Lexington Family Law

After reflecting on the recent decision in J.N.R. v. O’Reilly that I posted on here and here, I recognized a troubling conundrum in the law. I will expound with a hypothetical situation beginning where the JNR case leaves off. Absolutely no offense is intended towards the real parties in the real JNR case; this is purely hypothetical:

Where the real case leaves off is with biological father (”BioDad”) unable to get any relief because the trial court has no jurisdiction to proceed. In the hypothetical, the legal father (”LawDad”) has to work two jobs to pay the legal fees that accrued defending against BioDad’s petition and the ensuing appeals. Because of the stress of this, he develops a drinking problem and becomes estranged from his wife. A divorce occurs and biologcial mother (”BioMom”) gets sole custody. BioMom becomes depressed and, as a result of deep depression, neglects the child (”Child”). Child is removed by the Cabinet for Health and Family Services after being found wandering along a busy highway after sneaking out of the house while mom was in a depressed stupor. The Cabinet dutifully seeks out a relative to care for Child, but the only known relative is LawDad whom they find passed out on his front porch after a night of drunken debauchery. Because of LawDad’s double D dysfunction, he cannot have the child placed with him or gain custody.

Now, the stage is set and Child goes into foster care. Because BioDad was denied the opportunity to assert paternity, he has not been judicially found to be a parent. KRS 610.020 requires the Petition to name “parents”, but BioMom and LawDad are still sore about the whole lawsuit thing and never bring BioDad up. Furthermore, KRS 610.040 does not require that he be notified. So, Child is in foster care for the next 15 months because BioMom and LawDad are more focused on sniping at each other than regaining custody of Child.

Next, the Cabinet files a petition for the involuntary termination of parental rights of BioMom and LawDad on behalf of Child. Still, the Cabinet has no idea about BioDad because they never read this blawg and are unfamiliar with this case. Interestingly, KRS 625.060 requires that “biological parents” are made parties to the action, but only “if known”. Here is where the hypothetical has different possible outcomes.

Outcome 1: Parental rights are terminated to BioMom and LawDad and Child spends the rest of his childhood going from foster home to foster home, or perhaps is adopted and lives happily ever after, but always dreams of being with his “real” parents. BioDad sees him years later with the adoptive family and finally learns of all those events, but he can do nothing. In the worst case scenario, adoptive parents are actually sadists bent on mentally torturing Child. Best case scenario is that they are great parents and is relatively unharmed by all these events.

Outcome 2: BioDad finds out and moves to intervene in the termination of parental rights. Now, we are back at the starting point and the court has to determine whether he has standing to intervene under this separate set of statutes. Arguably he would have standing because the statute specifically mentions “biological parents”. This, then, is a huge inconsistency in the paternity laws of kentucky. Regardless, he still has a huge hurdle to overcome because the termination of parental rights statute, KRS 625.090 has no safe harbour provision that would protect BioDad due to his lack of knowledge of the events. In other words, neglect or abuse never has to of been alleged against BioDad. The statute is a list of events, sometimes totally out of the control of the parent, and if one and only one of these events are checked off, then termination can occur. BioDad could be the best dad in the world, but if Child was found to be neglected by clear and convincing evidence, has been in foster care 15 out of the last 22 months (even if it is the Cabinet’s fault for not having enough workers to move the case along), and the judge believes it is in the child’s best interest (purely subjective), then his parental rights could be terminated without him ever getting to exercise them.

Give the above scenario, as unlikely as it is, I have had to reflect on the JNR decision because of the far reaching consequences. I hope that the General Assembly will take up this issue to rectify this legal inconsistency.

People typically think of income in terms of how the IRS defines income, even when it comes to divorce. This makes sense because we deal with income and IRS on an annual basis (except certain notable celebrities) while we deal with divorce, if at all, only once (again with certain celebrities excepted). However, they are not defined exactly the same.

