| Alaska Supreme Court Opinions made Available byTouch N' Go Systems and Bright Solutions |
|
|
|
This site is possible because of the following site sponsors. Please support them with your business.
|
| Alaska Supreme Court Opinions made Available byTouch N' Go Systems and Bright Solutions |
|
|
|
|
|
This site is possible because of the following site sponsors. Please support them with your business.
|
You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Heustess v. Kelley-Heustess (05/25/2007) sp-6126
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,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
| ALLEN W. HEUSTESS, | ) |
| ) Supreme Court No. S- 12126 | |
| Appellant, | ) |
| ) Superior Court No. | |
| v. | ) 3AN-04-12299 CI |
| ) | |
| BONNIE J. KELLEY-HEUSTESS, | ) O P I N I O N |
| ) | |
| Appellee. | ) No. 6126 May 25, 2007 |
| ) | |
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Craig F. Stowers, Judge.
Appearances: Phyllis A. Shepherd, Law Office
of Dan Allan and Associates, Anchorage, for
Appellant. D. Scott Dattan, Law Office of D.
Scott Dattan, Anchorage, for Appellee.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, Bryner, and Carpeneti, Justices.
MATTHEWS, Justice.
This divorce case presents issues relating to the
division of property and child support. We vacate the property
division, primarily because it was premised on decisions that
transmuted only a portion of the marital house into marital
property and valued the house at the time of separation rather
than the time of trial. We also vacate the award of child
support for the period before the parties married because
appellant did not have a fair opportunity to present defenses to
this claim.
I. FACTS AND PROCEEDINGS
In 1991 Bonnie Kelley and Allen Heustess had a child.
At the time Bonnie and Allen did not live together, and Allen did
not financially support their child. In 1993 Bonnie purchased a
house in Chugiak and lived there with their child and her two
children by a prior relationship. Allen moved in with them in
1997 and began turning over his paycheck to Bonnie for deposit
into her checking account for general use.1 Allen and Bonnie
married on June 26, 1999.
In 2002 Bonnie was seriously injured in an
automobile/motorcycle collision. Bonnie settled with the
automobile drivers insurer for gross settlement proceeds of
$10,000 to replace her destroyed motorcycle and $118,532 for her
personal injuries.
On October 23, 2002, the parties refinanced the Chugiak
house. At that time the house was valued at $200,000 and was
subject to a mortgage of $113,273. The principal amount of the
new loan was $160,000. The loan proceeds were mainly used to pay
off the old loan on the house and loans on various items of
marital property. In particular, $11,000 was used to pay a loan
on a motorcycle owned by the parties and primarily used by Allen,
$20,412 was used to pay off a loan on a Chevy Blazer owned by the
parties and used by Bonnie, $9,000 was used to pay off land in
Palmer that was marital property, and the remaining proceeds were
used to pay off some debts. At the time of the refinance Allens
name was added to the title to the house and he became a co-
borrower on the new note. Shortly after the refinancing the
parties separated. The trial court set the date of separation as
October 31, 2002. Since the separation Bonnie has made all of
the payments on the new note.
Bonnie initially filed for divorce in 2003 but
dismissed the case. She filed again on October 27, 2004. Bonnie
was granted primary interim physical custody of their child. The
superior court ordered Allen to pay interim child support
prospectively at the rate of $512 a month and calculated Allens
arrearages since the parties separation at $12,414.
Allen is a truck driver; he was forty-four years of age
at the time of trial. He reported gross annual wages of $46,295
for 2004. At the time of trial Bonnie was forty-nine years of
age and was working as a waitress. Her gross wages as reported
on her 2004 return were $32,900.
The case was tried on July 22 and 25, 2005. At the
conclusion of the trial the court announced its decision and
subsequently entered written findings of fact and conclusions of
law.
The court found that the home was only partially
transmuted into marital property. Specifically, the court
concluded that the home was two-thirds the separate property of
Bonnie and one-third marital property. The court also decided to
value the Chugiak home as of the time of the parties separation,
rather than the time of trial.
