Opinion
Supreme Court No. S-11467.
November 15, 2006.
Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Sharon L. Gleason, Judge. Superior Court No. 3AN-03-8130 Civil.
Daniel O'Phelan, Anchorage, Ronald A. Offret, Aglietti, Offret Woofter, Anchorage, for Appellant.
Kyung Rock Kim, pro se, Anchorage.
Before: Bryner, Chief Justice, Matthews, Eastaugh, Fabe, and Carpeneti, Justices.
MEMORANDUM OPINION AND JUDGMENT
Entered pursuant to Appellate Rule 214.
I. INTRODUCTION
This case presents questions arising out of the superior court's division of a divorcing couple's property. We conclude that the superior court properly divided the property and made an appropriate award of attorney's fees.
II. FACTS AND PROCEEDINGS
Hyon Morrissette and Kyung Rock Kim married on February 14, 1999. The parties separated in February 2003, when Morrissette was forty and Kim was forty-five. The couple had no children together.
During the marriage, Morrissette and Kim participated in several different businesses ventures, some jointly and some individually, and acquired several pieces of property. Morrissette continued to operate a beauty salon as she had done prior to the marriage. She also used funds from the sale of a condominium she owned before the marriage to purchase a house into which the couple moved. Together, the parties purchased a strip mall and a gas station. Kim worked both at the gas station and as an employee of Alaska Seafood Export.
In the course of the parties' divorce proceedings, the superior court presided over a settlement conference in December 2003. The parties could not settle all of their outstanding property disputes at that time, so the superior court later conducted a multi-day property division trial. As part of its categorization, valuation, and distribution of the parties' property, the superior court deemed the couple's home to be marital property, determined an amount of money that Morrissette received from Michael Marshall to be part of a money club concept rather than a loan, and recaptured the value of the couple's gas station by assigning the original value to Kim. The superior court also awarded $6,622 in attorney's fees to Kim.
Morrissette disputed some of the superior court's categorizations and valuations as well as its award of attorney's fees to Kim. As a result, she filed a motion for reconsideration. After the superior court denied her motion in most material respects, Morrissette filed this appeal.
III. STANDARD OF REVIEW
While we employ a number of different standards of review when examining a superior court's division of a divorcing couple's property, we always keep in mind that "[t]rial courts have broad discretion in fashioning property divisions." We review for abuse of discretion both a "trial court's determination of what property is available for distribution" and its equitable allocation of that property. We reverse an allocation if it is "clearly unjust." If the superior court made any legal determinations about what property was distributable, we review those determinations using our independent judgment. When reviewing a superior court's factual findings about either the valuation of property or whether "parties intended to transmute separate property into marital property," we will reverse only if the findings are clearly erroneous.
Edelman v. Edelman, 3 P.3d 348, 351 (Alaska 2000).
Green v. Green, 29 P.3d 854, 857 (Alaska 2001).
Id. (quoting Cox v. Cox, 882 P.2d 909, 914 (Alaska 1994)).
Id.
Id.
Superior courts also have "broad discretion to award attorney's fees in a divorce action, and we will not overturn such an award unless it is arbitrary, capricious, or manifestly unreasonable."
Miller v. Miller, 105 P.3d 1136, 1144 (Alaska 2005).
IV. DISCUSSION
A. The Superior Court's Characterization of the House as Marital Property
The superior court found the house where the parties had resided during most of their marriage to be a marital asset. The court divided the equity in the home (which amounted to $79,365) equally between the parties.
1. Rescission
Morrissette first argues that the superior court erred when it failed to return the parties to their pre-marital financial positions as permitted by Rose v. Rose. According to Morrissette, the superior court should have applied Rose and returned to Morrissette the pre-marital assets that she used as a down payment on the house.
755 P.2d 1121 (Alaska 1988).
In Rose, we held that
in marriages of short duration, where there has been no significant commingling of assets between the parties, the trial court may, without abusing its discretion, treat the property division as an action in the nature of rescission, aimed at placing the parties in, as closely as possible, the financial position they would have occupied had no marriage taken place.
Id. at 1125.
We concluded that rescission was permissible given the facts presented by Rose — namely, that "the parties were married only eighteen months" and "[d]uring that period, they maintained completely separate economic identities, carrying on their individual fiscal affairs in the same manner as they had prior to their marriage."
Id.
Morrissette argues that the superior court should have effected a Rose rescission in this case because her marriage to Kim lasted less than four years and was "between two adults of equivalent ages, both who testified that they were employed."
