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Tag: property division

What Can Be Done if a Prenuptial Agreement Does Not Meet the Requirements for Validity in Your State? What Are the Available Options for Handling This Situation?

While I am a divorce and family lawyer (licensed in Utah), I do not claim to be an expert on the subject of prenuptial agreements. That stated (and acknowledging that specific questions about specific prenuptial agreements need to be taken to your own attorney and not to Quora for a definitive answer), even if a court finds a prenuptial agreement to be invalid, it may have some value as evidence of the parties’ intent as to what should happen in the event of divorce. An invalid prenuptial agreement may still provide the court with an idea of who makes claims to what property (and why) and how well a soon to be ex-spouse can support himself/herself (and why).

Utah Family Law, LC | divorceutah.com | 801-466-9277

Eric Johnson’s answer to What can be done if a prenuptial agreement does not meet the requirements for validity in your state? What are the available options for handling this situation? – Quora

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Holding Marital Property Hostage During a Divorce Just Makes You Look Petty By Braxton Mounteer, Legal Assistant

You may have the idea that you can leverage his or her favorite or most valued things to get a more favorable outcome in your divorce. Holding property that rightfully belongs to the other party (like her jewelry or his tools) makes you look bad any way that you spin it. You may see the situation as a delicate hostage negotiation in order to get what you believe that you deserve, but in reality, if you behave this way, it reveals you as the petty and vengeful spouse you are.
During your divorce, you will be required to divide the marital property between your spouse and yourself and it cannot be avoided. Property division is a major and often, though not always, contentious issue between divorcing parties, getting only more complex the longer the marriage has lasted and the more affluent parties are the. Purposely delaying the division of marital property only makes you look bad and drags out your already expensive divorce.
Every time that you do something just to “get a jab in” on your former spouse, you only look petty and childish. You and your spouse end up making more work (and more profit) for your attorneys and slow the irritating, painful, and angst-inducing process of divorce down.
Be as equitable as possible. Do you really need that specific item of personal property, or are you just trying to be spiteful? If you cannot agree on who should get an item of significant value, or there are not enough items of or there are not enough items (such as a house or a car), or if there are not enough items of property to divide value equally, then sell the item(s) and split the profit.
Take a cool headed and business like approach to the division of property.
Utah Family Law, LC | divorceutah.com | 801-466-9277
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On What Basis Should the Couple Share Half of Property in Divorce if One Contributes Significantly More Than the Other? How Is It Fair?

It’s fair. It’s not fair. Frankly, reasonable minds can differ on this question.

The governing principle in the USA is still (though it’s subtly and slowly changing) in most jurisdictions in the USA that I know of (if not all jurisdictions in the USA) is that property acquired during the marriage by the couple should be divided equally is because a marriage is an “e pluribus unum”-style principle: out of two, one. A married couple is considered to be one when it comes to the ownership of property the couple acquired during the marriage, even if that means that each spouse did not contribute an equal amount of money or effort to the purchase/acquisition of the property.

If the property was purchased with money earned or otherwise acquired by one or primarily by one of the spouses or in exchange for “sweat equity” that one spouse contributed more than the other, the idea is that “what’s mine is yours and what’s yours is mine—it’s all ours.”

Equitable distribution and community property are two different approaches to dividing marital property between spouses in divorce.

Community property states treat all property acquired during the marriage to be owned equally owned by the spouses, and so they, unless exceptional circumstances dictate otherwise, divide the marital property equally between the spouses. Equitable distribution states generally presume that an equal division of marital property is equitable, but an equitable division of property is not necessarily an equal division. In Utah (where I practice divorce and family law), for example the rule of equitable distribution is articulated this way:

Labon v. Labon, 517 P.3d 407, 2022 UT App 103, ¶¶25 – 27 (Utah Court of Appeals 2022; I removed the references to caselaw for the sake of making it easier to read and understand the principles articulated):

In making this division [i.e., and equitable division of property and debts and obligations] the court should engage in a four-step process: (1) distinguish between separate and marital property, (2) consider whether there are exceptional circumstances that overcome the general presumption that marital property should be divided equally between the parties, (3) assign values to each item of marital property, and (4) distribute the property in a manner consistent with its findings and with a view toward allowing each party to go forward with his or her separate life.

And in making the equitable distribution, the court should generally consider the amount and kind of property to be divided. As concerns the type of property, in situations where the marital estate consists primarily of a single large asset, such as a business or stock, a common acceptable approach for the court to take is to award the asset to one party and make a cash award to the other party. Doing so avoids the obviously undesirable situation that forces former spouses to be in a close economic relationship which has every potential for further contention, friction, and litigation, especially when third parties having nothing to do with the divorce will also necessarily be involved.

