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Sharon Elliott v. Christopher James (5/28/99), 977 P 2d 727


     Notice:  This opinion is subject to correction before publication in
the Pacific Reporter.  Readers are requested to bring errors to the attention of
the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone
(907) 264-0608, fax (907) 264-0878.



             THE SUPREME COURT OF THE STATE OF ALASKA
                                 

SHARON ELLIOTT,               )
                              )    Supreme Court No. S-8000
             Appellant,       )
                              )    Superior Court No.
     v.                       )    3AN-95-7966 CI
                              )
CHRISTOPHER JAMES,            )    O P I N I O N
                              )
             Appellee.        )    [No. 5123 - May 28, 1999]
______________________________)




          Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
                     Rene J. Gonzalez, Judge.


          Appearances:  Sandra K. Saville, Anchorage,
for Appellant.  G.R. Eschbacher, Law Office of G.R. Eschbacher,
Anchorage, for Appellee.


          Before:  Matthews, Chief Justice, Eastaugh,
Fabe, and Bryner, Justices.  


          PER CURIAM


I.   INTRODUCTION
          After filing for divorce from her husband Christopher
James, Sharon Elliott learned that James had deceived her about his
past marital status and involvement with the law.  Elliott then
supplemented her complaint to request an annulment based on fraud. 
Elliott asked the court to award her the couple's primary asset, a
condominium purchased before the marriage and used as the couple's
marital residence, because she claimed that James had taken
advantage of her financially.  The superior court ruled that an
annulment was inappropriate and divided the equity of the
condominium evenly between the parties.  We affirm both of the
trial court's rulings.
II.  FACTS AND PROCEEDINGS
          Sharon Elliott filed for divorce from Christopher James
in September 1995 after less than two years of marriage.
Approximately one year later, Elliott learned that James had
deceived her about his background and supplemented her divorce
complaint to request an annulment based on fraud.  She claimed that
James had misled her in two specific ways:  He had lied to her
about the existence of a prior marriage and about a prior
misdemeanor conviction.
          During trial, Elliott portrayed James as a "con artist"
who had lied to her about his past in order to marry her and live
off her income.  To support her contention that James was a
"flimflam"man, Elliott pointed to the fact that James had not
filed or paid taxes in over five years and had no record of how he
had spent the approximately $140,000 that he had earned in the
three years prior to trial.  The evidence at trial showed that at
various times during their courtship, James had told Elliott that
he had never been married before. [Fn. 1]  Although James's former
girlfriend advised Elliott that he was deceiving her about his
prior marital status, Elliott believed James's declarations of
bachelorhood.  Elliott also trusted James when he told her that
there was nothing inappropriate in his past of which she should be
aware.  Still, she testified that it was not important to her to
know whether James had been married before except insofar as it
reflected upon his truthfulness.
          Because she believed that James had married her for her
money, Elliott argued that the superior court should award her the
parties' marital residence, a condominium.  The parties bought the
condominium shortly after they became engaged in June 1993. 
Although both Elliott and James were obligated on the loan obtained
to pay for the condominium, Elliott paid the down payment and
closing costs, approximately $17,000, from her separate funds. 
Elliott's evidence showed that she also paid the vast majority of
the couple's living expenses during the marriage, including the
condominium's mortgage payments.  In contrast, James's financial
statement showed that he had earned large sums of money during the
marriage for which he could not account.  Elliott therefore claimed
that James did not deserve to share in the condominium's equity.
          Although it found that James had been dishonest with
Elliott about his background prior to their marriage, the superior
court ruled that annulment was inappropriate because Elliott had
failed to show by clear and convincing evidence that her consent
was "obtained by the fraud alleged."  The court also ruled that the
parties had treated the condominium as a marital asset and, after
considering the factors listed in AS 25.24.160(a)(4), "concluded
that the most equitable division . . . [was] to divide the equity
in the condominium equally between the parties."
          Elliott appeals.
III. DISCUSSION
     A.   Standard of Review
          1.   Annulment
          We review de novo questions of law, [Fn. 2] such as the
superior court's legal conclusion that the fraud alleged in this
case did not justify an annulment.  We review questions of fact
under the clearly erroneous standard; [Fn. 3] we apply this
standard to the questions of whether James deceived Elliott and
whether Elliott agreed to marry him as a result of this deception. 