We note that our decision in Rose permitted but did not require a rescission. Moreover, the facts of this case do not lend themselves to an application of Rose. For one thing, a marriage lasting four years is of much longer duration than the eighteen-month marriage at issue in Rose. More importantly, in the course of their marriage, Kim and Morrissette engaged in several joint economic ventures, including purchasing a strip mall and a gas station together. As a result, they by no means "maintained completely separate economic identities." For the foregoing reasons, we conclude that the superior court did not err when it declined to use Rose's rescission approach when dividing the couple's property.
Id. ("[T]he trial court may, without abusing its discretion, treat the property division as an action in the nature of rescission. . . ." (emphasis added)).
Id. The superior court, in its denial of Morrissette's motion for reconsideration, explained that a Rose rescission should not apply in this case "particularly given the major change in position that [Kim] made in marrying [Morrissette] and leaving his home country of Korea." Morrissette argues that the court should not have considered Kim's move when reaching a decision about whether a Rose rescission was applicable. Since a Rose rescission aims to place "the parties in, as closely as possible, the financial position they would have occupied had no marriage taken place," the superior court's consideration of Kim's move is understandable. Id. Given Kim's move to America, it would be impossible for the court to return the parties to their situation prior to the marriage.
Since Morrissette asks that other property be deemed marital, Morrissette appears to be arguing that the superior court should have applied Rose's rescission theory only to the couple's house. In Dunn v. Dunn, the superior court divided most of a divorcing couple's property according to Rose's rescission theory but equitably divided the parties' remaining asset, a van. 952 P.2d 268, 273 (Alaska 1998). We approved the superior court's separate treatment of the van because the evidence suggested that the parties intended for the van to be a family vehicle. Id. at 273-74. Equitably dividing one of a couple's assets makes sense; applying Rose's rescission theory to one asset does not. The parties have either maintained largely separate economic identities, in which case application of Rose is permissible, or they have not. When the parties have failed to maintain separate economic identities, as in this case, the superior court, rather than applying Rose, should determine whether any assets acquired with premarital funds became marital either through transmutation or active appreciation. Morrissette's contention that the superior court erroneously found the house to have transmuted into marital property is addressed in the next section.
2. Transmutation
Morrissette next argues that because she used her separate funds to make a down payment on the home and in no way evinced an intention to make the house marital property, the superior court erred when it deemed the house to be marital property.
Morrissette is correct that "[p]roperty purchased during a marriage, yet paid for out of one party's separate assets, may be considered a premarital asset. . . ." However, that is only true "so long as the parties did not demonstrate an intent to jointly hold the property." If such an intention exists, the separate property will transmute into marital property. "Transmutation from separate property into marital property is based upon `the intent of the owner of the separate property, as demonstrated through . . . words and actions.'" This court has
Lowdermilk v. Lowdermilk, 825 P.2d 874, 878 (Alaska 1992).
Id.
Green, 29 P.3d at 857 (quoting Sampson v. Sampson, 14 P.3d 272, 277 (Alaska 2000)).
identified standards for determining whether separate real property has been transmuted into marital property, including: (1) the use of property as the parties' personal residence; (2) the ongoing maintenance and management of the property by both parties; (3) placing title in joint ownership; and (4) using the credit of the non-titled owner to improve the property.
Id. at 858.
In its oral disposition of the case, the superior court mentioned only the first of these standards, concluding that the house was a marital asset because the parties resided there. Subsequently, in its written order responding to Morrissette's motion for reconsideration, the superior court acknowledged that "there was some conflicting evidence presented at [trial]" but then reiterated that "the court finds that on balance the parties' intention was to treat this residence acquired during the marriage where the couple resided together as a marital asset." To further justify its decision, the superior court noted that the parties had stipulated during a December 2003 settlement conference that the house debt was marital. According to the superior court, "[i]t logically follows that the house itself should be considered a marital asset, which at the very least was implicit in the parties' partial settlement on record on that date."
Morrissette argues that the court erred when it considered statements made during the December 9, 2003 settlement conference, since Alaska Rule of Evidence 408 excludes statements made during settlement conferences. However, it is clear from the settlement conference record that the superior court was entirely justified in considering the parties' stipulation that the marital home debt was marital. At the conclusion of the conference, the superior court stated on the record that the "[p]arties have made a few agreements today. They have stipulated to some various items that in the event they do need to have a trial will help expedite some of those issues." Among other things, the parties stipulated that the first mortgage on the home, in the amount of $230,535, was a marital debt. Since the parties' agreement about the marital nature of the mortgage was not reached for the limited purpose of trying to reach a comprehensive settlement but was instead a partial agreement that the parties intended to last through trial, the superior court validly considered it when determining the nature of the property.
