Farrell v. Farrell

• Decision Date: 09 March 2006
• Docket Number: No. 05-433.,05-433.
• Citation: 231 S.W.3d 619
• Parties: Thomas John FARRELL, Appellant/Cross-Appellee, v. Olivia FARRELL, Appellee/Cross-Appellant.
• Court: Arkansas Supreme Court

231 S.W.3d 619

Thomas John FARRELL, Appellant/Cross-Appellee, v. Olivia FARRELL, Appellee/Cross-Appellant.

No. 05-433.

Supreme Court of Arkansas.

March 9, 2006.

Mitchell, Blackstock, Barnes, Wagoner, Ivers & Sneddon, PLLC, by: Jack Wagoner, III, Little Rock, for appellant.

Rose Law Firm, a Professional Association, by: Richard T. Donovan, Little Rock, for appellee.

DONALD L. CORBIN, Justice.

Appellant Thomas John Farrell appeals from the divorce decree and judgment entered by the Pulaski County Circuit Court as it relates to the distribution of property. On appeal, he raises three arguments for reversal: the trial court erred in (1) classifying the shares of ARC Project, Inc. (ARC) stock as non-marital; (2) dividing the marital property unequally; and (3) valuing the ARC stock. Appellee Olivia Farrell cross-appeals, asserting that the trial court erred when it held the increase in value of the ARC stock was marital property, and further when it held the entire increase in the value of the ARC stock was marital property. As this appeal concerns issues of statutory interpretation and requires clarification of the law, our jurisdiction is proper pursuant to Ark. Sup.Ct. R. 1-2(a)(1) and (b)(5). We find no error and affirm.

The Farrells married on July 30, 1983. Prior to the marriage, Ms. Farrell obtained stock in the Arkansas Writer's Project, Inc.¹ In 1978, she obtained her first 200 shares of Class A stock. In 1982, for $25,000.00, she purchased all of Keith Weinstein's, the former advertising manager, shares which equaled one-half of the voting stock and one-third of the outstanding company stock. Ms. Farrell had borrowed the $25,000.00 from her grandparents to purchase the stock. The loan was paid back over a period of years, primarily after the Farrells were married. In addition, part of the loan was repaid with marital funds.

At the time of the divorce proceedings, Ms. Farrell owned 5,775 shares of ARC stock. The primary issue in the divorce was whether this stock was a marital or non-marital asset, and how to divide the stock once that determination was made. The trial court determined that the ARC stock was purchased prior to the marriage, and as such was non-marital property. However, the trial court found that the increase in value of the ARC stock was a marital asset because Ms. Farrell spent a substantial amount of time during the marriage working to increase the value of the company, and consequently the value of the stock. The court noted that Ms. Farrell was not alone in her efforts to increase the value, but determined that her efforts attributed greatly to the increase.

Furthermore, the trial court concluded that the fair-market value of the ARC stock when the Farrells married was zero, but that, at the time of the trial, the stock was valued at $144.18 per share, or $832,639.50. The court then determined that an unequal distribution was equitable based upon the factors set forth in Ark. Code Ann. § 9-12-315 (Repl.2002), as well as the fact that the initial $25,000.00 for the purchase of the ARC stock was repaid with marital funds. As such, the trial court awarded $174,854.29, or twenty-one percent, to Mr. Farrell and the remainder to Ms. Farrell.² This appeal followed.

On appeal, divorce cases are reviewed de novo. Skokos v. Skokos, 344 Ark. 420, 40 S.W.3d 768 (2001); Box v. Box, 312 Ark. 550, 851 S.W.2d 437 (1993). With respect to the division of property, we review the trial court's findings of fact and affirm them unless they are clearly erroneous, or against the preponderance of the evidence; the division of property itself is also reviewed and the same standard applies. Id.; Bagwell v. Bagwell, 282 Ark. 403, 668 S.W.2d 949 (1984). A finding is clearly erroneous when the reviewing court, on the entire evidence, is left with the definite and firm conviction that a mistake has been committed. Skokos, 344 Ark. 420, 40 S.W.3d 768; Huffman v. Fisher, 343 Ark. 737, 38 S.W.3d 327 (2001). In order to demonstrate that the trial court's ruling was erroneous, the appellant must show that the trial court abused its discretion by making a decision that was arbitrary or groundless. Skokos, 344 Ark. 420, 40 S.W.3d 768; Webber v. Webber, 331 Ark. 395, 962 S.W.2d 345 (1998). We give due deference to the chancellor's superior position to determine the credibility of witnesses and the weight to be given their testimony. Myrick v. Myrick, 339 Ark. 1, 2 S.W.3d 60 (1999).

