DIXON, Judge.
Glenn Martin Hammond appeals from the Pike Family Court's findings of fact, conclusions of law, and order of distribution concerning the parties' assets following the dissolution of their marriage, the award of maintenance, and attorney's fees to Elena Jill (Jill) Hammond. In addition, Glenn appeals from the trial court's denial of his motion to disqualify Jill's counsel due to an alleged conflict of interest. After a thorough review of the record, the parties' arguments, and the applicable law, we must conclude that the court erred in its mathematical valuation of the parties' marital estate; we reverse and remand this matter for the court to reassess the calculation thereof. However, we affirm the trial court's findings related to marital property, its award of attorney's fees, and its determination as to temporary maintenance. Accordingly, we affirm in part, reverse in part, and remand this matter for further proceedings.
The facts of this matter were presented to the trial court below on multiple occasions, culminating in a voluminous record. Of import, the parties were married in 2001, were separated in 2008, and the dissolution of the marriage was entered on November 18, 2010. Prior to the marriage and thereafter, Glenn owned his own law firm, and was a solo practitioner. Jill worked in the broadcast industry and for the local school board. During the marriage, Glenn received substantial legal fees and deposited the money into brokerage accounts. After the separation the parties maintained separate financial accounts; Glenn had the exclusive use and control of virtually all of the parties' marital assets. After the parties separated in 2008, Glenn transferred financial accounts into other accounts without consulting with Jill. The court ordered Glenn to pay temporary maintenance to Jill in the amount of $1,500.00 per month in June of 2009.
The trial court was presented evidence in great detail. Since 1996 Glenn has been the sole owner of the Law Offices of Glenn H. Hammond. Glenn practices his cases on a contingent fee basis. He is paid at the end of a successful case. His cases last from several months to several years. His business is set up so that Glenn pays taxes when he receives the fees and not when he earned the fees. Thus, Glenn received payment of legal fees after the marriage for work he performed before the marriage and received payment of legal fees for work he performed during the marriage, after the dissolution of marriage was entered.
Glenn used the services of certified public accountants and bookkeepers to help manage his law office. Glenn's CPA testified that when the parties separated, Glenn's law office had a value of $34,808.00, including the automobile owned in the name of the law office and driven primarily by Glenn. In April 2011, Glenn verified in his financial disclosure statement that his total gross monthly income was then $29,468.00. At the February 14, 2012, final hearing Glenn testified that the gross receipts from his law practice between 2001 and 2009 were from $1.273 to $1.4 million.
Jill came into the marriage with very few assets. Glenn asserted that Jill provided no duties as a homemaker and contributed nothing financially or otherwise to the marriage for the entire eight years. Glenn testified that in addition to making all the income from his law practice he was also responsible for the yard work, "outside chores," laundry, housecleaning and grocery shopping. However, the court found that during the marriage both parties contributed to the household chores and both enjoyed an extravagant lifestyle.
During the marriage Jill worked as a news anchor at WYMT from 1997 to 2002. She made about $21,500.00 per year. She then worked for the Pikeville Independent Board of Election where she earned about $21,500.00 per year as the Public Relations Director. Jill was then employed as a salesperson for East Kentucky Broadcasting where she earns about $30,000.00 per year. Jill testified that she has Type-1 diabetes, which requires strict attention to medications and can have long-term debilitating effects on her health.
The court found that the parties' date of separation was the appropriate date to value the assets as Glenn made numerous financial transactions after July 2008, whereby he transferred funds from account to account and withdrew monies without Jill's consent or knowledge.
During the marriage Glenn had financial accounts at various institutions throughout Kentucky with balances that fluctuated throughout the marriage. Most of the accounts were started by Glenn prior to marriage but during the marriage they were changed to different accounts and marital monies were added to them. Marital and nonmarital expenses were paid out of them. All of the accounts had balances that were allowed to decrease below their premarital balance at some point during the marriage. The court listed the accounts as follows:
JP Morgan Chase where they were managed by David Demarest. The approximate amount consolidated was $206,856.00. After deposits from marital funds, the account grew until, in September of 2008, they totaled $493,000.00. There was also a small IRA account at JP Morgan of $33,000.00.
