Opinion
Nos. 2002-CA-001752-MR, 2002-CA-001797-MR.
October 1, 2004.
Appeal and Cross-Appeal from Clark Circuit Court Honorable Jean Chenault Logue, Judge, Action No. 01-CI-00070.
William A. Dykeman, Winchester, Kentucky, Briefs for Appellant/Cross Appellee.
Kimberly Carter Blair, Winchester, Kentucky, Brief for Appellee/Cross-Appellant.
Before: DYCHE, GUIDUGLI, and McANULTY, FORMTEXT, Judges.
OPINION
Jeff Anderson (Jeff) and Kitty Anderson (Kitty) dispute — for different reasons — the trial court's findings in their divorce action pertaining to the division of proceeds from the future sale of the marital residence and allocation of debt. Specifically, the trial court found that Jeff is entitled to recover $17,860 as his nonmarital property when Jeff and Kitty finally sell their former home. After the mortgage is paid off, the trial court determined that the remainder of the proceeds would be divided equally between Jeff and Kitty. Jeff believes he proved that the home's value increased due to general economic conditions, a contention implicitly rejected by the trial court in its findings. Kitty believes that Jeff transmuted his nonmarital property, the $17,860 amount, into marital property when he and Kitty invested it, earned money on it, split it equally and deposited the increased amounts in two money market fund accounts in the names of their minor children. Because we conclude that the trial court did not abuse its discretion in determining that (1) Jeff failed to meet his burden of proof, and (2) Jeff's nonmarital contribution was not transmuted, we affirm.
In addition to the division of the proceeds from the sale of the home, Jeff also disagrees with the trial court's allocation of a substantial credit card debt incurred by Kitty during the marriage. The trial court ordered Kitty to pay that portion of the debt attributable to her business and charges she made to purchase items for her adult daughter. And the court ordered Kitty and Jeff to pay equal amounts of the remaining debt, $12,180.49. Jeff does not believe that he should have to pay any of the debt because he and Kitty agreed that she would pay her own debts — and this is her own debt — and he would pay the tuition and living expenses for their adult daughter's college education. Because the agreement on which Jeff bases his argument is ambiguous and incomplete, we do not believe the trial court abused it's discretion in allocating the debt. But we do reverse and remand the trial court's findings because the amount allocated to Kitty for debt accrued on the daughter's behalf is contrary to Kitty's testimony.
Jeff and Kitty Anderson married on August 13, 1978. They have two adult children, John David (David), now age 32, and Nicole Lynn (Nicole), now age 24.
In 1984, Jeff and Kitty purchased a home. The total purchase price was $52,000. To purchase the home, the couple made a down payment of $27,500 and financed the rest. (In its findings, the trial court found the down payment was $26,000 based on Kitty's testimony, but Jeff produced the closing statements which show a $27,500 down payment.) There is no dispute that $17,860 of that down payment was Jeff's nonmarital money. There is also no dispute that, before their purchase of the house, Jeff and Kitty used that money to purchase two certificates of deposit. Once the CDs matured and earned more than $20,000, Jeff and Kitty deposited the earnings equally in two money market accounts in the names of David and Nicole. When Jeff and Kitty purchased their home in 1984, they withdrew $10,000 from each account to make the down payment on the house. To provide for the future needs of their children, Jeff and Kitty continued to make deposits over the years in the children's previously established money market accounts.
During the marriage, Jeff worked in construction and later obtained a position as a mechanic for the U.S. Postal Service. He still has this job. Kitty began working in 1995 for the Clark County Board of Education. She quit that job four years later to devote more time to her herb and antique business, which she primarily operated through a booth at an antique mall. After Kitty and Jeff separated, Kitty began working full-time at Lowe's, where she still works; and her intention is to dissolve her business.
In 1996, Kitty obtained a credit card and later obtained at least two additional credit cards. Kitty would use the cards to purchase supplies for her business, personal items for herself, items for the home and items for Nicole. At the time of the couple's separation, Kitty had accumulated over $19,000 in credit card debt. Jeff did not use the credit cards.
Kitty petitioned for divorce on January 30, 2001. Because at the time of their separation Kitty and Jeff only owed about $15,000 on the house, the home is a substantial marital asset. At some point, Kitty and Jeff agreed that they would sell their house. And they agreed that an appraisal needed to be done. They selected the same appraiser who had appraised the home in 1984 before their purchase of it. The home appraised for $124,000. Kitty stipulated to the results of this appraisal (the stipulated appraisal).
