Kentucky Case Law Review by Topic: June 1, 2021 through July 31, 2021

Herron v. Specht, No. 2020-CA-0361-MR (Ky. App. 2021)

Civ. R. 52.01: Findings of Fact
Cohabitation

Dated: June 4, 2021
Not to be Published
Affirming

Keith and Catherine began cohabitating in 2009, and in 2013, Catherine purchased a home in her name, only. The parties continued to cohabitate, splitting household expenses, through the end of their relationship in 2018. At that time, they executed an agreement wherein they would remain roommates, Keith would undertake repairs necessary for the sale of the house, and the two would split the sale proceeds upon the same.

“Oh, the sun shines bright, on the traced pre-marital interest in my old Kentucky home…”

Shortly thereafter, Catherine served Keith with a notice to quit the residence, and obtained an Emergency Protective Order against him in January, 2019. Keith then unsuccessfully sued for enforcement of the prior contract. “The trial court found that the parties had entered into a valid, enforceable contract” (as opposed to marital property ownership). And the trial court found that Keith had failed to undertake the repairs outlined in the agreement, and that such failure removed any obligation on the part of Catherine to sell the house and split any proceeds with him.

When a party to a contract abandons the agreement, the other party is released from any duty to perform.

Editor’s Note: Like this case? Then you might also be interested in this case, which was the subject of a prior post on this blog, and also involves enforcement of an agreement between non-married cohabitants (during the time period subsequent to their first marriage and before their remarriage).

Maginnis v. Maginnis, No. 2019-CA-1090-MR (Ky. App. 2021)

Maintenance
Marital Property: goodwill, valuation
Witness: expert

Dated: June 18, 2021
Not to be Published
Affirming in Part, Vacating in Part, and Remanding

The parties were married in 1986, and started a successful chimney sweeping business in 1994. Wife was admitted to practice law in 1998, but was declared totally disabled in 2017, following a Leukemia diagnosis in 2014.

The parties separated in 2017, and began exchanging documents and witness lists related to the valuation of the shared business. Husband was served with interrogatories requesting disclosure of any expert witnesses, and Wife filed her own such disclosures in January, 2018, identifying Chris Johnson, CPA, and providing his CV and a specific outline of his expected testimony. Following a continuance, the trial was scheduled for February, 2019. Prior to trial, Husband identified Melissa DeArk, CPA: “[Husband] stated [DeArk] would provide expert testimony concerning her analysis of the business valuation of Chimney Master prepared by Johnson and listed documents she was expected to rely on including the parties’ federal tax returns and Johnson’s report, and provided her CV.”

This disclosure did not clarify what DeArk’s opinion was of Johnson’s valuation or his methodology, or what the basis for such an opinion would be.

In his testimony, Wife’s witness assigned 70% of the parties’ business’ value to ‘personal goodwill,’ and 30% to ‘enterprise goodwill’ (and gave the business a total value of $284,414). When Husband attempted to call his witness for rebuttal testimony, Wife objected, and successfully argued Husband had (1) failed to disclose DeArk as an expert witness, and (2) his disclosure of her as a witness had been vague and failed to provide a summary of her opinion. “Husband also argued expert rebuttal witnesses are exempt from the usual disclosure obligations,” but the trial court did not permit his witness to testify as an expert.

Following the trial, the trial court utilized the value set by Wife’s witness when it assigned ownership of the business to Husband, and ordered him to pay half such value to Wife. It did not, from the Court’s review, appear to contemplate the same witness’ assignment of ‘personal’ and ‘enterprise goodwill’ in said valuation. The trial court further awarded maintenance in the amount of $3,300 monthly, finding Wife to be permanently disabled and imputing a net annual income of $109,440 to Husband.

Both parties filed motions to alter, amend, or vacate, and Husband argued the trial court had erred in excluding his expert witness’ testimony, as well as in its finding she had not been disclosed. He further argued that the trial court erred “by not addressing personal or enterprise goodwill in Chimney Master, as Johnson had provided unrebutted goodwill evidence.” Finally, Husband argued the trial court had erred in its reliance upon testimony from a companion matter. The trial court denied Husband’s motion, and in its denial noted that, while Husband had in fact disclosed DeArk, he had provided insufficient summary of her expected testimony. Husband’s appeal followed.

