Domestic relations update


Osmar, v. Mahan, 53 P.3d 149 (Alaska 2002)



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Osmar, v. Mahan, 53 P.3d 149 (Alaska 2002)

As a result of the father’s death, Mother was receiving “children’s insurance benefits” (CIB) social security payments for her older child. Mother and Father married and had a child. When Mother and Father divorced, the Court awarded the parties joint custody of their child and included the social security benefits in its calculation of Mother’s gross income.

The Supreme Court reversed, HOLDING that social security benefits received for the benefit of a child not of the union involved do not constitute income to the recipient parent.

Whah v. Whah, 53 P.3d 604 (Alaska 2002)

Child received children’s insurance benefits (CIB) on account of father’s disability. In 1994, the parties agreed in a dissolution that Father would pay $896 per month in support. Shortly before the dissolution, Father faxed a note to Mother saying that notwithstanding the child’s CIB payments, the Father would pay the full amount of the support; however, the dissolution agreement approved by the court was silent on this issue. When Father filed a motion in 1998 to receive a credit for his CIB payments, Mother argued that he had knowingly waived the credit. The trial court granted Father the credit without an explanation for its basis (i.e. it was unclear if the court rejected Mother’s legal argument or made a factual determination that Father had not made a knowing waiver).

The Supreme Court reversed for further findings and a hearing on Mother’s claim. The Court HELD that:

 A support obligor is entitled to a dollar-for-dollar credit for social security benefits paid to a child on account of the obligor's status or condition. Child Support Enforcement Div. v. Fry, 926 P.2d 1170 (Alaska 1996); Miller v. Miller, 890 P.2d 574 (Alaska 1995).

 A support obligor’s right to a credit for CIB payments can be waived.

 Extrinsic evidence of the parties’ contracting intentions can be considered to interpret the terms of a dissolution agreement, provided the extrinsic evidence is not inconsistent with the language of the dissolution agreement.

COMMENTS:

1. Yes, that was the parol evidence rule that just flitted by.

2. The Court’s treatment of a child support waiver turns on the nature of the underlying issue. An obligee cannot waive the right to receive prospective child support. Cox v. Cox, 776 P.2d 1045 (Alaska 1989). Moreover, any agreement by the parents to set support between themselves is not binding until approved by a court. Nix v. Nix, 855 P.2d 1332 (Alaska 1993). Thus, in Richmond v. Pluid, 925 P.2d 251 (Alaska 1996), the Court held that an obligor was bound to pay the full amount of support ordered by court, and could not present evidence that parties had signed a separate contemporaneous agreement waiving obligee’s right to receive some of the monthly support amount. Under Richmond, father presumably could not be held to a separate agreement to pay a higher amount of support than was ordered by the Court.

The issue in this case was not the amount of the obligation, however, but whether certain payments should be counted as child support. The Court has now said that the right to have payments (or at least CIB payments) made to the obligor credited against the support obligation can be waived, without prior judicial approval.



Hixson v. Sarkesian, -- P.3d -- (Alaska March 28, 2003)

Father had an adjusted income higher than the $84,000 income cap. As part of their divorce, the parties agreed that Father would pay child support in amount that disregarded the salary cap. When Father’s income decreased, he requested a modification of his support. The Court found that his income had decreased by more than 15%, and recalculated his obligation using the income cap. The court also counted only a portion of his company-provided home as income, since part of it was used as an office, and ordered him to pay 4/5 of the children’s uninsured health costs.

The Supreme Court reversed the application of the cap as part of the modification calculation, but upheld all other aspects of the calculation. The Court HELD that:

 A contractual agreement to ignore the income cap in a support calculation ordinarily continues to be binding upon any subsequent modification of support.

 An agreement to waive the income cap can be modified only if there has been a substantial change of circumstances that was not anticipated at the time the agreement was made, and if the change of circumstances results in a permanent drop in income.

COMMENT: The fact that one’s income has decreased by more than 15% is grounds for modification of support, but it is not grounds to unravel a prior agreement to waive the income cap.

