Jefferson Circuit Court

Husband and Wife were married for 28 years. A divorce decree was entered in 2007, which divided the parties’ assets and provided a maintenance payment to Wife until Husband reached the age of 65 in 2017. Both parties appealed. In 2009, while their appeals were pending, the parties received notice that their funds held by West End Financial had been lost to a Ponzi scheme, resulting in a loss of over $1 million, $800,000 of which had been awarded to Wife as part of the decree. In 2016, Wife filed a Motion to Modify Maintenance, citing changed circumstances related to the loss of her $800,000 to the Ponzi scheme, Husband having returned to an active medical practice despite being disabled at the time of the 2007 divorce decree, and her loss of her own sums to the Ponzi scheme. The circuit court issued an order determining that the change in circumstances rendered the original maintenance award unconscionable, and later ordered that Wife receive a modified, increased maintenance award. The circuit court also ordered $46,000 in attorney’s fees to Wife’s attorney, payable directly to the attorney who could enforce the judgment in his own name.

Husband filed a notice of appeal and Wife filed a motion to dismiss for Husband’s failure to name Wife’s attorney as an appellee. The Court of Appeals concluded that the circuit court abused its discretion in granting Wife’s motion to modify maintenance, specifically disagreeing with the circuit court’s determination that the changes in circumstance rendered the original maintenance award unconscionable. Both parties filed motions for discretionary review in the Supreme Court, which reversed the Court of Appeals’ decision and remanded to the circuit court for reinstatement of the order modifying maintenance.

The Supreme Court addressed three issues: whether the circuit court erred in modifying the original maintenance award; whether the failure to name an attorney with an enforceable attorney’s fees award is fatal to an appeal; and whether the attorney’s fee award was proper.

First, the Supreme Court found that the Court of Appeals erred in reversing the circuit court’s modification of maintenance, because there was substantial evidence supporting its decision. Namely, the parties had been on equal financial footing at the time of the decree in 2007, but were not at the time of Wife’s motion to modify. The Court further opined that where there is a sufficient basis for the lower court’s conclusion, a reviewing court may not reverse simply because it would have decided the issue differently.

Second, the Court held that Husband’s failure to name Wife’s attorney as a party to the appeal was not a fatal error. The Court determined that though Husband had not strictly complied with the rules in adding the attorney as a party to the case, the attorney had adequate notice of appeal and the ability to protect his own interest in seeking affirmation of the attorney’s fee award, because he was named as Wife’s attorney on the first filing in the Court of Appeals and was included on the distribution list. The Court stated that under the new Rules of Appellate Procedure, the failure to name an indispensable party is no longer automatically fatal to an appeal.

Third, the Court held that the circuit court did not abuse its discretion in awarding attorney’s fees because the circuit court properly considered the parties’ financial resources, incomes, and other factors, and awarded attorney’s fees accordingly.

Carter Anderson

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Marion Circuit Court

Mom and Dad, joint custodians of one child, disagreed on who should be permitted to claim Child for tax purposes. Dad – who had a significantly higher income than Mom – motioned the Circuit Court to claim Child each year pursuant to 26 U.S.C. § 152. Mom requested that she be able to claim Child during the years she was unable to claim her older child (not Dad’s) as a dependent. The Circuit Court, relying on Adams-Smyrichinsky v. Smyrichinsky, 467 S.W.3d 767, 781 (Ky. 2015), held that it was required to allocate the tax credit such that the financial benefit to Child was maximized. The Circuit Court found that if Dad did not claim Child, his refund would be $4,073 less; if Mom did not claim Child, her refund would be $4,347 less. Thus, the Circuit Court held that because Mom and Dad were joint custodians exercising equal timesharing, and the consequence for not claiming Child was similar for each parent, it was proper for Dad to claim Child while Mom could still claim her older child and when the older child aged out, then Mom could claim Child. Dad appealed and the Appeals Court reversed the Circuit Court’s ruling.

