Smith v. Smith

• Decision Date: 20 January 2006
• Docket Number: No. 2004-CA-001056-MR.,No. 2004-CA-001028-MR.,2004-CA-001028-MR.,2004-CA-001056-MR.
• Citation: 235 S.W.3d 1
• Parties: James R. SMITH and David L. Vish, Appellants/Cross-Appellees, v. Carolyn King SMITH, Appellee/Cross-Appellant.
• Court: Kentucky Court of Appeals

235 S.W.3d 1

James R. SMITH and David L. Vish, Appellants/Cross-Appellees, v. Carolyn King SMITH, Appellee/Cross-Appellant.

No. 2004-CA-001028-MR.

No. 2004-CA-001056-MR.

Court of Appeals of Kentucky.

January 20, 2006.

As Modified February 10, 2006.

Case Ordered Published by Court of Appeals February 10, 2006.

Rehearing Denied November 30, 2006.

Discretionary Review Denied by Supreme Court October 24, 2007.

David L. Vish, Louisville, KY, for appellants/cross-appellees.

Eugene L. Mosley, M. Thomas Underwood, Louisville, KY, for appellee/cross-appellant.

Before BARBER, MINTON, and TAYLOR, Judges.

OPINION

MINTON, Judge.

I. INTRODUCTION.

Jim and Carolyn Smith appeal the property division made by the family court in conjunction with the dissolution of their marriage. Jim's lawyer, David Vish, joins this appeal because an award of attorney's fees to Jim is also an issue on appeal. We affirm, in part, and we reverse, in part.

II. THE PROCEEDINGS BELOW.

Jim and Carolyn were married for 27 years when Jim filed the petition to dissolve the marriage in November 2000. The division of the parties' substantial marital estate generated protracted and acrimonious litigation that culminated in a five-day family court trial. In February 2004, the family court completed the Augean task of dividing Jim and Carolyn's property and debts by issuing a detailed, fifty-five page decree. Both parties filed post-decree motions resulting in an amended decree in April 2004. Both Jim and Carolyn have appealed to this Court.

III. ANALYSIS.

A. Motion to Strike.

Before we may address the issues raised in these appeals, we must resolve a preliminary procedural issue. Carolyn has moved to strike Jim's combined reply brief because it does not contain citations to the record to support Jim's arguments. Carolyn correctly asserts that Jim's brief violates Kentucky Rules of Civil Procedure (CR) 76.12 because it contains insufficient citation to the enormous trial court record. Carolyn is correct that it is not our responsibility to search the record to find where it may provide support for Jim's contentions.¹ But rather than striking Jim's brief, we choose to give little credence to the arguments by either party that are not supported by a conforming citation to the record. So we deny Carolyn's motion to strike.

B. Property and Debt Division.

1. Standard of Review.

Before analyzing the merits of each party's arguments, we must review the basic tenets of property division in a dissolution context and the permissible scope of our review. In a dissolution proceeding involving contested property distribution issues, a trial court's first step must be to categorize each piece of contested property as either marital or nonmarital.² Next, the court must assign each party's nonmarital property to that party.³ Finally, the court must equitably divide the parties' marital property in just proportions.⁴

But the distribution of property for distribution is not as simple and clear-cut as the basic three-step process would indicate because some property may have both marital and nonmarital components by virtue of the fact that it was purchased with a combination of marital and nonmarital funds.⁵ This situation occurred repeatedly in this case. In such situations, "a trial court must determine the parties' separate nonmarital and marital shares or interests in the property on the basis of the evidence before the court. Kentucky courts have typically applied the `source of funds' rule to characterize property or to determine parties' nonmarital and marital interests in such property."⁶ The "source of funds" rule "simply means that the character of the property, i.e., whether it is marital, nonmarital, or both, is determined by the source of the funds used to acquire property."⁷ If such a piece of mixed-status property increases in value during the course of the marriage:

trial courts must determine from the evidence "why the increase in value occurred" because "where the value of [nonmarital] property increases after marriage due to general economic conditions, such increase is not marital property, but the opposite is true when the increase in value is a result of the joint efforts of the parties." KRS [Kentucky Revised Statutes] 304.190(3), however, creates a presumption that any such increase in value is marital property, and therefore, a party asserting that he or she should receive appreciation upon a nonmarital contribution as his or her nonmarital property carries the burden of proving the portion of the increase in value attributable to the nonmarital contribution. By virtue of the KRS 403.190(3) presumption, the failure to do so will result in the increase being characterized as marital property.⁸

