.
The
At the
time of trial later that year, the discovery-related motions were
still pending and all the issues concerning the stock, including
its nature as marital or non-marital, its value, and the proper
division of the marital component, if any, were reserved.
As stated earlier, in April 1997, before a judgment had
been entered, Richard was terminated from his position and
employment at Osborne Motors.
At his deposition taken in July
1997, Richard testified that on the day that his mother fired
him, he voluntarily returned his shares in the corporation to his
parents.
Nevertheless, Richard later filed a lawsuit against his
parents seeking the return of the stock.
In its final judgment,
the trial court determined that any issue concerning Debra’s
entitlement to any portion of this asset would continue to be
“reserved” until “ownership of that stock is adjudicated,” in the
litigation between Richard and his parents.
In her motion to alter, amend or vacate the judgment,
Debra asked the trial court to determine the value of the stock
at the time of the dissolution and to award her a sum equal to
one-half of its value.
The trial court denied this request as
follows:
Osborne Motors, Inc., one of the three
Ford dealerships in this county, is a closely
held corporation that was begun by the father
of [Richard] many years ago. [Richard] spent
only a limited period of time with this
company. His employment with the company has
been terminated and there are presently
lawsuits in the state and federal courts over
[Richard’s] ownership, if any, of stock in
Osborne Motors, Inc. The Court continues to
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find that the division of any stock in
Osborne Motors, Inc., if any, and if it
should be classified as marital or nonmarital is reserved pending adjudications in
those lawsuits. As set forth in
Graham/Keller the value of a closely held
corporation may be difficult to determine.
We agree with Debra that the trial court abused its
discretion in postponing any resolution of the issues of the
stock’s value at the time of the dissolution, and its
characterization as marital or non-marital, until Richard and his
parents have litigated their disputes in state and/or federal
courts.
There is no question that Richard owned a large
percentage of stock in the family corporation at the time of the
parties’ dissolution.
The fact that he gave it away or lost it
after the dissolution, is of no relevance to the issues arising
between Richard and Debra in their dissolution action.10
Stated
differently, whether Richard ever recoups the stock from his
parents has no bearing on the issues of the nature of the stock
as marital or non-marital property, and how it should be divided.
If there is a marital component subject to division, Richard
would have to account to Debra for her share of the asset
regardless of the outcome Richard’s litigation with his parent.
Further, the fact that it may be difficult to arrive at the
stock’s value in 1996, and to determine its marital component, if
any, does not absolve the trial court of its responsibility to
resolve the matter.
Thus, we hold that the matter be remanded
with instructions that Debra be allowed to conduct the discovery
she requested and for the trial court to address the merits of
10
See Stallings v. Stallings, supra.
-13-
her claim that there is a marital component to this asset and for
its proper division, if appropriate.
Debra next argues that the trial court erred in failing
to award her sole custody of Ryan.
After the trial was conducted
before the Commissioner, but before the court’s judgment which
was entered on February 5, 1998, awarding sole custody of Ryan to
Richard, an incident took place in which Richard’s new wife
called the police to their home after having an altercation with
Ryan.
Debra argued in her motion to alter, amend or vacate that,
based on this incident, the trial court should change its custody
decision and award her sole custody of Ryan.
The trial court
rejected Debra’s argument, denied her motion to alter its
original judgment in this regard, and concluded that “any
modification of custody should be by proceedings before the
Domestic Relations Commissioner where parties and witnesses may
be heard.”11
Clearly, a motion pursuant to CR12 59 is not a vehicle
to request a modification based on circumstances and evidence
that has arisen since the hearing.
If Debra wanted the trial
court to base its custody decision on the evidence of the
altercation between Ryan and Richard’s new wife, the proper
procedure for her to have followed was to have moved to
supplement her proof before the final judgment.
11
Instead of
Debra was given temporary possession/custody of Ryan on
March 3, 1998, pending further orders of the court and while
Richard was allowed to have visitation with Ryan, the court
ordered that “under no circumstances [was] Ryan [] permitted in
the presence of Kelly Ann Dougherty Osborne [Richard’s wife].”
12
Kentucky Rules of Civil Procedure.
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making such a motion, Debra waited to see if she would get a
favorable ruling and then attempted to have the court consider
the “new” evidence in her motion to alter, amend or vacate.
We
discern no abuse in the trial court’s discretion in denying
Debra’s motion which was an attempt to supplement her request for
sole custody after the judgment.
Alternatively, Debra argues that the proof at the
original hearing indicates that the trial court erred in awarding
custody of Ryan to Richard in the first instance.
She states
that
[Richard’s] irresponsible, selfish conduct,
immature judgments, and reckless disregard
for Ryan’s welfare leaves no room to doubt
that it is in Ryan’s best interest for his
sole custody to be awarded to his mother.
