JAMES R. SMITH AND DAVID L. VISH v. CAROLYN KING SMITH
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RENDERED:
JANUARY 20, 2006; 10:00 A.M.
ORDERED PUBLISHED AND MODIFIED: FEBRUARY 10, 2006
Commonwealth Of Kentucky
Court of Appeals
NO. 2004-CA-001028-MR
AND
NO. 2004-CA-001056-MR
JAMES R. SMITH
AND DAVID L. VISH
v.
APPELLANTS/CROSS-APPELLEES
APPEAL AND CROSS-APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE ELEANORE GARBER, JUDGE
ACTION NO. 00-FC-008555
CAROLYN KING SMITH
APPELLEE/CROSS-APPELLANT
OPINION
AFFIRMING IN PART
AND REVERSING IN PART
** ** ** ** **
BEFORE:
BARBER, MINTON, AND TAYLOR, JUDGES.
MINTON, JUDGE:
I.
INTRODUCTION.
Jim and Carolyn Smith appeal the property division
made by the family court in conjunction with the dissolution of
their marriage.
Jim’s lawyer, David Vish, joins this appeal
because an award of attorney’s fees to Jim is also an issue on
appeal.
We affirm, in part, and we reverse, in part.
II.
THE PROCEEDINGS BELOW.
Jim and Carolyn were married for 27 years when Jim
filed the petition to dissolve the marriage in November 2000.
The division of the parties’ substantial marital estate
generated protracted and acrimonious litigation that culminated
in a five-day family court trial.
In February 2004, the family
court completed the Augean task of dividing Jim and Carolyn’s
property and debts by issuing a detailed, fifty-five page
decree.
Both parties filed post-decree motions resulting in an
amended decree in April 2004.
Both Jim and Carolyn have
appealed to this Court.
III.
A.
ANALYSIS.
Motion to Strike.
Before we may address the issues raised in these
appeals, we must resolve a preliminary procedural issue.
Carolyn has moved to strike Jim’s combined reply brief because
it does not contain citations to the record to support Jim’s
arguments.
Carolyn correctly asserts that Jim’s brief violates
Kentucky Rules of Civil Procedure (CR) 76.12 because it contains
insufficient citation to the enormous trial court record.
Carolyn is correct that it is not our responsibility to search
the record to find where it may provide support for Jim’s
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contentions.1
But rather than striking Jim’s brief, we choose to
give little credence to the arguments by either party that are
not supported by a conforming citation to the record.
So we
deny Carolyn’s motion to strike.
B.
Property and Debt Division.
1.
Standard of Review.
Before analyzing the merits of each party’s arguments,
we must review the basic tenets of property division in a
dissolution context and the permissible scope of our review.
In
a dissolution proceeding involving contested property
distribution issues, a trial court’s first step must be to
categorize each piece of contested property as either marital or
nonmarital.2
Next, the court must assign each party’s nonmarital
property to that party.3
Finally, the court must equitably
divide the parties’ marital property in just proportions.4
But the distribution of property for distribution is
not as simple and clear-cut as the basic three-step process
would indicate because some property may have both marital and
nonmarital components by virtue of the fact that it was
1
See, e.g., Monroe v. Cloar, 439 S.W.2d 73 (Ky. 1969).
2
Holman v. Holman, 84 S.W.3d 903, 907 (Ky. 2002).
3
Travis v. Travis, 59 S.W.3d 904, 909 (Ky. 2001).
4
Id.
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purchased with a combination of marital and nonmarital funds.5
This situation occurred repeatedly in this case.
In such
situations, “a trial court must determine the parties' separate
nonmarital and marital shares or interests in the property on
the basis of the evidence before the court.
Kentucky courts
have typically applied the ‘source of funds’ rule to
characterize property or to determine parties' nonmarital and
marital interests in such property.”6
The “source of funds” rule
“simply means that the character of the property, i.e., whether
it is marital, nonmarital, or both, is determined by the source
of the funds used to acquire property.”7
If such a piece of
mixed-status property increases in value during the course of
the marriage:
trial courts must determine from the
evidence "why the increase in value
occurred" because "where the value of
[nonmarital] property increases after
marriage due to general economic conditions,
such increase is not marital property, but
the opposite is true when the increase in
value is a result of the joint efforts of
the parties." KRS [Kentucky Revised
Statutes] 304.190(3), however, creates a
5
However, “property acquired prior to marriage retains its
[nonmarital] character even if marital funds are used to enhance the
value of that property. When the value of [nonmarital] property is
enhanced through the use of marital funds, only the increase in
value of the property and the funds contributed in pursuit of that
increase are subject to division as marital property.”
Overstreet v. Overstreet, 144 S.W.3d 834, 837, n.7 (Ky.App. 2003).
6
Travis, 59 S.W.3d at 909 (footnote omitted).
7
Id. at 909, n.10.
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presumption that any such increase in value
is marital property, and, therefore, a party
asserting that he or she should receive
appreciation upon a nonmarital contribution
as his or her nonmarital property carries
the burden of proving the portion of the
increase in value attributable to the
nonmarital contribution. By virtue of the
KRS 403.190(3) presumption, the failure to
do so will result in the increase being
characterized as marital property.8
It is important to bear in mind that a trial court is not
obligated to divide the marital property equally.9
Rather, a
trial court need only divide the marital property “in just
proportions.”10
Finally, a trial court has wide discretion in dividing
marital property; and we may not disturb the trial court’s
rulings on property-division issues unless the trial court has
abused its discretion.11
The question of whether an item is
marital or nonmarital is reviewed under a two-tiered scrutiny in
which the factual findings made by the court are reviewed under
the clearly erroneous standard and the ultimate legal conclusion
denominating the item as marital or nonmarital is reviewed
8
Id. at 910 (quoting Goderwis v. Goderwis, 780 S.W.2d 39, 40 (Ky.
1989)) (footnotes omitted).
9
Davis v. Davis, 777 S.W.2d 230, 233 (Ky. 1989).
10
Id. (quoting KRS 403.190(1)).
11
Id.
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de novo.12
Statements defining the standard of review of a trial
court’s decision to classify an item as marital or nonmarital is
one in which the appellate courts of this state have been
consistently inconsistent.
