Source: http://www.courts.state.me.us/opinions_orders/opinions/2005_documents/05me9wa.htm
Timestamp: 2014-04-24 18:00:31
Document Index: 770524881

Matched Legal Cases: ['§\n953', 'art,\n2004', '§ 953', '§ 953', '§ 1', '§ 953', '§ 951', '§ 951', '§ 953']

Warren appeals from a divorce judgment entered in the District Court (Portland,
Horton, J.), adopting the report of a
referee. Claude contends that the
court erred by (1) including in the marital estate the increase in value of
stock acquired by Claude before the marriage, based on a finding that the
increase resulted from marital labor pursuant to 19-A M.R.S.A. §
953(2)(E)(2)(b) (Supp. 2004); (2) failing to award Claude reimbursement support
even though the divorce occurred shortly after Jenny Warren received her MBA;
and (3) distributing the marital property approximately equally. We affirm the judgment. I. CASE HISTORY
[¶2] Jenny Warren filed the action for divorce
in May 2002. In March 2003, the
District Court entered a stipulated order appointing a referee pursuant to M.R.
Civ. P. 53(a). The referee held a
hearing over three days in June 2003, and filed a report with the District
Court in November 2003. The case
history is based on the record developed at the hearing. [¶3] In the late 1970s, Claude, a machinist,
joined the newly-formed Bushmaster Firearms, Inc. He was hired by the company's majority stockholder to get
the production lines up and running. Jenny went to work at Bushmaster in the late 1980s. The parties met at work, and were
married on September 3, 1989. [¶4] Before
the marriage, Claude had acquired 1260 shares of the capital stock of
Bushmaster Firearms. He acquired
211 additional shares during the marriage. The 1471 shares owned by Claude represent approximately
13.96 percent of the company's issued and outstanding stock. The majority of shares of the closely
held corporation is owned by a single stockholder. [¶5] Claude
initially designed the products and created the assembly lines for
Bushmaster. In later years, he was
in charge of production. His
titles included Vice President for Manufacturing and Vice President for
Operations. He was responsible for product design, purchasing, manufacturing,
and hiring and supervising production employees.
[¶6] Claude
was not involved in financial management, marketing, or strategic planning for
Bushmaster. He asserts that he
made a substantial contribution to the success of Bushmaster because he
designed the product and put in place the production systems that made the
company run. He testified that the
company "is my whole life," and that he is "one of the guys that made the
company what it is today." [¶7] The
company grew from three employees in the late seventies, to over seventy
employees at the end of the marriage. The company had a tenfold expansion in sales from 1989 to 2002. Until recently, Bushmaster neither
retained nor reinvested profits; it distributed nearly all its profits to
shareholders. The majority
stockholder made all decisions regarding distributions, employee compensation,
bonuses, and benefits. Claude's compensation from wages, distributions and
bonuses for the year 1989 was $97,808. His compensation peaked in 1994 at $1,781,346, and in the last year of
his employment, 2001, was $539,851. [¶8] By the late 1990s, Claude was
effectively removed from his position at Bushmaster, though he continued to
draw a salary until December of 2001, when his employment was officially
terminated. Claude entered into a
noncompete contract with Bushmaster, agreeing not to work for a competing
company for five years. For the
first three years of the agreement, he was paid $100,000 annually as
consideration for not competing. He will receive no payment in the final two years of the agreement. [¶9] Claude
was fifty-seven years old at the time of the divorce hearing, and has some
health issues. [¶10] Before and during the marriage, Jenny
also worked at Bushmaster. She
started as an invoice clerk, then moved into purchasing, where she worked
directly for Claude. The evidence
indicates that Jenny also devoted a great amount of time and energy to the
company during the marriage. She
resigned her position in June of 2000. Jenny's compensation in 1989 was $20,415. At the time of her resignation she was earning at a rate of
$70,000 to $80,000 per year. [¶11] After
she left Bushmaster, Jenny decided to complete her education. She finished her undergraduate degree
in September of 2000. In January
of 2001, she started an MBA program. She graduated in May of 2002, and filed this action for divorce later
that same month. She was not
employed while she attended school. Jenny was thirty-eight years old at the time of the divorce
hearing. She is in good health but
does not intend to seek employment, except, perhaps, part-time consulting work.