In the recently released Kentucky Supreme Court case, Gripshover v. Gripshover, (2005-SC-000729-DG & 2006-SC-000258-DG)(Feb. 21, 2008)(to be published), , one particular difference is illuminated. The IRS provides for certain business expenses to be fully depreciated (expensed) in the year of the expense rather than depreciated over time. 26 USC Sec. 179. The Gripshover Court held that KRS 403.212 provides only for straight line depreciation. This means that the IRS reported income will often be lower than the income used for determining child support in divorce cases where a business owner is one of the spouses.

It also means that the days of relying on a business owner’s 1040 with the various self-employment schedules to show income is gone. CPA’s will be needed who understand the difference definition of income in divorce in order to determine child support.

The Kentucky Supreme Court just issued its decision in Gripshover v. Gripshover, (2005-SC-000729-DG & 2006-SC-000258-DG)(Feb. 21, 2008)(to be published). There is a pretty extensive factual background in the published opinion, but unless you either enjoyed reading cases in law school or aspire to enjoy reading cases in law school, I will focus on some key rulings in the case.

Unfortunately, there are spouses who, when they begin contemplating a divorce, engage in fraudulent maneuvering to hide away assets. This can take the form of transferring property belonging to the marital estate so as to exclude it as marital property in the impending divorce. When this dissipation of marital assets occurs, the trial court can recharacterize assets or pull them back into the marital estate in determing a “just” distribution of property.

In Gripshover, the wife alleged that real property transferred into a limited partnership and other property transferred into a trust defrauded her of her marital interest. The Supreme Court disagreed. For a finding of fraud or dissipation, there has to be evidence that the transfers were made in contemplation of divorce and with the intent to impair the other spouses interest. In this case, no such evidence was produced.

While I do not advocate suspicion within a marriage, it is important for both spouses to be understand the ramifications of significant transfers of property. So, I do advocate both spouses being engaged in the finances of the family.

The process of dividing property in a divorces consists of three broad steps as outlined in Jones v. Jones, 2006-CA-001870 (Feb. 1, 2008)(to be published): “(1) classify the property as marital or nonmarital, (2) assign to each party nonmarital property owned by that party, and (3) divide in just proportions marital property.” In the Jones case, the ex-husband, Ricky, appealed the trial court’s classification of Tobacco Transition Payment Program payments (”TTPP”) as marital property.

TTPP is an important source of income for many Kentucky farmer’s and is divided into payments for growers of tobacco and payments for owners of the land where the tobacco would otherwise have been planted. This is where the particulars of the Jones case becomes important. Ricky inherited a life estate in the family farm. Without becoming too bogged down in the technicalities of a life estate, this means the farm was his to use during a lifetime, most likely his own. Since he inherited the farm, it was non-marital property by operation of KRS 403.190(2)(a). Ricky argued that the owner’s share TTPP came to him as the owner of the farm by devise so that it was not a marital asset.

Here, the trial court basically said that Ricky might be right about the owner’s share of the TTPP being non-marital, but the overall division was equitable, so let’s leave it alone. The Court of Appeals disagreed with the trial court and asserted that the owner’s payments under TTPP were compensation for the taking of the property interest of growing tobacco on the property, so it was non-marital.

However, the grower’s TTPP payments took the place of income earned from the sale of tobacco that would have been grown. Therefore, the compensation for loss of income and would be marital. Ricky still won this argument, though, because he and his ex-wife, Lynn, had a prenuptial agreement that specified “life estate in the farm “together with the income produced thereby, shall continue and remain the separate property’ of Ricky.” Id. at 5-6.

Next, Ricky challenged the trial court’s allocation of $44,648.00 out of $67,000.00 in improvements to the farm (main house, garage, lake) as marital. The Court of Appeals analyzed this under KRS 403.190(2)(e) which states:

The increase in value of property acquired before the marriage to the extent that such increase did not result from the efforts of the parties during marriage.

The life estate was given to Ricky before the marriage (obviously or else the pre-nuptial agreement would have involved prescience) and there were improvements made during the marrigage. The problem with the trial court’s analysis came from how it valued those improvements.

