Case Law Update
Oldroyd v. Oldroyd, 2017 UT App. 45:
Husband and wife were divorced in 2015. Prior to the marriage, wife owned an unimproved parcel of land on which she intended to build a house. Prior to the marriage, wife built the house, using her own premarital funds to pay for all the materials and subcontractors. Husband quit his job in Wyoming to labor on construction of the house. He contributed ”supervision, labor, work, expertise and conceptual direction” to the construction of the house.
Wife paid Husband between $18,000 and $19,000 for his work on the house, apparently based on an hourly rate. However, the trial court found that the rate did not appear to be tied to the actual value of Husband’s work on the house, but rather was an amount that helped him meet his financial obligations from a prior marriage. The Court therefore found that the amount was a gift from Wife to Husband.
In making its property division, the trial court ruled that Husband and Wife had a roughly equal premarital interest in the improved value of the house because of their joint efforts in building the house. The court ordered that the house be sold and that wife be awarded the $110,000 value of the unimproved land as her separate premarital interest and that the remaining proceeds be split evenly, after satisfying all encumbrances. Wife appealed.
Citing Hall v Hall, 858 P.2d 1018, 1021 (Utah Ct. App. 1993), the Utah Court of Appeals held that, while a trial court has wide latitude with respect to determining the financial interests of divorcing parties, it had not in the instant case made sufficiently detailed findings of fact to support its property award. Citing Taft v. Taft, 2016 UT App. 135 ¶ 45, 379 P. 3d 890, the Court noted that it could not determine the steps by which the trial court had reached its conclusion, and because the findings of fact were inadequate to support the financial determination, it could not affirm the lower court’s decision.
The Court went through the step-by-step analysis for property settlements, noting the principle set forth in Burke v. Burke, 799 P.2d 1166, 1172 (Utah Ct. App. 1990) that each party is presumed entitled to all of his or her separate property and fifty percent of all marital property. The Court first categorizes the property as marital property or the separate property of one party or the other. See Kelley v. Kelly, 2000 Utah App 236 ¶ 24, 9 P.3d 171. Generally, premarital property, plus any appreciation thereon, are awarded to the party who brought the property into the marriage. See Elman v. Elman, UT App 83, ¶ 18, 45 P.3d 176.
The trial court had found that the property had always been titled in Wife’s name and that she had never made title change of record to the property. She had paid for all construction materials and labor with her own premarital property. Moreover the trial court had not specified which legal theory it relied upon to award Husband a “premarital” interest in the property, whether the theory be unjust enrichment, promissory estoppel, quasi-contract or some other theory.
The Husband argued that the trial court had relied upon an “extraordinary circumstances” theory in order to deviate from the usual presumption that marital property should be divided equally, such as described in Stonehocker v. Stonehocker, 2008 UT App 11, 176 P.3d 476. But the trial court had not made a finding of “extraordinary circumstances”, but had relied upon its finding that Husband had acquired a premarital interest in the property. In a footnote, the Court of Appeals also stated that the “extraordinary situation” doctrine set out in Elman and Kunzel v. Kunzel, 2008 UT App 83, ¶ 35, 190 P.3d 497, in which the court may in extraordinary situations invade one spouse’s separate property and award a share of it to the other spouse in order to achieve equity, did not apply in the instant case.
The Husband had raised certain issues of his own on cross-appeal, but had not properly preserved these for appeal. Nevertheless, the Court ordered that these issues could be dealt with by the trial court upon remand.
Smith v. Smith, 2017 UT App. 40
At issue in this case was an inheritance check that wife received from a family limited partnership. During the marriage, husband and wife had created a family trust with a Schedule “A” which described how property would fund the trust. Husband claimed that the way the trust was worded meant that when wife deposited her inheritance check (after her mother died) into a newly created account in her name, it became joint property pursuant to the terms of the family trust. The trial court disagreed. The Court of Appeals upheld the trial court’s decision.
Specifically at issue were two conflicting subsections of Schedule A of the family trust. Subsection 2 of Schedule A provided that accounts opened at the Tooele credit union and any new accounts opened in the future belonged to both parties. But subsection 4 of Schedule A stated that wife was awarded as her separate property (in trust) all of her interest in her family limited partnership.
