In re Krejci

• Decision Date: 17 January 2013
• Docket Number: No. 11CA2345.,11CA2345.
• Parties: In re the MARRIAGE OF Emily A. KREJCI, Appellee and Cross–Appellant, and John R. Krejci, Appellant and Cross–Appellee.
• Court: Colorado Court of Appeals

297 P.3d 1035

In re the MARRIAGE OF Emily A. KREJCI, Appellee and Cross–Appellant, and John R. Krejci, Appellant and Cross–Appellee.

No. 11CA2345.

Colorado Court of Appeals,

Div. I.

Jan. 17, 2013.

Holland & Hart, LLP, Teresa D. Locke, Denver, Colorado, for Appellee and Cross–Appellant.

Kraemer, Golden & O'Brien, LLC, Michael M. O'Brien, Fort Collins, Colorado, for Appellant and Cross–Appellee.

Opinion by Judge WEBB.

¶ 1 John R. Krejci (husband) appeals from the property distribution provisions of permanent orders entered in connection with dissolution of his marriage to Emily A. Krejci (wife), and from findings concerning wife's income for purposes of calculating child support. Wife conditionally cross-appeals from the property distribution. We affirm in part, reverse in part, and remand for further proceedings.

I. Property Distribution

A. The Marital Home

¶ 2 Husband primarily contends the trial court erred by classifying the marital home as wife's separate property to the extent that her mother contributed to the equity by paying off the mortgage during the marriage. Resolving a question of first impression in Colorado, we conclude that a gift by a third-party donor during the marriage, which increases the value of a jointly-titled asset of the spouses, is presumably a gift to the marriage, and that this presumption can only be rebutted by clear and convincing evidence. Therefore, because the trial court did not apply this presumption, further findings are required.

¶ 3 The classification of property as marital or separate is a legal determination based on resolution of factual disputes. In re Marriage of Williamson, 205 P.3d 538, 540 (Colo.App.2009). Although we defer to the trial court's factual findings concerning its classification of equity in the marital home, we independently review the legal standard the court applied. See id.

¶ 4 When a spouse places separate property in joint ownership during the marriage, a presumption that the donor spouse intended a gift to the marriage arises; the gifted property is presumed marital absent clear and convincing evidence to the contrary. In re Marriage of Balanson, 25 P.3d 28, 37 (Colo.2001).¹

¶ 5 Here, the parties purchased the marital home jointly during their marriage. Several years later, wife's mother paid off the mortgage, on which both parties were obligors, by a direct transfer to the creditor. Wife testified that her mother had intended to make a gift to wife alone. Husband testified that wife and her mother told him the payment was intended to benefit them both. Shortly after the payoff, the mother signed a trust instrument that did not mention husband and described all prior gifts to wife as advances on her inheritance.

¶ 6 The trial court found that because the funds used to pay off the mortgage were part of wife's inheritance, they were her separate property under section 14–10–113(2)(a), C.R.S.2012 (exempting property that a spouse acquires by gift, bequest, devise, or descent from the marital estate). The court did not apply the presumption recognized in Balanson, for which husband had argued.

¶ 7 No Colorado case has addressed whether the marital property presumption applies to a gift by a third party that increasesthe value of a jointly-owned asset. In re Marriage of Dale, 87 P.3d 219 (Colo.App.2003), on which husband relies, involved personal property that the wife's mother purchased for the marital home.

¶ 8 In Strang v. Strang, 222 A.D.2d 975, 635 N.Y.S.2d 786, 788–89 (1995), the court treated funds gifted by the wife's father to satisfy the parties' joint debt on the marital residence as marital. See also Knecht v. Knecht, 629 So.2d 883, 886 (Fla.Dist.Ct.App.1993) (applying the presumption when the husband's mother paid a portion of the down payment on the parties' jointly-owned home); 1 Brett R. Turner, Equitable Distribution of Property § 5:43, at 480 (3d ed. 2005) (“The presumption also applies to contributions made with separate funds to property already titled jointly....”). Other jurisdictions have applied a marital property presumption to real property conveyed by a third party to a married couple jointly. See, e.g., In re Marriage of Hunter, 223 Ill.App.3d 947, 166 Ill.Dec. 242, 585 N.E.2d 1264, 1268–69 (1992); Lee v. Lee, 595 A.2d 408, 410–11 (Me.1991); Tubbs v. Tubbs, 755 S.W.2d 423, 424 (Mo.Ct.App.1988); In re Marriage of Martin, 32 Wash.App. 92, 645 P.2d 1148, 1150 (1982).

