WILLIAM HOYNE PURSLEY v. SAMMYE SHAREN WALDEN PURSLEY
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RENDERED:
OCTOBER 12, 2001; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO. 1999-CA-002559-MR
NO. 2000-CA-000516-MR
NO. 2000-CA-000532-MR
WILLIAM HOYNE PURSLEY
APPELLANT/CROSS-APPELLEE
APPEAL FROM LOGAN CIRCUIT COURT
HONORABLE TYLER L. GILL, JUDGE
ACTION NO. 91-CI-00433
v.
SAMMYE SHAREN WALDEN PURSLEY
APPELLEE/CROSS-APPELLANT
OPINION
AFFIRMING IN PART, REVERSING IN PART
AND REMANDING WITH DIRECTIONS
** ** ** ** **
BEFORE:
JOHNSON, KNOPF, AND MILLER, JUDGES.
KNOPF, JUDGE: William Hoyne Pursley (William) appeals from an
order of the Logan Circuit Court upholding as conscionable a
separation agreement between himself and his former wife, Sammye
Sharen Walden Pursley (Sharen).
He also appeals from a judgment
directing him to pay Sharen all amounts due under the agreement.
Sharen cross-appeals from that same judgment, arguing that the
trial court erred in its interpretation of the maintenance and
child support provisions of the agreement, and that the court
abused its discretion in denying her request for pre-judgment
interest.
Upon review of the record and the applicable law, we
find that the terms of the separation agreement relating to child
support are so excessive and ambiguous as to be manifestly
unfair.
To the extent that the trial court awarded a judgment
for child support arrearages, we reverse and remand with
directions to set child support anew.
However, we find that the
trial court did not clearly err in upholding as conscionable the
terms of the separation agreement relating to disposition of
property and maintenance.
We also find that the trial court’s
rulings interpreting and enforcing the remaining provisions of
the agreement are not clearly erroneous, and that the court did
not otherwise abuse its discretion.
The procedural history of this case is nothing short of
bizzare, and is set forth in detail in the trial court’s orders
of September 13, 1996 and September 27, 1999.
For purposes of
this appeal, the following facts are relevant.
On August 6,
1991, William filed a “complaint” in the Logan Circuit Court in
the nature of a petition for dissolution of marriage.
The
petition was filed by Fred G. Greene, a practicing attorney in
Russellville, Kentucky.
However, Greene did not identify himself
as William’s counsel of record.
Ostensibly, Greene represented
both parties, although the trial court later determined that
Greene had been retained by Sharen and paid by William.
On August 14, 1991, a property settlement agreement
(the agreement) was filed with the trial court.
The agreement
was signed by both parties before a notary public and it
indicated that it had been prepared by attorney Greene.
The
agreement included provisions for division of marital property,
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maintenance, child support and custody of the parties’ two minor
children.
On November 15, 1991, the trial court entered a Decree
of Dissolution of the Marriage which adopted the provisions set
out in the agreement.
In May of 1993, William moved the trial court to rule
that the decree was void based upon lack of subject matter
jurisdiction.
The trial court initially overruled the motion,
but the court later reconsidered that decision.1
In an order
entered on September 13, 1996, the trial court found that neither
William nor Sharen had been a continuous resident of Kentucky for
180 days prior to the filing of the petition.
Based on this
finding, the court held that the decree entered on November 15,
1991 was void for lack of subject matter jurisdiction.
Nonetheless, the trial court also found that the
parties had since met all of the requirements for entry of a
decree.
Consequently, the court entered a decree of dissolution
effective from May of 1992.2
The trial court also found that
1
On July 14, 1994, the trial court entered an order overruling William’s motion to set
aside the decree as void. The order concluded that William had failed to make the motion within
a reasonable time. The order expressly stated that it was not final and appealable, and the court
reserved a decision on other motions. However, on May 17, 1995, the parties conducted a
hearing before the Hon. William G. Fuqua, the original trial judge in this case. At the conclusion
of the hearing, Judge Fuqua expressed strong doubts concerning his decision to sign the decree.