On at least two occasions, the
Supreme Court has, without discussion, used the clearly
erroneous standard in reviewing a trial court’s categorization
of property.
Similarly, we have also used the clearly erroneous
standard, in both published and unpublished opinions.13
But we
have also recently used a de novo standard of review, although
we did not explain why we deviated from the clearly erroneous
standard.14
Likewise, the Kentucky Supreme Court recently used,
also without explanation or discussion, the de novo standard.15
12
See Marcum v. Marcum, 779 S.W.2d 209, 211 (Ky. 1989) (“In view of
the evidence regarding the deed, the trial court was clearly
erroneous in holding that any portion of this property was the
husband’s nonmarital property.”); Goderwis, 780 S.W.2d at 41 (“The
trial court found that the property at 39 Erlanger Street was
subject to division as marital property. . . .” The basic finding
of the trial court was not clearly erroneous and should not be set
aside. CR 52.01.).
13
See, e.g., Brunson v. Brunson, 569 S.W.2d 173, 177 (Ky.App. 1978)
(“It was clearly erroneous for the trial court to assign any amount
to Mr. Brunson as nonmarital property, traceable to the personalty
inherited from his father.”).
14
Overstreet, 144 S.W.3d at 837 (“‘Whether certain property is part of
the marital estate subject to division presents a question of law
that we decide without deference to the trial court's decision.’")
(quoting Chen v. Chen, 416 N.W.2d 661, 663 (Wis. 1987)).
15
Holman v. Holman, Ky., 84 S.W.3d 903, 905 (Ky. 2002) (“Whether a
disability retirement is classified as marital or nonmarital
property involves an application of the statutory framework for
equitable distribution of property upon divorce and therefore
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The lack of interplay between these cases makes difficult the
task of articulating the standard of review.
We believe that
the way properly to harmonize these cases is to recognize a twotiered standard of review.
Given the fact that the trial court
is unquestionably in the best position to judge the weight and
credibility of the evidence, we believe that the factual
findings underpinning the determination of whether an item is
marital or nonmarital are entitled to deference and,
consequently, should be reviewed under the clearly erroneous
standard.16
Ultimately, classification is a question of law,
which should be reviewed de novo.17
Bearing those overarching
principles in mind, we now turn to the arguments raised by Jim
and Carolyn.
2.
The UBS/Paine Webber Account.
Both sides take issue with the family court’s division
of the money in the UBS/Paine Webber Account.
Jim contends that
the lower court erred by finding that only 14.2 percent of the
account was marital property, the remainder being Carolyn’s
nonmarital property.
Carolyn argues that the lower court erred
by not finding that whole account was her nonmarital property.
constitutes a question of law subject to this Court’s independent
determination.”).
16
See CR 52.01.
17
New v. Commonwealth, 156 S.W.3d 769, 774 (Ky.App. 2005).
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The history of this account is complicated.
According
to the family court’s findings, Carolyn’s father, Walter King,
was a successful entrepreneur who amassed considerable wealth
that he shared with his two daughters, Carolyn and her sister,
both before and after his death.
Toward that end, in December
1983, Walter arranged for the Board of Directors of one of his
companies, Easco, Inc., to authorize the sale of 1,600 shares of
Easco stock to Carolyn and her sister at a cost of $1.25 per
share.
Then, in December 1983, Walter wrote Carolyn a check for
$2,000.00 and gave it to her to buy the Easco stock.
Jim, as secretary for Easco’s parent company, which
Walter also owned, came into possession of that $2,000.00 check,
which he deposited in one of his personal bank accounts.
Jim
then wrote a check from one of his personal accounts to Easco
with the notation “Eagle Standard [Easco] stock.”
Three years later, Easco was sold and Carolyn received
$132,335.57 for her stock.
Walter also gave Carolyn $40,000.00
from his own Easco profits, as well as a $10,000.00 loan (which
was later forgiven).
And, in 1989, Carolyn received an
additional $35,920.00 as her portion of the resolution of a
lawsuit that benefited Easco.
Carolyn deposited her $132,335.57 check into a mutual
fund account at Dupree & Co.
That account listed both Carolyn
and Jim as the owners of the account.
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The $40,000.00 gift and
$10,000.00 loan were not deposited into that Dupree account and,
according to the decree, “there are gaps in bank and other
financial statements and accounts making a precise tracing of
Walter’s gifts impossible.”
In June 1987, Jim wired $118,700.00
from the Dupree account to his personal account at Central Bank,
a transfer of which Carolyn claims to have been unaware.
In January 1988, Jim wrote a check from his Central
Bank account for slightly over $150,000.00 to open a Merrill
Lynch account.
That Merrill Lynch account was initially in
Carolyn and Jim’s names, but Walter later prevailed upon Carolyn
to remove Jim’s name from the account.
Over the ensuing years,
deposits of over $1,000,000.00 were made in that Merrill Lynch
account and its successor accounts at J.C. Bradford, Paine
Webber and UBS.
And, in the divorce proceedings, each party
attempted to trace the various deposits.
But those tracing
attempts were not entirely successful and have resulted in
divergent conclusions.
The trial court ultimately found that
$937,696.00 in deposits were Carolyn’s nonmarital funds from
gifts from Walter, and that $155,757.00 in deposits were marital
funds.
At the time of trial, the account balance was
$596,024.00, which the trial court reduced to a prorated share
of $84,635.00 in marital funds and $511,389.00 in Carolyn’s
nonmarital funds.
The trial court divided the marital portion
of the account equally (although Jim’s share was ordered to be
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used to reimburse Carolyn for her nonmarital share in a piece of
real estate, which will be discussed more fully later in this
opinion).
As stated previously, both Jim and Carolyn have
appealed this division.
Jim first contends that the family court erred by
finding that the Easco stock was purchased with a gift from
Carolyn’s father.
Jim contends that he wrote a check to
purchase the Easco stock from his own bank account.
As the events surrounding the Easco stock purchase
occurred over twenty years ago, tracking that stock purchase is
difficult, if not impossible.
But the record clearly shows that
Easco’s Board of Directors voted to offer the 1,600 shares to
Carolyn, not to Jim.