The trial court equated the actual cost of improvements to the increase in value of the life estate. This makes no sense because a life estate has much less value than outright ownership (fee simple). Basically, one can sell a life estate, but who would want to buy it? It would come to an end as soon as that life ended, which could be the day after the closing. Thus, the $44,648.00 that the trial court assigned as marital probably exceeded the fair market value of the life estate. Usually, expert testimony is required to determine fair market values. The Court of Appeals remanded the case to the trial court to recalculate the values involved and strongly suggested getting expert testimony.

Finally, Ricky appealed the award of payment of Lynn’s attorney fees. This is often appealed because it really hacks people off to go through a divorce and then have to pay their ex’s attorney fees too. However, these appeals rarely win because such an award is “soundly” in the discretion of the trial court. The court must consider the financial resources of the parties and, if an imbalance in resources exists, can award attorney’s fees. Well Ricky, two out of three ain’t bad.

Thanks to the Divorce Law Journal blog for pointing out this family law case from the Kentucky Court of Appeals. Croft v. Croft, 2006-CA-001403-MR (Nov. 2, 2007)(to be published) addresses marital and non-marital property as well as maintenance (what Kentucky calls Alimony).

The marital versus non-marital issue revolved around a piece of property purchased by Dimitri Croft prior to the marriage. The trial court considered the entire value of the property to be non-marital at the time of the divorce. The Court of Appeals reversed this for being clearly erroneous. This was because the increase in value of property purchased prior to marriage is presumed to be marital unless it is shown by clear and convincing evidence that the increase was merely due to economic growth. Here, evidence was submitted that the couple both worked on the property and that the loan was finally paid off with marital money. Dimitri simply saying the work they did on the property was merely for upkeep was insufficient to overcome the presumption.

In division of the marital property, the Court pointed out that Kentucky law, KRS § 403.190, requires property to be divided in “just proportions” but this is not to say it must be EQUAL proportions. The trial court has great discretion in determining the exact division.

Adrianna Croft argued that she should have recieved maintenance because she became disabled and relied on social security disability for income. Here, the Court of Appeals upheld the trial courts denial of maintenance. The Court reiterated that “KRS 403.200(1) requires the trial court to find that the spouse seeking maintenance: (1) lacks sufficient property, including marital property apportioned to her, to provide for her reasonable needs; and (2) is unable to support herself through appropriate employment.” In this circumstance, Adrianna was only able to testify that she could not eat out as often now that she and Dimitri were no longer together.

In each of these issues, the trial court is afforded a great deal of discretion and will only be overturned if the trial court’s decision was clearly out of line with the evidence. In the maintenance issue, courts usually uses very rough sense of equity that cannot really be considered a formula. If there is a substantial disparity in income (we’re talking tens of thousands rather than just thousands) leaving one party with a big drop in their standard of living, then maintenace may be awarded. Adrianna’s inability to eat out as often simply did not trigger the judges rough sense of equity.

Be sure to check back in with the Divorce Law Journal for a more thorough digest of this case.

In determining an award of maintenance (what we in Kentucky call alimony), the trial court must consder the following factors set out in KRS 403.200(2):

(a) The financial resources of the party seeking maintenance, including marital property apportioned to him, and his ability to meet his needs independently . . .
(b) The time necessary to acquire sufficient education or training to enable the party seeking maintenance to find appropriate employment;
(c) The standard of living established during the marriage;
(d) The duration of the marriage;
(e) The age, and the physical and emotional condition of the spouse seeking maintenance; and
(f) The ability of the spouse from whom maintenance is sought to meet his needs while meeting those of the spouse seeking maintenance.

The Kentucky Court of Appeals found, in Clark v. Clark, (2005-CA-002502-MR)(to be published), that the trial court only considered one of these factors: the husband’s ability to meet his own reasonable living expenses while paying maintenance to the wife.

Evelyn, the wife, put forth evidence that her reasonable living expenses would be just under $1,000.00 a month. However, she was getting by on her $481.00 of social security income by relying on her daughter to allow her to live with her for free. Interestingly, the trial court rewarded Evelyns thrift and the daughter’s generosity, after 19 years of marriage, by REDUCING her reasonable expenses by excluding rent. This left her with a temporary maintenance award of $300.00 per month until the litigation was over and a lifetime maintenance award of only $100.00.