The court determined that the marital estate had a net
value of $98,683 and distributed it as follows:
Allen
Bonnie
undistributed marital equity at $16,528 $8,264 $8,264
the time of separation in Chugiak
house
value of Palmer land $22,500 $22,500
net value of vehicles awarded to $41,855 $41,855
Allen
net value of vehicles awarded to $15,300 $15,30
Bonnie 0
hot tub $2,500 $2,500
Total $98,683 $75,119 $23,56
4
The court decided that a sixty/forty division in favor of Bonnie
was justified and that Bonnie should receive assets of $59,210
from the marital estate. Since she actually received $23,564,
the court ordered Allen to pay her the difference, $35,646.
The court awarded custody of their child to Bonnie and
reaffirmed both the prior award of arrearages accrued since the
parties separation and Allens previously set obligation to pay
monthly child support. During her rebuttal testimony Bonnie was
asked whether Allen had paid child support for the child from
1991 to 1997. After she answered in the negative she was asked
whether that should be taken into account here as well and she
answered in the affirmative. At final argument, Bonnies counsel
then claimed premarital child support for their child. This
subject was not mentioned in her trial brief or in any pre-trial
pleadings and was raised for the first time in her rebuttal
testimony. The court concluded that such an award should be made
and ordered that Child Support Services Division be required to
calculate arrearages owed between the childs date of birth in
December of 1991 and the parties marriage in June of 1999.
The court also awarded Bonnie $10,000 in attorneys
fees, finding that some of the work that her counsel was required
to do was necessitated by Allens vexatious and unreasonable
conduct. The court also noted that it had considered the parties
relative economic circumstances, and the fact that plaintiff bore
most of the burden of supporting [the child] while defendant
failed to pay interim child support contrary to the courts order.
II. DISCUSSION
A. Standard of Review
Equitable allocation of property is reviewable under an
abuse of discretion standard and will not be reversed unless it
is clearly unjust.2 This court reviews legal determinations
relevant to property division and child support based on an
independent judgment standard.3 Factual determinations made by
the superior court are reviewed deferentially under the clearly
erroneous standard.4
B. Partial Transmutation of the House Was Improper.
The trial court found that the Chugiak house,
originally owned by Bonnie, was transmuted into marital property
between the parties marriage in June of 1999 and the parties
separation at the end of October of 2002. The court stated in
its oral findings:
I agree with Ms. Shepherd [Allens attorney]
that in June of 1999, because of the
contribution of money and effort . . . by Mr.
Heustess to the home and the fact that he
lived there with Ms. Kelley-Heustess and used
it as a marital residence, and from the
apparent intent of the parties to treat it as
their marital residence, that from June of
1999 until October of 2002 the home was
marital property.
But the court went on to conclude that only one-third of the
value of the house was transmuted. The court reached this
conclusion for two reasons. First, it found only one-third of
the houses value was transmuted because Bonnie had owned the
house for nine years as of the time of separation and Allen only
occupied the house as her husband for three of those years.5
Second, the court found that Allen had deceived Bonnie with
respect to the October 2002 refinancing because he did not tell
her that he was about to separate. The court found that the
refinancing proceeds were used in large part for Allens benefit.
Neither of these reasons justifies a partial
transmutation of the house. We have repeatedly indicated that
transmutation of real estate converts the entire property from
separate to marital in character. In Miller v. Miller,6
Lundquist v. Lundquist,7 and Compton v. Compton8 we rejected
theories of partial transmutation apportioned according to ratios
like those used by the superior court in this case.
The rationale based on Allens deception is also not
persuasive. If transmutation turned on the fact that Allen
obtained title as a result of the refinancing there could be
merit to this theory. But, as the court made clear, it was
Allens contributions and effort in maintaining and improving the
house and the parties intent before the refinancing that brought
about the transmutation. Moreover, with the exception of $1,400
that the court found went to pay a pre-existing debt of Allens,
all of the proceeds of the refinancing were used for marital
purposes mainly to pay debts on marital property. Thus, apart
from the $1,400 debt, the refinancing did not convert the house
equity into separate property. The new loan mainly replaced high-
interest consumer debt on marital property with low-interest real
estate debt.9 Allens deception was not shown to be financially
harmful and cannot under any recognized legal theory justify a
defeasance of two-thirds of his share of the Chugiak house.
