Janis Hayden v. Rex Hayden

Family Law - Divorce - Alimony: Plaintiff Janice Hayden appeals from an order
of the Addison Family Court ordering defendant Rex Hayden to pay plaintiff
$1000 per month in spousal maintenance and dividing the parties' marital
property between them. Plaintiff contends that the maintenance award is
insufficient to meet her reasonable needs and that the property division is
inequitable. She argues that the family court erred: (1) in valuing
defendant's 401(k) plan on the date the parties separated instead of on the
date of the final hearing in this matter; (2) in excluding funds
contributed to defendant's IRA before his marriage when valuing the IRA for
purposes of property division; (3) in considering a "hypothetical" real
estate commission on a potential sale of the marital home in determining
defendant's rightful share of the parties' property; (4) in failing to
divide the parties' assets on an "essentially equal" basis even though it
had expressed an intent to do so; and (5) in ordering a maintenance award
that subordinated plaintiff's need for spousal maintenance to defendant's
desire to avoid bankruptcy. We reverse.

2. The parties were married in 1985, and separated in 2000.
Defendant is a mechanical engineer currently earning $81,000 per year.
Plaintiff has an associate's degree in health information technology and
has worked sporadically in various administrative assistant jobs, but at
the time of the final hearing she held no steady employment. Plaintiff's
ability to work was a contested issue at the final hearing. Due to various
health problems, her doctor testified that she would have difficulty in an
employment situation requiring prolonged concentration or physical
activity. Nevertheless, the trial court found that she could successfully
handle part-time employment.

3. The parties' marriage produced one child, a daughter who was
four-and-one-half years old at the time of the final hearing in this case.
Plaintiff has custody of the child, and defendant has visitation rights.
The court found that "[c]ustody of the child is not a bar to the wife's
working. The child is presently in full-time daycare . . . . The mother
testified the full-time daycare is 'for her good and mine.' " Thus the
trial court determined that despite its finding that plaintiff suffers from
sleep apnea, degenerative arthritis, depression, and reflux/hiatal hernia,
and given that her daughter was in day care, plaintiff should be able to
work part-time.

4. The parties have come to an agreement regarding parental
rights and responsibilities and related issues; thus, the only outstanding
issues on appeal are property valuation, property division, and spousal
maintenance. The existence of almost $70,000 in credit card debt, held
separately by the parties, complicates the situation. Defendant holds
slightly more debt than plaintiff, but both face significant minimum
monthly payments.

5. The court awarded defendant an IRA, a 401(k) retirement
account, a truck, the marital home, and tools and equipment, which the
trial court valued at $82,000, while awarding plaintiff two IRAs, a car,
and a trailer with a total value of $78,000. In its conclusions, the court
stated that the "[a]ssets of the parties should be divided equally," and
the decision noted that the distribution made by the court was "essentially
equal." The trial court did not state explicitly how it valued the
retirement accounts awarded to defendant. The parties disagreed over the
appropriate valuations for these two accounts, each proposing different
values based on different assumptions about the extent to which the
accounts were marital property. Both parties agree, however, that the
court accepted defendant's suggested assessment, valuing the 401(k) account
at the date of separation and excluding money contributed to the IRA by
defendant prior to the parties' marriage. As a result, the value
attributed to the accounts by the trial court was $31,246 less than the
total amount of money in the accounts on the day of the final hearing.
Considering the retirement accounts awarded to defendant to be worth their
value on the day of the final hearing, the court awarded defendant assets
worth $113,000, and awarded plaintiff assets worth $78,000. This means
that defendant received 59% of the assets, and plaintiff received 41% of
the assets.