[¶12] Other
than the premarital stock, neither party brought any significant assets to the
marriage. At the time of the
divorce, aside from the Bushmaster stock, the marital estate consisted of cash,
liquid securities, and real estate worth more than $3,000,000.
[¶13] Both
parties' experts testified that the Bushmaster stock was difficult to value due
to several factors: the stock is not publicly traded; there are restrictions on
the sale of the stock; the industry is heavily regulated; and the value is
susceptible to swings in sales related to political events and third-party
litigation. [¶14] The
referee valued the premarital Bushmaster stock at $24 per share at or near the
time of the marriage, for a total value of $30,240, and between $1641 and $1737
per share on December 31, 2002. This value was within the range of values testified to by the parties'
experts.[1] Using the value found by the referee,
the nonmarital shares appreciated in value at least $2,067,660 during the
[¶15] The
referee determined that the increase in value of the nonmarital Bushmaster
stock that occurred during the marriage resulted from marital labor and
therefore was marital property. The referee included that value in the marital estate, and effectuated
an equitable distribution that resulted in each party receiving approximately
one-half of the marital property. The referee did not award spousal support to either party. [¶16] Claude
filed a motion to amend the report or for additional findings of fact. The requested amendment related to the
purchase price of the Bushmaster stock. Claude requested additional findings related to the parties' current
circumstances, living expenses, and prospects for employment. The referee made additional findings
pursuant to M.R. Civ. P. 53(e)(5), but declined to amend the report. [¶17] Claude
objected to acceptance of the referee's report. After reviewing the record and hearing arguments of the
parties, the District Court pursuant to M.R. Civ. P. 53(e)(2), determined that
the referee's findings of fact were not clearly erroneous, and entered judgment
adopting the referee's report. Claude timely filed his notice of appeal to this Court. [¶18] Claude
contends that the court erred by including the increase in value of the
Bushmaster stock in the marital estate, and acted outside its discretion by
dividing the marital property approximately equally and failing to award him
[¶19] When a
trial court accepts a report of a referee, the findings of the referee become
the trial court's findings, and we review those findings directly. Hennessy v. Fairley, 2002 ME 76, ¶¶ 17-18, 796 A.2d 41, 47. [¶20] The
determination of whether property is marital or nonmarital is a question of
fact that we review for clear error. Sewall v. Saritvanich, 1999 ME
46, ¶ 14, 726 A.2d 224, 227-28. However, the application of the law to the facts is reviewed de
novo. Spooner v. Spooner, 2004 ME 69, ¶ 7, 850 A.2d 354, 358. When we are asked to "determine [which]
rule should be utilized in deciding whether property is marital or nonmarital,
we do so de novo without deferring to the trial court's view of the law but
honoring the trial court's finding of the facts as long as they are supported
by the evidence." Id. [¶21] We
review, for a sustainable exercise of discretion, the grant or denial of
spousal support, Urquhart v. Urquhart,
2004 ME 103, ¶ 3, 854 A.2d 193, 194, and the equitable distribution of marital
property, Murphy v. Murphy, 2003 ME 17,
¶ 27, 816 A.2d 814, 822.
III. LEGAL ANALYSIS A. Appreciation
in Value of Nonmarital Property
Legislature has adopted the "'shared enterprise or partnership theory' of
marriage recognized in community property states." Long v. Long, 1997
ME 171, ¶ 7, 697 A.2d 1317, 1320 (quoting Tibbetts v. Tibbetts, 406 A.2d 70, 76 (Me. 1979)). A fundamental principle of community property law is that
"the fruits of labor performed during marriage by either spouse . . . belong to
the marital community, and are not the separate property of the laboring
spouse." American Law Institute, Principles of the Law of Family
Dissolution: Analysis and Recommendations 4.05, cmt. a (2000). This principle is articulated in Maine
law by 19-A M.R.S.A. § 953(2)(E)(2)(b). We are asked to decide whether the appreciation in value of Claude's
premarital stock is fruit of labor performed by Claude during the marriage, and
whether it was properly allocated to the marital estate.