          2.   Property division
          Generally, a superior court has broad discretion when
dividing property in a divorce proceeding and we will not disturb
the superior court's property division unless it is clearly unjust.
[Fn. 4]  Further, an equal division of property, such as the one
entered in this case, is presumptively valid; as the party seeking
a modification, Elliott bears the burden of showing that it is
unfair. [Fn. 5]
          The classification of property depends on the intent of
the parties. [Fn. 6]  We review the superior court's factual
decision that the condominium is marital property under the clearly
erroneous standard. [Fn. 7]  But we exercise our independent
judgment in determining whether or not the superior court applied
the correct legal rule in classifying the property -- that is,
whether it looked to the parties' intent rather than to other
factors. [Fn. 8]
     B.   The Superior Court Correctly Refused to Grant Elliott an
Annulment Based on Fraud.

          Elliott argues that the superior court should have
granted her an annulment because she proved that James had been
dishonest with her about his past and that she would not have
married him "had she known the truth about his deceit."  As the
party seeking to annul the marriage, Elliott must prove that it is
invalid by clear and convincing evidence. [Fn. 9]
          Although we have never previously addressed the issue of
annulment, courts are generally reluctant to grant annulments based
on fraud.  Decisions from other jurisdictions generally hold that
marriages are presumed valid and can be annulled on the basis of
fraud only if the fraud concerns an issue essential to the
marriage. [Fn. 10]  While the superior court found that James
misled Elliott about his background, [Fn. 11] it is an open
question whether concealing a prior marriage and a misdemeanor
conviction constitutes a fraud "essential"to the marriage.  At
least one case holds that failure to disclose a prior marriage and
divorce does not justify annulment based on fraud. [Fn. 12]
          In the case at hand, we agree with the superior court's
ruling that "[Elliott]'s consent to marry [James] was not obtained
by the fraud alleged."[Fn. 13]  Elliott has failed to show by
clear and convincing evidence that James's misrepresentations about
his marital status and conviction induced her to marry him. 
Instead, Elliott specifically testified at trial that she was not
concerned with the actual fact of a prior marriage but only "wanted
to know if he was deceiving me."
          Elliott thus appears to argue that James defrauded her by
presenting himself as an honest person when he was actually
dishonest.  But this allegation falls short of the reliance element
necessary to sustain a fraud claim.  If one could sustain a fraud
allegation because a spouse turned out to have a different
character than one thought, many divorces could probably qualify
for an annulment.  For this reason, at least one court has
concluded that false representations about one's character do not
justify annulment. [Fn. 14]  We agree and therefore conclude that
Elliott failed to prove that James's deception about his marital
status and involvement with the law induced her to marry him.
     C.   The Superior Court Did Not Abuse Its Discretion in
Valuing and Dividing the Condominium.
          
          Elliott presents two primary arguments challenging the
superior court's division of the condominium's equity.  First, she
claims that the condominium is her separate property because she
used her funds for the down payment and for all the mortgage
payments.  Second, she contends that James should not have received
half of the equity because he depleted marital assets.
          1.   The superior court correctly concluded that the
condominium is marital property.

