Valuation Date Makes all the Difference
May 13, 2015 § 4 Comments
Two things are true when it comes to valuation of the marital estate in equitable distribution: (1) The date selected for valuation can be critical; and (2) Selection of the date of valuation is in the discretion of the chancellor.
The recent COA decision in McKissack v. McKissack, handed down May 5, 2015, illustrated both points.
Billy Stephen McKissack and Terri McKissack had consented to a divorce on the sole ground of irreconcilable differences, and left equitable distribution up to the chancellor. The judge entered a divorce judgment in November, 2008, ruling that some $542,000 in CD’s in Billy Stephen’s name were marital property. Billy Stephen appealed, and the COA reversed and remanded on October 12, 2010, holding that the CD’s were separate property. The chancellor was charged to reconfigure the equitable distribution based on the COA ruling.
On remand, the chancellor did adjust the equitable distribution to accommodate the COA ruling. He found that the financial disparity created by the half-million-dollar separate estate could not be made up by allocating assets, and so ordered Billy Stephen to pay Terri lump-sum alimony to make up the difference. He also left the original asset allocation for the most part intact. In making his ruling, the chancellor used the date of the original divorce judgment as the valuation date, and he relied on his previous ruling to Billy Stephen again appealed, complaining that the chancellor used the original divorce-hearing date for valuation, instead of a post-appeal, later date.
The reason Billy Stephen urged the later date is that he had acquired new debt since the date of the original divorce, the largest of which was a debt he had co-signed with his paramour for an apartment complex that had subsequently been destroyed in a fire.
In the case of McKissack v. McKissack, decided May 5, 2015, the COA affirmed. Here’s how Judge Maxwell, writing for the majority, addressed Billy Stephen’s arguments:
¶9. As Steve sees it, the chancellor’s distribution of marital assets was “unfair” because he gave too little weight to Steve’s newly acquired debt from the apartment fire. He also insists the chancellor should have conducted a Ferguson analysis anew on remand and improperly skimped on the Cheatham factors. After review, we find no error in the chancellor’s methodology.
I. Equitable Distribution After Remand
¶10. There are three general tasks required of a chancellor’s division of marital assets in divorce cases. The chancellor must “(1) classify the parties’ assets as marital or separate, (2) determine the value of those assets, and (3) divide the marital estate equitably based upon the factors set forth in Ferguson.” Rhodes v. Rhodes, 52 So. 3d 430, 436 (¶18) (Miss. Ct. App. 2011) (citation omitted) (citing Ferguson v. Ferguson, 639 So. 2d 921, 928-29 (Miss. 1994)) [Footnote omitted]. We review a chancellor’s equitable division under the familiar manifest-error standard of review. Vaughn v. Vaughn, 56 So. 3d 1283, 1288 (¶17) (Miss. Ct. App. 2011).
A. Newly Acquired Debt
¶11. To Steve, his losses from the apartment fire were reason enough to not have to pay additional lump-sum alimony. And he argues it was wrong for the chancellor not to have re-valued the marital estate, giving more weight to his newly acquired, non-marital debt from the apartment fire.
¶12. But on remand, the chancellor opted to use the property values already “in evidence at the trial on the merits”—rightly noting that the “date of valuation is discretionary with the court.” Because he had already valued the property as of the divorce hearing date when making his findings, he found “any accumulation of additional assets or the appreciation of awarded assets should be classified as separate property[.]” Steve urges it was wrong for the chancellor to use the divorce hearing date as the “point of demarcation for valuation.”
B. Valuation Date
¶13. Steve’s argument is blunted by the fact that chancellors are given deference in setting the valuation date for equitable distribution of marital property. Holdeman v. Holdeman, 34 So. 3d 650, 654 (¶13) (Miss. Ct. App. 2010). Often chancellors deem the date of the divorce hearing or judgment as the line of demarcation. See Wheat v. Wheat, 37 So. 3d 632, 637 (¶15) (Miss. 2010). The date of entry of a separate maintenance order or temporary support order may also serve as the valuation date. Id. (citing Godwin v. Godwin, 758 So. 2d 384, 386 (¶7) (Miss. 1999)). But this deference is measured against the general notion that “assets should be valued as close to the trial date as feasible.” Debbie Bell, Mississippi Family Law § 6.07[3] (2005).
¶14. The trial-date approach is the route the chancellor took here. He made a common-sense decision that the date of the divorce hearing would be the cut-off point. He held any later-accumulated assets or appreciation of already-awarded assets would be separate property. See Henderson v. Henderson, 757 So. 2d 285, 293 (¶37) (Miss. 2000) (On remand, the supreme court held a husband’s one-half interest in the marital home should be valued from the divorce date—not several years after the case had been appealed and retried, during which time the wife had been paying the mortgage on an appreciating asset). The chancellor was, however, aware of authority that post-divorce passive appreciation of asset values could be included [Footnote omitted]. But he found no proof of passive appreciation here.
¶15. What Steve largely overlooks is that his preferred valuation date cuts both ways. It is true the chancellor gave little weight to Steve’s newly acquired debt for valuation purposes. But he also refrained from tampering with Steve’s possibly new assets—though he perceived Steve’s income was greater and his expenses lower than when the couple divorced. Also, the chancellor highlighted that the resulting debt from the apartment fire was not from Terri’s wrongdoing or fault. The apartment was Steve’s separate property. And it was Steve who chose to sign as guarantor for his claimed paramour Millie’s debt in the complex. For these reasons, and those we explain below, we cannot say the chancellor erred in relying more on his initial valuations than Steve’s new debt.
The court went on to uphold the chancellor’s decision to rely on his original Ferguson analysis.