Judge Fuqua resigned as circuit judge in June of 1995, and the Hon. Tyler L. Gill was appointed
as his successor. Shortly thereafter, Sharen moved to hold William in contempt for his failure to
comply with the agreement, and William sought a formal order of the court concerning the
validity of the decree.
2
The trial court stated that it was entering the decree nunc pro tunc to May of 1992. We
question the trial court’s use of this rule to give retroactive effect to the decree. See Black’s Law
Dictionary (6th ed., 1990), p. 1069. See also Powell v. Blevins, Ky., 365 S.W.2d 104, 106
(1963); Carroll v. Carroll, Ky., 338 S.W.2d 694, 696 (1960); Montgomery v. Viers, 130 Ky.
(continued...)
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“there is insufficient proof in the record for the Court to make
any determination concerning whether the contract [agreement] was
unconscionable when made ....”
Consequently, the court stated
that it would reserve a ruling on this issue until after the
parties had submitted evidence.
In 1998 and 1999, the parties produced depositions and
other evidence on the issues reserved by the court.
The trial
court also heard direct testimony from attorney Greene.
Thereafter, the issue was submitted to the trial court on the
evidence of record and briefs of counsel.
On September 27, 1999,
the trial court issued findings of fact, conclusions of law and a
judgment.
The court concluded that the agreement was not
unconscionable when it was entered, nor was it the result of any
fraud, duress or unfair coercion on Sharen’s or Greene’s part.
Thus, the court found that all of the agreement is enforceable,
except for a provision under which Sharen was entitled to the
“use” of the stock purchase plan which is available to William
through his employer.
The trial court further addressed an issue
concerning the interpretation of an ambiguous provision in the
agreement.
The trial court scheduled a further hearing to
determine the amount of child support and maintenance which
2
(...continued)
701, 114 S.W. 251, 252-54 (1908). However, neither party has raised this issue on appeal.
Furthermore, it appears from the record that William re-married sometime after May of 1992 but
before September of 1996. We surmise that the trial court was attempting to minimize any
prejudice to the parties caused by the void decree. Since the trial court had jurisdiction to enter
the decree in May of 1992, we conclude that any error by the trial court in entering the decree
nunc pro tunc is beyond the authority of this Court to review. KRS 22A.020(3).
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William owed under the agreement.
On January 14, 2000, the trial
court entered a “Final Judgment As to Maintenance and Child
Support Arrearages.”
Under the agreement, William is required to
pay ten percent (10%) of his net salary and bonus as maintenance
to Sharen, and thirty percent (30%) of his net salary and bonus
as support for the benefit of the parties’ two children.
The
parties disagreed concerning the definition of “net income” as
used in the agreement.
The trial court held that for purposes of
the agreement:
[n]et income shall mean the Petitioner’s
gross income as defined for Federal Income
Tax purposes less Federal Tax, State Tax,
FICA Tax, Medicare Tax, and any other
payments required to be paid by the
Petitioner to the state or federal
governments. (Emphasis in original).
Based upon this definition, the trial court found that
William owed a total arrearage through December 31, 1998 in the
amount of $348,535.86.
Although the trial court recognized that
the agreement was valid and enforceable when it was signed, the
court concluded that the arrearage would only be considered as a
liquidated amount from the date of the judgment.
Hence, the
trial court denied Sharen’s request to impose interest on the
arrearage.
Thereafter, William filed appeals from the judgments
dated September 27, 1999 and January 14, 2000, and Sharen filed a
cross-appeal from the trial court’s judgment of January 14, 2000.
In Appeal No 1999-CA-002559, William argues that the
trial court erred in finding that the agreement was not
unconscionable.
He points out that the agreement provides
extremely generous provisions for maintenance and child support,
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and that it requires him to pay for all of the childrens’ college
and graduate school expenses.
Furthermore, the agreement gives
Sharen a majority of the marital assets.
He also notes that he
was not represented by counsel during the negotiations, while
Sharen was represented by attorney Greene.
At the hearing,
William alleged that Sharen coerced him into signing the
agreement by using the children against him and by threatening to
reveal his past episodes of misconduct.
He also claimed that
Sharen emotionally manipulated him into signing the agreement.
