Oldham Circuit Court

Wade B. Lewis and Laura R. Fulkerson, after a tumultuous relationship, filed a petition for dissolution of marriage on April 3, 2013. During the process, a key dispute was the gift status of a trust established in 2009, titled the Laura Renee Fulkerson (“LRF”) Trust. While Wade stated the trust was established for estate planning purposes only, Laura argued it was a gift from Wade and that he gave her exclusive control of its contents. The family court barred the trust’s drafting attorney, Ed Lowry, from testifying on the dispute. After hearing testimony from only Wade and Laura, the family court ruled that the LRF Trust was a gift. The final decision was appealed, and the Court determined that the testimony from Lowry would have been crucial for the gift status analysis. Accordingly, the Court vacated that portion of the final ruling and remanded it further proceedings.

On remand, an evidentiary hearing was held for Lowry’s testimony, this time in front of a different judge due to the prior judge’s retirement. Nevertheless, the family court continued to hold the LRF Trust as Laura’s non-marital asset, finding Lowry’s testimony “could not shed light on the actual intent of the parties” at the trust’s creation. Instead, the Court found that Wade’s habit of making financial gifts as a means of reducing difficulties in his marriage, alongside other factors, was substantial evidence that the trust was a gift. Again, Wade appealed, arguing that the family court failed to apply the clear and convincing evidence standard to Laura’s gift claim.

Ultimately, the Court found no error in the family court’s conclusion. While admitting that the matter was a “close call”, the Court heavily emphasized that the there was “no deficit of nuance and complexity” in the family court’s analysis, having gone through two bouts of fact-finding and having two different judges rule in Laura’s favor. Therefore, Wade’s claim of clear error was unfounded, and the family court’s order was affirmed.

K. Spencer Pierson

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Carter Circuit Court

During a dissolution of marriage action, Husband had a medical malpractice claim pending. Family Court reserved the issue of classification of any award. After the claim was settled, although the settlement did not classify the awards by type, the money from several medical malpractice actions were pooled and divided among the claimants in two phases. Phase 1 compensated the claimants for unnecessary procedures. To determine the amount of compensation, each claimant received various points based on the type(s) of unnecessary procedures that were performed on him. There was no accounting for any medical bills or lost wages, etc. A certain portion of the settlement was set aside to provide additional, Phase 2 compensation to claimants who suffered extraordinary damages not captured in the award for having had the unnecessary procedures. Phase 2 damages included things such as allergic reactions, disability, lost wages, aneurysms, and death. The excess funds not dispersed from the extraordinary injury fund were reallocated proportionally to all claimants. Husband made no claim for the Phase 2 compensation. At a hearing to classify and divide the settlement, Husband’s attorney testified that Husband did not make a claim for Phase 2 compensation, and that all the funds received by Husband were awarded to compensate him for unnecessary procedures he underwent. Family Court concluded that the entirety of the award was Husband’s nonmarital property, as pain and suffering damages are nonmarital property.

The Court of Appeals held that Husband provided sufficient evidence to prove that the funds were nonmarital. Funds received for pain and suffering are nonmarital property. A settlement silent on the type of award is not to be automatically classified as marital property. The burden is on the spouse receiving the settlement to prove it is nonmarital, which Husband did. Family Court did not err in classifying the funds as nonmarital property.

Digested by Nathan R. Hardymon

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Marion Circuit Court

After a hearing and order in a dissolution of marriage action, Husband appealed arguing that Family Court erred in its valuation of the marital items of personal property divided between the parties. The only party who presented testimony regarding the value of the personal property was Wife, which was what Family Court accepted. The Kentucky Court of Appeals held that Family Court did not abuse its discretion in the valuation.

Husband argued that Family Court erred in its division of cash located in the parties’ safe-deposit box. There was conflicting evidence regarding the amount of cash in the safe-deposit box. The Court of Appeals held that it could not find that Family Court erred by finding Wife’s testimony more credible.

