Opinion
NO. 2013-CA-000198-MR NO. 2013-CA-000756-MR
03-20-2015
JOSEPH R. CATTAN APPELLANT v. CAROLE ANN CATTAN APPELLEE AND CAROLE ANN CATTAN APPELLANT v. JOSEPH R. CATTAN APPELLEE
BRIEFS FOR JOSEPH R. CATTAN: James L. Theiss James Daniel Theiss LaGrange, Kentucky BRIEFS FOR CAROLE ANN CATTAN: J. Key Schoen Louisville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM OLDHAM CIRCUIT COURT
HONORABLE TIMOTHY E. FEELEY, JUDGE
ACTION NO. 11-CI-00554
OPINION
AFFIRMING IN PART, REVERSING IN PART AND REMANDING
BEFORE: CLAYTON, COMBS, AND NICKELL, JUDGES. NICKELL, JUDGE: Joseph R. Cattan ("Joe") has appealed from the Oldham Circuit Court's October 5, 2012, entry of its findings of fact, conclusions of law and decree of dissolution challenging the trial court's decisions related to valuation and distribution of marital property and debts, the amount of maintenance awarded to his ex-wife, Carole Ann Cattan ("Carole"), and contribution toward Carole's attorney's fees. Carole has filed a separate appeal from the Oldham Circuit Court's February 6, 2013, and March 27, 2013, orders reducing the amount of maintenance due. The two appeals have been consolidated in the interest of judicial economy and shall both be decided in this single Opinion. Following a careful review, we affirm in part, reverse in part, and remand for further proceedings.
FACTS
Joe and Carole were married on June 4, 1988. One child was born of the marriage, Sarah Diane Cattan, who has now reached the age of majority. On June 10, 2011, a petition for dissolution was filed. The matter proceeded to final trial on May 10, 2012, on issues of restoration of nonmarital property, division of the marital estate, maintenance, and attorney's fees. The trial court heard extensive proof from the parties regarding these contested issues. On October 5, 2012, the trial court entered its comprehensive findings of fact, conclusions of law, and decree of dissolution of marriage, dividing the marital estate and ordering Joe to pay Carole monthly maintenance. Joe timely moved to alter, amend or vacate the order, challenging the vast majority of the trial court's findings. The trial court denied the motion by order entered on December 27, 2012, and Joe timely appealed to this Court.
On January 10, 2013, before filing his notice of appeal, Joe moved the trial court to reduce or eliminate his maintenance obligation based on his allegation that Carole was cohabitating with another man. Following a lengthy hearing on February 4, 2013, the trial court concluded Carole was, in fact, partially cohabitating with her paramour. Based on this conclusion, the trial court ordered a reduction in spousal maintenance to $750.00 per month from the previously ordered $1,906.00 per month. Joe moved the trial court to alter, amend or vacate its new order, arguing Carole's cohabitation required elimination of his spousal support obligation in toto. The trial court denied the motion by order entered on March 27, 2013. Carole timely appealed. In the interest of judicial economy and completeness, the two appeals have been combined for treatment in this single Opinion. Additional facts will be detailed as necessary to our review of the allegations of error presented.
STANDARD OF REVIEW
In a dissolution action, the well-settled standard of review of a trial court's legal findings is de novo. Hunter v. Hunter, 127 S.W.3d 656, 659 (Ky. App. 2003); Carroll v. Meredith, 59 S.W.3d 484, 489 (Ky. App. 2001). It is also well-settled that an appellate court may set aside a lower court's factual findings
only if those findings are clearly erroneous. And, the dispositive question that we must answer, therefore, is whether the trial court's findings of fact are clearly erroneous, i.e., whether or not those findings are supported by substantial evidence. "[S]ubstantial evidence" is "[e]vidence that a reasonable mind would accept as adequate to support a conclusion" and evidence that, when "taken alone or in the light of all the evidence, . . . has sufficient probative value to induce conviction in the minds of reasonable men." Regardless of conflicting evidence, the weight of the evidence, or the fact that the reviewing court would have reached a contrary finding, "due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses" because judging the credibility of witnesses and weighing evidence are tasks within the exclusive province of the trial court. Thus, "[m]ere doubt as to the correctness of [a] finding [will] not justify [its] reversal," and appellate courts should not disturb trial court findings that are supported by substantial evidence.Moore v. Asente, 110 S.W.3d 336, 354 (Ky. 2003) (footnotes omitted). See also CR 52.01, Reichle v. Reichle, 719 S.W.2d 442 (Ky. 1986). We review the trial court's application of the law to those facts de novo. Lindley v. Paducah Bank & Trust, 114 S.W.3d 259, 263 (Ky. App. 2002).