Based upon this evidence, William contends that the terms of the
agreement are unconscionable and that the trial court clearly
erred in finding to the contrary.
KRS 403.180 permits parties to a dissolution of
marriage action to enter into a separation agreement regarding
the custody, visitation and support of children.
Sections (2)
and (3) of that statute provide as follows:
(2) In a proceeding for dissolution of
marriage or for legal separation, the terms
of the separation agreement, except those
providing for the custody, support, and
visitation of children, are binding upon the
court unless it finds, after considering the
economic circumstances of the parties and any
other relevant evidence produced by the
parties, on their own motion or on request of
the court, that the separation agreement is
unconscionable.
(3) If the court finds the separation
agreement unconscionable, it may request the
parties to submit a revised separation
agreement or may make orders for the
disposition of property, support, and
maintenance.
In general, this statute invites parties to wind-up
their own affairs by entering into a comprehensive agreement.
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However, in recognition of the intimate nature of the marital
relationship and the ability of a strong and persistent spouse to
unfairly overwhelm the other spouse, the statute broadly directs
the trial court to review the agreement for unconscionability.
In effect, the law has established a measure of protection for
parties from their own irresponsible agreements.
Upon a
determination of unconscionability, the trial court may request
submission of a revised agreement or make its own determination
as to disposition of property, support, and maintenance.3
A separation agreement is unconscionable if it is
"manifestly unfair and inequitable."4
The provisions for
modification of a separation agreement are fairly stringent.5
As
a result, the party challenging the agreement as unconscionable
has the burden of proof.6
What is required is a showing of
fundamental unfairness as determined "after considering the
economic circumstances of the parties and any other relevant
evidence...."7
On the other hand, an agreement could not be
held unconscionable solely on the basis that it is a bad
bargain.8
The trial court is in the best position to make such
3
Shraberg v. Shraberg, Ky., 939 S.W.2d 330, 332-33 (1997).
4
Wilhoit v. Wilhoit, Ky., 506 S.W.2d 511 (1974).
5
McKenzie v. McKenzie, Ky., 502 S.W.2d 657 (1973).
6
Peterson v. Peterson, Ky. App., 583 S.W.2d 707, 711 (1979).
7
KRS 403.180(2).
8
Peterson, 583 S.W.2d at 711-12.
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an analysis and we will give broad deference to the trial court
in this regard.9
William points out that in McGowan v. McGowan,10 this
Court affirmed a trial court’s finding setting aside a separation
agreement.
The agreement in McGowan required the husband to pay
the wife one-third of his income from his dentistry practice.11
William contends that the agreement in this case, which requires
him to pay a higher percentage of his future income as
maintenance and child support, should be deemed unconscionable as
a matter of law.
However, the trial court in McGowan expressly
found that the wife induced the husband to sign the agreement as
a result of overreaching and undue influence.
Evidence of fraud,
duress and coercion are not prerequisites to finding a separation
agreement unconscionable.
Rather, fraud, duress, coercion, undue
influence or overreaching are separate grounds for setting aside
a separation agreement.12
The trial court in this case expressly
found that William did not sign the agreement due to fraud,
overreaching or undue influence on the part of either Sharen or
her attorney.
Where the parties to a settlement agreement are
competent adults, they are bound by a signed settlement
agreement.
9
This is so even where one party has elected to
Shraberg, 939 S.W.2d at 333.
10
Ky. App., 663 S.W.2d 219 (1983).
11
Id. at 222.
12
Shraberg, 939 S.W.2d at 333.
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proceed without or against the advice of counsel.13
The trial
court noted that William is an experienced businessman and that
he had the opportunity to negotiate with Sharen on the terms of
the agreement over a three-week period.
The court also found
that William did not rely on any statements by attorney Greene
during the negotiations.
Furthermore, the trial court was not
convinced that either Sharen or attorney Greene used fraud or
undue influence to obtain William’s acceptance of the agreement.
Although there was evidence in the record which would have
supported a finding that the agreement was procured through
coercion or undue influence, we cannot say that the evidence was
so overwhelming as to compel such a result.
