Ohio Case Law Review by Topic: November 1, 2024 through December 31, 2024

Humbarger v. Cassidy, 12th Dist. Warren No. 22 DR 43567, CA2024-04-024, 2024-Ohio-5361

Civ. R. 53: facial review of magistrate decision
Marital Property: appreciation, proportional share method, separate property, tracing, valuation
Witness: credibility

Dated: November 12, 2024
Affirming

After three years of marriage, the parties began divorce proceedings in in 2021, stipulating to 11/30/2021 as their agreed-upon marital ‘end date.’ At their final hearing, Husband provided proof of his pre-marital interest in a Roth IRA, amounting to $80,888 at the time of marriage. Throughout the marriage, Husband made contributions totaling $9,000, which –along with interest– increased the account balance to $161,953.

At the same hearing, Husband testified that Wife should be assigned half of the marital contributions, along with gains/losses attributable therefrom, and he would retain the remainder of the account. Husband failed, however, to put forth any evidence by which the trial court could separately assess the portion of gains/losses attributable to Wife’s marital interest, and his retained marital/non-marital interest. Wife countered that she should be assigned half of all gains/losses accrued to the account throughout the marriage, and was ultimately assigned the same.

Wife calculated the total IRA value at the time of separation to be $161,953.22, subtracted [H]usband's premarital, separate IRA value of $80,887.95, which left remaining $81,065.27, and divided that amount in half.

Beware of the Buckeyides of March. And bracket advice from your uncle.

The subsequent magistrate’s decision noted the lack of evidence presented by Husband regarding the treatment of gains/losses in the account during the marriage. Husband belatedly filed a memorandum in support of objections he raised to the decision, in which he outlined two methods for the treatment of gains/losses, suggesting either: (A) the trial court award him 95% of the account as attributable to his contributions; or (B) the parties submit statements through the term of the marriage to an accountant to determine the portion of gains/losses attributable to Wife’s marital share. The trial court rejected Husband’s objections, finding he had failed to provide testimony or evidence at the final hearing.

Husband appealed, arguing that the trial court erred in assigning Wife half of the gains/losses attributable to his non-marital share of the account during the marriage. Noting a trial court’s discretion in determining the equitable distribution of marital property, which will not be overturned absent an abuse of discretion, the Court disagreed.

Husband simply failed to provide credible evidence or testimony when he was required to do so: at the evidentiary hearing. Based on this, the trial court reasonably deemed all gains/losses during the marriage as marital.

When asked at the evidentiary hearing how those gains might be calculated, Husband admitted "I have my theory but I'm not gonna give you an answer. I'm not an accountant." Husband did not give a specific figure. There was no evidence in the record to determine what IRA gains were attributable to Wife's contributions versus Husband's contributions. The credibility and reasonableness of proposed valuations are ordinarily tested at evidentiary hearings with cross-examination and counter proposals. Because Husband proposed no methodology at the hearing, Wife never had the opportunity to cross-examine him on his methodology and the calculation he reached.

Rejecting Husband’s subsequent suggestions concerning gains/losses, the Court further wrote: “Husband is not permitted to take a wait-and-see approach with the magistrate's decision, and only propose other calculations afterward when he is dissatisfied.”

Fitzgerald v. Fitzgerald, 6th Dist. Wood No. 2017DR0012, WD-23-036, 2024-Ohio-5419

Marital Property: retirement benefits
QDRO: impermissible modification, local court rule, market experience (gains/losses), merely implements decree, valuation
ORC 3105.171(I): (prohibition on modification)

Dated: November 15, 2024
Affirming

Editor’s Note: To read the EZ QDRO LAW summary related to the March 2023 Appeals Court decision in this matter, click here .

In response to accusations of financial misconduct, the trial court enjoined both parties in this matter from the transfer or removal of assets, specifically identifying their respective retirement accounts in its order. Lengthy proceedings ensued, and in 2020, Wife was assigned $517,552 from Husband’s TIAA accounts. This award was intended to represent 70% of the parties’ combined retirement accounts.

The trial court’s assignment was upheld on appeal, with the Court then noting that the unequal 70% division of the accounts (based on the parties’ respective accounts, as well as proceeds from the sale of the marital residence, and the assignment of credit card debt) was intended to produce an equitable result and was not an abuse of discretion.