 In-kind payments (e.g. employer-provided housing) should only be included as income if they reduce the obligor’s living expenses.

COMMENT: Having that company Beamer in your driveway doesn’t constitute an income if you’ve already got a trusty Yugo.

 A trial judge may, upon good cause, unequally apportion the child’s insured medical costs between the parents. Alaska R. Civ. P. 90.3(d)(2).

Kelly v. Joseph, 46 P.3d 1014 (Alaska 2002)

The court modified a prior decree by awarding custody of two of the children to Mother and one of the children to Father. The Supreme Court remanded for a recalculation of child support, HOLDING that the 2001 adoption of Civil Rule 90.3(b)(6), which mandates the formula to be used in cases of “divided custody” (where each parent has primary custody of at least one child) constitutes a material change of circumstances warranting a recalculation of child support.

COMMENT: Rule 90.3 formerly suggested that child support in divided custody cases would be determined by reference to the average time each child spends with the parents. However, the latest version of the Rule directs the trial court to figure out the amount of support that each parent would pay for the children in the other parent’s care, and offset these obligations. Since proportionally less support is paid for each additional child (20% is paid for the first, 7% for the second, 6% for the third, and 3% for each child thereafter), the new divided custody formula favors the parent who has primary custody of fewer children.

spousal support

Hixson v. Sarkesian, -- P.3d -- (Alaska 2003) 3/28

The Court ordered Husband to pay $1,000 per month to Wife for rehabilitative alimony. Husband ceased paying after Wife remarried. The court held that the remarriage did not terminate Husband’s alimony obligation.

The Supreme Court affirmed, HOLDING that:

 Remarriage does not automatically terminate rehabilitative alimony.

COMMENT: The Court contrasted this with the rule for the reorientation alimony, which can be terminated upon remarriage “at the discretion of the trial court.” But see Voyles v. Voyles, 644 P.2d 847 (Alaska 1982) (remarriage of the obligee spouse is a change of circumstances requiring termination of support as a matter of law).

 Rehabilitative alimony can be modified only when there is a change in circumstances related to its purpose (i.e. some circumstance related to the rehabilitative activities).



PROPERTY

Faulkner v. Goldfuss, 46 P.3d 993 (Alaska 2002)

The parties began cohabitating in October 1994, married a year later, and separated in January 1999. Wife had accrued military retirement benefits that were based on the “points” that she has earned through military service, with one point earned for each day of active duty. She earned points at a faster rate prior to the marriage, when she was in the service full-time, and during the marriage she earned them more slowly through her National Guard duty. The trial court awarded Husband a share of Wife’s benefits based on the 53 months of coverture rather than the period of marriage, and divided the pension interest based on the duration of their relationship rather than the points earned during that period.

The Supreme Court affirmed on the first issue and reversed on the second, HOLDING that:

 In dividing the parties’ property, the Court is free to consider the parties’ entire relationship, including any periods of premarital cohabitation.

COMMENT: The Supreme Court has previously recognized that the trial court can take the period of premarital cohabitation into account when dividing marital property. See, e.g., Harrelson v. Harrelson, 932 P.2d 247 (Alaska 1997); Murray v. Murray, 788 P.2d 41 (Alaska 1990). These decisions provided that consideration was limited to Step 3 in the Wanberg analysis. That is, property shouldn’t be classified as marital simply because it was acquired during a period of cohabitation proceeding the date of marriage, but it could be taken into account when fashioning an equitable property division.

In their Harrelson dissent, Justices Rabinowitz and Fabe argued that the trial courts should have greater leeway to “equitably distribut[e] property that was commingled in ‘quasi-marital’ premarital relationships.” Harrelson, 932 P.2d at 256. Under this view, a trial court could consider cohabitation assets under Step 1 of the Wanberg analysis, thereby explicitly including these assets in the marital estate. Now, in Faulkner, the Supreme Court has approved of this broader approach.