C. It Was Error To Value the House as of the Parties
Separation.
When the parties separated the value of the house was
$200,000. By the time of trial the house had appreciated. An
appraisal indicated that it was worth $230,000. By valuing the
house as of 2002 the court deprived Allen of any interest in this
appreciation.
The trial court recognized the general rule that
property should ordinarily be valued at the time of trial. But
the court decided that the circumstances of this case justified a
deviation from this rule for three reasons. First, the court
noted that the parties ceased functioning as an economic unit at
the time of separation. Second, the court noted that there was
an appraisal as of the time of separation. And third, the court
relied on Allens deceptive conduct in failing to reveal to Bonnie
that he intended to leave her at the time the house was
refinanced.
We adopted the rule that valuation should be conducted
as close as practicable to the date of trial in Ogard v. Ogard.10
In so doing we rejected a valuation date linked to the time of
separation, quoting the following language from a leading
commentator:
A valuation date should be chosen which
will provide the most current and accurate
information possible and which avoids
inequitable results. It is distinct from the
date marking the termination point for
inclusion of property within equitable
distribution. The latter date marks the end
of the marital team effort. Since this date
may be well in advance of the dissolution
proceedings, a valuation date linked to it
may result in stale financial information.[11]
We also observed that
there may be special situations in which the
date of separation is more appropriate.
Where, for example, one of the spouses
dissipates assets or deliberately allows
their value to decline following separation,
or the value of marital property increases
due to the efforts of one of the spouses, use
of the separation date may be warranted. In
that event, there should be specific findings
as to why the date of separation is the more
appropriate choice for valuation.[12]
In the present case the three reasons for choosing the
earlier valuation date are unpersuasive. The fact that the
parties ceased operating as an economic unit merely marks the
date of separation and is not a reason for valuing marital
property at the date of separation. The fact that an appraisal
of the house was made at the date of separation is irrelevant
both because a 2005 appraisal was also made and because the 2002
appraisal is just the sort of stale financial information that
the time of trial rule is meant to eschew.13 As far as the
deceptive conduct of Allen is concerned, as already indicated,
this conduct does not justify defeasing a part of Allens interest
in the house, including his interest in its appreciation.
D. Remedy on Remand Regarding the House
For the reasons stated in the preceding parts, it was
error to decide that the house was only partly transmuted and to
value it as of the time of separation rather than at the time of
trial. These errors require that the property division be
vacated so that they may be corrected. In the process the court
should consider whether Bonnie should be given credit for post-
separation mortgage payments she made from separate property and
whether any such credits should be offset by the value of the
benefit of her post-separation occupancy of the house.14
E. The 60/40 Division
Alaska Statute 25.24.160(a)(4) requires trial courts to
consider specific factors in dividing property. When dividing a
marital estate, the trial court generally should begin with the
presumption that an equal division of marital property is most
equitable.15
In the present case, the trial court decided to deviate
from the 50/50 norm. The trial court gave four reasons for this
deviation. First, the court cited the differential in the
parties earning power. Allen had earned $46,295 in 2004 whereas
Bonnie had earned $32,900. Second, the court cited the age
differential between the parties and noted that Bonnie had
lingering physical disabilities from the accident. Third, the
court cited Allens deception in failing to tell Bonnie that he
was about to leave when the house was refinanced. Fourth, the
court found that Allens failure to pay interim child support as
ordered by the court added to Bonnies difficult financial
circumstances.
Allen challenges the 60/40 division on the ground that
Bonnie has better occupational prospects than the court found,
that the court erred in relying on Allens deceptive conduct at
the time of the refinancing of the house, and that the court
failed to take into account rental income that Bonnie was earning
at the time of trial from renting an apartment encompassed within
the Chugiak house.