In 2020, Wife and the trial court were made aware of significant withdrawals from Husband’s TIAA-held Bowling Green Alternative Retirement Plan (ARP) account. Wife filed and was granted a motion to join TIAA as a third-party defendant and bar the release of further funds to Husband. Additional proceedings and countering motions ensued, at the conclusion of which the trial court issued a QDRO awarding Wife $500,000 from Husband’s TIAA ARP account.

Husband’s subsequent appeal (summarized in the linked blog, above) argued unsuccessfully that an Ohio Division of Property Order applied to his ARP account, and that the trial court committed reversible error.

In subsequent proceedings, Husband further argued against the application of gains/losses on Wife’s assignment, alleging this misapplied the trial court’s local rules. Wife’s expert testified that, taking into account the amounts already received by Wife from Husband’s TIAA accounts (including his ARP and others), her remaining interest representing gains/losses on the originally assigned $517,552 amount was: $215,766.

Citing Tekamp and the Court’s prior appeals decision, the trial court issued a 3rd QDRO, awarding Wife $213,214. Husband’s appeal followed, in which he made 9 assignments of error. Among these he argued: that the trial court improperly modified the decree and enlarged Wife’s award by $213,214; that the trial court included his separate, post-marital property in its award to Wife; that the trial court made a reversible error when it construed local rules as statutory authority; that the trial misapplied relevant case law; and that the trial court made a reversible error when it included a TIAA employer plan which had not been originally included in Wife’s award.

Wife countered that Husband’s assignments of error were mooted by his failure to request a stay of execution, and were barred by the doctrine of res judicata.

The Court rejected Husband’s arguments, noting that the majority of his assignments of error rely on the notion that the trial court erred in its application of gains/losses on Wife’s account. A QDRO merely implements the terms of a divorce decree, and is voidable when it is inconsistent with decree terms. Thus, the Court wrote, it must review whether a QDRO is consistent with a decree as a matter of law, applying the de novo standard of review. Such review cannot proceed, however, as Husband’s claim (specifically his challenge to the local rule gains/losses presumption) is barred by the doctrine of res judicata. (Wife’s mootness claim, on the other hand, lacked sufficient authoritative basis.)

Having affirmed the trial court’s application of gains/losses on the QDRO award, the Court turned to Husband’s remaining assignment of error: that the trial court erred in its inclusion of a TIAA-held account not originally identified in the decree. Noting Husband’s failure to raise the issue throughout the course of the lengthy proceedings in this case, the Court again affirmed.

Cusack v. Cusack, 9th Dist. Lorain No. 16 LS 081963, 23CA012064, 2024-Ohio-5427

ORC 3105.171(I): (prohibition on modification)
Spousal Support: definition of income, separate property, stock (RSU)

Dated: November 18, 2024
Affirming

During the parties’ marriage Husband earned a significant average annual income, based on salary and bonuses equating to roughly $500,000. Whereas Wife was unable to work, and suffered from multiple sclerosis. Based on their respective capacities, Wife was assigned $9,000/month in spousal support. The trial court likewise –and in the same spousal support section of the order– awarded Wife half of Husband’s future bonuses and/or equity grants (after taxes and required deductions).

Proceedings concerning unresolved portions of the parties’ marital property continued, and both parties’ appeals during this time were dismissed for lack of a final, appealable order. In 2020, Husband lost his job, whereupon his unvested stock shares were forfeited. In 2023, the trial court ordered the division of the remaining non-forfeited shares, based on the amount that were held by Husband at the time of the parties’ 2018 divorce.

In his subsequent appeal, Husband argued firstly that the trial court erred in its division of restricted stock units (RSUs) acquired after the parties’ 2018 divorce. In doing so, he alleged, the trial court modified the decree each time it divided the RSUs. Further, Husband argued, the RSUs constituted a distributive award with no finding that such an award was appropriate by the trial court.

The Court disagreed, citing a trial court’s broad authority to set spousal support amounts, and finding that the RSUs award constituted a 2nd tier of spousal support to Wife. Such a tiered approach, the Court wrote, is well-supported by case law, including Gaffney v. Gaffney , Mayer v. Mayer , Organ v. Organ , and Wilson v. Wilson .

