Kentucky Case Law Review by Topic: July 2024

Delk v. Delk, Nos. 19-CI-00334, 2022-CA-1197-MR (Ky. App. 2024)

KRS 403.190(1)(a)-(d)
Marital Property: equalization, final hearing, house, real property, source of funds, valuation date
Witness: expert

Dated: July 12, 2024
Affirming
Not to be Published

The parties married in 2010, and Wife filed a petition for dissolution in 2019. Throughout the parties’ marriage, Husband maintained numerous holdings and investments in businesses and real estate through a holding company. In 2019, two of such businesses (which comprised the majority of the value of his holding company) were implicated in a federal investigation. Husband was eventually fined 1.8 million dollars, closed one of the businesses, and sold the other.

As part of proceedings in June 2020, the parties hired experts to determine the overall value of Husband’s holding company. Wife’s expert argued that the company should be valued as of 12/31/2019 to match year end filings and adjustments with the IRS. He further stated that he could not factor the federal investigation into his valuation of the holding company, if this date was used.

Husband’s expert argued, instead, that a valuation date as close as possible to the date of decree was preferred, suggesting the trial court use 06/30/2020. He noted that sales had decreased as a result of the federal investigation.

The trial court utilized 12/31/2019 for the valuation, the date suggested by Wife’s expert. Utilization of the 06/30/2020 would require agreement by the parties as to what constituted ‘good data,’ amidst the impact of the federal investigation and COVID pandemic, which the trial court believed was not feasible. Husband filed a Motion to Alter, Amend, or Vacate, which the trial court denied.

During the final hearing, Wife testified as to her earning ability and the parties’ lifestyle, and the parties stipulated as to the value of the marital home and Husband’s newly constructed residence. Husband similarly testified as to his earnings, which had significantly increased during the pendency of the dissolution.

The parties also testified concerning their vacation home, which was appraised at 2.2 million dollars and currently generated rental income. Husband stated that he purchased the land for the house in 2016 with money loaned through an irrevocable trust that had been established by his mother. Wife testified that she had been advised that the role of the trust had been primarily to protect the property for the parties’ children, whereas Husband testified that Wife had expressly waived her rights to a marital interest in the property.

Finding that Wife’s expert’s valuation of Husband’s holding company was more complete, the trial court adopted its value of $6,690,000, and it awarded ownership thereof (along with any associated debt) to Husband. The trial court further awarded both parties their respective homes, with Husband solely responsible for the debt owed on his.

The trial court further found that the evidence offered was insufficient to show Wife waived her marital interest in the parties’ vacation home. It awarded the home to Husband, with an equalization payment owed to Wife. The trial court likewise determined that the proceeds from the sale of an additional, separate home (that Husband had unsuccessfully argued was his separate property via trust) were marital, and ordered the division thereof.

To equalize the parties’ shares of marital assets, Husband was ordered to pay Wife $5,250,174. And the trial court declined to make an award of maintenance to Wife, finding that she had been awarded sufficient marital property to sustain her lifestyle.

Following motions by both parties, the trial court reduced the payment owed to Wife (based on a reduction in its valuation of Husband’s holding company) to $3,650,034. Husband’s appeal followed.

In his appeal, Husband argued the trial court erred as follows:

1. In adopting Wife’s expert’s valuation date of 12/31/2019;

2. By failing to account for changes in assets and debts prior to the 2022 hearing;

3. In awarding assets both through its valuation of his holding company, and separately in the marital estate;

4. By failing to account for debt owed on his home in its division of marital property;

5. By including trust assets in the marital estate; and

6. In ordering a $15,000 monthly payment to Wife (until payment in full of the equalization amount) without a statutory basis.

As for Husband’s first assignment of error, the Court found his arguments unpersuasive. It noted that the trial court’s order explained its reasoning for use of the 12/31/2019 date, in valuing his holding company. A mid-year date would have required agreement of the parties for assumptions necessary for the calculation, which it believed the parties were incapable of. The challenge of using a mid-year date was further exacerbated by Husband’s own actions and business decisions, and unilateral movements of funds. Finally, Husband had failed to present any evidence of specific losses attributable to the COVID pandemic. For all of these reasons, the Court determined the precedential holding in Thielmeier v. Thielmeier, 664 S.W.3d 563 (Ky. 2022) (see our prior blog post here; and search citing cases since here) was distinguishable, in that the trial court in this case properly considered the factors of KRS 403.190(1)(a)-(d).

The Court found similarly in determining that: (A) Husband’s actions had made any accounting for changes in assets and debts prior to the 2022 hearing impossible; and (B) Husband’s actions themselves likely contributed to any decrease in the value of his holding company.

Because of his post-separation activities involving Delk Enterprises, [Husband] did not and perhaps could not show that the value of Delk Enterprises was actually significantly different by the time of the final hearing.

The Court further agreed that, as of the 12/31/2019 date chosen for valuation of Husband’s holding company, the fines subsequently paid by the company could not have been known, and thus were correctly not factored into the trial court’s valuation of the company.