Kentucky Rules of Civil Procedure.
The inherent nature of domestic relations proceedings tends to breed hostility. Dissension is not uncommon, emotions are heightened, and the proffering of conflicting evidence is a virtual certainty. Trial courts are faced with the difficult task of weeding through emotionally charged testimony and often slanted evidence to reach a fair and equitable result. Because of this, trial courts are afforded broad discretion in dividing marital property and marital debt, and awarding maintenance. We will not disturb a trial court's rulings on these issues in the absence of an abuse of its discretion or clearly erroneous factual findings. Powell v. Powell, 107 S.W.3d 222, 224 (Ky. 2003); Smith v. Smith, 235 S.W.3d 1, 6 (Ky. App. 2006). "An abuse of discretion generally 'implies arbitrary action or capricious disposition under the circumstances, at least an unreasonable and unfair decision.'" Rice v. Rice, 372 S.W.3d 449, 452 (Ky. App. 2012) (citation omitted). Clearly erroneous factual findings are those not supported by substantial evidence. Mullins v. Picklesimer, 317 S.W.3d 569, 581 (Ky. 2010). With these standards in mind, we address each allegation of error.
ANALYSIS
2013-CA-000198-MR
Joe presents five allegations of error emanating from the trial court's October 5, 2012, findings of fact, conclusions of law, and decree of dissolution of marriage, and the December 28, 2012, order denying his motion to alter, amend or vacate the prior ruling. First, Joe alleges the trial court erred in ordering an equal division of the net proceeds from the sale of the marital residence without granting Joe credit for any amounts of equity accrued as a result of principal debt reduction attributable to the payment of the mortgage debt by Joe following the parties' separation. Second, Joe contends the trial court erroneously included in the marital estate a parcel of real property located on West Collins Court in Louisville, Kentucky, which had previously been transferred to the parties' adult daughter, Sarah, prior to their separation. Next, Joe contends the trial court erred in allocating to him the entirety of the parties' unsecured debt in the amount of $67,575.00 upon finding the debt was chiefly attributable to Joe's business. Fourth, Joe argues the trial court erred in imputing income to him for purposes of computing the amount of maintenance due to Carole. Finally, Joe alleges the trial court abused its discretion in ordering him to pay $10,000.00 of Carole's legal fees associated with the divorce action.
Joe first argues the trial court erred in failing to grant him a credit for any increase in equity resulting from principal debt reduction on the marital home attributable to his payment of the mortgage debt following the parties' separation. He contends the trial court's decision to evenly split the proceeds from the sale of the residence without such credit creates a windfall for Carole. He cites us to Gibson v. Gibson, 597 S.W.2d 622, 623 (Ky. App. 1980), to support his position. However, a close reading of Gibson reveals Joe's reliance is misplaced.
In Gibson, the wife was permitted to remain in the marital residence with the parties' minor children until the youngest reached the age of majority—a period of ten years. During that time, the husband was ordered to make all mortgage, tax and insurance payments on the residence. On appeal, a panel of this Court concluded the wife should not be permitted to share in the increase in equity occasioned by the husband's reduction of the mortgage indebtedness. The Gibson Court cited little authority for its decision, but it appears the decision was predicated primarily upon the desirability of permitting a spouse with custody of minor children to remain in the marital home.
The Opinion is a scant five paragraphs in length, cites a single statute and a single case—itself containing only two paragraphs applicable to the issue and a singular citation to authority. We seriously question its applicability beyond its own specific facts.
See Kentucky Revised Statutes (KRS) 403.190(1)(d).