In July of 2004, the parties purchased a home in Pikeville for $492,500.00 from David Demarest. The down payment on the home included $23,000.00 from the sale of Glenn's camper he had purchased prior to marriage. While Glenn claimed the entire down payment of $50,000.00 was nonmarital, the court found that Glenn had only adequately traced $23,000.00 of nonmarital assets. The parties sold the residence on October 29, 2010, for $485,000.00, which, after payment of all outstanding liens, resulted in a net payment to the parties of $95,287.89. The court had previously ordered that each party receive $20,000.00 and the rest had been deposited into an escrow account. The court then had to distribute the remaining $55,100.94.
Glenn has an ownership in Condor Properties that has a value of $25,000.00. Glenn had an ownership interest in various oil and gas wells operated under the name J&R Fuels valued at $20,000.00.
Glenn also had a 50% ownership in Green Partners, LLC, which owns 46% of a commercial building on South Broadway in Lexington, Kentucky. Green Partners, LLC was originally incorporated in 2009; Glenn and David Demarest are the only shareholders. Jill had originally signed the note with Forcht Bank when the South Broadway property was purchased. However, she was never a shareholder or employee of the corporation and the note she signed has been satisfied and retired when the Community Trust Bank became the primary mortgagee. The fair market value of the Green Partners' 46% ownership in the commercial building is $1,150,000.00. The outstanding debt owed on the building in $954,397.76. Therefore, the equity in the building is $195,600.00 and Glenn's half interest is $97,800.00.
Glenn owned a life insurance policy with a cash value of $13,511.49.
The court concluded that all legal fees received by Glenn between the date of the marriage and the date of separation were marital assets. The court concluded that Glenn had failed to trace any claimed nonmarital assets in the brokerage accounts, given the commingling of the funds. Glenn added marital funds to and withdrew from these accounts during the course of the marriage, causing their balances to fluctuate to very low levels at times and very high levels at other times. The court deemed it impossible to determine that all or any specific part of the accounts contained nonmarital money.
The value of the marital estate subject to division, as found below, was $768,300.00, comprised of:
During these proceedings, Glenn paid marital taxes in 2008 in the amount of $84,000.00 and the court gave him credit for the taxes he paid on behalf of Jill in the amount of $42,000.00.
The court ordered that Jill be awarded her bank account at US Bank and her BMW automobile. Glenn was awarded all the remaining property owned by the parties, including any interest in Green Partners, LLC, Condor Partners, JA East Partners, J&R Fuels, and the Law Office of Glenn M. Hammond, and was ordered to pay Jill $377,300.00 for her marital interest in this property. The court ordered that each party was responsible for any debt associated with the property awarded them.
Additionally, the court found that there was an extreme disparity of income between the parties as Glenn reported that his gross monthly income was over $28,000.00 and Jill earned about $30,000.00 per year. The court found Glenn's argument that Jill's income had exceeded his the last two years to be ludicrous. However, the court did not order maintenance to continue after Glenn had transferred her allotment of the marital estate to her. The court reasoned that the portion of the marital estate awarded to Jill was sufficient to provide for her reasonable needs, but until she received her share of the assets, she was unable to provide for her needs. Thus, the court ordered Glenn to pay maintenance in the amount of $1500 per month until Glenn had transferred her allotment of the marital assets to her.
Jill had been represented in the proceedings since late 2009 by McBrayer, McGinnis, Leslie & Kirkland. She had been unable to pay anything toward her legal bill which was about $92,000.00. The court found that Glenn had pursued a course of obstructive behavior in the litigation which caused it to be protracted. He repeatedly changed counsel and caused Jill to have to defend against frivolous motions. He made multiple motions to terminate temporary maintenance in the face of unequivocal denials from the court. He caused Jill's counsel to file multiple motions to pay his overdue temporary maintenance. Given the financial disparity between the parties, the court awarded Jill $75,000.00 in attorney's fees. It is from this order that Glenn now appeals.
On appeal, Glenn presents basically four arguments, namely: conflict barred representation by Jill's counsel; the trial court erred in its findings related to marital property; Jill is not entitled to an award of attorney's fees; and Jill is not entitled to further maintenance.