6. The court also awarded plaintiff spousal maintenance in the
amount of $1000 per month. The trial court stated that the maintenance
award was intended to comply with this Court's holding that spousal
maintenance is intended to correct the vast inequality of income resulting
from the divorce, Russell v. Russell, 157 Vt. 295, 299, 597 A 2.d 798, 800
(1991), and should be awarded "to equalize the standard of living of the
parties for an appropriate period of time." Downs v. Downs, 159 Vt. 467,
469, 621 A 2.d 229, 230 (1993). The court found that based on the monthly
budget presented by defendant detailing expenses of $5,548 per month,
defendant could afford to pay $1000 in maintenance while still making $770
monthly minimum credit card payments. Plaintiff had submitted monthly
expenses of $6,935, but this included $4,185 in credit card debt that the
trial court found plaintiff would be unable to repay. (FN2) Excluding credit
card payments, plaintiff's actual monthly expenses total $2,757. The
court's maintenance award of $1000 per month, when added to the $771 per
month she receives in child support payments, leaves plaintiff with a
monthly shortfall of $986. The trial court concluded that plaintiff "will
be able to meet her reasonable needs if she pursues even part-time
employment."

A.

7. Plaintiff first contends that the court erroneously treated a
significant portion of the funds contained in retirement accounts awarded
to defendant as nonmarital property. The trial court valued defendant's
401(k) retirement account on the date the parties separated in March 2000
rather than on the date of the final hearing in January 2002, thus
attributing $13,568 less to the account than the amount of money it
actually contained on the date of the final hearing. Similarly, the trial
court undervalued defendant's IRA account by attributing a value to the
account that excluded the amount that defendant had accrued in this account
prior to the parties' marriage. Defendant's submissions to the trial court
describe the value for the account used by the trial court as the IRA's
"marital value." The so-called marital value of the IRA was $17,678 less
than the monetary value of the account on the date of the final hearing.

8. The court erred when it failed to consider the entire monetary
value of the retirement accounts at the time of the final hearing as assets
to be distributed between the parties. Under Vermont law, "[a]ll property
owned by either or both of the parties, however and whenever acquired,
shall be subject to the jurisdiction of the court." 15 V.S.A. § 751(a);
Wall v. Moore, 167 Vt. 580, 581, 704 A.2d 775, 777 (1997) (mem.). Assets
are valued for distribution purposes as of the date of the final hearing,
regardless of whether acquired before or after the marriage. See Camisa v.
Camisa, 168 Vt. 563, 565, 714 A.2d 641, 644 (1998) (mem.) (after remand,
court required to rely on the current value of an asset rather than its
value at the time of the first hearing); Milligan v. Milligan, 158 Vt. 436,
440, 613 A.2d 1281, 1284 (1992) ("The trial court has power to distribute
marital assets, including bank accounts and securities, in whatever manner
it finds just and equitable, regardless of the prior owner."); Cleverly v.
Cleverly, 151 Vt. 351, 354-55, 561 A.2d 99, 101 (1989) ("It is an abuse of
discretion for the trial court to premise its division of marital property
on outdated valuations of the assets involved.").

9. While the trial court opinion contains no discussion that
could assist this Court in meaningful review, defendant proposes two legal
bases for the trial court's order. First, defendant cites the provision of
15 V.S.A. § 751 that allows the trial court, in making a property
settlement, to consider "the party through whom the property was acquired."
15 V.S.A. § 751(b)(10). Ample precedent establishes the trial court's
authority to restore property to the partner who brought the property to
the marriage. See, e.g., Myott v. Myott, 149 Vt. 573, 578-79, 547 A.2d
1336, 1340 (1988) (approving trial court's award of plaintiff's vested
pension benefits to plaintiff while other assets were divided equally
between the parties); Klein v. Klein, 150 Vt. 466, 469, 555 A.2d 382, 384
(1988) (approving award that takes into account that a "substantial share
of the assets came from plaintiff's inheritance from his father"). The
trial court is still, however, required to consider the property as part of
the marital estate and to explain the basis for its disposition, which did
not occur here. See Osborn v. Osborn, 147 Vt. 432, 433, 519 A.2d 1161,
1162 (1986) (requiring the trial court to consider husband's undistributed
share of his mother's estate in formulating appropriate property
settlement, as "[u]nder 15 V.S.A. §§ 751 the trial court was required to
settle the rights of the parties to all of their property"); Richard v.
Richard, 146 Vt. 286, 287, 501 A.2d 1190, 1190 (1985) (emphasizing that
court's findings that are the basis for a property settlement must always
"provide a clear statement as to what was decided and why").