          The condominium's equity stems both from a down payment
made prior to the parties' marriage and from payments made during
the marriage.  Because the superior court found that the parties'
earnings during the marriage were marital and because Elliott has
not contested this finding, she cannot now claim that the
condominium is her sole property based on the fact that the couple
used her earnings to make mortgage payments during the marriage. 
Thus, Elliott's claim can succeed only if the condominium qualifies
as her pre-marital asset.  
          Even if Elliott had paid the entire purchase price of the
condominium prior to the parties' marriage and therefore clearly
"acquired"it before marriage, [Fn. 15] the superior court still
had the statutory authority to treat the condominium as marital
property.  We recently held in Harrelson v. Harrelson [Fn. 16] that
premarital property becomes marital as a matter of law "upon a
showing that the parties intended to treat the property as
marital."[Fn. 17]  In determining the parties' intent, the court
should consider such factors as "(1) the use of property as the
parties' personal residence, and (2) the ongoing maintenance and
managing of the property by both parties, as well as (3) placing
the title of the property in joint ownership and (4) using the
credit of the non-titled owner to improve the property."[Fn. 18]
          The superior court found that the parties "demonstrated
a clear intent to retain the [condominium] as part of the marital
union and thus part of the marital estate."  We agree.  First, the
condominium was the parties' personal residence.  Second, both of
the parties' names appeared on the title to the property.  Third,
both Elliott and James were obligated on the loan that was used to
remodel the condominium.  Because at least three of the factors
discussed in Harrelson are met in this case, the superior court's
finding that the condominium was marital property is not clearly
erroneous.
          In a factually similar case, we concluded that the
property in question was properly considered marital.  In Carlson
v. Carlson, [Fn. 19] we held that property purchased shortly before
the marriage, even if it were purchased solely with the husband's
funds, was marital property where the wife had power of attorney to
sign the purchase papers and title was taken jointly. [Fn. 20] 
Accordingly, we conclude here that the superior court did not err
in treating the condominium as marital property subject to
division.
          Elliott also argues that the superior court should have
applied the "source of funds"rule in classifying the condominium. 
Under this approach, property is classified by the origin of the
funds used to acquire it:  If marital funds are used to buy the
property it is a marital asset, and if separate funds are used it
is a separate asset. [Fn. 21]  Property purchased using debt such
as a mortgage is classified according to the source of the funds
used to pay off the debt. [Fn. 22]  Thus, courts using the source
of funds approach consider property to have been acquired during
the marriage to the extent that it was paid for with marital funds.
[Fn. 23] 
          Elliott argues that since she purchased the condominium
with separate funds and paid the mortgage payments from separate
funds, the superior court should have applied the source of funds
rule and classified it as a non-marital asset.  In Zimin v. Zimin
[Fn. 24] we stated that the source of funds approach would not be
inconsistent with Alaska statutes and case law. [Fn. 25]  But we
noted that it should be used only in very limited circumstances. 
In Zimin, the parties did not present any evidence whatsoever of
the current value of their assets, and the superior court found
that obtaining such appraisals was not feasible. [Fn. 26]  Since it
could not divide and value the assets in the usual manner, the
trial court "identified the 'marital portion' of the various assets
as being available for distribution"according to the source of
funds used to obtain them. [Fn. 27]  We noted that the court's
unorthodox methodology yielded the same result as would have the
application of the traditional rules. [Fn. 28]
          The situation before us is distinguishable from Zimin. 
Whereas the Zimin court applied the only classification method
available and reached the same result, the superior court in this
case heard evidence on the value of the condominium.  No barrier
existed, therefore, to its application of the traditional method of
property valuation and division.  Moreover, Elliott asks us to
extend the source of funds rule precisely because it would create
a different outcome.  We thus find no error in the superior court's
refusal to apply the source of funds rule.
          2.   The superior court did not abuse its discretion in
awarding James half of the condominium's equity.
          
          Although we hold that the superior court correctly
treated the condominium as marital property, the question remains
whether it properly divided the property's equity.  Alaska Statute
25.24.160(4)(E) instructs trial courts to consider the conduct of
the parties, including whether there has been unreasonable
depletion of marital assets, in dividing marital property. [Fn. 29] 
We recently specified in Jones v. Jones [Fn. 30] the standard for
determining whether a party's conduct qualifies as depletion of
marital assets.  The elements of unreasonable depletion are "(1)
use of personal property for the spouse's own benefit, (2) at a
time when the marriage is breaking down (either before or after
separation), (3) with an intent to deprive the other spouse of the
other's share of the marital property."[Fn. 31]  Not all of the
identified elements need to be present in each case. [Fn. 32]
          Elliott claims that James did not deserve half of the
equity because he depleted marital assets by squandering much of
his income during the years they were married.  But Elliott's
argument does not amount to much more than a claim that James did
not contribute equally to the marriage.  Under Jones, a party must
point to more than the fact that her spouse spent excess funds
during marriage and cannot account for those funds.  The evidence
presented at trial only showed that James earned a substantial
amount of income during the years of his marriage for which he
could not account, not that he failed to contribute to the couple's
household and business expenses.  To say that a party is a poor
money manager is insufficient to show intent to deprive the other
spouse of marital assets.  So although the court had facts before
it that arguably justified a finding of depletion, the superior
court's finding that neither party unreasonably depleted marital
assets is not clearly erroneous.  Therefore, the trial court did
not err in distributing the condominium's equity equally between
the parties.
IV.  CONCLUSION     
          Because we find no clear error, we AFFIRM the superior
court's rulings rejecting Elliott's claim for an annulment based on
fraud and dividing the condominium's equity equally.


                            FOOTNOTES


Footnote 1:

     In fact, James continued to insist throughout the course of
the marriage and through the discovery process leading up to the
divorce trial that Elliott was his first wife:  He indicated that
he had never been married before both on his marriage license
application and in an interrogatory filed with the superior court
in the divorce action.