Here, the parties' only child had reached the age of majority and did not reside in the marital home, thereby rendering KRS 403.190(1)(d) inapplicable. Further, unlike the husband in Gibson, Joe was permitted to remain in the residence to the exclusion of Carole until it was sold. With these two glaring differences, the holding in Gibson is clearly inapposite. While the trial court would have been within its authority to grant Joe the requested relief, it was certainly not required to do so as suggested by Joe. No authority mandating such a decision has been cited and we are convinced none exists. Further, in light of the vast discretion granted trial courts in making an equitable division of marital property, we do not find error. Smith, 235 S.W.3d at 6. See also Davis v. Davis, 777 S.W.2d 230, 233 (Ky. 1989) ("The trial court has wide discretion in dividing marital property and the division need not be equal, but only 'in just proportions.' KRS 403.190(1).")
Joe next argues the trial court erred in including the real property located on West Collins Court in the marital estate. He alleges the property was validly transferred to the parties' adult daughter by General Warranty Deed executed by both Joe and Carole prior to their separation, thereby removing it from the marital estate. We agree.
In dividing assets in a dissolution action, the initial inquiry must, by necessity, be whether a particular asset is part of the marital estate. It is only after this question has been answered in the affirmative that a court may determine the marital or nonmarital character of the asset for purposes of division. It is elementary that if an asset does not belong to either of the parties, there can be nothing to divide and thus, the inquiry must end. Although generally this is not a great challenge to our trial courts, in the case sub judice, the motivation behind the transaction involved in transferring the West Collins Court property rendered this determination more difficult for the trial court. Nevertheless, we are of the opinion the fee simple transfer of the property to Sarah removed this parcel of real estate from the marital estate, regardless of the reasoning behind the transfer.
Here, the trial court concluded the parties' intent was not to gift the West Collins Court property to Sarah, but rather was intended to shield the substantial equity in the property from Joe's creditors. The trial court believed the maintenance of the property, payment of property taxes, and receipt of rental proceeds, "clearly demonstrates [Joe's] continuing ownership interest of the property by his actions." Based on this belief, the trial court concluded the West Collins Court property was a marital asset and allocated one-half of the original investment cost—that is, $24,950.00—to each party, which amount was used to offset the negative equity in another parcel of property owned by the parties. Our review indicates the trial court erred in looking to the intent of the parties in contravention of the plain language of the deed conveying the property to Sarah.
It is undisputed the purchase price of $49,900.00 was significantly less than the actual value of the property which had been the subject of a mortgage foreclosure sale shortly before Joe purchased it in 2008. The amount of the prior mortgage was in excess of $90,000.00. At the time of trial, the market value of the property was unknown.
Kentucky law traditionally reveres record title and creates a presumption of ownership according to its recitations. "[I]t has long been the law in Kentucky that record title or legal title is an indicia[sic] sufficient to raise a presumption of true ownership." Rakhman v. Zusstone, 957 S.W.2d 241, 244 (Ky. App. 1997) (citations and internal quotation marks omitted). The record clearly indicates—and it is undisputed—that the fee simple transfer to Sarah was for the protection of the property's equity from Joe's and Carole's creditors. The transfer occurred before the parties separated and both executed the deed to effectuate the transaction. The record is devoid of any showing the transfer was intended in any way to dissipate the marital estate or was fraudulent in any way. Nor does the record include any indication of a clandestine agreement by Sarah to re-convey the property to either parent to the exclusion and detriment of the other. Rather, the plain language of the deed indicates the property was being absolutely transferred to Sarah for her own uses and purposes. Contrary to the trial court's conclusion, Joe's continued involvement with the property is not dispositive of the question of ownership. In light of these facts, we believe the West Collins Court property was validly removed from the marital estate prior to the parties' separation and the trial court erred in including its value in its division of marital property. Ensor v. Ensor, 431 S.W.3d 462, 468-69 (Ky. App. 2013), discretionary review denied (June 11, 2014); Culver v. Culver, 572 S.W.2d 617, 620 (Ky. App. 1978). Thus, that portion of the trial court's order must be reversed and remanded for further proceedings concerning the proper valuation and division of the marital estate without reference to the West Collins Court property or any purported equity therein. Consequently, the trial court may also have to revisit other issues to effectuate a just and equitable division of the parties' marital estate.