[¶23] The
statute that governs the appreciation in value of nonmarital property during
the marriage, 19-A M.R.S.A. § 953(2)(E) (1998 & Supp. 2004), provides, in
2. Definition. For purposes of this section, "marital
property" means all property acquired by either spouse subsequent to the
marriage, except:
. . . . E. The increase in value of property acquired prior to the
marriage and the increase in value of a spouse's nonmarital property
Appreciation resulting from marital labor;
[¶24] Section
953 was recently amended to add subparagraphs 2(E)(1) and (2). P.L. 1999, ch. 665, § 1 (effective Aug.
11, 2000), codified at 19-A M.R.S.A.
§ 953(2)(E)(1), (2) (Supp. 2004). The Legislative Summary, adopted from the Family Law Advisory
Commission's comment to the amendment, describes its prospective impact on
Maine's marital property law as follows: [I]t excludes the increase in value of nonmarital property
from the definition of marital property if no marital effort or money is
expended. . . . .
A spouse's active and substantial involvement does not
depend upon whether the spouse received compensation for the spouse's
efforts. A spouse's active but
uncompensated time spent managing the spouse's premarital stock portfolio
during the marriage is marital effort and any increase in the value of the
portfolio flowing from reinvested income will be treated as marital
property. Similarly, the increase
in value of a nonmarital business during marriage resulting from reinvesting
the business's income in the business will also be treated as marital property
if either or both spouses actively managed the business during the
marriage. See MacDonald v.
MacDonald, 582 A.2d 976 (Me. 1990). . . . . This provision also does not require proof that a spouse's
active and substantial involvement in the asset's management, preservation or
improvement was directly responsible for the income generated by a nonmarital
asset. It is a spouse's
dedication of time and skills to the property during the marriage that brings
the property's income within the ambit of the marriage's "shared enterprise." It is not
necessary to prove that the spouse's involvement was responsible for the income
produced by the property.
L.D. 2267, Summary (119th Legis. 2000) (emphasis
[¶25] We have discussed the amendments to
section 953(2)(E) in two prior cases, both of which addressed whether a spouse
played a substantial, active role during the marriage in managing, preserving,
or improving nonmarital property pursuant to section 953(2)(E)(1)(b) and
(2)(c). Warner v. Warner, 2002 ME 156, ¶¶ 28-35, 807 A.2d 607, 618-21; Murphy, 2003 ME 17, ¶¶ 27-28, 816 A.2d at 822. We
have not previously addressed the issue of whether an increase in value
resulted from marital labor pursuant to section 953(2)(E)(2)(b).
of Proof [¶26] The
burden of establishing that the value of separate property increased during
marriage is on the party asserting the increase. Sewall, 1999 ME 46,
¶ 15, 726 A.2d at 228. Once that
party establishes that an increase in value has occurred, the burden shifts to
the party urging that the increase in value is not marital property to
demonstrate that the increase resulted from factors listed in section
953(2)(E)(1). See id.; Warner, 2002 ME
156, ¶¶ 28-31, 807 A.2d at 619‑20. If the opposing party fails to sustain the burden of establishing that
the increase resulted from market forces or passively reinvested income, the
statutory presumption compels a finding that the increase in value of the
separate property is marital. See
Sewall, 1999 ME 46, ¶ 15, 726 A.2d at 228;
Warner, 2002 ME 156, ¶ 31, 807
A.2d at 620.
[¶27] There is
no dispute that Claude's premarital stock increased in value during the
marriage. Thus, the burden shifted
to Claude to establish that the increase in value did not occur due to marital
labor, but occurred as a result of the appreciation factors listed in section
953(2)(E)(1). 2. Allocation of the
Increase in Value to the Marital Estate [¶28] When analyzing whether the appreciation
resulted from marital labor, the referee stated, "the critical analysis is
whether a spouse had a significant and substantial role in the business such
that it is reasonable to relate that spouse's efforts to the business'
success." The referee found that
Claude expended substantial effort and labor during the marriage working in
significant management positions for Bushmaster, and that Claude, being
responsible for product design and manufacturing, played a key role in
Bushmaster's success. On this
basis, the referee concluded that the increase in value of Bushmaster stock was
attributable to Claude's marital labor and therefore constituted marital
[¶29] Claude
argues that the referee erred in treating the increase in value as marital
property because he holds only a minority interest in the company and never
influenced the financial direction of the company. The fact that Claude owned only a minority interest in the
company is not significant. A key
employee's efforts can increase a company's value. It is not necessary that the employee have control over the
company's financial direction. Claude himself testified that he, with others, "made the company what it
is today" and that Bushmaster was his whole life.