Footnote 2:

     See Laing v. Laing, 741 P.2d 649, 651 (Alaska 1987); Guin v.
Ha, 591 P.2d 1281, 1284 n.6 (Alaska 1979).


Footnote 3:

     See State, Dep't of Revenue v. Merriouns, 894 P.2d 623, 625
(Alaska 1995).


Footnote 4:

     See Laing, 741 P.2d at 651.


Footnote 5:

     See Julsen v. Julsen, 741 P.2d 642, 645 (Alaska 1987).


Footnote 6:

     See Harrelson v. Harrelson, 932 P.2d 247, 251 (Alaska 1997). 


Footnote 7:

     See id. at 250.


Footnote 8:

     See Julsen, 741 P.2d at 646 n.4. 


Footnote 9:

     See, e.g., In re Marriage of Burnside, 777 S.W.2d 660, 664
(Mo. App. 1989); Panzer v. Panzer, 528 P.2d 888, 891 (N.M. 1974).


Footnote 10:

     See, e.g., Wolfe v. Wolfe, 389 N.E.2d 1143, 1144 (Ill. 1979)
("Although such fraud would render the ordinary contract void, a
marriage contract can be voided only if the nature of the fraud
itself affects the essentials of the marriage."); Guggenmos v.
Guggenmos, 359 N.W.2d 87, 91 (Neb. 1984) ("While [exaggerations of
accomplishments, character, and circumstances] constitute a species
of fraud, they do not affect a basis for destruction of the
marriage.").


Footnote 11:

     James has not appealed this finding.


Footnote 12:

     See Charley v. Fant, 892 S.W.2d 811, 813 (Mo. App. 1995). 
Although Elliott does discuss James's failure to disclose his
criminal conviction in her brief, her argument focuses primarily on
his misrepresentations about his prior marriage.


Footnote 13:

     Elliott also disagrees with the superior court's apparent
conclusion that after-acquired information cannot be the basis for
annulment.  The superior court commented that Elliott could not
make a successful claim for annulment, in part because "[i]t was
only after the complaint for divorce was filed that [Elliott]
learned of the information she relies on to support her contention
of fraud."  We agree that any reliance the court placed on the
timing of Elliott's discovery of James's misrepresentation was
misplaced.  The essence of Elliott's fraud claim is that James
concealed information from her that would have affected her
decision to marry him.  Thus, the fact that she discovered this
information only after the fact supports her fraud case rather than
defeats it.


Footnote 14:

     See Wolfe, 389 N.E.2d at 1144 ("False representations as to
fortune, character, and social standing are not essential elements
of the marriage, and it is contrary to public policy to annul a
marriage for fraud or misrepresentations as to personal
qualities.") (internal quotation marks omitted).


Footnote 15:

     See AS 25.24.160(4) ("[T]he court, in making the division, may
invade the property . . . of either spouse acquired before marriage
when the balancing of the equities between the parties requires it
. . . .") (emphasis added).


Footnote 16:

     932 P.2d 247 (Alaska 1997).


Footnote 17:

     Id. at 251 (citation omitted).


Footnote 18:

     Cox v. Cox, 882 P.2d 909, 916 (Alaska 1994) (citations and
internal quotations omitted), quoted in Harrelson, 932 P.2d at 251.


Footnote 19:

     722 P.2d 222 (Alaska 1986).


Footnote 20:

     See id. at 224-25.


Footnote 21:

     See Zimin v. Zimin, 837 P.2d 118, 122 n.6 (1992).


Footnote 22:

     See id.


Footnote 23:

     See Brett R. Turner, Equitable Distribution of Property sec.
5.10, at 161 (2d ed. 1994 & Supp. 1997).


Footnote 24:

     837 P.2d 118 (Alaska 1992).


Footnote 25:

     See id. at 122 n.6.


Footnote 26:

     See id. at 122 & n.6.


Footnote 27:

     Id. at 122 n.6.


Footnote 28:

     See id. at 122 & n.6.


Footnote 29:

     James argues that Elliott has waived her claim of depletion. 
We disagree.  Although Elliott did not use the term unreasonable
depletion of assets, she argued in the superior court that James
had consistently taken advantage of her financially and therefore
did not deserve to receive any money from the marital estate.  As
part of the proof she presented, Elliott pointed out that James had
earned a substantial amount of money during the years of their
marriage for which he could not account.  This argument was
sufficient to preserve the issue of unreasonable depletion.


Footnote 30:

     942 P.2d 1133 (Alaska 1997).  


Footnote 31:

     See id. at 1140.


Footnote 32:

     See id.