GINA RENEE LAWRENCE v. DAVID W. LAWRENCE
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RENDERED: JULY 3, 2003; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
2002-CA-000639-MR
GINA RENEE LAWRENCE
APPELLANT
APPEAL FROM JEFFERSON FAMILY COURT
HONORABLE STEPHEN M. GEORGE, JUDGE
ACTION NO. 00-FC-006353
v.
DAVID W. LAWRENCE
APPELLEE
OPINION
AFFIRMING IN PART,
REVERSING IN PART,
AND REMANDING
** ** ** ** **
BEFORE:
BAKER, GUIDUGLI, AND KNOPF, JUDGES.
KNOPF, JUDGE:
12, 1995.
David and Gina Lawrence were married on August
Two children were born of the marriage.
In August of
2000, David filed a petition for dissolution of the marriage.
On February 29, 2001, the Jefferson Family Court entered a
decree dissolving the marriage and reserving the additional
issues of division of property and debt, maintenance, child
custody and visitation, and attorney fees for further
adjudication.
After a period of extensive discovery, these
matters came before the court for trial on November 1, 2001.
The trial court entered its judgment on January 2, 2002.
Gina
asserts that the trial court erred by assigning the marital
residence and a closely-held corporation to David as his nonmarital property.
She also argues that the trial court abused
its discretion in setting the amount and duration of
maintenance, and in failing to require David to pay all of her
attorney fees.
We agree with Gina that the evidence did not
support the trial court’s finding that David had traced his nonmarital assets into the purchase of the marital residence.
Consequently, the trial court should not have assigned the
residence to David without an offsetting award of other marital
property to Gina.
However, the trial court’s finding that the
corporation had no equity to be divided was supported by
substantial evidence.
Furthermore, the trial court did not
abuse its discretion in its award of maintenance and attorney
fees to Gina.
Hence, we affirm in part, reverse in part, and
remand for additional proceedings.
The court awarded sole custody of the children to
David, with structured visitation by Gina.
The trial court also
ordered Gina to pay David $187.00 per month in child support.
Gina does not contest this portion of the trial court’s
judgment.
Rather, Gina first argues that the trial court erred
in its characterization and division of the marital property.
Specifically, she contends that the trial court erred in finding
2
that David adequately traced his non-marital assets into the
purchases of both Lawrence Aluminum Company and the marital
residence.
In the absence of documentary evidence, and in the
face of other evidence showing considerable co-mingling of
marital and non-marital assets, Gina asserts that the
corporation and the residence should have been deemed marital
and divided accordingly.
The facts surrounding the acquisition of these assets
are not seriously in dispute.
At trial, David testified
concerning the source of the funds used to purchase the mostrecent marital residence.
In early 1995, before the parties
were married, David purchased 100 shares of a company known as
Kentuckiana Pizza, Ltd.
In December 1995, David sold those
shares of stock to Papa John’s International in exchange for
9,337 shares of that corporation.
David sold that stock, and,
after payment of taxes, he realized a net profit of $360,439.00.
In March 1996, the parties purchased a home in Florida
for $388,000.00.
David testified that he used $80,000.00 from
the proceeds for the down payment on that house.
He also
testified that he contributed $200,000.00 for improvements to
that house, and that he used the remainder of the proceeds from
the stock sale for living expenses.
The parties also executed
several mortgages to finance the purchase and the renovation of
the Florida house.
In July of 1998, the parties sold the
3
Florida house for $890,000.00.
After payment of the real estate
commissions, mortgages and other expenses, they realized a net
distribution of $91,034.00 from that sale.
David and Gina then
returned to Louisville, and in November of 1998, they purchased
the latest marital residence for $322,000.00.
As of the date of
the judgment, the appraised value of the residence was
$340,500.00, and the total mortgages against the property were
$280,000.00, leaving a total equity of approximately $60,500.00.
The trial court found that David had adequately traced
his non-marital property to the purchase of the marital
residence.