One thing that Billy Stephen apparently did was to put on proof of his preferred valuation date and the reasons supporting it. I have held forth here before about that failure of many attorneys in equitable distribution cases to put on any proof whatsoever in trials of the client’s position on what valuation date is selected. When you do that you are: (a) leaving it entirely in the judge’s unfettered discretion; and (b) depriving your client of a basis in the record to complain about it on appeal.
Every calculation involved in equitable distribution revolves around the valuation date. Remember that.
Before You Draft that PSA …
May 6, 2015 § 4 Comments
Suzie drops by, writes you a check for your retainer and court costs, and fills you in on the terms of the parties’ agreement to get an irreconcilable differences divorce. She hands you a folded sheet of notebook paper with bullet points that read like, ” … Joe will get his truck and pay for it, and I will get my car and pay for it,” and ” … Joe will pay me $5,000 from his retirement account,” and “Suzie will get 1/2 of Joe’s retirement with Ajax Lightning Rod Corp.”
So, what do you do next?
If your answer was to hand the paper to your secretary to start working on a draft, you are wrong. As in deeply, malpracticedly wrong.
The correct answer is that you need a LOT more information before you commence that draft. Consider:
- What kind of retirement account is the $5,000 going to come from, and when it is it to be paid? If the account is a defined contribution plan, such as IRA or 401(k), a lump sum can be paid if done properly. If, on the other hand, it is a defined benefit plan, such as most pension plans, she could only get the money in the form of an income stream at the time of Joe’s eligibility for retirement.
- If that retirement plan that is going to fund the lump-sum payment is PERS or military retirement, you can’t dip into it to withdraw cash. The only way to access PERS benefits is to retire and begin drawing a monthly benefit, or to leave employment and get a cash payout.
- What are the actual names of the retirement accounts? You are asking for trouble if you don’t use the exact name of the accounts, such as “Ajax Lightning Rod Corp. Employee Benefit Program 51-014,” or “Joe Blow IRA Account no. 700-092108, Skinflint Bank & Trust, Lucedale, MS.” Why? Because people have a tendency years after the fact to lose their memory of exactly what it was they agreed to do, and that detail nails down exactly what that agreement was. Not only that, but later when you draft any necessary QDRO, you will need that exact information.
- Do not lift a finger to draft that PSA until you hold in your hand the most recent statements from all of the retirement accounts. Just because someone tells you they can do something does not mean they can. Also, those statements will have most, if not all, of the information you will need to draft the retirement provisions of the PSA.
- Make sure you specify the exact date of division. For example, “Suzie shall receive an amount equal to one-half of the account balance as of January 15, 2015 …” The date by which the division is to be accomplished is also critical.
- Spell out who has the responsibility to do what. If Joe is to accomplish all of this, make sure the agreement says that. If someone is going to hire a financial advisor or lawyer to draft a QDRO, who will pay the expense? Some plans actually charge fees — as much as several hundred dollars — to process divisions. Who will pay?
- Address who will bear the tax responsibility for his or her share of the division. Remember that IRA and 401(k) divisions are taxed as income, plus a 10% penalty. If that $5,000 payment is made, will Suzie’s share be reduced by 38%, or will Joe bear that burden? Remember that Suzie can avoid any taxes by rolling the money over into her own qualified account.
The most recent object lesson in how not to handle a retirement division is in the case of Miles v. Miles, about which I posted at the link. You don’t want that to happen to you. As I said before, you need to educate yourself about retirement accounts and put some thought into the most effective way to draft a provision that will protect your client and successfully accomplish what she wants to do.
Some of the information in this post is derived from a presentation by Michael D. James of Legacy Wealth Management Group, Hattiesburg, to the Conference of Chancery Judges in April.
Designed to Fail
February 12, 2015 § 3 Comments
The COA case Miles v. Miles, handed down January 27, 2015, is a study in how not to draft a PSA.
Carlos and Brenda Miles had gotten an irreconcilable-differences divorce in 2000. The PSA included the following language:
“[Carlos] shall place [Brenda’s] name on his Individual Retirement Account (IRA) Certificate of Deposit at [the] Bank of Mississippi, as joint tenants with full rights of survivorship.”
When Carlos went to do what the language required of him, he was spurned by the bank because an IRA (note that the I stands for Individual, not joint) can only be in the name of the owner; there is no such thing as a jointly-owned IRA.
A dozen years later, Brenda had to go back to court to get the chancellor to re-jigger the arrangement to get what she should have been entitled to in the first place. That’s a second trip to court, with a second set of attorney’s fees and separate time away from work and other lifely activities to set right what could have been addressed in 2000 with effective language in the PSA.
Aside from the glaring fact that the agreement required the parties to do the impossible, it also failed to set out the balance in the account, or to state that each party was to own one-half (or any other percentage), or to establish who would have the tax responsibility. No date was set to carry out the agreement.
When you draft a PSA, don’t just take your client’s notes and couch them in legalese sufficient to pass your judge’s scrutiny. Engage your brain and bring your training, background, and experience to bear for the benefit of your client.
Your responsibility, as a competent lawyer, is to draft an agreement in such a way that it will do everything it is supposed to do with the result that your client intended, without any court ever having to guess what the language meant. That is a lofty responsibility, and to do it right requires a thoughtful, careful approach. Slapping some words together on a page to satisfy a client today will only buy that client grief and resentment against you later (hopefully after the statute of limitations has run).
If you approach every agreement you draft with this responsibility in mind, you will not achieve the goal 100% of the time. No lawyer is perfect. But if you aim for 100%, your success rate will be considerably better than most other attorneys, and unquestionably better than that of the word-slappers.
The needless train wreck in this case could have been avoided if the agreement had said that the IRA would be divided, one-half each (or even better, stating specific amounts), and that hers would be deposited (or rolled over) into her own qualified account, and that each party would be responsible for the tax consequences associated with his or her own share of the account.
