Kentucky Case Law Review by Topic: August 1, 2023 through October 31, 2023

Who’s a happy little commonwealth?

Keene v. Keene, Nos. 20-CI-502330, 2021-CA-1493-MR (Ky. App. 2023)

Civ. R. 52.01
Marital Property: bonus; equalization; findings of fact, retirement benefits, tax liability, valuation (home)

Dated: August 18, 2023
Vacating and Remanding
Not to be Published

In the course of the parties’ 2020 dissolution, the parties filed competing proposals for the division of marital property, and Husband was ordered to pay for various expenses. Leading up to trial, they filed competing, proposed findings of fact and conclusions of law, and Husband sought unsuccessfully to strike Wife’s proposed findings, which were filed a day late.

The trial court ultimately offset Husband’s interest in the house (retained by Wife), the parties’ respective interest in 4 cars (1 retained by Wife, 3 by Husband), and Husband’s retirement account, as follows:

Marital residence equity - $152,500
3 vehicles to Husband - $23,500
Husband’s retirement account - $149,378.98

½ of marital residence - $76,250
^Reduced by value of Husband’s 3 vehicles - $52,750

½ of Husband’s retirement account - $74,689
^Reduced by value of Husband’s above interest - $21,939

Wife’s reduced share of retirement account = $21,939

The parties both motioned for additional findings, but the trial court declined to alter, amend, or vacate its prior order. Finding as to Husband’s motion to change the above marital share calculations, the trial court wrote: “[c]hanging a portion of the distribution would upset the overall balance contemplated by the [trial court].” Husband’s appeal followed.

In his first argument, Husband asserted the trial court erred in its above-detailed calculation, and should have offset the value of the 3 vehicles against the sum of marital residence equity (not just half), as follows:

Marital residence equity - $152,500
3 vehicles to Husband - $23,500
Husband’s retirement account - $149,378.98

Marital residence equity – 3 vehicles to Husband - $129,000
^ divided in two - $64,500

Reduction to apply to Wife’s ½ share of retirement account = $64,500

Finding that the trial court had committed an abuse of discretion, the Court agreed with Husband and vacated and remanded on the calculation of the amount of Wife’s assignment from Husband’s retirement account.

In his second argument, Husband asserted that the trial court erred in its one-to-one handling of pre-tax assets (marital residence equity and vehicles) with post-tax assets (Husband’s retirement account).

Acknowledging that Husband’s retained retirement account funds were subject to potential taxes or penalties, but noting that no such taxes or penalties had been incurred, the Court declined to find any abuse of discretion. (Editor’s note: this is somewhat curious. Even if we presume Husband will wait until he reaches retirement age to take any distribution, and thus avoid penalties, he will still have to pay taxes on this money. And wouldn’t with post-tax money.) The Court found that the trial court may reconsider its handling of pre and post-tax assets during its remand, but only if “it decides that would be an appropriate consideration when it redivides the marital property.”

In his last argument, Husband contended that the trial court erred by deeming his employer bonuses marital property, because (A) Wife’s proposed findings were not timely filed; and (B) Husband had used said bonuses to pay for marital expenses. The Court rejected (A), before continuing “[b]ecause we are vacating the division of the marital assets, the [trial] court may revisit the division of the profit sharing bonuses on remand if it so chooses.”

Cole v. Cole, Nos. 17-CI-50059, 2022-CA-1222-MR (Ky. App. 2023)

Civ. R. 52.01
Property Settlement Agreement: ambiguity; disclosure

Dated: September 15, 2023
Affirming
Not to be Published

The parties’ marital estate in this case included extensive equine artwork, valued in the parties’ Verified Disclosure Statements (which specifically listed 38 pieces) at $114,630. In the subsequent Mediation Agreement and under the decree, Husband was awarded “artwork,” with the latter including the same listing of pieces the parties provided in their Verified Disclosure Statements, and an addendum listing 7 more. The decree further stated that the parties “previously divided their remaining personal property and each party shall be awarded all items currently in their possession.”

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Or “mistletorse,” as we might call it if we dared speak its name.

Husband subsequently filed a motion claiming additional property for return, which included 2 horse paintings by James L. Crowe which were not previously identified in the Verified Disclosure Statements or the addendum to the decree. Wife denied having them in her possession or knowledge of their whereabouts. In an additional motion, Husband argued Wife had constructive possession of the 2 paintings due to her occupancy of the marital residence, and estimated their worth at $15,000. Wife’s appeal followed.

Wife argued the trial court erred when it interpreted “artwork” to encompass the 2 additional paintings, and not solely the paintings that were identified during the proceedings. Wife further asserted that the decree awarded the parties items “in their possession,” and thus she could not have constructive possession of property already awarded to her.

While the parties’ disclosures failed to identify these specific pieces, the subsequent addendum supported Husband’s claim, the Court found, that the term “artwork” was meant to encompass them. As for whether Wife was in constructive possession of the 2 pieces, the Court found the photographs and invoice Husband provided to be compelling, as well as Wife’s prior refusal to grant him access to the residence to catalogue the artwork. The Court thus again affirmed.