As the superior court acknowledged, an analysis of the enumerated standards for determining transmutation in this case leads to mixed results. Kim admits the title to the house was in Morrissette's name alone. Kim's statements that he did housework and paid some bills likely do not justify a finding that the property was marital, since a finding of transmutation "based on management and maintenance of separate property requires significant involvement by both spouses." On the other hand, the parties lived in the house together and agreed that the first mortgage on the house constituted a marital debt. Given this evidence of joint residence and the parties' stipulation, we cannot conclude that the superior court's finding of transmutation was clearly erroneous. B. The Money That Morrissette Received from Michael Marshall
Harrower v. Harrower, 71 P.3d 854, 858-59 (Alaska 2003) (citation omitted). Morrissette argues that the superior court should not have accorded evidentiary weight to checks written by Kim to pay for utilities. Because we conclude that the superior court had sufficient alternative evidence from which to find that the property had transmuted into marital property, we need not address this argument.
Since we uphold the superior court's finding that the house transmuted into marital property, we do not need to address Morrissette's argument that the superior court should not have invaded her premarital assets.
In January 2003 Morrissette received $55,000 from Michael Marshall. The superior court found that rather than borrowing money from Marshall, as Morrissette argued, Morrissette likely received the funds as part of a "money club concept." The court therefore did not deem the amount received to be an obligation of the marriage.
According to Morrissette, there was no difference between the testimony of Marshall and the testimony of witnesses whom the court determined had made actual loans to Morrissette. Morrissette argues that the superior court erred when treating the money that Marshall gave Morrissette differently from every other transfer "that was presented with the same form of evidence." Morrissette further argues that "there was no evidence that a money club existed."
Marshall testified that the money he gave to Morrissette was a loan. The superior court did not ignore this evidence, but rather relied on the fact that Morrissette's own financial disclosures did not correspond with Marshall's testimony. The superior court noted that prior to the trial Morrissette "indicated . . . in a sworn statement, that she owed Mr. Marshall $100,000 payable at $1,500 a month." Marshall testified at trial that he lent Morrissette $55,000 because she was his wife's best friend, that Morrissette had not repaid any of the funds, and that she was under no pressure by him to do so. He presented as evidence two canceled checks totaling $55,000, with the word "loan" written in the memo line. Morrissette failed to address any differences between the pre-trial information she provided to the court and Marshall's trial testimony.
This was not the only problem related to Morrissette's financial disclosures. The superior court expressed concern about evidence indicating that "approximately a million dollars of assets . . . went through [Morrissette's] bank account during the course of the parties' marriage," and believed that it was likely that "there are other assets that have not been disclosed" to the court.
There was also ample evidence of Morrissette's involvement in money clubs. Kim testified as to the existence of the clubs, and provided copies of canceled checks written by Morrissette that had "money club funds" written in Korean on the memo line. Morrissette herself testified that she received "money funds from the people," and one of Morrissette's witnesses, Kilja Zong, testified on cross-examination that he operated a money club. While the exact structure of the money clubs is unclear, Kim claims that the money clubs are agreements under which everyone contributes a set amount each month, and receives a large amount back at a predetermined time. In other words, "it's just another way of saving money." If this is correct, any money club payments to Morrissette were not loans.
Given the evidence of money clubs and the serious discrepancies between Marshall's testimony and Morrissette's financial disclosures, the superior court's finding that the funds from Marshall were not an obligation of the marriage was not clearly erroneous.
C. The Amount Owed to Kim by Alaska Seafood Export
During its oral findings and conclusions made at the end of trial, the superior court did not address a sum of money that Kim had loaned to Alaska Seafood Export. In her motion for reconsideration, Morrissette asked the court to deem this account receivable an asset of the marriage.
The court responded by finding "that there is no reasonabl[e] probability of the repayment of any sum from Alaska Seafood Export, and that accordingly, any such receivable should be valued at $0." Morrissette argues that because Kim did not disclose until trial that he had made the loan to Alaska Seafood Export, she was unable "to investigate, evaluate, and validate" the account receivable, and that the court therefore erred when it concluded that the account receivable had no value.