So it would have been illogical for Jim to
finance the stock purchase with funds from his own separate bank
account.
It is also uncontested that Walter wrote a check to
Carolyn for the exact amount needed to buy the Easco stock very
near the time when the stock was bought.
This close proximity
in time suggests that Walter’s check was likely intended to fund
Carolyn’s Easco stock purchase.
But a temporal coincidence is
probably insufficient proof on its own.
Thus, it is important
to note that Carolyn testified at one of her depositions that
her father bought the Easco stock for her with a check for
$2,000.00.
So there exists substantial evidence to support the
trial court’s conclusion that Walter’s check was used, or was
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intended by him to be used, to fund Carolyn’s purchase of the
Easco stock.
Based upon its finding that Carolyn’s stock was
purchased using Walter’s gift to her, the trial court found that
the Easco stock was Carolyn’s nonmarital property.
So the trial
court then found that the $132,335.57 Carolyn received from
selling that stock, and the $35,920.00 Carolyn later received
from a lawsuit settled to Easco’s advantage, were also her
nonmarital property.
Jim contends that the increase in the
value of the Easco stock should have been classified as marital
property because Carolyn took no role whatsoever in Easco’s
affairs while he served as Easco’s secretary and general
counsel.
But Jim points to no specific evidence in the record
to contradict the trial court’s finding that “[t]here is no
proof that Jim made any financial decisions or exerted any
managerial discretion concerning the development and
profitability of Easco.
Furthermore, Jim was paid a salary for
his services to Midcoast and Easco.”
Thus, the trial court’s
decision that the increase in value of the Easco stock should be
deemed Carolyn’s nonmarital property should be affirmed.
Likewise, Jim points to nothing specific in the record to
contradict the trial court’s findings that the money Carolyn
received in the settlement of the legal action involving Easco
should be deemed Carolyn’s nonmarital property.
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Finally, Jim argues that the trial court erred by
finding that the $150,000.00 deposit, which opened the Merrill
Lynch account, was Carolyn’s nonmarital proceeds from the Easco
stock sale and other monetary gifts from Walter to Carolyn.
Jim
argues that Carolyn failed properly to trace a $50,000.00 gift
from Walter that was allegedly used to help open the Merrill
Lynch account.18
But a close examination of Jim’s argument on
this issue shows that Jim cites to no evidence in the record to
support it.
As previously stated, it is not our duty to search
the record to find support for Jim’s argument.19
So we affirm
the trial court’s conclusion that the funds used to open the
Merrill Lynch account were Carolyn’s nonmarital property.
Carolyn’s appeal on this issue revolves around her
contention that “[t]he trial court erred in finding that any
deposits to the Merrill Lynch account which were not
definitively traced to the Kings [i.e., Walter] constituted
marital property.”
Thus, Carolyn contends that the entirety of
the UBS account (a successor to the Merrill Lynch account)
should be her nonmarital property.
Carolyn recognizes that she
has not fully traced all deposits to that account, but she urges
18
The presumption exists that all property acquired during marriage is
marital property. Thus, if a piece of nonmarital property is no
longer owned at the time of dissolution, the “nonmarital” claimant
must “trace” the previously owned piece of nonmarital property into
a presently owned asset. Sexton v. Sexton, 125 S.W.3d 258, 266 (Ky.
2004).
19
Monroe, 439 S.W.2d at 73.
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for the relaxed tracing standard enunciated in Chenault v.
Chenault20 for her because she had no business expertise and
totally relied upon Jim to manage her finances.
But we perceive that Carolyn pushes Chenault’s
relaxation of tracing standards too far.
Carolyn has pointed to
no concrete proof showing that the deposits to the Merrill Lynch
account in question originated as gifts to her by Walter.
Speculation and conjecture will not suffice to meet even a
relaxed burden to show that the deposits in question were
nonmarital gifts from Walter.21
Furthermore, unlike the
situation in Chenault, the large amounts of cash flowing through
Jim and Carolyn’s various bank accounts means that there were
20
799 S.W.2d 575, 578 (Ky. 1990) (“While . . . precise requirements
for nonmarital 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
skills or persons who are imprecise in their record-keeping
abilities. This problem is compounded in a marital union where one
spouse is the recorder of financial detail and the other is
essentially indifferent to such matters. Moreover, such a
requirement may promote marital disharmony by placing a premium on
the careful maintenance of separate estates.”).
21
See, e.g., Terwilliger v. Terwilliger, 64 S.W.3d 816, 820 (Ky. 2002)
(“The presumption in Kentucky is that all property acquired during
the course of the marriage is marital property, unless the property
can be shown to have originated in one of the excepted ways outlined
in KRS 403.190(2). A party claiming that property acquired during
the marriage is other than marital property[] bears the burden of
proof.”).
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other potential sources for the deposits in question.22
Thus,
Carolyn’s argument must fail.
In summary, we affirm the entirety of the trial
court’s findings regarding the UBS account.
3.
The Massachusetts Mutual Second-to-Die Policy.
In order to reduce inheritance taxes that Carolyn and
her sister would likely have incurred upon the death of Walter
and Katsy King, Walter followed his financial planner’s advice
to set up a second-to-die life insurance policy with
Massachusetts Mutual Insurance.
Under the terms of that policy,
which had a face value of $800,000.00, each of Walter’s
daughters was the beneficiary when the later of Walter and Katsy
died.
Although Carolyn was the named beneficiary, Walter and
Katsy paid the substantial annual premiums for the policy by way
of gifts to both Carolyn and Jim.
Thus, Walter and Katsy wrote
checks to Carolyn and Jim that totaled the annual premium
payments, $28,894.00.
Then, Carolyn and Jim, in turn, sent
premium checks to the insurance company.
It was necessary for
Walter and Katsy to send checks to Jim, even though he was not a
named beneficiary of the policy, to remain within the $10,000.00
per person per year maximum gift to avoid gift taxes.
22
By the
See id. at 821 (“Additionally, while the Chenaults had no other
likely source for the funds claimed by Ruby Chenault as nonmarital,
Tom Terwilliger had money flowing in and out of his various
corporations from any number of sources.”).
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time Katsy died, Carolyn had taken loans against the policy.
