Rearden v. Rearden, No. 2006-CA-002362-MR.

• Decision Date: 09 October 2009
• Docket Number: No. 2006-CA-002362-MR.
• Citation: 296 S.W.3d 438
• Parties: James Mark REARDEN, Appellant, v. Kimberly Joyce REARDEN, Appellee.
• Court: Kentucky Court of Appeals

296 S.W.3d 438

James Mark REARDEN, Appellant, v. Kimberly Joyce REARDEN, Appellee.

No. 2006-CA-002362-MR.¹

Court of Appeals of Kentucky.

October 9, 2009.

Patricia Tierney Kidd, Louisville, KY, for appellant.

C. Thomas Hectus, Louisville, KY, for appellee.

Before LAMBERT and NICKELL, Judges; HENRY,² Senior Judge.

OPINION

NICKELL, Judge.

James Rearden (James) appeals from a judgment of the Jefferson Family Court classifying various items as marital property, including his military pension. He also appeals the trial court's denial of his request for attorneys' fees in the wake of the court holding his former wife, Kimberly Rearden, now Kimberly Johnson Crowder (Kimberly), in contempt for willfully disregarding court orders pertaining to the sale of the marital home. After reviewing the record and the law, we affirm in part, reverse in part and remand for further proceedings consistent with this opinion.

I. Factual Background

On May 1, 2005, while stationed in California, James, a career Navy man, wrote a $3,000.00 check from his personal money market account and made a down payment on a home in Louisville, Kentucky. On May 13, 2005, the realtor transferred the $3,000.00 deposit from James's account and applied it to the purchase of the home. On May 20, 2005, James married Kimberly, a surgical nurse, in California.

In June 2005, James officially closed on the marital home with a purchase price of $299,000.00. During this time, James also used a personal credit card to purchase a treadmill, a bed frame and mattress, and a dining room table and chairs for the marital home. James paid a total of $3,855.94 for these items from a combination of his personal money market account, to which Kimberly did not have access, and from a joint bank account, which she could access.

Two months after the wedding, James retired from the Navy with a total of 270 months of service credit, and began receiving $2,165.00 in monthly military retirement benefits. In November 2005, just six months after the wedding, he filed for dissolution of the marriage. No children were born during the short-lived union. The primary task of the trial court in the dissolution action was classifying assets as marital or non-marital property.

Since Kimberly was married to James during just two months of his more than twenty-year Navy enlistment, the court found she was entitled to a fraction of his retirement benefits, calculated without dispute to be $8.08 per month for the remainder of James's life. However, rather than requiring James to make the small monthly payments, the court ordered him to pay Kimberly a lump sum of $3,000.00, finding that amount "to be a reasonable calculation of [Kimberly's] total expected interest from [James's] retirement." The trial court did not explain how it arrived at the $3,000.00 figure. At $8.08 per month, James, who was born in October 1964, would have to live another 30.9 years to justify the lump sum payment of $3,000.00 to Kimberly.

During the dissolution hearing, the court drew these conclusions: James's $3,000.00 deposit toward the purchase of the marital home, which came from his personal money market account prior to the marriage, was marital property; the personal property he purchased with his personal credit card after the marriage was marital property; Kimberly was entitled to an immediate $3,000.00 lump sum payment from James as the trial court's estimate of the future value of her share of James's retirement benefits ($8.08 per month for approximately thirty years); Kimberly was in contempt of court due to her willful disregard of court orders pertaining to the sale of the marital home; and James was not entitled to an award of attorneys' fees. This appeal followed.

II. Analysis

James raises five issues in this appeal, four of which concern the trial court's designation of contested property as marital property. The fifth issue is whether the court abused its discretion in denying his request for attorneys' fees.

A. Standard of Review

In determining whether an item has been properly designated as either marital or non-marital property, we first consider the trial court's factual findings, to which we give deference because the trial court was in the best position to judge the credibility of the witnesses and the weight of the evidence. Smith v. Smith, 235 S.W.3d 1, 6 (Ky.App.2006). Once we have determined the trial court did not commit clear error in reaching its findings of fact, we review de novo the trial court's ultimate legal classification of whether the property was marital or non-marital. A finding of fact is clearly erroneous if it is unsupported by substantial evidence which is defined as proof sufficient to induce conviction in the mind of a reasonable person. B.C. v. B.T., 182 S.W.3d 213, 219 (Ky.App.2005).