Third, Joe alleges the trial court erred in allocating to him the entirety of the parties' unsecured debt accrued during the marriage upon finding the debt was chiefly attributable to Joe's business. He contends the trial court's finding was unsupported by the evidence and therefore constituted an abuse of discretion. We disagree.
No statutory authority exists for assigning debt in a dissolution action and, unlike marital property, no presumption exists as to whether debts incurred during a marriage are marital or nonmarital. Neidlinger v. Neidlinger, 52 S.W.3d 513, 522 (Ky. 2001). Rather, debts are generally "assigned on the basis of such factors as receipt of benefits and extent of participation, whether the debt was incurred to purchase assets designated as marital property, and whether the debt was necessary to provide for the maintenance and support of the family." Id. at 523 (internal citations omitted). Another factor, of course, is the economic circumstances of the parties bearing on their respective abilities to assume the indebtedness. Id. As previously stated, the trial court is vested with wide discretion in the division of marital assets and debts, Smith, 235 S.W.3d at 6; Davis, 777 S.W.2d at 233, but there is no requirement such division be equal or even in the same proportion as the division of marital assets. Neidlinger, 52 S.W.3d at 523 (citing Herron v. Herron, 573 S.W.2d 342 (Ky. 1978), and McGowan v. McGowan, 663 S.W.2d 219 (Ky. App. 1983)).
In the case sub judice, the trial court heard uncontradicted testimony from both parties that the unsecured debt was incurred for a combination of familial and business uses. Neither party could attribute specific amounts to either class. Joe believes this vacillation in testimony cuts against the trial court's conclusion that a "substantial portion" of the debt was business related. However, while Joe points to the fact that many of the accounts for which he has now been assigned responsibility were in Carole's name or were exclusively used by her during the marriage, this is not dispositive of the questions of who benefited from the resulting debt and whether the debt was incurred to purchase marital or household assets or for business purposes. Further, the record is devoid of any indication as to what debts are actually represented by the remaining outstanding balances. Joe provides no evidence which would better answer these questions. Without more, we are unable to conclude the trial court abused its broad discretion by concluding Joe was responsible for the debts in question as primarily being related to his various business ventures. The record lacks any evidence suggesting such an abuse.
For his fourth allegation of error, Joe asserts the trial court erroneously imputed income to him for purposes of calculating the amount of maintenance due Carole. In support of his position, Joe contends the trial court erroneously failed to take into account his ordinary and necessary business expenses with respect to his actual income, and further failed to make a threshold finding he was voluntarily underemployed before imputing income to him. We believe Joe's assertions miss the mark.
This Court has held a trial court may impute income to a voluntarily unemployed or underemployed spouse for purposes of determining both entitlement to maintenance and the amount and duration of maintenance. McGregor v. McGregor, 334 S.W.3d 113, 117 (Ky. App. 2011). However, in this case, there was no allegation Joe was either unemployed or underemployed. Rather, the issue rested in the manner in which he reported his income to the federal authorities on his annual tax returns versus the amount of income he actually received. Through the use of creative accounting methods, corporate shells and/or pass-through tax entities, and inventive deductions of operating expenses, Joe has been able to show a considerable loss for each of his corporations for a number of years.
Joe continued this imaginative accounting across to his personal income tax returns. For example, in 2011 his personal income tax return shows zero income from wages or salaries and approximately $4,000.00 in income earned from investments and "officiating." That same return claims approximately $300,000.00 in current and carryover corporate or business losses. Examining the corresponding corporate tax returns yields the distinct impression Joe—or at least his accountant—has engaged in a thinly veiled shell game to shield his income from federal taxation. The game was apparently so successful, however, that Joe was even able in 2011 to claim the Earned Income Credit—generally reserved for low to moderate income earners—while living in, maintaining and remaining current on the mortgage for a home worth in excess of one million dollars. In his own testimony, if he were to be audited the IRS "would probably kick me in the butt."