Husband argued that Family Court erred in its division of the parties’ joint income tax refund because an equal division was not proper as it was generated from income he solely earned. The Court of Appeals held this was not error. All income earned during the marriage is marital property. A relevant factor in dividing marital property is the contribution of each spouse, including contribution of a spouse as a homemaker. Family Court clearly considered the contribution of Wife as a homemaker and Husband as a wage earner. Husband made the same argument regarding equal division of his retirement accounts without success for the same reasons.

Husband argued that Family Court erred in awarding Wife one-half the equity in the marital residence because he was the sole wage earner. There was conflicting evidence regarding the value of the marital residence, but Family Court ordered that Husband could either pay Wife her interest or sell the marital residence and divide the proceeds equally. The Court of Appeals held that this was not in error.

Digested by Nathan R. Hardymon

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Oldham Circuit Court

The Kentucky Supreme Court modified its December 17, 2020 Opinion to allow the parties to offer evidence to rebut the presumption that the marital portion of each RSU allotment would be the proportion of time in each three-year vesting period that was marital and the proportion in which the RSUs are earned because the parties did not have the benefit of knowing the presumption at trial.

Digested by Nathan R. Hardymon

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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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“Questions Presented: Family Law. Interest on money judgment. KRS 360.040. Application of KRS 360.040, governing interest on a judgment in a domestic relations case.”

Husband owed wife $24,277.02 for a 1998 property equalization settlement. Wife attempted to garnish Husband’s funds ultimately getting a judgment lien on his property in 2008 after he failed to pay. In 2012, Husband filed a motion to prohibit the collection of interest on the Judgment which the family court granted. Wife appealed and the Court of Appeals held that “the granting of interest pursuant to KRS 360.040 is within the trial court’s discretion.” On remand, the family court again denied any interest. Wife appealed and the Court of Appeals affirmed. The Supreme Court granted discretionary review.

The Supreme Court first turns to Husband’s argument that the law of the case precluded review because Wife failed to appeal the first Court of Appeals case holding that because the “Court of Appeals’ holding was clearly erroneous, causing a manifest injustice, the law of the case doctrine does not preclude review” of the present case.

The Supreme Court holds that “The plain language of KRS 360.040 is clear. A judgment shall bear interest. The trial court has discretion in the amount of interest awarded in two situations: (1) when the judgment is for an unliquidated amount (and if equity favors a lower amount) and (2) if the interest is provided for in a written obligation.” The Supreme Court then considers whether or not Husband’s obligation was liquidated holding the award was clearly unliquidated until it was reduced to a judgment, as the claim is controlling the amount was unliquidated. Thus, “interest on liquidated and unliquidated claims is mandatory and liquidated claims must bear interest at the statutory rate. Trial courts do have some discretion, however, in setting the amount of interest on unliquidated claims.” The family court did not have discretion to deny interest, but did have discretion to balance the equities and set interest at something other than the statutory rate.

The Supreme Court goes on to address the equities in the matter at hand holding the family court’s findings “were unreasonable and an abuse of discretion as an award of the statutory interest rate was more than appropriate in this case.” The family court inappropriately considered the length of time between Wife’s attempts to collect the judgment, Husband’s attempts to settle child support, the property lien and Husband’s alleged belief he didn’t have to pay the settlement until child support was settled. Moreover, the family court ignored Husband’s failure to comply with Court order and the length of time Wife was deprived of use of her funds.

Justice Cunningham dissents arguing the trial court did not abuse its discretion.

Digested by Elizabeth M. Howell

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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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In a dissolution of marriage proceeding with complex assets, Husband appealed on a variety of asset classification, valuation, and division issues.

COBANE V. COBANE

In a dissolution of marriage proceeding with complex assets, Husband appealed on a variety of asset classification, valuation, and division issues.

Husband first argues that “the trial court improperly classified as marital the encumbered funds in his employee incentive program.” Husband’s Employee Transition Program (“ETP”) work incentive consisted of forgivable promissory notes. The loans matured over nine years and were forgiven at intervals as long as Husband stayed with the business. The forgiven ETP debt appeared on Husband’s paycheck as income. The trial court found that the ETP funds were marital and the total bonus amount should be treated as marital to the extent that it vested during the marriage.