Thus, Carolyn was paid only $641,777.14, not $800,000.00.
The record reflects that the total premiums paid on
the policy were $171,868.00, which the trial court found to have
been totally derived from gifts by Walter and Katsy to Jim and
Carolyn.
The trial court found that the total amount given to
Jim by Walter and Katsy was $74,080.00, which the trial court
found to be Jim’s share of the life insurance proceeds, the
balance being Carolyn’s nonmarital property.23
On appeal, Jim
contends that the trial court should have afforded him a larger
percentage of the life insurance policy proceeds because he has
properly traced his nonmarital property (the monetary gifts to
him from Walter and Katsy which he used to help pay the life
insurance premiums) into a currently held asset, the
UBS account.
Conversely, Carolyn contends that the trial court
erred by awarding Jim any portion of the life insurance
proceeds.
The trial court based its decision to award Jim only
the value of his gifts on what it perceived to be Walter’s
intent to have the policy benefit only Carolyn.
In fact, the
donor’s intent is the primary factor in determining whether a
23
As will be discussed more fully later in this opinion, the trial
court deducted $8,050.00 from Jim’s share of the life insurance
proceeds to reimburse Carolyn for her nonmarital investment in a
marital home.
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transfer is a gift and, if so, whether the gift is made jointly
or to only one spouse.24
A donor’s intent may be deduced from
the donor’s testimony or it may be inferred from the facts and
circumstances surrounding the transaction.25
Finally, it must be
noted that “[t]he determination of whether a gift was jointly or
individually made is a factual issue[] and[,] therefore, subject
to the CR 52.01's clearly erroneous standard of review.”26
Walter was unavailable to testify.
But, as the trial
court noted, his notes and actions demonstrated an overriding
desire to preserve as much of his estate as possible for Carolyn
and her sister.
Jim has pointed to nothing specific in the
record evidencing an intent by either Walter or Katsy to have
the second-to-die policy benefit him other than the indirect
benefit he would receive as Carolyn’s spouse.
Further
supporting the idea that Walter intended the policy to benefit
only Carolyn is the fact that Jim was not a named beneficiary of
the policy.27
Thus, the record supports the contention that Jim
received the checks from Walter and Katsy merely because he was
24
Sexton, 125 S.W.3d at 268-269.
25
Id.
26
Id.
27
See id. at 268 (“And, even though title is not determinative of
whether a transfer to a party is a gift, nevertheless, it is
evidence for the trial court to consider.”) (footnote omitted).
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an available conduit for gift tax purposes28 that could be relied
upon to use the checks to pay the life insurance premiums.29
Thus, as the more logical conclusion is that Walter and Katsy
had no intent to give the checks to Jim as tokens of affection,
the trial court’s finding that the $74,080.00 in checks from
Walter and Katsy to Jim were gifts and, as such, were Jim’s
nonmarital property is clearly erroneous.30
Accordingly, we
reverse the trial court’s determination that the $74,080.00 in
checks given to Jim by Walter and Katsy are Jim’s nonmarital
property.
On remand, the trial court shall amend the decree to
reflect that the entirety of the second-to-die policy proceeds
is Carolyn’s nonmarital property.
28
The tax treatment of a gift and the proposed usage of the gift are
proper factors for determining the intent of a donor. Hunter v.
Hunter, 127 S.W.3d 656, 662 (Ky.App. 2003).
29
Martin Weinberg, a
Walter’s intent in
Walter with estate
money was given to
30
See Sexton, 125 S.W.3d at 269 (“In other words, Appellee's father
did not intend to make a gift to Appellant; she was only added as an
owner of the partnership interest because of her marriage to
Appellee, and[,] therefore, she received no additional interest by
reason of the partnership interest being placed in their joint
names.”); Angel v. Angel, 562 S.W.2d 661, 665 (Ky.App. 1978)
(“Therefore, the tract conveyed in 1961 by gift from the wife's
brother should be considered as the wife's nonmarital property
unless the trial court finds that Ester Angel was named as a grantee
for a reason other than his marriage to Mossie Lee.”).
former attorney who had intimate knowledge of
this area by virtue of the fact that he helped
planning, definitively testified that “[t]he
Jim only because of his marriage to Carolyn.”
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4.
The Crummey Trust.
In 1990, Walter created the King Family Trust, an
irrevocable trust of a type commonly referred to as a Crummey
Trust.
Under the provisions of that trust, Walter made gifts
directly to the trust annually in the name of his daughters and
their spouses.
The trustee, Katsy, informed the beneficiaries
each year that they each had a right to withdraw up to
$20,000.00 from the trust within thirty days of a gift being
made to it.
According to testimony from estate planning experts
considered by the trial court, if such a withdrawal is not
timely made, the individual beneficiary loses his or her right
to withdraw the funds.
Under the provisions of the King Family
Trust, Katsy was the primary beneficiary; and, upon her death,
the corpus of the trust would pass, tax-free, to Carolyn and her
sister.31
31
For more information regarding the mechanics of Crummey Trusts, see,
e.g., Karpf v. Karpf, 481 N.W.2d 891, 893-94 (Neb. 1992) (“The
record explains that the withdrawal provision is a tax-planning
device used to assist taxpayers in minimizing ultimate estate tax
liability by enabling them to make tax-free gifts during their
lifetimes to the amount limited by law. In order to qualify as a
tax-free gift, the taxpayer must transfer a ‘present,’ as contrasted
from a ‘future,’ interest. To be a present interest, a gift to the
beneficiary of a trust must be subject to withdrawal by the
beneficiary in the calendar year during which the gift was made. (As
an aside, we note that in apparent honor of D. Clifford Crummey, who
established that gifts to minors are transfers of present interests,
see Crummey v. C.I.R., 397 F.2d 82 (9th Cir. 1968), limited
withdrawal provisions are often identified as Crummey provisions,
and trusts containing such provisions are frequently referred to as
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Upon dissolution, the trial court awarded Jim
$41,132.00 as his nonmarital property, representing the face
value of the monetary gifts given to Jim via the Crummey trust.32
On appeal, Jim argues that he should receive the benefit of the
increase in value of the amounts gifted to him.
