Ohio Case Law Roundup

Williams v. Williams, 2nd Dist. Clark No. 2015-DR-628, 2018-Ohio-611
Marital Accruals are Marital Property

Dated: February 16, 2018
Affirming

This case provides a broad point, which cannot be overstated, as well as two minor points, which don’t require much explanation.

Broad Point: My mantra, guidepost, and directive for handling all retirement assets is iterated succinctly in this case:

A pension acquired during the marriage is considered to be marital property and is subject to equitable division. Sprankle v. Sprankle, 9th Dist. Medina No. 621 N.E.2d 1310, 87 Ohio App. 3d 129, 132; R.C. 3105.171(A)(3)(a). And, as aptly observed by this Court:
"A trial court has broad discretion when considering retirement benefits; flexibility is necessary for the court to make an equitable decision based upon factors relevant to the situation before it.” Id. “When distributing retirement benefits in a divorce, a “trial court must apply its discretion based upon the circumstances of the case, the status of the parties, the nature, terms and conditions of the pension or retirement plan, and the reasonableness of the result.” Hoyt v. Hoyt, 53 Ohio St.3d 177, 179, 559 N.E.2d 1292 (1990). Further, the trial court must attempt to accomplish two goals: (1) preserve the value of the retirement asset and (2) disentangle the parties' economic affairs to bring finality to the marriage. Id."

Minor Point #1:
For qualified ERISA defined benefit plans, such as the traditional pension discussed in this case, a spouse must provide written consent, or a waiver, for the participant to receive his/her benefit in any form other than the plan’s normal form of benefit, usually a spousal 50% Qualified Joint and Survivor Annuity. In this case, Husband did just that. But that is all Husband did. As the Court aptly noted, by a simple look at the four corners of the consent form itself, Husband’s consent to Wife electing a single life annuity did not also act as a waiver of Husband’s marital interest in Wife’s pension during Wife’s lifetime. Rather, Husband’s consent only applied to his waiver of survivor benefits in the event of Wife’s death.

Minor Point #2:
"Ohio courts have recognized several methods for the equitable distribution of a spousal interest in a pension fund. 46 Ohio Jurisprudence 3d, Family Law, Section 444. One such method is to “[d]etermine the present value of the fund, calculate the nonemployee spouse's proportionate share, and offset that amount with other marital assets or with a lump sum payment or installment payments from the employee spouse.” Id., citing Sprankle at 132."

In this case, Wife did not argue that an immediate offset should not apply to the marital pension; Wife’s argument was that her lifetime should not be the measuring life for the pension valuation. However, Wife provided no expert or law to support this position. Husband’s expert testified that since this was -after all- a single life annuity based on Wife’s lifetime alone, a valuation based on her lifetime only made sense. The trial court agreed, and the Court of Appeals found no abuse of discretion.

Wright v. Cramer, 2nd Dist. Montgomery No. 2015-DR-1034, 27586, 2018-Ohio-764
Passive Appreciation and Evidentiary Burden

Dated: March 2, 2018
Affirming in part, Reversing in part, and Remanding

There is a lot here, as evidenced by Husband’s 9 (yes, 9) assignments of error. The Court rejected all but one: citing his lack of supporting documents/arguments/expert witness in doing so.

The issue the Court remanded back to trial court concerns the utilization of a hypothetical rate of return in determining the marital/non-marital portions of a defined contribution account. Husband argued the trial court abused its discretion by creating a hypothetical rate of return based on judicial notice of randomly selected index funds, instead of actual account history.

The trial court established a ‘starting balance’ for Husband’s account, designating such balance as his separate pre-marital funds. The trial court also established a ‘marital balance’ based on amounts deposited during the marriage. Using the S&P 500 index, the trial court determined the annual returns for each year of the marriage, adding such amounts to the marital balance. The trial court then divided the total marital balance in half.

The Court of Appeals duly noted Husband’s burden under state domestic relations law to establish by a preponderance of evidence the portion of appreciation in his account to be deemed passive and separate. In this case, there was not so much a problem with Husband’s position (that the hypothetical rate resulted in an arbitrary calculation, compared to the rate actually earned), but rather, that Husband’s “proof” was “very scanty.” For instance, Husband provided his own spreadsheets, but no underlying data. The Court duly noted that the issue, then, was whether the trial court correctly resolved the insufficiency of Husband’s evidence by utilizing a judicially recognized rate of return.

