Ohio Case Law Review by Topic: June 2024

Devito v. Devito, 1st Dist. Hamilton No. DR1901095, C-230539, 2024-Ohio-2334

Marital Property: equitable division (unequal division of retirement), distributive award, financial misconduct (dissipation), totality of circumstances

Dated: June 12, 2024
Affirming

Editor’s Note: Click here to read our summary of the previous appeal in this case.

The parties married in 2014, and in 2016, Husband was arrested and sentenced to 30 years in prison for the production of child pornography. Wife subsequently filed for divorce, and in 2021, as part of a magistrate’s hearing, Wife was awarded the entirety of 2 of Husband’s 3 retirement accounts including both marital and pre-marital portions, as part of a distributive award in consideration of Husband’s criminal acts.

Husband’s first appeal followed, in which he argued that the trial court’s distributive award to Wife was an abuse of discretion. Noting that the trial court’s award included inheritance money, which was Husband’s separate property, the Court remanded the matter for reconsideration of the division of assets and the distributive award.

On remand the trial court held a hearing wherein Wife argued that Husband’s criminal activity constituted financial misconduct:

[Husband’s] wrongdoing caused his incarceration which, in turn, interferes with his spouse’s property rights because [Wife] is now required to use 100% of her property rights, without ongoing financial assistance from [Husband], to incur all of the expenses associated with raising their child which is a loss to [Wife] caused by the offending spouse’s misconduct. Meanwhile [Husband] profits from his wrongdoing because he is not required to pay child support for their child due to his incarceration.

The magistrate and trial court agreed with Wife, finding that an unequal award of Husband’s assets was equitable in light of his conduct, and issuing an amended decree. Husband’s second appeal followed.

In his first assignment of error, Husband argued that the trial court erred in its finding he had committed financial misconduct. Pursuant to instruction on remand, the Court noted, the trial court should have relied on ORC 3105.171(E)(1) in making its finding.

R.C. 3105.171(E)(1) provides that “[t]he [trial] court may make a distributive award to facilitate, effectuate, or supplement a division of marital property.”

In finding Husband had committed financial misconduct, the magistrate wrote that Husband’s actions had committed criminal acts for his personal benefit, which negatively impacted Wife’s financial rights. Wife would now have to raise the parties’ child with her own funds, while Husband profited by providing no income or child support. Under these circumstances, an equal division of assets would be inequitable, thus entitling Wife to a distributive award.

Citing a disturbingly similar case (Albers v. Albers), the Court agreed with the magistrate and trial court’s reasoning: while deeming Husband’s actions financial misconduct may be “misplaced,” the trial court is nonetheless empowered to make a distributive award when the circumstances merit, and an equal division would be inequitable.

Hoy v. Hoy, 4th Dist. Vinton No. 23CA704, 2024-Ohio-2440

Marital Property: valuation
Witness: credibility, expert, qualification

Dated: June 18, 2024
Affirming

On remand from a prior appeal, Husband and Wife presented differing business valuations for their medical transport business. Husband’s expert asserted a value of $588,000, whereas Wife’s expert argued a value of $155,000. The trial court ultimately adopted Husband’s expert’s value, but reduced it by $135,000 for debts associated with vehicles. Wife again appealed, and Husband cross-appealed.

Fall in Ohio: the sound of dry leaves rustling in the breeze, and your neighbors screaming at the Ohio state game on TV.

During the trial court’s hearing on remand, Husband’s expert presented a business valuation based on a capitalization of earnings method, which utilized the business’ expected annual revenues, capitalization rate, cash on hand, and debts to derive the $588,000 figure. Wife’s expert, on the other hand, argued the business should be valued based solely on its tangible assets, because its existing contracts were non-transferable. Most of this value was in the business’ vehicles, on each of which he placed a rough value, which he then reduced by the amount of their outstanding loans.

Wife argued that, because ‘anyone’ could get a contract for transport with government services, she could only sell the business’ assets, not the business itself. But the trial court disagreed, in consideration of the business’ considerable client list, and valued the business at $453,000 (based on Husband’s expert’s value, minus $135,000 for vehicle debt). Based on its award of the business to Wife, the trial court made a distributive award to Husband of $141,945. Wife appealed and Husband cross-appealed.

In her appeal, Wife argued that the trial court should have accepted her expert’s figure, based on the non-transferability of the business’ contracts, and what she argued were shortcomings with Husband’s expert’s report. She argued that the capitalization of income approach used by Husband’s expert resulted in an artificially high amount. She also alleged other shortcomings, including that Husband’s expert did not know the make/model of the vehicles, nor the start/end dates of the contracts, or how many employees the business had.

Husband disagreed, arguing the business in fact had goodwill value in its client lists and name recognition, which Wife had begun in part to transfer to her son. Husband alleged similar shortcomings in Wife’s expert’s report, and argued that the trial court correctly rejected it.

