Kentucky Case Law Review by Topic: December 1, 2020 through January 31, 2021

This stock image will still be rusty after you read this review, but your knowledge of current Kentucky case law won’t be!

Thomas v. Thomas, No. 2019-CA-0547-MR (Ky. App. 2020)

Maintenance: life insurance
Property Settlement Agreement: ambiguity

Dated: December 4, 2020
Not to Be Published
Reversing and Remanding

The Court reversed and remanded the trial court’s decision requiring H to obtain additional life insurance to cover the full balance of his maintenance obligation, and found that the trial court misinterpreted the parties’ settlement agreement and H’s obligations pursuant to it. “[J]udicial review of a property settlement agreement to determine its meaning is simply a matter of contract interpretation.” Sadler v. Buskirk, 478 S.W.3d 379, 382 (Ky. 2015). See Kentucky Revised Statutes (KRS) 403.180(5). “When no ambiguity exists in the contract, we look only as far as the four corners of the document to determine the parties’ intentions.” 3D Enterprises Contracting Corp. v. Louisville and Jefferson County Metropolitan Sewer Dist., 174 S.W.3d 440, 448 (Ky. 2005) (citation omitted). “The fact that one party may have intended different results . . . is insufficient to construe a contract at variance with its plain and unambiguous terms.” Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381, 385 (Ky. App. 2002).

The Court explained that the trial court erred in its determination that H’s agreement to make W the beneficiary of his life insurance policy meant that she was entitled to make him obtain life insurance to cover the entire balance of maintenance due, essentially making his maintenance obligation survive his death. The Court found that such an obligation was at odds with the wording of the settlement agreement and KRS 403.250(2).

Meeusen v. Kemphaus, No. 2020-CA-0111-MR (Ky. App. 2020)

Property Settlement Agreement: tracing

Dated: December 4, 2020
Not to Be Published
Affirming

W asserted the trial court abused its discretion by placing the burden of tracing on her and failing to require H to prove the undisclosed funds were either seized by the IRS or were in an account listed in an exhibit. This is a convoluted case where W chose to independently trace funds and that may have been seized by the IRS. The Court found no abuse of discretion.

Normandin v. Normandin, No. 2018-SC-0451-DG (Ky. 2020)

Marital Property: abuse of discretion, appreciation (RSU), vesting

Dated: December 17, 2020
To be Published
Affirming in Part, Reversing in Part, and Remanding

Editor’s Note: to read Eileen’s previous post on this case, wherein she predicted with some confidence that the matter was headed to the Kentucky Supreme Court’s docket, click here.

The parties in this case were married in 2004, and during the marriage W left a career in commercial real estate, and H became the sole wage-earner for the parties and their four kids. W filed for dissolution in 2013, the parties tried to reconcile, and ultimately divorced in 2016.

H was employed as a Chief Security Officer with Humana, and as part of his compensation received restricted stock units (RSUs), issued annually at Humana’s discretion. The RSUs were subject to a strict three-year vesting schedule prior to which they could not be assigned or transferred, and were otherwise inaccessible to H.

The 2013 RSU grant to H was due to vest shortly after the 2016 trial (valued at $220,000), and H had received similar grants in 2014 and 2015.

Readers of this blog will recall the (excitement? alarm?) the appeals court caused when it affirmed the trial court’s decision in whole, and held that H’s RSUs were 100% his non-marital property, and not subject to equitable division or consideration, when determining the level of child support or maintenance due W. At the time, this blog argued the appeals court misattributed a quote from McGinnis v. McGinnis, No. 94-CA-256-MR (Ky. App. 1995), and in another instance made a conclusory statement unsupported by state and possibly federal law.

Noting its standard for marital/non-marital property is consideration “under a two-part inquiry in which the factual findings made by the [trial] court are reviewed under the clearly erroneous standard,” and that the “ultimate legal conclusion denominating the item as marital or nonmarital is reviewed de novo,” the Court appeared to agree with our assessment.

The Court continued: “[t]his Court has never directly addressed the marital division of RSUs. The Court of Appeals, when considering this issue, has classified them inconsistently.” Calling Kentucky statutes “deceptively simple” in classifying marital/non-marital property, the Court highlighted the challenges posed by assets such as H’s RSUs, noting that “[s]tates are divided on how to classify such assets in a divorce.”