After determining that 26 U.S.C. § 152(c)(4)(B)(ii) applied because Child was in the custody of each parent for half of the year, it followed the federal tax code’s direction that the parent with the highest adjusted gross income (AGI) shall claim Child, and ordered that Dad be able to claim Child until such a time that Mom’s AGI surpassed Dad’s. The Appeals Court noted that in any case, the noncustodial parent (the parent with the lower AGI) may claim a child if the custodial parent (the parent with the higher AGI) signs a written declaration that they will not claim the child as a dependent for that taxable year and the noncustodial parent attaches that declaration to their own return for that year. Ultimately, the Appeals Court instructed that it is the federal tax code which allocates the deduction – not Adams-Smyrichinsky, and thus, the federal rule allocating the benefit to the parent with the higher AGI governs. However, the Appeals Court noted that a circuit court may look beyond the federal tax code rule and order that the parent with the lower AGI claim the child only if there are extraordinary reasons outside of fairness or mathematical equity between the parties that compel a deviation from the normal IRS rules. In citing the reason for deviation, a ruling should also explain why awarding the exemption to the noncustodial parent benefits the child and thus affects the child’s support. In all other cases, a circuit court should presume that the IRS rules apply.

In this case, the Circuit Court did not discuss how the money saved by claiming Child in a particular parent’s household would actually benefit Child, and by failing to state a reasonable nexus in assigning the exemption to Mom, it abused its discretion.

Carter Anderson

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The Family Court found Wife was cohabitating, summarily terminated Husband’s maintenance obligation upon a finding of cohabitation without determining whether continued maintenance was unconscionable pursuant to KRS 403.250, and retroactively terminated Husband’s obligation effective to the filing of the motion requesting termination, thus requiring Wife to reimburse Husband over $100,000. Wife first filed a motion to Alter, Amend, or Vacate, which was denied by the Family Court. She then filed this appeal.

The Court of Appeals vacated the family court order, holding that it failed to apply an appropriate definition of cohabitation and make appropriate findings, it erred in concluding the automatic termination clause in the decree was enforceable in the same way it would be were it part of a separation agreement, and it erred in failing to consider the controlling provisions of KRS 403.250(1) as interpreted by Combs v. Combs, 787 S.W.2d 260(Ky. 1990), to determine if such cohabitation resulted in continued maintenance being unconscionable.

Specifically, the Court of Appeals stated that the clause for termination upon cohabitation was not the result of a negotiated settlement between the parties and thus, to avoid running afoul of KRS 403.250, the Family Court first should have determined whether Wife and Boyfriend were cohabitating using a specified definition, and then whether that cohabitation rendered continued maintenance unconscionable because it constituted a new financial resource as contemplated by KRS 403.200(2)(a). Combs v. Combs, 787 S.W.2d 260, 262 (Ky. 1990).

The Court vacated and remanded with instructions for the Family Court to: 1) consider and state what definition of cohabitation should apply; 2) determine if such cohabitation occurred; 3) if cohabitation occurred, then evaluate the unconscionability provisions of KRS 403.250(1) to determine whether it would be unconscionable for Wife to continue to receive previously awarded maintenance. The third step necessary due to the imposition of the maintenance clause by the Family Court via its divorce decree rather than contained in the parties’ settlement agreement as a negotiated term.

The Court also vacated the Family Court’s order as to the retroactive termination to the date of Husband’s motion, stating that although trial courts have the discretion to decide whether orders modifying maintenance should be paid retroactively, such a decision should align with equity and fairness. The Court instructed the Family Court to consider the relevant facts and circumstances, such as Wife’s financial status and the reason for the lengthy delay in the Family Court’s issuance of a ruling, before deciding whether it is equitable for the termination to be made retroactive. 

Carter Anderson

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Guardianship is a term that is commonly used, but generally misunderstood.

Guardianship and custody are NOT the same from a legal perspective. Parents have a superior right to custody, and have a higher level of rights than what guardianship provides.

Guardianship may be used if both parents are killed in an accident or otherwise predecease their child(ren). It is possible for a third party to have guardianship of a minor child (under 18 years of age) even if one or both of the child’s parents are alive. Those situations may include:

• To qualify for health insurance coverage;
• For consent to medical treatment or decisions about education and school;
• To accept an inheritance;
• To receive money from a lawsuit settlement.

Guardianships are sometimes the only avenue for parents of adult disabled children to keep tabs on their children. Limited guardianships are also permitted by Kentucky law.

Responsibilities & Duties

A guardian or limited guardian may be responsible for the care and control of the minor child, and/or managing the child’s finances. The guardian must file inventories with the Court to account for actions being taken on behalf of the child. Generally those are filed within sixty (60) days of appointment, and then every one to two years thereafter depending on what property the child owns.