Jeff requested a second appraisal (the second appraisal). The purpose of this appraisal was to appraise the property in today's market, but as to the condition the house was in 1984. In this appraisal, the home appraised for $106,500. Kitty objected to the introduction of this report at the final hearing. The appraiser did not testify as an expert. The difference between the two appraisal amounts was supposed to reflect the value of improvements Jeff and Kitty made to the property.
During the divorce proceedings, Jeff and Kitty could not agree on two things: (1) how the proceeds from the sale of the home should be divided; and (2) whether Jeff should be responsible for any of Kitty's credit card debt and if so, for how much. The trial court held a final hearing on April 26, 2002, to determine these issues.
Jeff and Kitty testified at the final hearing. Three months later, the trial court issued its findings of fact, conclusions of law, and decree of dissolution. The key factual findings are as follows:
11. Marital Residence. The parties purchased the marital residence in 1984. Petitioner testified that the parties made a down payment on the home of $26,000.00, $20,000, of which was money taken from savings accounts belonging to the parties' two minor children. Petitioner asserted that the parties considered this money to be the property of the children and that the parties have repaid the $20,000 to the children's savings accounts. Petitioner requests that the parties equally divide the proceeds from the sale of the home. Respondent testified that the money was originally gifted from Respondent's mother for the purpose of giving the parties a down payment for a home. Respondent testified that he put the money into savings accounts in the children's names for tax purposes only but that the money never belonged to the children. Respondent requests that the home be sold and that he receive $17,860.00, as his nonmarital contribution to the home plus the increase in value as calculated using the formula described by the Court in Brandenburg v. Brandenburg, Ky.App., 617 S.W.2d 871 (1981). Thereafter, the parties should evenly divide the remainder of the proceeds from the sale of the house.
12. The Respondent has sufficiently established a nonmarital contribution in the real property totaling $17,860.00. However, the Respondent has failed to rebut the KRS 403.190(3) presumption that all property acquired during the marriage is marital property as it relates to the increase in value of the marital property in excess of $17,860.00. Respondent failed to show that his nonmarital contribution appreciated as a result of general economic conditions. Travis v. Travis, Ky., 59 S.W.3d 904 (2001).
. . .
14. Credit card debt. Petitioner testified that she has historically used credit cards to pay for both business related items and for personal items. According to Petitioner's Exhibit F the total business debts are $4,090.16, and the total personal debts are $15,180.49. Petitioner testified that she is willing to assume the business debt and requested that she and Respondent divide the personal debt between them in proportion to their income. Petitioner testified that the personal debt is made up of clothes and other personal items she bought as a result of a significant weight loss, gifts bought for the parties' college student daughter, and items used to decorate the home. Approximately $3,000.00, of the balance was used to purchase items for the daughter. Respondent asserted that he was not aware of the personal debt charged on the credit cards until the divorce action. Respondent does not wish to pay any of the credit card debt because he was not aware of the debt, nor did he agree to or authorize the debt. Respondent testified that the parties agreed that Respondent would be responsible for paying the college tuition for the parties' college student daughter and that Petitioner would pay for clothes and other incidental expenses. Respondent has paid the tuition for the daughter. The personal debts are marital as they were acquired during the marriage. However, the debt of $3,000.00 spent by the Petitioner on the daughter shall be the sole responsibility of Petitioner. The balance shall be equally divided by the parties.
From these findings, the trial court concluded as follows:
4. That Respondent shall receive $17,860.00 from the proceeds of the sale of the marital residence located at 428 LaSalle Drive as his non marital contribution. The parties shall equally divide the remaining proceeds from the sale of the marital residence after payment of the debt thereon.
5. That Petitioner shall be solely responsible for the portion of the credit card debt designated as business expense in the amount of $4,090.16.
6. That Petitioner shall be solely responsible for $3,000.00, of the personal credit card debt spent on the parties' daughter. The balance of the personal credit card debt, $12,180.49, shall be equally divided between the parties. Though Respondent testified he did not authorize the specific purchases made with the credit card, he did have reason to know Petitioner made the purchases and was aware these expenditures did not come from the parties joint checking account. Respondent received the benefit and use of items purchased for the home and for his family.
Jeff and Kitty both appeal from these findings and conclusions. In his appeal, Jeff argues that under Travis, the trial court failed to find why the home increased in value. Had the trial court made this determination, it should have concluded that the home increased in value due to both the market rise in real estate in general and the improvements made by Jeff and Kitty. The trial court should have then applied the formula set out in the case of Brandenburg, 617 S.W.2d at 872-73 (1981), to determine the value of Jeff's nonmarital property. Jeff raises another issue in his appeal pertaining to the trial court's allocation of Kitty's debt.
