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Court of Appeals of Kentucky.


NO. 2009–CA–001781–MR

Decided: June 17, 2011

BEFORE:  CAPERTON AND THOMPSON, JUDGES;  LAMBERT, Double SENIOR JUDGE. BRIEF FOR APPELLANT:  Kevin D. Samples Tracy D. Frye Michael A. Frye Russell, Kentucky BRIEF FOR APPELLEE:  Richard A. Hughes Ashland, Kentucky



This is an action for dissolution of marriage.   James Galloway alleges that the Greenup Family Court erred when it awarded the marital residence to Sandra Marie Galloway as non-marital property and awarded maintenance in the amount of $500 per month.   We conclude that the circuit court committed clear error when it found that the marital residence was a gift to Sandra from James.   We affirm the maintenance award.

Because Sandra accepts James's statement of the facts, we recite the facts as he presents them.

The parties were married on October 12, 1983, and separated on February 12, 2009, when there were no minor children and the largest asset was the marital residence.   On August 11, 2009, a final hearing was held regarding the division of property and maintenance.

At the hearing, the parties acknowledged that the marital residence was titled solely in Sandra's name.   James and Sandra testified that a quitclaim deed transferring the property to Sandra was executed by the parties in 1992 for the purpose of protecting the home from creditors.   The quitclaim deed was drafted by an attorney Sandra retained and James did not participate in its drafting.

Concurrent with the execution of the quitclaim deed, the parties executed a written agreement.   Although James purported to transfer his interest in the property to Sandra, the agreement further provided:

The parties agree to stipulate that if Sandra Galloway should ever sell said real estate the proceeds from said real estate sale should be distributed in the following manner:  all indebtedness against the real estate would be paid, Sandy Galloway should be reimbursed for any improvements or repairs, and any remaining monies are to be divided evenly between Sandra and Jim.

Following the execution of the quitclaim deed, the parties continued to reside in the marital residence.   During that time, the property remained encumbered by a mortgage paid by marital funds until April 2008, when the parties used $100,000 from a personal injury settlement received by James to pay the remaining mortgage indebtedness.

Much of the remaining testimony focused on the parties' spending habits and the use of funds received between March 2008 and December 2008, in the approximate amount of $340,000.   In addition to the $272,000 personal injury settlement, in 2008 James received $107,000 (pre-tax) from the sale of his CSX stock and a Productivity Fund payment of $97,000.   From the personal injury settlement proceeds, $130,000 was used to pay martial debts, including the mortgage indebtedness.   The remaining funds were equally divided between the parties and placed in their individual accounts.   Net proceeds from the CSX stock sale were likewise equally divided.   Finally, $25,000 from the Productivity Fund received in May 2008 was equally divided between the parties and the remaining $70,000 placed in an IRA account.   However, James withdrew funds from the account and only $30,000 remained in December 2008 and when he cashed it out in February 2009, $20,000 remained which James gave to Sandra.

James candidly testified that much of the money deposited into his accounts was spent on gambling and drinking.   Sandra admitted that she received approximately $130,000 from funds at the time of the hearing but only $12,000 to $13,000 remained.   She explained that she purchased a vehicle for $40,000 and donated approximately $75,000 to $80,000 to her church, children and needy families.

Currently, both parties receive disability benefits.   James's monthly income is $3,182 and his expenses are $2,301, which he expects to increase to $2,801 in June 2010 when he will be required to pay his medical insurance.   Sandra testified to monthly expenses of $2,293 per month and an income of $921 per month.

Finally, James testified that there is a tax liability for 2008 in the amount of $18,294 with an additional $458 in penalties.

The circuit court found that the quitclaim deed of the property to Sandra constituted a gift from James to Sandra and, therefore, it was awarded to her as non-marital property.   Further, Sandra was awarded maintenance in the amount of $500 per month until she receives railroad retirement benefits.   The 2008 tax liability was assigned to James.   After James's post-judgment motion was denied, he timely filed a notice of appeal.

