Opinion
NO. 2014-CA-000867-MR
01-20-2017
LARRY RUSSELL ROBERTS II APPELLANT v. LORI E. ROBERTS APPELLEE
BRIEFS FOR APPELLANT: Sean S. Land Owensboro, Kentucky BRIEF FOR APPELLEE: Candy Yarbray Englebert Owensboro, Kentucky
NOT TO BE PUBLISHED APPEAL FROM DAVIESS CIRCUIT COURT
HONORABLE JOSEPH W. CASTLEN III, JUDGE
ACTION NO. 11-CI-01691 OPINION
AFFIRMING
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BEFORE: ACREE, J. LAMBERT AND TAYLOR, JUDGES. ACREE, JUDGE: The issue presented on this appeal is whether the circuit court erred in denominating certain real property as marital property. Finding no error, we affirm.
Factual and Procedural Background
Larry and Lori Roberts were married on July 13, 2002, in Daviess County, Kentucky. Larry instituted an action in December 2011 to dissolve the parties' marriage. The decree of dissolution was entered on April 30, 2014.
There were several contested issues between Larry and Lori. Their arguments and proof were heard for three days by the Domestic Relations Commissioner (DRC) in Daviess Circuit Court. The DRC issued a lengthy report on June 23, 2014. Relevant to this appeal are the DRC's findings regarding Larry's non-marital claim to property located at 4351 Highway 142 in Owensboro.
Larry alleged a non-marital interest in the proceeds from the sale of the Highway 142 property and asked the Commissioner to award him the cash equivalent of that non-marital interest, in the amount of $52,000, from the proceeds of the sale of the parties' property on Oakhurst Bend. The parties presented testimony and numerous exhibits on this issue.
The property on Oakhurst Bend was purchased by the parties in November 2005. It was sold during the course of these proceedings. The proceeds from the sale subject to distribution were $89,925.72. Larry proposed that he receive the first $52,000 representing his claimed non-marital interest in the Highway 142 property with the balance being divided equally between the parties.
However, the DRC found the Highway 142 property to be marital property, and accordingly, rejected Larry's non-marital claim to proceeds from its sale and, therefore, denied his request for a non-marital distribution from the Oakhurst Bend proceeds. The DRC recommended that the proceeds from the Oakhurst Bend sale be divided equally between the parties.
Larry filed exceptions to the DRC's report taking issue with the Highway 142 marital property classification, child support, and maintenance. The circuit court upheld and adopted the DRC's recommended findings, including those regarding the Highway 142 property. Larry now appeals. Additional facts will be discussed as they become relevant.
Standard of Review
Whether property is designated as marital or non-marital is reviewed under a two-tiered scrutiny in which the factual findings made by the court are reviewed under the clearly erroneous standard and the ultimate legal classification is reviewed de novo. Smith v. Smith, 235 S.W.3d 1, 6 (Ky. App. 2006).
Analysis
Larry now argues to this Court that he has a $52,000 non-marital interest in the proceeds from the sale of the parties' Oakhurst Bend property by virtue of his non-marital interest in the Highway 142 property. We disagree.
"The determination of whether property is marital or non[-]marital relates to the time or manner in which property is acquired." Smith v. Smith, 450 S.W.3d 729, 732 (Ky. App. 2014). Property acquired after the date of marriage and before a decree of legal separation is presumptively marital, but it is possible to overcome this presumption. KRS 403.190(3). The spouse claiming that certain property is non-marital bears the burden of proof to rebut the marital presumption by clear and convincing evidence. Brosick v. Brosick, 974 S.W.2d 498, 502 (Ky. App. 1998).
Often times, a piece of property will consist of both non-marital and marital components, requiring the trial court to determine the parties' non-marital and marital interests in such property relying upon the evidence before it. Travis v. Travis, 59 S.W.3d 904, 909 (Ky. 2001). Because Kentucky courts apply the "source of funds" rule to characterize property or to determine parties' non-marital and marital interests, it is incumbent upon the claimant to present evidence of "tracing" to track the property's ownership. Sexton v. Sexton, 125 S.W.3d 258, 265-66 (Ky. 2004) ("The 'source of funds rule' simply means that the character of the property, i.e., whether it is marital, non[-]marital, or both, is determined by the source of the funds used to acquire the property."). Further, "[n]either title nor the form in which property is held" is dispositive of the property's martial or non-marital character. Id. at 265.
As the DRC noted in her report, it is undisputed that Larry acquired the Highway 142 property in 2001, prior to his marriage to Lori. He made a $500 down payment and obtained a $22,000 mortgage for the unimproved 2.31 acre tract. The property was then appraised for $235,000 based upon blue prints for anticipated construction. Based upon the appraisal, Larry obtained a construction loan in November 2001 for approximately $140,300. Lori was involved in some way with the construction on the property; however, the parties disagree as to the extent of her involvement. Construction was completed on July 10, 2002, just days before the parties' marriage on July 13, 2002.
Together, Larry and Lori obtained a $168,000 mortgage in January 2003, and used it to satisfy the previous $22,000 mortgage held by Larry and the $140,300 construction loan. Larry made no payments to reduce the $22,000 mortgage principal or the construction loan prior to the marriage. In May 2003, the parties took out a second mortgage on the Highway 142 property for $80,000.
Larry is claiming $52,000 as his non-marital interest because the Highway 142 property was sold in 2006 for $220,000, and the $168,000 mortgage was extinguished upon the sale. The $35,000 balance of the second mortgage on the property was also released.
Larry further argues that the $35,000 pay-off of the second mortgage on the Highway 142 property in June 2006 was used as part of the down payment on the parties' property on Oakhurst Bend. However, the Oakhurst Bend property was purchased by Larry and Lori approximately seven months earlier in November 2005.
Despite this, Larry attempts to trace the funds to a promissory note he obtained in November 2005 for $70,758. He claims that half of the note was secured by equipment from his business and the other half ($35,000) was secured by the second mortgage on Highway 142. When the Highway 142 property was sold in 2006 for $220,000, the sale satisfied the $35,000 and $168,000 mortgages. Larry deducts the initial mortgage on the property from the sale price and comes up with $52,000 as his non-marital interest in the Oakhurst Bend property.
We reject Larry's argument as it is flawed from the start. The initial $168,000 mortgage obtained on Highway 142 by both Larry and Lori after they were married was presumably a marital obligation, and any repayment of the mortgage was presumably from marital funds. Larry failed to overcome this presumption.
Larry presented no evidence of any reductions to the mortgage principal balance through his non-marital funds. In fact, he admitted that no payments were made until after the $168,000 mortgage was obtained in January 2003. He created no pre-marital equity in the Highway 142 property. Any equity in the Highway 142 property was created by a marital obligation and marital funds. Once the court concluded that Larry had no non-marital interest in the Highway 142 property, Larry's argument for a claim to the first $52,000 from the sale of the Oakhurst Bend property necessarily fails. The circuit court did not err in its determinations regarding the marital and non-marital interests in these properties. Therefore, we affirm.
ALL CONCUR. BRIEFS FOR APPELLANT: Sean S. Land
Owensboro, Kentucky BRIEF FOR APPELLEE: Candy Yarbray Englebert
Owensboro, Kentucky