Moreover, a court should consider the tax consequences associated with the division of marital property if one of the parties will be required to liquidate assets to pay marital debts. But the court is under no obligation to speculate about hypothetical future tax consequences. Thus, when settling property matters, the trial court may decline to consider the speculative future effect of tax consequences associated with sale, transfer, or disbursement of marital property. In other words, there is no abuse of discretion if a court refuses to speculate about hypothetical future tax consequences of a property division made pursuant to a divorce.

Utah Family Law, LC | divorceutah.com | 801-466-9277

https://www.quora.com/On-what-basis-should-the-couple-share-half-of-property-in-divorce-if-one-contributes-significantly-more-than-the-other-How-is-it-fair/answer/Eric-Johnson-311?prompt_topic_bio=1

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I Bought a House, Then Got Married. Me and My Partner Then Divorced. Can She Take the House? This Is in NY.

I am not licensed to practice law in the state of New York, but I will answer your question according to the law of the jurisdiction where I do practice law (Utah) because that may give you an idea of how the issue is treated in Utah. You will need to consult with a knowledgeable New York family law attorney to know the correct answer to your question as it applies under New York law.

The decision in the Utah case of Lindsey v. Lindsey (392 P.3d 968, 833 Utah Adv. Rep. 16, 2017 UT App 38) is a perfect explanation of the circumstances under which a spouse’s separate property can be awarded to the other spouse in a divorce case, so I will cite excerpts from that decision below (I did not include the footnotes from the decision):

ANALYSIS

¶31 When distributing “marital property in a divorce proceeding, the overriding consideration is that the ultimate division be equitable-that property be fairly divided between the parties.” Granger v. Granger, 2016 UT App 117, ¶ 15, 374 P.3d 1043 (brackets, citation, and internal quotation marks omitted). To that end, a trial court must first “identify the property in dispute and determine whether it is marital or separate.” Dahl v. Dahl, 2015 UT 79, ¶ 121 (brackets, citation, and internal quotation marks omitted). Marital property ordinarily includes “all property acquired during marriage,” “whenever obtained and from whatever source derived.” Dunn v. Dunn, 802 P.2d 1314, 1317-18 (Utah Ct. App. 1990) (citation and internal quotation marks omitted). Separate property ordinarily includes premarital property, gifts, and inheritances, including any appreciation that may accrue during the marriage. See Dahl, 2015 UT 79, ¶ 143; Mortensen v. Mortensen, 760 P.2d 304, 308 (Utah 1988).

¶32 The presumption is that marital property will be divided equally while separate property will not be divided at all. See Dahl, 2015 UT 79, ¶ 121; Dunn, 802 P.2d at 1323. Married persons have a right to separately own and enjoy property, and that right does not dissipate upon divorce. See Mortensen, 760 P.2d at 308. Thus, equity generally requires that “each party retain the separate property he or she brought into the marriage, including any appreciation” thereof. Dunn, 802 P.2d at 1320, 1323; accord Dahl, 2015 UT 79, ¶ 143; Mortensen, 760 P.2d at 308.

¶33 But separate property “is not totally beyond a court’s reach.” Elman v. Elman, 2002 UT App 83, ¶ 19, 45 P.3d 176 (brackets, citation, and internal quotation marks omitted). Before carving property out of the marital estate, a trial court must consider whether circumstances warrant an equitable override of the separate-property retention rule. See Henshaw v. Henshaw, 2012 UT App 56, ¶ 15, 271 P.3d 837. Three circumstances have been identified under Utah law as supporting an award of separate property at the time of divorce. These exceptions are when separate property has been commingled [the Lindsey v. Lindsey case did not treat the commingling exception, so I will provide some information on that in a footnote to this answer[1]]; when the other spouse has augmented, maintained, or protected the separate property [the contribution exception]; and in extraordinary situations when equity so demands. See Mortensen, 760 P.2d at 308; Dunn, 802 P.2d at 1320. The latter two exceptions are at issue here.

*****

¶35 Under the contribution exception, a spouse’s separate property may be subject to equitable distribution when “the other spouse has by his or her efforts or expense contributed to the enhancement, maintenance, or protection of that property, thereby acquiring an equitable interest in it.” Mortensen, 760 P.2d at 308. This exception may be satisfied when one spouse brings assets into the marriage and the other spouse’s prudent investment of those assets substantially increases their value, see Dubois v. Dubois, 504 P.2d 1380, 1381 (Utah 1973), or when marital funds are expended or marital debt is incurred for the benefit of one spouse’s separate property, see Schaumberg v. Schaumberg, 875 P.2d 598, 602-03 (Utah Ct. App. 1994). In addition, this court has contemplated that the exception might apply when one spouse works for a business owned by the other spouse but is not “paid a wage or salary,” see Rappleye v. Rappleye, 855 P.2d 260, 262-63 (Utah Ct. App. 1993), or when a spouse elects to forgo salary or related compensation that would have benefited the marriage so that those funds may be reinvested in his or her separate business, see Keyes v. Keyes, 2015 UT App 114, ¶ 30, 351 P.3d 90. Under such circumstances, one spouse’s effort or investment may render the other spouse’s underlying asset, its appreciated value, or some portion thereof subject to equitable distribution. See, e.g., Schaumberg, 875 P.2d at 602-03.