[¶30] Claude
next contends that the referee erred in failing to distinguish between
compensated and uncompensated marital labor. The referee found that the company's profits were not
diverted from the marital estate back into the business, but instead, were
distributed to shareholders and employees, including Claude, by means of
generous wages and distributions. As a result, Claude contends, the marital estate has already been
rewarded for his labor, and there is no need to blur the distinction between
marital and nonmarital property to award Jenny a share of the increase in value
of his nonmarital stock.
[¶31] The fact
that the marital estate was compensated for Claude's labor with wages and
distributions does not compel the conclusion that the appreciated stock value
did not result from marital labor. Reimbursement for the diversion of marital funds is not the sole reason
for including appreciated value of nonmarital property in the marital
estate. Pursuant to section
953(2)(E)(2)(b), the marital estate is entitled to wages earned and
appreciation of separate property resulting from the labor of either spouse,
even if both wages and appreciation result from the same marital efforts. [¶32] In Knowles v. Knowles, 588 A.2d 315, 317 (Me. 1991), decided
prior to the amendments to section 953(2)(E), the trial court had
attributed all of the increase in value of the husband's separate video
equipment business to the marital estate. The husband argued on appeal that because he had been adequately
compensated during the marriage, the increase in value of his separate business
should remain separate. Id. We
rejected that argument, stating "[b]y attributing all of the increase in value
to marital efforts, the court rendered the issue of compensation
irrelevant." Id.
[¶33] There is
ample support in the record, including Claude's own testimony, for a finding
that Claude's dedication of time and skills to the company during the marriage
increased the value of the stock. Claude had the burden of proof to demonstrate that the appreciated value
of the stock was nonmarital, thus it was not error to include the appreciated
stock value within the marital estate.
of Appreciated Value [¶34] Claude argues in the alternative that
it was error for the referee to designate the entire appreciation in the value
of his stock as marital property. He asserts that part of the increase in value resulted from market
forces and should be set aside. [¶35] The
disposition of appreciated value of nonmarital property is generally not an
all-or-nothing proposition. We
differentiate "between the increase in value attributable to marital effort and
that 'attributable to the inherent value of the property and the economic
factors affecting it,' preserving the latter as separate property." Knowles, 588 A.2d at 317 (quoting Macdonald v. Macdonald, 532 A.2d 1046, 1050 (1987)). Attribution of appreciated value to marital labor or market
forces is a factual determination, and a 100% apportionment to either separate
or marital property is not precluded where factually warranted. See id. [¶36] Claude
asserts that the evidence shows that his most important contributions to the
company, the design and manufacture of the systems to create a complete rifle,
were in place before the marriage. He further contends that the company's increased sales after the
marriage were due not to his efforts, but to external political forces such as
the proposed assault rifle ban, the anticipated millennium computer bug, and
[¶37] In
addition, Claude argues that the appreciation occurring after 1998, when he was
stripped of his duties, could not be attributed to his efforts and should be
set aside. Alternatively, he
argues that any increase in value after 2001, when he was removed from
employment with the company, cannot be attributed to his labor.
