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Gardner v. Harris (9/20/96), 923 P 2d 96
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NOTICE: This opinion is subject to formal 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.
THE SUPREME COURT OF THE STATE OF ALASKA
JOANNE GARDNER, )
) Supreme Court No. S-6648/6677
Appellant and )
Cross-Appellee. ) Superior Court No.
) 3AN-93-604 CI
v. )
) O P I N I O N
LEE WAYNE HARRIS, )
) [No. 4408 - September 20, 1996]
Appellee and )
Cross-Appellant.)
_______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Larry D. Card, Judge.
Appearances: Maryann E. Foley, Anchorage, for
Appellant and Cross-Appellee. William B.
Carey, Anchorage, for Appellee and Cross-
Appellant.
Before: Rabinowitz, Matthews, Compton, and
Eastaugh, Justices, and Carpeneti, Justice pro
tem. [Moore, Chief Justice, not
participating.]
CARPENETI, Justice pro tem.
RABINOWITZ, Justice, with whom EASTAUGH, Justice, joins,
dissenting in part.
I. INTRODUCTION
This is an appeal from the superior court's property
division in a divorce case. Joanne Gardner challenges the trial
court's finding that bonds purchased by Lee Harris prior to their
marriage failed to transmute into marital property for purposes of
equitable distribution. Harris cross-appeals the trial court's
refusal to require Gardner to repay her portion of loans
collateralized by the bonds which were paid off when the bonds were
called. Gardner also challenges the trial court's amended finding
that she owes Harris an additional $21,500.74 for her share of
post-separation expenses.
We affirm the trial court's determination as to the bonds
and remand the order to pay post-separation expenses for additional
findings.
II. FACTS AND PROCEEDINGS
The facts are largely undisputed. Joanne Gardner and Lee
Harris married in September 1985 and separated in December 1992.
During the marriage, both worked in the oil and gas exploration
industry and each earned approximately $80,000 per year.
Shortly before the marriage, Harris invested $63,000 in
Valdez Marine Terminal (VMT) bonds, to be worth $90,000 at
maturity. Harris held these bonds in a separate account at Merrill
Lynch until the summer of 1987, when he transferred them into the
couple's joint Merrill Lynch "Cash Management Account." Harris and
Gardner held the Cash Management Account as joint tenants with a
right of survivorship. The couple's Merrill Lynch stockbroker,
Kenneth Jones, testified at trial that both Harris and Gardner
possessed independent authority over this account, including
individual discretion over whether to trade or cash in the VMT
bonds.
Concurrent with the transfer of the bonds, the Cash
Management Account became the couple's primary joint financial
account. Harris and Gardner made credit card transactions and
wrote checks against the account; they each contributed their
paychecks to the account; and they applied the bond's interest
income, which was rolled into the joint account at approximately
$5,500 per year, toward joint expenses. Harris and Gardner also
used the bonds to refinance real estate that the couple owned in
Monterey, California, and a sailboat, both of which the trial court
later found to be marital assets. In December 1993 and immediately
before the February 1994 divorce trial, the VMT bonds were called.
When the bonds were called, all loans collateralized by the bonds
were paid off. The remaining cash balance in the couple's Cash
Management Account totalled $29,120.
After considering the evidence, the trial court found
that the couple's marital assets should be divided equally. The
court set aside the balance of the parties' joint Cash Management
Account, finding that it was the separate property of Harris. The
court found that although the VMT bonds had been placed into the
joint account and had been jointly borrowed against, and that the
interest income from the bonds had been exhausted for marital
expenses, neither party had cashed the bonds in, traded them, or
added additional bonds to the corpus: "The corpus remained intact
throughout the marriage, and matured as it would have even if the
parties had never married; nor had ever placed them in a joint
account." The court gave weight to Harris's testimony that "at no
time did Ms. Gardner consider these bonds anything other than his."