¶36 While spouses often contribute to one another’s financial success in a variety of ways, Utah law draws a line between contributions that qualify as “enhancement, maintenance or protection” of a spouse’s separate property and those that do not. See Jensen v. Jensen, 2009 UT App 1, ¶¶ 11, 16, 203 P.3d 1020 (citation and internal quotation marks omitted). Under Utah law, perhaps the most common type of spousal assistance-taking on some measure of household or family responsibilities to allow the other spouse to spend time enhancing the value of his or her separate property-has been rejected as a standalone basis for awarding separate property under the contribution theory. See id. ¶ 16.

¶37 As this court concluded in Jensen, one spouse’s efforts to “maintain[] the household,” provide childcare, and run a part-time business that “contributed to [the] family finances” were insufficient to justify awarding even “part” of the appreciated value of the other spouse’s interest in the corporation of which he was president. Id. ¶¶ 4, 10-11, 15-16 (internal quotation marks omitted). Although the wife’s efforts may have enabled her husband to devote his attention to his employment, she had not sufficiently contributed to the increase in value of the corporation’s equity: “Wife did not assist in running the business nor contribute in any way to its increase in equity. Moreover, it [was] unclear whether the increase in equity was due to anything other than inflation.” Id. ¶ 16. Likewise, in Kunzler v. Kunzler, the contribution exception was not triggered by one spouse’s assumption of household responsibilities, which allowed the other spouse “to focus his time and energy on preserving and increasing the value” of his separate property. 2008 UT App 263, ¶¶ 19 & n.5, 32, 37, 190 P.3d 497.

¶38 The division of labor among married parties may take any number of forms, and the give-and-take often inherent in marital relationships is generally not a sufficient basis for judicially rewriting title to property. The presumption that parties retain their separate property at divorce would be rendered largely irrelevant if rebutted by any spousal effort that freed the other spouse to work on his or her separate property. Thus, for purposes of this exception, direct involvement with or financial expenditures toward a spouse’s separate property appear to be key.

*****

  1. The Extraordinary Circumstances Exception

¶46 Under Utah law, a spouse’s separate property may be awarded to the other spouse “in extraordinary situations where equity so demands.” Elman v. Elman, 2002 UT App 83, ¶ 19, 45 P.3d 176 (citation and internal quotation marks omitted). The bar for establishing an extraordinary situation is high, traditionally requiring that “invasion of a spouse’s separate property” is “the only way to achieve equity.” Kunzler v. Kunzler, 2008 UT App 263, ¶ 35, 190 P.3d 497. A quintessential extraordinary situation arises when a spouse owns separate property but lacks income to provide alimony; in that circumstance, “an equitable distribution of the [separate property] would be well within the trial court’s discretion.” See id. ¶ 37; see also Burt v. Burt, 799 P.2d 1166, 1169 (Utah Ct. App. 1990) (“The court may award an interest in the inherited property to the non-heir spouse in lieu of alimony.”). An extraordinary situation has also arisen under “very unique” circumstances in which, absent the exception, a husband would have shared in profits his wife created as to their marital property, but she would not have shared in profits he created-and which she enabled him to create-with respect to his separate property. Elman, 2002 UT App 83, ¶ 24 & n.5.

¶47 Depending on the facts of a specific case, a court might take into account the rate of return earned on separate property during the marriage when determining whether an extraordinary situation exists or in calculating the amount of any such award. See, e.g., id. ¶¶ 20, 26, 29-30 (affirming an award of “a small share of the appreciation on [the husband’s] partnership interests,” which was “only above a reasonable rate of appreciation”). But an award of separate property may also be independent of any rate of return earned on the property during the marriage. See Henshaw v. Henshaw, 2012 UT App 56, ¶ 20 n.7, 271 P.3d 837 (rejecting the argument that, because the spouse’s separate property declined in value during the marriage, the other spouse could not receive an equitable interest under the “extraordinary situations” exception (citation and internal quotation marks omitted)). If a court were to award separate property due to a spouse’s inability to pay alimony, for example, that award could well be made irrespective of the rate of return earned on the property during the marriage.

[1] On the commingling exception:

See Dahl v. Dahl, 459 P.3d 276 (Utah 2015), 2015 UT 79

¶143 “Generally, premarital property, gifts, and inheritances [are considered] separate property, and the spouse bringing such … property into the marriage may retain it” in the event of a divorce. Keiter v. Keiter, 2010 UT App. 169, ¶ 22, 235 P.3d 782 (internal alterations omitted) (internal quotation marks omitted). But premarital property may lose its separate character where the parties have inextricably commingled it with the marital estate, or where one spouse has contributed all or part of the property to the marital estate with the intent that it become joint property. Dunn, 802 P.2d at 1320. Courts look to a party’s actions as a manifestation of a spouse’s intent to contribute separate property to the marital estate. Kimball v. Kimball, 2009 UT App. 233, ¶ 28, 217 P.3d 733.