In the instant case, the first tier of spousal support, the $9,000 monthly payment, was based on Husband’s regular salary. The second tier of support was based on future bonuses and/or stock units that Husband might earn... As explained above, it is clear from the plain language of R.C. 3105.18(B) and (C)(1)(a) and the case law addressing the subject that regardless of the form of the bonus, whether stock or cash, future income is a permissible source of spousal support.

In his second assignment of error, Husband argued that the trial failed to indicate whether it considered ORC 3105.18(C)(1) to justify its additional spousal support award to Wife. Noting its abuse of discretion standard of review, the Court again disagreed. The trial court enumerated ORC 3105.18(C) factors in its ‘tier 1’ assignment to Wife, and made its ‘tier 2’ award in the same section of its order, in the paragraph immediately following. The Court thus affirmed.

Mallory v. Mallory, 1st Dist. Hamilton No. DR-2101798,C-240267, 2024-Ohio-5458

Civ R. 60(B): (mistake), (timely)
Marital Property: omitted assets, retirement benefits

Dated: November 20, 2024
Affirming

In November 2023, Wife filed a Civ. R. 60(B) motion, seeking relief from the trial court’s September 2022 decree, which she alleged inadvertently omitted references to Husband’s employer 401(k) Plan, despite including provisions for the division of his pension (provided by the same employer).

In a subsequent hearing, both parties agreed the omission had been a mistake, and the trial court requested an agreed order be submitted by Wife, for both parties’ signatures, concerning the 401(k). Following the hearing, Husband had a change of heart, and filed a motion to dismiss Wife’s Civ. R. 60(B) motion as untimely, having been filed more than a year after the decree was entered. The trial court granted Husband’s motion to dismiss, finding that the parties’ verbal, in-hearing agreement did not meet the parties’ agreement provisions requiring that any modification thereto be in writing.

Wife appealed, arguing that the trial court erred in its dismissal of her motion. The Court addressed her assignments of error collectively, first noting her failure to cite the record or relevant authority, which “serves as an independent basis for us to overrule her four assignments of error.” Wife, the Court wrote, failed to cite the record entirely. Nor did she provide any explanation of how her argument was supported by legal authorities.

Addressing the merits of Wife’s appeal, the Court affirmed the trial court’s findings that she was barred from relief under Civ. R. 60(B)(1) and (2), with more than a year having elapsed between the date of entry for the decree and the filing of her motion. Thus Wife’s entitlement to relief could only stem from Civ. R. 60(B)(5), but she failed to raise this in her original motion.

Permitting appellants to raise Civ. R. 60(B)(5) arguments on appeal which were not raised in trial court proceedings, the Court wrote, is a recipe for abuse. Parties whose other claims fail as untimely may claim relief under Civ. R. 60(B)(5) as a substitute for time-barred claims. Additionally, the Court found that Wife failed to present arguments in support of such claim. The Court thus affirmed.

Witten v. Witten, 9th Dist. Lorain No. 17 DR 083740, 24CA012069, 2024-Ohio-5631

QDRO
Spousal Support: modification, retirement benefits (change in circumstances)

Dated: December 2, 2024
Affirming

As part of the parties’ 2018 dissolution, Wife was awarded $2,300/month spousal support commencing in 2019 and payable until the date Husband began receipt of his pension. Relatedly, Wife was also assigned an interest in Husband’s pension based on half of its marital value (i.e., based on accruals earned during the marriage), to be awarded via QDRO.

Soon thereafter, Husband commenced his pension benefits. Because the parties’ QDRO had not yet been approved, Husband continued making payments to Wife in the same amount as her now-ceased spousal support, while her portion of the pension was held in escrow by the plan. Wife began receiving her portion of the pension in January 2022, whereupon the benefit payments held in escrow were released to Husband.

Editor’s note: It’s not clear in this case whether Husband selected a plan of payment that provided survivorship protection for Wife (i.e., joint and survivor annuity versus single life annuity), but generally in any case where the parties intend to provide a ‘separate interest’ payable to alternate payee for his/her lifetime, a participant’s commencement of benefits during the pendency of a QDRO can be consequential to the availability of survivorship protections for an alternate payee.