At the outset, we address the various standards of review for the issues before us. We note that in dividing marital property a trial court has wide latitude and, absent an abuse of discretion, we shall not disturb the trial court's ruling. See Smith v. Smith, 235 S.W.3d 1, 6 (Ky. App. 2006), and Neidlinger v. Neidlinger, 52 S.W.3d 513, 523 (Ky. 2001). Similarly, in maintenance awards, the trial court is afforded a wide range of discretion, which is reviewed under an abuse of discretion standard. See Platt v. Platt, 728 S.W.2d 542, 543 (Ky. App. 1987). The amount of an award of attorney's fees is committed to the sound discretion of the trial court. Gentry v. Gentry, 798 S.W.2d 928, 938 (Ky. 1990). Abuse of discretion is that which is arbitrary or capricious, or at least an unreasonable and unfair decision. See Sexton v. Sexton, 125 S.W.3d 258, 272 (Ky. 2004). However, the trial court's conclusions of law are reviewed de novo. Stipp v. St. Charles, 291 S.W.3d 720, 723 (Ky. App. 2009).
As his first basis of appeal, Glenn argues that conflict barred representation by Jill's counsel for three reasons and that the trial court erred in denying his motions to disqualify counsel. First, Glenn argues that the entire McBrayer firm is disqualified in this matter as the central issue before the court was the valuation of the law practice and Glenn's CPA, Griffiths, obtained a legal opinion letter from Paul Craft, a McBrayer attorney. This letter was relied upon by Griffiths in determining the value of Glenn's law firm. Glenn argues that the entire firm is disqualified from representation of parties whose interest is adverse to him, particularly with respect to financial issues. Glenn argues that the attorney-client relationship does not require payment or an express agreement; instead, the relationship is clear where the client relies on the attorney's advice. Glenn does not consent to McBrayer representing Jill. Second, Glenn asserts that McBrayer attorneys were hired by his father in a prior case and they became aware of Glenn's law practice assets from that representation. Third, Glenn asserts that a conflict exists between McBrayer and Jill as her current attorney is acting as counsel for her prior attorney's estate. Thus, her current attorney has placed himself in a position where he represents the estate to which Jill owes money for legal fees, which Glenn believes to be excessive fees, and at the same time represents Jill.
In response, Jill argues that the trial court properly concluded that there was no conflict of interest. First, as to Paul Craft, Jill argues that the Craft letter simply gives general legal advice and in no way shows that Craft was made aware of any particulars of Glenn's case. We agree. Our review of the Craft letter to CPA Griffiths shows a generalized statement of the law concerning the sale of a law practice. Craft in his affidavit averred that he had never been given specific facts regarding Glenn or even knew Glenn's name.
In support, Glenn asserts that McBrayer attorneys were hired by his father in a prior case and they became aware of Glenn's law practice assets at that time. Jill argues that Glenn did not bring this perceived conflict to the court's attention until nearly four years into the case herein and does not present anything beyond vague references to valuation methods utilized. Counsel for Jill believes that Glenn is referring to his father's federal criminal case and does not believe that any relevant information concerning Glenn is at issue. Moreover, the attorney that Glenn alleges represented his father, the Hon. Brent Caldwell,
Glenn also asserts that a conflict exists between McBrayer and Jill as her current attorney is acting as counsel for her prior attorney's estate. Thus, her current attorney has placed himself in a position where he represents the estate to which Jill owes money for legal fees, which Glenn believes to be excessive fees, and at the same time, represents Jill. Glenn refers this Court to Kentucky Bar Ass'n v. Profumo, 931 S.W.2d 149 (Ky. 1996), which we find to be distinguishable. In Profumo counsel was acting as the estate's executor and the estate's attorney. This does not appear to be the case herein. Yet again, Glenn wishes to assert a conflict by alleging that the conflict arises with a former client, when he has in fact never been a former client of McBrayer. Therefore, we find no error with the trial court's determination that a conflict of interest did not exist.