The Court noted the standard of review, citing Stonehocker v. Stonehocker, 2008 UT App 11, ¶ 8, 176 P. 3d 476 for the proposition that courts have wide discretion in making an equitable property distribution and their awards will be upheld absent an abuse of discretion. But husband’s argument depended upon the trial court’s interpretation of Schedule A of the family trust document, which the Court reviewed for correctness.
Husband claimed that the plain language of the Financial Accounts provision (subsection 2) mandated that when wife deposited her admittedly separate inheritance check into a new account, it morphed into joint property. On the other hand, Wife claim that the plain language of the Family Partnership provision protected her separate property interest in her inherited property. The court was tasked with resolving the apparent conflict between these two subsections of the Trust.
One rule of statutory construction in particular assisted the Court in construing the Trust language. This rule states that general terms and provisions are qualified by specific terms and provisions that follow them; or, in other words, specific provisions are an exception to the general rule.
In this light, the Court had no trouble in concluding that the language of the Financial Accounts provision was very broad in its terms, and that the Family Limited Partnership language was a specific exception to those broad terms. It was simply unreasonable to expect Wife to not deposit her inheritance money into a financial account, and there was no indication that her inheritance was to be restricted to being held as cash or immediately spent or lose its separate character. This would be an absurd result, and render the Family Limited Partnership language essentially meaningless.
The Husband also argued that the Family Limited Partnership language protected only Wife’s interest in the partnership and not any checks or proceeds therefrom. The Court likened this argument to admitting that the Wife owned the cow but was only entitled to half of the milk from it.
Wife’s reading of the Trust provisions, on the other hand, worked no absurd results and did not render other provisions of the documents meaningless. Judgment for Wife.
Lindsey v. Lindsey, 2017 UT App. 38:
Husband and wife were married for twenty years and divorced in 2015. Prior to the marriage, husband held interests in closely held insurance businesses, which, after one years of marriage, were consolidated into one company, Prime Holdings. At that time, the husband’s business interests were worth about $3.6 million. During the marriage, these business interests increased in value, so that by December, 2014, they were worth about $10.9 million.
During the marriage, the parties maintained a high standard of living. Husband received dividends from his company during the marriage, including cash dividends totaling about $2 million between 2011 and the end of 2012. During the marriage, husband also elected to receive certain dividends as shares in Prime Holding, rather than cash dividends, so that between 2004 and 2012, he received fifty-seven shares of stock in Prime Holdings.
Both parties had children from prior marriages. During the marriage, wife did not work outside the home and was not employed with husband’s company. However, she provided support for husband’s clientele, such as taking on additional household responsibilities during visits from clients and their families. She prepared guest rooms and welcome baskets, did extra cooking, cleaning, laundry, and entertainment. She even lent her car to a household business guest on one occasion.
The parties initiated divorce proceedings in 2013 and were able to agree on many issues in the divorce. However, they were not able to agree on an amount of alimony, division of marital property, and division of husband’s business interests.
Husband moved for partial summary judgment on the issue of his premarital business interests in Prime Holdings, asserting that the business and all appreciation or enhancement in value thereon were presumed to be his separate property. He preemptively argued that there had been no commingling of his business interests, and that their value had not been enhanced, augmented, maintained, or protected by any of wife’s efforts. He argued that wife’s contributions to the marriage would be reflected in any alimony award, rather than an invasion of his premarital property interests. He argued that the rate of return on his business was below average for the industry and, thus, that all appreciation in the value thereof during the marriage was due to his premarital interests, rather than his work efforts while married. This was particularly so because of the substantial salary and dividends he had received during the marriage.
Wife conceded the initial characterization of husband’s business interests as premarital. However, she made three basic arguments: 1) that the business or some portion thereof had lost its separate character through commingling because she had given husband $54,000 of her own money during the marriage and he had told her that he used it in the business; 2) that she had contributed to the enhancement, maintenance or protection of the business through her efforts, including the aforementioned clientele hosting and entertaining activities, as well as frequent business discussions with her husband and enabling his to attend to his business duties by taking care of the household and the parties’ child, as well as children from the parties’ prior marriages; and 3) that awarding her a portion of the premarital property was necessary in order to achieve a fair, just and equitable result (i.e., “extraordinary circumstances.”).