If you don’t understand how these things work, I suggest you refer these type clients to someone who can do a competent job.
The Unconscionable Pre-Nup
January 22, 2015 § 5 Comments
It has long been settled in Mississippi law that antenuptial agreements (or prenups) are enforceable in our courts. They are enforced and interpreted as are other contracts, with the added requirements that there be fair disclosure of finances and that they be voluntarily entered into. These heightened requirements are referred to as “procedural fairness.”
But what about the substance of the agreement itself? If the agreement is found to be procedurally fair, does that preclude further inquiry into the fairness of the instrument?
The case of Mabus v. Mabus, 890 So.2d 806 (Miss. 2003) did seem to hold that the trial court could not consider the substantive fairness of a prenuptial agreement, and a chancellor in a divorce action between Mr. and Mrs. Sanderson limited his analysis to the procedural fairness of the prenup, which he found to be fair. He enforced the agreement as written, despite the fact that it was one-sided in favor of Mr. Sanderson. Mrs. Sanderson appealed, charging that it was error for the chancellor not to consider the fairness of the contract.
In the case of Sanderson v. Sanderson, handed down December 11, 2014, the MSSC reversed and held that the substantive unconscionability of a prenup is a matter that should be considered by the trial court. Justice Coleman wrote for the majority:
¶17. Confusion has arisen in Mississippi as to whether courts should consider the substantive unconscionability of prenuptial agreements. The chancellor in the instant case stated in his Final Decree of Divorce that “some states look at both substantive and procedural unconscionability, Mississippi courts do not.” The lack of clarity in the law has arisen perhaps because of the Mabus Court’s use of the phrase “fundamental fairness” instead of “substantive unconscionability.” The Mabus Court wrote as follows:
The claim that the estates of the parties are so disparate that it questions fundamental fairness is of no consequence. An antenuptial agreement is as enforceable as any other contract in Mississippi. Of course, there must be fairness in the execution and full disclosure in an antenuptial agreement in Mississippi.
Id. at 821 (¶ 64) (internal citations omitted). The above-quoted language constitutes a holding that the Mabus prenuptial agreement was not fundamentally unfair but falls short of a blanket prohibition against considering substantive unconscionability in all prenuptial agreements. The Mabus Court’s language does not prohibit considering substantive unconscionability in prenuptial agreements as a rule of law. Mabus also makes two further assertions that have confused our law of prenuptial agreements.
¶18. First, Mabus states that a prenuptial agreement is a contract like any other contract that is subject to the same rules of construction and interpretation applicable to contracts. Mabus, 890 So. 2d at 819 (¶53) (citing Estate of Hensley, 524 So. 2d at 327). However, prenuptial agreements cannot be contracts like any other if courts cannot consider whether a prenuptial agreement can be substantively unconscionable. “The law of Mississippi imposes an obligation of good faith and fundamental fairness in the performance of every contract . . . this requirement is so pronounced that courts have the power to refuse to enforce any contract . . . in order to avoid an unconscionable result.” Sawyers v. Herrin-Gear Chevrolet Co., 26 So. 3d 1026, 1034-35 (¶ 21) (Miss. 2010) (emphasis added); see also Covenant Health & Rehab. of Picayune, LP v. Estate of Moulds ex rel. Braddock, 14 So.3d 695, 705 (¶13) (Miss. 2009).
¶19. Within contract law, there are many different types of contracts. The Legislature has carved out a remedy for unconscionable sales contracts. See Miss. Code Ann. § 75-2-302 (Rev. 2002). However, Section 75-2-302 has been applied to other types of contracts, such as arbitration contracts. Covenant Health & Rehab. of Picayune, 14 So. 3d at 706. Similarly, the Court has analyzed the unconscionablity of domestic relations contracts. See id. (“We also have found contracts to be unconscionable for clauses other than arbitration agreements.”); In the Matter of Johnson’s Will, 351 So. 2d 1339 (Miss. 1977) (considering unconscionability for a contract between a husband and wife preventing a wife from revoking her husband’s will); West v. West, 891 So. 2d 203, 213 (Miss. 2004) (“A contract may be either procedurally or substantively unconscionable.”). Accordingly, because prenuptial agreements are contracts like any other, substantive unconscionability must be considered.
¶20. The Court has even gone further and defined an unconscionable contract in domestic relations contracts. “[I]t is also the law that courts of equity will not enforce an unconscionable contract. In Terre Haute Cooperage, Inc. v. Branscome, 203 Miss. 493, 35 So. 2d 537 (1948), this Court defined an unconscionable contract as ‘one such as no man in his senses and not under a delusion would make on the one hand, and as no honest and fair man would accept on the other.’” In re Johnson, 351 So. 2d at 1341; see also West, 891 So.2d at 213 (¶ 27) (“Substantively, the terms of the property settlement agreement are less than desirable, but we cannot say that no spouse in his or her right mind would agree to what is, at worst, a begrudging but generous offer . . . to provide alimony . . . .”).
¶21. Second, the Mabus Court appears to have considered substantive unconscionability after stating fundamental fairness was of no consequence. In In re Johnson, the Court explained how to determine if a contract is unconscionable: “In determining whether this contract was unconscionable, it is necessary to analyze what the widow was to receive under the will in contrast to her rights absent the will under the laws of descent and distribution.” In re Johnson, 351 So. 2d at 1342. In other words, the Court considered what the wife would have received if the contract had not existed and if the wife was able to renounce her husband’s will. Similarly, even in light of the premarital agreement, the Mabus Court considered the White factors for lump sum alimony and the Ferguson factors for distribution of the marital property. Mabus, 890 So. 2d at 821-23 (¶¶65-71) (citing White v. White, 557 So. 2d 480, 483 (Miss. 1989); Ferguson v. Ferguson, 639 So. 2d 921 (Miss. 1994)). Also, in Estate of Hensley, in determining whether the prenuptial agreement between the husband and wife was enforceable, the Court noted that “a full reading of the record divulges that Mr. Hensley had actually been very benevolent.” Estate of Hensley, 524 So. 2d at 328. Thus, Mississippi has implicitly considered the substantive unconscionablity of premarital agreements. We hold that, given the contract law on unconscionability, substantive unconscionability for premarital agreements must be considered by trial courts.