In affirming the decision concerning Husband’s witness, the Court noted Husband’s failure to disclose the witness in interrogatory responses, cited CR 26.05(a)(ii) related to such disclosures, and wrote:

We agree with [Husband] that the [trial court] erred in its provided reasoning for DeArk’s exclusion, that she had not been disclosed as a witness, which was clearly contradicted by the record. However, the [trial court] corrected this faulty reasoning in its subsequent order regarding the motions to alter, amend, or vacate by clarifying that [Husband’s] prior disclosure of DeArk, which essentially stated only that DeArk would offer unspecified testify [sic] about Johnson’s report and about [Wife’s] marital claims, was insufficient. Given that order, we discern no abuse of discretion here.

The Court also found no “lesser requirements” existed for the disclosure of ‘rebuttal experts’ under CR 26.02.

As for the valuation of the business, and ‘personal’ and ‘enterprise goodwill’ therein, the Court vacated the trial court’s decision in part, and remanded with instructions that the trial court either accept Wife’s expert’s apportionment of the goodwill inherent in the business’ value, or provide reasoning for its rejection thereof. Quoting the Kentucky Supreme Court (Gaskill v. Robbins, 282 S.W.3.d 306 (Ky. 2009)), the Court wrote:

If the value of goodwill can be reasonably determined at all, the amount of enterprise goodwill, which is all that can be considered as marital property, can be determined. Therefore, the trial court erred in failing to consider personal and enterprise goodwill.

The Court rejected Wife’s argument that such requirement was intended only to apply to professional businesses, and further noted that the trial court’s nonapplication thereof in this case “led to a roughly $200,000 increase in the marital portion of Chimney Master’s value.”

As for Husband’s appeal of the maintenance award, the Court wrote:

As a matter of course, we must vacate the maintenance award as it is dependent upon a proper antecedent property allocation. Jones v. Jones, 245 S.W.D.3d 815, 820 (Ky. App. 2008). However, we note that [Husband’s] argument about the combined inequity of the current award to [Wife] of half of the business’s value without excluding the personal goodwill which is [Husband’s] individual property and awarding maintenance based on what he earns through performing manual labor for Chimney Master is well taken.

In closing its decision, the Court discussed two ‘issues’ it deemed likely to recur on remand to the trial court, and provided its own guidance as to their handling.

Phelps v. Phelps, No. 2020-CA-0812-MR (Ky. App. 2021)

Maintenance
Marital Property: de facto date (termination of marriage)

Dated: June 18, 2021
Not to be Published
Affirming in Part, Reversing in Part, and Remanding

The parties married in June, 2007, and separated in January, 2019. Shortly thereafter, Wife requested and was granted $20,000 via an agreement reached prior to a hearing on her motion for temporary maintenance. Said net sum was transferred to her from Husband’s retirement account provided by his employer, and would be credited from any assignment ultimately received from the trial court.

Wife subsequently requested an additional $15,000 from Husband’s account. “[Husband] objected, noting that, in a period of a little more than three months, [Wife] had spent the entirety of the initial $20,000, while she had sworn under oath that she only had $3,222 in monthly expenses.” The trial court entered a decree of dissolution, and submitted Wife’s request for maintenance and other matters to the county Domestic Relations Commissioner. The Commissioner’s report ordered that Wife should receive 26.89% of Husband’s retirement account (an amount which considered what she had already received) as of January 30, 2019, that Wife should receive a vehicle, and that Husband should pay off said vehicle’s outstanding loan.

Said assignment of the car was “short-term monetary help” in lieu of Wife’s request for maintenance:

Based on all of the above, the [Commissioner] finds that [Wife] is quite capable of working, she just chooses not to. The [Commissioner] is also concerned that [Wife] may have other issues that prevent her from responsibly handling money.

Wife filed exceptions to the report, and was overruled by the trial court. In her appeal, Wife argued that the trial court erred when it failed to award her maintenance, and in not valuing her retirement account assignment as of the date of decree.

In affirming the trial court’s decision not to award maintenance, the Court noted that it could only reverse an award (or non-award) of maintenance in matters where there is a ‘clear abuse of discretion.’ “Here the record clearly indicates that the [Commissioner] and the trial court properly considered whether [Wife] would be able to support herself through appropriate employment, and [Wife] has not shown that such finding was inadequately supported by the evidence or that the [trial court] otherwise abused its discretion.”