The court concluded that although the bonds had been called, Harris
would retain "the money left from the bonds"as his separate
property. (EN1)
The trial court also addressed post-separation expenses,
finding that Harris had spent $4,037.52 more than Gardner on joint
post-separation expenses. The court therefore found that Gardner
owed Harris fifty percent of this figure, or $2,019.
Harris thereafter moved to amend the findings and
judgment or, alternatively, to obtain a new trial. First, Harris
explained that the court's findings pertaining to post-separation
expenses were limited to expenditures made out of Harris's separate
account. Harris documented additional expenses paid out of the
joint Cash Management Account, and noted that Gardner's post-
separation deposits into that account had been far less than those
of Harris. The court accepted Harris's new figures and entered an
amended finding that Gardner owed Harris an additional $21,500.74
for her share of personal and joint post-separation expenses paid
out of the couple's joint account.
The second argument which Harris pressed focused upon the
VMT bonds. Harris urged that having found the bonds to be his
separate property, the trial court should have additionally found
Gardner responsible for her share of an approximately $40,000
"devaluation"of the bonds, that is, the amount which was repaid to
Merrill Lynch out of the bond proceeds to repay loans the couple
had taken out to refinance the Monterey property and the boat. The
trial court disagreed. In commenting on the status of the bonds,
the court noted:
Having found Mr. Harris' [VMT bonds] to have
been his separate property, the court has
already or by amendment if not clear to the
parties, [found] the earnings marital property
of the parties. Mr. Harris shall retain the
bonds, but the earnings are deemed "marital
property,"and thus were spent on marital
expenses during marriage. The bonds
themselves were used simply to collateralize
the parties' joint loans, and both were
equally responsible for the repayment of such
loans against the principal of the bonds, Mr.
Harris' separate property.
The court specifically deleted language in Harris's proposed order
which would have required Gardner to pay Harris $20,000 to
partially restore the full worth of his pre-marital asset.
This appeal and cross-appeal followed.
III. DISCUSSION
Property division at divorce involves a three-step
process. "'First, the trial court must determine what specific
property is available for distribution. Second, the court must
find the value of this property. Third, it must decide how an
allocation can be made most equitably.'" Chotiner v. Chotiner, 829
P.2d 829, 831 (Alaska 1992) (quoting Wanberg v. Wanberg, 664 P.2d
568, 570 (Alaska 1983)).
When reviewing a decision under the first step, this
court applies the abuse of discretion standard; however, if a legal
determination is involved, we exercise our independent judgment.
Lewis v. Lewis, 785 P.2d 550, 552 (Alaska 1990); Moffitt v.
Moffitt, 749 P.2d 343, 346 (Alaska 1988). We will not disturb a
trial court's valuation of the parties' assets under step two in
the absence of clear error. Lewis, 785 P.2d at 552. Finally, a
trial court's allocation of property under step three is subject to
abuse of discretion review. Id.
A. The VMT Bonds
On appeal Gardner challenges the trial court's resolution
of the first task: the isolation of marital versus non-marital
property for the purpose of equitable distribution. Gardner
contends that the trial court erred in setting aside the VMT bonds
as Harris's separate property.
Gardner asserts that a series of acts clearly evidenced
Harris's intent to donate the VMT bonds to the marriage. Gardner
emphasizes Harris's decision to transfer the bonds into the
couple's primary joint account where each party possessed full
authority over their use. Gardner urges this court to recognize
the marital nature of the account, which not only held the bonds
but was used by both parties as a depository for paychecks and as
a source of funds for joint expenditures. Finally, Gardner notes
that Harris testified that he transferred the bonds into the joint
account for "the community benefit,"and that the parties in fact
used the bonds to, among other things, refinance marital property.
Harris acknowledges that the bonds were put to joint use;
however, Harris contends that when he transferred the bonds into
the joint account, he intended to keep the asset separate but to
give the marriage the benefit of better financing which strategic
use of the bonds would allow. Harris explains that the transfer of
the VMT bonds into the joint account was an administrative
convenience, and that Gardner understood that they remained his
separate property. Harris cites his testimony that it was a "sore
spot"during the marriage that Harris refused to cash in the VMT
bonds, and he refers to testimony in which the couple's stockbroker
observed that it was Harris, not Gardner, who appeared to be "in
control"of the bonds.