Kitty cross-appeals and argues that all of the equity in the marital residence was marital property. Despite the fact that she admits that the source of the $17,860 was Jeff's mother, she contends that that amount transmuted to marital property when the couple deposited the money into their children's bank accounts.
The first step in resolving the issues raised by Jeff and Kitty is identifying the appropriate standard of review. Two different standards are applicable on the property valuation issue — the clear error standard for findings and the abuse of discretion standard for conclusions. As to the trial court's findings of fact, CR 52.01 states that these findings shall not be set aside unless we determine that they are clearly erroneous. Under this clear error standard, factual findings supported by significant probative evidence will not be disturbed. See Poe v. Poe, Ky. App., 711 S.W.2d 849, 851 (1986). And as to the trial court's conclusions drawn from its factual findings, the abuse of discretion standard of review applies. See Eviston v. Eviston, Ky., 507 S.W.2d 153, 153 (1974). We will not reverse the trial court unless a party shows that the trial court abused its discretion.
Guided by these standards, we turn to Jeff's first argument. Jeff contends the valuation of his nonmarital interest in the home will turn on the application of Travis. We agree. Like Travis, this case concerns the valuation of marital and nonmarital components in real property. As stated in Travis, Jeff, as the nonmarital claimant, had the burden of proving " why the increase in value occurred," because the value of increase attributable to general economic conditions is not marital property while the value of increase attributable to the joint efforts of the parties is marital property. Id. at 910 (emphasis in original).
Where our reading of Travis differs from Jeff's is in Jeff's contention that Travis required the trial court to find " why the increase in value occurred." To the contrary, Travis required Jeff to prove why the increase in value occurred. See Louise E. Graham James E. Keller, 15 Kentucky Practice (Domestic Relations Law) § 15.67.5 (2003). Travis held that this proof was necessary to rebut the presumption in KRS 403.190(3) that all property acquired by either spouse after the marriage and before a decree of legal separation is marital property. If Jeff met his burden of proof and proved general economic conditions, then the trial court could have applied some version of the Brandenburg formula. See Brandenburg, 617 S.W.2d at 873 (suggesting and applying a formula but leaving open the possibility that trial courts may utilize different procedures for equitably dividing property once the parties establish a relationship between their contributions). If he did not, then under KRS 403.190(3), the trial court was required to characterize the property's increase as marital property. Id. at 911.
To prove that his nonmarital contribution appreciated as a result of general economic conditions versus Kitty and Jeff's joint efforts, Jeff introduced the second appraisal. Jeff claims that Kitty stipulated to the results of the second report, but Kitty actually objected to this report at the final hearing. The second appraisal purported to assess the value of the house in 2002, but as it existed in 1984 when Jeff and Kitty purchased it. The report provides that the following condition applied for the second appraisal: "At the client's request, this appraisal is being made for today's market, but as the condition the house was on 10/31/84, with the data from a previous appraisal by Steven D. Adams."
The appraised value was $106,500, a difference from the first appraisal of $17,500. Jeff surmises that having introduced the second report, his job was done. He met his burden of proof, and all the trial court had to do was so find and arrive at the resulting equities mathematically by applying Brandenburg.
While we believe Jeff was on the right track in requesting the second appraisal, considering Kitty's testimony, we cannot conclude that his proof was as persuasive or complete as he would have us believe. During Kitty's presentation of proof, she testified that Jeff had produced receipts totaling $13,800 for home repair and improvement projects the couple had undertaken over the years and paid for with marital funds. And Kitty described an additional $14,000 worth of maintenance and improvements that were not reflected in Jeff's receipts: they repaired the roof; they added a sided, screened-in porch; they added a gate on the back of the property; they did extensive landscaping; they added crown molding; they renovated a bathroom including new tile, paint and a shower; and they replaced an air conditioner and furnace. Jeff does not dispute that the couple did these improvements, but he argues that improvements do not increase the value of the property dollar for dollar. The couple provided this information to the appraiser for the stipulated appraisal, and the appraiser did account for them as shown in the second appraisal.
Confronted with this evidence, the trial court concluded that Jeff failed to show that his nonmarital contribution appreciated as a result of general economic conditions. We hold the trial court's findings on this issue are supported by substantial evidence. And we find no abuse of discretion in the trial court's conclusions. In this case, Jeff simply did not carry his burden. Perhaps he should have gone the extra step posed by Justice Cooper in his dissent in Travis and had the appraiser or some other expert testify that since the increase in value was only partly due to marital contributions, the other part was probably due to inflation. See Travis, 59 S.W.3d at 917.