In her appeal, W cites Grasch v. Grasch, No. 2016-SC-000591-DG (Ky. 2017), comparing the contingency fee agreement at issue in that case with H’s RSUs, and argued further that the RSUs “represent[ed] wages as of the date of the grant, making them entirely marital property.” W again cited Penner v. Penner, No. 2011-CA-002238-MR (Ky. App .2013) (as she did in her appeal of the trial court’s decision, but with greater effect in this Court), wherein an appeals court remanded to trial court to equally divide RSUs for either equitable division or as attributable income.

H instead argued that the RSUs represented a “mere expectancy,” and referred to Holman v. Holman, No. 1999-SC-0525-DG (Ky. 2002) and Cobane v. Cobane, Nos. 15-CI-00270 & 2016-CA-001869-MR (Ky. App. 2018), wherein the marital/non-marital disposition of an asset is determined by the property or income it replaced. H argued that the RSUs were non-marital as income earned after the marriage.

We do not find this argument persuasive because, under this reading, one would have to believe that the only performance required to earn the RSUs was given on the day of vesting.

The Court instead determined that the “marital portion of each RSU allotment is the proportion of time in each three-year vesting period that was marital,” and that it would “therefore reverse and remand for appropriate classification of Scott's 2013, 2014, and 2015 RSUs consistent with this Opinion.”

On remand, the trial court was urged to determine how to equitably divide the marital portion of the RSUs, taking into account factors like the taxability upon H.

Lastly, we note the problematic nature of the current guidelines. The current income tables are in need of updating by the legislature, both to capture a greater range of incomes and ensure the support allocations in the table remain both realistic and appropriate. Until then, it is incumbent upon the courts to use their discretion in assessing the relevant factors when addressing incomes not explicitly covered by the table and in deciding on departures from the guidelines’ recommendations in light of the parties’ circumstances.

Based on its conclusions on the RSUs, the Court also addressed W’s appeal of the child support award, reversing and remanding the matter back to trial court to recompute the award “weighing ordinary relevant factors.”

Had the trial court calculated the parties’ income properly, their combined monthly income would have approximately doubled and should have compelled the court to adjust upwards from the child support guidelines.

The Court’s opinion continued, dismissing W’s appeal of the maintenance award, and finding issues related to the classification of a marital/non-marital property in real property and H’s 401(k) were not properly before the Court.

Grumblatt v. Grumblatt, Nos. 2016-CA-1854-MR & 2016-CA-1932-MR (Ky. App. 2021)

Maintenance
Marital Property: burden of proof, debts, source of funds, tracing

Dated: January 15, 2021
Not to Be Published
Affirming in Part, Vacating in Part, and Remanding

The parties’ appeals and W’s cross-appeal related to two trial court orders, from 2016 and 2018, concerning the division of marital property, debts, and a maintenance award to H.

The 2016 order related to H’s Ameriprise retirement account and VOYA annuity, and the parties’ tax debts (which were in W’s name), all of which were deemed marital therein. The 2018 order divided H’s State Farm pension, and awarded him maintenance from W.

In addressing H’s appeal of the 2016 order, the Court wrote that it would only set aside findings of fact when there is substantial evidence for doing so, but would apply de novo review to the classification of marital property. For property with marital and non-marital components, the Court advised trial courts should apply the ‘source of funds rule,’ and engage in ‘tracing’ the amounts:

“The process of tracking property’s ownership or characteristics from the time of its origin to the present.” In the context of tracing nonmarital property, “[w]hen the original property claimed to be nonmarital is no longer owned, the nonmarital claimant must trace the previously owned property into a presently owned specific asset.” The concept of tracing is judicially created and arises from KRS 403.190(3)’s presumption that all property acquired after the marriage is marital property unless shown to come within one of KRS 403.190(2)’s exceptions. A party claiming that property, or an interest therein, acquired during the marriage is nonmarital bears the burden of proof.

The trial court found that H provided insufficient evidence for his arguments for both the Ameriprise and VOYA accounts. Citing Smith v. Smith, No. 2016-CA-000194-MR (Ky. App. 2016), H argued that his testimony alone provided sufficient evidence for his separate property claim. The Court (and W), however, noted that in Smith both parties acknowledged the separate property claim, which was not the case here.