Perhaps the trial court just did not want to create a hardship on Adrian, the husband. After all, he was barely able to make ends meet too:

“Adrian’s monthly living expenses, including cable, maid service, $200.00 for entertainment and $320.00 for maintaining his house and property, totaled $1,962.00. His monthly income was $1,700.00. We note that the parties had a disparity of $1,006.00 in living expenses and $1,219.00 in income each month.”

Id. at 10. Thankfully for Evelyn, the Court of Appeals was not so indulgent of Adrian’s lifestyle, nor so thrifty regarding Evelyn’s, as the trial court. I wonder whether Adrian fires the maid or cuts the cable when the maintenance gets bumped up?

In the recent Kentucky Court of Appeals case, Lawson v. Lawson, 2004-1077-MR (2007, to be published) , the husband, John Lawson, was left responsible for the deficiency balance of $100,000 after the foreclosure of the marital residence. John had been ordered to pay the mortgage payments during the pendency of the divorce because of the disparity in income between he and his then wife, Barbara. Dear John lost his job, however, after failing a mandatory drug test. John subsequently stopped making the payments. The Court of Appeals stated:

In dividing marital property, including debts, appurtenant to a divorce, the trial court is guided by Kentucky Revised Statute (KRS) 403.190(1), which requires that division be accomplished in “just proportions.” This does not mean, however, that property must be divided equally. Russell v. Russell, 878 S.W.2d 24 (Ky. App. 1994); Wood v. Wood, 720 S.W.2d 934 (Ky. App. 1986). It means only that the division should be accomplished without regard to marital misconduct and in “just proportions” considering all relevant factors. Brosick v. Brosick, 974 S.W.2d 498 (Ky. App. 1998). “Misconduct” relative to the dissipation of assets, however, is not marital in nature and may be considered. Id

The Court cited John’s failed drug test as his misconduct. It also notes that John failed to show up, offer any testimony, or otherwise attempt to inform the court of his job loss. Because he stopped paying the mortgage and because this failure was tied to job loss for drug use, he was left responsible for the $100,000 deficiency when the house was foreclosed on and auctioned. The mistake of the drug use might have been mitigated in some way had John not also made the mistake of ignoring the court proceedings.

Ah, but not all was lost for our Dear John. The trial court ordered that Barbara was due one-half of any award John might get as a result of his wrongful termination suit against his employer. The Court of Appeals reversed this stating:

because John has not yet received any damage award pursuant to his wrongful termination claim, and further because of the speculative nature of any such award and its characterization, the trial court lacked a sufficient basis for deeming as marital property any and all future proceeds John may realize. Thus, we are compelled to reverse that portion of the March 11, 2004 awarding Barbara one half of any judgment awarded to John. Of course, if, at some point in the future John is successful and receives a monetary judgment against his former employer, the trial court is certainly free to revisit this matter for an appropriate determination at that time.

If he ever is successful, any damages that could be attributed to compensatr for lost income that would have been earned during the time the divorce was pending would arguably be marital and subject to division.
This case has one last significant bit of wisdom to offer. John had been making three times as much earned income as Barbara before losing his job and the trial court awarded him maintenance. The maintenance was $2,500 per month for five years. This was reversed and remanded to the trial court for reconsideration because:

According to KRS 403.200(2)(f), one of the factors that a trial court must consider when deciding whether to award maintenance is “[t]he ability of the spouse from whom maintenance is sought to meet his needs while meeting those of the spouse seeking maintenance.” Because we cannot determine whether the trial court addressed this, we must reverse the March 11, 2004 decree to the extent that it orders John to pay maintenance of $2,500.00 to Barbara and remand for a new determination in accordance with all of the elevant factors as required by KRS 403.200(2).

If Dear John remained unemployed, Barbara will probably no longer receive any maintenance. This reaffirms the one consistency in the practice of divorce law. No one ever walks away with everything they wanted or believe they deserved. While Barbara escaped responsibility for a share of the $100k debt, she likely will lose out on the $30,000 in maintenance she had been awarded.