Under AS 25.24.160, only property acquired during the
marriage, whether jointly or separately held, may be distributed by
the trial court at divorce. AS 25.24.160(a)(4). However, it is a
well-settled principle that property acquired before marriage "can
become marital property where that is the intent of the owner and
there is an act or acts which demonstrate that intent." Chotiner,
829 P.2d at 832; see also Rhodes v. Rhodes, 867 P.2d 802, 804
(Alaska 1994); Wanberg, 664 P.2d at 571. The present case requires
the court to consider whether the bonds themselves have transmuted
in character because the original owner has chosen to treat the
property as a joint holding.
In previous cases we have identified several factors that
can assist the trial court in determining whether a spouse intended
to treat his or her separate property as marital. One significant
indication is evidence that both spouses have actively participated
in the ongoing maintenance and management of the property. Rhodes,
867 P.2d at 804 & n.5 (noting that although this factor has
traditionally been applied to cases involving real property, "it
might also be relevant to personal property"). In the case of real
estate, this court has looked to whether the couple used the
property as a marital residence and whether the credit of the non-
titled owner was used to improve the property. Cox v. Cox, 882
P.2d 909, 916 (Alaska 1994). In addition, evidence of an oral or
written agreement to convert pre-marital property to, or keep it
separate from, marital property is probative. Chotiner, 829 P.2d
at 833. Finally, although we have stated that "the act of
commingling, in itself, does not automatically establish intent to
jointly hold property," Carlson v. Carlson, 722 P.2d 222, 224
(Alaska 1986), we have held that "placing separate property in
joint ownership is rebuttable evidence that the owner intended the
property to be marital." Chotiner, 829 P.2d at 833; Lewis, 785
P.2d at 555.
After considering the arguments and record, we conclude
that the trial court gave sufficient weight to these factors.
Given the deferential standard of review that we apply to the trial
court's decision, we cannot say that the decision that the VMT
bonds remained Harris's separate, pre-marital asset was an abuse of
discretion. (EN2) Harris transferred his bonds into an account
which he held with Gardner for the purpose of using them to obtain
credit. Once the bonds were placed into the account, Harris ran
the risk that the bonds would be called and the credit used. Until
the credit was used the bonds remained Harris's separate property.
When the bonds were called, however, the portion that was used for
credit was lost, and the remaining proceeds remained Harris's
separate property.
B. Post-Separation Expenses
Gardner also challenges the trial court's amended finding
that she must pay Harris an additional $21,500.74 for her share of
personal and joint post-separation expenses.
The trial court originally found that Harris had
overspent Gardner by $4,037.52 on joint post-separation expenses.
In a motion to amend the findings, Harris stated that the court's
finding had been based only upon payments made out of Harris's
separate account. Harris's request for an amendment was based on
the additional post-separation expenses paid from the joint Cash
Management Account, and the difference between their post-
separation deposits into that account. The trial court granted the
motion to amend and awarded Harris the amount requested, finding:
The defendant paid a total of $11,054.65 of
plaintiff's post-separation personal expenses
and $14,925.53 of plaintiff's share of the
parties' joint post-separation expenses.
Plaintiff made post-separation deposits into
the account from which the payments were made
in the sum of $4,479.44 and should be given
credit against the above amounts for these
deposits. Plaintiff, Joanne Gardner therefore
owes defendant, Lee Wayne Harris, the sum of
$21,500.74 for her share of post-separation
expenses paid for out of the parties' [Cash
Management] [A]ccount.
Gardner contends on appeal that the amount awarded was
erroneous because it was based upon Harris's figures which
contained inaccuracies and mathematical errors. Harris disagrees,
arguing that the trial court was entitled to accept the figures
that he presented.