In February 2022, Wife filed a motion to show cause, alleging Husband should be held in contempt for his failure to pay spousal support, and arguing further for her award of the escrowed payments released to Husband by the pension plan. Husband opposed Wife’s motion, citing the parties’ separation agreement under the terms of which his spousal support obligations ended when he began receipt of his pension. But, Husband argued, he nonetheless continued making payments to Wife until her own pension payments began in January 2022, and was thus entitled to the escrow payments held by the plan during that time. A subsequent magistrate’s decision noted that Husband made payments during the QDRO’s pendency that exceeded the amount Wife would otherwise have received. The decision further found that Wife failed to demonstrate “any changed financial or health circumstances,” which might otherwise entitle her to continued spousal support under the terms of the parties’ agreement. Wife objected, and following a hearing, the trial court adopted the magistrate’s decision. Wife’s appeal followed.

Wife’s first assignment of error alleged that the trial court erred in its finding that Husband’s spousal support obligation ended when he began receipt of his pension payments. She argued that the termination of Husband’s obligation was not automatic, and required his filing of a motion and notice to the trial court of the payment’s discontinuance. The Court disagreed, finding that the terms of the parties’ agreement were clear and not ambiguous. And that under these terms, Husband’s obligation ceased upon his commencement of pension benefit payments.

Wife’s second assignment of error argued that the trial court erred when it adopted the magistrate’s decision and award therein of escrow payments to Husband. She argued that the escrowed pension funds were related to her pending QDRO award and should have been paid to her. The Court again disagreed, finding that such a payment would have created a windfall to Wife, and noting that Husband’s payments during the QDRO’s pendency were voluntary and in excess of amounts she would have received from the pension instead. The Court further noted Wife’s failure to support this argument, statutorily, with case law, or otherwise, and affirmed the trial court’s decision.

Anderson-Fye v. Mullinax-Fye, 8th Dist. Cuyahoga No. DR-19-375430, 113313, 2024-Ohio-5909

Marital Property: debts, distributive award, financial misconduct, investment account, retirement benefits, separate property, tracing
Spousal Support: voluntary underemployment
Witness: credibility, expert, qualification

Dated: December 19, 2024
Affirming

The parties began divorce proceedings in 2019, which were marked by a high level of conflict and contentiousness. Much of the procedural history (and several of the parties’ assignments and counter assignments of error) relates to the custody and upbringing of the parties’ children, which subject is not covered by this blog summary.

At trial, the parties’ testified –among other things– as to their respective employment, earnings capacities, and retirement accounts. While both parties possessed high level degrees from premier institutions, Wife alleged Husband remained voluntarily unemployed, despite which she had been the children’s primary caretaker. Trial was adjourned and recommenced, during which Husband presented expert witness testimony concerning the tracing of his alleged separate property. Wife’s objection to the admission of this testimony was overruled by the trial court.

Husband’s expert identified numerous accounts held by Husband, the marital/non-marital portions therein, and testified as to his analysis and credentials as an expert. These accounts included IRAs held by Husband and shares of stock allegedly inherited by Husband prior to the parties’ marriage. A magistrate’s decision followed, wherein: Husband’s separate property claims were granted in part and denied in part; the parties’ various retirement accounts and their values were listed, based on which Wife was assigned an equalization amount of $276,994; spousal support was deemed inappropriate; a yearly income of $175,000 was imputed to Husband; and the parties were allowed to alternate claiming the children for tax credit purposes.

The trial court adopted the decision, overruling most objections but sustaining Husband’s argument regarding a Key Bank account and a T. Rowe Price account, and Wife’s argument that he failed to adequately trace 10,034 shares in a Vanguard account. Both parties appealed, arguing the following assignments of error:

Wife Appeal

1. The trial court erred as a matter of law and abused its discretion in admitting [Husband’s] expert report of Sean Saari for purposes of identifying and tracing separate property claims.

2. The trial court erred as a matter of law and abused its discretion in dividing the marital property, awarding [Husband] separate property interests that were not properly traced, and failing to award [Wife] a distributive award.