Filing For Guardianship

Any interested person may file for guardianship over a minor child with the District Court. Once the petition is filed and the filing fee paid, a hearing date will generally be scheduled by the Court. The person requesting the appointment as guardian must be present at the court hearing. If the minor is 14 years old or older, the minor must also be present.

Interested in filing for guardianship but don’t know where to get started? Visit Our Attorneys page to learn more.

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If your divorce decree was entered before December 31, 2018, the support payor was permitted to deduct his or her support payments from his or her taxable income and the support recipient was required to include support payments in his or her taxable income. This rule allowed divorcing couples to shift taxable income from the higher earning spouse to the lower earning spouse, thereby leaving more money for both households combined and less money paid in taxes.

For couples with divorce decrees entered after December 31, 2018, support payments are no longer deductible by the payor nor are they taxable to the recipient. Under the new rule, both parties will have less after-tax money to spend as the support payor will pay more in taxes and thereby there will be less money available for support of the lower income spouse.

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Questions Presented: Marital Dissolution. Restricted Stock Units. Trial court improperly classified restricted stock units (RSUs) as entirely nonmarital property. To appropriately classify such assets the trial court applies a presumption that the RSUs are earned over the period between grant and vesting, and the proportion of RSUs acquired for purposes of marital classification is the proportion of time between grant and decree of separation that is marital. This presumption may be rebutted by the parties. Because trial court did not include RSU income in the income calculation for child support, the child support calculation is also reversed. However, trial court’s determination of the wife’s reasonable needs and the amount of ordered maintenance was not an abuse of discretion.

Oldham Circuit Court

In a dissolution of marriage action, Husband, employed by Humana, earned incentive-based income, including restricted stock units (RSUs), which were usually granted annually and vested to the employee after three years. Prior to vesting, the RSUs were subject to restrictions, unavailable to the employee, and non-transferable until such restrictions lapsed and vesting occurred. The primary restriction was continued employment.

The parties also contested classification as marital or nonmarital an interest in Husband’s 401(k) and a plot of land in Wyoming. The 401(k) consisted of contributions from employment both prior to and during the marriage. Husband testified that he transferred his premarital retirement funds into his Humana account and claimed that $77,000 was the nonmarital value of the account. Wife argued that Husband did not sufficiently prove the nonmarital interest. The plot of land was purchased prior to the marriage with Wife paying the initial down payment of $5,000. Husband testified that he reimbursed Wife for the down payment. They both argued that a portion of the land should be their nonmarital property.

Family Court found all proceeds from the unvested RSUs to be Husband’s nonmarital property, and it did not include them in calculating his income for maintenance or child support. It accepted the $77,000 nonmartial value for the 401(k) account, and it found that neither party presented sufficient evidence to a nonmarital claim to the plot of land. Family Court awarded Wife $1,500 per month in maintenance for 48 months, after finding that Wife’s reasonable needs were $6,000 per month and considering her nonmarital property, the martial property awarded to her, and her ability to become employed. Regarding child support, Family Court found that the parties’ monthly adjusted income was above the statutory guidelines and refused to adjust upward.

Wife appealed, disputing the classification of the RSUs, the retirement account, and the plot of land, the calculation of maintenance and child support, and the denial of attorney’s fees. The Court of Appeals of Kentucky affirmed Family Court in full. Wife sought discretionary review of the classification of the RSUs, the 401(k), and the plot of land and the calculation of maintenance and child support.

The Supreme Court found that RSUs are a form of equity-based compensation under which the issuer company promises to deliver whole shares of stock of the company in the future to an employee at no cost to the employee, if pre-specified vesting ad distribution conditions are satisfied. It held that, as a default rule, RSUs are earned over the period between grant and vesting. The proportion of the RSUs acquired for classification is the proportion of time between grant and decree of separation that is marital. This presumption may be overcome by offering contrary evidence, which may include appropriate plan documents, such as SEC filings, plan prospectus, or grant documents. RSUs are analogous to contingency fee contracts, which may represent both marital and nonmarital property, and the trial court must determine whether and to what extent they were granted as compensation for service prior to the grant versus as an incentive for the employee’s future services. The critical issue is the extent to which the anticipated benefits will have been generated by the mutual effort of the parties.