Returning to the issue of unconscionability, William
suggests that the entire agreement should be set aside as
unconscionable.
However, he does not seriously argue that terms
of the agreement relating to distribution of the marital property
are manifestly unfair.
While the property settlement aspects of
the agreement are quite favorable toward Sharen, we cannot say
that they are unconscionable as written.
Unfortunately, we cannot say the same about the child
support provisions.
In particular, the terms of the agreement
relating to child support are so excessive in amount and
indefinite in duration as to render their enforcement
unconscionable.
Under the agreement, William must pay 30% of his
annual net salary and bonuses as child support.
On top of this,
he must pay the childrens’ medical insurance premiums and
13
Lydic v. Lydic, Ky. App., 664 S.W.2d 941, 943 (1983).
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unreimbursed medical expenses.
Furthermore, the agreement
requires William to pay child support and the medical expenses
during the period while he is also paying the expenses of college
and graduate school.
Finally, and in addition to his other
obligations, William must pay the childrens’ college and graduate
school expenses at whatever institution they wish to attend and
for however long they want to pursue their education.
We find a number of problems with these terms.
First
and foremost, the amount of child support set by the agreement
has no relationship to the reasonable needs of the children.
The
child support guidelines set out in KRS 403.212 serve as a
rebuttable presumption for the establishment of child support,
and any deviation from the guidelines must be accompanied by
specific findings.14
The parties may, by agreement, stipulate to
child support in an amount greater than the statutory
guidelines.15
Nevertheless, the trial court is not bound by the
terms of an agreement with regard to child support.16
Where the
child support amount set by agreement greatly exceeds the
statutory guidelines, the court must review the amount of child
support to ensure that it is actually intended for the benefit of
the children and not as additional support for a former spouse.
The Kentucky Child Support Guidelines are based on the
“Income Shares Model.”
The basic premise of this model is that a
child should receive the same proportion of parental income that
14
KRS 403.211(2).
15
KRS 403.211(3)(f); Giacalone v. Giacalone, Ky. App., 876 S.W.2d 616, 619 (1994).
16
See KRS 403.180(2); Tilley v. Tilley, Ky. App., 947 S.W.2d 63, 65 (1997).
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the child would have received if the parents had not divorced.
This model further assumes that as parental income increases, the
proportion of income spent on child support decreases.17
By
setting child support as a direct percentage of William’s income,
the agreement ignores this basic assumption of our child support
guidelines.
We cannot say that individuals may never set child
support as a percentage of income.
Indeed, given the annual
fluctuations in William’s salary and bonuses, such a scheme could
save the parties from future disputes over modification of child
support.
17
However, as shown on the table below,18 setting child
Downing v. Downing, Ky. App., 45 S.W.3d 449, 455 (2001).
18
Year
W illiam’s
Monthly Gross
Income*
W illiam’s
Monthly
Maintenance
Obligation under
Agreement
Sharen’s Imputed
Monthly Gross
Income **
W illiam’s
Monthly Child
Support
obligation under
Guidelines***
W illiam’s
Monthly Child
Support under
Agreement
1992
12,024.25
764.93
1,250.00
1,511.00
2,294.80
1993
19,412.92
1,215.77
1,250.00
1,844.00 ****
3,647.31
1994
13,225.92
979.87
1,250.00
1,581.58
2,939.61
1995
9,593.67
812.86
1,250.00
1,333.20
2,438.58
1996
32,207.00
2,153.80
1,250.00
1,844.00 ****
6,461.40
1997
42,969.42
2,722.49
1,250.00
1,844.00 ****
8,167.45
1998
30,747.25
2,093.37
1,250.00
1,844.00 ****
6,280.10
* See “Computation of Child Support and Maintenance Based Upon Gross Income Less Federal & State Taxes &
FICA & Medicare” adopted by reference in the trial court’s “Final Judgment as to Maintenance and Child Support
Arrearages”, January 14, 2000, (Record on Appeal [ROA] at pp. 142-47)
** The trial court imputed to Sharen, who chooses not to work, an earning capacity of $15,000.00 per year.
*** Source: KRS 403.212(7) (2000 child support table); and Commonwealth of Kentucky W orksheet for M onthly
Child Support Obligation, Form CS-71(Rev. 7/00).
