Hedges v. Pitcher

• Decision Date: 20 March 2008
• Docket Number: Docket: Pen-06-600.
• Citation: Hedges v. Pitcher, 942 A.2d 1217, 2008 ME 55 (Me. 2008)
• Parties: Maureen HEDGES v. Timothy D. PITCHER.
• Court: Maine Supreme Court

942 A.2d 1217

2008 ME 55

Maureen HEDGES v.Timothy D. PITCHER.

Docket: Pen-06-600.

Supreme Judicial Court of Maine.

Argued: October 19, 2007.

Decided: March 20, 2008.

Barbara A. Cardone, Esq.(orally), Barbara A. Cardone, P.A., Bangor, ME, for Timothy Pitcher.

Dawn M. Pelletier, Esq.(orally), Pelletier & Faircloth, Bangor, ME, for Marueen Hedges.

Panel: SAUFLEY, C.J., and CLIFFORD, ALEXANDER, LEVY, MEAD, and GORMAN, JJ.

SAUFLEY, C.J.

[¶ 1] This appeal calls on us to determine whether the appreciation in value of investment property held by Timothy D. Pitcher should be considered marital property due to Pitcher's "substantial active role" in managing the investment.See19-A M.R.S. § 953(2)(E)(2007).Pitcher appeals from a divorce judgment entered in the District Court(Bangor, R. Murray, J.).Among other things, the court awarded Maureen Hedges one-half of the appreciation in value of the nonmarital inheritance that Pitcher had received during their marriage and placed in a trust.Although the historical facts found by the trial court regarding Pitcher's role in managing the property are fully supported by evidence in the record, we conclude that those facts fail to demonstrate that Pitcher took a substantial active role in managing the trust investments.Accordingly, we conclude that the increase in value was nonmarital, and we vacate' the court's award of one-half of the increase in value to Hedges.

I.BACKGROUND

[¶ 2]The court found the following facts, which are supported by the parties' stipulations and competent evidence in the record.Pitcher and Hedges were married in August 2000.Shortly thereafter, Pitcher inherited $261,799.49 in nonmarital assets from his father.The inheritance was placed in a Northwestern Mutual account.In 2004, the funds from this inheritance were used to fund another Northwestern Mutual account that now constitutes the corpus of a trust named the Pitcher Family Education Trust.Pitcher is the sole trustee of this revocable trust.¹As of January 31, 2006, the trust had a value of $348,325.83, representing a total appreciation in the inheritance of $86,526.34.

[¶ 3] The appreciation accrued in circumstances where income was reinvested in the trust during the marriage.Pitcher was involved to some extent in making decisions regarding the management of the trust's holdings.He met at least quarterly with his broker to discuss investment strategy and to make decisions.On occasion, Pitcher's broker would ask him to review the broker's recommendations and authorize all investment transactions.²Pitcher would also occasionally propose investments to his broker.Pitcher routinely tracked the status of his investments on his personal computer.During this time, Pitcher engaged in separate employment, operating his own marketing business.

[¶ 4] Hedges filed a complaint for divorce on March 30, 2005.Before reaching trial, the parties filed four sets of stipulations regarding their respective marital and nonmarital property.A two-day hearing was held in March and April 2006.The court placed the burden of proof on Pitcher to establish that the appreciation in the trust did not result from his substantial active management of the property.The court found that Pitcher had failed to meet this burden of proof and that the total appreciation of the inheritance was therefore marital property.The court allocated that property in equal shares of $43,263.16 to each party.

[¶ 5] After the court acted on Pitcher's and Hedges's post-judgment motions in an order entered on August 18, 2006, Pitcher filed his notice of appeal and raised the single issue before us regarding the status of the trust account's appreciation.³

II.DISCUSSION

A.Historical Context

[¶ 6] To understand the legal basis for determining whether the appreciation of Pitcher's investments was marital or nonmarital, it is helpful to review the development of the law regarding the classification of marital property in Maine.

[¶ 7] Maine has never been a community property state.SeeSalenius v. Salenius,654 A.2d 426, 429(Me.1995).As recently as 1950, property distribution was resolved based on who held title to property.SeePoulson v. Poulson,145 Me. 15, 19-23, 70 A.2d 868, 870-72(1950).At that time, we held that a joint tenancy was not affected by marriage or divorce.Seeid.