The Court surveyed several cases where judicial notice was taken of various investment rate sources (i.e., Treasury bills, CDs, etc.) to affect various assets and obligations. The Court then found that these cases, together, stood for the principle that judicial notice is generally appropriate for the purpose of calculating past rates of return or interest rates, except in situations that are too speculative, or when there is no reasoning of the court provided. On this latter basis, the Court determined that the trial court erred in its judicial notice of the S&P 500, notwithstanding its recognition that other courts have taken similar judicial notice. It reasoned that the trial court -unlike courts in other cases- did not explain why it chose the S&P 500 over any other method of calculating appreciation.

One important caveat here is the Court’s discussion of Mays v. Mays, 2nd Dist. Miami No. 98-DR-479, 2000-CA-54, 2001-Ohio-1450, in response to one of Husband’s arguments. The trial court in Mays relied upon Husband’s expert’s use of average rates of return to determine appreciation of a retirement account, despite actual rates of return being available. The Mays Court of Appeals sustained Wife’s assignment of error, holding that:

“Those numbers used to arrive at the amount of passive appreciation traceable to Mr. Mays’ separate property should be calculated by using the actual rates of returns and fee during the time period in question, instead of hypothetical, average rates or returns and fees.”

The takeaway here is to think about the issue of establishing passive appreciation in terms of three different approaches, or grades of evidentiary value:

Actual Account History: Highest evidentiary value;
Hypothetical Account History (based on hypothetical rates of return): May sometimes be employed if actual account history is not available; and
Insufficient Account History: Remember, a trial court has no obligation to ‘fill in the blanks’ of the proving party’s burden, and may simply deem their claim “too speculative.”

Colombo v. Chesser, 10th Dist. Franklin No. 10DR-4146, 17AP-278, 2018-Ohio-1477
Ambiguity with Investment Gains and Losses

Dated: 04/17/2018
Reversing and Remanding

When dividing marital defined contribution accounts (401(k)-type plans), you must always address market growth as part of the agreement or trial order.

All things being equal, parties typically share market growth (including investment gains and losses, interest, dividends, etc.) proportionally to their assigned interests in the marital account until the asset is divided under a QDRO, DOPO, or similar order.

There are exceptions to this general rule. In one such instance, where Husband deposited Wife’s stipulated share of 401(k) funds into a stable value fund, and subsequently realized substantial market appreciation on his remaining funds (after the agreed valuation date and through the date Wife’s share was finally segregated into an account in her name), the trial court did not abuse its discretion in not allocating any such appreciation to Wife. See Sieber v. Sieber, 12th Dist. Butler Nos. DR12-09-1083, CA2014-05-106, CA2014-05-114, 2015-Ohio-2315. Similarly, in this case, the Court determined by strict reading of the parties’ agreement that it just didn’t provide for such allocation.

Let me be clear: the law is perfectly clear about being unclear. With respect to retirement accounts, there is no controlling legal authority directing that any appreciation or depreciation in account value between the date of judgment and the date of account segregation be shared -equally or otherwise- between the spouses, or that directs that such gains or losses go to one spouse or the other. Rather, the issue is left to the discretion of the trial court. See Cwik v. Cwik, 1st. Dist. Hamilton Nos. DR-0700706, C-090843, 2011-Ohio-463 ¶73-76.

In this case, the non account-holder spouse’s arguments to have a QDRO entered to include what amounted to about $220,000.00 of gains on her portion of the equalized accounts, after the valuation date, were rejected by the Court of Appeals. In its Opinion, the Court found that any such QDRO would be an impermissible modification of an unambiguous decree, stating instead that Wife was only entitled to an equalization of the accounts valued as of May 1, 2012 (the valuation date as set forth in the decree). The Court observed that there was no mention that Wife was to also receive an equalization of amounts appreciated through the date a QDRO was finally entered, and her accounts were finally segregated into her own name. The Court duly noted that the parties could have agreed to allocate to Wife gains or losses accruing on the retirement assets after May 1, 2012, but did not.

The bottom line: always negotiate gains and losses in defined contribution accounts, then include them or exclude them (i.e., specifically address what happens to gains and losses from the valuation date until a new account is established by the Plan for the transferee spouse). Ensure that the parties’ intent is expressly stated in any agreement, or that the court’s intent is expressly stated in any trial order. Otherwise, the actual, transferred amount may be substantially less (or more) than intended, and the chances for correction through the courts a veritable coin toss.