 Where the value of retirement benefits is not directly related to the length of employment, the coverture fraction should be modified so that the numerator accurately reflects the share of the pension accrued during marriage.

COMMENT: In this case, that means that coverture portion of the pension should equal the number of points that Wife earned toward her retirement during the period of coverture. The net result is that the share of the pension awarded to Husband will be reduced.



Bishop v. Clark, 54 P.3d 804 (Alaska 2002)

The parties never married but were together for 13 years and had two children together. In 1996, the parties made a separation agreement that awarded Father the Homer house and his boat gear. After Mother filed for custody, support and property division, the parties entered into a second agreement in 1998 that stated it was intended to address “additional property” but also that it did not resolve claims regarding the Homer house and lobster boat. Following trial, the court concluded that parties had an implicit agreement to live together and share their property as if they were married. The court divided the property as listed in the agreements and equally divided all other assets, including items purchased with funds Father received through inheritance. The court concluded that the 1998 agreement rescinded the 1996 agreement’s award to Father of the Homer house and lobster boat, and divided those assets 50-50.

The Supreme Court reversed the interpretation of the agreement by a 3-2 vote, but unanimously affirmed the general 50-50 division of the unlisted assets. With regard to the agreement interpretation, the Court HELD that:

 A subsequent contract impliedly rescinds an earlier contract only when (i) it is made by the same parties, (ii) covers the same subject-matter and (iii) contains terms so inconsistent with the first contract that they cannot stand together.

COMMENTS:

1. The majority concluded that the agreements were reconcilable. While acknowledging that the 1998 agreement stated that the house and boat were still at issue, the court reasoned that this statement was not sufficient to undermine the prior agreement’s resolution of these issues.

Chief Justice Fabe, joined by Matthews, dissented on this point. The dissent argued that the strict rule of law relied upon by the Court applied only to complete rescissions, and should not apply where a second agreement seeks to only partially modify a prior agreement.

2. Mother had also alleged that the first contract was void because she signed it under duress. The trial court had not addressed this claim because it had found for Mother on other grounds, but the Supreme Court directed the trial court to address the “duress” argument on remand. Stay tuned for the next exciting appeal on this issue.

In affirming the finding of intent to equally share all of their financial gains accrued during the relationship, the Court HELD that:

 The statutory factors and equitable principles that govern the division of marital property do not apply to the division of property belonging to a cohabitating couple.

 Property accumulated during cohabitation should be divided by determining the express or implied intent of the parties. Wood v. Collins, 812 P.2d 951 (Alaska 1991).

 In determining the intent of cohabitating parties, the trial court may consider the following factors, among others: (i) the existence of joint financial arrangements such as joint accounts and jointly titled property, (ii) joint tax returns, (iii) whether they held themselves out as husband and wife, (iv) joint contributions to household expenses, (v) joint participation in a business venture, (vi) accrual of joint debts, (vii) whether they have raised children together.

COMMENTS: Obviously, the court can look to issues of joint titling and joint management to determine whether unmarried parties intended to treat specific assets as joint property. The factors above cast a broader net, providing guidelines for determining whether the parties intended to treat their entire “cohabitation estate” as a joint holding.

 A party arguing that assets were purchased with separate funds has the burden of proving the source of those funds.

COMMENT: In making this holding, the Court assumed without deciding that the concept of “separate property” applies to property accumulated during cohabitation.

Nelson-Lizardi v. Lizardi, 49 P.3d 236 (Alaska 2002)

The parties divorced in 1990, but there were several loose ends because Husband’s pension had not vested and certain assets and debts were contingent on third party claims. In 1999, Wife requested a division of the pension, and following a hearing the court gave Wife two weeks to provide an accounting of the pension and Husband’s claimed offsets. Wife did not file the accounting, and instead filed a notice that she did not have enough information to generate an accounting. During the next six months the parties exchanged correspondence and Wife tried unsuccessfully to obtain a release from Husband. Then, without notice to the parties, the trial court denied Wife’s pension claim due to Wife’s failure to provide an accounting.

