Buddy Lee Bailey v. Linda Beth Bailey, No. 2012-CA-000508-MR

Published: Affirming

County: Spencer

Facts

Husband filed for dissolution of the parties’ thirty year marriage in 2004. During his employment, Husband actively participated in his employer’s retirement pension plan. Subsequent to the parties’ separation, Husband was injured and filed for short term disability. The order entered by the Court after mediation included a provision that Husband was to provide to Wife information concerning the retirement account, including the policy, and all information regarding Husband’s disability. Wife was not provided with this information. The trial court entered a limited decree of dissolution in December 2004. In August 2006, the Court entered a judgment against Wife for the value of Husband’s personal property not returned to him. Husband filed a motion in June 2008 to satisfy the judgment. Since the pension issue had not been resolved, the Court also granted Wife’s request that the parties exchange all documents relating to retirement or disability accounts.

In June 2011, the Court entered an order holding that Husband’s retirement pension was not subject to division as marital property because Husband’s retirement pension was converted into a disability pension. Wife filed a motion to alter, amend or vacate the order because she was never provided with the retirement policy documents. Husband was deposed, and Wife received the documents. In January 2012, the Court granted Wife’s motion to alter, amend or vacate the judgment, holding that Wife was entitled to entry of a Qualified Domestic Relations Order allocating one half of the pension benefits accrued from the date of marriage to the date of the entry of the limited decree of dissolution. The court found that Husband’s disability pension would be converted to an ordinary retirement pension when Husband reached the age of 62. Wife was also ordered to satisfy the August 2006 judgment against her, plus statutory interest. Husband filed a motion to alter, amend or vacate the Court’s January 2012 order. The Court denied Husband’s motion after a hearing, and Husband appealed.

Analysis

When the Court ruled on the divisibility of the retirement plan, the relevant plan documents had not been made available to Wife or the Court. Because a full and candid disclosure of the parties’ assets is necessary for an equitable division of property, the Court did not abuse its discretion in granting Wife’s motion. Once obtained, the policy clearly stated that when Husband turned 62 his disability pension would end, and he would become eligible for a normal retirement pension. The Court of Appeals distinguished this case factually from the Kentucky Supreme Court’s decision in Holman v. Holman, 84 S.W.3d 903 (Ky. 2002), which held that disability benefits which replace future income should not be classified as marital property. Husband’s disability benefits would be reclassified on a date certain, which was different from the facts presented in Holman. The ordinary pension benefits that were accumulated during the marriage that would be reclassified as normal pension funds when Husband turned 62 were marital property. Any other conclusion would be inequitable because it could allow a spouse to prevent the other spouse from his or her share of retirement benefits through an election of disability coverage.   

On the attorney’s fees issue, Husband argued that the Court failed to rule on the motion. Wife argued that the Court’s silence on the matter was a denial of attorney’s fees. The Court of Appeals agreed with Wife, stating that attorney’s fees are entirely within the discretion of the trial court, and the Court in this case clearly considered the financial resources of both parties throughout the lengthy proceedings. Nothing in the record could demonstrate that the Court abused its discretion in failing to award attorney’s fees.

Affirmed.

Digested by: McKenzie Cantrell, Attorney, of counsel, Diana L. Skaggs + Associates

Bailey v. Bailey, digest to follow.

Larry James Ensor v. Deborah Lynn Ensor, 2010-CA-001660-MR, 2010-CA-001699-MR and 2010-CA-002048-MR

Published: Affirming in part, Reversing in part, and Remanding

County: Oldham

 FACTS:

Husband and Wife were married on June 14, 1980. Husband’s family owned an automotive parts remanufacturing business, which was very successful for many years. When business declined, Husband and his two brothers invested money from the family business into several real estate holdings, which produced significant rental income. Husband and the brothers, in an effort to minimize tax liabilities, utilized the assistance of attorneys and accountants and created a Grantor Retained Annuity Trust (GRAT). A GRAT, according to the Court of Appeals, is an estate planning tool wherein assets are transferred to a trust and ultimately to other beneficiaries so as to avoid estate taxes upon a donor’s death. Husband and his brothers also created a partnership, with all of the brothers and their wives executing general warranty deeds for all of the partnership’s property, which transferred any dower interest the wives had, or might have had, in the properties. Husband created his irrevocable GRAT and transferred his limited partnership interest while retaining a small general partnership interest. Husband received from the GRAT quarterly payments of $72,295 for nine years. The funds were used for the couple’s personal and joint expenditures. Husband’s children were beneficiaries of the GRAT as well, and received their portions of the GRAT; a gift tax return was filed with the IRS. Wife also retained an interest in the GRAT when the annuity payments terminated. Although divorce was not contemplated in the GRAT instrument, Wife would retain an interest in the GRAT if Husband died, until her death or remarriage.This arrangement avoided up to one million dollars in tax liability.

 Husband and Wife initiated divorce proceedings in 2004. A limited divorce decree was entered in January 2005, which reserved rulings on the division of marital assets. Wife argued that she did not fully understand the extent of the assets transferred to the GRAT and would have never agreed to release her share of assets valued at millions of dollars. Wife sought her interest in the property of the GRAT.

 The court held a five day trial of the property division in April and May of 2006. After additional filings and extensive motion practice followed, the court requested calculations consistent with its draft opinion of the issues. The court issued its opinion May 28, 2008, finding that the GRAT was valid and legally created and that Wife was entitled to a one-half interest in her marital portion of the GRAT. The court held additional hearings on the value of the GRAT property. On February 18, 2010, the court entered findings of fact and conclusions of law on the value of the GRAT and ordered Wife’s was entitled to a payment of $1,769,718.00, which was later reduced by the court to $1,410,106.00 plus post-judgment interest calculated at five percent. Husband appealed, alleging multiple errors; Wife filed a cross-appeal and a direct appeal on the issue of post-judgment interest. ANALYSIS:

 The Court of Appeals found that Wife was not defrauded when the GRAT and partnership interests were created. Husband did not defraud Wife into signing any documents or coerce her to release her interest in property, and the trust instrument did not contemplate divorce. Wife also failed to join the GRAT and its trustees, beneficiaries, or contingent beneficiaries, all of whom would have been necessary parties in an action seeking to avoid the trust.

 The Court further found that the funding of the irrevocable trust removed the transferred property from the marital estate. KRS 403.190(1) and other relevant case law define whether an asset is marital or non-marital for purposes of division.  The court must determine whether the asset is marital or non-marital, assign each party his or her non-marital property, assign each party’s interest in property with both marital and non-marital components based on the evidence and equitably divide all marital property. The formation of the GRAT in this case was for a valid estate planning purpose and is nearly identical to the estate planning scheme in Gripshover v. Gripshover, 246 S.W.3d 460 (Ky. 2008). Wife received an adequate benefit from the GRAT income because she and Husband enjoyed the quarterly annuity payments over the years, which exceeded $2,600,000. It was proper that the trial court accepted Wife’s expert in the accounting of the disbursements.

Because the GRAT was improperly included in the marital estate, the Court remanded for further determination concerning the proper valuation of the marital estate and division thereof without reference to the GRAT.  Because property division and equalization payments would be different without inclusion of the GRAT, the issue of maintenance was also remanded, but the Court of Appeals made no finding of whether a maintenance award would be appropriate in this case.

 Husband also argued that $60,000 was erroneously assigned to him in the valuation of marital assets because he used those funds for a marital purpose. Trial courts are given wide discretion in this area, and the court did not find Husband’s testimony that the funds were used for a marital purpose credible. The trial court found that those funds had been used for attorney’s fees, non-marital debts and other personal expenditures, which was not clear error.

 Wife challenged an award to Husband of accounts receivable for loans made during the marriage. Since Wife was awarded one-half of the accrued interest payable to Husband on a particular loan, any further award to Wife would result in a double recovery. Therefore, the court did not err in preventing a second division of this asset. 

 Wife also appealed the trial court’s decision to award her an unfinished vacation home in Gulf Shores, Alabama, valued at $2,050,000, and making Wife responsible for all taxes, claims and costs associated with the property. Wife insisted on retaining the home against the advice of trial counsel and the court. Wife argued that Husband should be responsible for his portion of the taxes and other costs associated with the property before he conveyed the property to her in 2010. The trial court allocated unpaid construction costs, insurance premiums and other costs to each spouse at the time of the divorce decree. Since the other costs were incurred after the divorce decree was entered and was incurred solely for Wife’s benefit, the debts were non-marital, and Wife is responsible for all of the costs associated with the property after that date.