10. Defendant's second justification for the trial court's
valuation of the two retirement accounts is based on Russell v. Russell,
157 Vt. 295, 305, 597 A.2d 798, 804 (1991). In Russell, we held that the
date of separation of the parties should be used for the purpose of
determining what proportion of a pension should be subject to the claims of
an employee's former spouse, because the date of separation "is most
reflective of the functional end of marriage and will be a relatively easy
benchmark to determine." Id. The parties in Russell had agreed to
distribute the husband's pension between them when it came due, rather than
to assign a monetary value to the pension at the time of the final hearing
and subject this value to equitable distribution. Id.

11. As we explained in Russell, when a court apportions a pension
between parties to a divorce, it "must apply a coverture fraction to
reflect the proportion of the entire pension attributable to the marriage."
Id. The coverture fraction reflects the proportion of the entire pension
attributable to the marriage. Id.; McDermott v. McDermott, 150 Vt. 258,
261, 552 A.2d 786, 789 (1988). The numerator of the coverture fraction
represents the amount of time that the employee participated in the plan
during the marriage. McDermott, 150 Vt. at 261, 552 A.2d at 789.

12. Russell deals with the narrow question of how a court can
ensure proportional benefit of a former spouse in a pension that is only
partially attributable to a marriage. This case presents a different fact
pattern; the trial court based its award upon the value of the retirement
accounts in question on a specific date rather than the value of the
pension when it became due. In McDermott, another case involving
distribution of pension funds and the application of the coverture
fraction, the trial court distributed the entire present value of a
pension without taking into account that only a proportion of the total
value of the pension was subject to distribution because part of the
pension's projected value reflected plaintiff's future earnings rather than
earnings during the course of the marriage. We reversed and remanded for
determination of a coverture fraction and the percentage of the value of
the account that was attributable to the marriage. Id. McDermott requires
a trial court to provide for equitable distribution of only that portion of
a pension that is attributable to the marriage, but does not require the
trial court to use a particular cut-off date in calculating the coverture
fraction. Id.

13. Similarly, Russell does not establish a hard and fast rule
regarding the date on which a coverture fraction should be based, but it
does lay out the principles that should guide a court's decision. See
Russell, 157 Vt. at 305, 597 A.2d at 804. In Camisa, we affirmed a trial
court's decision to determine the coverture fraction based on the date of
the initial divorce decree. Camisa, 168 Vt. at 564, 714 A.2d at 642. The
trial court based this determination on the principle that the coverture
fraction should "'reflect the number of years in which both parties
contributed to the growth of the pension.'" Id. Under the circumstances,
the trial court considered the date of the initial divorce decree rather
than the date of separation an appropriate benchmark. Id. As Camisa
illustrates, this Court will defer to the trial court's exercise of
discretion in apportioning pensions between parties to a divorce as long as
the trial court has supported its decision with adequate factual findings
and reasoning to support its determination.

14. In this case, the trial court's failure to provide reasoned
findings supporting its valuation of the two accounts calls its disposition
into question. "We will uphold the court's valuation conclusions as long
as they are supported by adequate findings, which are in turn supported by
sufficient evidence in the record." Kanaan v. Kanaan, 163 Vt. 402, 405,
659 A.2d 128, 131 (1995). This decision was not based upon adequate
findings. The decision contains no discussion of Russell or any other
basis for the exercise of discretion. The trial court in this case simply
excluded from its property disposition money that existed in retirement
accounts awarded to defendant on the date of the final divorce hearing, in
effect granting this money outright to defendant with no discussion of the
basis for this disposition. As plaintiff argues, one reason that this was
error is that a part of the increase in the value of defendant's 401(k)
from the date of separation to the date of the final hearing resulted not
merely from his contributions, but from market appreciation. Even if the
trial court intended to apply the Russell rule and divide only those
pension funds that were accumulated during the period of the marriage,
there can be no question that the appreciation on funds contributed to the
account during the period of the marriage should have been subject to such
division between the parties to the marriage. In fact, such appreciation
on the funds would have been incorporated into the award if the trial court
had calculated the coverture fraction to use to determine what portion of
the account was marital property. The effect of such a calculation would
have been to illustrate that defendant received a larger property
settlement than it appears he received based on the trial court's
undervaluation of the accounts awarded to defendant, and that the division
of property did not meet the trial court's goal of an "equal" distribution.

