Classification of Marital and Non-marital Property, Debt and Maintenance

Smith v. Smith, __ S.W.3d __ (Ky. App. 2006), 2006 WL 140577 (Ky. App.) Motion for discretionary review pending.

Smith v. Smith, __ S.W.3d __ (Ky. App. 2006), 2006 WL 140577 (Ky. App.) Motion for discretionary review pending.

Standard of Review: In reviewing division of property in dissolution and the classification of property as marital or non-marital, there should be a two-tiered standard of review. Given the fact that the trial court is unquestionably in the best position to judge the weight and credibility of the evidence, the factual findings underpinning the determination of whether an item is marital or non-marital are entitled to deference and, consequently, should be reviewed under the clearly erroneous standard. Because classification is a question of law, it should be reviewed de novo.

Classification of Marital and Non-marital Property: The increase in value of Wife’s non-marital stock should not be deemed marital property merely because Husband worked for the company, as Husband made no financial decisions or exerted any managerial discretion concerning the development and profitability of the company, and he received a salary for the work he did perform.

Life insurance proceeds received by Wife as Beneficiary of Wife’s father’s policy were Wife’s non-marital property, despite the fact that during his life, premiums were made by both Wife and Husband after receiving cash gifts in those amounts from Wife’s parents. Intent of the donor is the primary factor in determining whether a transfer is a gift and, if so, whether the gift is made jointly or to only one spouse. As testimony indicated that cash payments were made to Husband only to avoid gift tax penalties and only Wife was named as beneficiary of life insurance policy, logic dictates that Wife’s father intended them for the benefit of Wife alone.

Forgiveness of Loan: Wife’s father’s forgiveness of loan was not wife’s non-marital property merely because of her father’s general intent to provide for his children and a generic (and suspect) note of forgiveness in his lockbox; Wife had burden of proof on this issue and this evidence was insufficient to overcome presumption that property acquired during the marriage is marital property.

Assignment of Debt: There is no presumption that debts must be divided equally or in the same proportion as marital property. Rather, debts are generally assigned on the basis of such factors as receipt of benefits and extent of participation. As Husband had signed no notes signifying his obligation to repay Husband’s father, and as Wife was unaware of the extent and nature of these alleged loans, TC did not abuse its discretion in assigning all of these debts to Husband.

Gifts Between Spouses: In determining whether a gift between spouses should be considered marital or non-marital property upon dissolution, a court must consider: the source of the money with which the “gift” was purchased, the intent of the donor at that time as to intended use of the property, status of the marriage relationship at the time of the transfer, and whether there was any valid agreement that the transferred property was to be excluded from the marital property. Wife expended non-marital funds to reimburse the IRS so that Husband would not find himself in legal trouble. The parties had not separated at the time of the gift, nor had they agreed that the gift was to be excluded from marital property. Thus, Wife’s payment of non-marital funds on behalf of Husband was appropriately deemed a gift by TC and Wife should not be reimbursed for this expenditure.

Maintenance: TC did not abuse its discretion in refusing to award Husband maintenance award where Husband had received sizeable marital estate, stood to receive a substantial inheritance upon his father’s death, and had the education and ability to find work as an attorney. CA found that Husband continued to enjoy the “lifestyle of the marriage” and was not in need of additional support.

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