The environment at Richard’s house is hostile
and volatile and exposed the boy to physical
violence, verbal abuse, profanity and
intoxicated adults. On the other hand, Ryan
has been integrated successfully into the
home of his mother and her husband, Paul
Garner, M.D., where he now resides peacefully
with his siblings and baby half brothers.
The trial court has considerable discretion in
determining custody of minor children.13
It is the trial court
that is in the best position to weigh the evidence and as a
reviewing court, we may not substitute our opinion for that of
the trial court.14
Having reviewed this record, it is apparent
that the evidence is more than sufficient to support the trial
court’s award of sole custody of Ryan to Richard, not the least
13
Krug v. Krug, Ky., 647 S.W.2d 790, 793 (1983).
14
CR 52.01; Reichle v. Reichle, Ky., 719 S.W.2d 442, 444
(1986).
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of which was Dr. Berla’s testimony that he believed Ryan’s best
interests would be served if he were allowed to continue to live
in Richard’s household, and the fact that Ryan primarily resided
with Richard for three years while this case was being litigated.
Accordingly, we will not disturb the trial court’s ruling in this
regard, and hold that any modification in Ryan’s custody must be
presented to the trial court and resolved pursuant to the
standards and procedures contained in KRS 403.340.
In her next argument, Debra insists that the trial
court erred in failing to impute more than $40,000 per year as
income for Richard for the purposes of setting child support.
Debra contends that the amount of income imputed should be
predicated on his “recent work history,” which she argued was
substantially more than $40,000 per year [emphasis original].
Debra asks that this Court examine the parties’ income tax
returns for the years 1992 though 1995, which show that Richard
had an average annual income in excess of $100,000.
She also
points to evidence of the many benefits that Richard had by
virtue of his employment at Osborne Motors that were not
reflected on the income tax returns, including the payment of
automobile insurance, free gasoline, and the services of a
housekeeper.
Debra recognizes that Richard lost his employment at
his family’s business.
Yet, she insists that KRS 403.212(2)(a)
and the case of Keplinger v. Keplinger,15 require that his
support obligation be based on his earning history.
15
Ky.App., 839 S.W.2d 566 (1992).
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Indeed, the
child support guidelines require that the determination of the
“potential income” of an voluntarily unemployed or underemployed
parent be “based on the obligor’s or obligee’s recent work
history, occupational qualifications, and prevailing job
opportunities and earnings levels in the community.”16
Again, however, we find no abuse of the trial court’s
discretion in this regard.
It is true that Richard’s income tax
returns indicate that he earned more than $40,000 during the last
years of the marriage.
However, unlike the facts in Keplinger,
where there was no evidence that the support obligor’s future
earnings “were likely to vary significantly” from his recent
earnings, there was considerable evidence in this case that
Richard’s reported earnings on his income tax returns were not
truly indicative of his actual income and that his earnings would
not approach previously reported amounts in the foreseeable
future.17
Much of the income reported from 1992 to 1995 was
comprised of distributions of income earned by the shareholders
of Osborne Motors which Richard testified were not paid to him,
but which were actually returned to the corporation as working
capital.18
It is apparent to us, as it was to the trial court,
that Richard’s previous earnings were artificially enhanced
because of his familial relationship to the majority stockholders
of Osborne Motors.
Accordingly, we find no error in the trial
16
KRS 403.212(2)(d).
17
Keplinger, 839 S.W.2d at 569.
18
For example, in 1995, Richard reported earnings of
$124,212, including $48,200 in actual wages, and $67,022 in
corporate distributions, the latter amount he did not receive.
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court’s setting of child support by imputing income to Richard of
the more realistic amount of $40,000 a year, and not the higher
amount requested by Debra.
Finally, Debra argues that the trial court erred in
failing to award her any sum for her attorney’s fees.
find no abuse of discretion.
Again, we
Having reviewed the record, we are
not convinced that there is any great disparity in the parties’
financial resources that warrants a reversal of the trial court’s
determination that each party should be responsible for their own
fees and costs.19
Accordingly, the judgment of the Hardin Circuit Court
is affirmed in part, reversed in part, and this matter is
remanded for further proceedings consistent with this Opinion.
BUCKINGHAM, JUDGE CONCURS.
GUDGEL, CHIEF JUDGE, CONCURS IN RESULT ONLY.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Douglas E. Miller
Radcliff, KY
Diana L. Skaggs
Louisville, KY
19
Wilhoit v. Wilhoit, Ky., 521 S.W.2d 512 (1975); Lampton v.
Lampton, Ky.App., 721 S.W.2d 736 (1986); KRS 403.220.
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