Some Useful Equitable Distribution Points
September 18, 2019 § Leave a comment
Last year’s Pettersen case caused somewhat of a ruffle among many attorneys when it affirmed a chancellor’s findings that pre-marriage assets were marital or converted to marital, and passive appreciation of pre-marital securities was also marital. One lawyer told me that he was still scratching his head over the latter.
Lost in the consternation is that the opinion by Judge Barnes includes some jewels of authority that you might find useful:
Frederick Pettersen claimed that the chancellor erred when he announced that he would not consider child support, but he never objected at trial. In ¶10, the court said, “Furthermore, this issue was not asserted in Frederick’s motion for reconsideration.” Aside from the fact that there is no such thing as a motion for reconsideration, this is a remarkable statement because it assumes that you must assert the bases for your R59 motion in the motion. In my experience, few attorneys recite more than that they want a new trial or an amendment of judgment without detailing the reasons why. R7(b) specifically states that a motion “shall state with particularity the grounds therefor, and shall set forth the relief or order sought.” That “grounds therefor” language is pretty important, but sometimes overlooked.
As for the proper demarcation date, the court said at ¶12:
Our Court has held:
“The law in Mississippi is that the date on which assets cease to be marital and become separate assets—what we refer to as the point of demarcation—can be either the date of separation (at the earliest) or the date of divorce (at the latest).” Collins v. Collins, 112 So. 3d 428, 431-32 (¶9) (Miss. 2013). [However, a] chancellor may consider a temporary order as the line of demarcation between marital and separate property. Id. Ultimately, however, the chancellor has the discretion to draw the line of demarcation. Id. at (¶10).
Randolph v. Randolph, 199 So. 3d 1282, 1285 (¶9) (Miss. Ct. App. 2016).
At ¶18, the opinion discussed classification of assets:
¶18. Furthermore, when determining whether certain property is marital, a chancery court “must inquire whether any income or appreciation resulted from either spouse’s active efforts during the marriage.” Rhodes v. Rhodes, 52 So. 3d 430, 436 (¶20) (Miss. Ct. App. 2011). “If so, that income or appreciation becomes part of the marital estate.” Id.
In ¶19, the court rejected Frederick’s argument that his wife, Audrey, was not entitled to any of his retirement funds because of an extra-marital affair:
Moreover, a spouse’s misconduct is only one factor to consider in the division of marital assets. A chancery court “should not view equitable distribution as a means to punish the offending spouse for marital misconduct. Rather, ‘marital misconduct is a viable factor entitled to be given weight by the chancellor when the misconduct places a burden on the stability and harmony of the marital and family relationship.’” Bond v. Bond, 69 So. 3d 771, 773 (¶6) (Miss. Ct. App. 2011) (quoting Carrow v. Carrow, 642 So. 2d 901, 904-05 (Miss. 1994)).
In discussing whether pre-marital properties were properly classified, the court said at ¶23:
¶23. “Marital property is ‘anyand all property acquired or accumulated during the marriage and is subject to an equitable distribution by the chancellor.’” Mamiaro v. Mamiaro, 179 So. 3d 51, 53 (¶7) (Miss. Ct. App. 2015) (quoting Hemsley v. Hemsley, 639 So. 2d 909, 915 (Miss. 1994)). There is no dispute that these properties were acquired before the marriage. But, in discussing Ferguson, the Mississippi Supreme Court held:
Instead of looking to the bare title of a marital asset, this Court, as should the trial courts, will continue to consider all of the facts and circumstances surrounding the accumulation of the marital assets, including noneconomic contributions and factors, when deciding how the marital property should be divided under our system of equitable distribution.
Carnathan v. Carnathan, 722 So. 2d 1248, 1253 (Miss. 1998). Although Frederick argues that Audrey made no economic contribution to these properties, he acknowledges that Audrey helped prepare balance sheets with respect to the rental properties for a period of time during their marriage. We find, therefore, that the chancery court’s awarding her ten percent of the properties’ value was not an abuse of discretion.
And the court reminded us of the definition of commingling:
¶26. “Commingled property is a combination of marital and non-marital property[,] which loses its status as non-marital property as a result.” Maslowski v. Maslowski, 655 So. 2d 18, 20 (Miss. 1995).
Finally, the opinion considered Frederick’s argument that he used non-marital funds to purchase an asset, so it should be a “mixed asset” with greatly reduced equitable distribution to Audrey:
¶29. “[A] presumption of marital property arises to any property acquired during the marriage.” Maslowski, 655 So. 2d at 20. The chancellor properly considered the applicable Ferguson factors, finding: (1) the property was acquired during the marriage; (2) Audrey had “substantially contributed to this property by serving as bookkeeper”; and (3) Frederick had managed the subject property during the separation and continues to do so. Therefore, we find no merit to this issue.
Demarcation Date on Remand
August 24, 2015 § Leave a comment
The date on which the marital assets are assigned a value can make a drastic difference in the ultimate outcome of the equitable distribution. It’s a concept that we’ve touched on here before. In Lowery v. Lowery, 25 So.3d 274, 285-286 (Miss. 2009), the court said:
¶ 27. For purposes of determination of equitable division … the date for determination would be either the date of separation (at the earliest) or the date of divorce (at the latest). “Cases appear to hold that, as a matter of law, property acquired during separation is marital unless a support order has been entered…. However, a few cases suggest that the issue is a question of fact for the chancellor to decide….” Bell on Mississippi Family Law at § 6.02[b] n. 58 (citing Stone v. Stone, 824 So.2d 645, 647–48 (Miss.Ct.App.2002); Aron v. Aron, 832 So.2d 1257, 1258–59 (Miss.Ct.App.2002)).
Other cases have suggested that the valuation date can vary according to the assets. In other words, one asset could have one valuation date, and another a different valuation date.
So, is the rule any different when the case is remanded to the trial court for a do-over? Things can change in the lengthy time it takes to complete the appeal process, after all.
That’s what happened in Lewis v. Pagel, handed down by the MSSC on August 13, 2015. Following a trip through the COA, and from there to the MSSC, Drake Lewis and Tonia Pagel (formerly Lewis), found themselves back before the chancellor for a do-over on equitable distribution. The case was remanded for the chancellor to treat certain real properties as non-marital, to re-value a business, and to re-analyze equitable distribution. The chancellor followed the appellate courts’ instructions, using the asset values as of the date of the divorce.
Drake appealed, complaining that the chancellor’s approach skewed the ultimate outcome because values had changed in the time it took to complete the appeal cycle. Justice Chandler addressed his argument this way:
¶27. It is well-established that “an equitable division of property does not necessarily mean an equal division of property.” Chamblee v. Chamblee, 637 So. 2d 850, 863-64 (Miss. 1994). “[F]airness is the prevailing guideline in marital division.” Lowery v. Lowery, 25 So. 3d 274, 285 (Miss. 2009) (quoting Ferguson, 639 So. 2d at 929). Here, the chancellor’s division of the property was approximately equal. Drake’s argument that he received substantially less than Tonia relies on circumstances that occurred after the divorce judgment. However, the date for determination of equitable distribution is, at the earliest, the date of separation, or, at the latest, the date of divorce. Lowery, 25 So. 3d at 285. Additionally, an order of equitable division is a nonmodifiable judgment. East v. East, 493 So. 2d 927, 931 (Miss. 1986). Therefore, when the Court of Appeals remanded for the chancellor to revisit the equitable distribution, the chancellor properly redetermined the equitable distribution as of the divorce.
When you read the entire Lewis opinion (as I am sure you will), note that the chancellor did consider a post-appeal change in value that favored Drake. Legacy Holdings, LLC, a family business, was valued at the time of the divorce at $1,148,270, but the chancellor found that it had no value at the time of the remand hearing.
Here is a post about a case in which the chancellor’s use of the divorce trial date on remand was affirmed.
It would be a nifty skill for a lawyer to be able to tell the future. None of us in real life, however, has a crystal ball. Still, it’s a good idea to impress on your client that a side effect of an appeal could be that you can win the battle and lose the war. By the time the case descends from the lofty, rarified atmosphere of the appellate courts to ground level, things may have changed drastically in the meantime, resulting in a bounce that does not favor your client. In Lewis, the appeal on the equitable distribution saved Drake some rehabilitative alimony, but cost him $100,000 in lump-sum alimony. That’s going to leave a mark.
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 (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.
Proof of the Valuation Date
February 26, 2014 § 1 Comment
I’ve whined here more times than I can count about how the record is almost always bereft of any testimony from either party in a divorce about what valuation date should be used by the court in assessing values. The date that the chancellor uses can take away or add thousands of dollars to your client’s slice of the marital pie, so it’s a subject that you should approach with some interest.
The valuation date (or demarcation date) is entirely within the discretion of the court, and if you do not put evidence in the record as to which date should be used and why, then you are leaving it strictly up to the chancellor to go with any reasonable date. One of several previous posts where I spelled this out is here.
If I were trying a case with valuations, I would always ask my client what valuation date should be used and why. And remember, that different assets can have different valuation dates. Why? Well, for one thing, it gives you something in the record to argue, as opposed to raising the argument in a vacuum on appeal with nothing in the record to support it. For another, it just might be all the chancellor needs to select the very date that your client designates. And, for yet another, if you don’t put that evidence under the judge’s nose, how in the world do you expect the judge to guess correctly what your client wants?
So how do you pick the best valuation date for your client? Look at how values are fluctuating, if they are, and pick the most advantageous date, then have your client explain to the court why and how that date will produce the most equitable result. If you want inspiration on how to do this, I suggest you study the various appeals where the court has upheld the chancellor’s arbitrary decision on valuation dating. How the chancellor picked a date is one indicator you can use. You can also draw inspiration from the after-the-fact arguments of counsel who left it up to the trial judge. The COA decision in McDevitt v. Smith, handed down November 26, 2013, is a recent example.
The Valuation Date as a Moving Target
January 6, 2014 § 3 Comments
The valuation date for equitable distribution is important to establish, as we have discussed before, here and here, among others. Asset values can fluctuate, significantly affecting the landscape of equitable division.
We’ve also discussed the MSSC holding that the date of the temporary judgement does not necessarily impose a demarcation date for valuation. That date is left to the sound discretion of the chancellor based on the evidence in the record.
The two principles arose together in the COA case of Stout v. Stout, decided December 10, 2013. In that case, Henry and Tracey Stout were before the chancellor on a consent, leaving equitable distribution for the judge’s adjudication. A temporary order had been entered in 2009, and the divorce trial was not held until 2012. In 2009, the marital home’s value was around $30,000 more than its value at the time of the final hearing. The chancellor elected to use the 2012 value, which caused Tracey to receive a smaller share of assets, resulting in an award of alimony.
Henry appealed, complaining that it was error for the chancellor to use the trial-date value as opposed to the temporary-order-date value. He also argued that it was error for the chancellor to use different valuation dates for different assets. Judge Roberts wrote for the majority:
¶15. First, Henry claims that the chancellor improperly valued the marital home at its 2012 value as opposed to its value in 2009 when the temporary order was entered. He claims that due to the incorrect valuation, Tracey received a lower value of assets making it more likely that alimony would be necessary. Two appraisals were done on the home: the 2009 appraisal valued the home at $132,000; the 2012 appraisal valued the home at $105,000. The chancellor used the latter value when assessing the home’s value to Tracey. Henry admits that the chancellor had the discretion to set the dates for valuation of assets, and he cites to no other authority for his proposition that the chancellor is required to use the same date for valuation of all property. In using the 2012 value, the chancellor specifically noted that the house had significantly depreciated, that Tracey had been responsible for the mortgage payments since the separation, and that Henry had abandoned the house. The supreme court has stated that “the chancellor enjoys broad discretion to value property as of any date that, in the chancellor’s view, equity and justice may require.” In re Dissolution of Marriage of Wood, 35 So. 3d 507, 516 (¶20) (Miss. 2010). We can find no case law that a chancellor must use the same date when valuing all the property. Therefore, this issue is without merit.
A few observations:
- As important as the valuation date is in an equitable distribution case, I reiterate that I seldom hear any proof as to what date a party wants me to impose, and why. It can make all the difference in the world to your client, yet, if you do not put anything in the record to support a finding favorable to your client, you are leaving it up to the judge’s unfettered discretion. I am not saying that is what happened in this case; we don’t have enough information to tell.
- It was enlightening to read that the COA could find no authority for one, global valuation date. I have never been able to divine an answer from the case law on the point either. In most cases, I am presented with valuation dates all over the ballpark. An example might be: a real property appraisal of the marital residence from 2012; IRA statements from June, 2013; personal property appraisal 3 months before the November, 2013 trial; securities account statements dated December, 2012. In a case like that, it seems that the judge has no choice but to use the best information available for the dates provided, unless the judge orders the lawyers and parties to go back to the drawing board, so to speak, to gather some more current info as of a given date.
- The most grateful clients are the ones whom you save lots of money. The clients who come to hate you are the ones you cost a lot of money. Valuation of the assets, and making the case for a valuation date favorable to your client’s best interests, are sure-fire ways to save — or make — a lot of money.
BRIGHT LINE? WHAT BRIGHT LINE?
May 14, 2013 § 2 Comments
The line of demarcation — also referred to in the cases and in legal circles as “the valuation date” — is an important concept in divorce law. It’s something we’ve addressed here in prior posts.
Under the Ferguson case, the trial court must first identify which assets are marital, then value them, and then divide them equitably. The date that the court picks to establish the values of marital assets is crucial, since appreciation and depreciation mean that the value on one particular date may be sugnificantly different from that on another date.
Some lawyers argue that there is a “bright line” rule that the entry of a temporary order in a divorce or separate maintenance case cuts off all further accumulation of marital interests, and, indeed, some case law would seem to indicate that.
But the MSSC, in the case of Collins v. Collins, handed down May 9, 2013, makes it clear that there is no bright line rule. Here’s what Justice Coleman’s opinion says on the point:
[¶9] … The law in Mississippi is that the date on which assets cease to be marital and become separate assets – what we refer to herein as the point of demarcation – can be “either the date of separation (at the earliest) or the date of divorce (at the latest).” Lowrey v. Lowrey, 25 So. 3d 274, 285 (¶ 27) (Miss. 2009).
¶10. In Selman v. Selman, 722 So. 2d 547 (Miss. 1998), the wife had a retirement fund, and the chancellor awarded the husband half its value even though the fund did not begin to accrue until after the husband had vacated the marital home. Id. at 553 (¶ 22). When including the fund in the marital assets, “the chancellor stated only that ‘[t]he law says that until they are divorced, everything is on the table.’” Id. Applying the well-settled manifest error standard of review, id. at 551 (¶ 12), the Selman Court reversed the chancellor’s ruling and wrote, “while the marriage had not legally terminated, the relationship out of which equitable distribution arises had ended some months earlier.” Id. at 553 (¶ 25).
¶11. A temporary order may [emphasis in original] be considered by the chancellor to be a line of demarcation between marital and separate property, Cuccia v. Cuccia, 90 So. 3d 1228, 1233 (¶ 8) (Miss. 2012); see also Wheat v. Wheat, 37 So. 3d 632, 637-38 (¶¶ 16-18) (Miss. 2010) (recognizing, in dicta, that a temporary support order can indicate the demarcation point), but we have never held that it must. However, in Pittman v. Pittman, 791 So. 2d 857 (Miss. Ct. App. 2001), the Mississippi Court of Appeals held, “[T]he temporary support order serves the same purposes as a separate maintenance order and that property accumulated thereafter is separate property.” Id. at 864 (¶ 19). In so writing, the Pittman Court created the impression that Mississippi now has established a rule that temporary orders always and in every case provide the mark of demarcation. Temporary support orders vary. They may include issues such as which spouse controls the marital home, automobiles, and bank accounts, or they may simply, as in the case sub judice, provide only for temporary custody and support of a minor child. Because of the degree of variance in temporary orders and the particularities of every marital dissolution, we reaffirm our holding in Lowrey and hold that it is necessary that a chancellor maintain discretion to decide in each instance whether a temporary order is the proper line of demarcation. To the extent that the Pittman opinion can be read to create a rule that a temporary support order necessarily and always indicates the point of demarcation, we overrule it.
¶12. In the case sub judice, the chancellor did not explicitly state what date she chose as the date of demarcation, but from the substance of the opinion, it is clear she chose the date of the divorce. In their briefs, the parties accept that the chancellor used the date of the divorce as the point of demarcation. The temporary support order in the instant case dealt only with child custody and temporary child support. It did not go so far toward separating the parties’ several jointly-held assets that we would hold the chancellor abused her discretion in not finding it to be the point of demarcation.
¶13. However, the Cuccia Court noted that the chancellor must set out the specific date used as the line of demarcation and remanded the case partly for the chancellor’s failure to do so. Cuccia, 90 So. 3d at 1233 (¶ 11). The chancellor did not do so here, but, as noted above, the parties do not dispute the issue. We take the instant opportunity to write that had the issue been disputed, or had the chancellor’s order been ambiguous as to the demarcation date used, we would have remanded the case as did the Cuccio [sic] Court. We reiterate here that chancellors should indicate in the record what date they choose for the point of demarcation and why they choose it.
That should settle the debate once and for all that the demarcation date is at the discretion of the chancellor, who must always identify the date chosen and explain why that particular date was selected.
The downside to this is that when your client asks you about whether it would be wise to acquire any new assets between separation and the date of the divorce, your answer now will be an unqualified, “I don’t have any idea.”
As a trial practice matter, I seldom hear any evidence or argument as to what the valuation date should be. If you have a case where one valuation date is advantageous to your client as opposed to another, you should be zealous about informing the judge what date should be selected, and why it should be selected. For instance, if your client acquired a home after the separation, and has accumulated wealth after the separation, you want a valuation date near that separation date, not at the date of the divorce. If you don’t make that clear in the record, the judge might choose a date that’s not so nifty for your client, and you’ll have to ask the COA to fix it.