In this matter, the RSUs were awarded in February of a given year, vesting three years later. They were reported as ordinary income on Husband’s W-2 in the vesting year and taxed in the same year. Husband testified that the grants were a means of hiring and retention. Thus, the Court found no reason to disturb the general rule that the RSUs were a form of deferred compensation.

The Supreme Court held that Family Court incorrectly calculated the parties’ combined monthly adjusted gross income. Gross income includes, inter alia, wages, bonuses, and capital gains. Family Court considered only Husband’s base salary when calculating his income and did not consider the RSUs as part of his income. The Court must consider all income proven by substantial evidence. The party seeking to use a different income bears the burden of proving a different income. Family Court should have considered the RSUs deferred marital income and added the income proportionally to each spouse’s gross monthly income.

The Supreme Court held that Family Court did not abuse its discretion in its maintenance award. Family Court found that Wife’s reasonable needs were $6,000 per month, that she was capable of earning $1,733 per month and had personal property valued at $700,000. The trial court is not required to delineate every factor in its decision. Family Court correctly considered Wife’s independent assets and correctly addressed Wife’s inability to return immediately to the job market. Family Court was not required to analyze Husband’s income when calculating the maintenance payment, only to consider his ability to provide for himself and make the payments ordered.

Digested by Nathan R. Hardymon

The post Restricted Stock Units Are Presumed to Be Earned Over the Period Between Grant and Vesting, and the Proportion of RSUs Acquired Is the Proportion of Time Between Grant and Decree of Separation that Is Marital – Published Opinion from Supreme Court of Ky. appeared first on Goldberg Simpson - Family Law Group.

Boyd Circuit Court

The Domestic Relations Commissioner (“DRC”) entered a report and recommendation after a final evidentiary hearing in a dissolution of marriage action, regarding maintenance. It found that Wife’s reasonable monthly expenses were $3,550, and that Wife was unable to work. The DRC concluded that Wife was “unable to meet her reasonable needs through her employment and ha[d] no income.” The DRC noted that Husband was employed and earned a gross salary of $123,000 yearly in addition to bonuses. The DRC found it was inappropriate to require Wife to exhaust her awarded portions of Husband’s 401(k)s and pension to meet her current needs and did not believe that the other assets awarded to Wife, in the amount of $33,190, would meet her needs. Wife was also assigned $7,000 in marital credit card debt. The DRC recommended that Husband pay Wife $1,500 per month in maintenance until she remarries, cohabitates, is of the age to receive Social Security, or until further orders of the court should Wife qualify at an early age for Social Security disability benefits. Circuit Court accepted the DRC’s report and recommendation and incorporated it into a final decree. Both parties appealed the amount and duration of maintenance.

Husband agreed that Wife was entitled to maintenance. Thus, the Court of Appeals was faced only with the issue of the amount and duration of the maintenance award. The Court of Appeals found Wife’s expenses to be reasonable in light of the fact that Husband did not offer any affirmative, contradicting evidence, and spent little time cross-examining Wife on the expenses.

The Court of Appeals considered Wife’s financial resources. It found that they were extremely limited and did not include any significant assets apart from what was awarded to her in the divorce, which totaled $33,190. Wife was assigned $7,000 in credit card debt and owed attorney’s fees in the amount of $5,468, leaving her with only $27,722 in cash, a significant portion of which would be used relocating and finding suitable housing. It found that Wife had no income-producing vocation. It found that her awarded portion of retirement accounts should not be considered readily available sources of income given her age and that she could live for several more decades. It concluded that eligibility for Social Security benefits does not require a reduction or elimination of maintenance.

Regarding Wife’s ability to find appropriate employment, the Court of Appeals found that Wife’s current and physical conditions render her unable to work. Regarding the standard of living during the marriage, the Court of Appeals found that the parties’ lifestyle was comfortable, but not extravagant. It also found that Wife had multiple health issues preventing her from working or driving. The Court of Appeals found that Husband earned $123,000 per year plus bonuses. It also found that Husband only had mortgage and utility expenses, being the only expenses he presented to Circuit Court. It concluded that Husband is more than capable of meeting his needs while paying the full amount of maintenance.

The Court of Appeals held that Wife should have been awarded more maintenance. Despite having expenses of $3,550, Circuit Court awarded only $1,500 in maintenance, leaving Wife responsible for $2,050, which she would exhaust in a little over a year. Circuit Court did not consider that Husband had an ability to pay more maintenance and did not explain the disparity. Leaving Wife with a shortfall over $2,000 a month is unconscionable and an abuse of discretion.

