Kentucky Case Law Review by Topic: March 1, 2022 through April 30, 2022

Keefe v. Keefe, Nos. 20-CI-00627, 2021-CA-0486-MR (Ky. App. 2022)

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

United we stand, divided are our marital assets.

Dated: March 4, 2022
Not to be Published
Reversing and Remanding

Following proceedings in the parties’ 2021 divorce, Husband appealed, citing the division of equity in the parties’ residence, the assignment of maintenance to Wife, and the award of attorney’s fees to Wife.

As part of the parties’ purchase of the marital home, Wife utilized $28,119 which she had received from an inheritance for the down payment. Based on this, the trial court awarded her the same amount as her non-marital interest, and divided half of the remaining equity between the parties. In his appeal, Husband alleged that the parties had refinanced the home numerous times, and that Wife had failed to trace her non-marital interest through the division of the parties’ interest (and that said division failed to account for closing costs that should not have been included in Wife’s assigned share of the equity). The Court agreed, writing:

KRS 403.190(3) contains a statutory presumption that property acquired during marriage is marital property. Therefore, the burden of proof of proving the non-marital nature of the property and then tracing the property into a marital asset lies with the party claiming the non-marital interest.

In his second argument, Husband alleges that the trial court failed to meet the standard required for a maintenance award when it did not provide any findings as to Wife’s “reasonable needs.” The Court again agreed, noting that such findings are the ‘threshold conditions of KRS 403.200(1)’ which must be met in order for a trial court to make a maintenance award determination, and remanded the matter back to the trial court.

The Court similarly reversed and remanded the trial court’s award of attorney’s fees, finding that the trial court had failed to consider “the parties’ total financial picture,” and Husband’s current finances.

Whitmore v. Whitmore, Nos. 18-CI-00186, 2021-CA-0267-MR (Ky. App. 2022)

Marital Property: gift

Dated: March 11, 2022
Not to be Published
Reversing and Remanding

During the parties’ marriage, they entered a rental-purchase contract with Husband’s parents, toward which Wife made a down payment of $13,000 derived from the sale of land she had inherited. The parties failed, however, to make payment as required by the contract, and they entered a new agreement with Husband’s parents 5 years later. Two years after that, they stopped making payments altogether, and immediately before proceedings began in the parties’ dissolution, Husband’s parents deeded him the property.

Husband was assigned the land as his separate property by the trial court, and Wife appealed, arguing that Husband’s parents’ gift of the land was not valid in light of parties’ rental purchase contract. The Court agreed, writing: “if the ‘Rental-Purchase Contract’ is a land sale contract, as a matter of law the parties’ interest in the property was unaltered by [Husband’s parents’] attempt to make an absolute conveyance, and consequently, [Husband] cannot show by clear and convincing evidence that the property was in toto his nonmarital property.”

Husband’s argument that the contract was for rental of the land, only, was not well-taken, and the Court noted that the trial court -in agreeing with Husband- had instead determined that the contract had simply been voided by non-payment. The Court thus reversed and remanded the matter to the trial court to determine the nature of the contract and its related marital/non-marital status.

Willis v. Rankin, Nos. 19-CI-00123, 2021-CA-0579-MR (Ky. App. 2022)

Marital Property: burden of proof, tracing

Dated: April 28, 2022
Not to be Published
Affirming

Husband’s appeal stemmed from the trial court’s decision (and denial of his motion for reconsideration) to award Wife the parties’ residence as her separate property, based on her full ownership thereof at the time of the parties’ marriage. Husband appealed, citing the conveyance of the property to a joint trust during the marriage, and alleged he had made improvements to the property and increased its value using his own non-marital funds.

In affirming the trial court’s decision, the Court first noted the deference due to trial courts in matters of marital property division, absent an abuse of discretion, and further noted Husband’s failure in this case to trace his alleged non-marital contributions/improvements to the residence, or to prove that they increased the value of the residence.

Editor’s Note: The Court’s opinion in this case provides an excellent case law primer for tracing in Kentucky.

Lewis v. Lewis, Nos. 13-CI-00247, 2020-CA-0978-MR (Ky. App. 2022)

Marital Property: equitable distribution, gift

Dated: April 22, 2022
Not to be Published
Affirming

As part of the parties’ 2013 dissolution, Husband was awarded the substantial proceeds from his sale of a cloud computing company he founded prior to the marriage, Wife was awarded a substantial trust in her name which had been funded by a portion of the same proceeds, and neither party was ordered to pay child support due to their respective means.

Both parties appealed, and on remand to allow testimony from the lawyer who drafted Wife’s trust (as the only other fact witness), the trial court held that Husband’s creation and funding of Wife’s trust constituted a gift, and that the trust was therefore Wife’s non-marital property.

Husband appealed, citing the import the Court placed on obtaining the drafting lawyer’s testimony in its prior decision, which Husband argued had supported his own claim that the trust was not intended as a gift.

Citing the trial court’s 2015 decree that was the subject of the first appeal, the Court’s decision noted the length and depth of detail in the 2015 decree, which was restated in part in the trial court’s 2020 decision, now subject to appeal itself.

