Kentucky Bankruptcy Law

Counsel with Care

Fraud or dissipation of assets and divorce

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.

February 23, 2008 Posted by | dissipation of assets, Divorce, Family Law, Fraud, property allocation | , , , | 4 Comments

Tobacco payments and property allocation; attorney fees

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 ‚Äútogether 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.

February 3, 2008 Posted by | attorney fees, Divorce, Family Law, property allocation | , , , , , , | Leave a comment