Hamilton v. Hamilton

• Decision Date: 30 June 2016
• Docket Number: No. SCWC–13–0001498.,SCWC–13–0001498.
• Citation: 378 P.3d 901,138 Hawai'i 185
• Parties: Dorinda HAMILTON, Petitioner and Respondent/Plaintiff–Appellant/Cross–Appellee, v. David HAMILTON, Petitioner and Respondent/Defendant–Appellee/Cross–Appellant.
• Court: Hawaii Supreme Court

138 Hawai'i 185

378 P.3d 901

Dorinda HAMILTON, Petitioner and Respondent/Plaintiff–Appellant/Cross–Appellee,

v.David HAMILTON, Petitioner and Respondent/Defendant–Appellee/Cross–Appellant.

No. SCWC–13–0001498.

Supreme Court of Hawai‘i.

June 30, 2016.

Peter Van Name Esser, Honolulu, and Michael S. Zola, Kailua-Kona, for petitioner/cross-appellee.

Rebecca A. Copeland, for petitioner/cross-appellant.

RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, and WILSON, JJ.

Opinion of the Court by McKENNA, J.

I. Introduction

This case arises from an appeal and cross-appeal from monetary decisions in a Divorce Decree. David Hamilton ("Husband") and Dorinda Hamilton ("Wife") seek review of the Intermediate Court of Appeals' ("ICA") September 25, 2014 Judgment on Appeal, filed pursuant to its August 29, 2014 Memorandum Opinion. The ICA affirmed in part and vacated in part the June 7, 2013 Divorce Decree of the Family Court of the Third Circuit ("family court").¹

The parties dispute the impact of a multi-million dollar inheritance received by Husband on the family court's determinations of property division, alimony, and attorney's fees and costs. With respect to property division, the family court found that a premarital economic partnership existed and implied that proceeds from an illegal marijuana operation may have constituted a portion of the marital real estate. In ultimately dividing and distributing the property, the family court awarded all inheritance funds remaining at trial to Husband as his marital separate property. It credited Husband for all sums withdrawn from his inheritance funds as a capital contribution to the marital estate. It then deducted these sums from the marital estate, thereby creating marital debt. That marital debt was then equally split between the parties, resulting in Wife owing Husband a substantial equalization payment. The family court then found that equitable considerations justified a deviation from marital partnership principles and credited Wife with an amount equal to her equalization payment. The family court awarded Wife spousal support during the pendency of the divorce proceedings and until December 2016, and the court also awarded her attorney's fees and costs.

On appeal, the ICA ruled that the family court's premarital economic partnership finding was erroneous because it was based in part on an illegal business enterprise. The ICA vacated and remanded the portions of the Divorce Decree pertaining to property division and spousal support to the family court for recalculation after segregating proceeds from the illegal marijuana operation.

We hold that, under the circumstances of this case, the ICA erred in vacating the property division and alimony awards to require a recalculation of these awards based on a segregation of proceeds from the illegal marijuana operation. We also hold that the family court erred, either by characterizing the entire $1,511,477 expended from Husband's inheritance account as Marital Partnership Property or by characterizing the $2,051,293 remaining in his inheritance account as Marital Separate Property, because the $1,511,447 expended included payment of inheritance taxes on Husband's entire inheritance, and if inheritance taxes are paid out of Marital Partnership Property, the remaining inheritance cannot be classified as Marital Separate Property. We further hold that the family court erred in summarily ruling before trial that all funds expended by Husband from his Marital Separate Property inheritance account constituted Category 3 Marital Partnership Property for which he was entitled to be repaid, without requiring Husband to fulfill his burden of establishing that such expenditures were in the nature of a contribution to or an investment in Marital Partnership Property, and then compounded the error by failing to allow and consider evidence of donative intent. We also hold that the family court erred in ordering an equal distribution of alleged partnership capital losses before deciding whether equitable considerations justified deviation from an equal distribution. Finally, we hold that the family court improperly applied marital partnership principles to fashion a property division award that was not just and equitable. We find no error in the award of attorney's fees and costs.

We therefore affirm in part the ICA's Judgment on Appeal to the extent that it vacated the property division and alimony awards and remanded the case to the family court, but vacate the portion of the ICA's Judgment on Appeal directing the family court on remand to segregate the proceeds of the alleged marijuana operation from the property division. We remand the case to the family court for further proceedings consistent with this opinion.