¶ 9 In re Marriage of Stumpf, 932 P.2d 845, 848 (Colo.App.1996), recognized the concept of marriage as a partnership or joint enterprise. Applying the marital property presumption to all property transferred into joint ownership, whether by one of the spouses, as in Stumpf, or by a third party, furthers this concept. See Lee, 595 A.2d at 411;see also Spooner v. Spooner, 850 A.2d 354, 362 (Me.2004). Moreover, we discern no rationale for limiting this presumption to spousal transfers.

¶ 10 Having concluded that the court erred by failing to apply this presumption, its allocation of the marital home cannot be upheld as equitable under the totality of the circumstances, which wife suggests. See Balanson, 25 P.3d at 42;In re Marriage of Burford, 950 P.2d 682, 686 (Colo.App.1997).²

¶ 11 Accordingly, on remand, the court should apply the presumption, decide whether it has been overcome by clear and convincing evidence, and then if it has not been overcome, reconsider the marital component of the equity in the home. The court may, but need not, hear further evidence of the mother's intent.

B. Wife's Merrill Lynch Investment Account

¶ 12 Husband next contends the trial court erred by classifying all of this account, including the marital increase in value, as wife's separate property. We agree.

¶ 13 Any appreciation of a spouse's separate property during the marriage is marital property subject to equitable division under section 14–10–113(1), C.R.S.2012. See Balanson, 25 P.3d at 42;Dale, 87 P.3d at 225.

¶ 14 Here, during the marriage, wife deposited her inheritance from the estates of her mother and her brother into the parties' joint investment account, which became the Merrill Lynch account. Husband later agreed to remove his name from this account. When husband's name was removed, the value of the account was $323,978. Its value as of the hearing was $517,545.

¶ 15 In her proposed property division chart, wife identified a $53,653 marital increase in the account based on the difference between her total inheritance ($463,892), and the value of the account as of the hearing. Nevertheless, the trial court classified the entire account as wife's separate property, explaining that the funds derived from her inheritance. This classification is not supported by the record.

¶ 16 The court acknowledged some logic in assuming that the account had increased in value, but found that husband failed to establish any appreciation of the account during the parties' marriage. This finding is not supported by the account valuation evidence presented at the hearing. Therefore, on remand the trial court should determine the marital increase in value of the account, and then distribute the increase equitably under section 14–10–113(1).

¶ 17 When determining the amount of marital increase, the court must resolve whether wife always intended her inheritance to remain separate property. If so, the marital increase in value should be calculated by subtracting the amount of wife's inheritance ($463,892) from the value of the account at the time of the hearing ($517,545). However, if the inherited funds became marital when wife deposited them into the parties' joint account, and were then gifted back to wife when husband removed his name from the account, the increase in value should be calculated by subtracting the value of the account at the time husband's name was removed ($323,978) from the value at the time of the hearing ($517,545). The court may in its discretion take additional evidence when determining the intent issue.

¶ 18 Because the marital increase in value of the account was erroneously omitted from the marital estate, reconsideration of the entire marital property distribution is required. See In re Marriage of McCadam, 910 P.2d 98, 100 (Colo.App.1995).³

¶ 19 Wife's argument that reversal and remand are not necessary because her entire inheritance, which included funds other than those in the Merrill Lynch account, decreased in value during the marriage, is unpersuasive. The net overall increase or decrease in value of a spouse's separate property is not considered when the court determines the value of the marital estate. See Burford, 950 P.2d at 685;see also In re Marriage of Seewald, 22 P.3d 580, 586 (Colo.App.2001). Rather, the trial court adds to the marital estate only the amount of marital increase in any separate asset, without regard to other separate assets that have decreased in value during the marriage. See Burford, 950 P.2d at 685.

¶ 20 Contrary to wife's assertion, In re Marriage of Powell, 220 P.3d 952 (Colo.App.2009), does not support a different conclusion. There, the husband argued that the marital portion of the wife's premarital Individual Retirement Account should have been calculated based on the increased value of individual securities in the account. Id. at 957. Instead, the trial court valued the account as a single asset, which reflected appreciation in some securities and depreciation in other securities. Id. at 958. In affirming, the division relied in part on section 14–10–113(4), C.R.S.2012, which provides that “an asset of a spouse acquired prior to the marriage ... shall be considered as marital property” to the extent of any increase in value, and on Burford, 950 P.2d at 685, which described “an asset” as “only a single item.”

¶ 21 Here, in contrast, wife argues that as long as her entire inheritance remained liquid, it constituted a single asset, even if placed in multiple accounts. She provides no definition of “asset”...