Buckingham v. Buckingham, 2nd Dist. Greene No. 2013-DR-153, 2017-CA-31, 2018-Ohio 2039
Inequitable Tax Effects in Marital Property Division

Dated: 05/25/2018
Affirming and Reversing in Part

This is a long opinion, with the Court expending a lot of ink retelling the facts and procedural background of a 1.2-million-dollar property settlement, paid over a 4-year period. Of interest to me is the issue of tax impacting marital assets, explored throughout (and especially at ¶¶ 62-69). Essentially, Husband attempted to transfer to Wife various tax qualified accounts, and an HSA, all established post-decree, to fulfill his settlement obligations, resulting in potentially stiff tax consequences to Wife that she argued were not contemplated at the time of decree. The Court of Appeals recognized the unfairness to Wife in allowing Husband to utilize such assets, especially to the extent of achieving an equitable division of marital property under R.C. 3105.171. In its Opinion, the Court limited Husband’s transfers to only those retirement accounts in existence at the time of decree, and denied his use of the HSA altogether, since it was not a retirement account as defined by federal law.

Walsh v. Walsh, 11th Dist. Trumbull No. 2014DR00028, 2017-T-0032, 2018-Ohio-2466
The "Killer 10/10" Rule & Modifying the Period of Marriage(?!)

Dated: 06/25/2018
Affirming

Editor’s Note: This ruling was since overturned by the Ohio Supreme Court. Click here to read my office’s abbreviated case law review.

Always remember what I call the “Killer 10/10” rule when dealing with military retirement benefits in divorce.

In short, for DFAS (Defense Finance and Accounting Service) to pay benefits directly to a former spouse by court order, the parties must have been married at least 10 years during “creditable” military service years. See 10 U.S.C. §1408(d)(2). Be very careful here. The Killer 10/10 rule doesn’t say that otherwise, the military benefit is not marital. It simply says that to the extent a state domestic relations court deems it is, DFAS won’t pay it directly to the former spouse. So some other arrangement (offsetting, constructive trust, etc.) has to be made. Repeat: the Killer 10/10 rule only concerns who writes the checks, DFAS or the military service member.

In this case, the parties were married 10 years, but as part of a consent judgment entry, agreed to a term marriage of only about 6 years. After some delay, Wife realized this would not be sufficient for DFAS to comply with a state domestic relations order (see above). Wife brought a Civ. R. 60(b) motion on this basis, in part to extend the term of marriage to its actual 10 years, which the trial court granted. Husband’s appeal thereof was then rendered essentially moot, when, after reviewing applicable law, the Court of Appeals determined that Civ. R. 60 did not/need not apply, because, in this case, the trial court had specifically retained jurisdiction regarding the QDRO in its Entry, subject to local rule.

Did you catch that? Yeah, me too. That seemed a bit easy, didn’t it? There is a riveting dissent in this Opinion that doesn’t gloss over the fact that just because it would be more convenient for Wife to be paid directly by DFAS, it doesn’t “justify blatant manipulation of the factual record.” The Dissenting Opinion blasted:
Moreover, what should be questioned is the propriety of any court giving sanction to such a manipulative scheme.

The take home here? Know about the Killer 10/10 rule. Don’t forget it when it comes to the parties’ agreement, and negotiating how much and who will pay. You never know if you will get a second bite at the apple, or if you will instead have a judge, such as this dissenter, who feels that, “[the] court should not be in the business of creating artificial periods of marriage to circumvent federal law for the convenience of a party.”

Taylor v. Taylor, 10th Dist. Franklin No. 14DR-1977, 17AP-763, 2018-Ohio-2530
Controlling Federal Law in Domestic Relations Proceedings

Dated: 06/28/2018
Affirming

This case just leaves me shaking my head. The trial court was supposedly dividing a military pension, and determining survivorship rights thereunder. However, Husband cited law relevant to the federal employees/civil service retirement systems (e.g., 5 U.S.C. §8341(H)(4)), and the Court of Appeals seemed to be listening.

Please note, controlling law concerning the division of military benefits in divorce is found under the Uniformed Services Former Spouse Protection Act at 10 U.S.C. §1408.

Thankfully, the Court of Appeals didn’t lie on the sword of any alleged controlling federal law, and instead determined the question itself was not ripe for review, as there was not yet a genuine controversy at issue.