Utah Family Law, LC | divorceutah.com | 801-466-9277

(15) Eric Johnson’s answer to I bought a house, then got married. Me and my partner then divorced. Can she take the house? This is in NY. – Quora

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2022 UT App 103 – Divorce Tax Consequences

2022 UT App 103

THE UTAH COURT OF APPEALS

 

LISA PETERSON LABON,

Appellee,

v.

PIOTR ARKADIUSZ LABON, Appellant.

 

Opinion

No. 20200547-CA

Filed August 18, 2022

 

Third District Court, Silver Summit Department

The Honorable Kent R. Holmberg No. 174500142

 

Julie J. Nelson, Alexandra Mareschal, and Jaclyn Jane Robertson, Attorneys for Appellant

Karra J. Porter and Kristen C. Kiburtz, Attorneys for Appellee

 

JUDGE DAVID N. MORTENSEN authored this Opinion, in which

JUDGES MICHELE M. CHRISTIANSEN FORSTER and JILL M. POHLMAN concurred.

 

MORTENSEN, Judge:

¶1 During Peter[1] and Lisa Labon’s marriage, Peter generated a significant income managing the marital assets. Over the years, the ebb and flow of income was tempered by occasionally leveraging—basically borrowing from—two whole life insurance policies. At trial in the divorce action, Peter maintained that he intended to generate income in the same way after the divorce as he had historically done during the marriage. When the trial court divided the marital assets, and particularly the insurance policies, so that Peter could continue to do so, Peter objected and now appeals, claiming that the way the court divided the assets is not equitable and will cause him to suffer substantial negative tax consequences. On review, we conclude that the trial court did not exceed its discretion and therefore affirm.

BACKGROUND[2]

¶2 Peter and Lisa married in 1995. In the early 2000s, Peter made a lot of money, primarily through investing and the financial industry. Around 2008, he stopped working a traditional job and devoted himself to investing and managing the marital assets, thereby generating the household’s income. Lisa was a “full-time stay-at-home wife and mother” throughout the marriage.

¶3 Around 2017, Peter and Lisa experienced irreconcilable differences, and after a twenty-five-year union, they divorced in 2020.

Division of Property

¶4 As relevant here, the division of marital assets consisted largely of Peter receiving various financial instruments and Lisa receiving cash.

¶5 Real Property: After filing for divorce in the trial court, the parties entered into a stipulation, which the court accepted, for the division of a house in Park City, Utah. The proceeds of the sale of the Park City house were split equally, with each party receiving $3,077,000 in cash. Peter used $1,560,000 and Lisa used $1,300,344 to buy individual houses in Park City—properties which the trial court awarded to each as separate property. The parties funded several bank or investment accounts with their “respective remaining proceeds” from the sale of the Park City house. And Lisa used some of her money to establish a business. These assets the court likewise awarded as separate property.

¶6 Cash: The parties had $1,643,277 in cash, the bulk of which came from selling a house in Oregon. The court awarded $61,517 to Peter and $1,581,760 to Lisa.

¶7 Other Property: The court awarded Peter the parties’ $25,000 horse. The parties had already divided a valuable wine collection, numerous vehicles (six going to Peter and two going to Lisa), and other personal property, which the court awarded to the parties as presently held.

¶8 Life Insurance Investments: The parties held two whole life insurance policies, which the court awarded to Peter.[3] One policy (Northwestern Mutual) had a cash value of $1,761,224 but was encumbered by a debt of $1,391,687. The other policy (Pacific) had a cash value of $592,931 and was unencumbered.

¶9 During the divorce proceedings, Peter explained how they used the policies to take out loans: “[W]e borrowed money multiple times during our marriage to make other investments. . . . [W]e borrowed money essentially from ourselves because the life insurance policy was ours.” And even though they paid interest on the loans from their policies, they “received dividends to counteract that,” making the effective interest rate “on these loans . . . 1 percent or less.” Even during the divorce proceedings, Peter had paid off a loan against the Pacific life insurance policy. Peter also explained that this leveraging did not incur taxes because the policies were not surrendered. But he pointed out that “if as . . . a result of these proceedings, the decision is made to surrender those policies to get the cash value, there will be a tax liability associated with them.”

¶10 When asked how he planned to support himself financially going forward, Peter answered, “Well, . . . essentially the same way as I have in the past. . . . I plan to make similar kinds of investments going forward.” He further explained that he was “planning to diversify into other” investment products.