Reviewing for whether the trial court’s decision was supported by evidence, only, the Court affirmed the trial court’s use of Husband’s expert’s valuation. The trial court weighed the relative qualifications and approaches of the two experts and found Husband’s expert’s more meritorious. Husband’s expert report went into substantially more detail than Wife’s, as did her testimony concerning her methodology, and the trial court thus reasonably decided to adopt the value in her report.

In his cross-appeal, Husband argued that the trial court erred when it deducted $135,000 from the $588,000 business valuation, attributable to vehicle debts. This amount, Husband claimed, was based on debts associated with the vehicles in 2018, not 2014 when the business valuations occurred. The Court agreed, noting that following the auctioning of the business’ vehicles, the parties received the net proceeds therefrom, and thus a reduction for debts which no longer existed was inappropriate.

Matheson v. Matheson, 9th Dist. Lorain No. 19DU086106, 23CA012011, 23CA012012, 2024-Ohio-2477

Marital Property: debts, loan

Dated: June 28, 2024
Affirming in Part and Reversing in Part

Editor’s Note: Click here to read our summary for the previous appeal in this case.

On remand from a previous appeal, the trial court sought to calculate the parties’ overall marital debt for repayment from proceeds stemming from the sale of the marital home. The trial court concluded: (a) that the parties’ marital debt as of the filing of the complaint for divorce was $100,000; (b) between the filing of the complaint and beginning of trial proceedings, Husband took out a series of loans which paid off the prior debts while accruing new and increased obligations which were his obligation to repay. The trial court concluded that Husband should bear the cost of his unilateral, poorly conceived decisions.

The trial court thus equally divided the proceeds from the sale of the home, without any discounting for marital debts, which it contended had been fully repaid. This summary pertains to Husband’s appeal, only.

Husband argued that the trial court erred and abused its discretion when it failed to divide the parties’ marital debt on remand. Noting its manifest weight of the evidence standard of review, the Court disagreed. Husband’s actions had been in contravention of the trial court’s orders, and his new loans exceeded the amount owed on the parties’ old loans. Husband used the excess amounts to pay for various, non-marital expenses, for which he was solely responsible. Finally, the Court noted that any new claims not previously raised by Husband were barred by the doctrine of res judicata.

Hamrick v. Hamrick, 9th Dist. Medina No. 17DR0505, 2023CA0024-M, 2024-Ohio-2517

Marital Property: financial misconduct, dissipation, loan (401(k)

Dated: June 28, 2024
Affirming

Husband argued Wife committed financial misconduct by borrowing from her 401(k) plan in violation of a mutual restraining order. Husband’s claim was based solely on this violation, without additional evidence or arguments.

The Court acknowledged that Wife’s action did violate the restraining order but emphasized that this alone does not constitute financial misconduct. To prove financial misconduct, the alleging party must demonstrate two conjunctive key elements:

1. A wrongdoing by one spouse that interferes with the other spouse’s property rights; and

2. The wrongdoing results in profit to the wrongdoer or is intended to defeat the other spouse’s distribution of assets.

The Court found that Husband’s argument was singularly focused on the violation of the restraining order, without demonstrating either how the loan interfered with his property rights or showing wrongful intent by Wife. In so finding, the Court reiterated that merely violating a restraining order does not automatically equate to financial misconduct; there must be evidence of wrongful intent and profit from the wrongdoing. The Court found Husband failed to prove both elements.

In affirming, the Court noted that the trial court had already addressed the impact of Wife’s 401(k) loan by ordering that her share of the account be reduced by the loan balance, ensuring the Husband received his full property interest. The Court further noted that Husband did not provide evidence of any tax consequences [Editor’s Note: there would not have been any income tax consequence to Husband, absent: 1) Wife’s failure to repay the loan, and 2) such failure occurred in a tax year where the parties filed a joint return] or loss of potential investment gains due to the loan [Editor’s Note: there would not have been any loss of gains to Husband –presuming there were gains– so long as the trial court’s valuation date for division of the 401(k) Plan was on or after the date the loan was taken].

Dissent: The dissent opined that Wife’s borrowing from her 401(k) appeared to be an intentional act meant to defeat Husband’s distribution of assets. The dissent noted that while the lead opinion suggested Wife might have withdrawn the funds due to financial difficulties, this conflates intent with motive. The dissent emphasized that Wife’s actions, including the reduction of the 401(k)’s value and other financial maneuvers, demonstrated a pattern of intent to conceal and deplete marital assets. Therefore, the dissent would have found that Wife engaged in financial misconduct and recommended a reassessment of the asset distribution.

Practical Tip: When alleging financial misconduct in a divorce, the lead opinion in this case makes clear that it is crucial to provide clear evidence of both wrongful intent and interference with property rights. Simply demonstrating a violation of a restraining order or other financial missteps may not be enough to pass muster, whether attempting to persuade the lead or dissent!

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