Kim testified about his loan to Alaska Seafood Export on March 1 and March 10. Morrissette did not object to the introduction of evidence that had not been disclosed prior to trial and did not request an opportunity to investigate the value of Kim's loan to Alaska Seafood Experts. Therefore, this issue is waived. D. The Amount That Kim Removed from the Gas Station
See, e.g., Wal-Mart, Inc. v. Stewart, 990 P.2d 626, 640 (Alaska 1999) ("Wal-Mart waived most of the evidentiary rulings that it now appeals because it failed to raise the proper objections during the trial.").
At the conclusion of trial, the superior court found that Kim "should be solely responsible for the decrease in the value of the asset of the gas station from the $250,000 value it had shortly before the parties' separation to the zero value that it has at this point." As a result, the court recaptured the value of the gas station by placing $250,000, the station's original value, on "Mr. Kim's side of the equation."
Morrissette argues that the superior court's recapture of the value of the gas station was insufficient to remedy the diminution in the asset's value. According to Morrissette, Kim removed $5,200 from the gas station's bank account after the superior court ordered Kim not to engage in any further transactions involving the gas station. Morrissette contends that she prevailed in a subsequent motion to show cause "and the court ordered that the sum of $5,200.00 be allocated in [her] favor at the time of the divorce judgment." In her motion for reconsideration, Morrissette requested that in addition to recapturing the value of the gas station, the superior court should also award her $5,200. The superior court refused "to accord a credit for the sums removed from the gas station account since the entire value of the gas station was recaptured in the court's property division."
The superior court scheduled a show cause hearing to determine why Kim "should not be held in contempt of court for allegedly engaging in financial transactions and bank withdrawals" in violation of the court order. While the hearing appears to have taken place on October 27, 2003, the proceedings were not transcribed.
We agree with the superior court's treatment of the gas station's diminution in value. When the superior court placed the original value of the gas station on Kim's "side of the equation," the court remedied all of Kim's depletion of the gas station's value, regardless of whether that depletion occurred through Kim's withdrawal of funds from the business's accounts or through some other means. Morrissette benefitted from the recapture because she got the equivalent of a deduction in the amount of the gas station's original value from the amount she owed her ex-husband as a result of the property division. If Morrissette now received a credit for $5,200 of the gas station's $250,000 value, she would be compensated twice for Kim's wrongdoing with respect to that $5,200. The fact that Kim allegedly violated a court order by taking the $5,200 does not justify compensating Morrissette twice. The superior court was therefore correct to deny Morrissette a credit.
By recapturing the value of the gas station, the court appropriately dealt with Kim's depletion of the gas station's value. See Jones v. Jones, 942 P.2d 1133, 1140-41 (Alaska 1997) ("The proper method for dealing with an unreasonable depletion of marital assets would be for the trial court to recapture the proven losses by adding their value to the marital estate before making the equitable division and then crediting that part of the value to the account of the party responsible for the unreasonable depletion.").
See Jones, 942 P.2d at 1141 (warning the superior court not to "double count" by both recapturing assets depleted by the husband and "mak[ing] a preferential division of the marital property in favor of [the wife] because of any waste of assets that it found").
E. Kim's Failure To Make Disclosures During Discovery
Prior to trial, the superior court granted Morrissette's motion to compel discovery. The superior court ordered Kim to "immediately disclose all information pertaining to any and all fish purchasing, selling, or processing businesses, any and all information pertaining to his matchmaking business, and . . . the name and address of his sister and her business." During his closing arguments at the end of trial, Morrissette's attorney again raised the issue of discovery, complaining that all Kim had disclosed was that his business made no money.
Morrissette argues on appeal that her right to due process was violated when the court divided the marital estate without Kim ever having disclosed the value of one of his businesses. Morrissette contends that because Kim failed to disclose information about his business, the court should deny him "any interest in the marital estate."
We have held that because "[a] fair and meaningful hearing does entail adequate access to information requested in discovery," if a litigant "sought to compel discovery, and the [judge] ignored her request, her right to due process may have been infringed." To determine whether a due process violation occurred, we examine the record to see if the litigant requested the judge "to compel discovery and, if so, whether the [judge] adequately addressed her request." Here, the superior court granted Morrissette's motion to compel discovery. Morrissette's due process argument appears to derive from the superior court's alleged failure to enforce that order to compel. However, no evidence in the record suggests that Morrissette informed the court prior to trial that Kim had failed to comply with the order to compel. Morrissette's attorney did mention in his closing argument Kim's failure to disclose details about his business, but the attorney did not seek any particular action on the part of the court to rectify this failure. Since the superior court, by issuing an order to compel discovery when requested to do so by Morrissette, attempted to ensure that Morrissette obtain discovery, we conclude that the superior court provided Morrissette with due process.