¶22. Contract law has largely, with the exception of the sale of goods, remained common law. Therefore, inevitably, contradictions arise. Unconscionability looks at the terms of the contract. See West, 891 So. 2d at 213. Unconscionability also looks at the circumstances existing at the time the contract was made. Vicksburg Partners, L.P. v. Stephens, 911 So.2d 507, 517 (¶ 22) (Miss. 2005), overruled on other grounds by Covenant Heath & Rehab. of Picayune, LP v. Estate of Moulds ex rel. Braddock, 14 So. 3d 695 (Miss. 2009). We hold that substantive unconscionability feasibly could be measured at the time the prenuptial agreement is made; measuring it at the time the agreement is made would maintain consistency in the law. It also would ensure that the Court does not “relieve a party to a freely negotiated contract of the burdens of a provision which becomes more onerous than had originally been anticipated.” Mabus, 890 So. 2d at 819 (¶53) (quoting Estate of Hensley, 524 So. 2d at 328).
¶23. Because the chancellor in the case sub judice operated under the erroneous conclusion that the prenuptial agreement could not be analyzed for substantive unconscionability, we reverse and remand the case for him to do so. We decline the dissent’s invitation to conduct that analysis for the first time on appeal, because the error consisted of making no finding at all rather than the wrong finding. In other words, there is no decision on point for us to analyze for error.
There are some serious ramifications here for the drafting of antenuptial agreements. You will need to discuss the fairness of the agreement with your client, but that is a subject most clients do not care to address; after all, their primary concern is to maintain a status quo that is in all likelihood quite unfair. In Sanderson, for example, the husband’s pre-marital estate was in excess of $3 million, and the wife’s only around $120,000. He wanted to maintain that pre-marital wealth. Is that imbalance unconscionable?
Analyzing antenuptial agreements through the lens of contract law is problematical. The fact is that antenuptial agreements involve considerations that do not enter into negotiation of other types of contracts. As Justice Chandler’s dissent points out, “The decision to marry is not an arms-length commercial transaction, but rather is grounded in personal, moral, religious, and emotional considerations that are off-limits to strangers to the relationship.”
Justice Chandler goes on to add that the majority’s decision ” … leaves our chancellors to forage in the dark, with no guidance as to many issues[;] for instance, whether a prospective marriage partner with children from a previous marriage may protect and provide for those children in a prenuptial agreement, without fear that a court will void the agreement as unconscionable and leave the children at the mercy of the former spouse.” As a drafting or advising attorney, you likewise are in the dark as to whether a particular prenup will withstand scrutiny.
Lump-Sum Alimony = Alimony?
December 1, 2014 § Leave a comment
Most of us tend to think in the 21st century that lump-sum alimony is a tool for equitable distribution; however, it does retain a small role in alimony itself, as the court’s analysis in a recent case illustrates.
In the November 6, 2014, MSSC case, Davenport v. Davenport, the chancellor had conducted a Ferguson analysis, and ordered Tammy Davenport to pay her ex, Richard, lump-sum alimony in the sum of $1,515,914.33, payable in monthly installments of $8,421.75 over 180 months. Tammy appealed, arguing on this point that the chancellor had erred by not making on-the-record findings of Tammy’s ability to pay applying the Armstrong factors.
Justice Randolph addressed the argument:
¶30. Lump-sum alimony can serve two distinct purposes. The first purpose is to aid the chancellor in equitably dividing the marital estate under the Ferguson factors. See Haney, 907 So. 2d 948. The second purpose is to aid the chancellor in correcting an equitable deficit, resulting from the equitable distribution of the marital estate under the Armstrong factors. See Rogillio v. Rogillio, 57 So. 3d 1246, 1249 (Miss. 2011).
Let’s pause right there and look at that second stated purpose. Lump-sum alimony has also been used as a replacement or supplement for permanent or rehabilitative spousal support, and to award a spouse’s substantial contribution to asset accumulation. See Bell on Mississippi Family Law, 2d Ed., § 9.02[2][b][ii]-[v], pp. 244-245. So it does retain a role in the award of alimony.
The analyses of equitable distribution and alimony pass through two entirely different filters. Equitable distribution is conducted applying the Ferguson factors. Alimony requires analysis of the Armstrong factors. Only if the equitable distribution leaves a deficit for one spouse may the court then proceed to consider alimony.
The Davenport decision continues, explaining the factors applicable to lump-sum alimony, and how they fit into the picture:
¶31. In Haney v. Haney, this Court found that the chancellor’s award of lump-sum alimony was allocated to equitably distribute the marital assets. Haney, 907 So. 2d at 952. This Court discussed how, prior to Ferguson, lump-sum alimony was the central mechanism through which marital property was divided. Haney, 907 So. 2d at 952. In Cheatham v. Cheatham, the Court set out factors to be taken into account when considering an award of lump-sum alimony. Cheatham v. Cheatham, 537 So. 2d 435, 438 (Miss. 1988). Based on the factors later presented in Ferguson, this Court stated:
Clearly, the Cheatham factors were simply an earlier attempt by this Court to provide a chancellor with guidelines for awarding what today is called an equitable distribution of marital assets, under appropriate circumstances. Indeed, we see no Ferguson factor which would be inappropriate in evaluating lump sum alimony. Although we continue to refer to certain payments as “lump sum alimony,” these payments are really no more than equitable distribution in the form of lump sum cash, rather than an equitable portion of certain property which cannot be divided equitably.