These QDRO pretzels are making me thirsty!

Kolar v. Kolar, 9th Dist. Summit No. 2012-07-2214, 28510, 2018-Ohio-2559
Marital versus Separate Property

Dated: 06/29/2018
Reversing and Remanding in Part, Affirming in Part

Separate Property Claims? Yours = your burden. You’re welcome.

We see a lot of these cases, but I think, when the Court of Appeals is so kind to provide one, a refresher of the applicable case law is always nice to have on hand for your next brief. And this is one of the better primers I’ve seen in a while, so here you go, courtesy of the 9th District and Mr. Kolar:

"R.C. 3105.171(B) provides that, in a divorce proceeding, the trial court must make a determination of what is marital property and what is separate property and divide such property equitably. “Marital property” includes “[a]ll real and personal property that currently is owned by either or both of the spouses * * * and that was acquired by either or both of the spouses during the marriage[.]” R.C. 3105.171(A)(3)(a)(i). “Marital property” does not include separate property. R.C. 3105.171(A)(3)(b). Separate property includes “[a]ny gift of any real or personal property or of an interest in real or personal property that is made after the date of the marriage and that is proven by clear and convincing evidence to have been given to only one spouse.” R.C. 3105.171(A)(6)(a)(vii). R.C. 3105.171(H) states: “the holding of title to property by one spouse individually or by both spouses in a form of co-ownership does not determine whether the property is marital property or separate property.”

“The commingling of separate property with other property of any type does not destroy the identity of the separate property as separate property, except when the separate property is not traceable.” R.C. 3105.171(A)(6)(b). “The party seeking to have a particular asset classified as separate property has the burden of proof, by a preponderance of the evidence, to trace the asset to separate property.” Eikenberry v. Eikenberry, 9th Dist. Wayne No. 09CA0035, 2010-Ohio-2944, ¶ 19. The burden to prove the separate identity of property can be met with documents or testimony, but “merely claim[ing] that the property * * * constitutes * * * separate property does not make it so.” Eikenberry at ¶ 27-28. The proponent must demonstrate the amount of separate property traced. See Morris v. Morris, 9th Dist. Summit No. 22778, 2006-Ohio-1560, ¶ 26; see also Measor v. Measor, 160 Ohio App.3d 60, 2005-Ohio-1417, ¶ 55 (11th Dist.) (finding funds not adequately traced when proponent failed to provide documentation of the exact amount or source of the funds).

Because the determination of whether property is marital or separate is a fact-based determination, we review a trial court’s decision under a manifest-weight-of-the-evidence standard. Morris, 9th Dist. Summit No. 22778, 2006-Ohio-1560, at ¶ 23. When reviewing the manifest weight of the evidence, the appellate court “weighs the evidence and all reasonable inferences, considers the credibility of witnesses, and determines whether in resolving conflicts in the evidence, the [finder of fact] clearly lost its way * * *.” Eastley v. Volkman, 132 Ohio St.3d 328, 2012-Ohio-2179, ¶ 20, quoting Tewarson v. Simon, 141 Ohio App.3d 103, 115 (9th Dist.2001). “Only in the exceptional case, where the evidence presented weighs heavily in favor of the party seeking reversal, will the appellate court reverse.” Boreman v. Boreman, 9th Dist. Wayne No. 01CA0034, 2002-Ohio-2320, ¶ 10."

Yup. Couldn’t have said it better myself!

Hamlin v. Bosse, 2nd Dist. No. 2017-CV-31, 2017-CA-26, 2018-Ohio-2657
Liability and Court-Appointed Experts

Dated: 07/06/2018
Affirming

The case of the ole’ switch-a-roo: The QDRO preparer (QDRO-or) in this case sues the divorcing party (QDRO-ee).

QDRO-or sued QDRO-ee for frivolous conduct under Ohio law, seeking sanctions, attorney’s fees, and costs. The gist is that QDRO-ee claimed that the court appointed expert witness, charged with drafting the QDROs in her divorce matter, prepared such orders inconsistent with the decree, and also ignored her warning letter advising of errors in the amounts distributed under the QDROs as-written. QDRO-ee filed a complaint against QDRO-or for malpractice, breach of contract, and unjust enrichment. QDRO-ee cited damages in the amount of $11,260.20 due to the drafting errors.

QDRO-or filed a motion to dismiss, and that same day, QDRO-ee filed a notice of dismissal.
(Who knows what happened there?)