By way of illustration of the creativeness of Joe's intention to shield his income and assets, the home was the sole asset of one of his corporations, Heirloom Homes, Inc., which "rented" it to another of his corporations, Cattan Inspection and Engineering, for $41,194.00—nearly the same amount as the mortgage payments and taxes due and owing that year on the property. Cattan Inspection and Engineering claimed rental expenses for the entire $41,194.00 against its total earnings. Heirloom Homes, Inc., in turn, had interest, expense and depreciation deductions in excess of the entirety of the amount allegedly received in rent, resulting in a net operating loss. That loss was then passed through to Joe's personal taxes as a business loss.
The trial court was thus tasked with parsing the complicated tax avoidance strategies to determine Joe's actual annual income. The trial court concluded it was statutorily required to closely scrutinize the income and expenses from Joe's self-employment or operation of his various businesses to determine his gross income. After receiving and reviewing all of the financial documents, the trial court found Joe had "actual income earnings and/or income earnings potential of at least $75,000.00 per year from his profession as a home inspector/structural engineer." Added to that amount was an additional $10,800.00 per year representing the amount received for "managing" the West Collins Court property, for a total income of $85,800.00 for purposes of determining spousal maintenance due to Carole. Our review of the record reveals the trial court weeded through the documentary evidence to unearth Joe's true income and because its decision was supported by substantial evidence, we cannot say the trial court clearly erred. Mullins, 317 S.W.3d at 581. Joe's vehement protestations to the contrary are without merit and unsupported by the record or sound legal principles. We discern no "arbitrary action or capricious disposition under the circumstances," Rice, 372 S.W.3d at 452, and thus, no abuse of the trial court's wide discretion.
The trial court relied on language found in KRS 403.212(1)(c), a child support statute, to make this determination. Use of that statute in the realm of spousal maintenance was expressly approved by this Court in McGregor v. McGregor, 334 S.W.3d 113, 117 (Ky. App. 2011). Joe takes no issue with the trial court's use of KRS 403.212 in this manner.
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Fifth and finally, Joe argues the trial court erred in ordering him to contribute to Carole's attorney's fees. He contends the trial court's award "outstrips" his actual and imputed income when maintenance and debt service obligations are taken into consideration. Joe alleges such a result constituted an abuse of the trial court's discretion. Again, we disagree.
KRS 403.220 provides, in relevant part, as follows:
The court from time to time after considering the financial resources of both parties may order a party to pay a reasonable amount for the cost to the other party of maintaining or defending any proceeding under this chapter and for attorney's fees, including sums for legal services rendered and costs incurred prior to the commencement of the proceeding or after entry of judgment. . . .In a dissolution proceeding, the allocation of attorney's fees is "entirely within the discretion" of the family court, Neidlinger, 52 S.W.3d at 519. Even if a disparity in financial resources exists, whether to make such an assignment and, if so, the amount to be assigned is within the discretion of the trial judge. Id. As the trial court is in the best position to observe the conduct and tactics of the parties, broad discretion shall be given to the family court's allocation of attorney's fees. Id. A reviewing court will not disturb the trial court's decision to award or not to award attorney's fees absent an abuse of discretion. See Giacalone v. Giacalone, 876 S.W.2d 616, 620-21 (Ky. App. 1994) (citing Gentry v. Gentry, 798 S.W.2d 928 (Ky. 1990), and Wilhoit v. Wilhoit, 521 S.W.2d 512 (Ky. 1975)).
The record discloses that Joe earns a minimum of $85,800.00 per year imputed to him by the trial court—and very likely considerably more despite his protestations and creative accounting as evidenced by his various tax returns. Carole's sole present sources of income are her $750.00 per month in spousal maintenance and $694.00 per month in social security disability payments, for a total annual income slightly in excess of $17,000.00. In light of this disparity in financial resources, we cannot conclude the trial court abused its discretion in allowing Carole $10,000.00 in attorney's fees.
2013-CA-000756-MR
In this related appeal, Carole presents a single allegation of error. She contends the trial court's decision to modify her maintenance award was unsupported by the evidence. We disagree.