The Court of Appeals held that the maintenance obligation ceasing once Wife “is of the age to receive Social Security” is arbitrary, because there was no evidence submitted regarding when that would occur or how much Wife would be eligible to receive.

Digested by Nathan R. Hardymon

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At divorce, property is classified as either marital or nonmarital. Nonmarital property is restored to each spouse as his or her separate property and marital property is equitably divided between both spouses. In Kentucky, an inheritance is generally classified as the separate property of the spouse who received it and is not subject to equitable division, even if inherited during the marriage. KRS 403.190 (2)(a). However, there are some situations in which one spouse’s inheritance may be considered part of the marital estate and subject to property division.

Disputes over inherited property are most likely to arise when the inheritance has been “comingled” with marital assets. The spouse claiming nonmarital property has the burden of tracing the inheritance to existing assets. An example of this is when one spouse receives an inheritance upon the passing of his or her grandmother during the parties’ marriage and then deposits those funds into a jointly held bank account that contains marital funds. The inheritance could also become comingled if the inheritance funds are used to make improvements to the parties’ home. In both instances, the inheritance may be considered marital property if it cannot be traced. Generally, that means providing bank statements for every month from the deposit of the inheritance to show that the account balance has never dropped below the unlimited amount.

The best way to ensure that your inheritance does not become subject to property division is to keep it separate from marital property. Thus, if you received an inheritance during the course of your marriage, or even if you received an inheritance prior to marriage, you should keep detailed records of all deposits and withdrawals for the accounts which hold your inheritance from the date of inheritance or date of marriage, whichever is later, and/or documentation showing that any improvements to real property or other assets were made with inherited funds so that if challenged, you are able to “trace” your inheritance.

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Some concerns can be addressed with common sense. Concerned about items of personal property? You might be able to take photos or video to create a record. Worried about your children’s passports? An agreed order might be necessary. Perhaps, a simple status quo order can solve the problem.

The standard status quo language provides as follows:

Except as shall be necessary to pay reasonable living expenses, neither party shall sell, encumber, gift, bequeath or in any manner transfer, convey or dissipate any property, cash, stocks or other assets currently in their possession or control of another person, company, legal entity or family member without an order of  the Court  or an agreed order signed by both parties or their attorneys. 

Neither party shall cancel any health, life, automobile, casualty or disability insurance currently covering themselves or a family member or change the named beneficiaries on such policies prior to receiving permission of the court to do so or filing an agreed order signed by both parties or their attorneys.

If your concern is more complicated, consulting an expert may be appropriate. We consult with forensic accounts and other specialists when necessary. If you are concerned about hidden assets, speak with an attorney about your specific concerns.

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Fayette County Circuit Court

The parties were divorced in 2015, and their settlement agreement was incorporated into the decree of dissolution. The settlement agreement provided that Husband would pay Wife $4,000 per month in maintenance. Husband unilaterally reduced his payments to $1,000 after a decrease in his pay. Wife filed a motion to compel, and asked that Husband be held in contempt. Husband filed a motion to modify maintenance, alleging he had been terminated and had recently gotten a new position with a lower starting salary with a commission as well. After a hearing Family Court denied Husband’s motion for modification of maintenance and granted Wife’s request for attorney fees. Husband appealed.

Husband argued that Family Court abused its discretion in denying his motion to modify maintenance by ignoring his his significant reduction in income. The Kentucky Court of Appeals held that there was no evidence of changed circumstances so substantial and continuing as to make the terms of the settlement agreement unconscionable because Husband failed to demonstrate the change in circumstances was anything other than temporary, not substantial and continuing. To determine changed circumstances, the Court of Appeals compares the parties’ current circumstances to the circumstances at the time the decree was entered. At the time the decree was entered, Husband had superior income, and Wife was disabled, was a cancer survivor, and suffered  from significant health issues. At present, Husband had received a setback of a couple months’ salary, but his new position would provide similar benefits to his former position. Additionally, Husband had incurred a significant amount of debt that was not related to his change in jobs but rather was incurred on casinos, dining out, jewelry for his new wife, hot yoga classes, among other items. The Court of Appeals affirmed Family Court.

Regarding the issue of attorney fees, the Court of Appeals summarily found no abuse of discretion in Family Court’s award.

Digested by Nathan R. Hardymon

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