Carolyn,
conversely, argues that Jim should receive nothing from the
Crummey trust.
As with the second-to-die policy, we believe the trial
court erred by awarding Jim any interest in the Crummey trust.
That trust was clearly established to benefit only Walter’s
daughters, not his sons-in-law.
Evidence of Walter’s intent
could be readily ascertained by noting that Jim is not listed as
a named beneficiary of the trust.33
Thus, it appears manifest
that Jim was named as a donee on some gifts to the Crummey trust
simply because he was married to Carolyn.
Furthermore, Jim
cites to nothing in the record to contradict the testimony of
the estate planning experts that he waived his right to claim
anything from the trust when he declined to exercise his option
to withdraw the funds given in his name within thirty days of
their deposit.
Furthermore, Jim cites to no cases that support
Crummey trusts.”)).
32
As will be discussed later in this opinion, Jim did not actually
receive the $41,132.00, as the trial court ordered those funds to
offset what Jim owed Carolyn from the proceeds of sales of real
property.
33
Sexton, 125 S.W.3d at 268.
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a revival of his right to withdraw from the Crummey trust.
Thus, the trial court’s decision to grant Jim $41,132.00 from
the Crummey trust is reversed and remanded.
5.
The $57,000.00 Loan from Walter.
In November 1978, Jim and Carolyn purchased their
first marital home, which was located on Forest Avenue in
Lexington, Kentucky, for $57,000.00.
It is uncontested that all
of the $57,000.00 purchase price came as a loan from Walter to
both Jim and Carolyn.
Walter’s handwritten notes indicate that
he intended for Jim and Carolyn to remit $475.00 per month to
him to repay the note.
But it is uncontested that Jim and
Carolyn made no payments to Walter.
Walter purportedly left an inventory in his lock box
with a notation “Carolyn King Smith notes (all forgiven).”
The
trial court found that, based on Walter’s inventory, the
forgiveness of that loan was a nonmarital gift to Carolyn.
The
forgiveness of that loan was not definitively traced to any
currently held asset, but the trial court required Jim to
reimburse Carolyn for the note using his share of the marital
portion of the UBS account.34
On appeal, Jim contends that the
note was a loan to both parties during their marriage meaning
that the forgiveness of it must be a marital asset.
34
According to the trial court’s decree, Jim deposited at least some
of the proceeds from the sale of the Forest Avenue property into his
personal retirement or banking accounts.
-20-
We begin our analysis of this issue by noting that the
record supports the trial court’s decision to treat the note
from Walter as a joint debt, owed by both Jim and Carolyn.35
However, we do not believe that the trial court’s finding that a
generic inventory of items bearing a cryptic, typed notation
“Carolyn King Smith notes (all forgiven)[,]” is evidence,
substantial or otherwise, that Walter forgave the $57,000.00
note as a gift to Carolyn alone.
First, there is no indication
that the $57,000.00 note was among those in the lock box.
Second, neither party has pointed to anything in the record
definitively showing that the typed inventory of Walter’s lock
box was actually prepared by Walter (or done at his request).
Finally, we doubt that a written note ever existed as the only
evidence on that subject we have seen is Jim’s testimony that
there was never an actual written note evidencing the $57,000.00
“loan.”36
So we find that the trial court erred by concluding
35
We note that there is no presumption that a debt incurred during
marriage is a marital debt. Neidlinger v. Neidlinger, 52 S.W.3d
513, 522-523 (Ky. 2001). However, in the case at hand, Walter’s
handwritten note includes the following notation: “Debt—Jim & C.N.
[$]57,000.” Also, a typed notation above a copy of the savings
certificate Walter used to give the $57,000.00 to Carolyn and Jim
provides a notation that the value of the savings certificate was
$220,000.00 “less $57,000 (lend C&J)[.])” A similar handwritten
notation appears on a letter from the St. Louis County Bank to
Walter regarding his renewal of that savings certificate. Thus, the
record amply supports the trial court’s conclusion that the
$57,000.00 was loaned to both Jim and Carolyn.
36
According to Jim’s April 24, 2002, deposition, p. 66 (“Q. Now, do
you recall whether there were any loan documents that would indicate
the [$57,000.00] debt, or whether it was just an oral
-21-
that the broad notation on an apparently unsigned inventory of a
lock box demonstrates Walter’s intent to forgive the debt solely
as a gift to Carolyn.
The $57,000.00 loan was forgiven during Carolyn and
Jim’s marriage.
Thus, that forgiveness is presumed to be
marital property; and Carolyn, as the party claiming that the
forgiveness is her nonmarital property, bears the burden of
proof.37
We recognize Walter’s overriding intent was to provide
for his own children.
But neither that general intent, nor the
previously mentioned lock box inventory, which are all Carolyn
relies upon, are sufficiently specific to demonstrate that
Walter’s forgiveness of the $57,000.00 note was a nonmarital
gift to Carolyn.
Thus, the trial court’s decision to treat the
forgiveness of the loan as a nonmarital gift to Carolyn is
clearly erroneous and, consequently, must be reversed.38
As
dividing marital property in just proportions is a matter
reserved for the trial court, not this court, this issue must be
representation? A. It was just oral.”). As no written note
apparently ever existed, Jim’s argument that the written note must
be produced for examination under the best evidence rule is
disingenuous, at best.
37
Terwilliger, 64 S.W.3d at 820.
38
Sexton, 125 S.W.3d at 269 (“The determination of whether a gift was
jointly or individually made is a factual issue[] and[,] therefore,
subject to the CR 52.01's clearly erroneous standard of review.”).
-22-
remanded so that the forgiveness of the $57,000.00 loan may be
divided in just proportions.
6.
Grimes Mill Farm.
In 1974, Jim and Carolyn purchased a farm in Clark
County, Kentucky for $59,025.00.
It is uncontested that Walter
helped with the down payment for the farm by giving Jim and
Carolyn $3,996.00 each.
Jim contends that his father, Donald,
gave him alone $8,000.00 to contribute toward the down payment
on the farm.
Carolyn contends that Jim has no evidence to
support his claim regarding Donald’s alleged $8,000.00 gift.
The trial court’s findings on Donald’s gift are not specific.