**** W illiam’s income in 1993, 1996, 1997 and 1998 exceeded the highest amount set by the child support
guidelines. At the highest income on the child-support guidelines chart, $15,000.00 per month, the base child
support for two children is $1,844.00. However, this amount is not the presumptively correct amount of support
(continued...)
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support at 30% of William’s income is clearly not based upon
needs of the children.
Rather, it simply effects a transfer of
income from William to Sharen.
The inequity inherent in this
arrangement is compounded by the fact that William must pay the
childrens’ medical insurance premiums and unreimbursed medical
expenses in addition to child support.
By contrast, under KRS
403.211, William would be entitled to a credit for the health
insurance premiums which he paid on behalf of the children.
Even if the current level of child support were not
clearly excessive, we would find that the terms of the agreement
regarding future child support will become so unworkable and
unjust as to render their future enforcement unconscionable.
Most notably, the agreement does not provide for any adjustment
of child support when each child reaches the age of majority or
becomes otherwise ineligible.
Rather, it appears that William
must continue to pay the full amount of child support until both
children are no longer eligible.
Even if this Court were to
uphold the child support provisions at this time, the trial court
would be required to re-visit this issue in the future to provide
for an adjustment.
Furthermore, child support continues past the age of
majority for an indefinite period without regard to need.
William must pay child support as long as the children are
18
(...continued)
when the parents’ combined incomes exceed the guidelines. Downing v. Downing, 45 S.W .3d at 456. Rather, a trial
court has considerable discretion to determine child support in circumstances where combined adjusted parental
gross income exceeds the uppermost level of the guidelines table. KRS 403.212(5). Nevertheless, any decision to
set child support above the guidelines must be based primarily on the child’s needs, as set out in specific supporting
findings. Downing, at 456.
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continuing their post-secondary studies.
specify to whom must he pay this.
The agreement does not
William is required to
continue these payments regardless of whether the children are
living at home.
Furthermore, he must pay child support, medical
insurance premiums and unremibursed medical expenses on top of
any post-secondary education expenses.
This extension of child
support bears no rational relationship to the children’s needs.
The terms of the agreement regarding payment of postsecondary educational expenses are likewise troublesome.
The
trial court noted that agreements to pay college expenses of
children are not rare.
We agree.
However, William’s obligations
under the agreement are so open-ended and undefined as to be
unconscionable.
There is no limit on the amount of post-secondary
educational expenses for which William may be liable.
He is
obligated to pay expenses for the children at whatever
institution they choose to attend, and for as long as they choose
to further their education.
There is no requirement that they
complete a program within a given time, that they maintain a
certain grade-point average, or even that they work toward a
degree.
Given the inherent ambiguities in the agreement, the
parties will almost certainly need to return to court to resolve
disputes.
Certain matters, such as the reasonableness of the
post-secondary educational expenses, could be dealt with when or
if the issue arises.
But there are patent ambiguities in other
aspects of the agreement, such as the lack of an adjustment in
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child support after one child is no longer eligible and the
duration of child support after the children reach the age of
majority.
These issues are so significant as to call into
question the sufficiency of the provisions as contractual terms.
Moreover, the fundamental inequity of the agreement’s
terms remains.
We certainly recognize that many families
sacrifice to send their children to college, and that parents
sometimes support their children past the age of majority.
We
also note that William agreed to these terms, and we acknowledge
the trial court’s finding that his decision was not the result of
coercion or overreaching.
Nevertheless, the courts should not
approve a separation agreement which is manifestly unjust or
oppressive.
The combined obligation set out in the agreement is
so high, is of such a long duration, and is so one-sided in favor
of Sharen as to render the enforcement of the child support
provisions unconscionable.
The agreement also requires William to pay Sharen 10%
of his annual net salary and bonuses as spousal maintenance.
These payments shall continue until Sharen dies or remarries.