Haney, 907 So. 2d at 955.
¶32. This Court later considered an award of lump-sum alimony and reiterated that ” . . . the chancery court was obligated to apply the appropriate factors . . . the Cheatham-Ferguson factors. Yelverton v. Yelverton, 961 So. 2d 19, 25 (Miss. 2007). See also Dickerson v. Dickerson, 34 So. 3d 637, 647-48 (Miss. Ct. App. 2010) (After reviewing Haney and Yelverton, the court concluded that chancellors should consider lump-sum alimony under the Ferguson factors; however, an analysis under Cheatham is not reversible error.); George v. George, 22 So. 3d 424, 427-30 (Miss. Ct. App. 2009) (Lump-sum alimony was analyzed under this Court’s ruling in Haney, considering the Cheatham factors, while periodic alimony was analyzed under the factors set forth in Armstrong.); Dunn v. Dunn, 911 So. 2d 591 n.4 (Miss. Ct. App. 2005) (acknowledging that, pursuant to Haney, the Ferguson factors should be considered when determining an award of lump-sum alimony).
¶33. In Lauro v. Lauro, this Court described alimony as something which is contemplated subsequent to the equitable division of marital property. Lauro v. Lauro, 847 So. 2d 843, 848 (Miss. 2003). Lauro relies on the language set forth in Johnson v. Johnson, quoting:
If there are sufficient marital assets which, when equitably divided and considered with each spouse’s non-marital assets, will adequately provide for both parties, no more need be done. If the situation is such that an equitable division of marital property, considered with each party’s non-marital assets, leaves a deficit for one party, then alimony based on the value of non-marital assets should be considered.
Lauro, 847 So. 2d at 848 (emphasis original) (quoting Johnson v. Johnson, 650 So. 2d 1281, 1287 (Miss. 1994)). Lauro further explains that the Armstrong factors must be considered when awarding alimony. Lauro, 847 So. 2d at 848. See Lowrey, 25 So. 3d at 280. (“Failure to make an on-the-record . . . analysis is manifest error.”).
¶34. If lump-sum alimony is awarded as a mechanism to equitably divide the marital assets, then chancellors may conduct their analysis under the Ferguson factors. Haney, 907 So. 2d at 955. However, if the alimony, lump-sum or otherwise, is awarded subsequent to the equitable distribution of the marital assets, then chancellors must conduct their analysis under the Armstrong factors. Lauro, 847 So. 2d at 848.
¶35. In the instant case, the chancellor fully considered the award of lump-sum alimony under the Ferguson factors because the award served as a means to equitably divide the marital property. Therefore, the chancellor appropriately conducted a Ferguson analysis in the findings of facts and conclusions of law incorporated it into the final decree; thus, the chancellor did not fail to adequately consider Tammy’s ability to pay the award. This issue is without merit. [Emphasis added]
I think it would simplify everything if we would:
- Leave the term “lump-sum alimony” exclusively to describe that post-Armstrong-analysis use of a lump-sum payment to supplement or replace true alimony or to reward substantial contribution to accumulation of assets; and
- Use the term “equalizing payment” or some similar phrase to apply to payments ordered under a Ferguson analysis to balance out the equitable division.
To continue to call something alimony that we all know has nothing to do with an Armstrong analysis invites confusion and the continued need to explain and clarify it in our case law, for no good reason. Lump-sum alimony was judicially created in 1856 to address a void in the law of alimony. It was created to allow lump-sum payments of true alimony in lieu of periodic payments. In the pre-Ferguson days, the court looked for a way to adjust equities around our title rules, and transmuted lump sum alimony into a tool to do that. Ferguson, however, changed this area of the law, yet the old terminology has remained confusingly in place. With the change ushered in by Ferguson, it’s appropriate that we should change our nomenclature.
Separate Property and Family Use
October 29, 2014 § 2 Comments
It’s no secret that family use of an asset during the marriage can convert it from separate property to marital property.
Steve Cupp tried to argue that his Lake Cormorant house was separate property, not subject to equitable distribution, because: (1) he acquired the property before his ten-month marriage to his wife, Jenny; (2) he titled it in his sole name; (3) he made all of the mortgage payments from his separate account; and (did I already mention this?) (4) he and Jenny lived together only ten months before they separated.
The chancellor agreed with Jenny that family use had converted the property from separate to marital, and included it in the equitable distribution. Steve appealed.
The COA affirmed in Cupp v. Cupp, handed down October 8, 2013. Judge Maxwell’s opinion explained:
¶16. We first address Steve’s argument that the chancellor erred in classifying the Lake Cormorant property as marital, and, therefore, the property should not have been included in the division of marital assets. Steve asserts that because he acquired the property prior to the marriage, titled the property solely in his name, and made mortgage payments from his separate account, that the property is not marital in nature. Jenny counters Steve’s claims by noting that she lived in the home with her son and Steve before Steve moved to Sevierville. At that time, Jenny contributed domestically to all maintenance on the home for a number of months until she joined Steve in Sevierville.
¶17. Mississippi employs the family-use doctrine when determining whether a couple’s separate property has become marital due to the family’s use of the property. See, e.g., Stewart v. Stewart, 864 So. 2d 934, 937-38 (¶13) (Miss. 2003); Rhodes v. Rhodes, 52 So. 3d 430, 438 (¶¶25-26) (Miss. Ct. App. 2011); Brame v. Brame, 98-CA-00502-COA (¶20) (Miss. Ct. App. Mar. 28, 2000), rev’d in part on other grounds, 796 So. 2d 970 (Miss. 2001). Property that was acquired prior to the marriage by one of the parties can become marital property when used by the family. See id. Furthermore, a party’s contribution to the maintenance of a family home, whether monetary or physical, is considered when dividing the home equitably. See, e.g., Ferguson, 639 So. 2d at 928; Hemsley v. Hemsley, 639 So. 2d 909, 915 (Miss. 1994); Tatum v. Tatum, 54 So. 3d 855, 861 (¶21) (Miss. Ct. App. 2010).