As a result, the court found that any marital equity
in the residence is insignificant, and it ordered Gina to
execute a quit-claim deed to transfer her interest in the
property to David.
Gina argues that the trial court should
have required David to present documentary evidence to support
his tracing claim.
In the absence of such evidence, and in the
face of other evidence showing considerable co-mingling of
marital and non-marital assets, Gina asserts that the
corporation and the residence should have been deemed marital
and divided accordingly.
We agree.
The concept of "tracing" is not expressly created by
statute, but it is strongly implied.
KRS 403.190(3) establishes
a presumption that all property acquired during the marriage is
marital property.
The marital presumption, however, is
4
rebuttable and may be overcome by a showing that the property
was acquired by a method listed in KRS 403.190(2).
A party
claiming that property acquired during the marriage is other
than marital property bears the burden of proof.1
Essentially, the tracing requirement simply means that
"[w]hen the original property claimed to be non-marital is no
longer owned, the non-marital claimant must trace the previously
owned property into a presently owned specific asset."2
If the
claimant does so, then the trial court assigns the specific
property, or an interest in specific property, to the claimant
as his or her non-marital property.
On the other hand, a
claimant cannot meet the tracing requirement simply by showing
that he or she brought non-marital property into the marriage
without also showing that he or she has spent his or her nonmarital assets in a traceable manner during the marriage.
Under
such circumstances, the trial court will not assign the property
to the claimant as non-marital property, but it may consider the
non-marital contribution as a factor when it makes a just
division of the parties' marital property.3
1
KRS 403.190(3), Brosick v. Brosick, Ky. App., 974 S.W.2d 498 (1998).
2
L. Graham & J. Keller, 15 Kentucky Practice, Domestic Relations Law §
15.10, p. 512 (2nd ed. West Group 2000).
3
See Brunson v. Brunson, Ky. App., 569 S.W.2d 173, 176 (1978); and
Angel v. Angel, Ky. App., 562 S.W.2d 661, 664-665 (1978).
5
In Chenault v. Chenault,4 the Kentucky Supreme Court
recognized that tracing to a mathematical certainty is not
always possible, noting that: "[w]hile such precise requirements
for non-marital asset-tracing may be appropriate for skilled
business persons who maintain comprehensive records of their
financial affairs, such may not be appropriate for persons of
lesser business skill or persons who are imprecise in their
record-keeping abilities."5
As a result, the Chenault court held
that testimony alone may be sufficient to satisfy the tracing
requirement.
More recently, however, the Court has held that
while Chenault relaxed the more draconian requirements for
tracing, it did not do away with the tracing requirements
altogether.6
Where the party claiming the non-marital interest
is a skilled business person with extensive record keeping
experience, the courts may be justified in requiring
documentation to trace non-marital assets into marital property.7
The trial court did not clearly err by accepting
David’s testimony regarding the source of the funds used to
purchase the Louisville residence.
The more fundamental problem
is that David’s testimony did not adequately trace his non4
Ky., 799 S.W.2d 575 (1990).
5
Id. at 578.
6
Terwilliger v. Terwilliger, Ky., 64 S.W.3d 816, 821 (2002).
7
Id.
6
marital contribution to that purchase.
First, there was a
substantial marital contribution made to the Florida residence.
Although David contributed $80,000.00 to the down payment and
another $200,000.00 for renovations, the parties jointly
incurred additional mortgage loans of more than $500,000.00.
Mortgage loans that are incurred during the marriage and as a
joint obligation of the parties constitute a marital
contribution to the acquisition of real property.
When the
property acquired during the marriage includes an increase in
the value of an asset containing both marital and non-marital
components and the increase in value is the result of the joint
efforts of the parties, generally the increase in value will be
deemed to be marital property.8
However, the trial court held that all of the proceeds
from the sale of the Florida residence could be traced to
David’s non-marital contribution.