It is important to bear in mind that a trial court is not obligated to divide the marital property equally.⁹ Rather, a trial court need only divide the marital property "in just proportions."¹⁰

Finally, a trial court has wide discretion in dividing marital property; and we may not disturb the trial court's rulings on property-division issues unless the trial court has abused its discretion.¹¹ The question of whether an item is marital or nonmarital is reviewed under a two-tiered scrutiny in which the factual findings made by the court are reviewed under the clearly erroneous standard and the ultimate legal conclusion denominating the item as marital or nonmarital is reviewed de novo.¹² Statements defining the standard of review of a trial court's decision to classify an item as marital or nonmarital is one in which the appellate courts of this state have been consistently inconsistent. On at least two occasions, the Supreme Court has, without discussion, used the clearly erroneous standard in reviewing a trial court's categorization of property. Similarly, we have also used the clearly erroneous standard, in both published and unpublished opinions.¹³ But we have also recently used a de novo standard of review, although we did not explain why we deviated from the clearly erroneous standard.¹⁴ Likewise, the Kentucky Supreme Court recently used, also without explanation or discussion, the de novo standard.¹⁵ The lack of interplay between these cases makes difficult the task of articulating the standard of review. We believe that the way properly to harmonize these cases is to recognize a two-tiered standard of review. Given the fact that the trial court is unquestionably in the best position to judge the weight and credibility of the evidence, we believe that the factual findings underpinning the determination of whether an item is marital or nonmarital are entitled to deference and, consequently, should be reviewed under the clearly erroneous standard.¹⁶ Ultimately, classification is a question of law, which should be reviewed de novo.¹⁷ Bearing those overarching principles in mind, we now turn to the arguments raised by Jim and Carolyn.

2. The UBS/Paine Webber Account.

Both sides take issue with the family court's division of the money in the UBS/Paine Webber Account. Jim contends that the lower court erred by finding that only 14.2 percent of the account was marital property, the remainder being Carolyn's nonmarital property. Carolyn argues that the lower court erred by not finding that whole account was her nonmarital property.

The history of this account is complicated. According to the family court's findings, Carolyn's father, Walter King, was a successful entrepreneur who amassed considerable wealth that he shared with his two daughters, Carolyn and her sister, both before and after his death. Toward that end, in December 1983, Walter arranged for the Board of Directors of one of his companies, Easco, Inc., to authorize the sale of 1,600 shares of Easco stock to Carolyn and her sister at a cost of $1.25 per share. Then, in December 1983, Walter wrote Carolyn a check for $2,000.00 and gave it to her to buy the Easco stock.

Jim, as secretary for Easco's parent company, which Walter also owned, came into possession of that $2,000.00 check, which he deposited in one of his personal bank accounts. Jim then wrote a check from one of his personal accounts to Easco with the notation "Eagle Standard [Easco] stock."

Three years later, Easco was sold and Carolyn received $132,335.57 for her stock. Walter also gave Carolyn $40,000.00 from his own Easco profits, as well as a $10,000.00 loan (which was later forgiven). And, in 1989, Carolyn received an additional $35,920.00 as her portion of the resolution of a lawsuit that benefited Easco.

Carolyn deposited her $132,335.57 check into a mutual fund account at Dupree & Co. That account listed both Carolyn and Jim as the owners of the account. The $40,000.00 gift and $10,000.00 loan were not deposited into that Dupree account and, according to the decree, "there are gaps in bank and other financial statements and accounts making a precise tracing of Walter's gifts impossible." In June 1987, Jim wired $118,700.00 from the Dupree account to his personal account at Central Bank, a transfer of which Carolyn claims to have been unaware.

In January 1988, Jim wrote a check from his Central Bank account for slightly over $150,000.00 to open a Merrill Lynch account. That Merrill Lynch account was initially in Carolyn and Jim's names, but Walter later prevailed upon Carolyn to remove Jim's name from the account. Over the ensuing years, deposits of over $1,000,000.00 were made in that Merrill Lynch account and its successor accounts at J.C. Bradford, Paine Webber and UBS. And, in the divorce proceedings, each party attempted to trace the various deposits. But those tracing attempts were not entirely successful and have resulted in divergent conclusions. The trial court ultimately found that $937,696.00 in deposits were Carolyn's nonmarital funds from gifts from Walter, and that $155,757.00 in deposits were marital funds. At the time of trial, the account balance was $596,024.00 which the trial court reduced...