[¶ 8] In 1971, however, the Legislature, in an effort to create a more fair method of property distribution, enacted legislation that based the division of marital property on concepts of equitable distribution.SeeP.L. 1971, ch. 399, § 2(effective Jan. 1, 1972).Following the enactment of this statute, marital property was to be distributed equitably.The first step in the analysis required the trial court to determine which property was marital and which property was nonmarital In 1979, we identified the timing and method of acquisition of the property in question as relevant to the marital or nonmarital nature of the property.SeeTibbetts v. Tibbetts,406 A.2d 70, 76-77(Me.1979).Employing this approach, known as the "source of funds" rule, we regarded acquisition as an ongoing process through which some marital and some nonmarital funds might be invested in certain property, thereby rendering property partially marital and partially nonmarital.Id.;see alsoHall v. Hall,462 A.2d 1179, 1181(Me.1983).

[¶ 9] For real property, however, we recognized a presumption that, absent clear and convincing evidence to the contrary, a spouse intended to transform nonmarital real property into marital property upon transfer of title from a single spouse into joint ownership.SeeCarter v. Carter,419 A.2d 1018, 1022(Me.1980).We effectively adopted a theory of transmutation for real property — that is, a theory that nonmarital real property could be transmuted into marital property upon a manifested intention to do so.Seeid.;see alsoLong v. Long,1997 ME 171, ¶ 13, 697 A.2d 1317, 1322-23.

[¶ 10] Ultimately, to improve predictability in classification, we adopted a more bright-line approach that classified real property as marital if it were held in joint ownership during the marriage.Long,1997 ME 171, ¶¶ 15-18, 697 A.2d at 1323-24.As we stated, "real property acquired jointly during marriage, whether transferred from a spouse or a third party, becomes a part of the marital estate....[T]he motivation for the transfer is irrelevant."Id.¶ 15, 697 A.2d at 1323.⁴

[¶ 11] The application of these concepts to non-real estate investment property, including stock portfolios, proved more problematic.For example, we applied the Long presumption to conclude that the amount of appreciation in value of nonmarital property during the marriage was marital unless the party seeking to prove that it was nonmarital demonstrated that market forces generated the appreciation — not reinvestment of income during the marriage.SeeHarriman v. Harriman,1998 ME 108, ¶ 8, 710 A.2d 923, 924-25;see alsoClum v. Graves,1999 ME 77, ¶ 16, 729 A.2d 900, 906-07.This holding generated dissatisfaction with the presumption that part of the value of an initially nonmarital asset, never transferred into joint ownership, should be classified as marital.SeeMe. Family LawAdvisory Comm'n, Report to the Maine Legislature, Joint Standing Committee on the Judiciary, Regarding L.D. 2267at 2-3(Jan. 18, 2000).Concerns also arose that parties would be unduly burdened by the need to procure expert testimony to establish what portion of any appreciation was attributable to market forces versus reinvestment.Seeid. at 3.

[¶ 12] In response to these concerns, legislation was proposed that would classify as nonmarital all increases in value of an asset acquired before the marriage or by gift or inheritance.SeeL.D. 2267(119th Legis. 1999).After the Joint Standing Committee on the Judiciary received reports from the Family Law Advisory Commission, however, the Legislature instead adopted a committee amendment to the property division statute that based the classification of an increase in value of a nonmarital asset on the nature and extent of any marital efforts to maintain or improve the asset.P.L. 1999, ch. 665, § 1(effective Aug. 11, 2000)(enacting Comm. Amend. Ato L.D. 2267, No. H-917(119th Legis. 2000)).The statute now provides:

For purposes of [section 953], "marital property" means all property acquired by either spouse subsequent to the marriage, except:

. . . .

E.The increase in value of property acquired prior to the marriage and the increase in value of a spouse's nonmarital property as defined in paragraphs A to D.

(1)"Increase in value" includes:

(a) Appreciation resulting from market forces; and

(b) Appreciation resulting from reinvested income and capital gain unless either or both spouses had a substantial active role during the marriage in managing, preserving or improving the property.

(2)"Increase in value" does not include:

(a) Appreciation resulting from the investment of marital funds or property in the nonmarital property;

(b) Appreciation resulting from marital labor; and

(c) Appreciation resulting from reinvested income and capital gain if either or both spouses had a substantial active role during the marriage in managing, preserving or improving the property.

19-A M.R.S. § 953(2)(2007).

[¶ 13] The summary to the adopted committee amendment clarified that the statute was based on the principle that the appreciation in value of nonmarital property should remain nonmarital "if no marital effort or money is expended."Comm. Amend. A to L.D. 2267, No. H-917, Summary (119th Legis. 2000).To this end, the amendment excluded from the definition of marital property any appreciation of a nonmarital asset due to reinvestment unless the appreciation involved (1) the investment of marital property, (2) the investment of marital labor, or (3) the substantial active management, preservation, or improvement of the asset by...