3. The trial court erred as a matter of law and abused its discretion by ordering the parties to alternate the child tax credit.

4. The trial court erred as a matter of law and abused its discretion by failing to retroactively modify [Husband’s] temporary support obligations.

5. The trial court erred as a matter of law and abused its discretion by imposing arbitrary time limitations upon [Wife’s] presentation of evidence and testimony at trial.

6. The trial court erred as a matter of law and abused its discretion by failing to award [Wife] her attorney fees and litigation expenses.

Husband Cross-Appeal

1. The trial court erred and abused its discretion in ordering that [Wife] be granted sole custody of the minor children.

2. The trial court erred and abused its discretion in failing to find [Wife] in contempt of court for her blatant violations of multiple court orders.

3. The trial court erred and abused its discretion in its allocation of marital debts and liabilities.

4. The trial court erred and abused its discretion in its determination of the parties’ incomes.

In her appeal, Wife challenged the trial court’s reliance on Husband’s expert in tracing separate property claims. She argued that the expert lacked sufficient documentation and improperly relied on Husband’s statements rather than verifiable records.

The Court disagreed, and found no abuse of discretion in admitting the expert’s testimony, emphasizing that Wife did not present her own expert to rebut the analysis. Absent an abuse of discretion a trial court’s decisions to admit or exclude evidence will not be disturbed. Wife’s counsel objected to being denied the opportunity to voir dire Husband’s expert, but the record showed that cross-examination included voir dire-type questioning. The Court found no abuse of discretion, as there was no likelihood of surprise in the testimony. The Court further found that the record did not support Wife’s contention that the testimony was improper and untimely.

Turning to Wife’s second assignment of error, the Court likewise affirmed the trial court’s classifications of separate and marital property, noting that a trial court’s determinations on this subject are a question of law and will not be reversed unless made against the manifest weight of the evidence.

Here, [Wife] failed to provide her own expert to challenge Saari’s testimony concerning the tracing of the various financial accounts and/or to discredit Saari’s method of tracing. A trier of fact “‘“may not disregard credible and uncontradicted expert testimony[.]’”” Victor, 2020-Ohio-3116, at ¶ 65, quoting Cromer v. Children’s Hosp. Med. Ctr. of Akron, 2016-Ohio-7461, ¶ 26 (9th Dist.), quoting State v. White, 2008-Ohio-1623, ¶ 74.

As to Wife’s claim of entitlement to a distributive award, based on Husband’s alleged financial misconduct, the Court again disagreed. The accounts from which Husband made withdrawals for expenses such as expert witness fees were ultimately awarded to him as his separate property, and Wife further failed to establish he had made the withdrawals with wrongful intent.

Wife argued that the trial court erred in ordering the parties to alternate the child tax credit rather than awarding it solely to her. The Court upheld the trial court’s decision, noting that while Wife had primary custody, Husband’s lower income might qualify him for additional tax benefits. The trial court had considered the relevant financial factors, and did not abuse its discretion.

Wife also sought attorney fees, arguing that Husband’s conduct caused her to incur unnecessary legal expenses. The trial court declined to award fees, finding that both parties contributed to the prolonged litigation. The Court found no abuse of discretion.

In his cross-appeal, Husband challenged the trial court’s allocation of marital debts, asserting that he should not be equally responsible for liabilities incurred during the divorce. The Court found that the record lacked evidence to support his claims and affirmed the equal division of debts.

Husband also contested the trial court’s imputation of $175,000 in annual income to him for child support purposes. The Court upheld the imputation, noting that Husband held an MBA from Harvard, had historically earned above that amount, and had voluntarily left his prior employment.

The appeal also included challenges to the custody determination, trial time limits, and the trial court’s alleged failure to hold Wife in contempt. The Court affirmed on all issues, finding no abuse of discretion.

Beach v. Beach, 10th Dist. Franklin No. 21DR-3287, 23AP-341, 2024-Ohio-5991

Civ. R. 60(B): (fraud)(vacate)
Marital Property: de facto date, disclosure, valuation
Witness: expert

Dated: December 23, 2024
Reversing

In this matter, the Court reversed the trial court’s decision granting Wife’s motion under Civ. R. 60(B)(3) to set aside the parties’ 2021 decree of dissolution. Wife argued that Husband’s failure to disclose a $9.4 million Paycheck Protection Program (PPP) loan obtained by his business after the marital end date constituted fraud, misrepresentation, or misconduct.