It seems to me that the only way to avoid having property succumb to the family use doctrine is to do everything that Steve did here, except to allow his wife to set foot on the property. Ever. He should have kept it padlocked and given her a letter informing her that if she entered the property she would be prosecuted for trespass.
Of course, I am being facetious. But only in part. What else must one do to keep property separate? It seems that the so-called family-use doctrine can have a decidedly un-family-friendly whipsaw to it. Imagine telling your wife she can’t set foot on your lake property because you want to keep it separate. Imagine telling your child that you can’t take her fishing there because it’s separate. Imagine telling your musically-gifted son he can not practice on the grand piano you keep locked up in a warehouse because you promised grandma that you would keep it in the family.
In my opinion, it would be better to say in a case like this that it is separate property, the value of which causes a disparity in the financial situations of the parties, opening the possibility for time-limited alimony for Jenny.
¶18. The record reflects that the chancellor determined that the property in question was converted to a marital asset by means of the family-use doctrine. The chancellor also noted “that while [Steve] made the primary financial contributions to the accumulation of marital assets, [Jenny] made significant domestic contributions to the marriage.” We agree. Steve, Jenny, and Jenny’s son all lived in the home for some time prior to their move to Sevierville. Jenny also physically maintained the home by herself for several months after Steve moved. We cannot find manifest error in the chancellor’s determination that the Lake Cormorant property was part of the marital estate. This issue is meritless.
The Valuation Bugaboo — Again
October 13, 2014 § 2 Comments
It’s a never-ceasing source of wonderment to me how some lawyers devote so little attention at trial to valuation of assets when that proof is crucial to the outcome of the equitable distribution.
The latest object lesson on point is in the COA’s decision in Ilsley v. Ilsley, decided October 7, 2014. In that case, Susan and Timothy were in the throes of a divorce. Mediation had failed, and the two unhappy spouses appeared at trial as the only two witnesses.
The main equitable distribution battle ground was over an ING account with 21,225 vested (and some additional unvested) shares that Timothy had as part of his employment compensation with the Isle of Capri Casino. The COA opinion says that the “primary testimony and evidence presented at trial regarding the value per share” was Timothy’s testimony that it was worth $7.06 per share. A few months later, in his proposed findings of fact and conclusions of law, Timothy stated the share value as $5.30.
Before we go any further, take a minute to absorb what I just laid out: the evidence that the court had to rely on came from one of the parties. No expert, no agreed statement from a stock brokerage or the plan administrator, nothing other than the testimony of one of the parties.
Now, I am not taking the lawyers in the trial to task. It may be that the figures thrown out were what was developed in discovery and no further effort was needed. The end result though, is that the two figures injected into the record were the ones upon which the judge relied.
The chancellor concluded from the proof that the value of the vested shares in the ING account was $143,089, and awarded Susan $75,000, to be paid by Timothy as lump-sum alimony. The judge did not explain the value of the shares he applied to arrive at those figures, or the total number of shares he found. Susan appealed.
Judge Roberts, for the majority of the COA, said this:
¶10. Susan first argues that the chancery court erred in valuing and classifying stocks Timothy received as part of his compensation package from Isle of Capri. As part of his compensation package, Timothy was granted shares of stock each year that vest randomly over a three-year period and, once vested, are invested in an ING account. At trial, the parties stipulated that the number of vested shares in the ING account was 21,225 shares. In addition, there were 9,511 shares that granted after the date of the temporary order, but these shares had not yet vested. The chancery court found that these shares were marital, but awarded them to Timothy, as the shares had not yet vested. Timothy testified at trial that the value per share was approximately $7.06. This was the primary testimony and evidence presented at trial regarding the value per share. In his proposed findings of fact and conclusions of law, Timothy offered the value per share of $5.30. In its corrected final judgment of divorce, the chancery court found the total value of the ING account to be $193,497, and the value of the vested shares to be $143,089. The chancery court did not include in its judgment what the total number of shares or the price per share was in determing [sic] the total values.
¶11. As explained above, the two pieces of evidence presented to the chancery court as to the price per share were $7.06 as testified to at trial, and $5.30 as contained in Timothy’s proposed findings of fact and conclusions of law submitted several months after trial. “Where parties provide inadequate proof of an asset’s value, a chancellor’s valuation with ‘some evidentiary support’ will be upheld.” Dunn v. Dunn, 911 So. 2d 591, 597 (¶17) (Miss. Ct. App. 2005) (quoting Dunaway v. Dunaway, 749 So. 2d 1112, 1121 (¶28) (Miss. Ct. App. 1999)). In Dunaway, we held:
To the extent that the evidence on which the chancellor based his opinion was less informative than it could have been, we lay that at the feet of the litigants and not the chancellor. The chancellor appears to have fully explored the available proof and arrived at the best conclusions that he could, and we can discover no abuse of discretion in those efforts that would require us to reverse his valuation determinations.
Dunaway, 749 So. 2d at 1121 (¶28). Without having additional evidence provided by the parties, the chancery court was in the position to select a value for the shares and determined the total values for distribution. Additionally, the chancery court found that each party “will be entitled each to one-half of those [vested] shares.” Thus, the actual value per share fluctuates based upon the market, so the total value of the shares would vary based upon the market price.
¶12. We find that the chancery court did not abuse its discretion.