¶11 The court awarded the parties’ whole life insurance investments to Peter:

Given Peter’s unilateral decision to pay off the [life insurance] loan, combined with his testimony that he wants to continue to invest in life insurance, the Court awards the Pacific Life Insurance policy to Peter.

. . . .

Although the Court finds that [the Northwestern Mutual life insurance policy] and the corresponding loans are both marital, the Court awards the asset to Peter in the equitable division of the parties’ marital estate. The Court finds that Lisa did not understand and/or was not given a choice as to whether or not the loans were taken. It is more equitable, therefore, to award the value of the asset and the debt to Peter with an offset to Lisa from another asset.

¶12 Business Ownership: The court also awarded the couple’s business ownership (worth $741,000) in a hedge fund—which was run by Peter’s friend—to Peter. Peter challenged the value of this interest, alleging that a $500,000 loan from his mother enabled him to make the investment in this hedge fund and that this alleged debt was also marital. For context, Peter testified that an earlier incarnation of the hedge fund had produced a 65% return for him in less than two years. And Peter testified that his mother had been earning only 1% on her $500,000 in the way she had it invested, but he offered to invest it for her and give her a 4% return because he would be earning an even greater return on the money invested in the hedge fund. Alternatively, Peter argued that even “if the court [did] not accept his contention that there [was] a $500,000 loan,” the hedge fund “investment was purchased with this $500,000 from his mother” and thus “should not be considered marital property.”

¶13 In contrast, Lisa testified that “she was led to believe, by Peter, that he was investing his mother’s money directly into [the hedge fund]—not that they would be borrowing from Peter’s mother and investing directly themselves.” Rather, she explained that it was her understanding that Peter “was adding his mother to [the hedge fund] as a separate investment.” Lisa maintained that the only discussion was that Peter was “going to get his mother in on the investment,” not a discussion that “he was going to take his mother’s money, put it in that investment, and try to profit off of his mother’s capital.” Accordingly, Lisa’s testimony was that the investment in the hedge fund was their own, not anyone else’s.

¶14 The court found that Lisa’s testimony was “more credible than [Peter’s] on this issue.” The court observed that there was “no promissory note or other evidence of this loan,” that “[n]o documentary evidence of this transaction was presented at trial,” and that “only . . . Peter’s testimony” supported the transaction. It also noted that Peter’s mother had not testified about the loan. Thus, the court rejected Peter’s arguments because (1) “Peter did not present evidence to substantiate this claim other than his own testimony,” (2) the investment was titled in Peter’s name, (3) Peter had not established that the “asset [was] actually in Peter’s mother’s name,” and (4) “Peter did not present evidence tracing the receipt of any money from his mother and the investment of the same sum into” the hedge fund. The court observed,

Without some documentary evidence to support this series of transactions, and given the amount of the sum in question, the court does not find this argument persuasive. The credible evidence presented at trial supports the court’s findings that the [hedge fund] investment is a marital asset and the alleged loan from Peter’s mother has not been established nor traced to the [hedge fund] investment.

In short, the court concluded that Peter had “not met his burden of proof to establish that there [was] a marital debt of $500,000” owed to his mother.

¶15 Equalizing Payment: After the court divided the marital assets and accounted for offsets, it ordered Peter to pay Lisa an equalizing payment of $192,899.

Income and Alimony

¶16 Income: The court determined that Peter could earn $250,000 per year or $20,833 per month. It based this determination on his “historical earnings and his income representations” on his investments. Specifically, the court noted that “although the corpus available for him to manage [would] be reduced, this figure [was] still within his stated 4–10% range [of return on his investment assets] and equates to his investment income over 9 years.” The court found that insofar as working was concerned, the “highest and best use of Peter’s time [was] to continue his work in investing and Peter credibly testified that this was his intention. Based on [Peter’s vocational expert’s] analysis, Peter [was] earning at least double what he could by going to work for someone else in the financial services industry.” The court found Lisa’s earning capacity to be $3,743 per month.

¶17 Alimony: To maintain the marital standard of living, the court found that Peter’s expenses were $29,515 (resulting in a $15,053 monthly shortfall) and Lisa’s expenses were $22,314 (resulting in an $18,344 monthly shortfall).[4] To equalize the shortfall, the court determined that equity favored an alimony award to Lisa of $1,646 per month.

Clarification Hearing

¶18 After the court issued its findings of fact and conclusions of law, it held a “clarification hearing” to identify any “typographical [errors], errors in computation, or any places where the parties felt that there needed to be further clarification by the Court in order to properly articulate the decision.”

¶19 Peter argued that awarding the cash to Lisa and the investments to him left him in a position that would force him to sell both policies to maintain liquidity for his future investments. Peter also noted that there would be “a substantial tax impact if he” had to sell the policies. Peter was “concerned” that for him to continue to invest, he would be subject to “a huge tax loss that [was] not factored into his side of the equation.”