Unlike the child support provisions, the trial court was bound by
the agreement’s terms relating to maintenance in the absence of a
finding of unconscionablity.19
In considering the validity of a separation agreement,
the court should look to the relative economic circumstances of
19
KRS 403.180(2)
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the parties, along with any other relevant evidence.20
The
parties were married for approximately eleven years when they
separated in 1991.
At that time, they were both 37 years old.
The trial court found that Sharen has a Bachelor of Arts degree
in Home Economics.
Although she worked early on in the marriage,
she left her employment to follow William to another job.
During
the marriage, she primarily stayed at home with the children.
Since the separation, she has worked occasionally in various
positions.
However, the trial court found that Sharen suffers
from back problems and is taking medication for depression.
William worked throughout the marriage, earning a
substantial income as a marketing manager for bio-technology
companies.
As previously noted, his annual salary and bonuses
since the parties separated have fluctuated from a low of
$115,124.00 in 1995 to a high of $515,663.00 in 1997.
The trial
court noted that the parties were accustomed to a high standard
of living during the marriage.
Based upon this evidence, the
trial court found that Sharen is unable to support herself at the
level established during the marriage.
Given the trial court’s findings, Sharen probably would
be entitled to some amount of maintenance had the issue been
decided under KRS 403.200.
Indeed, we cannot say that the amount
of maintenance under the agreement is manifestly unfair.
Likewise, although we have serious reservations about the
duration of maintenance, we cannot find that the terms of the
20
KRS 403.180(2); Shraberg, 939 S.W.2d at 333
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agreement which require William to pay Sharen maintenance until
her death or remarriage are unconscionable.
There is no requirement that the duration of
maintenance must directly correlate to the length of the
marriage.
Rather, this is but one factor which the trial court
must consider in setting maintenance.21
Furthermore, parties may
agree to set maintenance without regard to need or the other
provisions in KRS 403.200.22
The amount and duration of maintenance is a matter
which is committed to the sound discretion of the trial court.23
Moreover, William agreed to pay Sharen maintenance for life, and
those terms are as binding and enforceable as any other
contract.24
While the duration of maintenance was most likely a
“bad bargain” for William, the maintenance provision of the
agreement is not manifestly unfair.25
In sum, the circumstances surrounding the execution of
the agreement presented a significant opportunity for
21
Other factors include: (1) the financial circumstances of the party seeking mainteance,
including marital property apportioned to her, and her ability to meet her needs independently,
including the extent to which a provision for child support includes a sum for that party as a
custodian; (2) the time necessary to acquire sufficient education or training to enable the party
seeking maintenance to find appropriate employment; (3) the standard of living established
during the marriage; (4) the age, and the physical and emotional condition of the spouse seeking
maintenance; and (5) the ability of the spouse from whom maintenance is sought to meet his
needs while meeting those of the spouse seeking maintenance. KRS 403.200(2).
22
John v. John, Ky. App., 893 S.W.2d 373, 376 (1995).
23
KRS 403.200. See also Leveridge v. Leveridge, Ky., 997 S.W.2d 1 (1999); Frost v.
Frost, Ky. App., 581 S.W.2d 582 (1979).
24
KRS 403.180(5); John v. John, 893 S.W.2d at 375.
25
Peterson v. Peterson, 583 S.W.2d at 711.
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overreaching.
While an attorney may represent both parties in a
dissolution proceeding under certain circumstances, the potential
for conflict of interest is manifest.26
However, based upon the
facts as found by the trial court, William was not a victim of
fraud, undue influence or overreaching.
We are concerned by the
conduct of the parties and Sharen’s former counsel surrounding
the entry of the first decree.
Based upon the record, it appears
that Sharen was not entirely honest with the trial court
regarding the length of her residence in Kentucky.
Be that as it
may, this matter does not affect the ultimate question of whether
the agreement was fair.
On this ultimate question, we conclude that the trial
court did not clearly err in finding that the amount and duration
of maintenance set by the agreement is not unconscionable.
However, the provisions of the agreement relating to child
support are manifestly unfair.
By themselves, the latent and
patent ambiguities in the agreement regarding payment of support,
post-secondary educational expenses, and medical expenses after
the children reach the age of majority would render those terms
unenforceable.