Two months later, QDRO-or filed his complaint for frivolous conduct. The trial court denied QDRO-or sanctions, attorney fees, and costs. QDRO-or appealed.

QDRO-or argued that the complaint was frivolous for two reasons: (1) QDRO-ee’s complaint was filed outside the statute of limitations for civil actions brought against accountants; and (2) as a court-appointed expert, QDRO-or was entitled to immunity from liability for his work performed related to the divorce and distribution of retirement benefits.

QDRO-or’s first argument went nowhere. The Court of Appeals agreed that yes, the “delayed-damage rule” (QDRO-ee’s defense to the statute of limitations claim) ultimately did not apply to such cases, but that, at the time QDRO-ee filed her complaint, the Ohio Supreme Court had not yet settled that question (as it later did in LGR Realty, Inc. v. Frank & London Ins. Agency, 152 Ohio St.3d 517, 2018-Ohio-334).

QDRO-or’s second argument also went nowhere. In fact, QDRO-or concedes, himself, that there is no case law in Ohio stating that court-appointed accountants are entitled to absolute immunity for their evaluations and/or testimony in domestic relations cases.

Regardless, the Court of Appeals points out that the absolute liability argument is not at issue. At issue is whether the fact that the matter is unresolved gives way to a finding of frivolous conduct. Of course, that very same fact provided the basis for the Court’s decision to sustain the trial court’s decision.

Not much overall value here in terms your own practice. But, it sure is a new spin on me… the idea of the QDRO preparer suing one of the divorcing parties. No worries here, I am too busy blog writing to even think about this case much longer, much less sue anybody.

Keller v. Keller, 5th Dist. Delaware No. 14 DRA 01 0007, 18 CAF 01 0008, 18 CAF 01 0009, 18 CAF 01 0010, 2018-Ohio-3141
'Frozen' versus Traditional Coverture

Dated: 08/06/2018
Affirming

Thanks to Greg Adams, Esq. for tipping me off to this one.

This comes up a lot, especially on the river. This is because on one side, ‘frozen coverture’ is the case-law favored method to determine the marital portion of a pension for purposes of a QDRO. On the other side, ‘traditional coverture’ is case-law favored (Hello Ohio, and Hoyt v. Hoyt!). The general idea of the former method is that coverture is essentially defined on the date of divorce, whereas the latter method looks at the pension on the date of retirement and divvies out a smaller piece of the bigger pie to the non-pension holding spouse.

At the end of the day, regardless of case-law, the parties can agree to whatever method they so choose. This can be done directly by precise meaningful language, or inadvertently with haphazard language. Keller is a case where the agreement had two meanings to two different people… so arguably the inadvertent bucket.

The language at issue in Keller stated, “[t]he parties shall divide equally all retirement/employment benefits.” The Keller Court immediately looked to Oberst v. Oberst, 5th Dist. Fairfield No. 09-CA-54, 2010-Ohio-452. Oberst involved potential ambiguity in the parties’ agreement, similar to Keller, in that it stated the pension plan was “to be equally divided by a QDRO.” Oberst concluded that the mere absence of such a division date did not create an ambiguity in the property division. The Keller Court then observed that, while the parties in this case could have agreed to a future date in the divorce decree, they did not. Therefore, the Court held that the divorce decree unambiguously stated that the pension plans are to be equally divided, effective as of the termination of the marriage, on July 31, 2015 (‘frozen coverture’).

When drafting, no matter what side of the river you are on, make sure to belabor the details. If you mean to divide the pension by frozen coverture, say it by utilizing a value as of the date of divorce, such as “50% of the marital portion as of the date of divorce, the marital portion defined by years of marriage overlapping with years of credited service as of date of divorce.” If you mean to divide the pension by traditional coverture, say it by utilizing a value as of the date of retirement, such as “50% of the marital portion as of the date of retirement, the marital portion defined by years of marriage overlapping with total years of credited service.” Simply dividing pension plans “equally between the parties,” is not enough to keep you out of the inadvertent bucket.

For more Ohio Case Law updates, check out my last installment, here.

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.

2018Eileen ZellAugust 23, 2018Ohio, Coverture, Equitable Division, Expert, Avoiding Pitfalls, Tax, CR 60, Divorce, ERISA, Retirement, Offset, Military, NPV, O.R.C., OH, Survivorship, Tracing, QDRO, Family Law, Marital Property