Opinion ID: 871547
Heading Depth: 2
Heading Rank: 1

Heading: An overview of Hawaii's property division scheme

Text: Aaron contends that the ICA gravely erred when it affirmed the [family] court's conclusion of law, that no `Marital Separate Property' or appreciation on that property can ever be awarded to a non-owning spouse. In Hawai'i, [t]here is no fixed rule for determining the amount of property to be awarded each spouse in a divorce action other than as set forth HRS § 580-47. Tougas v. Tougas, 76 Hawai'i 19, 26, 868 P.2d 437, 444 (1994) (citation and ellipses omitted). HRS § 580-47(a) (2006) confers upon the family court wide discretion in dividing marital property and provides that upon granting a divorce, the family court may make any further orders as shall appear just and equitable: ... (3) finally dividing and distributing the estate of the parties, real, personal, or mixed, whether community, joint, or separate; and (4) allocating, as between the parties, the responsibility for the payment of the debts of the parties whether community, joint, or separate, and the attorney's fees, costs, and expenses incurred by each party by reason of the divorce. In making these further orders, the court shall take into consideration: the respective merits of the parties, the relative abilities of the parties, the condition in which each party will be left by the divorce, the burdens imposed upon either party for the benefit of the children of the parties, and all other circumstances of the case. HRS § 580-47(a); see Tougas, 76 Hawai'i at 26, 868 P.2d at 444. In addition to HRS § 580-47, Hawai'i case law has created a framework based on partnership principles that provides further guidance for family courts to use in dividing property upon divorce. Because Aaron's and Bonnie's arguments on appeal relate to this evolving body of case law, a review of the relevant case law follows. In Gussin v. Gussin, 73 Haw. 470, 473, 836 P.2d 484, 486 (1992), this court examined, inter alia, the ICA's mandate that family courts' division and distribution of the estates of parties in divorce proceedings must commence at `uniform starting points' (USPs). The UPSs directed the family court to presume certain percentage splits for categories of property that previously had been established in Malek v. Malek, 7 Haw.App. 377, 380-81 n. 1, 768 P.2d 243, 246 n. 1 (1989). Gussin, 73 Haw. at 474-75, 836 P.2d at 487. This court rejected the concept of USPs, finding them to be rebuttable presumptions that restrict[ed] the family courts' discretion in the equitable division and distribution of parties' estates. Id. at 486, 836 P.2d 484, P.2d at 492. This court concluded that the ` partnership model of marriage ' provides the necessary guidance to the family courts in exercising their discretion and to facilitate appellate review. Id. (emphasis added) (footnote omitted). Accordingly, this court held that USPs, as mandated by the ICA, are violative of HRS § 580-47 because they restrict the family courts' discretion in the equitable division and distribution of parties' estates. Id. In Tougas, this court again endorsed the partnership model as the appropriate law for the family courts to apply when exercising their discretion in the adjudication of property division in divorce proceedings. 76 Hawai'i at 28, 868 P.2d at 446. While recognizing that [t]here is no fixed rule regarding property division other than what is provided in HRS § 580-47, id. at 26, 868 P.2d at 444, this court noted that the family court can utilize the following five categories of net market values (NMVs) as guidance in divorce cases: Category 1. The net market value (NMV), plus or minus, of all property separately owned by one spouse on the date of marriage (DOM) but excluding the NMV attributable to property that is subsequently legally gifted by the owner to the other spouse, to both spouses, or to a third party. Category 2. The increase in the NMV of all property whose NMV on the DOM is included in category 1 and that the owner separately owns continuously from the DOM to the DOCOEPOT [date of the conclusion of the evidentiary part of the trial] Category 3. The date-of-acquisition NMV, plus or minus, of property separately acquired by gift or inheritance during the marriage but excluding the NMV attributable to property that is subsequently legally gifted by the owner to the other spouse, to both spouse, or to a third party. Category 4. The increase in the NMV of all property whose NMV on the date of acquisition during the marriage is included in category 3 and that the owner separately owns continuously from the date of acquisition to the DOCOEPOT. Category 5. The difference between the NMVs, plus or minus, of all property owned by one or both of the spouses on the DOCOEPOT minus the NMVs, plus or minus, includable in categories 1, 2, 3, and 4. Id. at 27, 868 P.2d at 445 (citation omitted). This court further indicated that the NMVs in Categories 1 and 3 are the parties' capital contributions, and pursuant to general partnership law, they are returned to each spouse. Id. (citation omitted). Categories 2 and 4 are the during-the marriage increase in NMVs of the Categories 1 and 3 Properties owned at DOCOEPOT[,] which similar to partnership profits, are generally to be shared equally. Id. at 27-28, 868 P.2d at 445-46 (citation omitted). In sum, this court stated, if there is no agreement between the husband and wife defining the respective property interests, partnership principles dictate an equal division of the marital estate where the only facts proved are the marriage itself and the existence of jointly owned property. Id. at 28, 868 P.2d at 446 (quotation marks and citation omitted). This court then considered whether the family court abused its discretion when it deviated from