Glenn next makes multiple arguments concerning the trial court's findings and distribution of the parties' assets and liabilities. He complains that 1) the court was required to find for him on all issues related to the value of marital assets; 2) the brokerage account is nonmarital and that he properly traced his claimed nonmarital interest; 3) there is no evidence of dissipation of the marital assets;
First, Glenn argues that the trial court was required to accept the evidence provided by him given that Jill failed to produce any expert witnesses.
Bailey v. Bailey, 231 S.W.3d 793, 796 (Ky. App. 2007). The trial court sub judice was free to believe or disbelieve the testimony proffered. Therefore, we find no error.
The division of marital property is controlled by Kentucky Revised Statutes (KRS) 403.190 which states:
Our courts have interpreted KRS 403.190 to require a three-step process. As stated in Hunter v. Hunter, 127 S.W.3d 656, 659-660 (Ky. App. 2003), "The trial court's division of property involves a three-step process: (1) characterizing each item of property as marital or nonmarital; (2) assigning each party's nonmarital property to that party; and (3) equitably dividing the marital property between the parties." (Internal citations omitted). The equitable division of property is not necessarily equal. See Lawson v. Lawson, 228 S.W.3d 18, 21 (Ky. App. 2007) (KRS 403.190 requires a court to divide the marital property in "just proportions" which is not necessarily equally).
The party claiming that the property acquired during the marriage is nonmarital has the burden of proof and must establish this by clear and convincing evidence. Sexton at 266-267, n.31. "Clear and convincing proof does not necessarily mean uncontradicted proof. It is sufficient if there is proof of a probative and substantial nature carrying the weight of evidence sufficient to convince ordinarily prudent-minded people." Rowland v. Holt, 253 Ky. 718, 70 S.W.2d 5, 9 (1934). This is accomplished with the concept of tracing.
Tracing allows the party claiming a nonmarital interest in property to prove its nonmarital character. The "source of funds rule" is often used to achieve tracing when the property before the court includes both marital and nonmarital components. See Travis v. Travis, 59 S.W.3d 904, 909 (Ky. 2001). "The source of funds rule simply means that the character of the property, i.e., whether it is marital, nonmarital, or both, is determined by the source of the funds used to acquire property." Travis at 909, n.10 (internal citations omitted). Moreover, "[i]n the context of tracing nonmarital property, when the original property claimed to be nonmarital is no longer owned, the nonmarital claimant must trace the previously owned property into a presently owned specific asset." Sexton at 266.
The concept of tracing does not require mathematical certainty. Chenault v. Chenault, 799 S.W.2d 575 (Ky. 1990). Instead, the party claiming such an interest may persuade the family court through testimony how the property owned at the time of the dissolution had been acquired. Terwilliger v. Terwilliger, 64 S.W.3d 816 (Ky. 2002). This often requires showing that the nonmarital asset was spent in a traceable manner during the marriage. Kleet v. Kleet, 264 S.W.3d 610 (Ky. App. 2007).
Pertinent to the case herein, commingling of assets presents two related issues for the party claiming a nonmarital interest in the property to overcome. First, did the nonmarital property lose its exempt status; and second, has the commingling of assets rendered tracing ineffective? See Bischoff v. Bischoff, 987 S.W.2d 798 (Ky. App. 1998), and Travis at 910. We agree with the trial court that Glenn did not overcome these two issues.
While Glenn argues that he presented sufficient evidence to trace his nonmarital claims, we disagree. Glenn presented the trial court evidence that he established the brokerage accounts prior to marriage. The trial court was presented with evidence that Glenn had deposited marital funds into the accounts, transferred accounts, removed funds from the account to pay expenses during the marriage, after which time he presented the trial court with account balances post-marriage. The trial court was correct that such evidence did not sufficiently trace Glenn's claimed nonmarital interest given the commingling of assets.
Glenn next argues that the trial court erred in valuing the assets of the parties as of the date of their actual separation instead of the date of dissolution of their marriage.
