Equitable Distribution | The Better Chancery Practice Blog

THREE ACTS THAT DO NOT CONVERT SEPARATE PROPERTY TO MARITAL

August 28, 2012 § 1 Comment

Any asset value accumulated through the work efforts of one or both parties to a marriage during the marriage is a marital asset subject to equitable distribution in a divorce case. See, Hemsley v. Hemsley, 639 So. 2d 909, 915 (Miss. 1994).

Marital assets are subject to equitable distribution and may be divided between the parties in a divorce, applying the factors in Ferguson vs. Ferguson, 639 So.2d 921, 928-9 (Miss. 1994).

Any assets attributable to a party’s separate estate prior to the marriage, or acquired separately during the marriage, as by gift or inheritance, by one party, are the separate property of that party, and is not subject to being divided in equitable distribution. Hankins v. Hankins, 866 So. 2d 508, 511 (¶13) (Miss. Ct. App. 2004).

In Ory v. Ory, 936 So. 2d 405, 411 (¶13) (Miss. Ct. App. 2006), the court recognized the general rule that assets may lose their separate status as such if the party commingles the asset with marital property or uses [it] for familial benefit” (citing Johnson v. Johnson, 650 So. 2d 1281, 1286 (Miss. 1994).

So what are the actions that can make property lose its separate character? That was the question before the COA in the case of Marter v. Marter, decided by the COA August 7, 2012. In Marter the court considered and rejected the appellant-husband’s three arguments that the wife’s separate property had been converted from separate to joint property.

Plantation and maintenance. The proof was uncontradicted that the husband had maintained the property and participated in planting trees on it. The opinion stated: “At some point during the marriage, the Marters planted 49 acres of pine trees and 32 acres of hardwood trees on the property. The Marters enrolled in a Conservation Resource Program (CRP) with the federal government whereby they receive rental payments for the trees. However, the rental payments have always been directly deposited into [the wife’s] separate checking account.” The husband also did bush-hogging and maintenance. The COA cited Hankins, at 1286-87 (¶¶14-15) (Miss. 1999), and Ory, at 411, which held that the fact that husband cleared a portion of the land, hauled dirt onto the property, and had a large number of seedlings planted on the property did not operate to convert the property to marital property. The court also held that the husband’s contributions to maintenance were de minimis.
Joint titling. The Marters had conveyed the property to themselves in joint ownership, and the husband argued that the joint title made the property lose its separate character and converted from separate property to marital. Citing Pearson v. Pearson, 761 So. 2d 157, 163 (¶16) (Miss. 2000), the court rejected his argument, pointing out that the MSSC has rejected the “title theory”, and has stated that “[t]he issue in divorce is which property is ‘marital property,’ subject to equitable distribution, and that determination proceeds absent any presumption based on title.”
Payment of Taxes. The parties paid the taxes on the property from their joint account, and the husband argued that that converted the property to marital. Not so, answered the COA. The court said: ” … this Court has previously held that property-tax payments are traceable and do not transmute separate property into marital. Brock v. Brock, 906 So. 2d 879, 888 (¶50) (Miss. Ct. App. 2005).

So there are three lines of argument for transmutation that have been found wanting by the appellate courts. What it takes to convert separate property is beyond the narrow scope of this post.

I encourage you, if you have a case either attempting to establish commingling or transmutation, or defending against it, that you carefully research the case law. There are many cases on this issue, and you will find authority all over the ballpark. If you show up in court without some authority, and the other side has its cases in hand … well, don’t expect to come out too spiffy.

8.05 FINANCIAL STATEMENTS: “THE GOLD STANDARD” OF PROOF

August 22, 2012 § 6 Comments

This just in: Rule 8.05 financial statements are the “gold standard” of financial proof in chancery court. That’s what Judge Fair said in the COA case of Collins v. Collins, decided August 21, 2012, beginning at ¶34:

This case highlights the role of the income and asset disclosures required by Rule 8.05 of the Uniform Chancery Court Rules. Rule 8.05 mandates prescribed forms for such disclosure and also requires:

(B) Copies of the preceding year’s Federal and State Income Tax returns, in full form as filed, or copies of W-2s if the return has not yet been filed.

(C) A general statement of the providing party describing employment history and earnings from the inception of the marriage or from the date of divorce, whichever is applicable.

¶35. Compliance with the rule is mandatory, for obvious reasons. If both parties put down identical values for marital property and properly disclose their income and expenses, supported by the required federal and state tax returns and earnings history, a court can adjudicate property and money issues expeditiously and in accord with the law. Noting the importance of Rule 8.05 disclosures, in Trim v. Trim, 33 So. 3d 471 (Miss. 2010), the supreme court has ruled that filing a substantially false Rule 8.05 financial disclosure statement constitutes fraud on the court.

¶36. Though there may be contrary misinterpretation of some decisions, which properly [fn 1] apply only when conflicts between forms conflict,1 Rule 8.05 disclosures should not be evidence of last resort. Rather, they should be the gold standard, requiring other evidence only when there are legitimate disputes as to valuation. [Emphasis added]

[fn 1] “Chancellors may rely on these statements to value property when the parties fail to offer any other evidence as to value.” Kimbrough v. Kimbrough, 76 So. 3d 715, 721 (¶28) (Miss. App. 2011) (quoting Studdard v. Studdard, 894 So. 2d 615, 618-19 (Miss. Ct. App. 2004)). “To the extent that further evidence would have aided the chancellor in [his] decision, the fault lies with the parties and not the chancellor.” Messer v. Messer, 850 So. 2d 161, 170 (¶43) (Miss. Ct. App. 2003).

Yes, 8.05’s are the gold standard of proof to a chancellor trying to root enough information out of the record to make a decision about equitable distribution and alimony. But some lawyers treat them like fool’s gold. Their 8.05’s do not include tax returns, figures are contradictory and incomplete, valuations are lacking, and there is no employment history.

In Collins, Mr. Collins included no tax returns, and he contradicted himself in his testimony, admitting that his 8.05 was incorrect and inaccurate. As a result, the chancellor relied on her own best judgment and calculated what she believed to be his income, resulting in an impressive $1,300 a month child support obligation.

The chancellor also accepted Ms. Collins’ valuations of real property in the absence of proof offered by Mr. Collins. Ouch.

Some parties offer tables of personal property with some pretty incredibe valuations. In one case I had the husband wanted the riding lawn mower, which he valued at $800. The wife — I am not kidding — valued it at $15,000. Husband testified that he had bought it several years before for $1,600 at Sears. I found his valuation more credible. What was the wife thinking when she tagged the item with that value? Did she think I’d bite on that? Where was her attorney when that table was prepared before trial.

Many lawyers and their clients adopt the extremely unhelpful tactic of valuing everything at near zero that they expect to get, and assigning astronomical values to everything the other party expects to get. For example, wife has the green couch, and she wants to keep it, so she values it at $50; husband opines that it is worth $2,750, and he does not want it. Give me a break.

Most people can not afford to hire a personal property appraiser to value their near-worthless pile of stuff. So lawyers toss it into the chancellor’s lap to flip a coin and make a call as to what the values might be. That’s a cop-out. Lawyers should be more professional than that.

If you try many financial-issue cases in chancery, I encourage you to read Collins. It’s the latest illustration of how parties shoot themselves painfully in the foot when they do a less-than-adequate job in prepping their 8.05’s, and it just might give you some ideas how an on-the-ball attorney can help his or her client avoid that kind of disaster.

RECENT AUTHORITY FOR UNEQUAL DIVISION

August 15, 2012 § Leave a comment

From the earliest days after the Ferguson case established equitable distribution as the law for division of marital estates in Mississippi, the rule has been that the division need not be equal, but it must be equitable. See, e.g., Wells v. Wells, 800 So.2d 1239, 1243-44 (Miss.App. 2001).

Over the years the concept of equitable distribution evolved at the trial court level into a concept of equal division, so that lawyers quit pushing the argument that their clients were entitled to a larger slice of the marital asset pie. But there are cases where lawyers have succeeded on the point, and you might find them helpful in your own practice.

Several cases in the past year or so offer some authority you might find helpful in achieving an unequal division:

Cox v. Cox, 61 So.3d 927 (Miss.App. 2011). This is a case where the presumption that the wife’s “homemaker” indirect contribution to the accumulation of marital assets was rebutted by the proof. The chancellor’s award of 25% of the marital estate to the wife was upheld where the husband had made most of the direct financial contribution to acquisition of the marital assets, and she did not contribute to the husband’s business. The husband also paid the wife’s pre-marital debt, funded a business venture of hers that failed, and he paid for her to take courses in school and to otain a real estate license. The husband also paid to provide household assistance in the form of a domestic and yard help. This is one of those rare cases where the homemaker presumption was rebutted, but it reminds us that although the presumption mandates a rebuttable finding of equal contribution, it does not mandate an equal division.
Powell v. Powell, 87 So.3d 495 (Miss.App. 2011), decided November 11, 2011, is a case we’ve discussed here before. In this case the disabled husband was awarded a greater share of the marital estate based on his greater contribution to the accumulation of wealth, wife’s greater draw during the marriage from the family business, and wife’s marital misconduct. A significant feature of this case is that the COA upheld the chancellor’s findings as to valuation despite scant evidence offered by either party on the point.
Kimbrough v. Kimbrough, 76 So.3d 715 (Miss.App. 2011). In this Ittawamba County case, the chancellor awarded wife 24% of the marital estate. The unequal distribution resulted from the husband being awawded $166,000 in equity in the former marital residence versus the award of $4,400 in equity to the wife. The disparity was due to the fact that the home was husband’s debt-free, pre-marital asset, and the only contribution wife had made to the value was her payments against a home improvement loan. The court observed that “We do not look at the division of one asset in isolation” (at ¶19). [An interesting side note: the court’s opinion cites another case for a quite lopsided division: “See Redd v. Redd, 774 So.2d 492, 496 (¶ 15) (Miss.Ct.App.2000) (reversing on other grounds but stating that a 77% to 23% division of the marital property, standing alone, would not have been a ground for reversal).”]
Allgood v. Allgood, 62 So.3d 443 (Miss.App. 2011), was a case in which the chancellor awarded husband 65% of the marital assets. As in Kimbrough, the unequal division stemmed from an unequal division of the equity in the former marital residence. Husband’s share of the marital estate was enhanced by $82,000 he had contributed to the home’s equity. As the court pointed out, although a party’s commingling of separate funds may transform their character into a marital asset, the trial court may nonetheless adjust the equities and award a greater share of the aset value to the party who made the contribution of separate funds.
Jenkins v. Jenkins, 67 so.3d 5 (Miss.App. 2011). In this case wife was awarded a smaller percentage of the parties’ assets. The trial court considered contributions and expenditures of each spouse to the seven-year marriage, and that husband owned the bulk of the marital assets prior to the marriage and expended pre-marital earnings on improvements to the property during the marriage, and it was wife’s addiction to prescription medications that caused marital separation. Most of the wife’s share of the marital estate consisted of her retirement account. At the time of the divorce she was unemployed, with an application for Social Security disability payments pending.
Bond v. Bond, 69 So.3d 771 (Miss.App. 2011). This is my favorite case of the bunch, and one I’ve posted about here before. The appeal was actually filed by the husband, complaining that the chancellor was too generous in awarding the adulterous wife ten percent — you read that right, 10% — of the marital assets. He thought she should have received naught. Judge Maxwell’s exposition on marital fault and its role in equitable distribution is something you should read and digest. I am still scratching my head over why Mr. Bond filed an appeal in this case.

THE POINT OF NO RETURN

July 10, 2012 § 3 Comments

We all know the familiar Ferguson approach to equitable distribution: First classify the assets as marital or non-marital; then value them; then divide them equitably (not necessarily equally).

An often-ignored aspect of Ferguson analysis is the demarcation date that the court should use in classifying property as marital or non-marital. It’s important, because the date selected may decide the category where the item is placed. And I say it is often ignored because you seldom hear either side say anything about it in the presentation of the trial.

In Goodwin v. Goodwin, 758 So.2d 384, 386 (Miss. 1999), the MSSC laid down the rule that entry of a separate maintenance order stops accumulation of marital interests in property, and creates a “point of demarcation” to be used by the courts in determining marital vs. separate interests when division ultimately comes before the court. In Goodwin, that portion of the husband’s retirement account accumulated after entry of the separate maintenance order was his separate property, not subject to equitable division.

The line of demarcation rule was extended to temporary orders in the case of Pittman v. Pittman, 791 So.2d 857, 863-64 (Miss.App. 2001). In that case, the court noted that temporary orders, like separate maintenance orders, are simply recognition that the parties have ceased living together as husband and wife; in other words, they have reached the point of no return (at least until reconciliation in good faith in the case of separate maintenance). So interests that accrue after its entry are separate interests.

Both Goodwin and Pittman set out a bright line for the trial courts. But that bright line is there in cases where there has been a separate maintenance or temporary order in the case. What about cases where there is neither?

Professor Bell identifies five other points of demarcation that have been employed in other jurisdictions: (1) the date of separation; (2) the date of filing for divorce; (3) the date of a divorce hearing; (4) the date of the divorce judgment; and (5) a date fixed by the court in its discretion. Bell on Mississippy Family Law, 2nd Ed., § 6.02[3][b], p. 135.

In Doyle v. Doyle, 55 So.3d 1097, 1107 (Miss.App. 2010), the COA held that marital equities continue to accumulate where there was no separate maintenance or temporary order. In Aron v. Aron, 832 So.2d 1257, 1258-59 (Miss.App. 2002), however, the COA held that it was in the chancellor’s discretion to classify the property as marital or non-marital where there was no separate maintenance or temporary order. In either case, the chancellor should consider the parties’ relative contributions in making the division of the post-separation-acquired property. Striebeck v. Striebeck, 5 So.3d 450, 452 (Miss. 2008).

The most recent case on point is Cuccia v. Cuccia, decided by the MSSC on June 28, 2012. The case was before the court on certiorari from the COA, which had reversed the chancellor. The Supreme Court’s opinion stated:

“¶9. In the case before us, a separate maintenance order was not entered, but a temporary support order was issued on May 6, 2008, and filed on May 9, 2008. In reviewing the chancery court’s [divorce judgment], we do not find that he set out the specific date as the line of demarcation in classifying marital verus nonmarital property. He must do so. After determining the line of demarcation, the chancery court must then determine which assets and liabilities are marital and nonmarital in accordance with Ferguson and Hemsley. Then, he must divide the marital estate equitably.” [Footnotes omitted]

So the direction is clear: if the chancellor does not make the demarcation line clear, there is reversible error in the record. You can influence the judge to pick that date, or you can do it via MRCP 59 motion; either way, if you let the record be finalized without a demarcation line, be sure to keep your trial notes, because you’ll need them for the remand trial.

The court gave no direction for how the chancellor should draw the magic line. If the case makes its way back for a third appellate decision we may find out. If not, then we will have to await a more definitive decision.

Until then, give some th0ught to how you want the marital estate divided and why. Give the judge some proof in the record to support a line of demarcation that is in your client’s favor. It might just put some money in your client’s pocket.

AN ENDURING MISCONCEPTION

June 26, 2012 § Leave a comment

In a contested equitable distribution case, I require the parties to present a pre-trial order that includes a listing of all property with values. Lawyers appear with the appropriate information, get a trial date, and we proceed from there.

Then, at trial, it happens quite often that someone testifies that they omitted an item or several — some stock, interest in a trust, some furniture, a few pieces of jewelry — usually with some significant value. And we then devote considerable attention and time to something that could simply have been listed on the property list that was not.

Almost invariably the rejoinder is to the effect that “It was something I owned before the marriage,” or “That was an inheritance from my dad that I received after the marriage,” or “Those were rings that momma gave me.”

The misconception — an enduring one — is that if it was owned before the marriage, or was an inheritance or gift, it is not considered in equitable distribution. That’s not so.

All property of the parties, whether marital or non-marital, is taken into consideration in equitable distribution. Among the Ferguson factors that govern the chancery court’s adjudication of equitable distribution is the value of each spouse’s separate estate, or, in the court’s own language, “The value of assets not ordinarily, absent equitable factors to the contrary, subject to distribution, such as property brought to the marriage by the parties, and property acquired by inheritance or inter vivos gift by or to an individual spouse.” Ferguson v. Ferguson, 639 So.2d 921, 928 (Miss. 1994). Thus, proof of each party’s separate estate must be developed and considered by the court in deciding how to divide the marital estate equitably.

Even though the parties’ separate property is required to be considered, however, assets that prove to be truly separate in nature are not subject to being divided in equitable distribution, meaning that they will go into the column of the party who owns them. The aftermath of equitable distribution will be two piles of marital assets that have been divided equitably, one for each party, upon each of which is heaped the party’s separate assets.

It is only after equitable distribution has been accomplished that alimony may be considered, and alimony is appropriate only when the equitable distribution leaves a party with a deficit, or inability to support himself or herself. Among the Armstrong factors for adjudication of alimony is “The obligations and assets of each party.” The MSSC has held that the trial court must consider in determining alimony both the assets awarded to the spouse in equitable distribution, and the parties’ separate assets. Striebeck v. Striebeck, 911 So.2d 628, 634-635 (Miss. App. 2005), Sanderson v. Sanderson, 824 So.2d 623, 627 (Miss. 2004). Disparity of income and assets, including separate assets, after equitable distribution triggers consideration of alimony.

Remember, too, that assets can change character from separate to marital or mixed. Just because your client tells you that she acquired that antique armoire from her aunt before the marriage, don’t automatically assume it is out of reach of equitable distribution. The appellate courts have clung to the “family use doctrine,” and that piece of furnture may have gotten in play for equitable division simply because the husband used it for ten years to store his shirts, ties, underwear, pajamas and even love notes from his girlfriend.

List all of the assets, clearly marital as well as questionably marital. Then argue your client’s case as to why certain items should be excluded from equitable distribution, but don’t fail to list them.

UNMARRIED RELATIONSHIPS IN MISSISSIPPI

June 13, 2012 § 10 Comments

Mona Cates and Elizabeth Swain were involved in an intimate relationship with one another that spanned five years in three different states. They both contributed to the accumulation of equity in real property and financial assets while they were together. Swain did not want her name on the title to a home the parties purchased because she was still married to a man in another state, and did not want to give him any claim to her interest. In time, the relationship between Cates and Swain soured. Swain moved out of the DeSoto County home titled in Cates’s name and sued Cates, alleging that Cates had been unjustly enriched by the living arrangement. She sought equitable relief. Swain’s position was that she and Cates were parnters in several joint ventures. Cates took the position that to grant Swain’s prayer for relief would violate Mississippi’s ban on same-gender marriage.

The chancellor disagreed with Swain and overruled her motion to dismiss on the basis that the issues before him involved constructive trust or resulting trust and unjust enrichment, and that the issue of same-gender marriage was not necessary to that analysis. Following a trial, the judge found that Swain had been unjustly enriched and awarded Cates a judgment for $44, 495, and rejected the claim of any impled trust. Cates appealed from imposition of the judgment, and Swain cross-appealed from rejection of the trust-based claims.

In Cates v. Swain, decided April 17, 2012, the COA reversed the judge’s ruling on unjust enrichment. The opinion, by Judge Maxwell, notes that the chancellor found that no contractual relationship between the parties existed, and there was no evidence that the parties entered a business enterprise for profit. It goes on to point out that much of the trial record reads like a divorce trial, although any marital relationship or marital-type relief would have been barred by § 236A of the Mississippi Constitution, ratified November 2, 2004. The opinion states that “With no contractual or marriage-based remedies available to her, Swain bases her claim on the equitable principles of implied trusts and unjust enrichment.” The opinion continues:

¶20. Mississippi does not enforce contracts implied from the relationship of unmarried cohabitants. In Davis v. Davis, 643 So. 2d 931, 934-35 (Miss. 1994), the Mississippi Supreme Court addressed a claim by unmarried cohabitant, Elvis Davis, that she was entitled to equitable distribution of property her boyfriend had acquired while they lived together. Relying on Estate of Alexander, 445 So. 2d 836, 840 (Miss. 1984), the supreme court acknowledged any rights of a cohabitant would have to be provided by the Legislature—and the Legislature had clearly abolished common law marriage rights in 1956. Davis, 643 So.2d at 934-35 (citing Miss. Code Ann. § 93-1-15(1) (1972)). In denying Elvis Davis equitable distribution, the supreme court reiterated its earlier position in Estate of Alexander:

We are of the opinion that public policy questions of such magnitude are best left to the legislative process, which is better equipped to resolve the questions which inevitably will arise as unmarried cohabitation becomes an established feature of our society. While the judicial branch is not without power to fashion remedies in this area, we are unwilling to extend equitable principles to the extent plaintiff would have us to do, since recovery based on principles of contracts implied in law essentially would resurrect the old common-law marriage doctrine which was specifically abolished by the Legislature. Davis, 643 So. 2d at 934-35 (quoting Estate of Alexander, 445 So. 2d at 839) (emphasis added).

¶21. Prior to the supreme court’s 1984 decision in Estate of Alexander, Mississippi had not addressed the equitable rights of unmarried cohabitants, though the Court had previously considered the equitable rights of “putative wives”—women who had ceremonially married but did not, in fact, have a legally valid marriage. See Chrismond v. Chrismond, 211 Miss. 746, 52 So. 2d 624 (1951) and Taylor v. Taylor, 317 So. 2d 422 (Miss. 1975). In Estate of Alexander, the supreme [court] acknowledged the “putative spouse” line of cases but found them “factually quite dissimilar and thus not controlling” where there “was not even any attempted legal ceremonial marriage but a mere ‘live-in’ relationship[.]” Estate of Alexander, 445 So. 2d at 839. Our supreme court evaluated a variety of approaches from other states * * * Ultimately, Mississippi opted for what it deemed “the logical view . . . [as] stated by a Michigan court”—that public policy questions of this stature should be left to the legislative process, and the judicial branch should avoid fashioning implied contractual remedies that would essentially resurrect common-law marriage, which had been abolished by the Legislature. [Citations omitted]

¶22. Based on the principle established in Estate of Alexander and Davis, we find public policy questions concerning same-sex cohabitants’ rights, just as with opposite-sex cohabitants rights, “are best left to the legislative process.” Davis, 643 So. 2d at 934. We note the Mississippi Legislature in 1997 declared no marriage rights exist in Mississippi Laws between same-sex partners, even those with valid marriages in other jurisdictions. Miss. Code Ann. § 93-1-1(2). And in 2004, House Concurrent Resolution 56 proposed to amend Mississippi’s constitution by creating a new section on marriage. On November 2, 2004, Mississippi voters ratified Section 236A. Under this constitutional amendment:

Marriage may take place and may be valid under the laws of this state only between a man and a woman. A marriage in another state or foreign jurisdiction between persons of the same gender, regardless of when the marriage took place, may not be recognized in this state and is void and unenforceable under the laws of this state.

Miss. Const. art. 14, § 263A.

¶23. Because the issue of same-sex marriage has been addressed by the legislative process, we find we must yield to the supreme court’s admonition against judicially creating equitable remedies that undermine these policy decisions—particularly when this policy has been written into Mississippi’s constitution. Thus, we hold we cannot extend implied contractual remedies to unmarried cohabitants, whether opposite-sex or same sex—especially here, where the chancellor found no express agreement beyond mere cohabitation that would support Swain’s claim that she be repaid for financial contributions she made during their relationship. Furthermore, Swain was married to another man and could not validly marry Cates even in a jurisdiction that recognizes same-sex marriage. Therefore, the limited putative spouse doctrine is inapplicable.

¶24. While chancellors typically enjoy discretion in determining equitable remedies in nondomestic matters, the supreme court has held it is outside the chancellor’s discretion to fashion an equitable remedy for an unmarried cohabitant “based on principles of contracts implied in law.” Estate of Alexander, 445 So. 2d at 839. But see Estate of Reaves, 744 So.2d at 802 (¶11) (finding Mississippi’s public policy against same-sex marriage does not prohibit same-sex partners from entering valid express contracts with each other).

¶25. “Unjust enrichment” is “modern designation for the doctrine of ‘quasi-contracts[.]’” Koval v. Koval, 576 So. 2d 134, 137 (Miss. 1991) (quoting Magnolia Fed. Savings & Loan v. Randal Craft Realty, 342 So. 2d 1308, 1311 (Miss. 1977)). “[T]he basis for an action for ‘unjust enrichment’ lies in a promise, which is implied in law, that one will pay to the person entitled thereto which in equity and good conscience is his.” Id. “It is an obligation created by law in the absence of any agreement; therefore, it is an implied in law contract.” 1704 21st Ave., Ltd. v. City of Gulfport, 988 So. 2d 412, 416 (¶10) (Miss. Ct. App. 2008) (citing Koval v. Koval, 576 So. 2d 134, 137 (Miss. 1991)) (emphasis added).

¶26. By holding Cates was unjustly enriched through her cohabitation with Swain, the chancellor essentially found an implied contract that Swain would be remunerated for her financial contributions to Cates. Estate of Alexander and Davis restrict such an implied contract arising between unmarried cohabitants. Swain testified to the financial benefits and obligations arising out of her marriage to her estranged husband. Thus, it was reasonable for her to understand similar rights did not arise from her relationship with Cates. As in Estate of Alexander, Swain’s financial contributions to the homes in which she cohabited, rent free, with Cates must be viewed as given gratuitously without expectation of repayment, absent evidence of an express agreement between the two. See Estate of Alexander, 445 So. 2d at 840. In the instructive words of supreme court in Estate of Alexander, “[a] deed or contract would also have sufficed.” Id.; see Estate of Reaves, 744 So. 2d at 802 (¶11). [Footnotes omitted]

¶27. The chancellor made no finding of any express agreement, but instead found Swain’s expectation of repayment was implied based on the women’s cohabitation arrangements. The supreme court has been explicit that cohabitation alone cannot form the basis of an equitable remedy between non-married cohabitants. Because we find the chancellor’s unjust enrichment remedy was outside the bounds of a chancery court’s equitable powers regarding such cohabitants, we must reverse the award of $44,995 and render judgment in Cates’s favor.

That’s a lengthy quote from the decision, but it merits your attention. Same-gender and unmarried cohabitation arrangements are becoming more and more common, and you need to know exactly how to advise your clients about how to protect themselves.

The state of the law would appear to be that neither unjust enrichment nor equitable remedies in the nature of implied trusts will be available to protect your clients in such situations, no matter how long the relationship continued or what was the level of investment, absent fraud, incapacity or undue influence. The courts will recognize bona fide partnership contracts, but those will require consideration and all of the formalities. Judge Russell’s separately concurring opinion points this out and finds it to be an inequitable result, although she agrees that it is within the exclusive province of the legislature.

Judge Lee’s dissent is also worth your time to read. He would uphold the authority of the chancellor to grant equitable relief in these cases. The majority, however, would leave any change in the status quo to the legislature.

The bottom line is that no matter how long the relationship, or the gender of the parties, or the nature of the relationship, or the nature of the investment, or the amount of the investment, or the mutual promises made, or the changes in position based on those mutual promises, there will be no relief absent fraud, etc. or contract, until the legislature acts.

THE MARITAL DEBT CONUNDRUM

April 11, 2012 § Leave a comment

I posted here about allocating marital debt. Debts that are clearly for the benefit of the household are debts that the court should assign to one or both parties in a divorce, applying the equitable principles laid out in Ferguson. No distinction is made between secured and unsecured debt.

Under our case law, we treat debts the same as we do assets for the purposes of equitable division. We classify them as marital or non-marital, place a valuation (the loan balance) on them, and equitably assign responsibility for them. That approach works well in general for debts that are secured by assets that are subject to equitable distribution. The debt in most instances reduces the asset value and goes with the person who gets the asset. Fair enough.

But what about where the debt is for expenses such as day-to-day living expenses or other family expenses that do not result in an asset in the household? I’m talking about credit card debt to pay the light bill, or to buy Christmas presents, or to pay for a family weekend in Gatlinburg, or to buy groceries at Wal-Mart? None of that kind of debt produces an asset. It’s debt that produced cash that was spent up in the ordinary course of living. Had the parties lived within their means, those expenses would have been paid out of ordinary income by the parties, but they chose to incur debt for them instead.

Expenses of the types described immediately above are part of routine, everyday life. If it is reasonable to allocate marital debts for those kinds of expenses to the parties, then why would it not be reasonable to track back through the marriage and account for all expenses, whether charged on a credit card or not, and allocate them between the parties? Say, for instance, that the parties in a hypothetical case spent $30,000 in a hypothetical year on groceries, household goods, utilities, toys for the children, medicine, cable tv, internet access, yard work, medications, property taxes, and on and on and on. If they filed for divorce, why would it not be reasonable, under the same logic we apply to marital debt, to go back and investigate how much they each contributed and then charge the one who contributed less with the difference? And if it is reasonable to do that, why do we not do it in all cases, even where the parties have been married 10, 20 or 30 years or more? Why not examine each year of the marriage, reconstruct the expenditures and equitably allocate the expenditures? Imagine what it would be like to try such a case. Horrors.

As absurd as the above sounds, we take exactly that approach in regard to marital debt. There is no limit on it. There is no threshhold. Whatever the debt is, and however long it took to amass it, we allocate it equitably. As it stands now, there is no limit to how far one can go back to claim reimbursement for or an allocation of marital debt or for how much.

It is logical, of course, that the debt is merely the residue left over after the expenses have been paid. In a divorce, debt is literally the ashes of a failed marriage. The debts are still there long after the expenses have gone away, and equity requires that the parties who enjoyed its benefits should share its burden. I understand that. What I don’t understand is that we have not imposed any reasonable parameters on it.

ALLOCATING MARITAL DEBT

April 2, 2012 § 1 Comment

Chancellors are often called upon to adjudicate issues of marital debt between warring divorce combatants. Many times the debt is secured by an asset, such as a car, or a home, or an appliance, and the debt often follows the asset with the effect of reducing its value in equitable division.

More and more frequently, though, I am seeing cases where the court is asked to divide marital debt that did not result in the acquisition of an asset. Some examples: Credit card debt for living expenses; credit card debt for a trip to Disney World; a loan to pay off pre-marital debts; or an IRA loan that paid a spouse’s credit card.

So what exactly is the state of Mississippi law vis a vis allocation of credit card debt in a divorce? Here are some cases that I think aptly set out the law on the point:

“The courts of this state have consistently held that expenses incurred for the family, or due to the actions of a family member, are marital debt and should be treated as such on dissolution of the marriage.” Shoffner v. Shoffner, 909 So.2d 1245, 1251 (Miss.App. 2005). In that case, the court affirmed the trial judge’s order that Mrs Shoffner pay $6,486.04 of marital credit card debt based on extensive lists, prepared and offered into evidence by Mr. Shoffner, showing expenditures for automobile maintenance, holiday gifts for the family, gasoline, meals for the family, and so on.
In Turpin v. Turpin, 699 So.2d 560, 565 (Miss. 1997), the Mississippi Supreme Court upheld the chancellor’s order that each party pay one-half of the marital debt in the absence of evidence that the debt primarily benefitted one or the other.
In Bullock v. Bullock, 699 So.2d 1205, 1212 (Miss. 1997), the court affirmed an order for the husband to pay the wife’s credit cards where they had been used to purchase a television, sheets and other household items for the marital dwelling, and to pay for two nights in a hotel when he locked her out of the house.
In Harbit v. Harbit, 3 So.3d 156, 161 (Miss.App. 2009), the court of appeals upheld the chancellor’s order classifying the debt in the wife’s name on her vehicle as marital, since she had borrowed the money to pay household expenses during a period when the husband was unemployed.
There is a presumption that all debt is marital, since there is a corollary presumption that all assets are marital. Horn v. Horn, 909 So.2d 1151, 1165 (Miss.App. 2005).
The fact that the spending may have been unreasonable or out of control is not dispositive. Wasteful spending and negligence in financial affairs are factors that the chancellor may consider in dividing the marital estate, but they are not controlling. Prescott v. Prescott, 736 So.2d 409, 418 (Miss.App. 1999).
Debts incurred by a spouse pursuing goals other than the general welfare of the marriage are considered separate, and not marital, debt. Garriga v. Garriga, 770 So.2d 978, 984 (Miss.App. 2000).
Debt incurred to pay a spouse’s gambling debts is separate debt. Lowrey v. Lowrey, 25 So.3d 274, 289 (Miss. 2010).
Debt incurred to pay off a party’s pre-marital debt should be classified as non-marital. Fitzgerald v. Fitzgerald, 914 So.2d 193, 197 (Miss.App. 2005).
Post-separation debt to pay pre-separation obligations may be considered marital only if there is adequate evidence to support a finding that the underlying debts were, in fact, marital. Phillips v. Phillips, 45 So.3d 684, 698-99 (Miss.App. 2010).
In making a determination of how to allocate the marital debt, the court has to apply the Ferguson factors. Pulliam v. Smith, 872 So.2d 790, 796 (Miss.App. 2004).
In Gambrell, v. Gambrell, 650 So.2d 517, 522 (Miss. 1995), the court said that “The liabilities as well as the assets of the parties must be taken into consideration when the chancellor effects an equitable distribution of marital [assets] and any other relief that may be appropriate such as alimony or child support.”

So, in a nutshell, our law is that the debts that are clearly for the benefit of the household are debts that the court should assign to one or both parties, according to the equitable principles laid out in Ferguson.

For my part, I question the wisdom of treating marital debt for living expenses the same way we do assets, but that’s the subject of another post. For now, as they say, it is what it is.

ALIMONY IS NOT FOR EQUALIZING THE DIVISION

February 22, 2012 § Leave a comment

What is the proper role of alimony vis a vis equitable distribution? In Williamson v. Williamson, decided by the COA on January 10, 2012, Judge Carlton’s opinion stated:

¶21. The record reflects that in equitably dividing the marital property, the chancellor erroneously applied the Armstrong factors by awarding Mary alimony in order to create equalization of the parties’ incomes. The chancellor then ordered Will to pay Mary $594 per month to be applied toward the mortgage on the marital home; and, in addition to that amount, the chancellor awarded Mary $200 per month in periodic alimony, for a total of $794, or approximately $800, until the former home sold. [Footnote omitted] As evidenced by the chancellor’s findings, the chancellor accomplished the ordered equitable division of the marital property by aid of an award of periodic alimony in favor of Mary in order to make the parties’ financial situations “equalized.” The record shows, as set forth in the excerpts herein, that the chancellor had not completed an equitable division of the marital property prior to considering alimony. In accordance with precedent, the equitable division of the marital property must be completed prior to determining if either spouse suffers a deficit in the division of the marital estate warranting an award of alimony. The record in this case shows, however, that the chancellor used alimony to equalize the parties’ future incomes instead of awarding alimony based upon need existing after completion of an equitable division of the marital property.

¶22. Mississippi now embraces the process of equitable division of the marital property. In applying the “equitable” division of the marital property in accordance with the Ferguson factors, alimony fails to serve as the primary method to equalize property division. See Lowrey, 25 So. 3d at 292 (¶44) (“[A]limony has become a secondary remedy to property division . . . . ‘One of the goals of adopting equitable distribution was to alleviate the need for alimony.’”). Alimony, instead, assists in the event the chancellor determines that a need exists by a spouse after the completion of the equitable division of the marital property. See id. at 293 (¶44) (“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.”); George v. George, 22 So. 3d 424, 428 (¶7) (Miss. Ct. App. 2009) (“[A]n award of periodic alimony is based upon need.”).

The proper procedure follows this sequence:

Determine which assets are marital and which are non-marital;
Adjudicate the values of both marital and non-marital assets;
Apply the Ferguson factors to the proof in the record to determine whether there should be an equitable division of the marital estate, and, if so, how it should be accomplished;
If the equitable division of the marital estate, considered with each party’s non-marital property, leaves a deficit for one party, then the court should analyze the evidence in light of the Armstrong factors to determine whether alimony should be awarded.

From a pratice standpoint, then, here is what you need to give the chancellor so that she or he can do the job:

An itemization of all assets, showing which your client claims to be marital and which your client claims to be non-marital. The best way to present this itemization is through lists introduced into evidence, rather than just a narration by your client. Have your client testify as to her basis for putting each asset into either category.
Assign values to each asset. In advance of trial have your client assign values to each asset. Real property, heavy equipment, leaseholds, buildings, fine art and jewelry, business operations and interests, and other assets other than automobiles and ordinary personal property should have values established by appraisals. Again, this should be done by lists and documentation as much as possible, although experts may be needed as to some items.
Offer proof as to each Ferguson factor. Have a copy of the factors to use as an outline as you develop testimony at trial. You might also want to look at the Cheatham factors for lump-sum alimony.
Whether your client is trying to get alimony or trying to resist it, put on proof as to the Armstrong factors. Have a copy of the factors to use as an outline as you develop testimony at trial.

In my opinion, one of the chief causes of failure on appeal is that the lawyers do an inadequate job of making a record that the chancellor can use in making a decision. This forces the trial judge to have to patch something together in an attempt to cover everything, and the result is a flaw that the COA will find reversible. Make your record as airtight as the truth allows.

MAKING AN END RUN AROUND PIERCE

February 7, 2012 § Leave a comment

In Pierce v. Pierce, 42 So.3d 658 (Miss. App. 2010), the chancellor in a divorce had ordered the husband to pay the wife’s mortgage note until her child by a previous relationship graduated from high school. The COA remanded the case on other grounds, but instructed the chancellor not to tie the payment of the mortgage to any life event of the daughter, since she was not the payor’s offspring. In essence, the order amounted to an improper award of child support.

But what about where the child is the child of the payor? And what about where the payment is not any form of child support?

In Brooks v. Brooks, decided by the COA on December 13, 2011, the payor, Brandon, argued à la Pierce that the trial court had improperly converted payment of the mortgage note into additional child support when the judge tied Brandon’s obligation for mortgage payments to his youngest child’s attainment of the age of 18. He contended that the trial court’s actions were in violation of Pierce.

The COA rejected the argument that Pierce was applicable on the basis that there was no dispute that the child in question was his.

The court went beyond that point to add some significant language:

¶11. We cannot find that the mortgage payment was a form of additional child support. The award in the chancellor’s order was given under the heading, “Equitable Distribution,” and it was ordered after a discussion of the Ferguson factors. The chancellor ordered that when the house is sold, Brandon should receive 60% of the equity, and Dawn should receive 6 40%. The chancellor reasoned that “Brandon’s larger percentage will reflect his payment of debt, taxes[,] and hazard insurance over the next sixteen or so years . . . .” The upkeep and maintenance of the property are Dawn’s responsibility, except for repairs in excess of $1,000, which are the equal responsibility of both parties. Since the mortgage payment was part of the equitable distribution of the assets and Brandon will receive a portion of the equity back when the house is sold, the house payment is not the equivalent of child support. This issue is without merit.

The significance of this language is that it points a direction around Pierce via equitable distribution. If you can persuade your judge to consider mortgage payment as part of the equitable distribution, you can tie the payment to any life event of anyone. This can be helpful in a step-child situation as in Pierce itself, or where there are other child-related obligations not related to children of the parties. And just how do you pitch it? Offer the court through your client’s testimony a balance sheet showing your proposed equitable distribution. The judge might buy it.

Where Am I?