Allens first point is without merit. The record shows
that Allen is healthier and has greater earning capacity than
Bonnie. Bonnies injuries will probably require more medical
care, and they limit her future employment options.16
Allens second point is correct. It was error to find
that the refinancing of the house was a source of financial
detriment for the reasons already explained.
Allens third point is also correct. At the time of
trial, Bonnie was earning some $650 per month in rental revenue
from renting an apartment contained in the house. The court did
not consider this source of income in deciding on the 60/40
property division.
The errors with respect to the effect of the
refinancing and failing to consider the rental income do not
necessarily mean that the 60/40 property division is not
justified. On remand, the court should reconsider whether and to
what extent an unequal division of the parties assets should be
made in view of the rental income available to Bonnie and
without weighting the scale against Allen because of his
deception at the time of the refinancing transaction.
F. Other Property Issues
1. Furnishings and household property
Allen argues that the trial court erred in failing to
credit Bonnie with $50,000 in furnishings and personal property
left in the home at the time of separation. As his only evidence
for this value, Allen cites Bonnies refinancing application, in
which Bonnie stated that she had $50,000 in furniture and
personal property.
Refusing to rely upon this value was not clear error.
Bonnies uncontroverted testimony established that she
significantly exaggerated that figure on her refinancing
statement to obtain the loan. Belying his $50,000 estimate,
Allens financial statement claimed that the total value of
personal marital property was well below $50,000, and the trial
court found that even these values were not credible because
Allen used purchase price rather than fair market values.
Further, the court concluded that Allen took about as much
household property as he left and that the split of the items in
question was a wash. Allen has not shown that this determination
is clearly erroneous.
2. The negative value for the Blazer
More persuasive is Allens argument regarding Bonnies
Chevy Blazer. The trial courts findings concerning Bonnies
vehicles were that [p]laintiff owns a 2002 Harley at $23,000 and
a 2001 Ford Sports Track which has negative value because of the
Blazer at ($7,700) for a total in her column of $15,300. Allen
argues that because Bonnie paid the Blazer debt with the
refinancing proceeds the superior court clearly erred by treating
the Blazer as a liability.
The facts show that the loan on the Chevy Blazer, a
marital vehicle, was completely paid off by application of
$20,412 from the refinancing proceeds. Bonnie used the Blazer
for some time after the separation and then traded it in for a
Ford Sports Track. She received trade-in credit for the Blazer
of some $13,000. The court should have traced this marital
contribution, less pro-rated depreciation, to the Sports Track
and added it to Bonnies vehicle account.17 It follows that
finding the Chevy Blazer had a negative value, when in fact
nothing was owed on it at the time that it was traded in, was
error, as was deducting $7,700 on account of the Blazer from
Bonnies vehicle account.
3. Account balances as of September 2002
Allen claims that the court erred in failing to credit
Bonnie with the $10,946 in the checking and savings accounts as
of September 30, 2002, the day that Allen stopped depositing his
paychecks into the parties mutual account. He notes that the
court found that these amounts were later reasonably used for
living expenses by Bonnie and her children. Allen argues that
unless he receives some credit for his share of these funds,
Bonnie is receiving a double recovery in light of the child
support arrearages with which he has been charged for the same
period. In our view this argument lacks merit because the child
support Allen should have paid was not intended for Bonnies
support nor was it meant to supply all of the support reasonably
needed by their child. Thus, Bonnies use of the funds in the
account for support and her anticipated receipt of the child
support arrearages do not amount to a double recovery.
4. The settlement funds
Allen also argues that the court erred in failing to
characterize a part of the personal injury settlement received by
Bonnie and the property damage settlement of $10,000 for the
destroyed motorcycle as marital. This argument is irrelevant in
view of the courts finding that the marital funds Bonnie retained
at the time of separation were later reasonably expended by
Bonnie to support herself and her children. As of the time of
the trial the funds did not exist. Since they had not been
squandered by Bonnie there was no occasion to attempt to
recapture them.18
G. Granting Premarital Child Support Violated Allens Right
to Due Process.
Pursuant to a request that Bonnie made for the first
time in her rebuttal testimony, the superior court ordered Allen
to pay Bonnie child support for the period before the Heustesses
marriage, during which Allen failed to support their child.
