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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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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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

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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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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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Trial Court ordered the parties’ marital home to be sold to compensate former wife for her maintenance claim, with the net proceeds of the sale divided 65% to former wife and 35% to former husband. The record lacked an appraisal or valuation of the property and no findings were made to support the 65/35 split. Additionally, the Trial Court classified the parties’ emancipated son’s student loan debt as marital debt for which it held Former Husband accountable. The Trial Court made no findings to support assignment of this debt to former husband. The husband appealed arguing the trial court failed to make the findings of fact required by KRS 403.200(1) prior to awarding maintenance.

The Court of Appeals held that the findings of fact required to be made by KRS 403.200(1) must be made before a circuit court can legally consider the factors enumerated in KRS 403.200(2)(a)-(f). The Court of Appeals remanded the case for further findings of fact.

Digested by: Emily T. Cecconi

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Husband and Wife divorced and the family court entered an order on child support, maintenance, and property division. Wife appealed challenging the family court’s conclusions of law on a number of issues.

Wife first argued that the trial court erred in failing to make adequate findings and by considering the nonmarital inheritance she received in setting maintenance. The Court of Appeals affirms the family court holding that “It is well within the court’s discretion to consider nonmarital assets when calculating the amount and duration of maintenance.” The family court properly considered Wife’s financial resources, education level, the marital standard of living, along with other factors.

Wife next argues that the trial court erred in finding Husband’s unvested RSUs were nonmarital property. The Court of Appeal disagrees affirming the family court holding that the trial court properly concluded the RSUs were nonmarital property belonging to Husband and should be excluded from calculating Husband’s income in calculating maintenance and child support.

Wife makes a number of additional arguments on property division, child support, and attorney fees. The Court of Appeals upholds the trial court on all issues.

Digested by Elizabeth M. Howell

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Parties entered into a marital settlement agreement requiring husband to make payments for maintenance and child support. Instead, husband paid wife’s mortgage which was in excess of his child support and maintenance obligations. Wife objected but did not request a hearing on the issue for two years, which was more than a year after payments stopped. The family court, applying the doctrine of latches, found that Wife had “failed to consistently pursue her claim” and therefore no arrearages were due.

The Court of Appeals affirms the family court holding that the family court properly applied the doctrine of latches. The court notes that the doctrine of estoppel by acquiescence which “is applied to transactions in which it would be unconscionable to permit a person to maintain a position which is inconsistent with one in which he has previously acquiesced” is a better fit for this fact pattern, but the outcome remains the same. Wife could not benefit from Husband’s higher mortgage payments and then later pursue any action against him for collection of the child support and maintenance.

Digested by Elizabeth M. Howell

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The trial court awarded maintenance based on its finding that Wife’s reasonable living expenses totaled $5,800 monthly, including $1,440 of the children’s living expenses. Accordingly, Husband was ordered to pay maintenance. Husband was also ordered to pay an additional $15,000 for wife’s attorney fees based on an imbalance in financial resources.

Both parties appealed. The Court of Appeals held that the trial court erred by including the children’s expenses in its calculation of wife’s reasonable living expenses and in failing to make findings justifying its award of nine years of maintenance, but upheld the trial court’s ruling on attorney fees. The Supreme Court granted discretionary review.

Wife argues the trial court properly considered the children’s expenses in calculating her maintenance award. The Supreme Court agrees noting KRS 403.200, the Kentucky maintenance statute, permits a trial court to consider “the extent to which a provision for support of a child living with the party includes a sum for that party as custodian.” The Supreme Court reverses the Court of Appeals holding the trial court properly reconciled the maintenance and child support statutes in assigning a percentage of the children’s living expenses to Wife.

The Court next turns to address duration of the maintenance award, holding that the trial court made sufficient findings of fact to justify the nine year duration of maintenance. The trial court properly considered the length of marriage, Wife’s age, and the medical needs of the parties’ children in addition to other factors. The Supreme Court does not find merit in the Court of Appeal’s dicta which criticized the trial court for its failure to consider the financial positions of the parties in nine years. Thus, the Supreme Court reverses the Court of Appeals holding it improperly asked the trial court to speculate.

The Supreme Court affirms the rulings of the Court of Appeals as to the calculation of Husband’s income and the award of attorney fees to Wife holding the trial court properly considered all evidence relating to Husband’s income, and did not abuse its discretion in ordering payment of attorney fees.

Digested by Elizabeth M. Howell

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Husband, an attorney, and Wife, who managed his law firm, divorced after a thirty year marriage. After four years of litigation, the parties appealed and cross appealed numerous issues for the Appellate Court to review.

Contingency Fees

The first issue the Appellate Court addresses is whether contingency fee cases are marital property subject to division.  On appeal, Wife argues that the Trial Court erred by finding contingency contracts were not property and granting summary judgment prematurely. The Court of Appeals holds that contingency fee cases are income-generation devices and do not give an attorney any ownership interest, therefore they are not determinate things. As contingency fee contracts are not determinate things, they are not property subject to division by the terms of KRS 403.190. The Court of Appeals holds the Trial Court did not err in finding the contingency contracts were not divisible property, and did not err in granting summary judgment without a valuation of the contracts, as no material issue of fact existed given the contracts were not property.

