Melrod v. Melrod

• Decision Date: 31 May 1990
• Docket Number: No. 1385,1385
• Citation: 83 Md.App. 180,574 A.2d 1
• Parties: Ann Marie MELROD v. Joseph K. MELROD. Sept. Term 1989.
• Court: Court of Special Appeals of Maryland

Page 180

83 Md.App. 180

574 A.2d 1

Ann Marie MELROD v. Joseph K. MELROD.

No. 1385 Sept. Term 1989.

Court of Special Appeals of Maryland.

May 31, 1990.

Kevin G. Hessler (Harvey B. Steinberg and Miller & Steinberg, on the brief), Rockville, for appellant.

Claudia A. Pott (Sanford K. Ain and Sherman, Meehan & Curtin, P.C., on the brief), Washington, D.C., for appellee.

Argued before BLOOM, KARWACKI and FISCHER, JJ.

BLOOM, Judge.

The Circuit Court for Montgomery County, by judgment of absolute divorce dated 31 January 1989, terminated the marriage of Joseph K. Melrod and Ann Marie Melrod, awarded the wife alimony of $2,500 per month for twelve months, ordered the sale of certain jointly owned real estate, granted the wife a monetary award of $250,000, and awarded her counsel fees in the amount of $45,000. ¹ Upon Mr. Melrod's motion to alter or amend the judgment, the court passed an order on 30 June 1989, revising some of its calculations with regard to marital property, adjusting the manner of payment of the monetary award, and reducing the amount of Mrs. Melrod's counsel fees to be paid by Mr. Melrod from $45,000 to $40,000.

Both parties have appealed. Mrs. Melrod complains that the court abused its discretion in failing to award indefinite alimony and in refusing to permit a real estate broker (Mrs. Melrod's mother) to present opinion evidence as to the value of certain property. She also asserts that the court erred in failing to consider and value certain properties owned by Mr. Melrod in making the monetary award and in adopting an incorrect approach in determining that certain assets were partly marital and partly non-marital. In his cross-appeal, Mr. Melrod complains that the court erred in determining that a certain property was partially marital and in its award of counsel fees.

Our conclusion is that the chancellor misconstrued Md.Fam.Law Code Ann., § 8-201(e)(2)(iv), ² in determining what properties were marital, non-marital, and partly marital and partly non-marital. Since we also conclude that he abused his discretion in refusing to permit Mrs. Melrod's witness to testify as to values of any property, all issues pertaining to the monetary award will have to be retried. And since any material change in the monetary award will necessarily require reconsideration of alimony and counsel fees, we shall vacate those aspects of the judgment as well.

Background

The parties were married on 17 October 1982. Their son, Jacob, was born the following year. At the time of the trial, Mr. Melrod was 33 years old; Mrs. Melrod was 30; and Jacob was 5. When the parties met in 1982, Mr. Melrod was a principal in a successful real estate development and investment business; Mrs. Melrod was a salesperson in a clothing boutique, with some experience as a model. Following their marriage, they lived in the husband's home in Chevy Chase but spent substantial time at their alternate residence on a large farm in Middleburg, Virginia. With the husband's encouragement, the wife gave up her employment and became a full time wife, mother, and homemaker. The husband's income was substantial, and the parties enjoyed a very high standard of living, with domestic help, "city" and "country" homes, numerous vacations, and expensive gifts. Despite the presence of domestic help, Mrs. Melrod's non-monetary contributions to the marriage, home, and family were deemed to be substantial.

Although the husband's preoccupation with his career and his use of drugs undoubtedly had some effect on the deterioration of the marriage, the chancellor found that the parties were both at fault for the breakdown in communications and lack of commitment to the marriage that led to their separation in February 1986.

In discussing the various issues we shall allude to other facts as they pertain to those issues.

I

We begin our discussion of the marital property and monetary award issues with a brief summary of the applicable statutory and case law.

Whether property is marital or non-marital is of importance only with respect to the granting of a monetary award. FL § 8-203 provides that in a proceeding for an annulment or absolute divorce, if there is a dispute as to whether certain property is marital or non-marital property, the court shall resolve that dispute, i.e., determine which property is marital property. FL § 8-204 then requires the court to determine the value of all marital property. And FL § 8-205(a) authorizes the court, once it has determined which property is marital property and the value of the marital property, to grant a monetary award "as an adjustment of the equities and rights of the parties concerning marital property." The statute lists ten factors that the court is required to consider in granting a monetary award.