Allen asserts that by adjudicating a claim Bonnie did not raise
until late in the trial, the superior court denied Allen due
process.
Due process requires that a party be provided with
notice and an opportunity for a hearing on issues of consequence.19
The notice must be sufficiently early and specific to allow the
party to prepare and present a defense.20 Here, Allen first
received notice of Bonnies claim for pre-marriage child support
at a time when it was not possible to effectively contest this
claim.21 Since Allen lacked notice and an opportunity to be heard
on this issue, the superior courts order for pre-marriage child
support must be vacated.
H. Attorneys Fees
The purpose of awarding attorneys fees in divorce cases
is to allow the parties to litigate on an equal plane, and awards
are accordingly based on the parties relative economic
circumstances.22 The superior court may also increase an award of
fees where a party has engaged in bad faith or vexatious
litigation.23 When making an increased fee award, the court must
first determine what fee award would be appropriate under the
general rule, and only then increase the award to account for a
partys misconduct. Failure to follow this two-step process
constitutes an abuse of discretion.24 In addition, [w]hen the
court finds that one spouses misconduct has unnecessarily
increased the other spouses costs, the court must identify the
nature and amount of these increased costs.25
In the present case the court awarded Bonnie $10,000 in
attorneys fees based both on the parties relative economic
circumstances and Allens vexatious and unreasonable conduct.26
Because the property division must be vacated, the
economic conditions on which the court based its award of
attorneys fees may change on remand. It is therefore appropriate
to vacate the attorneys fee award. Further, it is impossible to
tell to what extent the award was made because of Allens
vexatious conduct. Since the portion of the award based on such
conduct must be vacated for the reasons explained in the
following paragraph, and we do not know what this portion is,
this is an additional reason for vacating the entire award. The
trial court should entertain fresh fee requests based on the
parties economic circumstances following the courts decision on
remand.
Insofar as the attorneys fee award was based on
vexatious litigation conduct on the part of Allen, an increased
award of fees may be justified on remand. But the present award
may not be affirmed on that basis because the court did not
follow the two-step process referred to above and did not
identify the increased costs that were the product of Allens
vexatious conduct.
III. CONCLUSION
The order dividing the parties property must be
vacated. The trial court on remand should divide the parties
property in accordance with the views expressed in this opinion.
In making this division, the court should bear in mind that [t]he
preferred method for dividing a marital estate is to transfer
title where this can be reasonably accomplished, but it is not
error per se to make a cash award requiring one party to sell
illiquid assets (or make installment payments) where such an
award causes no hardship.27 On remand therefore the court should
also address whether an equitable division can reasonably be
accomplished solely by transferring property and whether Allen
can, without hardship, make a cash payment as part of the
property division.28
The courts order awarding child support arrearages
between the childs birth and the parties marriage must also be
vacated. On remand the court should give Allen an opportunity to
present such defenses as he may have with respect to the claim of
child support for this period.
The award of attorneys fees is also vacated. The
questions of whether to award attorneys fees and if so how much
should be addressed at the conclusion of the proceedings on
remand.
The court is authorized to conduct supplemental
evidentiary proceedings on remand if the court in its discretion
finds such proceedings to be desirable.
VACATED and REMANDED for further proceedings.
_______________________________
1 This practice ended a month before the parties
separated. Bonnie testified that Allen started holding his
checks in September of 2002.
2 Green v. Green, 29 P.3d 854, 857 (Alaska 2001)
(quotations omitted).
3 Caldwell v. State, Dept of Revenue, Child Support
Enforcement Div., 105 P.3d 570, 573 (Alaska 2005); Schmitz v.
Schmitz, 88 P.3d 1116, 1122 (Alaska 2004).
4 Caldwell, 105 P.3d at 573; Schmitz, 88 P.3d at 1122.
5 The court ignored the two-year period of premarital
cohabitation during which Allen lived in the house. Our case law
permits such periods to be considered in deciding transmutation
questions. See Abood v. Abood, 119 P.3d 980, 988 (Alaska 2005).