II. Background

Husband and Wife were married on June 21, 1985 ("date of marriage") and separated in June 2010. The couple has two adult children.

The parties met in early 1976 in New Zealand and began living together there soon after that. At the time, Wife had just finished her final semester at the University of Hawai‘i at Hilo, while Husband worked on repairing a home and a forest restoration project. Approximately four or five months later, the parties moved to Massachusetts, where they lived and worked on Husband's family's farm and store for about three months.

After leaving Massachusetts, the parties moved to the island of Hawai‘i ("Big Island") in November 1976, where Husband began working on a county road crew. While on the Big Island, the parties apparently started an illegal marijuana operation. Wife testified that she was involved in the processing and transportation of the marijuana. Husband testified that the parties did not have a joint or mutual marijuana operation. He indicated it was a sideline with a few friends that continued until his son was born in 1987.

At trial, the parties disputed whether marijuana proceeds were used to purchase real property. Wife testified that marijuana proceeds were used to purchase multiple properties prior to the date of marriage, as well as one additional property after the date of marriage, while Husband denied that allegation. On one of the properties, purchased in 1978 and titled in Husband's name, the parties jointly constructed a two-story house.

In 1990, five years after the date of marriage, Husband obtained his real estate brokerage license. In 2003, he opened his own real estate firm. Husband testified that his income declined in 2006 due to a falling market and his father's passing. After Wife's 2010 divorce filing, Husband reported his gross monthly income as $1,000.

Wife performed part-time work or was a housewife not employed outside the home for much of the parties' relationship. From approximately 1996 to 2009, Wife worked part-time at her children's schools to obtain tuition assistance and health insurance. She also sold hand-painted clothing. As of the date of final separation in contemplation of divorce ("date of final separation"), she was collecting unemployment benefits. At the date of conclusion of the evidentiary portion of trial ("conclusion of trial"),² she earned approximately $1,500 per month as a nanny.

Between 2007 and 2011, Husband inherited amounts totaling $3,550,770 from his parents' estates. He deposited the monies into his separate Bank of Hawai‘i account ("inheritance account"). At the conclusion of trial, the inheritance account had $2,051,293 remaining.

Prior to marriage, the parties filed no joint tax returns.

A. Family Court Proceedings

1. Pre–Trial Proceedings

On June 23, 2010, Wife filed a Complaint for Divorce. She then filed a motion for temporary relief, seeking, in part, temporary spousal support. In granting this request, the family court made the following finding:

Husband has historically used his existing inheritance funds for payment of the marital expenses and Wife's support. Having reviewed Wife's Income and Expense statement filed, the [family court] finds that it would be just and equitable to order that in addition to the above support orders, Husband shall pay to Wife $2000 per month in temporary spousal support beginning October 1, 2010.

Wife later moved for an advance of attorney's fees, indicating a gross monthly income of $2,080. Wife contended that an advance for fees was necessary because Husband had filed multiple pretrial motions for partial summary judgment. The family court granted the request for attorney's fees without prejudice to additional subsequent requests from Wife for good cause shown, and ordered Husband to advance $25,000 to Wife's counsel.

One of Husband's pretrial motions for partial summary judgment, entitled "Husband's Motion for Partial Summary Judgment to Strike the Defense and/or Argument that Husband Wasted his Category 3 Assets by Spending Money on Items Not Related to the Marriage or the Children" ("Category 3 motion for partial summary judgment"), asserted that Wife could not provide admissible evidence to establish that he "wasted" Category 3 assets.³ In a declaration in support of the motion, Husband asserted:

In response to Plaintiff's Request for Answers to Interrogatories and for Production of Documents and Things, request number 9, I itemized all of the disbursements I made from my inheritance money with the exception of $88,597.80, which was disbursed for the marriage and children's expenses. This amount was not itemized in Defendant's response to Plaintiff's interrogatory number 9, either because it consisted of small dollar transactions too numerous to breakdown [sic], e.g.[sic] $70 to KTA, etc [sic], or the credit card amounts were too difficult to itemize the family or children expenses [sic] without additional extensive effort, i.e.[sic] recreating the complete accounting.

Although Husband's motion summarily asserted that all sums expended were for marital and children's expenses, his response to interrogatory number 9 included amounts such as $111,885.00 to the Commonwealth of Massachusetts Taxes...