Dissipation

Next, Wife argues the Trial Court erred by finding Husband did not dissipate marital property. The Court of Appeals holds the Trial Court did not err as Wife did not show dissipation by preponderance of the evidence. The record clearly showed both parties traveled, spent extravagantly, and spent marital funds as they had during the marriage. Neither party showed a clear intent to deprive the other of marital funds.

Maintenance

Wife appealed the Trial Court’s maintenance award arguing the amount was too small and the duration was too short. The Court of Appeals holds the Trial Court did not abuse its discretion and properly analyzed Wife’s monthly expenses and modified certain expenses based on testimony granting reasonable maintenance in consideration of the parties’ lifestyle and the property division.

Husband appealed the Trial Court’s maintenance award arguing Wife should not have been granted maintenance as her property generated enough income to meet her reasonable needs. The Court of Appeals again held there was no abuse of discretion as the Trial Court properly considered reasonable needs in light of the parties situation stating, “what constitutes ‘reasonable needs’ varies based on the marital situation” and cannot be determined in a “vacuum.”

Husband also argued it was an error for the Trial Court to award Wife maintenance beyond her retirement age citing the Weldon case. Weldon v. Weldon, 957 S.W.2d 2283 (Ky. App. 1997). The Court of Appeals disagrees holding Weldon supports the Trial Court’s decision as here the Trial Court awarded a modest amount of maintenance for a definite number of years.

Attorney Fees

Wife appealed the Trial Court’s decision not to award her additional attorney fees. The Trial Court had considered the financial resources of both parties, noted the marital estate had paid for $14,000 of Wife’s fees and Husband had paid $10,000, and found Wife received significant assets before denying Wife’s request for fees. The Court of Appeals affirms the Trial Court’s order as the Trial Court did not abuse its discretion.

Non-marital Interest in Marital Residence

Husband appealed the Trial Court’s calculation of Wife’s non-marital interest in the marital residence. There is no question that Wife invested $125,000 of her nonmarital funds in the parties’ first home. Upon the sale of that home, which increased in value, Wife’s full non-marital share remained. The Court of Appeals did not assign any increase in value to Wife’s nonmarital share, holding that the presumption is that an increase in value is due to marital contributions unless proven otherwise. Wife did not meet her burden of proving the increase in value was due to “general economic conditions rather than marital contributions.”

The parties then purchased land and constructed their second home with $125,000 of Wife’s non-marital funds and the $85,000 of marital funds from the sale of their first home, as well as loans totaling $825,000. The non-marital and marital funds were co-mingled in the construction of the house and the parties ultimately lost money on the home selling it for $878,000, a loss of $157,000. Due to the reduction in the mortgage, the parties received $137,717.02 in proceeds from the sale of the home. The Trial Court award wife her $125,00 non-marital share and order the parties to equally divide the remaining $12,717.02.

Upon review, the Court of Appeals holds that loss due to general economic circumstances should be shared equally between a marital and nonmarital interest. The court applies the Brandenburg formula to reduce the marital and non-marital shares accordingly. As some factual findings regarding a $50,000 marital contribution were unclear, the Court of Appeals remands the issue to the Trial Court to make the relevant finding and use the Brandenburg formula to reduce the Wife’s non-marital share from $125,000 to $51,386.95 or $44,713.32.

Post-nuptial Agreement

Husband and Wife entered into an agreement during the marriage that Wife intended to use $35,000 of her non-marital funds to pay off marital debts. The agreement stated that if the funds could not be clearly traced to a marital asset upon dissolution, Wife would receive the funds from the marital property. Husband, without citing any law, argues on Appeal that the Trial Court erred in awarding Wife the $35,000 because the funds could not be traced. The Court of Appeals holds the Trial Court did not abuse its discretion noting no evidence was offered at trial in support of Husband’s claim other than an expressly refuted assertion by Husband.

Amendment of Findings of Fact and Conclusions of Law

Husband argues the Trial Court erred in amending the findings of fact and conclusions of law pursuant to CR 59.05 citing Gullion v. Gullion  which favorably cited the standards set forth for reconsideration of judgment under the Federal Civil Rules. Gullion v. Gullion, 163 S.W.3d 888 (Ky. 2005). The Court of Appeals find no Gullion error holding the Trial Court did not err by granting the CR 59.05 motion.

Mortgage and Property Taxes

Husband’s last argument is that the Trial Court erred in ordering him to pay the mortgage and taxes on the marital home while Wife resided in the home post-trial. The Court of Appeals reviews only for manifest injustice as Husband’s brief did not conform with the Civil Rules for Appellate Briefs. The Court of Appeals affirms the Trial Court noting its “yeoman’s effort” to divide the marital property pursuant to KRS 403.190(1).

Digested by Elizabeth M. Howell

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