6 105 P.3d 1136, 1141 (Alaska 2005).
7 923 P.2d 42, 48 (Alaska 1996).
8 902 P.2d 805, 812 (Alaska 1995).
9 Bonnie testified that her house payments increased from
$1,100 each month to $1,400 per month following the refinance.
But the monthly payments eliminated because of the other loans
paid off by the refinance proceeds must be considered when
evaluating the impact of the refinance, and there is no
indication that this was done.
10 808 P.2d 815, 819 (Alaska 1991).
11 Id. at 819 (quoting L. Golden, Equitable Distribution
of Property 7.01, at 207 (1983)) (citations and footnotes
omitted in original).
12 Id. at 820 (quoting Golden, supra note 11, 7.02, at
208).
13 Id. at 819 (quoting Golden, supra note 11, 7.01, at
207).
14 The need to consider whether credits and offsets
should be given for post-separation mortgage payments is
reflected in our case law. See Korn v. Korn, 46 P.3d 1021, 1023-
24 (Alaska 2002) (noting that this court has approved both
crediting a spouse for making payments of post-separation income
to preserve marital property, and offsetting this credit, since
any benefit [the spouse] may have imparted to the marital estate
was offset by the benefit he received from the estate by living
rent free ) (quoting Rodriguez v. Rodriguez, 908 P.2d 1007, 1013
(Alaska 1995)). See also Carr v. Carr, 152 P.3d 450, 454 (Alaska
2007) (The superior court may impute the rental value of one
partys exclusive use of the marital residence after separation to
that party when it equitably divides the marital estate between
parties.); Ramsey v. Ramsey, 834 P.2d 807, 809 (Alaska 1992) (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.).
15 Fortson v. Fortson, 131 P.3d 451, 456 (Alaska 2006)
(quotation omitted).
16 Bonnie testified that her injuries will prevent
continued employment as a waitress.
17 See Hunt v. Hunt, 698 P.2d 1168, 1171 (Alaska 1985)
(Property acquired after the permanent separation but prior to
final divorce should be included in the property settlement if it
was acquired with property which would otherwise have been
subject to division.).
18 See Jones v. Jones, 942 P.2d 1133, 1139 (Alaska 1997)
(When . . . [an] expended marital asset was wasted, or converted
to a nonmarital form, the trial court may recapture the asset by
giving it an earlier valuation date and crediting all or part of
it to the account of the party who controlled the asset.)
(quotations omitted).
19 Carvalho v. Carvalho, 838 P.2d 259, 262, 263 (Alaska
1992) (holding that the trial court violated a parents due
process rights by rejecting his request to testify in a child
support hearing); cf. Walker v. Walker, 960 P.2d 620, 621-22
(Alaska 1998) ([T]he notice and hearing afforded a litigant in
child custody proceedings involves due process considerations.)
(quotations omitted).
20 See Crutchfield v. State, 627 P.2d 196, 199 (Alaska
1980) (holding that procedural due process requires the
government to give notice to individuals whose property interests
are adversely affected by government action); Aguchak v.
Montgomery Ward Co., 520 P.2d 1352, 1356 (Alaska 1974) (holding
that due process requires notice of a hearing sufficient to
convey information required to present objections).
21 We note that in her late request for premarital child
support Bonnie did not ask for support between the beginning of
cohabitation in 1997 and the parties marriage. The trial court,
however, directed that arrearages be awarded to the time of the
marriage.
22 Lone Wolf v. Lone Wolf, 741 P.2d 1187, 1192 (Alaska
1987).
23 Kowalski v. Kowalski, 806 P.2d 1368, 1373 (Alaska
1991).
24 Id.
25 Id.
26 The court also noted that Bonnie bore most of the
burden of supporting [the child] while [Allen] failed to pay
interim child support contrary to the courts order. Allens
failure to pay interim child support is relevant to Bonnies
economic circumstances.
27 Cox v. Cox, 931 P.2d 1041, 1045 (Alaska 1997).
28 Id.
 |
| Case Law Statutes, Regs & Rules Constitutions Miscellaneous |
|
