Income On NonMarital Property, Increase In Value Of Nonmarital Property, Maintenance: JONES v. JONES (COA 2/1/2008)

JONES V. JONES
FAMILY LAW: Income On NonMarital Property, Increase In Value Of Nonmarital Property, Maintenance
2006-CA-001870
PUBLISHED: AFFIRMING IN PART, REVERSING IN PART, AND REMANDING
PANEL:  TAYLOR PRESIDING; LAMBERT, WINE CONCUR
COUNTY:  HENRY
DATE: 02/01/2008

Ex-Husband appealed TC’s orders classifying his Tobacco Transition Payment Program (TTPP) payments and a portion of the increase in value of his life estate as marital and awarding maintenance and attorney’s fees to Ex-Wife in divorce proceeding.

Prior to the parties’ 18 year marriage, Ex-Husband inherited from his grandfather a life estate in a farm consisting of 215 acres. During the marriage, the parties resided in a residence located on the farm, and Ex-Husband conducted farming operations thereupon. The parties entered into a prenuptial agreement prior to marriage.

In its orders regarding division of property, TC treated future TTPP payments to be made to Ex-Husband as owner of the life estate as marital property in order to effectuate an equitable division of property. CA found that TC erred as a matter of law by classifying the TTPP payments as marital property in order to effectuate a fair distribution of property. The classification of property as marital or nonmarital is not discretionary. CA further found that TTPP owner payments should have been classified as Ex-Husband’s nonmarital property. The TTPP owner payments represent compensation from the government for the taking of the property interest in the tobacco grower’s tobacco quotas. As Ex-Husband inherited the tobacco quotas from his grandfather, they were nonmarital, and the compensation received for them is also nonmarital.

CA also found that future TTPP payments to be made to Ex-Husband as a grower of tobacco should also be classified as Ex-Husband’s nonmarital property. Finding that these TTPP payments supplant income traditionally received from the sale of tobacco, CA found these payments to be properly classified as income. As the income from the sale of tobacco would have been classified as Ex-Husband’s nonmarital property pursuant to the parties’ prenuptial agreement, the grower TTPP payments were also his nonmarital property.

TC found that the parties made substantial improvements to the farm with marital assets, thus the life estate in the farm had a marital component. TC found the actual cost of improvements to the farm totaled $67,000.00, that these improvements were paid for with marital assets, and then adjusted the $67,000 by Ex-Husband’s “life estate valuation formula” and concluded the marital property interest was $44,648.00. CA noted that under KRS 403.190(2)(e), any increase in value of property acquired before marriage is nonmarital unless the increase in value is attributed to “the efforts of the parties during marriage.” CA found that TC clearly erred when it equated actual cost of improvements to the life estate in the farm with increase in value to the life estate in the farm. To properly calculate the increase in value attributed to marital improvements upon property acquired before marriage, CA provided that the court must subtract the fair market value of the property at the time of dissolution without marital improvements from the fair market value of the property at the time of dissolution with marital improvements. The difference between such fair market values yields the increase in value attributed to marital improvements upon the property. As to a life estate acquired before marriage, a party may be compensated for the increased value attributed to marital improvements thereon, not to exceed the value of the improvements. Furthermore, when determining the fair market value (FMV) of real property with improvements and without improvements, expert opinion is ordinarily necessary. To be qualified to express an opinion upon FMV of real property, a witness, including the owner thereof, must possess some basis for knowledge of market values. The mere ownership of property does not qualify a lay person to give an opinion upon market value. The actual cost of improvements may be considered as evidence bearing upon FMV but should not be the sole factor. CA noted that if the parties come to the end of their proof with grossly insufficient evidence on the value of the property involved, TC should either order this proof to be obtained, appoint his own experts to furnish this value, at the cost of the parties, or direct that the property be sold. CA directed TC, upon remand, to calculate the marital increase in value of the life estate in the farm by subtracting FMV of the farm at the time of dissolution without marital improvements from the FMV of the farm at the time of dissolution with marital improvements, then, adjust this amount by a life estate valuation formula, but in no event shall the compensation for the marital increase in value to a life estate exceed the value of the improvements thereon.

Ex-Husband also contends TC erred by awarding maintenance to Ex-Wife. As entitlement and amount of maintenance are dependent upon the marital and nonmarital property allocated to the party for a determination of whether the claimant has sufficient resources for her support, CA ruled that Ex-Wife’s maintenance award must also be vacated for reconsideration as part of the underlying property award was reversed on appeal.

Ex-Husband finally contends TC abused its discretion by awarding attorney’s fees to Ex-Wife. Based upon the apparent imbalance of financial resources between the parties, CA found no abuse of discretion in TC’s award to Ex-Wife of a portion of her attorney’s fees.

Affirmed in part, reversed in part, and remanded.
Digested by Michelle Eisenmenger Mapes, Diana L. Skaggs + Associates.

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