¶20 Lisa responded that Peter was going beyond the scope of the hearing to mount an “informal appeal” by attacking the findings of the trial court. She pointed out that Peter made clear during his testimony that he wanted to continue “to invest in life insurance” and “that’s what [the court] gave him.” She further pointed out it was clear that while investing in life insurance could produce “potentially taxable” events “depending on what [Peter did] with” the insurance policies, “there was no testimony with respect to any specifics” for the court to make any findings on the tax implications of the division, especially given Peter’s desire to keep the insurance assets.

¶21 Subsequently, in its final decree of divorce, the court stated that it could not make any finding about the tax implications of liquidating assets because no credible evidence had been presented on the matter:

There was no credible evidence to permit the court to make any findings as to the tax effect of liquidating any specific asset or even that any specific asset would be liquidated. To meet liquidity needs during the marriage, the parties liquidated some assets and also leveraged the assets they had. It is unclear to the court whether Peter will need to liquidate assets or leverage assets to satisfy his liquidity needs.

¶22      Peter now appeals.

ISSUE AND STANDARD OF REVIEW

¶23 Peter contends that the trial “court erred when it divided the estate, awarding Lisa all the parties’ cash plus alimony, and Peter the parties’ investments, an equalizing payment [owed to Lisa], and an alimony obligation, without considering liquidity, risk, tax consequences, or other obligations.” “District courts have considerable discretion concerning property distribution in a divorce and we will uphold the decision of the district court unless a clear and prejudicial abuse of discretion is demonstrated.” Gerwe v. Gerwe, 2018 UT App 75, ¶ 8, 424 P.3d 1113 (cleaned up).

ANALYSIS

¶24 Peter now argues that the trial court’s division of assets constitutes an abuse of discretion because it should have been “obvious” to the court that a “consequence” of its ruling was that Peter would be forced “to liquidate assets immediately to even pay the equalization payment” to Lisa because the distribution left him with negative cash and her with nearly $1,800,000 in cash. Due to his alleged dearth of cash, Peter argues that the court’s division left him “necessarily” having “to liquidate investments” not only to pay the equalization but “to pay alimony and make up his own spending deficit.” Thus, Peter argues that the court should have anticipated “the immediate and foreseeable consequences of a property distribution—consequences that [would] fall like dominos as a direct result of the property distribution itself.”

¶25 When rendering a decree of divorce, the court is expected to include “equitable orders relating” to the division of “property, debts,” and “obligations.” Utah Code Ann. § 30-3-5 (LexisNexis Supp. 2021). In making this division, the “court should engage in a four-step process”: (1) “distinguish between separate and marital property,” (2) “consider whether there are exceptional circumstances that overcome the general presumption that marital property should be divided equally between the parties,” (3) “assign values to each item of marital property,” and (4) “distribute the property in a manner consistent with its findings and with a view toward allowing each party to go forward with his or her separate life.” Taft v. Taft, 2016 UT App 135, ¶ 33, 379 P.3d 890 (cleaned up).

¶26 And in making the equitable distribution, the court should “generally” consider “the amount and kind of property to be divided.” Burke v. Burke, 733 P.2d 133, 135 (Utah 1987). As concerns the type of property, “[i]n situations where the marital estate consists primarily of a single large asset, such as a business or stock, a common acceptable approach for the court to take is to award the asset to one party and make a cash award to the other party.” Wadsworth v. Wadsworth, 2022 UT App 28, ¶ 79, 507 P.3d 385, petition for cert. filed, May 6, 2022 (No. 20220412). Doing so avoids the obviously undesirable situation that forces former spouses “to be in a close economic relationship which has every potential for further contention, friction, and litigation, especially when third parties having nothing to do with the divorce will also necessarily be involved.” Argyle v. Argyle, 688 P.2d 468, 471 (Utah 1984) (cleaned up).

¶27 Moreover, a court should consider the “tax consequences” associated with the division of marital property if one of the parties “will be required to liquidate assets to pay marital debts.” Morgan v. Morgan, 795 P.2d 684, 690 (Utah Ct. App. 1990). But the court is under “no obligation to speculate about hypothetical future tax consequences.” Id. (cleaned up). Thus, “[w]hen settling property matters, the trial court may decline to consider the speculative future effect of tax consequences associated with sale, transfer, or disbursement of marital property.” Id. at 689. In other words, “[t]here is no abuse of discretion if a court refuses to speculate about hypothetical future tax consequences of a property division made pursuant to a divorce.” Howell v. Howell, 806 P.2d 1209, 1213–14 (Utah Ct. App. 1991); see also Alexander v. Alexander, 737 P.2d 221, 224 (Utah 1987) (stating that a “trial court’s refusal to speculate about hypothetical future consequences” of a taxable event associated with the division of marital property is not, by default, “an abuse of discretion”).