In other words, if you want a shot at overcoming a bad trial result, you’d better make it your business to make an adequate record at trial. Susan in this case in essence left the judge no choice but to rely on the figures offered by Timothy, and she ineffectively argued that it cost her, because she offered no proof to the contrary.
The Bite of Draftsmanship
September 15, 2014 § Leave a comment
How you draft your legal instruments can have a huge impact on your clients’ future.
Take, for instance, the parties’ property settlement agreement (PSA) in the case of Aaron v. Aaron, a COA case handed down September 9, 2014. George and Annie Aaron were divorced in 2002 on the ground of irreconcilable differences. At the time, George was employed with the Amory Police Department, and was a participant in PERS. We don’t know from the court’s opinion the exact language of the parties’ agreement, but we know this much from ¶ 1:
As part of the divorce, George agreed to pay Annie one-half of his retirement funds acquired during the marriage. The judgment stated the funds would be transferred through a Qualified Domestic Relations Order (QDRO). At the time the judgment was entered, George was not receiving any retirement benefits. The judgment did not state which party was responsible for entering the QDRO.
We also can divine from the opinion that: the language of the PSA did not specify whether Annie was to receive 1/2 of the retirement accumulated during the marriage, or 1/2 of all George’s retirement, a significant portion of which would be earned after the divorce; it did not spell out what consideration would be given to future pay increases on George’s ultimate obligation to Annie; it also did not settle the question whether the payments were intended to be paid out in a lump sum as property settlement or whether they were intended to be paid monthly as benefits were paid out to George, in the nature of alimony.
The legal considerations that remained unaddressed in the parties’ agreement were, at least, the following:
- PERS takes the position that federal ERISA and Mississippi law do not allow division of PERS benefits by QDRO. The agreement should have provided that it would be divided by payment, unless George left PERS employment and withdrew his account, at which time it would be divided by specified percentages between them. No mention should have been made of a QDRO vis a vis the PERS benefits. Also, whose responsibility it was to trigger the payment of benefits should have been specified in the agreement.
- Final calculation of the PERS benefit is based on the highest four years of earnings. Since George was not a retirement age at the time of the divorce (he did not retire until 2011), the parties should have negotiated and included in their agreement how Annie’s 1/2 benefit would be calculated, taking into account the probability of George’s future pay increases.
- PERS benefits can not be paid out in a lump sum unless the employee leaves PERS employment. As mentioned above, this obvious point should have been addressed in the parties’ agreement. In essence, these parties had no choice but to have Annie’s share paid out over time. That is what the chancellor in Pruitt v. Pruitt tried to do, but was reversed by the COA. The problem, based on Pruitt, seems easy to address in a rational way, but is in reality deceptively difficult to resolve.
Every one of the foregoing deficiencies came back to bite these parties in the proverbial nether regions. Annie brought a contempt action against George because he did not initiate a QDRO, and for her unpaid benefits. George countered that he owed nothing, since PERS could not be divided by QDRO. The chancellor calculated what she concluded was Annie’s portion, and ordered that Annie receive that from George’s retirement payments as paid, and she awarded Annie a judgment with modest interest for the benefits that he had received and not shared with Annie. She died not find George in contempt.
George appealed, raising all of the points above. The COA affirmed.
It would have saved everyone involved a lot of legal fees, costs, aggravation, anxiety, and time if only some more attention and effort had been put into the drafting of the PSA in the first place. Yes, it would have required more time for negotiation and drafting, but it would have settled the issue as early as 2011 without the need for further litigation. It’s called draftsmanship.
A Primer on the Law of Pre-Nups
August 18, 2014 § Leave a comment
Only a couple of weeks ago I posted some random thoughts on pre-nuptial agreements that I thought you might find useful.
Then, last week, as if on cue, the COA handed down its decision in McLeod v. McLeod on August 12, 2014, a case involving a pre-nuptial agreement. Judge Griffis’s opinion is a concise statement of the law that you would need in a case involving one of these agreements. Here it is, extracted for your use:
¶11. The Mississippi Supreme Court has held that prenuptial agreements must be fair in the execution, and a duty of disclosure shall be imposed. Smith v. Smith, 656 So. 2d 1143, 1147 (Miss. 1995) (citing Hensley v. Hensley, 524 So. 2d 325, 327 (Miss. 1988)).
¶12. Prenuptial agreements are enforced like contracts: the first rule of interpretation of contracts is to follow the intent of the parties. Long v. Long, 928 So. 2d 1001, 1003 (¶14) (Miss. Ct. App. 2006). This intent was recognized initially by the prenuptial agreement, which provided:
Each of the parties shall retain all rights in his or her own separate property, as hereinafter defined, whether now owned at the time of the marriage of the parties or acquired thereafter, and each of them shall have the absolute and unrestricted right to dispose of such property during his or her lifetime and upon his or death, free from any claim which may be made by the other by reason of their marriage, and with the same effect as if no marriage had occurred between them, and such separate property shall not be subject to any division between the parties . . . as marital property subject to equitable distribution or division under the laws of Mississippi . . . .
¶13. “A contract may be either procedurally or substantively unconscionable.” West v. West, 891 So. 2d 203, 213 (¶26) (Miss. 2004). Procedural unconscionability deals with the formation of the contract. Id. (citing East Ford, Inc. v. Taylor, 826 So. 2d 709, 714 (Miss. 2002)). Substantive unconscionability is apparent “when the terms of the agreement are so one-sided that no one in his right mind would agree to its terms.” Id. (citing In re Last Will & Testament of Johnson, 351 So. 2d 1339, 1341 (Miss. 1977)).