Shifting to Kitty's cross-appeal, we conclude the trial court's finding that Jeff adequately established the source of his nonmarital contribution is supported by significant probative evidence. Jeff testified that his mother gave him $17,860 in 1982 for the purpose of buying a house. After he invested it and earned money on it, he deposited it in accounts in his children's names as a sort of tax shelter to continue to make money on it until he and Kitty bought a house. When they purchased their house two years later, they used the earned value to make a sizeable down payment. On this issue, the trial court believed Jeff and not Kitty. The trial court did not believe that Jeff ever intended to give this money to his children as a gift.
We turn to Jeff's second issue: the trial court failed to enforce Jeff and Kitty's written agreement on the allocation of credit card debt and college expense payments for Nicole. Jeff argues that Kitty agreed to pay her credit card debt, and he agreed to pay all of the college and living expenses for Nicole.
A different standard of review than those outlined above is applicable to this issue. Settlement agreements in a divorce action are contracts. Matters of contract interpretation are questions of law that are decided by a reviewing court de novo. See Island Creek Coal Co. v. Wells, Ky., 113 S.W.3d 100, 103 (2003).
The written agreement, which Jeff does not attach to his brief, is a two-column list handwritten by David, Jeff and Kitty's son. In Jeff's column, there is no mention of Nicole's college and living expenses. In Kitty's column, it says "own debts — will pay." Under KRS 403.180 Jeff and Kitty were free to enter into a written agreement to divide their property and allocate debts.
The question then becomes whether these four words completely and unambiguously state the agreement that Kitty agreed to pay the total amount of the credit card debt, and Jeff agreed to pay all of the college and living expenses for Nicole. We hold that they do not. They say nothing of Jeff's part of the bargain nor do they specify what Kitty's own debts are. She testified that she believed her own debts were her business debts, which she has agreed throughout the proceedings that she would pay.
Where a contract is ambiguous or silent on a vital matter, a court may consider parol and extrinsic evidence involving the circumstances surrounding execution of the contract, the subject matter of the contract, the objects to be accomplished, and the conduct of the parties. . . . A contract is ambiguous if a reasonable person would find it susceptible to different or inconsistent interpretations.
Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., Ky.App., 94 S.W.3d 381, 385 (2002) (internal citations omitted).
In this case, because the agreement was silent and ambiguous, we believe the trial court properly considered extrinsic evidence pertaining to the credit card debt and properly decided the debt issue. At this point, we return to an abuse of discretion standard of review. See Neidlinger v. Neidlinger, Ky., 52 S.W.3d 513, 523 (2001) (holding that issues pertaining to the assignment of debts incurred during the marriage are reviewed under an abuse of discretion standard).
Debts incurred during the marriage are assigned on the basis of such factors as (1) receipt of benefits; (2) extent of participation in incurring the debt; (3) whether a party incurred the debt to purchase assets later designated as marital property; (4) whether a party incurred the debt to provide for the family; and (5) the economic circumstances of the parties bearing on their respective abilities to assume the indebtedness. Neidlinger, 52 S.W.3d at 523. Here, after hearing the evidence, the trial court divided the debt into three components: (1) Kitty's business debts; (2) debt incurred for Nicole's benefit; and (3) debt incurred for Kitty and the family's benefit. Kitty was solely responsible for components one and two, and Jeff and Kitty were equally responsible for component three. We conclude the trial court did not abuse its discretion in allocating the debt in this manner.
Jeff goes on to argue that the trial court's finding on the amount of credit card debt incurred for Nicole was clearly erroneous because it is contrary to Kitty's own testimony. We agree, and Kitty concedes in her brief that the trial court missed her testimony that she charged a total of $4,514.48 in purchases for Nicole. The trial court found that "[a]pproximately $3,000.00, of the balance was used to purchase items for the daughter[SKS1]." But Kitty testified that she made $3,036.60 in purchases for Nicole on the First USA credit card and $1,477.88 in purchases for Nicole on the Chase credit card for a total of $4,514.48. Thus, we reverse only that part of the judgment of the trial court that Kitty shall be solely responsible for $3,000, of the personal credit card debt spent on the parties' daughter. And we remand with instructions that the trial court order that Kitty is solely responsible for $4,514.48 of the personal credit card debt spent on Nicole. This leaves $10,666.01 to be divided equally between Jeff and Kitty.
ALL CONCUR.