The initial issue is whether the circuit court properly found that the marital residence was Sandra's non-marital property.   In a dissolution action, KRS 403.190(1) requires that a court first classify property as marital or non-marital, then assign to each party his or her non-marital property, and finally to divide the marital property equitably between the parties.   See Travis v. Travis, 59 S.W.3d 904 (Ky.2001).   Property acquired after the marriage is presumed to be marital property regardless of whether title is held individually or by the spouses in some form of co-ownership.  KRS 403.190(3).   However, the presumption can be overcome by a showing that the property was acquired by gift or acquired in exchange for property acquired by gift.  KRS 403.190(2).   Because after-acquired property is presumed to be marital, the party who claims any property acquired after or during the marriage as non-marital bears the burden of proof.  Chenault v. Chenault, 799 S.W.2d 575 (Ky.1990).

Our standard of review requires that due regard be given the findings of the trial judge and findings of fact shall not be set aside unless clearly erroneous.  CR 52.01.   A finding of fact is not clearly erroneous when it is supported by substantial evidence “which has sufficient probative value to induce conviction in the mind of a reasonable person.”  Hunter v. Hunter, 127 S.W.3d 656, 659 (Ky.App.2003).   Thus, the question is whether there is substantial evidence to support the circuit court's finding that Sandra rebutted the presumption that the martial residence acquired during the marriage was marital property.

Four factors have been identified when deciding whether the transfer of property between spouses or from a third party constitutes a gift and considered non-marital property:  (1) the source of the money with which the “gift” was purchased;  (2) the intent of the donor;  (3) the status of the marriage relationship at the time of the transfer;  and (4) the existence of any valid agreement that the transferred property was to be excluded from the martial property.  O'Neill v. O'Neill, 600 S.W.2d 493, 495 (Ky.App.1980).   Our Supreme Court has emphasized that the donor's intent is the primary factor.  Sexton v. Sexton, 125 S.W.3d 258, 268–269 (Ky.2004).

When applied to the undisputed facts, the factors delineated in O'Neill mandate a finding that James did not intend to gift his marital interest in the residence to Sandra and, consequently, it remained marital property.

The residence was purchased during the marriage and paid for with marital funds.   Sixteen years before the dissolution action was filed, the quitclaim deed and agreement were executed in an attempt to insulate the residence from creditor's claims.   The agreement executed at the time expressly stated James's intent to retain his marital interest in the property by providing that if the house was sold, he was entitled to one-half the proceeds.   Under the undisputed facts, we conclude there is no substantial evidence to support the circuit court's finding that James gifted the property to Sandra.   Therefore, that portion of the judgment is reversed and the case remanded with instructions that the residence be classified as marital property subject to division pursuant to KRS 403.190.

The remaining issues concern maintenance and the tax liability incurred in 2008.   The award of maintenance and the allocation of marital debts are matters within the discretion of the trial court.  Clark v. Clark, 782 S.W.2d 56, 63 (Ky.App.1990) (maintenance awards will not be disturbed unless absolute abuse is shown).   We have reviewed the record and conclude there is no reversible error.   The circuit court properly applied the factors set forth in KRS 403.200 when it awarded $500 per month maintenance until she receives railroad retirement benefits.

James admitted to excessive gambling resulting in an early withdrawal from his retirement account which the circuit court found resulted in the 2008 tax liability.   We review the assignment of debt accumulated during the marriage under an abuse of discretion standard considering the following factors:

Debts incurred during the marriage are traditionally 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.   Another factor, of course, is the economic circumstances of the parties bearing on their respective abilities to assume the indebtedness.

Neidlinger v. Neidlinger, 52 S.W.3d 513, 523 (Ky.2001)(internal citations

omitted). James admitted to excessive gambling and chose to withdraw the funds from his tax deferred retirement plan.   Considering the factors set forth in Neidlinger, we conclude there was no abuse of discretion.

The judgment of the Greenup Family Court is affirmed except its finding that the marital residence is Sandra's non-marital property and the case remanded with instructions that the marital residence be subject to division as marital property pursuant to KRS 403.190.

all concur.