H submitted a 1996 letter from the executor of his father’s estate as evidence of his separate property in the VOYA account, and failed to counter W’s objection to its admission as hearsay. Noting also that H had failed to initially disclose this account, the Court affirmed the Trial Court’s determination that both accounts were marital.

Based on its de novo review, the Court remanded the trial court’s determination of W’s debts as marital, citing Smith again, and continuing “the burden of proof that the debt is marital is upon the party that incurred it,” Allison v. Allison, Nos. 2006-CA-001967-MR & 2006-CA-002575-MR (Ky. App. 2008).

In addressing W’s appeal, cross-appeal, and assignments of error therein, the Court calls them “almost entirely conclusory, unsupported, and confusing.” W argued that the trial court failed to explain its calculation of her awarded share of H’s State Farm pension (much of which was pre-marital), and for an awarded share of 50%, instead. W’s arguments relied on an application of the doctrine of res judicata which the Court found inapplicable, and the premise that H had a burden of proof to establish a non-equal division of the benefit, and failed to do so. The Court affirmed the trial court’s division of the pension, noting that W “presented no real arguments on the merits demonstrating the [trial] court’s division was legally incorrect.”

We agree with the [trial] court that this was an issue of characterization of the pension and not tracing the source of the funds. As such, we agree that [W] and [H] each bore then the burden of proving the marital and nonmarital portions of the pension, and the family court properly reserved the issue.

In the remainder of the Court’s opinion, it affirmed the award of support to H, and found that W’s claim of obstruction was sufficient grounds for her request for attorney’s fees, and remanded to the trial court for further consideration.

Hall v. Hall, Nos. 2017-CA-1674-MR & 2018-CA-0514-MR (Ky. App. 2021)

Marital Property: abuse of discretion, debts

Dated: January 22, 2021
Not to Be Published
Affirming in Part, Vacating in Part, and Remanding

W raised multiple issues in multiple appeals consolidated by the Court in its opinion. Over the course of their marriage, W and H developed a valuable used equipment business and acquired significant real property, the division of which concerns the bulk of the Court’s opinion.

As part of the trial court’s orders, W was ordered to post a supersedeas bond for $491,500, the full fair market value of three tracts of real property awarded to H. In her assignment or error, W argued this amount was excessive, but the Court declined to address the issue.

CR 73.06(1) provides that the sufficiency of a bond will be determined by the trial court. Even during an appeal, the trial court retains original jurisdiction to determine all matters relating to the right to file a supersedeas bond – including the amount and sufficiency thereof. CR 7306(2).

W also alleged that the decree was void because the trial court “failed to take testimony relevant to the residency of the parties and the irretrievable breakdown of the marriage.” In declining to set aside the decree, the Court wrote that “[t]he validity of a dissolution decree is not subject to appellate review,” and noted that W’s verified petition specifically addressed her own residency, as well as the irretrievable breakdown of the marriage.

W further argued that the trial court abused its discretion by failing to recuse despite alleged bias, stemming from the fact that the judge’s secretary was H’s step-sister. The Court noted that, when reviewing a trial court’s denial of motion to recuse, it applies an abuse of discretion standard only when a denial is “arbitrary, unreasonable, unfair, or unsupported by sound legal principles.” After a brief overview of the Kentucky Code of Judicial Conduct, the Court found that the relationship identified in this case “not sufficient to cause a reasonable person to question the judge’s impartiality.”

In the next assignment of error, W alleged the trial court denied her adequate opportunity to present her evidence. The Court found the trial court was “neither arbitrary nor unreasonable” in allowing W to complete her case, and similarly overruled her argument that the trial court abdicated its responsibilities when it incorporated findings of fact and conclusions of law submitted by H’s counsel.

Other arguments by W alleged the trial court awarded “substantially more of the marital assets to [H] based on several erroneous findings of fact,” and “erred by failing to accept her appraisal of [the business].” In addressing this, the Court noted its authority to review findings of fact only when “clearly erroneous,” and that were this the case here, the errors alleged by W still “had no prejudicial impact on the [trial court’s] distribution of the parties’ assets. There was no reversible error.”

The Court remanded on three arguments: to remedy modest inequities in the trial court’s assessments of the parties’ life insurance policies and IRAs, and to deal with disputes over personal items.

As for the remainder of W’s arguments, the Court found no further abuse of discretion.

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.