On January 10, 2013, Joe filed a motion seeking to reduce his maintenance obligation based on allegations Carole was cohabitating with another man. At a hearing convened on February 4, 2013, the trial court took testimony from the parties, Sarah, Carole's paramour, one of Carole's friends, and Carole's son from a previous marriage regarding Carole's living arrangements, finances, and relationship with the paramour. Following the hearing, the trial court entered an order stating, in pertinent part,
[t]he Court is persuaded by the case of Combs v. Combs (Ky 1990) 787 S.W.2d 260, which holds in part that a trial court may exercise its equitable discretion in reducing a recipient's spousal maintenance payment as a result of cohabitation, and retains jurisdiction to make subsequent modifications in case of a change of the cohabitation relationship. Given the fact that Ms. Cattan appears to be cohabitating with Mr. Lewgood approximately 40-60% of the time, and that her paramour is not providing further financial support beyond their time together, this Court will make an equitable adjustment to its October 5th Order and lower current spousal maintenance to the prior amount ordered of $750.00 per month.
Carole now argues the evidence was insufficient to show "permanency" of any change in her circumstances or a "long-term relationship" sufficient to justify modifying the maintenance award. She further contends the evidence presented was insufficient to support a finding that her alleged cohabitation conferred a "substantial economic benefit" upon her. She argues these failures mandate reversal.
We review a trial court's determination regarding a motion to modify maintenance for an abuse of discretion. See Bickel v. Bickel, 95 S.W.3d 925, 927-28 (Ky. App. 2002). We cannot substitute our judgment for the trial court's if there is substantial evidence supporting that court's decision. Id. at 928. Further, we may not set aside the trial court's factual findings unless they are clearly erroneous. See Wheeler v. Wheeler, 154 S.W.3d 291, 296 & n. 16 (Ky. App. 2004). Findings of fact are not clearly erroneous if supported by substantial evidence. Ky. State Racing Comm'n v. Fuller, 481 S.W.2d 298 (Ky. 1972). "Substantial evidence" is evidence of substance and relevant consequence sufficient to induce conviction in the minds of reasonable people." Sherfey v. Sherfey, 74 S.W.3d 777, 782 (Ky. App. 2002) (citations omitted). "Clear and convincing evidence does not necessarily mean uncontradicted proof. It is sufficient if there is proof of a probative and substantial nature carrying the weight of evidence sufficient to convince ordinarily prudent-minded people." M.P.S. v. Cabinet for Human Res., 979 S.W.2d 114, 117 (Ky. App. 1998) (internal citation omitted). Hence, the questions for the reviewing court are not whether it would have come to a different conclusion, but whether the trial court applied the correct law and whether the trial court abused its discretion. B.C. v. B.T., 182 S.W.3d 213, 219-20 (Ky. App. 2005). See also Allen v. Devine, 178 S.W.3d 517, 524 (Ky. App. 2005).
There has been no allegation the trial court utilized an incorrect legal standard. Thus, the sole question is whether the trial court's view of the evidence constituted an abuse of discretion. We have reviewed the record, including the videotaped hearing. Some conflicting evidence was quite obviously presented. However, the trial court received largely uncontradicted testimony regarding the intimate and exclusive nature of the relationship between Carole and her paramour, the amount of time Carole spent at her paramour's home, the quantity and nature of her personal belongings moved into the home, and the extent and amount of expenses paid by the paramour. Based on our review, we are unable to conclude the trial court's determination constituted an abuse of its wide discretion. The equitable decision to reduce—but not eliminate—the spousal maintenance award was supported by substantial evidence and will not be disturbed.
For the foregoing reasons, the judgment of the Oldham Circuit Court is affirmed in part. However, with respect to the trial court's inclusion of the real property located on West Collins Court in the marital estate, the matter is remanded for further proceedings consistent with this Opinion.
ALL CONCUR. BRIEFS FOR JOSEPH R. CATTAN: James L. Theiss
James Daniel Theiss
LaGrange, Kentucky
BRIEFS FOR CAROLE ANN
CATTAN:
J. Key Schoen
Louisville, Kentucky