At most, David was entitled
to be restored to a share of those proceeds which was equivalent
to a proportionate share of his non-marital contribution.
Furthermore, we agree with Gina that David substantially comingled his non-marital contribution in the Florida residence
with the marital contribution.
Indeed, the mortgage loans
against that property far exceeded David’s contributions, and
8
See Travis v. Travis, Ky., 59 S.W.3d 904, 909-11 (2001).
7
the net proceeds from the sale amounted to about a third of his
contributions.
As a result, it is difficult to trace any of
those proceeds to David’s contribution of non-marital property.
Finally, David testified that he used $55,000.00 for a
down-payment on the Louisville residence, and used the remaining
$40,000.00 for living expenses.
Thus, even if some portion of
the proceeds from the sale of the Florida residence could be
traced to David’s non-marital contributions, that non-marital
portion cannot be clearly traced into the purchase of the
Louisville residence.
Consequently, the trial court erred in
awarding the marital residence to David as his separate, nonmarital property.
We also agree with Gina that the trial court erred in
finding that David used non-marital assets to purchase Lawrence
Aluminum Company.
While living in Florida, David acquired a 19%
stock interest in a company known as Peninsula Pizza.
that stock in January of 1999 for $148,000.000.
He sold
When the
parties returned to Louisville, David purchased all of the stock
of his family’s business, Lawrence Aluminum Company, for
$25,000.00.
Thereafter, he made personal loans to the
corporation in the amount of $165,500.00.
David testified that
he used the proceeds from the sale of the Peninsula-Pizza stock
for both the purchase and the loans.
David also testified that
the corporation repaid most of these loans prior to the parties’
8
separation.
After the parties separated, the corporation became
insolvent and filed for bankruptcy
Clearly, the stock which David acquired during the
marriage was marital property.
The proceeds from the sale of
that stock were likewise marital, as were the funds which David
used to invest in the company.
Consequently, the trial court
erred in finding that David’s investment in Lawrence Aluminum
was non-marital
Nevertheless, the trial court’s error in this respect
was harmless.
The trial court also found that Lawrence Aluminum
Company was in Chapter 11 bankruptcy and had no equity which
could have been divided.
Although Lawrence Aluminum was still
operating and it still employed David, there was no evidence
that David’s ownership interest had any value.
Consequently,
there was no marital equity for the trial court to divide.
Gina next takes issue with the trial court’s award of
maintenance.
The trial court ordered David to pay Gina
maintenance in the amount of $500.00 per month until the death
of either party, Gina’s re-marriage or co-habitation, the
expiration of eighteen months, or until further order of the
court.
Gina asserts that this amount and duration of this award
was inadequate as a matter of law.
Under KRS 403.200, a court awarding maintenance must
find that the recipient has insufficient income, either from
9
property or employment, to meet his or her reasonable needs.
In
determining the amount and duration of maintenance, the court
must consider the factors set out in KRS 402.200(2).
Our
standard of review regarding an award of maintenance is that of
abuse of discretion.
In particular, the amount and duration of
maintenance is within the sound discretion of the trial court.9
As an appellate court, this Court is not authorized to
substitute its own judgment for that of the trial court on the
weight of the evidence, where the trial court's decision is
supported by substantial evidence.10
In this case, the trial
court’s factual findings support its determination of the amount
and duration of maintenance.
First, the trial court found that Gina has no income
or income-producing property.
Furthermore, the court found that
Gina is not currently employable in her profession as a
registered nurse.
Accordingly, the trial court declined to
impute any income to her.
However, the court also found that
Gina is not actually incurring many of the living expenses which
she claimed.
debt to David.
In addition, the court assigned all of the marital
The court also granted David sole custody of the
9
Gentry v. Gentry, Ky., 798 S.W.2d 928, 937 (1990); Combs v. Combs,
Ky. App., 622 S.W.2d 679, 680 (1981), citing KRS 403.200(2), Browning
v. Browning, Ky. App., 551 S.W.2d 823 (1977), and Russell v. Russell,
Ky. App., 878 S.W.2d 24, 26 (1994).
