Brennan v. Brennan, 081018 AKSC, S-15576

Docket Nº:S-15576
Opinion Judge:STOWERS, Chief Justice.
Party Name:KELLY BRENNAN, Appellant, v. RACHAEL BRENNAN, Appellee.
Attorney:Dan O'Phelan, Law Office of Dan O'Phelan LLC, Homer, for Appellant. Rachael Brennan, pro se, Homer, Appellee.
Judge Panel:Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and Carney, Justices.
Case Date:August 10, 2018
Court:Supreme Court of Alaska
SUMMARY

At the time of separation, Kelly and Rachael Brennan controlled substantial assets, including a successful fishing business, Individual Fishing Quotas (IFQs) that Kelly obtained prior to his marriage to Rachael, and a large home in Halibut Cove. The court ordered Kelly to pay $5,000 per month as interim spousal support. After trial, the superior court determined that the IFQs had become marital... (see full summary)

 
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KELLY BRENNAN, Appellant,

v.

RACHAEL BRENNAN, Appellee.

No. S-15576

Supreme Court of Alaska

August 10, 2018

Appeal from the Superior Court No. 3HO-12-00 166 CI of the State of Alaska, Third Judicial District, Homer, Charles T. Huguelet, Judge.

Dan O'Phelan, Law Office of Dan O'Phelan LLC, Homer, for Appellant.

Rachael Brennan, pro se, Homer, Appellee.

Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and Carney, Justices.

OPINION

STOWERS, Chief Justice.

I. INTRODUCTION

This appeal presents a variety of issues relating to the divorce of Kelly and Rachael Brennan. At the time of separation, the couple controlled substantial assets, including a successful fishing business, Individual Fishing Quotas (IFQs) that Kelly obtained prior to his marriage to Rachael, and a large home in Halibut Cove. The court ordered Kelly to pay $5, 000 per month as interim spousal support. After trial, the superior court determined that the IFQs had become marital property through transmutation, and it divided most of the marital estate 50/50. The property division included the proceeds from two post-separation sales of IFQs; the court also awarded Rachael half the gross proceeds from the post-trial sale of the couple's fishing vessel, the F/V Alaska.

Kelly appeals. He argues that the IFQs were his separate property not subject to division; he also challenges several other aspects of the court's property division, arguing that the court abused its discretion in failing to account for various tax liabilities, payments, alleged damage to marital property, and other factors that he contends unfairly favored Rachael. We conclude that the superior court applied the wrong legal standard to its transmutation analysis regarding the IFQs. We therefore reverse the determination that the IFQs were marital property, and reverse the award to Rachael ofproceeds from post-separation IFQ sales. We remand for the superior court to reconsider these issues as well as the overall equitable property distribution, and to explain its reasoning for awarding Rachael gross rather than net proceeds from the sale of the F/V Alaska. We find no error or abuse of discretion regarding the other points raised on appeal.

II. FACTS AND PROCEEDINGS

A. Facts

Kelly Brennan is a lifelong fisherman. He formed the fishing business Eclipse, Inc. with his first wife, Mary, in 1981. Through his work as a fisherman, he acquired IFQs from the federal government, giving him the right to harvest specified amounts of halibut and sablefish.1

Kelly and Rachael Brennan met in the summer of 1991 when Rachael was in her early 20s and Kelly was in his early 30s. Rachael was working for a fish buyer at the time, but she left her job to be with Kelly and began helping him with his fishing business. The couple married in July 1994. During their marriage, Kelly's settlement agreement with his ex-wife required Kelly to make payments to her, which both he and Rachael labeled "IFQ payments." Kelly's ex-wife apparently also had a lien on the IFQs. Kelly was responsible for all of the administrative tasks related to registering and using IFQs during his marriage to Rachael.

The fishing business was very successful and consistently produced high spendable income. With the help of proceeds from the sale of some IFQs, the couple built the largest home in Halibut Cove at 6, 500 square feet with an apartment, barn, dock, and outbuildings on 19.5 acres.

The parties dispute the extent of their respective contributions to the fishing business. Kelly fished and maintained the F/V Alaska, and delegated all bookkeeping to Rachael. Rachael testified to running errands for the business, outfitting and cleaning the boat, helping obtain parts for the boat, paying bills, maintaining financial records, tracking licenses, and performing other tasks.