But we interpret those findings to be that Donald did give
$8,000.00 toward a down payment on the farm but that the
$8,000.00 was a gift to both parties.39
Originally, Jim and
Carolyn held joint title to the farm; but the title was later
placed solely in Carolyn’s name to protect the farm from Jim’s
creditors.
Jim and Carolyn never lived on the farm.
Rather, they
used it for pleasure and, at various times, growing crops or
raising cattle.
The trial court found the fair market value of
the farm is $525,000.00.
39
The trial court found that the farm
The entirety of the trial court’s findings on this issue is as
follows: “Jim claims that his parents contributed the other half of
the down payment, $8,000.00 by a gift to him alone. The Court finds
that both sets of parents intended to make a gift to both parties
and that each party received approximately half of the down payment
from their parents and parents-in-law.”
-23-
was marital in nature and awarded it to Carolyn, with
instructions that the equity on the farm be apportioned
60 percent to Carolyn and 40 percent to Jim.
The trial court’s
division of the farm satisfied neither Carolyn nor Jim.
Jim
contends that he should have been awarded half of the equity in
the farm.
Carolyn, by contrast, asserts in her cross-appeal
that she should have been awarded at least 70 percent of the
equity in the farm.
The first issue to be resolved is Carolyn’s contention
that Walter gave $3,996.00 each to the parties rather than the
$3,396.00 found by the trial court.
Walter’s December 1974
quarterly gift tax return, heavily relied upon by Carolyn, is of
little value as it is unsigned.
However, Jim does not contest
Carolyn’s contention regarding the amount of this gift by
Walter; and the $3,996.00 figure is supported by the trial
testimony of Maria Fernandez, an attorney focusing in tax and
estate planning.
Furthermore, on page ten of the decree, the
trial court listed the amount of Walter’s gifts as $3,996.00
each to Carolyn and Jim.
Thus, on remand, the trial court shall
correct what appears to be a typographical error on page thirtyeight of the decree regarding the amount of Walter’s gifts
toward the down payment on the farm.
The next issue to be resolved regarding the farm is
whether the trial court properly found that Donald contributed
-24-
$8,000.00 toward the down payment for the farm.
The trial court
cites to no specific testimony to support its finding that
Donald gave Jim $8,000.00 toward purchase of the farm.
On
appeal, Jim relies upon two exhibits to support his contention.
The first, labeled Plaintiff’s Exhibit 19, which purports to be
Walter’s handwritten notes, does not, contrary to Jim’s
assertions, contain any mention of an $8,000.00 gift by Donald.
However, Plaintiff’s Exhibit 6, a typed closing statement for
the farm purchase, clearly shows that Donald and his wife gave
$8,000.00 to help fund the farm purchase.
Thus, the trial
court’s finding regarding Donald’s donation of $8,000.00 for the
purchase of the farm is supported by substantial evidence.
Exhibit 6 does not, however, indicate that the $8,000.00 was a
gift to Jim alone.
Jim cites to nothing else to show that
Donald gave the $8,000.00 to him alone.
Thus, he has failed to
meet his burden to show that the $8,000.00 gift from Donald
should be his nonmarital property.40
We now turn to the main farm-related issue:
whether
the trial court erred by awarding 60 percent of the farm’s
equity to Carolyn and 40 percent to Jim.
Jim contends that the
farm should be divided equally, as each party’s parents provided
half of the down payment.
Although it has some degree of
superficial appeal, Jim’s contention that the farm must be
40
Terwilliger, 64 S.W.3d at 820.
-25-
divided equally must fail.
There simply is no requirement that
marital assets be divided equally.41
In light of the fact that
Carolyn apparently spent more time at the farm and had a more
active role in making the improvements to it (which will be
discussed more fully shortly), we cannot say that the trial
court’s decision to award Jim less than half of the equity in
the farm was so extreme as to be an abuse of discretion.42
We now turn our attention to Carolyn’s opposite
contention that she should have been awarded more than
60 percent of the farm’s equity.
According to Carolyn, she has
expended over $200,000.00 in nonmarital funds (from the UBS
account and its predecessors) in planting trees and otherwise
improving the farm, meaning that she should have been awarded a
larger percentage of it.
But Carolyn points to nothing concrete
in the record contradicting the trial court’s following
findings:
Although it is clear that Carolyn’s funds
have contributed to significant improvements
41
See, e.g., Russell v. Russell, 878 S.W.2d 24, 25 (Ky.App. 1994)
(“There is not a presumption or requirement that marital property be
equally divided in a dissolution of marriage action.”).
42
Cochran v. Cochran, 746 S.W.2d 568, 569-570 (Ky.App. 1988) (“This
court cannot disturb the findings of a trial court in a case
involving dissolution of marriage unless those findings are clearly
erroneous. We have reviewed the record and the trial court’s
findings that deal with the property division and we find no clear
error. The property may very well have been divided or valued
differently; however, how it actually was divided and valued was
within the sound discretion of the trial court.”) (internal citation
omitted).
-26-
and some reduction of the mortgage in recent
years, Lange’s [Carolyn’s accounting expert,
Vickie Lange] conclusion that Carolyn should
be credited for 82% of the mortgage payments
and almost all the improvements [to the
farm] appears significantly flawed as she
had no records, basically, prior to 1988;
never consulted with Jim and relied solely
on representations made to her by Carolyn.
Accordingly, although Carolyn has
contributed non-marital funds (or funds from
a largely non-marital account to farm
improvements), it is impossible to pinpoint
with precision the relationship between her
non-marital contributions and the increase
in value of this farm.
The trial court did compensate Carolyn for her physical and
financial efforts toward improving the farm by virtue of
awarding her 60 percent of the equity.
As that division does
not appear clearly erroneous, we are not at liberty to disturb
it.43
7.
Loans from Jim’s Father.
Jim argues that the trial court erred by finding that
alleged loans from Donald are solely Jim’s responsibility to
repay.
Jim’s arguments must fail.
It is vital to understand that unlike marital
property, there is no presumption that a debt incurred during a
marriage is marital or nonmarital in nature.44
Rather, debts are
generally “assigned on the basis of such factors as receipt of
43
Cochran, 746 S.W.2d at 569-570.