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¶15. Each party must enter a prenuptial agreement voluntarily. Deborah H. Bell, Bell on Mississippi Family Law § 23.02[2] (2nd ed. 2011). In In re Last Will & Testament of Cooper, 75 So. 3d 1104, 1108 (¶11) (Miss. Ct. App. 2011), this Court affirmed the chancellor’s judgment and found that there was no evidence to support a claim of involuntariness, because neither party was “forced in any way to sign” the prenuptial agreement.
¶16. This Court has held that “it is well established that ‘a person is under an obligation to read a contract before signing it, and will not as a general rule be heard to complain of an oral misrepresentation the error of which would have been disclosed by reading the contract.’” Ware v. Ware, 7 So. 3d 271, 277 (¶20) (Miss. Ct. App. 2008) (quoting Oaks v. Sellers, 953 So. 2d 1077, 1082 (¶17) (Miss. 2007)). And, as this Court has stated, “it is not now and never has been the function of this Court to relieve a party to a freely negotiated contract of the burdens of a provision which becomes more onerous than had originally been anticipated.” In re Cooper, 75 So. 3d at 1107 (¶9).
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¶21. … While disclosure is of “paramount importance,” this Court has found that a prenuptial agreement can still be valid even if a financial disclosure is not attached. Mabus v. Mabus, 890 So. 2d 806, 819-21 (¶¶53, 59, 64) (Miss. 2003).
¶22. Here, the agreement stated that a full disclosure was made. Specifically, it provided:
[Willie] hereby states: that he has been fully informed regarding the property and estate of [Jeanell] and has examined the statement of her assets set forth in Exhibit “A” annexed hereto prior to signing this Agreement . . . .
[Jeanell] hereby states: that she has been fully informed regarding the property and estate of [Willie] and has examine the statement of his assets set forth in Exhibit “B” annexed hereto prior to signing this agreement.
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¶24. Prenuptial agreements “must be fair ‘in the execution’ or procedurally fair.” Bell, at § 23.02[5] (citing Mabus, 890 So. 2d at 821; Smith, 656 So. 2d at 1147). Fairness in the execution can be affected by the presence of individual counsel, whether the parties had time to review the agreement, education of the parties, and whether the agreement was explained. Id.
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¶26. This Court in Ware, 7 So. 3d at 277 (¶20), found that there was no evidence to suggest that one of the parties was forced to sign the prenuptial agreement, although one party admitted that she did not read the contract nor take it to an attorney to review it before she signed it. This Court held that “it is well established that ‘a person is under an obligation to read a contract before signing it, and will not as a general rule be heard to complain of an oral misrepresentation the error of which would have been disclosed by reading the contract.’” Id. (quoting Oaks, 953 So. 2d at 1082 (¶17)). Additionally, “independent counsel is not required to fairly execute a prenuptial agreement.” Id. (quoting Mabus, 890 So. 2d at 821 (¶63)).
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¶29. Substantive unconscionability is apparent “when the terms of the agreement are so one-sided that no one in his right mind would agree to its terms.” West, 891 So. 2d at 213 (¶26) (citing In re Johnson, 351 So. 2d at 1341). The Mississippi Supreme Court has defined an unconscionable contract as “one such as no man in his senses and not under a delusion would make on the one hand, and as no honest and fair man would accept on the other.” In re Johnson, 351 So. 2d at 1341 (quoting Terre Haute Cooperage, Inc. v. Branscome, 203 Miss. 493, 503, 35 So. 2d 537, 541 (1948)).
¶30. Two clauses were included in the agreement that provided what would happen if one of the parties died:
Upon the death of either party during their marriage, with the other Party surviving, the Parties agree that all property which is joint tenancy with right of survivorship property or survivorship marital property shall pass to the surviving party by right of survivorship.
Both parties agree that a Will of the estates and properties will be executed at a later date that will outline estates, beneficiaries, survivorship, and or any other grounds not covered by this agreement.
¶31. In his order, the chancellor stated:
Under the prenuptial agreement, Jeanell was entitled to only that which Willie promised he would leave her in his Last Will and Testament, whenever he decided to have that document prepared. No specifics regarding what he intended to leave her in order to provide for her as she had requested were provided and are purely speculative. As written, this provision is inequitable and unenforceable and does nothing to provide for Jeanell at the time of a divorce or at the time of his death. On the other hand, under the laws in Mississippi, without a prenuptial Jeanell would be entitled to an equitable share of the marital estate at the time of divorce.
. . . As such the court finds that the prenuptial agreement “ . . . was such an agreement that no wife in her senses and not under a delusion would agree to and no fair-minded husband would propose.”
¶32. In Crisler v. Crisler, 963 So. 2d 1248, 1252-53 (¶9) (Miss. Ct. App. 2007), this Court stated:
[P]arties are bound by what they promise in writing. But, we are not bound to adopt a construction not compelled by the instrument in which we would have to believe no man in his right mind would have agreed to. A construction leading to an absurd, harsh or unreasonable result in a contract should be avoided, unless the terms are express and free of doubt.
(Citing Frazier v. Ne. Miss. Shopping Ctr., 458 So. 2d 1051, 1054 (Miss. 1984)). Further, in Hensley, the court stated: “[I]t is not now and never has been the function of this Court to relieve a party to a freely negotiated contract of the burdens of a provision which becomes more onerous than had originally been anticipated.” Hensley, 524 So. 2d at 328.
The COA reversed the chancellor’s ruling that this particular agreement was unenforceable. I recommend you read the opinion to see how the COA reached its conclusion. You will find it instructive as to how the court views these contracts.
I stand by my previous recommendations, however. You should be careful to see that every i is dotted and every t crossed. Even though every desirable formality was not observed in McLeod, there was adequate language in the agreement to overcome Ms. McLeod’s objections to it on appeal, and the facts were found by the COA to be in favor of enforcement. Sloppy drafting and unfavorable facts would probably have produced a different outcome.
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