¶28 “Application of the foregoing principles of law to the facts of this case prompts the conclusion that the trial court did not abuse its discretion” when it did not explicitly address the tax consequences of the property division in which it awarded the investments to Peter and the majority of the cash to Lisa. See Burke, 733 P.2d at 135.

¶29 First, Peter expressed a desire during trial to continue to support himself in largely the same manner as he had been doing during the marriage. It was reasonable for the court to find that Peter would continue to support himself and meet liquidity needs by leveraging the investment assets he was awarded. He had done so in the past, and it was reasonable for the court to accept his assertion that he would continue to do so in the future.

¶30 Second, the tax implications of the property division that Peter raises were entirely speculative as presented to the trial court. In short, nothing in the record indicates that Peter would suffer adverse tax consequences as a result of the property division. Indeed, just the opposite is true: the property division was structured in such a way as to avoid tax consequences by awarding Peter certain investment assets so that he could continue to manage them profitably and would not have to liquidate them.

¶31 Notably, the trial court did not order Peter to liquidate any assets. Nor did Peter offer any evidence that he intended to or would need to liquidate any assets, an action that would trigger a tax liability. Indeed, Peter spoke of liquidating the assets in question only in hypothetical terms. He said, “if as . . . a result of these proceedings, the decision is made to surrender those policies to get the cash value, there will be a tax liability.” (Emphasis added.) Nowhere did Peter present evidence to the court that he would necessarily have to liquidate assets after the division of the marital estate. Even at the clarification hearing, Peter spoke about tax implications of liquidation in conditional terms.[5]

¶32 “Tax consequences in this case were speculative as to whether they could be avoided or delayed, and as to amount.” See Howell, 806 P.2d at 1214. And while the “court heard testimony and evidence regarding possible tax implications, [it] did not err in refusing to adjust property distribution because of those theoretical consequences.” See id.

¶33 In sum, the trial court did not abuse its discretion in refusing to make adjustments related to potential tax consequences resulting from the division of marital property because those consequences were theoretical and speculative.[6]

CONCLUSION

¶34 The trial court did not abuse its discretion in awarding the investments to Peter and the cash to Lisa, because it was under no obligation to speculate about the possible tax implications associated with that division of property.

¶35      Affirmed.

 

 

 

 

 

 

[1] As is our custom, we refer to the parties by their given names when they share a surname. And in conformity with the other court documents in this case, we employ the anglicized form of Piotr.

[2] “On appeal from a bench trial, we view the evidence in a light most favorable to the trial court’s findings, and therefore recite the facts consistent with that standard.” Chesley v. Chesley, 2017 UT App 127, ¶ 2 n.2, 402 P.3d 65 (cleaned up).

[3] “Generally speaking, there are two categories of life insurance: whole life insurance and term life insurance. Term life insurance protects the policyholder for a specified period of time. Whole life policies, by contrast, remain in existence throughout the life of an insured. In general, premiums on term insurance policies pay only for the cost of providing the insurance, while at least some whole life policies have some type of participatory investment or savings feature.” U.S. Bank Nat’l Ass’n v. PHL Variable Ins. Co., Nos. 12 Civ. 6811(CM)(JCF), 13 Civ. 1580(CM)(JCF), 2014 WL 2199428, at *1 (S.D.N.Y. May 23, 2014); see also Life insurance, Black’s Law Dictionary (11th ed. 2019) (defining whole life insurance as “[l]ife insurance that covers an insured for life, during which the insured pays fixed premiums, accumulates savings from an invested portion of the premiums, and receives a guaranteed benefit upon death, to be paid to a named beneficiary” and stating “[s]uch a policy may provide that at a stated time, premiums will end or benefits will increase”).

[4] The court included taxes and adjustments for child support in calculating the shortfalls.

[5] We note that Peter repeatedly refers in the record to unspecified tax loss carryforwards from previous years that he had used to offset tax liabilities in subsequent years. Thus, in addition to the tax consequences being wholly speculative, the possible presence of additional tax loss carryforwards further undermines the idea that Peter would necessarily have to surrender the policies to meet his obligations.

[6] Peter also appears to challenge the court’s factfinding on the existence of the loan from his mother. “But to successfully challenge a trial court’s factual finding on appeal, the appellant must overcome the healthy dose of deference owed to factual findings by identifying and dealing with the supportive evidence and demonstrating the legal problem in that evidence, generally through marshaling the evidence.” Taft v. Taft, 2016 UT App 135, ¶ 19, 379 P.3d 890 (cleaned up). Because Peter has failed to do so, we decline to further consider this aspect of his argument.