44
Neidlinger, 52 S.W.3d at 522.
-27-
benefits and extent of participation[.]”45
Finally, there is no
presumption that debts must be divided equally or in the same
proportion as the marital property.46
In the case at hand, Jim contends that Donald loaned
him and Carolyn over $500,000.00 during the marriage, mainly to
keep afloat an ultimately doomed business venture, Silver Foods.
But Jim points to nothing specific in the record to show that he
(or Carolyn) was ever obligated to repay any amounts given by
Donald.
In fact, Jim testified at a deposition that he had
signed no notes signifying his obligation to repay Donald.
Furthermore, Jim points to nothing to show definitively that
Carolyn was aware of the extent and nature of these alleged
loans.
In short, we do not believe that the trial court abused
its discretion in finding that only Jim was obligated to repay
the alleged loans.47
45
Id. at 523.
46
Id.
47
Neidlinger, 52 S.W.3d at 523 (“As with issues pertaining to the
assignment of marital property, issues pertaining to the assignment
of debts incurred during the marriage are reviewed under an abuse of
discretion standard.”).
-28-
8.
The Capital Loss Tax Carry-Forward.
Jim and Carolyn have a capital loss carry-forward48 of
approximately $413,000.00 stemming from Silver Foods’s demise.
The trial court ordered that the carry-forward be equally
divided between Jim and Carolyn.
On appeal, Jim contends that
he should have been awarded the entire carry-forward because all
of the debt associated with Silver Foods (i.e., the alleged
loans from Donald) was deemed to be Jim’s sole responsibility.
John Price, however, gave expert testimony that since
the parties filed a joint tax return, “we have a joint capital
loss carry-forward, and so each person would be entitled to half
of the [$]416,000 [sic].”
Furthermore, Jim points to nothing to
contradict the trial court’s finding that Carolyn “provided
substantial funds from her non-marital account to Silver Foods.”
Thus, as she provided at least some measure of support to Silver
Foods from her non-marital funds, Carolyn should be entitled to
reap the benefits of a portion of the carry-forward.
As the
trial court’s decision to split the carry-forward equally is
supported by Price’s testimony, we cannot find that equally
dividing the carry-forward is an abuse of discretion.
48
John Price, a certified public accountant, testified that a capital
loss carry-forward “can offset capital gains in the current
year. . . . If they had no capital gains transactions, they—they’re
able to use [$]3,000 per year of capital loss carry-forward to
offset their other income, like salary or interest or dividends.
And it has an indefinite carry-forward until it’s used up.”
-29-
9.
The Kirkland Drive Residence.
Carolyn contends that the trial court erred by not
finding that she had a nonmarital interest in the parties’
Kirkland Drive residence.
Shortly before they sold the Forest
Drive residence, the parties paid $138,900.00 for the Kirkland
Drive residence, for which they made a $38,000.00 down payment.
According to Carolyn, Walter gave her $30,000.00 on the day
before she and Jim made the down payment, which she contends she
used to fund the majority of the down payment.
At the risk of repetition, Carolyn, as the party
seeking to classify an item obtained during the marriage as her
nonmarital property, bears the burden of proof.
In response to
that burden, Carolyn has simply shown a temporal proximity
between Walter’s gift and the down payment being made.
Such a
close proximity could have led to a conclusion that Walter’s
gift was used for the down payment if Carolyn had pointed to
something specific in the record, such as her deposition
testimony, to bolster that temporal coincidence.
But since she
did not point to anything more concretely linking the gift to
the down payment, she has not met her burden.49
Thus, we must
affirm the trial court.
49
In fact, Carolyn’s brief only states that “[t]he timing of Walter’s
gift indicates, almost without question, that it comprised
$30,000.00 of the down payment.” (emphasis added).
-30-
10.
The Silver Foods Delinquent Tax Bill.
Before Silver Foods’ demise, Jim voluntarily ceased
paying withholding taxes.
Carolyn expended approximately
$14,000.00 of her nonmarital funds to reimburse the IRS so that
Jim would not find himself in greater legal trouble.
The trial
court found that Carolyn used her nonmarital funds for the
marital purpose of protecting Jim from legal action and,
consequently, refused to order Jim to reimburse her.
On appeal,
Carolyn contends that she is entitled to reimbursement.
Essentially, Carolyn gave Jim $14,000.00 to help him
avoid further IRS entanglements.
In determining whether a gift
between spouses should be considered marital or nonmarital
property upon dissolution, a court must consider:
the source of the money with which the
"gift" was purchased, the intent of the
donor at that time as to intended use of the
property, status of the marriage
relationship at the time of the transfer,
and whether there was any valid agreement
that the transferred property was to be
excluded from the marital property.50
Although the money given by Carolyn was unquestionably
nonmarital, there is no indication that the parties had
separated at the time of the gift, nor is there any indication
that the parties had agreed that the gift was to be excluded
50
O’Neill v. O’Neill, 600 S.W.2d 493, 495 (Ky.App. 1980).
-31-
from the marital property (i.e., we have been directed to
nothing showing that Carolyn asked Jim to repay the $14,000.00).
In short, we believe that the trial court correctly found that
the $14,000.00 was a generous, marital gift from Carolyn to Jim.
11.
Jim’s Retirement Fund.
The trial court found that Jim’s retirement accounts,
valued at slightly over $44,000.00, were marital property.
But
the trial court, after “[c]onsidering the overall division of
marital property,” awarded all those accounts to Jim.
On
appeal, Carolyn argues that the trial court erred by not
awarding her part of Jim’s retirement funds.
As noted previously, the trial court has wide
discretion in dividing the marital property in just
proportions.51
Considering the fact that Carolyn was awarded a
larger portion of the marital assets, as best shown by the fact
that she received the lion’s share of the farm, and,
furthermore, in light of the fact that Carolyn has a greater
pool of nonmarital property from which to draw,52 as best
evidenced by the large sums awarded her from the UBS account, we
simply cannot say that the trial court abused its discretion in
awarding Jim the entirety of his modest retirement account.
51
Cochran, 746 S.W.2d at 569-570.
52
Russell, 878 S.W.2d at 25 (holding that the value of each spouse’s
nonmarital property is a proper factor for a trial court to consider
when dividing marital property).