The Supreme Court reversed, concluding that the trial court erred in denying Wife’s pension claim without an evidentiary hearing, as a penalty for failure to provide the accounting. The Supreme Court HELD that:

 A trial court has broad discretion to set and enforce filing deadlines.

 When a deadline has passed without a party having taken a required action, and the court fails to enforce the deadline and the parties proceed to attempt to resolve the matter, the court must give advance notice before it sanctions the party for failing to meet the deadline.

COMMENTS:

1. Yes, this a narrow holding. It does not foreclose the possibility that the trial court could have sanctioned Wife by denying her pension claim if it had acted promptly after Wife missed the accounting deadline.

2. The facts of the case suggest no justification for why it was Wife who bore the obligation to provide the accounting with the attendant risk of forfeiture. After all, a portion of the pension was earned during the marriage and this portion is as much Wife’s property as it is Husband’s, so there appeared to be no good reason for placing the risk of forfeiture solely on Wife. The trial court’s accounting requirement seems particularly unfair because the court required Wife’s accounting to include Husband’s claimed offsets, items that were clearly within the control of Husband.



Manelick v. Manelick, 59 P.3d 259 (Alaska 2002)

The primary issue was the valuation of Wife’s Palmer medical practice. The court accepted the $130,000 valuation of tangible assets used by Husband’s expert, even though it was based solely on older tax returns and the court itself regarded the expert’s valuation as “questionable” and “based on incomplete valuation.” Husband’s expert assessed the marketability of the practice by looking at national data, while Wife’s expert testified that there was no local market for medical practices. The court found that the practice had goodwill, valued the practice at $360,000 and awarded it to Wife.

The Court reversed the valuation of the tangible assets. It affirmed the trial court’s conclusion that the practice has substantial goodwill but reversed the goodwill’s inclusion in the marital estate because it was not marketable. The Court HELD that:

 It is error to base a property valuation on incomplete information, when more complete information is available.

COMMENTS:

1. In an unusual twist, it was Wife who argued that the valuation of the tangible assets was too low. The “capitalization of excess earnings” method for valuing a business looks to the business income to determine the rate of return on the tangible assets. The lower the value of the assets, the higher the rate of return, and the higher the resulting value of the business.

As it turned out, the court rejected the inclusion of good will as part of the valuation of the business (see below). Thus, the value of the business consisted solely of the tangible assets and accounts receivable, and Wife hurt herself by arguing for a higher tangible asset valuation. However, given the risk that the Court would affirm the trial court’s valuation of the goodwill, she was wise to argue for a higher tangible asset valuation in order to reduce the total value of the business.

2. Wife unsuccessfully argued that the business valuation should not take into account the income that she earns for her work at the local hospital, because her hospital privileges were not transferable and therefore could not be taken over by someone who purchased her practice. In affirming the trial judge, the Supreme Court did not address Wife’s argument.

 The valuation of goodwill is a two-step process. First, the court must decide whether goodwill exists. Second, the court must determine if it could actually be sold to a prospective buyer, i.e. if it is marketable.

 If goodwill is not marketable, then its value should not be considered when valuing the marital estate.

COMMENTS: In reversing the trial court’s finding that the goodwill was marketable, the Supreme Court relied on uncontradicted testimony that the demand for medical services in the Wife’s geographic area was so great that a new physician could easily develop their practice without purchasing an existing one, and that area physicians simply walked away from their practices because they could not sell them. As a result there were no recent sales of medical practices in the region, and no market for Wife’s practice existed.

On another issue, both parties testified that they owned a piano worth $7,000, but the court did not include it in the property table. Addressing what was undoubtedly a simple oversight by the trial judge, the Court implicitly HELD that:

 Property values agreed upon by the parties should be accepted by the Court.