[¶38] In Knowles, even though the evidence showed that technological
innovations had occurred in the video field and market conditions favored
growth of the company, the trial court determined that all of the increase in
value was attributable to the husband's efforts. Id. We affirmed, stating that the trial
court "did not clearly err in finding that such innovations would not have
affected the stock value without husband's efforts." Id. [¶39] On this
issue, Claude had the burden of proof, and the referee was not persuaded that
any portion of the increase in value could be attributed to market forces
alone.[2] The evidence demonstrates that while
Claude put the company's production systems in place prior to the marriage, he
was in charge of manufacturing and operations during the marriage. While demand may have risen in response
to external political forces, the referee did not clearly err in determining
that such forces would not have affected the stock value without Claude's
efforts. [¶40] Further, it was not clear error for the
referee to have included the appreciation up to 2002. The date is not so remote in time from Claude's departure
from the company as to deprive that valuation date of probative value, and the
conclusion that Claude's marital effort continued to add value to the company
after he left is supported in the record by Claude's own testimony.
[¶41] The
referee awarded neither party spousal support. Claude contends the referee exceeded the bounds of its
discretion in not awarding him reimbursement support. He asserts that he supported Jenny's educational advancement
during the marriage, that she did not work at all while she attended school,
and that Jenny, at age thirty-eight, with an MBA, is in a better position than
Claude to earn an income after the marriage. Claude argues that he has only a high school education, is
precluded from working in his field for at least two more years, and at age
fifty-seven[3] with health
issues, is in a poor position to obtain new employment. This difference, he asserts, qualifies
him for reimbursement support.
[¶42] Title
19-A M.R.S.A. § 951-A(2) lists five possible types of spousal support,
including reimbursement support. Reimbursement support is authorized as follows:
C. Reimbursement support may be awarded to achieve an
equitable result in the overall dissolution of the parties'
financial relationship in response to exceptional circumstances.
Reimbursement support may be awarded only if the court
determines that the parties' financial circumstances do not permit the court to
fully address equitable considerations through its distributive order pursuant
to section 953.
19-A M.R.S.A. § 951-A(2)(C) (Supp. 2004). [¶43] The referee found that the parties'
substantial assets and other financial circumstances permitted the judgment to
fully address equitable considerations through the distribution of property
pursuant to section 953. Given the
evidence of the parties' significant means, the decision not to award Claude
reimbursement support is well within the scope of the referee's discretion, and
is supported by section 951-A(2)(C).
Distribution of Property [¶44] The
parties agree that the referee achieved an approximately equal distribution of
the marital property. Claude
contends that an equal distribution is not equitable for the same reasons he
claims entitlement to reimbursement support. [¶45] In a
divorce action, "the court shall set apart to each spouse the spouse's property
and shall divide the marital property in proportions the court considers just
after considering all relevant factors." 19-A M.R.S.A. § 953(1) (1998). The statute provides for a "just" distribution, which "is not synonymous
with an equal distribution. . . . [w]e have made it clear that a court is not
required to divide the marital property equally, but is required to make the
division fair and just considering all of the circumstances of the parties." Murphy, 2003 ME 17, ¶ 27, 816 A.2d at 822 (alteration in
original) (quotation marks omitted).
[¶46] There is
ample support in the record for an approximately equal distribution of the
marital property in this case: (1) most of the parties' substantial assets
accumulated during the marriage; (2) there is a huge disparity in historical
earnings in Claude's favor; and (3) the referee might have, but did not, award
Jenny support. [¶47] The
equal distribution of marital property was within the referee's
discretion. The entry is:
P. Asen, Esq. (orally)
ME 04112-0427
M. Gulino, Esq. (orally)
Jenny's expert valued the stock in 1989 at $51.10 per share, and on December 31, 2002, at $1737.23 per share, amounting to an increase in value during the marriage of $1686.13 per share, and a total increase in value of the 1260 nonmarital shares of $2,124,524.
Claude's expert valued the stock in 1989 at $24 per share, and on December 31, 2002, at $446 per share, amounting to an increase in value during the marriage of $422 per share, for a total increase in value of the nonmarital shares of $531,720. [2] Because we conclude that the 100% attribution of the increase in value to marital property is not clear error in this case, we do not reach the issue of how to compute the percentages that should be attributed to marital property and separate property. For a discussion of different valuation methods, see generally, J. Thomas Oldham, Separate Property Businesses that Increase in Value During Marriage, 1990 Wis. L. Rev. 585. [3]
The parties' ages are stated as of the time of the divorce hearing.