The parties agreed to define the marriage for valuation purposes as running from 04/20/2002-12/31/2020. Both retained financial experts, and the business valuation relied on financials through the agreed-upon de facto marital end date. Husband applied for and received the PPP loan in March 2021, but he did not disclose this loan or its subsequent forgiveness in November 2021. Wife learned of the loan in November 2021 and of its forgiveness in August 2022, then moved the trial court to vacate the decree in September 2022, arguing that the non-disclosure misrepresented the company’s value.

In support of her Civ.R. 60(B) motion, [Wife] submitted an affidavit from White, the financial expert [Wife] utilized during the settlement negotiations. White stated in her affidavit that she specifically asked Brian Russell, [Husband’s] financial expert, about PPP loans during negotiations and “was informed that none existed” and that Russell was not aware of any PPP funds. (White Aff. at ¶ 8.) Further, White stated that financial document exchange and business valuation discussions continued into July 2021, nearly three months after TM received the PPP loan. White averred that if she had known of the existence of the PPP loan, it would have impacted her valuation…

A hearing followed in May 2023, at which both parties as well as Wife’s expert testified. The trial court subsequently found in favor of Wife, and vacated the decree due to Husband’s misrepresentations about the company. Husband appealed, arguing that the trial court erred in granting Wife’s Civ. R. 60(B)(3) motion because: he had no duty to disclose the PPP loan after the agreed-upon valuation date; Wife lacked a meritorious claim since loan forgiveness occurred post-dissolution; that Wife’s motion was untimely; and that the trial court improperly vacated the entire decree rather than granting only the relief she requested.

The Court ultimately agreed, and reversed the trial court’s decision. For a claimant to be entitled to relief under Civ. R. 60(B), they must satisfy all three of the following ‘prongs’ (the “GTE test”): a meritorious claim to present for relief; entitlement to relief under the grounds specified by Civ. R. 60(B)(1)-(5); and the motion must be made within one year of the judgment from which relief is sought, for relief under Civ. R. 60(B)(1)-(3).

Wife sought relief under Civ. R. 60(B)(3) (fraud, misrepresentation, or misconduct), but the valuation date was clearly defined as 12/31/2020, and the financial exchanges were based on that date. Husband had no obligation to disclose post-marital financial developments and Wife’s argument, the Court found, amounted to hindsight-based reevaluation rather than fraud or misrepresentation. While the parties may have continued their exchange of information well into 2021, they never discussed moving the valuation date, and the context of their exchanges always related to the 12/31/2020 valuation date.

The Court further noted Wife’s expert’s testimony, on cross-examination, in which she acknowledged that the subsequent PPP loan ultimately had no actual impact on the company’s value as of 12/31/2020.

Critically, White’s testimony about the potential impacts of the PPP loan on the valuation of TM is relevant to [Wife’s] claims of fraud and misrepresentation only if [Husband] was under an obligation to disclose the financial state of TM past the December 31, 2020 valuation date. As explained above, neither the language of the separation agreement nor the communications between counsel during the pendency of the proceedings created such an obligation.

While the Court acknowledged that Wife’s expert had inquired as to the existence of any PPP loans, she did so prior to Husband’s application, in March of 2021.

Under these circumstances, the Court wrote, Husband was not under any obligation to disclose the PPP loan’s existence to Wife, and thus Wife’s claim for relief failed the GTE test. Having reversed on Husband’s first assignment of error, the Court declined to address the second, third, and fourth assignments, deeming them moot.

A dissenting opinion was appended, which –noting Wife’s retained 50% interest in the company through most of 2021, and loan’s basis on 2019 and 2020 company performance– countered that the trial court’s decision was a reasonable exercise of discretion to ensure fairness in the dissolution process, and should not be overturned.