B. Down payment on future marital home

The first question we address is whether a pre-wedding down payment of $3,000.00, made by James from his personal money market account on a home that was to become the marital residence, was properly classified by the trial court as marital property. Without explanation, the court stated only that "[p]etitioner did not sustain his burden related to his non-marital claim of contributing $3,000.00 to the down payment of the home." James argues the deposit should have been classified as non-marital property because it was made prior to the marriage and the money used to pay the deposit came from his individual bank account. Kimberly claims the trial court correctly found the entire $3,000.00 deposit to be marital property because James insufficiently traced a $526.87 refund from that deposit, received during the marriage, to his personal money market account.

During a dissolution proceeding, a trial court must first "assign each spouse's property to him" and then divide the marital property in just proportions. KRS 403.190(1). Property acquired during the marriage is presumed to be marital property. Id. To rebut this presumption, KRS 403.190(3) specifies the party claiming the asset acquired during the marriage is non-marital must show the property satisfies an exception described in KRS 403.190(2)(a)-(e), such as "[p]roperty acquired in exchange for property acquired before the marriage or in exchange for property acquired by gift, bequest, devise, or descent[.]" KRS 403.190(2)(b). See also Sexton v. Sexton, 125 S.W.3d 258, 266 (Ky.2004).

To deem property as marital or non-marital, Kentucky courts use the "source of funds" rule meaning property is characterized based upon the source of funds used to acquire the asset. Travis v. Travis, 59 S.W.3d 904, 909 (Ky.2001). If the non-marital property does not exist at the time of dissolution, the spouse claiming the property is non-marital must adequately "trace" the previously owned asset into a currently owned asset. Id. To satisfy the tracing requirement, the party must prove when the property was acquired and transferred, the asset into which it was transferred, and its value at those times. Chenault v. Chenault, 799 S.W.2d 575, 578 (Ky.1990).

James provided clear proof that he transferred $3,000.00 from his personal money market account to the realtor, prior to the marriage, to make a down payment on the marital home. James gave the deposit to the realtor on May 1, 2005, twenty days prior to the marriage. The realtor transferred the funds from James's account to the real estate agency on May 13, 2005, seven days before the wedding. In our analysis, it matters not that the closing on the home occurred after the wedding because the down payment was an identifiable portion of the home's purchase price and it was made prior to the wedding. Therefore, James clearly established the down payment used to acquire the marital home came from his personal non-marital account prior to the marriage.

However, as Kimberly notes, James did not trace back to his private non-marital bank account a refund of $526.87 received from the down payment during the marriage as the result of calculations within the loan closing documents. James claimed he opened a joint bank account for himself and Kimberly with the refund, but offered no proof of this alleged use and did not distinguish the refund from marital funds deposited into the joint bank account during the marriage.

As a result, we hold the trial court abused its discretion in classifying the entire $3,000.00 deposit as marital property. Instead, only the $526.87 refund should be classified as marital property, and the remaining $2,473.13 constitutes James's non-marital property. We therefore reverse and remand for further proceedings consistent with this opinion on this issue.

C. Personalty purchased during marriage with James's personal credit card

The second issue we address is whether the trial court erred in classifying three items of personalty,³ purchased with James's personal credit card during the marriage, as marital property. James argues the items should be classified as non-marital property because (1) Kimberly admitted during the dissolution hearing that the items were bought with money from James's personal money market account, and (2) two transfers from James' personal account—one to his credit card account and the other to the parties' joint bank account—show the property was purchased with non-marital funds. We disagree and affirm the trial court's classification of these items as marital property because James did not sufficiently prove the property was purchased with his non-marital funds and Kimberly did not testify James used non-marital funds to purchase the treadmill, dining room suite and bed/mattress.

James admitted buying the three items during the marriage but claimed they were nonetheless non-marital because he paid for them by using his personal credit card. Since the items were presumed to be marital assets because they were purchased during the marriage, to have them classified as non-marital property, James had to...