Glenn further argues that the Green Partners oil and gas wells are marital and Jill should be responsible for her share of marital debt therefrom. Glenn claims that the trial court erred when it assigned each party the debt associated with the property they received. We disagree. As stated in Guffey v. Guffey, 323 S.W.3d 369, 373 (Ky. App. 2010):
An appellate court reviews a trial court's division of debts under an abuse of discretion standard. Neidlinger at 523. As the Kentucky Supreme Court has explained, there is no "presumption that debts must be divided equally or in the same proportions as the marital property." Id. This Court has stated "In dividing marital property, including debts, appurtenant to a divorce, the trial court is guided by Kentucky Revised Statute (KRS) 403.190(1), which requires that division be accomplished in "just proportions.'" Lawson v. Lawson, 228 S.W.3d 18 at 21.
Herein, the trial court clearly undertook an assessment of factors set forth in Neidlinger and reiterated by this Court in Guffey. The trial court divided the parties' debt, incurred by Glenn in his business ventures, in just portions and was not bound to divide the debt in the same proportions as the marital property. Therefore, we find no error in the trial court's assignment of debt between the parties.
Glenn argues that the trial court used the wrong values for the parties' assets as evidenced by the different figures within the order.
In dividing the marital property the court stated that the brokerage/investment accounts were worth $585,300. Earlier in its order the court had set forth that the parties had various accounts with the values of:
Then, the court noted in April of 2005, Glenn moved the accounts and consolidated them at JP Morgan Chase where they were managed by David Demarest. The approximate amount consolidated was $206,856.00. After deposits from marital funds, the account grew until in September of 2008 they totaled $493,000.00. There was also a small IRA account at JP Morgan of $33,000.00.
In light of these findings, we cannot produce the same calculation that the brokerage accounts were worth $585,300.00. We believe remand to be appropriate for the court to explain its calculations or to correct any inadvertent miscalculations. Therefore, we must reverse and remand the trial court's division of marital property for further reconsideration.
Next, Glenn argues that the trial court committed reversible error in its award of attorney's fees. The court, in light of the financial disparity between the parties and Glenn's course of obstructive tactics that extended the litigation, awarded Jill $75,000 in attorney's fees out of the accumulated bill of $92,000. We do not find such an award to be an abuse of the court's discretion.
At issue, KRS 403.220 states:
Per statute, a court may award attorney's fees but must consider the financial resources of both parties.
An award of attorney's fees under KRS 403.220 is only supported by an imbalance in the financial resources of the parties. Lampton v. Lampton, 721 S.W.2d 736, 739 (Ky. App. 1986) (internal citations omitted). Herein, the trial court clearly considered the parties' financial resources prior to awarding Jill attorney's fees.
Lampton at 739.
Finally, Glenn argues that Jill is not entitled to further maintenance. As noted, the court found that there was an extreme disparity of income between the parties as Glenn reported that his gross monthly income was over $28,000.00 and Jill earned about $30,000.00 per year. Despite the disparity in income, the court determined that the marital estate awarded to Jill was sufficient to provide for her reasonable needs. However, until she received her share of the assets, she was unable to provide for her needs. Consequently, the court ordered Glenn to pay Jill maintenance in the amount of $1500 a month until Glenn had transferred her allotment of the marital assets to her.
Maintenance is a matter which comes within the sound discretion of the trial court. Browning v. Browning, 551 S.W.2d 823, 825 (Ky. App. 1977). KRS 403.200(2) provides "[t]he maintenance order shall be in such amounts and for such periods of time as the court deems just, and after considering all relevant factors . . . ." In view of the facts as previously outlined, we cannot say the trial court abused its discretion by awarding maintenance.
In light of the aforementioned, we affirm in part, reverse in part, and remand for further proceedings.
ALL CONCUR.
Edwards v. Land, 851 S.W.2d 484, 490 (Ky. App. 1992), overruled on other grounds by O'Bryan v. Hedgespeth, 892 S.W.2d 571 (Ky. 1995).
In further support of the propriety of this award see also Gentry v. Gentry, 798 S.W.2d 928, 938 (Ky. 1990), wherein the Kentucky Supreme Court discussed KRS 403.220 and CR 37.01:
Sexton v. Sexton, lists other considerations for a trial court: In addition to the parties' financial resources, the trial court should consider other relevant factors, including those set forth by our predecessor in Boden v. Boden:
Sexton v. Sexton, 125 S.W.3d 258, 272-73 (internal citations omitted).