The ‘angel’s share,’ or a dissipation of bourbon-al assets?

For Husband’s third assignment of error, the Court again affirmed the trial court’s decision. Husband argued that the holding company valuation adopted by the trial court included a line item which he attributed to a loan made first from his holding company to a trust he created for the purchase of properties, then from the trust to a properties acquisition company for the purchase of the separate, additional home (which sale proceeds were divided by the trial court). The line item, however, did not sufficiently match Husband’s assertions.

The Court likewise found that Husband offered insufficient arguments for his assertion that the trial court ‘double counted’ artworks in its overall valuation of the marital estate.

The Court again rejected Husband’s assertions as to the allocation of debt attributable to his newly constructed home. Husband had been in a position to fully repay the debts associated with the purchase of the property and construction of his home by October 2021, but instead took out additional financing for his primary benefit. The trial court’s assignment of such debt to Husband was thus not an abuse of discretion.

In his next assignment of error, Husband argued that the trial court erred in including assets belonging to trusts in the marital estate. He stated that the separate, additional home (which sale proceeds were divided by the trial court) was an asset of the trust he created for the purchase of properties, and thus not a part of the marital estate. This was at odds, however, with the ownership of said home by a property acquisition company owned by Husband, instead.

The parties’ vacation home, Husband argued, was an asset of the trust created by his mother, rights to which Wife had previously waived. The Court again disagreed, noting that said trust had been started with $2,500, and the bulk of funds used to purchase the vacation home were marital, from Husband’s holding company.

Finally, the Court affirmed the temporary award of $15,000 monthly to Wife, until the payment of her full equalization by Husband. Because no maintenance had been awarded, such payment was necessary during the pendency of the equalization of the estate (and made necessary in part by Husband’s own actions).

Allen v. Allen, Nos. 18-CI-00625, 2023-CA-0657-MR (Ky. App. 2024)

KRS 403.190(1)(a): contributions of each spouse
KRS 403.190(2)(d): valid agreement of parties
Marital Property: equalization, investment account, real property, separate property, source of funds, tracing

Dated: July 19, 2024
Affirming in Part, Reversing in Part, and Remanding
Not to be Published

The parties were married for over 18 years before separating in 2017, with Husband filing a petition for dissolution in 2018. Issues subject to this appeal included the classification and division of property, including the marital home, various real properties, and assets tied to Wife’s dental practice. The trial court issued a bifurcated decree of dissolution in 2022, reserving issues regarding the division of property, which were ultimately resolved in a 2023 order.

Husband appealed, raising four assignments of error: (1) the trial court erred in concluding that res judicata barred his claim that the land on which the marital home sits, referred to as the Ed Hale land, was marital property; (2) the Allen Resources properties were improperly classified as marital property despite deeds indicating they were Husband’s nonmarital assets; (3) the trial court erred in awarding Wife sole ownership of the land and buildings of her dental practice, though the mortgage had been paid off during the marriage; and (4) the trial court improperly awarded the full value of Wife’s investment account to her as her separate property, though it was established during the marriage.

The Court affirmed the trial court’s decision regarding the dental practice and the investment account but reversed and remanded on the Ed Hale land and the Allen Resources properties.

In addressing Husband’s first argument, the Court found that the trial court’s application of res judicata to the Ed Hale land was inappropriate. A prior partition suit involving the land between Wife and her sisters did not preclude the trial court from determining whether the land was marital or nonmarital property under KRS § 403.190. The Court remanded the issue to the trial court for further factual findings.

On the second issue, the Court reversed the trial court’s classification of the Allen Resources properties as marital. The properties were conveyed to Husband during the marriage, with Wife explicitly relinquishing any marital claim to the properties in the event of divorce. Given the clear ‘waiver language’ of the deeds, and the absence of claims of fraud or duress, the Court found that the properties were Husband’s nonmarital assets under KRS § 403.190(2)(d).

The Court likewise affirmed the trial court’s findings regarding the dental practice. Husband had argued that the mortgage on the practice property had been paid off during the marriage, creating a marital interest. However, the Court found that the mortgage, while secured by the land and buildings, was used to finance the purchase of equipment for the dental practice. Since the land and buildings were purchased by Wife before the marriage, they were her nonmarital property. The equipment financed during the marriage was considered part of the marital estate, consistent with the parties’ stipulation.

Finally, the Court upheld the trial court’s decision to award Wife the full value of the investment account under KRS § 403.190(1)(a). Although the account was marital, Husband did not contribute to it, and the Court considered the broader division of the marital estate, including an equalization payment to Husband, when making this determination. (Of note, the trial court also determined that Wife held the account for the benefit of their adult child, pursuant to Wife’s testimony that she intended to provide the proceeds to their child after college graduation.)

Given the reversal of the classification of the Allen Resources properties and the need for further proceedings regarding the Ed Hale land, the Court remanded the case for reconsideration of the division of the marital estate, including any necessary adjustments to the equalization payment.

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