In reversing the trial court’s decision concerning the valuation date, the Court wrote that “all property acquired during the marriage is marital property, unless the property can be shown to have originated in one of the excepted ways outlined in KRS 403.190(2).” It found that the January 30, 2019 date was “not legally significant,” and thus reversed the trial court’s order and instructed the parties to provide evidence on remand upon which may be relied to establish the value of the account as of the date of decree.

Editor’s Note: You might have noticed some varied application of KRS 403.190 in this decision and Shaida v. Shaida, below. In my opinion, the way you resolve this is that there is no wiggle room for what is deemed marital property by the court under 403.190(2) (see Shaida, below), while -in terms of equitable division of said marital property- there is wiggle room under 403.190(1). Or at least that is how I find harmony between these two decisions.

Shaida v. Shaida, Nos. 2019-CA-0688-ME, 2019-CA-0745-ME (Ky. App. 2021)

Marital Property: de facto date (termination of marriage), equitable distribution

Dated: July 2, 2021
Not to be Published
Affirming

W.S. and P.S. were married in Canada in 2007, and registered as domestic partners in 2008. Prior to the marriage, W.S. was given her family’s townhome in San Francisco, as well as an undeveloped lot. In 2008, W.S. transferred the deed from herself to P.S. and herself, jointly. The parties separated in 2014, P.S. moved to Kentucky with the parties’ child, and a decree of dissolution was entered in 2017 which reserved judgment on issues including the parties’ real properties. In 2019, a supplemental decree of dissolution awarded each party 50% interest in both properties, and ordered W.S. to pay P.S. her share in their value, based on their appraised value as of the 2017 date of decree.

Both parties appealed: W.S. claimed the trial court had erred when it found that the properties were marital; and P.S. claimed that the trial court erred in assigning her a marital share of the properties based on their 2017 (and not current) value.

Our statutes do not clarify when marital property should be valued for purposes of division. See KRS 403.190(1)(d) (stating that when dividing marital property, the court should consider the “[e]conomic circumstances of each spouse when the division of property is to become effective[.]”)

Editor’s Note: You might have noticed some varied application of KRS 403.190 in this decision and Phelps v. Phelps, above. In my opinion, the way you resolve this is that there is no wiggle room for what is deemed marital property by the court under 403.190(2) (see Phelps, above), while -in terms of equitable division of said marital property- there is wiggle room under 403.190(1). Or at least that is how I find harmony between these two decisions.

In affirming the trial court’s decision, the Court continued:

The [trial] court acted within its discretion in dividing the properties as of the date of the dissolution as this is the general time when the properties should be valued and was also the date when all the other marital property was valued. As these properties were divided as of that date, [W.S.] has been responsible for paying taxes and maintenance on the properties since that time and the rent she has or could have received for the San Francisco home has been used in calculating her income for purposes of the child support award. [P.S.] has no entitlement to any appreciation in the value of the properties after the date of their division.

In affirming the trial court’s decision not to award P.S. a marital share of several investment accounts, the Court found that W.S.’s testimony -coupled with albeit limited documentary evidence- provided sufficient grounds for the trial court’s determination that the accounts were separate property.

Paoli v. Paoli, No. 2020-CA-0295-MR (Ky. App. 2021)

Marital Property: tax refund, retirement benefits

Dated: July 16, 2021
To Be Published
Affirming

The parties married in 1980, separated in 2017 (with Wife relocating back to Kentucky from Pennsylvania), and a decree of dissolution and property division order was entered in October 2019. Husband appealed, disputing the trial court’s findings on a number property issues. Among them, he argued that the trial court erred in equally dividing the parties’ 2017 joint income tax return, for which he had earned the income.

[I]ncome earned during a marriage is generally marital property. Therefore [Husband’s] assertion that he is entitled to the entire tax refund because he earned the income is without merit. The [trial] court obviously considered the contribution of [Wife] as a homemaker spouse and of [Husband] as the wage earner. As such, we do not believe the [trial] court erred in its equal division of the parties’ 2017 income tax refund.

Husband also asserted that the trial court had erred in equally dividing his retirement accounts, which had been funded solely through his income. Finding similar to the above, the Court affirmed, noting that deferred income in the form of retirement is also marital property.

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.