With respect to the first argument, husband provided an affidavit from a forensic accountant stating that the dividend of fifty-seven shares of company stock were attributable to the husband’s premarital interest in the property. Husband also provided evidence from Prime Holdings’ CFO that none of the couple’s personal funds were invested in the business. Moreover, during her deposition, wife had admitted that husband could have done anything with the $54,000 she had given him, including: placing it in a joint account, or possibly depositing it into her marital account. But husband asserted that he had used the money for marital expenses.
With respect to her enhancement of the business value argument, husband stated that wife’s household and clientele entertainment activities were not in dispute. However, he stated that she had not been involved in the business’s creation, growth, development, or organization and she was never employed in the business. Thus, her activities did not warrant an equitable distribution of the premarital business.
The trial court accepted the forensic account’s affidavit stating that all of the dividend shares of stock were from the husband’s premarital interest in the business. There was no evidence contradicting this.
The trial court found that the wife’s entertaining of business clientele was minimal and did not amount to an enhancement of the value of the business; therefore, there was no basis for an equitable distribution.
The trial court found that there was no evidence to support wife’s assertion that the $54,000 she had given to her husband was used in the business.
Finally, the trial court found that the husband’s premarital interest in the business had grown at a relatively low rate and that this was in large part because of the substantial salary and dividends ($2 million) that he received during the marriage. Thus, the trial court concluded that there was no evidence that marital efforts had contributed to the enhancement of the value of the business.
Having granted husband’s motion for partial summary judgment, the trial court awarded to wife a substantial alimony award and a disproportionate share of the marital assets, along with a relatively low amount of the marital debt. The Court awarded the husband more marital debt than assets, largely because of a home the parties owned which had a substantial amount of debt associated with it.
An interesting issue that was raised sua sponte by the Court of Appeals was the correct standard of review on appeal regarding the trial court’s characterization and equitable distribution of separate property in a summary judgment setting. The Court noted that it was clear that a “correctness” standard is applied to the trial court’s determination that there were no genuine issues of material fact for purposes of Rule 56 of the Utah Rules of Civil Procedure (which governs summary judgment motions).
However, the Court concluded that the question of what standard of review to apply to a trial court’s grant or denial of summary judgment as to its characterization and distribution of property was an unsettled question. Should it apply the deferential standard that would apply had the property issues been litigated after a trial, or should it apply a correctness standard? The Court noted that this was an issue that had not been decided.
It is well known that Utah court have broad discretion and latitude in making equitable property distributions, and that trial court decisions on these matters have a presumption of validity and should not lightly be set aside. See Dahl v. Dahl, 2015 UT 79 ¶ 119, Rappleye v. Rappleye, 855 P.2d 260. As a result, the Court noted that appellate courts usually “defer to a trial courts characterization and equitable distribution of separate property.” Lindsey, citing Keyes v. Keyes, 2015 UT App. 114, ¶ 29, 351 P.3d 90.
The Court suggested that a somewhat deferential standard might be appropriate even in a summary judgment context because of the wide latitude afforded to trial court’s in making an equitable property distribution. Such a property award need only fall within a range of
appropriateness. However, the Court found that it did not need to decide this issue because, even if a correctness standard were applied in the instant case, the Court still would have affirmed the trial court’s decision.
The Court applied the familiar property analysis, noting that trial courts must first characterize property as marital or separate. Marital property is then presumed to be divided equally, while separate property is returned to the spouse bringing it into the marriage. There are three basic exceptions to this rule: 1) where separate property has been commingled; 2) where the other spouse has contributed to the augmentation, maintenance or protection of the separate property (such as by prudent investment of such assets – see Dubois v. Dubois, 504 P.2d 1380, 1381 (Utah 1973); or where marital funds are expended or marital debt incurred for the benefit of a spouse’s separate property – see Schaumberg v. Schaumberg, 875 P.2d 598, 602-03 (Utah Ct. App. 1994); or where one spouse worked in the separate business but was “not paid a wage or salary” – see Rappleye at 262-62 (Utah Ct. App. 1993); or where a spouse has foregone an income or business opportunity that would have benefited the marriage in order to invest in his or her separate asset – see Keyes v. Keyes, 2015 UT Ct. App. 114, ¶ 30, 351 P.3d. 90); and 3) where extraordinary circumstances so demand. The first two of these exceptions are set out in Mortensen v. Mortensen, 760 P.2d 304, 308 (Utah 1988), the third is outlined in Dunn v. Dunn, 802 P.2d 1314, 1321 (Utah Ct. App. 1990)
The court noted that enabling a spouse to devote time to a business by maintaining a household\, attending to child care, or running a part-time business to contribute to family finances does not qualify as a standalone reason for awarding a share of separate property under the contribution theory. See Jensen v. Jensen, 2009 UT App. 1, ¶¶ 11, 16, 203 P.3d 1020. The Court reasoned that marital division of duties takes on many forms and, in itself, may not be a sound reason to rearrange title to properties. Thus, the Court found that “for purposes of this exception, direct involvement with or financial expenditures toward a spouse’s separate property appear to be key.”