10
Leveridge v. Leveridge, Ky., 997 S.W.2d 1 (1999).
10
children, with only a minimal contribution of child support by
Gina.
Thus, the trial court could not precisely determine the
amount of Gina’s reasonable needs.
Moreover, Gina presented no expert testimony
substantiating her claim of mental illness.
While the trial
court accepted Gina’s testimony on this matter, it also found
that she was unemployable in her chosen profession due to her
chemical dependency problem and her recent convictions for drugrelated offenses.
Rather than award Gina maintenance for an
indefinite period of time, the court limited its award to
eighteen months.
However, the court reserved the right to
extend this award (“or until further order of court”) should
Gina demonstrate that additional maintenance will assist in her
rehabilitation and not simply enable her drug dependency.
Under
the circumstances, we cannot conclude that the trial court
abused its discretion in setting the amount and duration of
Gina’s maintenance.
Finally, Gina argues that the trial court’s allocation
of attorney fees was inadequate as a matter of law.
The trial
court ordered David to contribute $2,400.00 toward her attorney
fees, out of a total of $3,400.00.
Gina notes that David has an
annual income of $70,000.00, while she has no income or other
resources.
Given the substantial disparity in resources, Gina
11
asserts that the trial court should have ordered David to pay
all of her attorney fees.
David first responds that the issue of attorney fees
is not properly before this Court because Gina failed to name
her attorney as a party to this appeal.
However, the attorney
is an indispensable party to an appeal only when the trial court
has ordered the fees to be paid directly to the attorney.11
In
this case, the trial court ordered David “to contribute the sum
of $2,400.00 toward [Gina’s] attorney’s fees”, and not directly
to Gina’s attorney.
Consequently, Gina’s attorney is not a
necessary party to this appeal.12
KRS 403.220 authorizes a trial court to order one
party to a divorce action to pay a "reasonable amount" for the
attorney fees of the other party, but only if there exists a
disparity in the relative financial resources of the parties in
favor of the payor.
But even if a disparity exists, the amount
of fees is within the sound discretion of the trial judge.13
The
trial court is in the best position to observe conduct and
11
Neidlinger v. Neidlinger, Ky., 52 S.W.3d 513, 518-19 (2001).
12
Id. at 519.
13
Id. citing Wilhoit v. Wilhoit, Ky., 521 S.W.2d 512, 514 (1975). “If
there had ever been any doubt regarding the discretionary authority of
the trial court to allocate court costs and award an attorney's fee,
KRS 403.220 laid that doubt to rest once and for all. As matters now
stand, an allocation of court costs and an award of an attorney's fee
are entirely within the discretion of the court”.
12
tactics which waste the court's and attorneys' time and must be
given wide latitude to sanction or discourage such conduct.14
Given the circumstances of this case, we cannot find that the
trial court abused its discretion by requiring Gina to assume
responsibility for some of her attorney fees.
Gina also asserts that the trial court abused its
discretion in allowing David to pay her attorney fees in monthly
installments of $150.00 for sixteen months.
However, we find no
indication in the record that Gina raised this objection while
she was before the trial court.
Consequently, this issue is not
preserved for review.
Accordingly, the trial court’s judgment of January 2,
2002, is reversed insofar as it awarded the marital residence to
David without compensating Gina for her marital interest.
This
matter is remanded to the Jefferson Family Court for a reallocation of the marital assets as set out in this opinion.
In
all other respects, the trial court’s judgment is affirmed.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
John H. Helmers, Jr.
Troy DeMuth
Howard & Helmers, PLC
Louisville, Kentucky
Paul V. Hibberd
Connelly, Kaercher & Stamper
Louisville, Kentucky
14
Gentry v. Gentry, Ky., 798 S.W.2d 928, 938 (1990).
13
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