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Investment in Marital Rental Properties
© 2004 National Legal Research Group, Inc.
MISSOURI: Petties v. Petties, 129 S.W.3d 901 (Mo. Ct. App. 2004).
Marital funds invested in marital rental properties and used to pay marital living expenses before the divorce were not dissipated and should not have been treated as distinct marital assets. A lump-sum workers' compensation settlement, paid out after entry of the divorce decree for an injury sustained during the marriage, was presumed to be marital property. The presumption could be rebutted by proof that a portion of the settlement was compensation for lost postmarital wages, but no such proof was presented on the facts. The trial court erred by awarding to the husband certain debts incurred to benefit property awarded to the wife, with the result that the husband received 99% of the overall marital debt.
Following the entry of a decree of dissolution, the husband appealed the division of property on several grounds. On his first point of appeal, he contended that the trial court erred when it included as marital property the proceeds arising from the sale of two specifically identified rental properties, income from the rentals of other properties, and disability replacement income received by him. In responding to the husband's assertions, the appellate court first recognized that a marital asset must exist at the time of the trial to be considered within the property division. It further noted that income received during the marriage is marital property and that funds flowing from the sale of a marital asset are also clearly marital property. When those proceeds are consumed for reasonable and necessary expenses, they will no longer be considered part of the marital estate subject to division. On the other hand, the court acknowledged that if a party has squandered marital property, such as the proceeds mentioned above, then the trial court may include that property in the marital estate, even though it no longer exists, allocating it to the spouse who squandered it or ordering that spouse to reimburse the other party. In looking to the record, the appellate court found no evidence that the husband had squandered the assets or proceeds in question. The court then considered the three items that had been included in the marital estate cited above.
First, as to the proceeds from the sale of the two rental properties, which the trial court separately divided as marital property, the court of appeals held that the evidence had established that these proceeds had been reinvested in other rental properties. These other properties were also divided by the trial court between the parties. While the trial court would have been correct in holding that such proceeds normally should be treated as marital property, since there was proof that they were reinvested in other properties for maintenance and remodeling purposes, they no longer existed and, therefore, could not be separately divided. Having done so, it divided those proceeds twice first as the sale proceeds and again by dividing the rental properties on which the proceeds were expended. Because there was no evidence that the funds had been squandered by the husband and they were no longer in existence at the time of the trial, the trial court erred in including them in the division of marital property.
Second, as to the income received by the husband from the rental properties, again, because there was no evidence that the husband had squandered such funds or that they remained in existence at the time of the trial, such proceeds having been spent by him to pay living expenses, as well as additional maintenance and repairs to the rental properties, the trial court erred when it included such funds as marital property in the division of assets.
Third, as to the disability income the husband had received for a six-month period during the marriage, the husband's contention that such funds were spent on living expenses, attorney's fees, and to refurbish the rental properties was not challenged by the wife. Moreover, there was evidence that substantial portions of the disability income were spent on child support payments. There was never any argument that the income was squandered and no evidence in the record that the income was still in existence. Again, the trial court's ruling including these disability payments as marital property subject to division was erroneous.
On his second point of appeal, the husband argued that the trial court erred when it classified as marital property a $14,555 lump-sum settlement of a workers' compensation claim. The injury took place during the marriage and the claim was filed at a point while the parties were still married. The resulting payment, however, took place sometime after the dissolution decree was rendered. In resolving this question, the court on appeal stressed that it was important to consider when the settlement was "acquired." Property acquired during the marriage is presumed to be marital property, while property acquired outside the marriage is presumed to be nonmarital property. These presumptions may be rebutted, however, with the burden of proof resting upon the party challenging the presumption.
While it is normally a relatively simple task to determine the date of acquisition, usually the date on which an asset is purchased or received, in some circumstances, the date of acquisition is considered to be when the recipient acquires legal rights or interests in the property. Here, the important date is not when the husband received the workers' compensation settlement but, rather, when he was injured, as it was on this earlier date that his rights accrued or were "acquired." Therefore, as the husband's workers' compensation settlement arose during the marriage, that settlement was presumptively marital property and it fell to the husband to rebut the presumption by clear and convincing evidence. The court next proceeded to determine whether the husband had met his burden in this regard. Because the husband had failed to demonstrate in the record what portion of the lump-sum settlement was intended to compensate him for lost prior wages, i.e., earnings derived from his employment prior to the dissolution, and what portion of the lump-sum compensation was to compensate him for future earnings after the date of the dissolution, it was found that he had not met his burden. The court declined, however, to deny completely this point on appeal, given that the trial court, on remand, would be so broadly reconsidering the division.
Finally, the husband also argued that the trial court improperly awarded the remaining three rental properties to the wife while at the same time awarding almost all of the marital debt associated with such properties to him. As to the award of the rental properties to the wife, the husband argued that the trial court refused to consider his contributions to the acquisition of the properties and his exclusive involvement with their management. While the husband failed to support several of the allegations with citations to the record, the evidence did show that the trial court discouraged or otherwise limited evidence regarding the parties' contributions to the acquisition and maintenance of the properties. The wife essentially conceded this point on appeal. For this reason, and given that the issue of the property division had already been remanded on other grounds, the court of appeals remanded this matter as well.
As to the distribution of the marital debt, the appeals court noted that while a trial court has broad discretion to divide marital debt, and such division need not be equal, the husband had been awarded over 99% of the marital debt. While the husband was, in turn, awarded a greater share of the marital property, that imbalance was more than outweighed by the debts allocated to the husband. Such unbalanced divisions of debt have been reversed on appeal as an abuse of discretion. The husband identified three debts for closer examination. The first consisted of two mortgages on the property that he was awarded and in which he currently resided. Under the relevant statute, Mo. Rev. Stat. Ann. 452.330.1, marital debts must be divided along the same principles as marital property is divided. Since the husband was awarded the property associated with the debt, and there was no assertion that he did not have other sufficient income-producing assets to continue supporting that debt, there was no abuse of discretion in awarding the husband the entire mortgage debt on that particular property. As to a second and third debt, both of which were associated with two rental properties awarded to the wife, namely a debt for services by a carpenter who remodeled the properties, and the balance on a bank loan where the funds were used to refurbish one of the properties, there was an abuse of discretion requiring a remand for reconsideration. Both debts were acquired during the marriage and were thus presumptively marital. It was improper to award almost all of the debts relating to these properties when the properties themselves were awarded exclusively to the wife.
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