Rollins v. State, Dep't of Revenue, Alcoholic Beverage Control Bd., 991 P.2d 202, 211 (Alaska 1999) (citation omitted).
Id. at 211-12.
F. The Superior Court's Award of Attorney's Fees
1. The relative economic situations of the parties
Both parties in this case sought attorney's fees at the conclusion of trial. In order to make an award of attorney's fees in a property division case, the superior court must consider the parties' relative earning capacities and economic situations.
Edelman v. Edelman, 3 P.3d 348, 359 (Alaska 2000).
The superior court repeatedly remarked during its oral findings and conclusions that it did not have a clear picture of the financial situation of either party. The court nevertheless concluded that Kim's financial situation was worse than Morrissette's, in part because "Morrissett[e] has demonstrated that from somewhere there's a million dollars coming through her bank account in the course of four years and through money clubs or whatever other investments there may be" and in part because Kim "relocated from his country of origin far more recently than Ms. Morrissett[e]," with the result that he faces more "language barriers." The superior court also found that Kim "has at the present no established business at least that was made clear to me."
Morrissette argues that the superior court had no valid evidence from which to conclude that she had a greater earning capacity than Kim. According to Morrissette, the superior court could not accurately determine Kim's earning capacity, since Kim did not disclose information about his business interests. Furthermore, Morrissette argues that the court erred when it accorded evidentiary weight to an exhibit supposedly documenting deposits totaling over a million dollars into Morrissette's personal account. The deposits were tabulated by Nina Kim (also known as Nina Allworden), a non-expert witness called by Kim. Because the figures were tabulated by a non-expert, because the exhibit did not specify the nature of the deposits, and because Morrissette had no advance notice of the exhibit, Morrissette argues that the court should not have granted it any evidentiary weight.
Morrissette describes Nina Kim as Kim's girlfriend.
A review of the three days of the trial that were transcribed in this case supports the superior court's conclusion that "each side has chosen to present . . . only a tip of the iceberg," with the result that the court could not develop "a complete understanding of the parties' finances." The court therefore had to do its best with the evidence presented to determine the parties' economic situations. While Morrissette is correct that the deposit exhibit did not describe the nature of the deposits, the superior court acknowledged that many of the deposits likely consisted of loans and debts. Given the dearth of other relevant evidence, the superior court appropriately used the deposit exhibit to help determine the parties' relative economic positions. The deposit exhibit, coupled with Morrissette's clearly superior command of English and the fact that Kim had to borrow money from Nina Kim to pay for expenses including his attorney's fees, supports the superior court's conclusion that Morrissette had a better economic situation and a higher earning potential than did Kim. As a result, we cannot conclude that the superior court's award of fees to Kim was arbitrary, capricious, or manifestly unreasonable.
2. Kim's conduct
Morrissette also argues that Kim's failure to comply with discovery rules and his violation of a court order that he disclose information about his businesses constitute bad faith that should preclude him from receiving attorney's fees.
The superior court addressed the issue of Kim's conduct when making its decision about attorney's fees. Morrissette apparently had argued that she should receive fees because of Kim's vexatious conduct. The court disagreed, finding that Morrissette "has not demonstrated . . . that the conduct of Mr. Kim and the conduct of the litigation was of such nature as to warrant that there would be fees awarded to Ms. Morrissett[e], and to the extent there was inappropriate conduct, I feel that . . . that's been fully addressed in the recapture of the gas station."
Kim's alleged misconduct consisted of more than just his depletion of the value of the gas station, and therefore could not have been fully addressed by the recapture of the gas station. However, the superior court had no obligation to reduce the amount of attorney's fees awarded to Kim. In Beard v. Beard, we held "that a trial court may rely on a divorcing party's misconduct to reduce or deny an otherwise appropriate fees award," not that the court must reduce the award. Since we overturn an attorney's fees awards only if the trial court's determination was "arbitrary, capricious, or manifestly unreasonable," we uphold the superior court's decision to award Kim $6,622 in attorney's fees.
947 P.2d 831, 835 (Alaska 1997) (emphasis added).
Miller, 105 P.3d at 1144; see also Beard, 947 P.2d at 833.
V. CONCLUSION
For the above reasons we AFFIRM the superior court's division of the couple's property and its award of attorney's fees to Kim.