We cannot determine on this record the basis for the
award of post-separation expenses. (EN3) Accordingly, we must
remand this issue to the trial court for entry of specific findings
supporting the basis for the award of $21,500.74 to Harris. See
Merrill v. Merrill, 368 P.2d 546, 548 (Alaska 1962) (this court
requires "sufficiently detailed and explicit findings"for a clear
understanding of the basis for trial court's decision), quoted in
Chotiner, 829 P.2d at 833.
IV. CONCLUSION
The trial court did not abuse its discretion in
concluding that the VMT bonds purchased by Harris prior to the
marriage remained his separate property. We therefore AFFIRM the
trial court's holding that the bonds remained Harris's separate
property. On that basis, we deny Harris's cross-appeal. Finally,
we REMAND Gardner's challenge regarding post-separation expenses
for additional findings.RABINOWITZ, Justice, with whom EASTAUGH, Justice, joins, dissenting
in part.
After finding that the VMT bonds were Harris's separate
property, and in response to Harris's motion to amend the findings
and judgment, the superior court observed that
[t]he bonds themselves were used simply to
collateralize the parties' joint loans, and
both were equally responsible for the
repayment of such loans against the principal
of the bonds, Mr. Harris' separate property.
The superior court then deleted language in Harris's proposed order
which would have required Gardner to pay Harris $20,000 to
partially restore the full worth of his separate pre-marital asset.
In his cross-appeal Harris asserts that the superior court erred in
not requiring Gardner to pay $20,000 as her portion of the loans
made against the bonds.
The court disposes of Harris's cross-appeal point in the
following manner:
Once the bonds were placed into the account,
Harris ran the risk that the bonds would be
called and the credit used. Until the credit
was used the bonds remained Harris's separate
property. When the bonds were called,
however, the portion that was used for credit
was lost, and the remaining proceeds remained
Harris's separate property.
Op. at 9 (emphasis added).
Harris argues that the superior court should have found
Gardner responsible for her share of an approximate $40,000
"devaluation"of the bond, the amount which was repaid to Merrill
Lynch out of the bond proceeds to repay loans the couple had taken
out to refinance the Monterey property and the boat. In my
opinion, Harris's cross-appeal point is meritorious, and I would
hold that the superior court erred in not requiring Gardner to pay
her portion of the loans made against the bonds.
I think it determinative that the superior court ruled
that Harris and Gardner "were equally responsible for the repayment
of such loans against the principal of the bonds . . . ." In the
absence of an agreement by Harris that he would bear sole
responsibility for the loans if the bonds should be called, and
given the superior court's finding that both were equally
responsible for repayment of the loans against the principal of the
bonds, I conclude that the superior court erred in not requiring
Gardner to pay her portion of the loans repaid upon the call of the
bonds.
If, as this court concludes, the portion of the proceeds
not used to repay the loans remains Harris's separate property,
then what transforms the portion of the proceeds used to repay the
loans into marital property? I perceive of no principled way to
distinguish between the two parts of the bonds used as collateral
other than some type of agreement regarding the repayment of the
loans in the contingency that the bonds were called. The superior
court found no such agreement.
ENDNOTES:
1. In concluding that the bonds were Harris's separate property,
the court further observed that because Harris and Gardner enjoyed
equal earning capacities, there was no need to invade Harris's
separate property in order to balance the parties' equities.
2. In concluding that the VMT bonds retained their character as
Harris's separate property, the trial court identified what it
viewed as the pivotal factor: the fact that "[t]he corpus [of the
bonds] remained intact throughout the marriage, and matured as it
would have even if the parties had never married; nor had ever
placed them in a joint account."
3. Reference to the exhibits presented at trial does not reveal
how the trial court reached its conclusions that Harris paid
$11,054.65 of Gardner's post-separation personal expenses,
$14,925.53 of Gardner's share of the parties' joint post-separation
expenses, or that Gardner made post-separation deposits of
$4,479.44 for which she should receive credit.
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