Show me the Money: Update to my Blog Posts Dated June 12, July 1 & August 21, 2014

Fraley v. Maxey, NO. 2013-CA-001447-MR (Ky. App. 2014)
In Allocating the Marital Portions of 401(k) Accounts, the Non-Participant Spouse is Only Entitled to 1/2 of the Marital Contributions and Appreciation Thereon

Rendered: November 21, 2014
Not To Be Published
Opinion Affirming

Add another notch to my QDRO lipstick case. If you click on “TRACING” on the tag-cloud to the right of this post, you’ll see this is my fourth blog post highlighting this well-settled area of law:  traceable gains on pre-marital contributions are non-marital when the increase does not result from the efforts of either party. (See my blog posts dated June 12, 2014; July 1, 2014, and August 24, 2014).

In jurisdictions such as Kentucky and Ohio, tracing is utilized as an evidentiary vehicle to value and prove the passive increase of pre-marital contributions in a 401(k)-type plan during the period of marriage. [For citations to applicable Kentucky and Ohio statutory and case law, see my blog post dated August 24, 2014.]

Tracing allows one to make an accurate determination of the growth (or loss) on both the marital and non-marital contributions in the account by calculating the rate of return experienced on the account during the marriage. Take the following example from one of my own consulting cases (the story you are about to hear is true; only the names have been changed to protect the innocent), wherein I traced the passive growth of a pre-marital account balance over the span of a ten-year marriage:

The balance in Steven’s 401(k) on his date of marriage was $173,364. At the time of the divorce, the account had grown by $251,266 to $424,630. However, of this $251,266 increase, it was determined that only $144,290 was divisible due to contributions made during the marriage, and passive market growth thereon. Therefore, Steven retained $280,339, in addition to half of the divisible $144,290.

Without competent evidence, a court may have instead found the full $424,630 divisible – netting $212,315 to each spouse. However, after my tracing of the marital contributions and growth thereon during the marriage, Steven ended up with $352,485, and his spouse with $72,145.  Wow!

What is interesting and notable about Fraley (even after multiple exhilarating blog posts on the subject), is that – unlike Steven’s marriage – the parties were only together three years. The trial court in Fraley initially found that Wife’s Fidelity and TIAA-CREF accounts had increased in value during the three-year marriage in the amount of $72,564.00. Thus, the trial court determined Husband’s share was ½ of that, or $36,282.00. 

However, Wife subsequently filed a motion to alter, amend, or vacate the trial court’s findings of fact. Wife’s motion pointed to competent evidence within the record that traced her pre-marital contributions and passive growth thereon during the marriage, proving the marital portion was only $3,127.00. In response, the trial court amended its findings, concluding that Wife met her burden, and that Husband was only entitled to $1,563.55 (½ of $3,127.00), instead of $36,282.00. Wow! The Court of Appeals, citing to KRS § 403.190(2)(e), affirmed, summarizing:

In allocating the marital and nonmarital portions, we agree with the family court that [Husband] was only entitled to one-half of the total marital contributions and any appreciation in value of the marital portion during the marriage. The nonmarital contributions and any increase in value of those contributions not attributable to the efforts of the parties during the marriage were correctly assigned to [Wife].

Today’s lesson? Don’t make the mistake of thinking a short-term marriage isn’t worth the effort to examine. 

The law holds no secret at this point as to the evidentiary burden itself. What may still be somewhat elusive is understanding how tracing works and identifying the most preferred (and court-approved) methods of tracing. At risk of self-aggrandizing my QDRO Blog (with an admitted readership consisting of only close family and a few other gluttons), I refer you to my previously mentioned three related posts. These posts thoroughly explore relevant state law in Kentucky and Ohio, evidentiary considerations, how-to’s, and even some tips for trial motions.

Blog Posts are intended to bring attention to developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.