15. Section 751 of Title 15 V.S.A. requires that the trial court
explain its rationale for awarding funds placed in a retirement account
before the marriage and following separation to the employee spouse rather
than dividing these funds equally. The trial court's decision contains no
discussion of the factors that § 751 requires the court to consider in
formulating a property settlement. On remand, the trial court must
consider the factors laid out in 15 V.S.A. § 751(b) in making an equitable
property settlement. Two factors are relevant to the treatment of money
accumulated in a retirement account before or after the pendency of a
marriage. First, in formulating an equitable property division, the trial
court is to consider the party through whom the property was acquired. 15
V.S.A. § 751(b)(10). Second, the trial court is to consider "the
contribution of each spouse in the acquisition, preservation, and
depreciation or appreciation in value of the respective estates . . ." Id.
§ 751(b)(11). While these factors may favor defendant's position that he
was entitled to keep the money in the accounts, other factors delineated in
§ 751(b) lend support to plaintiff's claim that she should be entitled to a
more generous proportion of the available assets. Notably, the trial court
is required to consider the age and health of the parties and their
respective vocational skills and employability. 15 V.S.A. § 751(b)(2)-(3).
Furthermore, findings regarding the source of the funds that husband
contributed to his 401(k) account during the period between separation and
divorce, and particularly the extent to which such contributions could
otherwise have been used to offset the expenses being incurred by the
parties (both of whom managed to accumulate substantial credit card debt
during the period in question) would assist in review of whether awarding
these funds to defendant outright was consistent with the statutory mandate
of formulating an equitable distribution of assets.

B.

16. Plaintiff next contends that the trial court erred in
considering a hypothetical real estate commission on the marital home as
one justification for the $4,000 discrepancy between the property awards
according to which defendant received more than plaintiff. Although
according to the trial court's own valuations, plaintiff's total property
award amounted to $78,000, while defendant's came to $82,000, the trial
court observed that the deduction of a six percent real estate commission
for the future sale of the marital home rendered these awards "essentially
equal." Potential costs such as taxes or commissions cannot affect the
valuation of a marital asset. See Johnson v. Johnson, 158 Vt. 160, 165,
605 A.2d 857, 860 (1992). Yet, the trial court has the discretion to
consider such costs in establishing the amount and method of payment of any
monetary award. Id. See also Cabot v. Cabot, 166 Vt. 485, 496, 697 A.2d
644, 651 (1997) (affirming the trial court's consideration of potential tax
liability on an investment account in dividing marital property). In this
case, the court considered the implications of a hypothetical real estate
commission on the overall difference between the property awards but did
not deduct the real estate commission from its valuation of the marital
home. We find no abuse of discretion in the trial court's consideration of
the commission.

C.

17. In light of our reversal for redetermination of the property
division, we do not reach plaintiff's remaining claims on appeal that the
trial court failed to divide the parties' assets on an "essentially equal"
basis and that the maintenance award of $1000 per month subordinated
plaintiff's reasonable needs to defendant's desire to avoid bankruptcy. In
awarding maintenance, the trial court is required to consider the property
division between the parties pursuant to 15 V.S.A. § 752(a)(1) and (b)(1).
Cleverly v. Cleverly, 151 Vt. 351, 357, 561 A.2d 99,102-03 (1989). Changes
in the property division therefore require reconsideration of the
maintenance award as well. Id.; Johnson, 158 Vt. at 165, 605 A.2d at 860.

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