The Court of Appeals disagreed holding that the trial court erred because the ETP fund value was “offset by the outstanding balance of the loans against them.” Thus, “the ETP funds are merely loan proceeds and subject to repayment…akin to unearned future income rather than an unvested benefit.” The Court differentiates this case from its ruling in Dotson because unlike the RPU stocks in Dotson, Husband’s “unrestricted right to the

ETP funds does not accrue until the loans are forgiven.”

Husband next argues that the trial court erred when it declined to recognize a discount in the value of his interest in Cobane Farms, LLC, based upon his minority ownership in the LLC. The Court of Appeals affirms the trial court holding that the trial court properly gave specific reasons for its decision excluding the discount in this case, including transactions that may have been an attempt to diminish the value of the marital estate. Notably, Husband voluntarily reduced the marital interest by transferring shares to his siblings and transferred the marital property to a LLC on the day after Wife filed the petition for dissolution.

Husband then argues that the trial court failed to recognize his non-marital interest in Cobane Farms, LLC. The Court of Appeals affirms the trial court holding that the trial court did not err as it found Husband’s tracing was incomplete noting Husband’s conveyance diluted and co-mingled any non-marital interest. The Court notes the trial court’s finding that Husband was a sophisticated financial advisor and gave no compelling reason for being unable to provide complete tracing.

Husband next argues that the trial court erred in calculating his nonmarital interest in a 401k, Roth IRA, and whole life insurance policy, by failing to find that the increase in the value was attributable to his non-marital contributions. The Court of Appeals affirmed the trial court holding it did not err as Husband “failed to rebut the presumption that the increase in the value of Marc’s non-marital contributions are marital property.” Simply presenting the beginning and ending balances and testifying to average growth was not enough.

The Court of Appeals ultimately remands the portion of the judgment dividing the marital assets for the trial court to equalize the division of assets due to the error in classifying the encumbered ETP funds as marital.

Digested by Elizabeth M. Howell

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Husband and Wife obtained divorce and entered into an agreement which provided that Wife would execute a special warranty deed conveying the marital home to Husband and required him to execute a will devising the home and its contents to Wife at his death. Husband died leaving the home to his sons. Wife filed an action seeking specific performance of the MSA and a conveyance to her of the marital home and its contents. The trial court found that the parties “had agreed and orally modified the MSA with respect to marital residence” denying Wife’s claim.

 The Court of Appeals affirmed the trial court holding that an “oral modification to an MSA will be enforced if the terms of the agreement can be reasonably established and the agreement is fair and equitable under the circumstances.” Wife argued that the parties settled with finality and the MSA specifically precluded modification. The Court of Appeals disagreed noting Wife did not cite “any precedent or statutory provision denying parties the right to settle post-decree issues nor requiring judicial intervention to modify agreements such as the MSA in issue here.” Notably, the Court of Appeals does not address several of Wife’s arguments that were not preserved at the trial court level.

 Digested by Elizabeth M. Howell.

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Trial court found unvested RSUs were marital property subject to division, although Husband forfeited his right to the RSUs during the dissolution proceedings by leaving his employer two months before the RSUs vested. The trial court did not count the RSU income in setting Husband’s gross income calculation for child support.

DUFFY V. DUFFY

Trial court found unvested RSUs were marital property subject to division, although Husband forfeited his right to the RSUs during the dissolution proceedings by leaving his employer two months before the RSUs vested. The trial court did not count the RSU income in setting Husband’s gross income calculation for child support.

Husband appealed arguing that the trial court erred in ruling that his non-vested RSUs were divisible as marital property. The Court of Appeals affirmed the trial court holding that the RSUs were “paid” during the marriage and rightly treated as marital property subject to division. The trial court properly found that Husband terminating his employment constituted a dissipation of a marital asset, as the evidence presented to the trial court suggested his employment change was for the sole purpose of depriving Wife of her proportionate share of the marital assets.

Wife cross appealed arguing that the trial court erred in failing to factor into Husband’s potential income that had he not resigned, he would have continued to receive RSUs and other bonuses. The Court of Appeals again affirmed the trial court holding that the Penner prohibition against double dipping applies to calculations of potential income as well. The Court could not have properly divided the RSUs as a marital asset and also included them in Husbands income calculation for child support.

Digested by Elizabeth M. Howell

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