Regarding the hedge fund investment, Peter also complains that the trial court assigned Peter “all the risk” when it should have distributed part of the risk to Lisa. Peter’s characterization on appeal of the hedge fund as risky does not comport with his testimony at trial, where he explicitly stated, “I feel [it] will be profitable. . . . [It] is likely to be profitable.” Far from assigning him all the risk, Peter’s own trial testimony appears to have led the trial court to award him an asset that would likely be profitable. Thus, we cannot say the trial court abused its discretion in awarding the hedge fund solely to Peter. See Gardner v. Gardner, 2019 UT 61, ¶ 18, 452 P.3d 1134 (stating that an appellate court will find an abuse of discretion in an award of property “only if no reasonable person would take the view adopted by the trial court” (cleaned up)).

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Do courts make awards in divorce to “punish” adultery?

Do courts make awards in divorce to “punish” adultery? Great question.  

Adultery is considered a fault-based ground for divorce and a factor that can be considered when the trial court decides matters of alimony, property division, and child custody.  

I will answer this question according to what Utah statutory and case law provides.  

Utah Code § 30-3-5(9)(b) provides, “The court may consider the fault of the parties in determining whether to award alimony and the terms of the alimony.”  

Utah Code § 30-3-5(9)(c) states that “‘Fault’ includes engaging in sexual relations with an individual other than the party’s spouse, if such wrongful conduct during the marriage that substantially contributed to the breakup of the marriage relationship.  

Most recently, the Utah Supreme Court discussed this very question in the divorce case of Gardner v. Gardner (Volume 425 Pacific Reporter 3rd, page 1134, decided in 2019. In that decision the Supreme Court stated: 

[C]ourts should keep in mind that the ultimate purpose of any property division or alimony award is to “achieve a fair, just, and equitable result between the parties.” For this reason, courts should consider fault only in an attempt to balance the equities between the parties. In other words, where one party’s fault has harmed the other party, the court may attempt to re-balance the equities by adjusting the alimony award in favor of the party who was harmed by that fault.[footnote 56] 

Footnote 56 states: 

We note that some Utah courts have struggled to articulate an appropriate role of fault in alimony determinations in light of our case law suggesting that the purpose of alimony is not to punish. See Mark v. Mark, 2009 UT App 374, ¶ 17, 223 P.3d 476 (“[I]f a trial court uses its broad statutory discretion to consider fault in fashioning an alimony award and then, taking that fault into consideration, adjusts the alimony award upward or downward, it simply cannot be said that fault was not used to punish or reward either spouse by altering the award as a consequence of fault.”). But other Utah courts have concluded that fault may be considered without constituting punishment if it is used only to rectify the inequity caused by the fault. See Christiansen v. Christiansen, 2003 UT App 348, 2003 WL 22361312 at *2 (“Fault may correctly be considered by the trial court without penalizing the party found to be at fault.”); see also [Wilson v. Wilson, 5 Utah 2d 79, 296 P.2d 977, 979 (1956)], 296 P.2d at 980 (explaining that equitable factors often cause courts to impose permanent alimony on “erring” spouses); [Riley v. Riley, 138 P.3d 84 (Utah Ct. App. 2006)], 2006 UT App 214, ¶ 24, 138 P.3d 84 (affirming the district court’s consideration of a husband’s fault as an important “factor in fairness to [Wife]” (alteration in original)). As this latter line of cases suggests, fault may be considered as long as it is used as a basis to prevent or rectify an inequity to the not-at-fault spouse. So in reviewing an alimony determination involving fault, Utah appellate courts should focus on whether a fault-based modification of an alimony award helped “achieve a fair, just, and equitable result between the parties” rather than on whether it was punitive in nature. [Dahl v. Dahl, 2015 UT 79, ¶ 168, ––– P.3d ––––], 2015 UT 79, ¶ 25, ––– P.3d –––– (citation omitted) (internal quotation marks omitted). 

With this in mind, could a court (a court, not all courts) award more alimony, divide marital property unevenly, or restrict custody or parent-time due to one of the spouse’s adultery to punish adultery? Yes, of course, even if the court went to great pains (sincerely or not) to articulate the alimony decision as not being punitive in nature.  

Some judges (some, not all) allow their personal antipathy for an adulterous spouse their impartiality and justify disregarding the law in favor of doing what the judge “feels is right” instead. And yes, it can happen to you. 

Bottom line: If you are in adulterer, and a serial and/or un repentant adulterer at that, it should come as no surprise to you that your adultery will do you no favors when it comes to the way the court can and may treat you in a divorce action. Fair or not, that is the nature of the way many people (and judges are people) view and treat adulterers. Does this mean that if you are in adulterer you should expect to be treated unfairly by a court? I think your odds are about 50-50, in my professional opinion. Do those odds mean that you should lie about adultery, if you believe you can get away with it? No, and for two reasons: 1) it is wrong to lie; and 2) if you commit adultery, then compound the problem by lying about it and get caught, you only increase your odds of being mistreated by the court. And odds are that if you lie about adultery you will be caught. 

Utah Family Law, LC | divorceutah.com | 801-466-9277  

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