Laney v. Laney, Nos. 20-CI-00983, 2022-CA-1337-MR (Ky. App. 2023)

Marital Property: abuse of discretion, equalization; retirement benefits (401(k)); source of funds; tax liability

Dated: September 15, 2023
Affirming in Part, Reversing in Part, and Remanding
Not to be Published

During the course of the parties’ marriage, they purchased a farm using funds from Husband’s pre-marital 401(k). This farm was assigned to Husband as part of their dissolution proceedings, and -after discounting the farm’s marital value for Husband’s non-marital contributions- the trial court valued Wife’s share at $19,877. This share was further reduced by Husband’s interest in Wife’s retirement account. The trial court accepted these valuations over Wife’s objections, and her appeal followed.

Noting Husband’s failure to file a brief, and its own ‘clearly erroneous’ standard of review for trial courts’ factual determinations, the Court considered Wife’s arguments as follows.

Wife first argued that the trial court erred when it failed to award her any of the value of a motorcycle assigned to Husband. The Court dismissed this argument, noting that the parties repeatedly stipulated to such assignment throughout the proceedings.

In her second assignment of error, Wife argued that the trial court committed mathematical error and failed to reduce Husband’s nonmarital portion of the 401(k) (used to purchase the farm) for withholdings from its distribution.

Husband’s 401(k) prior to distribution had a balance of $147,689.38. The parties stipulated that this included a $50,172 nonmarital interest. After withholdings, he received $113,480. The trial court failed to reduce Husband’s nonmarital portion to reflect tax withholdings that were applied to the distribution, which was used to purchase the farm.

The Court found that the trial court had failed to properly account for the entirety of payments made toward the farm, and the parties’ marital interest therein. The matter was thus remanded back to the trial court to recalculate the parties’ respective interests in the farm.

Bays v. Bays, Nos. 19-CI-00108, 2022-CA-0682-MR (Ky. App. 2023)

KRS 403.190: presumption increase in value is marital
Marital Property: appreciation (home), burden of proof, source of funds, tracing, valuation (home)

Dated: September 29, 2023
Affirming in Part, Reversing in Part, and Remanding
Not to be Published

The parties purchased a one-half interest in a significant amount of farmland during their marriage, using Husband’s inheritance money. The two set about improving the land until Wife filed for dissolution in 2019. Their respective interests in the farm were a matter of dispute during the proceedings, and a Domestic Relations Commissioner awarded Husband $185,552 for his nonmarital interest (representing his inheritance money used for the purchase), and valued the overall property at $650,000. The property’s increase in value was deemed marital and attributable to both parties’ efforts, and Wife was awarded $232,223 for her share of said increase in the property’s value.

Husband objected to the $650,000 valuation of the property, since this amount represented the overall value of the property, while the parties possessed only a one-half interest. The trial court remanded the matter back to the Domestic Relations Commissioner, where Wife’s interest was reduced, but the overall value of the parties’ interest in the farm remained the same.

In its subsequent findings of fact, the trial court rejected the commissioner’s recommendations, and reduced the value of the one-half interest in the property to $325,000. It further found that Husband had made nonmarital contributions and improvements to the farm that, when added to his existing nonmarital interest (from its purchase using nonmarital funds), exceeded the parties’ overall one-half interest. Wife was not assigned any interest in the value of the farm. Her appeal followed.

In her first assignment of error, Wife contends the trial court erred by not using the overall value of the farm itself. Wife argued that no other heirs had claimed the other half interest in the farm, but the Court disagreed, writing:

Whether or not the heirs will come forward is simply unknown. What is known is that the [parties] owned a one-half undivided interest, and the trial court’s decision to value that interest at $325,000, one-half the property’s appraisal value, was not an abuse of discretion.

In her next assignment of error, Wife argued that the trial court failed to account for her contributions to and interests in the farm. While the trial court awarded $185,552 to Husband for his nonmarital interest, Wife argued that the remaining $139,447 attributable to improvements should be presumed marital by default, and that Husband failed to ‘trace’ his alleged nonmarital interests in this amount.

The Court agreed, noting that while the evidence presented during trial court proceedings included payment from Husband’s nonmarital funds to the parties’ shared funds, no further evidence showing how this money was spent (other than a $35,552 payment following the deposit of nonmarital funds) was provided.

[Husband] commingled $60,000 of his non-marital funds in the marital farm account and offered no evidence of how those funds were spent. He also offered no evidence of a $101,000 increase in value to the farm attributable to the improvements. [Husband] had the burden of showing any increase in the property’s value attributable to his non-marital property.

Because the Court found Husband failed to meet his burden to prove the increase in the property’s value was attributable to his nonmarital contributions, or to trace his nonmarital funds, it remanded the matter back to the trial court to divide the increase in the farm’s value between the parties.