Moreover, we find that the amount and duration of
child support under the agreement so greatly exceeds the
children’s reasonable needs as to render the terms
unconscionable.
Therefore, we must remand this matter to the
trial court with instructions to set child support anew based
upon the provisions of KRS 403.211 and 403.212.
26
See SCR 3.130, Rules of Professional Conduct 1.7. See also An Unnamed Attorney v.
Kentucky Bar Association, Ky., 1 S.W.3d 474 (1999).
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In Appeal No. 2000-CA-000532, William argues that the
trial court’s award of a judgment for maintenance and child
support arrearages based upon the provisions of the agreement
should be set aside because the agreement is unconscionable.
To
the extent which we have found the child support provisions of
the agreement unconscionable, we also must set aside the trial
court’s judgment in favor of Sharen for the child support
arrearage.
But since we have found the maintenance provisions of
the agreement to be conscionable, we affirm the trial court’s
judgment for the maintenance arrearage.
Consequently, we must address the remaining issues
raised in William’s second appeal and in Sharen’s cross-appeal,
at least insofar as they affect the maintenance judgment.
William argues that the trial court abused its discretion when it
made the support provisions of the agreement effective to its
1991 filing.
We disagree.
As previously noted, once separation agreements are
approved by the court, the terms set forth are enforceable as
contract terms.27
August of 1991.
William and Sharen executed the agreement in
Due to the jurisdictional defects in the
original decree and other delays, the trial court did not make a
valid finding that the agreement is enforceable until September
of 1999.
Because of this delay, the trial court had previously
entered a temporary maintenance and child support order.28
27
The
KRS 403.180(5).
28
In May of 1995, the trial court, per Judge Fuqua, orally set maintenance and child
support in the amount of $1,600.00 per month. The court reserved a ruling concerning whether
(continued...)
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court, having found the agreement enforceable, must determine
maintenance according to its terms.
Under these circumstances,
we conclude that the trial court did not err in calculating the
arrearage from the date the parties executed the agreement.
In her cross-appeal, Sharen argues that the trial court
erred in denying her request for interest on sums due under the
agreement from the original date of signature.
We agree with
Sharen that separation agreements become effective when they are
executed by the parties, although they do not have the force of a
judgment until approved and adopted by the court.
Furthermore,
in Hoskins v. Hoskins,29 this Court recently held that a
provision in a property settlement agreement which ordered the
former husband to pay his former wife $7,500.00 within three
years from the date of the agreement became an enforceable
judgment when the payment became delinquent at the end of three
years.
Thus, the former wife was entitled to interest on the
amount from the date the payment became delinquent.30
However in Hoskins, the separation agreement had been
adopted by the court in a prior, valid decree.
In contrast, the
agreement in this case was not adopted by the trial court until
September 16, 1999.
The Decree of Dissolution entered by the
trial court on November 15, 1991 was void ab initio.
28
It had no
(...continued)
any arrearage was owed as well as to future child support, maintenance, and medical payments.
In his order of September 11, 1996, Judge Gill concluded that this order was intended to be
temporary in nature.
29
Ky. App., 15 S.W.3d 733 (2000).
30
Id. at 735.
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legal effect as a judgment.
Until the decree was adopted by the
court, it did not carry the force of a judgment.
Thus, the trial
court was not required to award prejudgment interest on the
amounts due under the agreement.
Similarly, we agree with the trial court that Sharen
was not entitled to contractual interest on the amounts due under
the agreement.
Prejudgment interest follows as a matter of
course on liquidated damages.31
However, the trial court
recognized that provisions in the agreement regarding maintenance
were ambiguous in certain key respects.
Until the court
interpreted those provisions, the amounts owed pursuant to the
agreement could not be determined and therefore were not
liquidated.32
As such, the trial court acted within its
discretion in denying Sharen’s request for prejudgment interest.
Finally, Sharen argues that the trial court erred in
its definition of net income for the purpose of calculating
maintenance.
She contends that, under the agreement, William’s
income for maintenance and child support purposes must be based
upon his federal adjusted gross income, minus only the state
income tax paid by William.