Martin v. Martin, 52 P.3d 724 (Alaska 2002)

In 1980, Husband purchased a health food store for $140,000. The parties began living together around that time, and married in 1985. During the marriage, Wife worked at the store on a part-time basis, usually for no salary, and $31,000 in marital funds were used to finance the business. Husband argued that only appreciation of the value of the business was a marital asset, but the trial court concluded that the entire business was a marital asset.

The Supreme Court affirmed, HOLDING that:

 Property owned by one party prior to marriage is ordinarily not marital property subject to equitable division.

 Under the doctrine of transmutation, separate property can become marital property if the parties so intend, as demonstrated through their words and actions.

 Evidence of intent to treat separate property as a marital asset includes substantial efforts by the non-owner spouse to maintain or improve the property.

COMMENT: The key focus is on the amount of effort expended by the non-owner spouse, and whether those efforts are “substantial” or “nonsubstantial.” The Court noted that even Husband’s more conservative estimate had Wife working at the store hundreds of hours during the course of the marriage. The parties disputed whether Wife had a managerial role, but the Court regarded it as irrelevant whether she was involved in any managerial tasks. The important point was that her efforts contributed to the business.

 The actions and beliefs of the non-owner spouse are evidence of the intent of the owner spouse when the non-owner spouse either supported those beliefs and actions or “opportunistically allowed” them to persist.

COMMENTS:

1. This last rule has the ring of estoppel theory. It allows the inference of intent based not only on one’s own beliefs, but on acquiescence in the beliefs of one’s spouse. In this case, Husband never stated that he believed Wife was a joint owner – and may have harbored a subjective belief to the contrary, but Wife believed it was a marital venture and acted consistent with that belief, and Husband did nothing to disabuse her of the notion.

2. Husband’s argument relied on Lowdermilk v. Lowdermilk, 825 P.2d 874 (Alaska 1992), which held that only the marital increase in value of a premarital business was a marital asset. The Court distinguished this principle, which it labeled the doctrine of “active appreciation” and explained that it is conceptually distinct from the doctrine of transmutation. Whereas transmutation is based on the parties’ intent, active appreciation is based on equitable considerations.

In this regard, the Court challenged the trial court’s reliance on the fact that the parties paid off the last $117,000 on the store note as reason for finding transmutation. The Court stated that this fact is irrelevant to the issue of intent, but it supported the application of the active appreciation doctrine.

3. Martin is a particularly lucid and enlightening opinion. Like Chotiner v. Chotiner, 829 P.2d 829 (Alaska 1992) and Sampson v. Sampson, 14 P.3d 272 (Alaska 2000) – two earlier opinions that quickly come to mind – Martin is a valuable guide for the practitioner wrestling with the classification of property.

On a separate property issue, the court treated Husband’s pre-marital camera as a marital asset, apparently on the ground that Wife used it throughout the marriage and Husband consented to this use. In a solitary victory for Husband, the Supreme Court reversed, HOLDING that:

 Consent to use an asset, without more, is insufficient to evince an intent to transmute the asset.

On to the real estate. Husband obtained a broker’s opinion valuing a Kenai parcel at $108,500, but then hired an appraiser who valued it at only $91,000. The trial court awarded the property to Husband and used the higher value, and the Supreme Court affirmed, HOLDING that:

 It is within the trial court’s discretion to rely on a broker’s opinion of value rather than a formal appraisal.

Finally, there’s the issue of the airline mileage, one of those new species of property that the business world is constantly dreaming up for us. The Court valued the parties’ frequent flyer miles despite Husband’s objection that the parties cannot sell it. The Supreme Court affirmed, HOLDING that:

 A court can value an asset if it can determine a fair market value for it (i.e. what a buyer would pay for it) even if the asset is not actually marketable.

COMMENT: There was also the matter of Wife’ State retirement benefits. Husband appealed the award of the entire retirement to Wife, arguing that a nominal award to him would have allowed him to buy into the State’s retirement benefits. The Court affirmed because Husband did not offer evidence that he had no other means of obtaining health insurance.





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