Gregory v. Logan, Nos. 00-CI-00245, 2022-CA-1522-MR (Ky. App. 2023)

Civ. R. 60.02: (timely)
QDRO: ambiguity, conformity with decree, coverture, standard of review, valuation date

Dated: October 13, 2023
Affirming
Not to be Published

As part of the parties’ 2000 dissolution, Wife was awarded a portion of Husband’s federal government retirement benefits via Court Order Acceptable for Processing* (COAP), based on 50% of the benefit “as of October 26, 2000.” Husband filed a motion in 2001, seeking to alter or amend the COAP, alleging his employer cited ambiguity in the award. The trial court subsequently attempted to clarify the parties’ intent via a 2001 order which awarded Wife 50% of the benefit “with whatever interest or gains are attributable thereto,” and stated that award was “not intended to award [Wife] any contributions made to these pensions by [Husband] or his employer after October 26, 2000.”

The parties’ COAP was rejected in 2002, whereupon Wife moved the trial court to permit the entry of a COAP that limited her interest to “the portion of the annuity pension earned during the marriage and as of October 26, 2000.” A revised COAP was entered by the trial court, which Husband later claimed he did not receive (despite service to his attorney at the time). This subsequent COAP was accepted by the plan.

Husband retired in 2017, and the parties received letters related to their calculated shares of the benefit in 2018. Following receipt of his letter, Husband motioned the trial court for repayment of benefits paid to Wife and entry of an amended COAP. Husband argued that (a) he had not received a copy of the 2002 COAP, (b) the 2002 COAP improperly calculated Wife’s interest in the pension based on the value of the benefit as of the date of retirement (versus the date of divorce), and (c) the 2002 COAP added a survivorship annuity not previously discussed by the parties.

In her response, Wife asserted her calculation of the award was correct in the 2002 COAP, because it was based on the marital portion of the benefits, only. Wife also argued that the prior, 2001 COAP had included language related to a survivorship annuity, which Husband had not objected to in his 2001 Civ. R. 60.02 motion.

In 2020, the trial court denied Husband’s motion, finding among other things that it was untimely, due to his receipt by service of the 2002 COAP. Husband subsequently filed to alter, amend, or vacate the 2020 order, along with a new Civ. R. 60.02 motion related to the 2002 COAP. Following proceedings, the trial court denied Husband’s motion, and his appeal followed.

In his appeal, Husband asserted the trial court erred in finding he had received service of the 2002 COAP, and in denying his Civ. R. 60.02 motions.

The Court disagreed with Husband’s first assertion, “because that finding was based on substantial evidence and therefore, was not clearly erroneous.”

[T]he clerk entered the 2002 Pension COAP, mailed it to Michael’s counsel, and it was not returned as undelivered. The court determined that Michael had legal notice of the 2002 Pension COAP, based on substantial evidence, and therefore, its finding was not clearly erroneous. We are bound by that finding.

The Court similarly disagreed with Husband’s second argument, noting that its finding related to Husband’s receipt of the 2002 COAP limited its review of any argument about his Civ. R. 60.02 motions.

Stated another way, if [Husband] wanted to argue that the original intent of the parties was not followed in the 2002 Pension COAP, he needed to request further findings and/or appeal that issue in a timely manner.

While Husband filed his motion within a year of his receipt of the 2018 letter, this was not -the Court found- “the start of our reviewable clock.” The Court similarly dismissed Husband’s third argument related to the survivorship annuity, which it noted was included in the parties’ 2001 COAP as well.

As for Husband’s argument that the “extraordinary nature” of his appeal supported an award of relief under Civ. R. 60.02(f) because the 2002 COAP went beyond the scope of the decree with respect to the marital share of the annuity calculation, the Court again disagreed. The cases Husband cited for his argument -that increases to the pension plan post-dissolution should be excluded from the marital annuity calculation- concerned instances where trial courts were forced to revisit and correct assignments in military division orders due to their failure to convey the trial court’s original intent. However, the Court found there was no such similar error in the 2002 COAP. Wife’s awarded interest, while based on the benefit value at Husband’s retirement (versus at divorce), was restricted to the marital portion therein by only including marital months of service (and not the months of service Husband accrued post-dissolution). Moreover, the Court flatly declined any invitation by Husband to extend the ‘military holdings’ to the division of (civilian) federal pensions. Thus, the Court found no abuse of discretion, and affirmed.

*Editor’s note: Federal pension benefits are subject to division via Court Order Acceptable for Processing (COAP), which is the federal government’s ‘version’ of a Qualified Domestic Relations Order (QDRO). A COAP is the sole and exclusive mechanism by which a state domestic relations court may direct OPM to issue payment to a former spouse of his/her assigned share of the marital federal pension benefits. See Sections 8345 and 8467 of Title 5 of the United States Code, see also Part 838 of Title 5 of the Code of Federal Regulations. 

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