She asserts that the trial court’s
interpretation, which allows William to deduct all of his federal
tax withholding, was clearly erroneous.
Sharen points out that the term “net income” for tax
purposes generally means gross income less specific deductions
31
Nucor Corp. v. General Electric Co., Ky., 812 S.W.2d 136, 141 (1991).
32
Id. (citing Black's Law Dictionary, (6th ed.1990) p. 930.
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authorized by statute.33
The term “net income”, in the case of
taxpayers other than corporations, is defined for Kentucky tax
purposes to mean adjusted gross income minus the standard
deduction or most of the deductions allowed under Chapter 1 of
the Internal Revenue Code.34
define “net income.”
The Internal Revenue Code does not
Rather, it only defines the terms “gross
income”, “adjusted gross income”, and “taxable income”.35
Sharen
contends that none of these definitions would allow William to
subtract his federal tax withholding from the calculation of his
net income.
However, the agreement does not expressly use the term
“net income.”
Rather, Item Twelve of the agreement provides that
William “agrees that 30% of all of his income from his salary and
bonuses as evidenced by his federal income tax returns shall be
payable as child support for the minor children of the parties.”
Likewise, Item Thirteen provides that William shall pay “10% of
the net salary and bonuses as set forth above as maintenance
....”
The parties clearly intended that William’s income should
be calculated based upon the amounts listed on his federal income
tax returns.
But it is not clear that the parties intended to
adopt the definition of “net income” as used for state and
federal income tax purposes.
33
85 C.J.S. Taxation § 1096(a), p. 732.
34
KRS 141.010(11).
35
26 U.S.C. §§ 61, 62, & 63.
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Unless otherwise defined, terms used in a contract
should be given their ordinary and accepted meaning.36
Furthermore, any ambiguity in a contract should be interpreted
against the party who drafted it.37
There is no dispute that
Sharen’s attorney drafted the agreement.
As previously
discussed, Item Thirteen of the agreement is the only provision
which uses the term “net”, although it does refer back to Item
Twelve.
There was no indication that the term “net salary and
bonuses” as used in the agreement was intended to mean “net
income” as used for tax purposes.
Rather, the parties only
intended that William’s federal income tax returns should be used
to determine his total income from all sources for any given
year.
As commonly used, the word “net” means “that which
remains after all allowable deductions, such as charges,
expenses, discounts, commissions, taxes, etc., are made.”38
trial court apparently applied this definition.
The
The trial court
found that William was entitled to deduct any required tax
payments from calculation of his income, but not any voluntary
payments, such as 401(k) contributions.
Given the circumstances
and the evidence before the trial court we find that this
interpretation of the agreement is reasonable and should not be
disturbed.
36
City of Louisville v. McDonald, Ky. App., 819 S.W.2d 319, 320 (1991).
37
Wolford v. Wolford, Ky., 662 S.W.2d 835, 838 (1984).
38
Black’s Law Dictionary (6th ed., 1990), p. 1040.
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Accordingly, the judgment of the Logan Circuit Court is
affirmed insofar as it upholds the terms of the agreement
relating to disposition of marital property and maintenance, but
is reversed insofar as it upholds the terms of the agreement
relating to child support, payment of the children’s postsecondary educational and medical expenses.
This matter is
remanded to the Logan Circuit Court with directions to set child
support based upon the provisions of KRS 403.211 and 403.212.
JOHNSON, JUDGE, CONCURS.
MILLER, JUDGE, CONCURS IN PART AND DISSENTS IN PART.
MILLER, JUDGE, CONCURRING IN PART AND DISSENTING IN
PART.
I concur with the majority opinion except I would also
reverse that portion of the trial court’s judgment upholding the
terms of the agreement regarding spousal maintenance.
BRIEF FOR APPELLANT/CROSSAPPELLEE WILLIAM HOYNE
PURSLEY:
BRIEF FOR APPELLEE/CROSSAPPELLANT SAMMYE SHAREN WALDEN
PURSLEY:
B. Mark Mulloy
Mulloy & Mulloy
Louisville, Kentucky
David L. Williams
Burkesville, Kentucky
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