Oakes v. Oakes, 2nd Dist. Montgomery No. 2020 DR 00761, CA 30023, 2024-Ohio-6051

Marital Property: appreciation, equalization, gift, subject matter jurisdiction, trust (marital residence), valuation
Witness: expert

Dated: December 27, 2024
Affirming in Part, Remanding in Part, and Remanding

The parties married in 1980 and accumulated substantial assets over the course of their marriage, including multiple businesses and valuable real estate. Wife filed for divorce in October 2020. The trial court held extensive proceedings, including multiple days of testimony and expert valuation reports addressing the parties’ complex assets. Among the primary issues at trial were the valuation of Husband’s majority interest in his real estate construction company, the valuation of other business entities, the status of the marital residence held in an irrevocable trust, and the disposition of high-value personal property.

In its decree, the trial court ordered Husband to pay Wife nearly $29 million over seven years to equalize the division of marital assets. The trial court also ruled on the valuation of the real estate construction company, the marital residence, and various businesses, awarding Wife the marital home and a separate lot despite their being held in a trust.

Wife appealed, alleging that the trial court erred in failing to provide her adequate security for Husband’s $29 million obligation, and disputing the trial court’s valuations of several important assets. Husband cross-appealed, arguing the trial court overvalued his business interests, in its award of the marital residence to Wife despite its being held in a trust, and in its determination that certain higher-value items were personal property divisible under local rules via coin flip.

In her first assignment of error, Wife alleged that the trial court abused its discretion by failing to require any security from Husband while his payment of $29 million over seven years remained outstanding. Husband countered that there is no requirement for security in divorce cases. The Court disagreed, noting that the trial court had even acknowledged Wife’s request for security in its decision, and yet failed to place any such requirement on Husband.

Near the end of its written decision, the trial court acknowledged [Wife’s] request for some sort of security, including potentially a promissory note, security agreement, liens, guarantees, stock-transfer restrictions, or a requirement for immediate payment if [Husband] sells stock in Leadwise.

Even if Husband did not intend to shirk his payment to Wife, the Court wrote, his ownership of the real estate construction company enabled him to alter ownership of its shares in ways that could undermine Wife’s entitlement. Thus the Court found that the trial court’s decision failure to secure Wife’s payment was unreasonable. Given the magnitude of the award, the risk of unforeseen events (including Husband’s potential death, business difficulties, or creditor claims), and the extended payment period, the trial court was obligated to impose some form of security. The Court remanded the issue, leaving the nature of the security to the trial court’s discretion.

Wife’s appeal and Husband’s cross-appeal contained opposing assignments of error, related to the trial court’s valuation of the real estate construction company. As part of the trial court proceedings the parties retained expert assistance for valuating the company. Wife’s expert valued the company at $115.7 million, and Husband’s ownership interest therein at $108.8 million. Whereas Husband’s expert valued the company at $39.66 million, and his interest therein at $27.48 million. The trial court adopted Wife’s expert’s valuation of the company’s value, but adjusted Husband’s ownership interest down, rejecting the $22M value Wife attributed to a unique shares repurchasing option retained by Husband as owner of the company, and based on Husband’s rebuttal expert witness’s testimony. The trial court thus valued Husband’s ownership interest in the company at $80.18 million.

Husband argued that the trial court improperly accepted Wife’s expert’s analysis, despite stating that it was “not totally satisfied” with any of the three valuation reports. The Court disagreed, noting that the trial court engaged in extensive analysis, which included making its own adjustments to Wife’s expert’s valuation, and declining to assign value to Husband’s "founder’s option" to repurchase company shares and adopting a lower ownership percentage for Husband than Wife’s expert proposed.

The Court agreed, however, that the trial court had failed to address two critical valuation factors. Husband’s rebuttal expert argued that Wife’s expert overvalued the real estate construction company by failing to account for the capital reinvestment required to sustain the projected growth utilized in the valuation analysis. Husband’s rebuttal expert provided testimony to this effect, but the trial court nonetheless did not address whether Wife’s expert’s valuation failed to account for reinvestments necessary for its own growth projections.

Wife’s expert also declined to apply a discount for the company’s status as a privately held company, incorrectly asserting that this was factored into the capitalization rate. Despite testimony to the contrary by Husband’s expert (arguing instead that this was a separate issue warranting its own discount), the trial court adopted Wife’s expert’s valuation without resolving whether a discount was included or needed. The Court thus remanded for further findings on these issues.