-32-
C.
Maintenance.
The trial court denied Jim’s request for maintenance
because Jim had the education and ability to find work as an
attorney and, furthermore, because Jim received a sizeable
marital estate, and because he stands to receive a substantial
inheritance upon Donald’s death.
On appeal, Jim renews his
request for maintenance.
Maintenance is governed by KRS 403.200, which provides
that maintenance may be awarded only if the court finds that the
party seeking maintenance:
“(a) Lacks sufficient property,
including marital property apportioned to him, to provide for
his reasonable needs; and (b) Is unable to support himself
through appropriate employment . . . .”
The decision of whether
to award maintenance is within the trial court’s discretion and
we may disturb that ruling only if the trial court abused its
discretion or made its ruling based on clearly erroneous
findings of fact.53
Jim’s main contention regarding maintenance is that he
should be awarded maintenance in order for him to live in a
lifestyle similar to that he enjoyed during his marriage.
However, Jim and Carolyn’s marital lifestyle was dependent on
Carolyn’s nonmarital inheritance and gifts, including loans
53
Powell v. Powell, 107 S.W.3d 222, 224 (Ky. 2003).
-33-
which were forgiven.
Jim has been unemployed for several years
and still has taken multiple trips to British Columbia for
songwriting classes, as well as other trips to attend selfimprovement seminars.
So Jim would appear to continue the
comfortable lifestyle he had during his marriage.
Furthermore,
Jim’s portion of the marital estate (especially his share of the
equity in the farm), combined with his nonmarital property
(including a sizeable life insurance policy on Donald’s life),
should enable him to continue his comfortable existence.
And
Jim’s advanced education background should equip him to find
suitable employment for a decent wage.
So although Jim may not
enjoy the same lifestyle he enjoyed during his marriage to
Carolyn, he should be able to achieve a reasonable approximation
of it.54
Therefore, we find that the trial court did not abuse
its discretion in denying Jim’s request for maintenance.55
54
Id. at 226-227 (Keller, J., dissenting) (“And, as ‘few couples can
maintain separately the standard of living that they enjoyed as a
single household,’ even a duchess may discover that it is simply
impossible for her to enjoy a post-dissolution lifestyle similar to
the one she enjoyed while married to the duke.”) (quoting LOUISE E.
GRAHAM AND JAMES E. KELLER, 16 KENTUCKY PRACTICE: DOMESTIC RELATIONS LAW,
§ 16.7 at 10 (2d. ed. West 1997)) (footnote omitted).
55
We are aware that the question of maintenance is dependent upon a
prior, proper division of property, both marital and nonmarital.
See, e.g., GRAHAM AND KELLER, § 16.3 at 8 (“Because the maintenance
statute depends on a prior allocation of marital property, no
maintenance award made prior to an equitable division can be
upheld.”). We are also cognizant of the fact that some propertyrelated issues are being remanded to the trial court for further
action. But we do not perceive that the relatively minor
redistribution of property that should occur on remand will cause
the parties’ relative positions to change so drastically as to
-34-
D.
Attorney’s Fees.
The trial court ordered Carolyn to pay approximately
$30,000.00 of Jim’s attorney’s fees.
On appeal, Jim contends
that Carolyn should have been ordered to pay more of his
attorney’s fees and, unsurprisingly, Carolyn contends that she
should not have been required to pay any of Jim’s attorney’s
fees.
In fact, Carolyn contends that Jim should have been
ordered to pay half of her attorney’s fees.
An award of attorney’s fees is governed by
KRS 403.220, which “authorizes a trial court to order one party
to a divorce action to pay a ‘reasonable amount’ for the
attorney’s 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.”56
The decision of whether to make an award
of attorney’s fees and, if so, the amount of any such award is
within the discretion of the trial court and is never
mandatory.57
Carolyn contends that she should be awarded attorney’s
fees because Jim’s recalcitrance caused her to have to expend
more attorney’s fees than necessary.
Even a cursory review of
require an award of maintenance to Jim. Should Jim or Carolyn
believe on remand that maintenance is proper, they are, of course,
permitted to seek maintenance from the trial court.
56
Neidlinger, 52 S.W.3d at 519.
57
Id.
-35-
the record of these appeals, however, reveals that each party
bears responsibility for complicating the issues in this case.
Additionally, Carolyn clearly has greater financial resources
than Jim, which definitively prevents her from receiving
attorney’s fees.58
Thus, the trial court correctly denied her
claim for attorney’s fees.
As for Jim’s contention that he should have been
awarded more than $30,000.00 in attorney’s fees, it is clear
that the trial court considered the parties’ conduct during the
dissolution proceedings and the financial imbalance between them
in arriving at the $30,000.00 figure.59
Accordingly, we cannot
say that the trial court’s decision falls outside the “wide
latitude” given it in such matters.60
Thus, we will not disturb
the trial court’s decision regarding attorney’s fees.
IV.
CONCLUSION.
Carolyn’s motion to strike is denied.
For the reasons
stated previously, the trial court’s decision is reversed and
remanded for further proceedings as to Jim’s interest in the
58
Id.
59
The decree states that “[t]he Court has considered the parties’
present resources as well as the fact that this unusual case has
required significant expertise on behalf of the legal teams from
both sides.” Similarly, the amended decree states that “[t]he Court
acknowledges each party’s conviction that the other is responsible
for escalating the cost of this litigation.”
60
Id. at 520.
-36-
Massachusetts Mutual second-to-die policy and his interest in
the Crummey trust.
The forgiveness of the $57,000.00 loan is
also remanded to the trial court for distribution in just
proportions as a marital asset.
Finally, the amount of the
loans from Walter to Carolyn and Jim to help with the down
payment on the farm shall be amended on remand to $3,996.00
each, not $3,396.00.
The trial court’s decision is otherwise
affirmed as to all other issues.
ALL CONCUR.
BRIEFS FOR APPELLANTS/CROSSAPPELLEES:
BRIEFS FOR APPELLEE/CROSSAPPELLANT:
David L. Vish
Louisville, Kentucky
Eugene L. Mosley
M. Thomas Underwood
Louisville, Kentucky
-37-
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