We then turn to FL § 8-201(e) for a definition of marital property. In general, marital property is any property, however titled, acquired by either or both of the parties during the marriage. It does not include, therefore, property acquired before the marriage. Expressly excluded is property acquired by inheritance or gift from a third party, property excluded by valid agreement, or property "directly traceable" to any of these non-marital sources.

In Harper v. Harper, 294 Md. 54, 448 A.2d 916 (1982), the Court of Appeals, adopting and applying the "source of funds" theory, held that property that is paid for in installments is "acquired" within the meaning of FL § 8-201(e) not when title is taken but as an on-going process as payments are made for it. Whether property is marital or non-marital depends upon the source of each contribution as payments are made to acquire the property. Thus, property that had been acquired by one spouse, subject to a mortgage, prior to a marriage, is initially wholly non-marital property; as mortgage payments are made out of marital funds during the marriage, the property becomes partially marital in the proportion that the total contribution of marital funds used to "acquire" the property bears to the amount of non-marital contribution.

A major issue in this case is whether, by virtue of FL § 8-201(e)(2)(iv), certain valuable properties owned by Mr. Melrod are non-marital in whole or in part, and the extent to which other properties, originally non-marital by virtue of being acquired before marriage, became partly marital as a result of the on-going process, during the marriage, of amortizing the mortgages on them.

Mr. Melrod established that a substantial part of his annual income was non-marital. He owned income producing properties that were non-marital because they had been acquired prior to the marriage, and before his marriage his father had established a trust for him that provided about $5,000 per month in income to him. He made no attempt to keep this non-marital income separate from his marital income, i.e., income earned during the marriage; most of his income, marital and non-marital, was commingled.

Having acquired several valuable properties during the marriage and having paid during the marriage substantial sums in payment of mortgage debts incurred to acquire property before the marriage, Mr. Melrod, through his personal accountant, Lester Kanis, presented the court with an innovative theory of tracing the sources of those funds.

With respect to most of his properties, because of commingling of non-marital and marital income, Mr. Melrod could not directly trace any given payment of money to any specific source of funds. He, through Mr. Kanis, advanced the theory that any expenditure out of the commingled funds, for any purpose, should be construed as an expenditure of both marital and non-marital money in the same proportion that his marital and non-marital income bore to his total income. For example, according to Mr. Kanis, Mr. Melrod's total income in calendar year 1984 was $489,394, of which $45,952 or 9 percent was marital (earned) income and $443,442 or 91 percent was non-marital (derived from non-marital sources). Therefore, as to any asset acquired in 1984, either in whole by new purchase or by amortization of mortgage, the accountant computed that the acquisition was 9 percent marital and 91 percent non-marital. The same process was applied for each year from 1982, the year of the marriage, through 1987. ³ The court accepted that theory of allocation in determining what property was non-marital and what was marital, with one modification: the sum of $75,000, earned as a consulting fee in 1984 but overlooked by the accountant, was added to the marital income for that year, and the percentages were adjusted accordingly.

This method of determining what was marital and what was non-marital property, advanced by Mr. Melrod and accepted by the court, was erroneous. It is contrary to law. Property acquired by purchase during the marriage and not excluded by valid agreement between the parties, is marital property unless it can be traced directly to a non-marital source of funds or property. FL § 8-201(e)(2)(iv) is quite specific; it excludes from marital property any property acquired during the marriage that is directly traceable to a non-marital source. "Directly traceable" is not synonymous with "attributable." Since Mr. Melrod commingled his income from non-marital sources with his marital income, no specific sum of money used to acquire property or reduce an indebtedness on any property can be directly traced to any source. This inability to trace property acquired during the marriage directly to a non-marital source simply means that all property so acquired was marital property. See Brodak v. Brodak, 294 Md. 10, 447 A.2d 847 (1982), in which the Court of Appeals held that property (new trailers) purchased with income from the operation of the husband's non-marital (acquired by gift) trailer park business were marital property because the income was partly marital since the wife's efforts (housekeeping and bookkeeping) helped generate...