 On the issue of post-judgment interest, the Court of Appeals upheld the trial court’s order award of five percent post-judgment interest.  The trial court concluded that five percent was the rate of return on investments during the litigation and imposing a higher rate would be inequitable. The Court of Appeals agreed, stating that the post-judgment interest rate is mandatory only to money awards containing deferred payments for portions allocated to the non-paying spouse. In this case the trial court weighed the equities, including that Wife’s award was to be paid in a lump sum and Husband was given a relatively short amount of time to make full payment.

Affirmed in part, reversed in part and remanded.

Digested by: McKenzie Cantrell, Attorney, of counsel, Diana L. Skaggs + Associates

J.K. v. N.J.A.; Honorable Linda Bramlage, Boone County Family Court Judge; and Honorable Bailey Taylor, 2012-CA-000897-ME

Published: Affirming

County: Boone

ISSUE: Whether a man, with whom Mother admits having an affair and living with for about fifteen months-until mere days before Child’s birth-is entitled to know whether Child is his biological son.

FACTS:

Mother gave birth to Child May 16, 2011. Mother claims that her Ex-Husband, with whom she plans to remarry, is the father and listed him as such on Child’s birth certificate. Despite an order from the Family Court compelling Mother to undergo genetic testing for herself and Child, neither was tested due to Mother’s maneuverings.  The Family Court entered an order following a hearing on a paternity complaint by Putative Father.

The Family Court found Mother in contempt of multiple  orders from the Family Court, which ordered her to submit herself and Child to genetic testing by a later date or serve 180 days in jail. Mother refused to comply with the Family Court’s orders.

 ANALYSIS:

 Mother alleged that she and Child should not have been ordered to complete the genetic testing because no state action was involved; Putative Father did not qualify as such under KRS 406.21 and could not challenge paternity; Ex-Husband was presumed to be Child’s father because Child was born less than five months before the parties’ divorce; the Family Court’s order violated Mother and Child’s constitutional right to privacy; and the Family Court should not have ordered the maximum contempt penalty for Mother’s failure to comply with the court’s order.

 KRS Chapter 406 is the means by which courts determine fatherhood. While a child born during lawful wedlock may be presumed to be the husband’s child under KRS 406.11, that presumption is rebuttable, so that a legal finding of paternity is not denied to a putative father. KRS 406.091(2) mandates genetic testing upon a request of a party supported by an affidavit. Putative Father in this case made such a request, and it was the Family Court’s duty to order the genetic testing. Mother should have requested written findings of fact and conclusions of law from the Family Court regarding whether Putative Father qualifies as a putative father under the statute and whether he had standing to assert a claim of paternity. However, Putative Father presented sufficient evidence on the record that he had sufficient access to Mother to make him Child’s father. Mother and Putative Father lived together at the time of conception and engaged in sexual relations, and Putative Father was present when Mother took a pregnancy test, which was subsequently confirmed by a doctor. Mother told Putative Father repeatedly that he was Child’s father during the pregnancy, and Putative Father provided Mother with food, shelter, clothing and medical care during the pregnancy. Putative Father also opposed abortion and adoption options when they were presented by Mother. Thus, Putative Father had standing to challenge paternity and request genetic testing. Holding otherwise would deny Putative Father the right to prove his claim of paternity and deny Child the right to develop a relationship with his biological father. Furthermore, Mother offered no proof that would exclude Putative Father as a potential father of Child, especially since she told an Ohio family court in proceedings with Ex-Husband that she was not pregnant.

 Mother was ordered to complete genetic testing on herself and Child on four separate occasions and violated each order. The 180 day jail sentence for contempt was completely appropriate. Her attempts to halt Putative Father’s claims and the fact that she could have purged the contempt by complying with the Family Court’s order was sufficient to uphold the sentence. Digested by: McKenzie Cantrell, Attorney, of counsel, Diana L. Skaggs + Associates