There is sufficient language in the [trust] to allow this [trial court] to conclude that [Husband] intended to gift the corpus of the [trust] to [Wife]/ [Husband] was well aware that his marriage to [Wife] was on less than solid ground. Additionally he was aware that [Wife] felt financially insecure and her insecurity was a reason for her staying in the marriage. [Husband] has established a pattern of making “peace offerings” to [Wife] in the form of valuable assets. Lastly, and of great importance to this [trial court], [Husband] could have used a number of other documents and tools to transfer money to [Wife] upon his death for her benefit…

The bottom line is that [drafting attorney] could not shed any light on the actual intent of the parties at the time the [trust] was created. Although he mapped out awn estate plan, its design was not followed by the parties. [Wife] retained sole control over the [trust] both as settlor and trustee.

Noting that donative intent is subject to a clearly erroneous standard of review, and that two trial courts have found that the trust should be assigned to Wife, the Court concluded:

[T]here is no deficit of nuance and complexity here… Therefore, although reasonable minds may differ given the unique circumstances of this case, we cannot conclude that the [trial court] clearly erred.

Perkins v. Perkins, et al., Nos. 15-CI-501398, 2020-CA-0956-MR (Ky. App. 2022)

Indispensable Parties
Marital Property: dissipation, status quo order

Dated: April 29, 2022
Not to be Published
Reversing and Remanding

During the parties’ marriage, Husband assumed joint control of his parents’ business, from which he was alleged to have embezzled -which is the subject, along with other misconduct, of a separate suit brought by his parents against him- and otherwise profited substantially. During this time, Husband also formed a separate company, with Wife’s cousin as his partner.

Due to significant and lengthy disputes, the trial court entered a status quo order prohibiting any transfer or disposal of the parties’ property without permission from the trial court. Following this, Wife discovered Husband had received at least $1,000,000 in distributions from his separate company which was subject to the status quo order, without her knowledge. She successfully moved the trial court to compel Husband’s separate company to pay any additional distributions directly to the trial court. Upon discovering Husband was attempting to transfer his ownership interest to his lover, Wife amended her petition to include a claim of dissipation, and requested and was granted an order by the trial court forbidding any transfers of ownership of Husband’s separate company pending trial.

Shortly thereafter, Husband’s father resumed control of the parents’ business, which itself sued for Husband’s remaining ownership in Husband’s separate company. Due in part because Husband’s separate company was based in Indiana (and the parents’ business brought suit there), the parents’ business succeeded and obtained a judgment awarding it Husband’s interest in Husband’s separate company (as well as “any other limited liability company, partnership or joint venture [in] which he has an interest”).

Subsequent to this, Wife and Husband reached, signed, and entered an agreement, though Husband sought to strike indemnification language therein. As part of this agreement, Wife was assigned distributions from Husband’s separate company, both as a settlement of marital property and to make up for the amounts Husband had already, wrongfully received.

Husband’s separate company moved the trial court to remand its order that it be paid Husband’s distributions, due to its conflict with the Indiana court’s orders on behalf of the parents’ company. The parents’ company responded, arguing for the Indiana court order’s precedence based on its locational jurisdiction and its having preceded the trial court’s order. The trial court subsequently revised its order to allow Husband’s separate company to withhold the payments designated for Wife.

As a preliminary matter, the Court decided to join both companies as parties to the appeal, citing their appearances thus far in the record and due process concerns in the absence of their joining.

In its analysis, the Court first examines the rights of lienholders, such as the parents’ company, and compares them to the assigned interest of Wife.

We conclude that the [trial court’s] decision failed to appreciate the difference in the form of the parties’ interests before giving deference to timing: [Wife’s] ownership interest has priority over the charging order liens because those were perfected after the initiation of the dissolution proceedings.

Citing Stone v. DuBarry, No. 2015-SC-000040-DG (Ky. 2016), the Court concludes its analysis:

In short, the [trial court’s] status quo order alone entered in December of 2018 established that the assets at issue were within the jurisdiction of this Court and we conclude that the [trial court] did have the authority to “assign” the subsequently presented lien. In essence, the [trial court] had already done so in an effort to equalize the division of assets upon being presented with the uncontested fact that [Husband] had received significant assets in violation of the status quo order.

The Court further noted several factors and occurrences that gave the reasonable impression of collusion between Husband and his father in his role as lien-holder, including prior statements of the parties, loans, and actions and non-actions of Husband which served to benefit his father’s claim above Wife’s (including, notably, his failure to appear or respond in the Indiana suit).

In closing its decision to reverse and remand, the Court noted Husband’s substantial remaining assets from which his parents’ company may still collect their judgment award.

Yates v. Yates, Nos. 20-CI-00137, 2020-CA-1618-MR (Ky. App. 2022)

Marital Property: debts

Dated April 29, 2022
Not to be Published
Affirming

Among the other issues cited in Husband’s appeal (maintenance and award of marital home to Wife), Husband argued the trial court erred when it assigned him a disproportionate amount of debt incurred during the marriage, in the form of tax liability. The Court affirmed the trial court’s assignment, however, noting that there is no presumption that marital debt must be divided equally or proportionally. Rather, trial courts can assign debts using different tests, such as receipt of benefits and participation in debt accrual, and the parties’ respective economic circumstances. Noting Husband’s significantly higher income and employment history, the trial court did not abuse its discretion when it assigned more marital debt to Husband.

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