It appears to us, however, that this reasoning involves a non sequitur. We fail to see how a discount recognizing the risk of investing in a small company, whether public or private, necessarily addresses the separate concern an investor might have about the lack of marketability inherent in a private company.

In her appeal Wife argued the trial court erred by placing no value on Husband’s ‘founder’s option,’ entitling him to repurchase outstanding company shares, which her expert had placed at $22 million. Husband’s rebuttal expert had conceded such an option might carry some value, but the trial court deemed it too speculative, and the Court ultimately agreed. Not only was the option difficult to value, it was highly unlikely Husband would ever exercise it, owing to its detrimental effects on trust in the company and its value.

In her third assignment of error, Wife argued that the trial court overvalued the marital residence awarded to her, by using its cost basis rather than its fair market value. She cited two appraisals, neither of which were admitted into evidence, valuing the home at $3.8 million and $4 million (compared to the $5 million value assigned by the trial court). In assigning the home’s value, she argued, the trial court wrongly relied solely on its construction cost, which exceeded reasonable estimates for its sale price. Noting Husband’s failure to provide evidence to the contrary, the Court remanded the issue back to the trial court for a proper determination of the home’s value based on market conditions at the time of divorce.

Wife’s 4th assignment of error alleged the trial court failed to include an account receivable in another marital business, but the Court rejected this argument, noting that the parties had stipulated to using an appraiser’s valuation without further adjustments.

Wife’s 5th assignment of error argued that the trial court overvalued a business in which she maintained ownership, thus imputing a higher annual income to her. The Court disagreed, finding that the trial court reasonably relied on Husband’s expert’s valuation of the business, which alleged Wife was overpaying key employees and underpaying herself.

In her 6th assignment of error, Wife contended that the trial court undervalued Husband’s 22.35% interest in a real estate lending company. As part of its proceedings, the trial court adopted Husband’s expert’s $472,000 valuation of his interest in the lending company, and rejected the higher value put forth by Wife’s expert. The main asset of this company was a tax-increment-financing loan to a municipality, whereby repayments were made over 30 years at a 5% interest rate. Under the agreement, the lending company would receive (in the semi-annual payments made by the municipality) any overage amounts from service payments from property owners, the latter subject to increase alongside increases in property values. Thus, the payments made to the lending company stood to increase over time.

The trial court erred, the Court found, when it rejected Wife’s higher valuation premised on the above-described increase in payments over time. The Court thus remanded the issue, directing the trial court to reassess the valuation of the lending company in light of this finding.

In his cross-appeal, Husband argued the trial court erred in its award of the marital residence to Wife, noting its conveyance to an irrevocable trust during the marriage. During the proceedings, Wife argued that the residence and adjacent lot were purchased during the marriage, with marital funds. And that their conveyance to the trust had been in effort to shelter them from creditors. She denied any intent to gift the home to Husband, nor had either party declared a gift for tax purposes. The trial court thus deemed the residence and lot marital, ultimately awarding the same to Wife.

The Court reversed, however, holding that the trial court had no authority to award real estate held by an irrevocable trust that was not a party to the case. The record showed that both parties had agreed to place the properties into an irrevocable trust for asset protection, and there was no evidence that the transfers were fraudulent or ineffective. Because the properties were legally owned by the trust, they could not be treated as marital property subject to division.

The trial court might have been able to treat the properties’ value as a marital asset, the Court noted, but it could not order their direct transfer. The case was remanded for reconsideration to account for the trust’s holdings within the property division.

In his third assignment of error, Husband argued that the trial court erred when it deemed certain high value assets as personal property, subject to coin flip division under its local rules. These items, Husband alleged, were alternative investments. Noting that the items had been appraised, the Court disagreed, finding that such a method of division would still result in a roughly equal distribution of the items.

In his final assignment of error Husband argued that the sustaining of any of his arguments would render the $29 million equalization payment owed to Wife incorrect, and thus an abuse of discretion. Noting the various issues now on remand, which may affect the overall equalization amount, the Court agreed.

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