The wife in the instant case simply could not point to any economic value that she had contributed to the business as a result of her contributions. Her intermittent entertainment of business clientele did not amount to such a contribution, as she was never employed with the company, and had not contributed to its organization, growth, management, or ongoing operations. Thus, the trial court had correctly concluded as a matter of law that she had not demonstrated that one of the exceptions to the rule returning to each spouse his or her separate property applied.
Wife had argued that removing the separate property on summary judgment was akin to removing “a large slice of the marital pie” and that, therefore, the pie could not thereafter be equitably split. However, the Court noted that, pursuant to Mortensen, premarital property is properly removed from the marital estate.
The Court found unpersuasive wife’s argument that the trial court was required to wait until the close of trial to determine whether or not the “extraordinary circumstances” exception applies. Noting the high bar for establishing such circumstances – i.e., proving that “invading the spouse’s separate property” is “the only way to achieve equity” (Kunzler v. Kunzler, 2008 UT App 263, ¶ 35, 190 P.3d 497), the Court found that such circumstances did not exist in the instant case. Such circumstances could include where equity demands an alimony award, but the paying spouse cannot satisfy such an alimony from income, but could satisfy it through an award of his or her separate property – see id.; see also Burt v. Burt, 799 P.2d 1166, 1169 (Utah Ct. App. 1990)(an interest in inherited property may be awarded to a non-heir spouse in lieu of alimony). Another extraordinary situation had existed in the Elman case, where but for the application of the exception, husband would have been allowed to participate in marital profits created by wife, but she would not have been allowed to participate in separate property profits created by the husband. Elman, 2002 UT App, 83 ¶ 24 & n. 5.
The Court noted that, depending upon the circumstances, a rate of return on separate property might be considered in deciding whether or not to apply the exceptional circumstances exception. For example, an unusually high rate of return on a real estate investment business has been held to be equitably divisible, but only to the extent it exceeded a reasonable rate of return. See Id. But, the Court noted, extraordinary circumstances justifying an invasion of separate property might exist even where there is a negative rate of return during the marriage. Such might be the case where alimony is justified but a spouse cannot afford to pay it but through a separate property award.
In the instant case, the relatively low rate of return on husband’s business was not the sole factor in the trial court’s decision to return to him his separate property. The trial court had also held that husband’s compensation was commensurate with his work efforts, he was not undercompensated in an effort to grow his separate business, and he received substantial income and dividends which benefited both parties during the marriage, and which far exceeded the increase in the value of his equity. But even if the low rate of return had been the sole factor for the trial court’s decision, the Court of Appeals stated that it still would have upheld the grant of summary judgment in husband’s favor.
Wife had argued in a conclusory fashion that granting summary judgment would preclude the trial court from making a proper equitable property division, without pointing to any specific facts as to why awarding husband his separate property would be inequitable. On the other hand, husband had pointed to facts showing that no inequity would result from his being awarded his separate property. For example, wife had enjoyed and participated in the benefits of the business during the marriage, including the receipt of the $2 million in dividends which were used for marital purposes. In addition, she was to be awarded substantial alimony in the divorce. Her bare argument that husband was awarded substantially more property than her was beside the point, as the premarital property was properly not included in the marital estate for purposes of the equitable division.
If wife had had something more than just a bare allegation that she contributed to the enhancement of the business’s value through household contributions such as child care (thus enabling the husband to focus his efforts on increasing the value of the business) and through entertaining business clientele, perhaps the outcome might have been different.
This material should not be construed as legal advice for any particular fact situation, but is intended for general informational purposes only. For advice specific to any individual situation, an experienced attorney should be contacted.
