Hammertime - Part Three: Kentucky Case Law Updates


I'm sure to no one's disappointment but my own, we're just going to launch into this third installment of my four-part 'Hammertime' blog series, leaving behind hammer jokes and dated cultural references for now (I'm not promising there won't be any, but you'll have read on to find out).  Below please find some of the most recent and important opinions coming out of Kentucky.

Grasch v. Grasch, No. 2016-SC-000591-DG (Ky. 2017)
Contingency Fee Contracts May be Considered Marital Property

Rendered: December 14, 2017
To Be Published
Reversing and Remanding

What do contingency fee contracts have to do with the division of retirement assets?  Just about everything, says the Court of Appeals. This case determined the status of contingency fee contracts as marital property subject to equitable division under KRS 403.190(2).  In so finding, the Court relied heavily on the analogous treatment of non-vested retirement assets in divorce, under Kentucky law (specifically Poe v. Poe), and a lineage of cases (in and out-of-state) recognizing that certain property interests – such as unvested retirement assets – may be considered marital property to the extent they eventually vest.  Contingency fee contracts, like unvested retirement assets, must be treated equitably in divorce, requiring the trial court in this case to “…[focus] on the contribution of the non-attorney ex-spouse to the marriage through work both outside and inside the home.”  The Court conceded that this diverges from traditional notions of property law, but found such treatment captures the “modern relationship” between property law and family law.  In its holding, the Court further determined, consistent with Kentucky law, that the trial court must apply a delayed-division method and formula to determine the parties’ respective shares of such marital property, if any, at the time of decree.

Duffy v. Duffy, Nos. 2016-CA-000983-MR & 2016-CA-000995-MR (Ky. App. 2018)
Unvested Restricted Stock Units (RSUs):  Asset or Income Column, the Court Must Choose

Rendered: January 19, 2018
To Be Published

“Double-dipping” might sound delicious if we’re talking Graeter’s, but the legal concept of “double-dipping” is not-so-good.  A marital interest is either property or income to be included for support calculations, but it can’t be both.  For this reason, the trial court amended its own Findings of Fact and Conclusions of Law, and the Court of Appeals agreed with such amendment, finding no reason that the double-dipping prohibition would not apply both to calculation of gross income and to potential income.  Further, the Court upheld the trial court’s determination that Husband’s RSUs were “paid” during the marriage (despite the fact that Husband separated from employment, causing forfeiture of the RSUs), were marital property, and therefore were subject to equitable division.  The Court further affirmed that Husband purposely dissipated marital assets, namely the RSUs, after reviewing the trial court record evidencing Husband’s separation from employment was part of a scheme to prevent Wife from receiving any share of the RSU proceeds.

Davisson v. Davisson, 2015-CA-001559-MR (Ky. App. 2018)
Pre-Trial Disclosure of Separate Property Claims in Retirement Accounts

Rendered: January 19, 2018
Not To Be Published
Affirming in Part, Reversing in Part, and Remanding

This case stands as a stark reminder that a party claiming any non-marital interest in property has the burden of establishing such claim.  The Court affirmed the trial court’s assignment of Husband’s retirement account, as well as the trial court’s determination that Husband waived any pre-marital claims to such account.    As its basis, the trial court observed that the account, containing pre-marital stocks, was not disclosed on Husband’s Preliminary or Final Verified Disclosure Statements, despite his comprehensive listing of over 70 other assets in which he claimed a non-marital interest.   Observing that this seemed like an inadvertent omission, the Court nonetheless respected the trial court’s broad discretion over pre-trial discovery orders, and, while acknowledging that the result was a harsh one, determined that the trial court did not abuse its discretion.

Brodie v. Brodie, No. 2016-CA-000453-MR (Ky. App. 2018)
Equitable Division and Retirement Account Loans

Rendered: January 19, 2018
Not To Be Published
Affirming in Part and Remanding 

If music is the poetry of air, then QDROs are the poetry of my heart.

Sure, Husband got to keep the songs he wrote (according to even Wife, Husband was an excellent songwriter), which were found to be marital property, but because they had no ascribed monetary value, they were not subject to equitable division.  But whether the loans taken from the parties’ mutual retirement accounts were marital in nature turned out to be a more difficult tune to follow. 

The Court spent a great deal of time picking (see what I did there?) through the evidence regarding the timing and reasons behind the various loans to determine whether they were taken for marital or non-marital purposes.  From an equitable division standpoint, it is important to recognize that a loan taken from a retirement plan is held by the plan as an asset in the balance of the retirement account.  Therefore, when the Court considers a division of the retirement account, the loan must be determined – just as the retirement plan itself – to be marital or non-marital in nature prior to establishing an equitable division.  After all, the Court noted, if the loan funds had been maintained in the account (rather than being converted to loan proceeds), the funds would have likewise been subject to equitable division to the extent accumulated during the marriage.

The final chorus:  When there is a loan on a retirement account in a divorce, special attention must be paid as to the timing and use of the loan proceeds in order to properly determine the loan’s status as either marital or non-marital, and to equitably apportion the parties’ liabilities accordingly.

Hammertime Installments: