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Dodson v. Dodson (3/27/98), 955 P 2d 902
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of
the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone
(907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
JAMES L. DODSON, )
) Supreme Court Nos. S-7386/7416
Appellant/ )
Cross-Appellee, ) Superior Court No.
) 4FA-93-2693 CI
v. )
) O P I N I O N
ROBIN L. DODSON, )
) [No. 4959 - March 27, 1998]
Appellee/ )
Cross-Appellant. )
______________________________)
Appeal from the Superior Court of the State of
Alaska, Fourth Judicial District, Fairbanks,
Mary E. Greene, Judge.
Appearances: R. Scott Taylor and Philip R.
Volland, Rice, Volland, Taylor & Hensley, P.C., Anchorage, for
Appellant/Cross-Appellee. Joseph W. Sheehan, Law Offices of Joseph
W. Sheehan, Fairbanks, for Appellee/Cross-Appellant.
Before: Compton, Chief Justice, Matthews,
Eastaugh, Fabe, and Bryner, Justices.
FABE, Justice.
MATTHEWS, Justice, dissenting in part.
I. INTRODUCTION
The issues in this appeal and cross-appeal relate to
proceedings that ended Jim and Robin Dodson's marriage. Jim
challenges several aspects of the superior court's property
division as well as the superior court's decisions ordering him to
sign a stock pledge agreement and to pay Robin reorientation
alimony and attorney's fees. In her cross-appeal, Robin argues
that the superior court erred in characterizing certain property as
marital rather than as belonging to her separately. We reverse in
part, remand in part, and affirm in part.
II. FACTS AND PROCEEDINGS
Jim and Robin Dodson were married on September 30, 1967,
separated in September 1993, and divorced in October 1995. In an
order dated September 11, 1995, Superior Court Judge Mary E. Greene
divided the parties' marital assets and obligations. [Fn. 1] In
addition, she ordered Jim to pay Robin reorientation alimony
"continuing until the earlier of the sale of the [marital
residence] or Ms. Dodson becoming employed full time for the
Fairbanks North Star Borough School District (or comparable job)."
In connection with the divorce proceeding, Judge Greene also
awarded Robin approximately $55,000 in attorney's fees and directed
Jim to execute a stock pledge agreement "as security for the
payment, discharge, and indemnification"of the debts awarded to
him during the property division.
On appeal, Jim argues that the superior court erred in
several ways when it divided the marital assets and obligations.
He also asserts that the court erred in awarding to Robin $55,000
in attorney's fees and in requiring him to sign the stock pledge
agreement. Robin cross-appeals, asserting that the superior court
erred in characterizing certain stock as marital property rather
than as her separate property.
III. STANDARD OF REVIEW
In general, we review factual findings under the clearly
erroneous standard. See Barber v. Barber, 837 P.2d 714, 716 n.2
(Alaska 1992). We review de novo the application of law to the
relevant facts. See Fitzgerald v. Puddicombe, 918 P.2d 1017, 1019
(Alaska 1996).
In property division cases, our goal is to determine
whether the trial court abused the broad discretion given to it
under AS 25.24.160(a)(4). See Moffitt v. Moffitt, 749 P.2d 343,
346 (Alaska 1988). The division of property by the trial court is
a three-step process. See Carstens v. Carstens, 867 P.2d 805, 810
(Alaska 1994). "Step one -- determining what property is available
for distribution -- is reviewed under the abuse of discretion
standard, although it may involve legal determinations to which
this court applies its independent judgment." Moffitt, 749 P.2d at
346. The second step requires the superior court to place a value
on the property. See Carstens, 867 P.2d at 810. This is a factual
determination that we will reverse only if there is clear error.
See Moffitt, 749 P.2d at 346. Finally, in step three the superior
court allocates the available property in an equitable manner. See
id. We review this allocation under the abuse of discretion
standard. See id.
We also employ the abuse of discretion standard when
reviewing the superior court's award of alimony, see Myers v.
Myers, 927 P.2d 326, 327 n.1 (Alaska 1996), and attorney's fees.
See Kowalski v. Kowalski, 806 P.2d 1368, 1372 (Alaska 1991). Under
the abuse of discretion standard, the trial court's decision will
be overturned only if this court has "a definite and firm
conviction that the judge made a mistake." City of Kenai v.
Ferguson, 732 P.2d 184, 190 (Alaska 1987).
IV. DISCUSSION
A. The Superior Court Erred in Requiring Jim to Pay Certain
Promissory Notes Relating to the Fidelity Warehouse, Inc. and
Denali Transportation Corp. Stock.
The first issue in Jim's appeal and the primary issue in
Robin's cross-appeal relates to certain stock in Fidelity
Warehouse, Inc. (Fidelity) and Denali Transportation Corp. (DTC).
The DTC and Fidelity stocks at issue in this case were at one time
owned by a trust created by Robin's father, Sig Wold (the Wold
Trust). The stocks' certificates reflect that Robin and Jim,
acting as trustees [Fn. 2] for the Wold Trust, transferred the
stock in November 1979 to "[Jim] or Robin." This transfer occurred
before Sig Wold's death in 1983.
Interestingly, the record contains two promissory notes,
one for $12,400 and the other for $79,300, that purport to have
been executed by Jim on the same days in November 1979 when the
Wold Trust transferred the Fidelity and DTC stock to "[Jim] or
Robin."[Fn. 3] At trial, Jim initially testified that the
promissory notes were consideration for and executed
contemporaneously with the 1979 Fidelity and DTC stock transfers.
However, following a conversation with the attorney who handled the
execution of the notes, Jim recanted his earlier statements and
stated that he had executed the notes well after the 1979
transfers. [Fn. 4] On appeal, Jim asserts that, based upon the
advice of his attorney, he backdated the notes to match the dates
of the DTC and Fidelity stock transfers in order to characterize
the transfers as sales so as to avoid federal gift taxes and
penalties that might have otherwise applied.
As for the DTC stock, the superior court found that in
November 1979 Robin knowingly participated with Jim in transferring
the stock from the Wold Trust to the Dodsons as individuals.
Accordingly, the court characterized the 1979 stock transfer as
being "in the nature of a gift"and concluded that the DTC stock
was marital property. Nevertheless, the superior court determined
that it would be inequitable for Jim to "have the benefit of joint
ownership of the [DTC] stock"without having to pay the promissory
note with which he purported to purchase the stock. Therefore, it
ordered Jim to pay the $79,300 note associated with the DTC stock.
By the time of the divorce, the Fidelity stock had been
sold, and the proceeds had been consumed by the Dodson marriage.
The superior court found that Robin knowingly signed the November
1979 document purporting to transfer the Fidelity stock from the
Wold Trust to the Dodsons as individuals. Although the superior
court did not explicitly find that this transfer was a gift, such
a finding is implicit in the decision of the court for the court
found that Robin had the same knowledge concerning the Fidelity
transfer that she had with respect to the Denali transfer, and that
both she and Jim regarded her inheritance through the trust as a
joint asset. Nevertheless, the superior court characterized the
$12,400 note relating to the Fidelity stock as Jim's separate
obligation (and Robin's separate asset) and ordered Jim to pay it.
1. Jim's appeal
On appeal, Jim argues that the superior court erred in
ordering him to pay the $79,300 DTC note and the $12,400 Fidelity
note. He contends that the superior court's decision to enforce
the promissory notes relating to the DTC and Fidelity stock is
inconsistent with the court's finding that Robin and Jim knowingly
transferred the DTC and Fidelity stock in November 1979 from the
Wold Trust to themselves as individuals. We agree. Once the
superior court concluded that Robin and Jim knowingly participated
in the November 1979 stock transfers, that it was the parties'
intent to hold the stock jointly, and that the transfers were gifts
from Robin to the marital estate, there was no theory under which
the promissory notes would be enforceable. The promissory notes
were executed well after the November 1979 stock transfers and were
not consideration for the transfers.
Robin concedes that neither the Fidelity nor DTC stock
transfers occurred for consideration. She also agrees that she
signed the certificates purporting to make the transfers.
Nevertheless, she asserts that she did not intend Jim to acquire
any personal interest in the stock. Instead, Robin contends that
she "assumed that transfer of the [stock] from 'Sigurd Wold and
Robin L. Dodson as trustees of Sigurd Wold Trust' to 'James L.
Dodson, and Robin L. Dodson,' was necessary to put James' name on
the stock, since he was recently appointed to act as a co-trustee
in place of Sig."[Fn. 5]
We "will generally accept the determination of witnesses'
credibility that are made by the court as a trier of fact, since
the court heard and observed the witnesses first hand." Demoski v.
New, 737 P.2d 780, 784 (Alaska 1987). The superior court concluded
that Robin's testimony about her intentions in authorizing the 1979
transfer was not "completely accurate." Specifically, it found
that Robin "was fully aware that property from the Trust was being
transferred to the Dodsons individually." It based its finding
upon the plain language of the stock transfer documents and upon
evidence that Robin had actively participated in managing trust and
family finances.
The superior court's findings are supported by the
record. First, the stock transfer documents plainly indicate that
Robin and Jim as co-trustees authorized the 1979 transfers. The
absence of the title "trustee"or a similar term next to Jim's and
Robin's names in the transferee portion of the documents is
conspicuous and undermines Robin's position.
Second, although Jim appears to have been primarily
responsible for the family's financial affairs, record evidence of
Robin's past participation in the Wold Trust's business affairs
supports the superior court's conclusion that Robin would have been
able to understand the nature of what she was signing. For
example, the record supports the superior court's finding that
Robin worked "extensively"with the attorney for the Wold Trust to
transfer all of Sig Wold's assets to the trust or into joint
ownership with right of survivorship with her. [Fn. 6] In light of
the plain language of the transfer documents and evidence of
Robin's past participation in the trust's affairs, we conclude that
the superior court did not err when it found Robin to have been
"fully aware"that she was authorizing transfer of the DTC and
Fidelity stock from the Wold Trust to the Dodsons as individuals.
Therefore, we reverse the superior court's decision to enforce the
promissory notes against Jim as his separate debt and in favor of
Robin as her separate property. [Fn. 7]
2. Robin's Cross-Appeal
In her cross-appeal, Robin contends that the superior
court erred in characterizing the DTC stock as a marital asset.
She argues that the DTC stock is her separate property due to
alleged fraud and breaches of fiduciary duty by Jim. We disagree.
The superior court concluded that "there was no intent to
defraud." Because the superior court did not err in finding that
Robin knew what she was signing, see Part IV.A.1, supra, it also
did not err in concluding that she was not defrauded.
As to potential breaches of fiduciary duty, Robin
correctly points out that Jim's role as a trustee and as the
personal representative of Sig Wold's estate made him a fiduciary.
However, even if the 1979 transfer of the DTC stock was a breach of
this duty, the superior court did not err in concluding that Robin
cannot successfully complain about it. As the superior court
notes, a beneficiary who consents to a breach of trust generally
cannot maintain an action against the trustee who breached a
fiduciary duty. See Austin W. Scott & William F. Fratcher, The Law
of Trusts sec. 99.1, at 50 (4th ed. 1987) ("If the trustee-
beneficiary
does not consent to the breach of trust, he can hold the other
trustees liable. If he does consent to the breach, he cannot
himself complain of it . . . ."). Because the superior court did
not err in concluding that Robin knowingly consented to the
November 1979 stock transfers, see Part IV.A.1, supra, we conclude
that Robin may not now successfully complain that the transfer
amounted to a breach of Jim's fiduciary duty. [Fn. 8]
Robin also argues in her cross-appeal that the DTC stock
is her separate property based upon the source of funds rule.
"Under [the source of funds] approach, property is classified
according to the classification of the funds used to purchase it:
property acquired with separate funds is separate; property
acquired with marital funds is marital. Property purchased on debt
is classified according to the funds used to pay off the debt.
Thus it is 'acquired' over time." Zimin v. Zimin, 837 P.2d 118,
122 n.6 (Alaska 1992). We have specifically declined to adopt this
rule:
It is one thing to hold that use of the source
of funds rule in limited circumstances is not an abuse of
discretion; it would be quite a leap from Zimin to hold that it
must be applied in a given set of circumstances as a matter of law.
We are not satisfied that such a leap would be appropriate.
Cox v. Cox, 882 P.2d 909, 915 (Alaska 1995).
In this case, the superior court did not apply the source
of funds rule. Based upon Cox, we hold that this was not an abuse
of discretion.
B. The Superior Court Erred in Valuing the Alaska Culinary
Management, Inc. Debt.
The second disputed issue in this case relates to a
venture named Alaska Culinary Management, Inc. (ACM). In the
1980s, the Dodsons invested in ACM, which owned and operated a
restaurant in Fairbanks called Clinkerdagger's. According to Jim,
the Dodsons were majority investors. Robin emphasizes that she did
not want to purchase a majority of ACM. [Fn. 9] Nevertheless,
Robin signed a $400,000 note to Denali State Bank to facilitate the
purchase, and she managed Clinkerdagger's for a period of time.
The restaurant closed in 1994, leaving significant
outstanding debts. These debts included approximately $368,000 of
the original $400,000 note to Denali State Bank. During the
divorce proceedings, Jim filed an affidavit in which he stated that
the Clinkerdagger's building space was being rented for $2,000 per
month, but that "[t]his amount does not cover the $4,000 per month
owed to the bank." Subsequently, however, he responded to direct
examination as follows:
Q And then what about the -- what was
the 400,000-dollar note?
A It's being serviced by the person that we
have the building at Clinkerdaggers leased to, which is Alex -- the
last name slipped my mind.
. . . .
Q And you say he -- is he presently leasing
it from you?
A Yes.
Q And then -- but where do his lease
payments go?
A They're paid directly to Denali State
Bank.
Q And what do those lease payments pay in
addition to the bank loan, anything?
A No.
Q Who pays the lease payments owed to . . .
.
A Well, it's a triple-net lease. He pays
that and the lease payments and the taxes.
The superior court concluded that the parties owed Denali
State Bank $368,000 and awarded the debt to Jim. It also awarded
all of the ACM stock to Jim. Then, for purposes of calculating the
value of Jim's portion of the property distribution, the court
concluded that the combined value of the ACM stock and the Denali
State Bank debt was zero. The court reached this conclusion
"because of the facts that the debt is currently serviced by the
rental, the court has no information regarding the assets of Alaska
Culinary Management, and the court does not believe that it is
likely that Mr. Dodson would pay the entire amount by himself."
Jim challenges the superior court's conclusion. He
correctly points out that "[b]oth parties testified that the ACM
stock was of no value." Therefore, he focuses on the new tenant's
payments and concludes that "[t]he trial court's determination that
'servicing the debt' zeroed-out the entire obligation finds no
support in logic or in the record."
Robin contends that Jim's testimony supports the superior
court's conclusion. She also asserts that "[t]here is no evidence
of record to support [Jim's] contention that he personally will pay
the Denali State Bank debt of $368,000."
We conclude that the superior court erred. There is
insufficient evidence to justify the conclusion that Jim will have
no liability on the Denali State Bank debt. On remand the court
should determine what portion of this debt he will likely have to
pay. In making this determination, the superior court is
authorized to conduct supplementary evidentiary proceedings.
C. The Superior Court Did Not Abuse Its Discretion in
Discounting Jim's 401(k) Plan by a Projected Tax Liability.
The next issue in this case involves Jim's 401(k) plan,
which the parties agree had a market value at the time of trial
equal to $38,500. The superior court awarded the entire plan to
Robin. However, it discounted the value of the plan by $11,935 to
account for tax consequences. The court's notation accompanying
the tax discount reads: "assumption held w/no penalty, taxed at 31%
marginal rate." To effectuate the allocation of the 401(k) plan,
the court signed a Qualified Domestic Relations Order (QDRO). On
appeal, Jim asserts that the court erred in calculating the value
of the property equitably distributed to Robin because it reduced
the value of the plan by a projected, "hypothetical"tax
consequence.
To support his position, Jim cites Oberhansly v.
Oberhansly, 798 P.2d 883 (Alaska 1990), Money v. Money, 852 P.2d
1158 (Alaska 1993), and Barnes v. Barnes, 820 P.2d 294 (Alaska
1991). These cases hold that a superior court is required to
consider tax consequences relating to the distribution of a
particular piece of property when there is proof of an "immediate
and specific tax liability"that will result from the distribution.
Barnes, 820 P.2d at 297; Oberhansly, 798 P.2d at 887; accord Money,
852 P.2d at 1163.
The parties dispute whether there was evidence of an
"immediate and specific tax liability." We need not determine
whether such a tax liability is present in this case. Regardless
of whether Robin's future tax liability was immediate and specific,
we conclude that the superior court did not err.
In a Virginia case, the trial court awarded the husband
sixty-five percent of the value of the jointly owned marital
residence. See Barnes v. Barnes, 428 S.E.2d 294, 300 (Va. App.
1993). The court awarded a disproportionately large share to the
husband because it ordered the husband to assume the entire
liability for capital gains taxes that might arise from a future
sale of the house. See id. at 300 & n.2. The Barnes court
affirmed the unequal division of the value of the marital
residence. See id. at 300. It reasoned that "by noting that the
husband would bear the responsibility of the capital gains tax,
[the trial court] did no more than recognize what the Internal
Revenue Code would require of the husband should he later sell the
property." Id. Therefore, it determined that the trial court did
not err "by considering and noting that the tax law would require
the husband to pay any future capital gains tax that may become
due." Id.
Similarly, we conclude that the superior court in this
case did not abuse its discretion by recognizing that the transfer
of the 401(k) plan to Robin shifted a tax liability to her.
Although the precise magnitude of the tax liability may be
unpredictable, the superior court did not err when it considered
that Robin would have to pay deferred taxes on the 401(k) plan
before she could use the plan's funds. Nor did the superior court
abuse its discretion by assuming a thirty-one percent marginal tax
rate. See Day v. Day, 532 N.E.2d 201, 206 (Ohio App. 1988)
(finding that future taxes on a Keogh plan were "too speculative to
be ascertained at this time"but that the trial court "properly
could apply the present tax rates in considering the tax
consequences"because the rate used by the trial court was not
"unreasonable, even if [it is] the highest applicable rate."). [Fn.
10]
D. The Superior Court Erred in Classifying Credit Card Debt
Incurred by Robin after Separation as Marital Debt.
The next issue involves certain credit card debt incurred
by Robin before the superior court entered temporary orders but
after the parties' separation on September 26, 1993. [Fn. 11] The
superior court stated:
[P]rior to the time that the court entered
temporary orders, substantial credit card debt was incurred by Ms.
Dodson since she had no other way to support herself. The court
concludes that this post-separation credit card [debt] is marital
debt. Until the time of temporary orders, the parties had not
ceased functioning as a separate economic unit.
The court awarded the full amount of the debt to Robin in its
calculation of Robin's share of the marital property.
Jim relies upon Ramsey v. Ramsey, 834 P.2d 807 (Alaska
1992), and asserts that the superior court erred in characterizing
the credit card debt as marital debt. We agree.
In Ramsey, the parties physically separated in the summer
of 1988, but the trial court concluded that due to the extensive
commingling of finances, "the parties continued to function
economically as a single unit until the summer of 1990." Ramsey,
834 P.2d at 808. Thus, the trial court divided the parties'
marital assets as of May 11, 1990. See id.
We held that the trial court's "economic unit finding"
was clearly erroneous. Id. We noted that the parties' permanent
separation in the summer of 1988 "represented 'a final separation
that [was] intended to, and [did] in fact, lead to a divorce.'"
Id. at 809 (alteration in original) (quoting Schanck v. Schanck,
717 P.2d 1, 3 (Alaska 1986)). We also stated that Sandra Ramsey's
"continuing economic dependence alone does not indicate the
continuance of the marital economic unit." Id.
In this case, the superior court did not clearly indicate
why it concluded that the Dodsons continued functioning as an
economic unit until the time of temporary orders. It appears that
the court based its economic unit finding upon its conclusion that
between the parties' separation and the time of temporary orders,
Robin "had no other way to support herself." However, Ramsey
determines that a trial court may not permissibly conclude that
parties continue to function economically as a marital unit after
the date of permanent separation just because one of the parties is
economically dependent upon the other. See Ramsey, 834 P.2d at
809. Therefore, we conclude that the superior court erred in
characterizing the credit card debt as marital. [Fn. 12]
E. The Superior Court Did Not Abuse Its Discretion in
Awarding Reorientation Alimony.
The next issue involves the superior court's award of
reorientation alimony to Robin "in the amount of $1,000 per month
beginning October 1, 1994, and continuing until the earlier of the
sale of the Skyline house or Ms. Dodson becoming employed full time
for the Fairbanks North Star Borough School District (or a
comparable job)." Jim argues that we should vacate the alimony
award because the property distribution adequately meets Robin's
needs. We disagree.
We have recognized that "[r]eorientation alimony is
ordinarily appropriate only to the extent that marital property
cannot be divided in a way that provides for the parties' needs."
Davila v. Davila, 908 P.2d 1025, 1026 (Alaska 1995) (Davila II).
Subject to the preference for property division, we have held that
reorientation alimony is appropriate where one spouse will have to
live on a dramatically reduced income. See Notkin v. Notkin, 921
P.2d 1109, 1112 (Alaska 1996). We have also approved an alimony
award "to aid the plaintiff while she is preparing to enter the job
market and to organize the considerable non-liquid and non-income
producing property being distributed to her from the marital
estate." Money v. Money, 852 P.2d 1158, 1163-64 (Alaska 1993).
In this case, Robin will have to adjust to living on a
teacher's salary after having been supported by Jim, whose average
annual salary was over $190,000. The property division in this
case may not be adequate to support her while she waits for a
teaching job to become available because most of Robin's marital
and separate property appears to be neither liquid nor income-
producing. Indeed, the superior court indicated that the parties
possessed "little liquid property"and that the "only income-
producing asset owned by the parties is the stock in the Denali
Group." Therefore, based upon Notkin and Money, we conclude that
the superior court did not abuse its discretion in deciding to
award Robin alimony.
Jim also asserts that the duration of the award is
impermissibly indefinite. We disagree. We have recognized that
reorientation alimony is essentially transitional in nature and
"may properly be awarded only for relatively short periods of
time." Davila v. Davila, 876 P.2d 1089, 1094 & n.3 (Alaska 1994)
(Davila I). For example, we have noted that reorientation alimony
is appropriate to provide temporary support "pending the sale of
marital property or to enable a spouse 'to get a job appropriate to
the spouse's existing skills.'" Davila II, 908 P.2d at 1027
(quoting Davila I, 876 P.2d at 1094 n.3).
The superior court's alimony award closely tracks this
language in Davila II. The alimony payments cease upon the earlier
of the sale of the marital residence or Robin becoming employed as
a school teacher. In addition, the record indicates that working
as a school teacher would be appropriate to Robin's existing
skills. [Fn. 13] Therefore, the superior court's reasons for
awarding alimony in this case are precisely the reasons that we
endorsed in Davila I and Davila II. Under these circumstances, the
superior court did not abuse its discretion. [Fn. 14]
F. The Superior Court Did Not Abuse Its Discretion in
Dividing the Proceeds from the Sale of the Skyline Drive House.
The parties agreed to sell the marital home on Skyline
Drive. The superior court estimated the fair market value of the
home to be $650,000, but it assumed "a worst case sale of $600,000"
for purposes of equitably dividing the house. From that $600,000,
the court subtracted the mortgage debt, the real estate commission
on the sale, and two repair bills. [Fn. 15] Approximately $384,000
in net proceeds remained from the projected sale. The court
awarded $250,000 of this amount to Robin and $134,000 to Jim. It
ordered any amount in excess of $384,000 to be divided evenly
between the parties. If the net proceeds were less than $384,000,
Robin would receive sixty-five percent and Jim would receive
thirty-five percent.
Since the effective date of the superior court's Order
for Interim Support, Jim has been making the mortgage payments on
the house but Robin has had the exclusive right to live in it. [Fn.
16] Judge Greene's September 11 order continues this arrangement
until the parties sell the house. On appeal, Jim argues that the
superior court erred in dividing the marital property because it
failed to give him credit for the post-separation mortgage payments
on the marital residence. He contends that this credit should have
taken the form of either an award of the fair market rental value
of Robin's exclusive use of the residence or of a reimbursement for
any post-separation mortgage payments he made or will make.
As to those house payments made by Jim after separation
but before entry of the decree of divorce, we recently rejected an
argument similar to the one advanced by Jim. In Harrelson v.
Harrelson, 932 P.2d 247, 253 (Alaska 1997), Larry Harrelson argued
that the trial court erred in denying his motion to modify the
divorce decree to give him credit for post-separation house
payments. He asserted that his former wife's exclusive possession
of the house "mandates that he be given credit." Id. Relying upon
Ramsey v. Ramsey, 834 P.2d 807 (Alaska 1992), we held:
"We have required that trial courts consider
payments made to maintain marital property from post separation
income when dividing marital property. We have not, however, held
that the spouse who makes such payments must necessarily be given
credit for them in the final property division.". . . The trial
court explicitly addressed Larry's request for a credit for post-
separation house payments. Given the parties' highly disparate
incomes, the trial court did not abuse its discretion in denying
the credit.
Id. (citations and footnote omitted) (quoting Ramsey, 834 P.2d at
809). In this case, as in Harrelson, the trial court found that
there was a considerable disparity between the incomes of the
parties, observing that
Mr. Dodson currently has monthly disposable
income . . . of $1,472 minus an unknown amount for Jimmy's college
expense[s]. After the home and the Widgeon sell, Mr. Dodson's
disposable income [will be] in excess of $7,000. Ms. Dodson has an
expected monthly income of $1,622. Her monthly expenses total
$2,926 plus an unknown amount in attorney's bills. Thus, she has
a monthly shortfall, not including attorney's fees, of $1,300.
After the house sells, assuming that her rent and utilities will
cost $1,300 per month, Ms. Dodson will have a monthly shortfall of
in excess of $1,700.
We cannot say that the superior court abused its discretion in
denying Jim a credit for the payments he made to maintain the
marital home prior to entry of the divorce decree. [Fn. 17]
However, this case differs from Ramsey and Harrelson in
one significant respect. Here, the superior court ordered Jim to
continue making the house payments after the divorce was final and
until the house could be sold. Because Jim was required to make
these post-decree house payments out of his share of the property
division, the payments can best be characterized as an award of
spousal support to Robin. In fact, the superior court implicitly
treated them as such, finding them to be "both just and necessary,"
as required by AS 25.24.160(a)(2). The superior court reasoned
that if Ms. Dodson did not continue to live in the home pending
sale, "chances are that it would be more difficult to sell." The
court further found that Ms. Dodson "has no funds from which to
make the payment for the house"while "Mr. Dodson has such funds,
as is illustrated by the calculation [for spousal support]." Given
the superior court's finding that Mr. Dodson's continued payment of
the mortgage pending sale of the home was "just and necessary"to
fairly allocate the economic effect of divorce, it was not an abuse
of discretion to order this temporary payment. [Fn. 18]
G. The Superior Court Erred in Requiring Jim to Purchase
Life Insurance.
The superior court ordered Jim "to maintain sufficient
life insurance to pay the marital debt naming [Robin] as
beneficiary to the extent of any marital debt for which she remains
liable." Jim asserts that "[t]his order is an abuse of the trial
court's discretion, to the extent that it requires Jim to purchase
life insurance to cover all marital debts, including those that
already have sufficient security to protect Robin from any actual
financial exposure in the event of Jim's death."
Jim's arguments focus on the mortgage on the marital
residence, a $180,000 debt owed to Key Bank, and debt owed by
Falcon Properties, a partnership owned in part by the Dodsons. The
mortgage was to be paid out of the proceeds of the sale of the
house, and Jim argues that "there is more than sufficient equity to
protect the Dodsons from any personal liability." Jim also
contends that the Key Bank debt, which was allocated entirely to
him, is "adequately secured by the Widgeon aircraft." As for
Falcon Properties, the superior court did not mention any specific
Falcon Properties debt. However, the court equally divided the
Dodsons' partnership interest so that Robin and Jim each would
retain a twenty-five percent interest. These partnership interests
may have made Robin and Jim each liable for twenty-five percent of
Falcon Properties' debts. Jim contends that the partnership's
debts are adequately secured.
We conclude that the superior court erred in requiring
Jim to purchase insurance for the entire amount of the Key Bank
debt. Trial courts have discretion to require a party to provide
security for a marital debt, whether by insurance or otherwise, to
ensure that the party actually pays the marital debts allocated to
him. See Brett R. Turner, Equitable Distribution of Property
sec. 6.29, at 464-65 (2d ed. 1994).
Because the court cannot affect the rights of creditors,
id. at 464, its allocation of the Key Bank debt to Jim is effective
only if Jim has sufficient assets to hold Robin harmless from any
liability imposed by Key Bank. The Widgeon aircraft, which secures
the Key Bank debt, will not necessarily be adequate to insulate
Robin from all personal liability. Nevertheless, it provides
adequate security for at least a portion of the Key Bank debt. On
remand, the superior court may require Jim to purchase insurance to
the extent that it finds that the Widgeon aircraft would not be
reasonably likely to provide adequate security.
Similarly, we conclude that the superior court erred in
requiring Jim to purchase insurance for the entire amount of the
mortgage debt. Although the proceeds from the sale of the house
might well exceed the amount of the mortgage debt, those proceeds
might be inadequate should, for example, the house have to be sold
after foreclosure. On remand, the superior court may require Jim
to purchase insurance to the extent that it finds that the proceeds
from the sale of the house would not be reasonably likely to
satisfy the mortgage debt.
Finally, as for Falcon Properties, we conclude that the
superior court erred to the extent that it evenly divided the debt,
yet required Jim to purchase insurance to cover the Dodsons' entire
share of the debt. The superior court does not have discretion to
order Jim to purchase insurance to cover portions of the marital
debt allocated to Robin.
H. The Superior Court Must Reexamine the Overall Property
Division.
The superior court divided the marital property unevenly.
It allocated approximately $825,919 in marital property to Robin
and approximately $710,254 in marital property to Jim. Jim asserts
that the overall marital property division is inequitable. In
particular, he contends that the real value of the marital property
awarded to him is $342,254 because the superior court should have
included the full $368,000 value of the ACM debt (discussed in Part
IV.B, supra). He also argues that the superior court should have
accounted for the DTC and Fidelity promissory notes (discussed in
Part IV.A, supra). Certainly, an uneven property division would be
appropriate in this case. [Fn. 19] However, in light of our
conclusions in Parts IV.A-G, supra, the superior court should
reexamine the division of the marital property to ensure that the
revised property division will be equitable.
I. The Superior Court Must Reexamine the Attorney's Fees
Award.
The Order for Interim Support obligated Jim to pay
$25,000 for Robin's attorney's fees and costs. Upon motion after
trial, the court also ordered Jim to pay Robin an additional
$30,000 in attorney's fees. The court awarded these fees after
determining that Robin did not have "economic parity"with Jim and
that Jim had "a substantial income in excess of $160,000 per year."
On appeal, Jim argues that he cannot afford to pay $55,000 for
Robin's attorney's fees and that Robin has sufficient assets to pay
her own legal fees.
We have repeatedly stated that cost and attorney's fees
awards in divorce cases are to be based primarily upon the relative
economic situations and earning capacities of the parties. See
Kelly v. Kelly, 926 P.2d 1168, 1170 n.3 (Alaska 1996). If the
parties have comparable economic situations and earning capacities,
each party should bear his or her own costs. See Doyle v. Doyle,
815 P.2d 366, 373 (Alaska 1991). Otherwise, an award of attorney's
fees is within the discretion of the trial court. See id.
We have reversed attorney's fees awards where the spouse
receiving the award has a higher earning capacity, see, e.g., Lone
Wolf v. Lone Wolf, 741 P.2d 1187, 1189, 1192-93 (Alaska 1987);
Siggelkow v. Siggelkow, 643 P.2d 985, 989 (Alaska 1982), or where
the recipient spouse is in a relatively more favorable economic
situation, even though that spouse's earning capacity is lower.
See Cooke v. Cooke, 625 P.2d 291, 292-93 (Alaska 1981) (per
curiam).
In this case, Jim has a significantly higher earning
capacity than Robin. [Fn. 20] However, our conclusions in Parts
IV.A-H, supra, may significantly impact the parties' financial
situations. Therefore, on remand the superior court should
reexamine the attorney's fees award to determine whether it is
appropriate in light of our rulings in this case. [Fn. 21]
V. CONCLUSION
We REVERSE the superior court's decision to enforce the
promissory notes. We REVERSE and REMAND the valuation of the ACM
debt, the classification of Robin's post-separation credit card
debt as marital, and the superior court's decision to require Jim
to purchase life insurance to cover all of the marital debts for
which Robin remains liable. We also REMAND the overall property
division, the attorney's fees award, and the superior court's
decision to require Jim to sign the stock pledge agreement. We
AFFIRM the superior court's decision to discount the award of the
401(k) plan, to award reorientation alimony, and its division of
the proceeds from the sale of the marital residence.
MATTHEWS, Justice, dissenting in part.
My disagreement with today's opinion concerns only the
trial court's failure to order that Jim be reimbursed for making
the mortgage payments on the marital home after the decree. The
court holds that such payments are best characterized as spousal
support; that the trial court implicitly treated them as such, as
it found them to be "both just and necessary"; and that the trial
court's determination that they were just and necessary was not
error. Slip Op. at 23.
I believe that if the post-decree mortgage payments are
not to be reimbursed they are justifiable, if at all, only as
spousal support. Spousal support is only proper where it is found
to be both "just and necessary." AS 25.24.160(a)(2). The trial
court's "just and necessary"finding does not address the
possibility of reimbursing Jim for the mortgage payments he makes
after the date of the decree. The payments are $3,970 each month.
It would be an easy matter to order reimbursement of these payments
from the house sale proceeds before dividing the proceeds. In my
view, the trial court should specifically address why it is "just
and necessary"that this not be done.
Further, roughly twenty-five percent of each monthly
payment is principal. Failing to reimburse Jim for principal
payments is error as a matter of law, as each principal payment
increases net sale proceeds dollar for dollar. Ordering reimburse-
ment of principal merely restores the status quo as of the time of
the decree.
The court's response to this is that since the payments
are just and necessary spousal support, reimbursement is not
required. Slip Op. 23-24 n.18. This assumes as a given the
question that must be answered, which is whether it is just and
necessary that the payments not be reimbursed. As to principal, at
least, the answer to this question is clearly "no"because there is
no need to give Robin sale proceeds which have been increased by
Jim's principal payments. Failing to reimburse Jim for his
principal payments does just that. [Fn. 1]
FOOTNOTES
Footnote 1:
All child custody issues were resolved in a bifurcated
proceeding.
Footnote 2:
Originally, the Wold Trust named Sig Wold and Robin as
trustees. However, Sig Wold amended the trust in 1977 to
substitute Jim as co-trustee in place of himself.
Footnote 3:
The amounts of these promissory notes reflect appraised values
of the DTC and Fidelity shares. The DTC stock was valued at
$79,300 while the Fidelity shares were appraised at $12,400.
Footnote 4:
Record evidence indicates that the notes were executed in
1981. The amounts of the promissory notes were based upon
appraisals performed by tax attorney Richard Staeheli. Staeheli
did not begin advising the Dodsons until April 1981. Moreover, the
text of the Fidelity appraisal states:
Prior to this detailed analysis, it is most
important to clearly understand economic conditions existing in
1979 . . . . The North Slope Pipe Line construction had recently
been completed . . . . The general economic downturn which the rest
of the nation . . . was just beginning to experience (and which
continues unabated into 1981), had already begun in earnest in
Alaska.
(Emphasis added.)
Footnote 5:
As noted above, the stock certificates actually purport to
transfer the DTC and Fidelity stock in November 1979 to Jim "or"
Robin.
Footnote 6:
Specifically, the record indicates that Robin handled all of
Sig Wold's bills. It also contains several letters from Sig Wold's
lawyer to Robin advising her about how to proceed in organizing Sig
Wold's assets in the Wold Trust.
Footnote 7:
Because we agree with Jim that the superior court's decision
to enforce the promissory notes is inconsistent with the court's
finding that Robin and Jim knowingly transferred the DTC and
Fidelity stock in November 1979 from the Wold Trust as gifts to
themselves as individuals, we do not reach Jim's other arguments
for reversing the superior court's decision to enforce the
promissory notes.
Footnote 8:
This same analysis applies to Jim's fiduciary duty as the
personal representative of Sig Wold's estate. See Gudschinsky v.
Hartill, 815 P.2d 851, 853 n.7 (Alaska 1991) ("[T]he personal
representative is liable to interested persons for damage or loss
resulting from the breach of fiduciary duty to the same extent as
a trustee of an express trust.").
Footnote 9:
She testified: "I didn't think maybe eight percent would be
bad like everybody else was doing, but I absolutely did not want to
do 51 percent."
Footnote 10:
We note, however, that a superior court might abuse its
discretion by considering tax consequences for divorcing spouses in
an inconsistent manner. For example, the court might abuse its
discretion by awarding a 401(k) plan to one spouse and an
Individual Retirement Account to the other spouse if it considers
the tax consequences associated with the 401(k) plan only. In this
case, the superior court did not consider tax consequences in an
inconsistent manner.
Footnote 11:
The amount of the debt was approximately $10,800.
Approximately $6,800 was attributable to an MBNA Mastercard. The
remaining $4,000 was attributable to an Alaska Bankcard Center
credit card.
Footnote 12:
Although we conclude that the superior court erred in
characterizing the credit card debt as marital based upon the
economic dependence of Robin, the court may address Robin's
economic dependence by adjusting the overall property division.
See AS 25.24.160(a)(4).
Footnote 13:
Robin worked as a teacher from 1970 through 1974. After 1974
she did not work for pay, although she managed at various times a
toy store and a restaurant in which the Dodsons had invested.
Between July 1993 and the time of trial, Robin renewed her
teacher's certificate.
Footnote 14:
Jim argues that the alimony award provides Robin "no incentive
to facilitate the sale of the [marital residence]." He suggests
that Robin might interfere with the sale of the house so that she
can continue to receive alimony and rent-free accommodations. In
context, however, it seems clear that the superior court envisioned
an alimony award of relatively brief duration. Furthermore, the
superior court's decision implicitly requires Robin to act in good
faith.
Footnote 15:
The mortgage amounted to $191,712, and the real estate
commission was $18,000. The two repair bills consisted of a $4,920
bill owed to a repairperson and $1,381 paid by Robin to repair a
well pump.
Footnote 16:
The record is not clear whether Jim made the mortgage payments
between the time of separation and the date of the Order for
Interim Support.
Footnote 17:
Notwithstanding the discretion afforded trial courts by
Harrelson and Ramsey, Jim urges us to conclude as a matter of law
that the superior court must give him credit for his post-
separation payments and for Robin's exclusive use of the residence.
He asserts that Wood v. Collins, 812 P.2d 951 (Alaska 1991),
entitles him to such compensation. Specifically, he notes that
this court has stated: "We held in Wood that where the use of
marital property after separation effectively excludes the other
spouse, the rules of cotenancy require payment to the marital
estate of the fair market rental value for use of the property."
Rodriguez v. Rodriguez, 908 P.2d 1007, 1012 (Alaska 1995).
This portion of Rodriguez mischaracterizes Wood. Wood
did not involve marital property because the parties were not
married. Instead, the parties lived together in a "twelve-year
intimate, yet non-matrimonial, relationship." Wood, 812 P.2d at
952-53. Following the parties' "separation,"Wood moved into a
condominium that the parties had purchased while they were living
together. See id. We concluded that the rules of cotenancy
applied and noted that a cotenant is liable for the reasonable
value of her use of property where that cotenant's use of the
property "in fact excludes the other cotenant's use and enjoyment
of it." Id. Wood does not require a trial court to apply these
rules of cotenancy to married parties seeking a divorce.
Footnote 18:
The dissent suggests that even if Jim's house payments are
appropriately viewed as spousal support, Jim should be reimbursed
for at least that portion of the house payment that is applied to
principal. However, because Jim's payments have been characterized
as spousal support that is "just and necessary"to fairly allocate
the economic impact of the divorce, reimbursement of those payments
is not required under our case law. If the superior court had
structured its award of spousal support in a more traditional
manner, requiring Robin to make the monthly house payment but
providing for a commensurate increase in Jim's spousal support
obligation, Jim would not, as a matter of law, have been entitled
to a credit for payments to principal. When spousal support is
"just and necessary,"there is no requirement that the recipient
reimburse the payor to "restore[] the status quo as of the time of
the decree." Diss. at 30. In lieu of reimbursement for his
spousal support payments, Jim will be entitled to a corresponding
tax deduction.
Footnote 19:
We have noted that "[w]hen a couple has sufficient assets, the
spouse with the smaller earning capacity can and should receive a
larger share in the property distribution." Dixon v. Dixon, 747
P.2d 1169, 1173 (Alaska 1987). In this case, Jim's earning
capacity appears to be substantially greater than Robin's.
Footnote 20:
According to the superior court, Jim earns approximately
$160,000 per year. At the time of trial, Robin was unemployed and
hoped to find a teaching position, which might pay approximately
$40,000 yearly.
Footnote 21:
The final issue relates to a stock pledge agreement that the
superior court required Jim to sign. The agreement requires Jim to
pledge his interest in certain stock referred to as the "Denali
Group Stock""as security for the payment, discharge, and
indemnification"of the DTC and Fidelity promissory notes, the ACM
debt, a $22,000 debt owed to Hub Foods, and a $7,000 loan from
Denali State Bank. On appeal, Jim argues that the debts allocated
to him by the superior court and secured by the pledge agreement
are so large in relation to his income that the pledge agreement
virtually guaranteed that he would lose his interest in the Denali
Group Stock. Thus, because his interest in that stock was one of
the most valuable assets he received in the divorce proceedings, he
asserts that the superior court erred in ordering him to sign the
pledge agreement because it "effectively undermined [the superior
court's] entire property distribution."
This argument appears to hinge upon a conclusion that the
overall property division unreasonably burdens Jim (see Part IV.H,
supra). Therefore, when the superior court reexamines the overall
property division pursuant to Part IV.H, supra, it will avoid the
harm alleged by Jim if it successfully divides the parties' debts
and assets in an equitable fashion. On remand, the superior court
should determine whether the stock pledge agreement unreasonably
burdens Jim in light of the revised property division.
FOOTNOTES (Dissent)
Footnote 1:
In the decree, the court assumed "a worst case sale"which would result in net
proceeds of $384,000. These would be divided by awarding $250,000 to Robin and
$134,000 to Jim. Any amount in excess of $384,000 would be divided evenly between the
parties. If Jim pays the mortgage down by $20,000 and thus increases the net proceeds by
$20,000, Robin would be awarded $260,000 and Jim would be awarded $144,000. Robin's
net recovery would therefore be increased by $10,000 solely due to Jim's principal payments.
This result is $10,000 more than is just from Robin's standpoint, and $10,000 less than is
just from Jim's standpoint, given that the decree is fair and just. It is not necessary because
reimbursement from the sale proceeds could be ordered.