The couple separated in April 2011 and split a substantial amount of what were apparently marital funds at the time.2 Kelly continued to receive the income produced by the fishing business. He bought land and built a house in Seldovia that he titled in his new girlfriend's name, and in October 2011 he sold a number of IFQs to one of his deckhands for $110, 022.

Rachael, who has a high school diploma, lived off what money Kelly chose to give her. She claimed this consisted of an initial $84, 000 after separation-of which she later returned $24, 000 - plus an additional $15, 000 in the summer of2012. Kelly did not initially contest those figures-although he later claimed the initial payment was $86, 000 - but he asserted that Rachael received additional amounts, for a net total of over $ 150, 000 in the first few months after separating, in addition to the $ 15, 000 he gave her in 2012. The bulk of the difference appears to be a $74, 000 transfer which Kelly claimed went to Rachael, but which Rachael asserted went to their joint "tax account" and not to her individually. Rachael also used her credit card and loans from friends to support herself.

B. Proceedings

Kelly filed a complaint for divorce in May 2012. Rachel filed a motion for interim support, interim possession of the marital home, and attorney's fees in August 2012. In his opposition, Kelly requested financial records and an accounting of what Rachael had done with the money he had already given her. After a hearing in November 2012, the superior court awarded Rachael exclusive possession of the Halibut Cove home, ordered the parties to prepare to sell the home, and ordered Kelly to pay Rachael $5, 000 per month in interim spousal support effective November 1. The court found that this amount would allow Rachael to keep the property in a condition that could be shown to potential buyers. The court also ordered Kelly to pay Rachael $ 10, 000 in attorney's fees. Kelly did not pay the attorney's fees, and did not consistently pay the court-ordered spousal support.

In May 2013 the court ordered Kelly to sell a batch of IFQs worth about $83, 905 so he could pay spousal support arrears and Rachael's attorney's fees. The IFQs were technically held by Eclipse, Inc.; the court later explained that Kelly used corporate assets as if they were his personal assets, and it therefore treated them as such, effectively disregarding the corporation for purposes of the property division at divorce.3 The court ordered that $18, 000 be used to pay off a lien Kelly's ex-wife apparently had on the IFQs; that money for any taxes on the sale be put in an escrow account; that the broker's fee be paid; and that a sum of $50, 000 be put in Rachael's law firm's trust account for the payment of spousal support arrears, on-going spousal support for June and July 2013, and attorney's fees.

Kelly thereafter filed motions requesting that Rachael be required to disclose financial records relating to the marital estate in order to find out whether she was really spending $4, 000 a month on property maintenance as she claimed. Rachael opposed Kelly's motions, yet the court failed to rule on them.

After a two-day trial in July 2013 the court issued findings of fact and conclusions of law. First, the court found that Kelly's previously separate IFQs were transmuted during the marriage into marital property. The court reasoned that because Kelly gave Rachael an active role in the fishing business for "nearly 20 years," made payments using marital income from the fishing business for his ex-wife's interest in the IFQs and also sold some of his IFQs to purchase marital property, Kelly demonstrated both the conduct and intent necessary to transmute presumptively separate property obtained before marriage into marital property subject to division. At the time of trial, these remaining IFQs were worth $682, 868.

Second, the court determined that a 50/50 division of the marital assets was equitable despite Rachael's lack of skills and Kelly's status as a successful fisherman.[4]The court considered Kelly's contribution of his successful pre-marital business to the marriage, his age, and medical issues that would eventually limit his ability to fish commercially. Consequently, the court awarded the fishing business, including the IFQs, to Kelly, but ordered that Rachael be paid her 50% share of the business value from the sale of the Halibut Cove home and property. At the time the court issued its decision, the house had not sold but was listed at approximately $2.8 million dollars.

Third, the court stated that "[t]he parties' personal property was valued and/or allocated on the record at trial. The remainder of the couple's personal property [was] to be sold at auction and the proceeds divided . . . 50/50." The court denied Kelly's subsequent motion for clarification on this issue.

Fourth, the court ruled that Kelly was "entitled to an...

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