As this case also deals with the interpretation of section 9-12-315, we will apply our standard of review for cases involving issues of statutory interpretation. We review issues of statutory construction de novo, as it is for this court to decide what a statute means. Rose v. Arkansas State Plant Board, 363 Ark. 281, 213 S.W.3d 607 (2005); Cave City Nursing Home, Inc. v. Arkansas Dep't of Human Servs., 351 Ark. 13, 89 S.W.3d 884 (2002). This court is not bound by the trial court's decision; however, in the absence of a showing that the trial court erred, its interpretation will be accepted as correct on appeal. Rose, 363 Ark. 281, 213 S.W.3d 607. When reviewing issues of statutory interpretation, we keep in mind that the first rule in considering the meaning and effect of a statute is to construe it just as it reads, giving the words their ordinary and usually accepted meaning in common language. Id.; Cave City, 351 Ark. 13, 89 S.W.3d 884. When the language of a statute is plain and unambiguous, there is no need to resort to rules of statutory construction. Id. A statute is ambiguous only where it is open to two or more constructions, or where it is of such obscure or doubtful meaning that reasonable minds might disagree or be uncertain as to its meaning. Id. When a statute is clear, however, it is given its plain meaning, and this court will not search for legislative intent; rather, that intent must be gathered from the plain meaning of the language used. Id. This court is very hesitant to interpret a legislative act in a manner contrary to its express language, unless it is clear that a drafting error or omission has circumvented legislative intent. Id. With this in mind, we now turn to the present case.

DIRECT APPEAL

I. ARC Stock — Marital or Non-Marital Asset

For his first point of appeal, Mr. Farrell claims that the trial court erred in finding that the ARC stock was a non-marital asset. Specifically, he argues that the shares of stock are marital property under the "source of funds" rule adopted by this court in Jackson v. Jackson, 298 Ark. 60, 765 S.W.2d 561 (1989). While he maintains that the stock is marital property under the "source of funds" rule adopted in Jackson, much of his argument is based upon the treatise Equitable Distribution of Property and its commentary on Arkansas law. See Brett R. Turner, Equitable Distribution of Property (2d ed. 1994 & Supp.2003). Mr. Farrell asserts that while Arkansas law claims to follow the "source of funds" rule, our case law cannot be squared with this rule. Furthermore, he argues that the marital status of an asset under section 9-12-315(b) turns upon when an asset is acquired, and pursuant to the "source of funds" rule, property is acquired when real value has been created. Thus, he concludes that, under the "source of funds" rule, the property was marital because it was repaid with marital funds.³

Section 9-12-315(b)(1) provides that "marital property" is all property acquired by either spouse subsequent to the marriage except:

Property acquired prior to marriage or by gift or by reason of the death of another, including, but not limited to, life insurance proceeds, payments made under a deferred compensation plan, or an individual retirement account, and property acquired by right of survivorship, by a trust distribution, by bequest or inheritance, or by a payable on death or a transfer on death arrangement[.]

Based upon section 9-12-315(b)(1), it is clear that property acquired prior to marriage is non-marital property. We have explained that the property's status "does not depend upon when the property is received, but rather depends upon when the right of the property is acquired." McDermott v. McDermott, 336 Ark. 557, 560, 986 S.W.2d 843, 844 (1999). See also Bunt v. Bunt, 294 Ark. 507, 744 S.W.2d 718 (1988). Thus, to the extent that either spouse acquires an enforceable right during the marriage, they acquire marital property. Id.

In this case, the trial court found that the ARC stock was not a marital asset. Mr. Farrell correctly points out that the marital status of an asset under section 9-12-315(b) turns upon when an asset is acquired. He claims that, pursuant to the "source of funds" rule, property is acquired when and to the extent that its real value has been created. Therefore, he argues, property becomes marital property if its real value was a product of the marital partnership. Mr. Farrell maintains that this rule requires the finding that the ARC stock was marital, even though it was acquired prior to marriage, because it did not obtain its real value until after the loan used to acquire the stock had been paid off with marital funds. Specifically, he claims that under the "source of funds" rule, the property is marital because the funds used to pay off the loan were marital. This argument is flawed.

Ms. Farrell acquired all of the ARC stock before marrying Mr. Farrell in 1983. She obtained the first 200 shares of Class A stock in 1978. In 1982, using a $25,000.00 loan from her grandparents, Ms. Farrell purchased all of the Weinstein shares. Thus, by June of 1982, Ms. Farrell had acquired a right in all shares of ARC stock presently at issue. Because Mr. and Ms. Farrell did not marry until July of 1983, it is clear that Ms. Farrell acquired an enforceable right in the stock prior to the marriage. Accordingly, under section 9-12-315(b) and the "source of funds" rule, the ARC stock is non-marital property.

Furthermore, the ARC stock did not change...