equal division of a joint business that the parties, Carol Tougas (Carol) and Raymond Tougas (Raymond), owned. Id. at 32, 868 P.2d at 450. Carol's parents had created a partnership as part of their estate plan to provide exclusively for their three children, and had each of their children's spouses sign consent forms, which acknowledged that the partnership was separate property, inaccessible during a divorce action. Id. at 23, 868 P.2d at 441. A second partnership was formed, but no consent forms were signed. Id. Following trial, the family court determined, inter alia, that Raymond was not entitled to any share of Carol's interest in the two partnerships formed by her parents, but awarded Raymond seventy-five percent of the business that he and Carol operated. Id. at 25, 868 P.2d at 443. On appeal, Carol argued, inter alia, that she should have been awarded fifty percent of the business she operated with Raymond because she and Raymond had contributed as equal partners to the formation and operation of [the business]. Id. at 32, 868 P.2d at 450. In response to this argument, this court stated: [T]he [family] court's actions in distributing the estate are discretionary, based on what the court deems to be just and equitable under the circumstances. Moreover, because the applicable statute, HRS § 580-47, allows the court to consider the condition of the parties after the divorce, separate property holdings may properly factor into the court's consideration. This does not mean, however, that [Carol's] partnership interests should offset [Raymond's] interest in the marital estate. The validation of the spousal consent agreement, which operates as a waiver by [Raymond] of all rights to the partnerships, conclusively establishes the contrary. The court may, nevertheless, alter alimony, child support, and, as in this case, the ultimate distribution of the marital estate based on the respective separate conditions of the spouses. Id. Accordingly, this court upheld the family court's deviation from the equal division of the Tougases' joint property. Id. In Hussey, the ICA followed the marital partnership concept, but noted that  Tougas used the terms `marital estate,' `marital properties,' `separate properties,' and `joint property.' 77 Hawai'i at 206, 881 P.2d at 1274. Seeking clarity and precision ... in the context of the Partnership Model, the ICA recognized three classifications of property, which included in relevant part: Premarital Separate Property. This was the property owned by each spouse immediately prior to their marriage or cohabitation that was concluded by their marriage. Upon marriage, this property became either Marital Separate Property or Marital Partnership Property. Marital Separate Property. This is the following property owned by one or both of the spouses at the time of the divorce: a. All property that was excluded from the marital partnership by an agreement in conformity with the Hawai'i Uniform Premarital Agreement Act (HUPAA), HRS chapter 572D (Supp.1992)[;] .... b. All property that was excluded from the marital partnership by a valid contract[;] and c. All property that (1) was acquired by the spouse-owner during the marriage by gift or inheritance, (2) was expressly classified by the donee/heir-spouse-owner as his or her separate property, and (3) after acquisition, was maintained by itself and/or sources other than one or both of the spouses and funded by sources other than marital partnership income or property. Marital Partnership Property. All property that is not Marital Separate Property. Id. at 206-07, 881 P.2d at 1274-75. With regard to the distribution of Marital Separate Property and Marital Partnership Property, the ICA further noted in Hussey that although Marital Separate Property cannot be used by the family court to offset, [ Tougas, 76 Hawai'i at 32], 868 P.2d at 450, the award of Marital Partnership Property to the other spouse, it can be used by the family court to alter ... the ultimate distribution of [Marital Partnership Property] based on the respective separate conditions of the spouses. [ Id. ] In other words, Marital Separate Property is property that has been validly excluded from the marital partnership. Although the family court may allow Marital Separate Property to reasonably influence the division and distribution of Marital Partnership Property, it cannot award any Marital Separate Property to the non-owner spouse. Consequently, the five categories of [net market values] listed in Tougas, 76 Hawai'i at 27, 868 P.2d at 445, apply only to Marital Partnership Property, not to Marital Separate Property. Id. at 207, 881 P.2d at 1275 (emphasis added). Shortly after Hussey, the ICA decided Markham v. Markham, 80 Hawai'i 274, 909 P.2d 602 (App.1996). At issue in Markham was whether the family court abused its discretion in awarding the wife an equalization award based on the entire value of a husband's stock in a company called Maile, which the husband owned. 80 Hawai'i at 286, 909 P.2d at 614. The ICA classified the husband's stock in Maile as Category 1 property separately owned by one spouse on the date of marriage. Id. The ICA indicated that the appreciated value of said stock would fall into Category 2 as `[t]he increase' in the net market value of property which the owner separately owned from the date of marriage to the date of the trial's conclusion. Id. Recognizing that HRS § 580-47 vests broad discretion in the family court to divide and distribute separate property in a just and equitable manner, the ICA held that [t]his discretion encompasses the authority to award separate property to the non-owning spouse. Id. (citation omitted). In Schiller, a 2009 decision, the ICA examined a purported conflict between Markham and Hussey. 120 Hawai'i at 310, 205 P.3d at 575. In Schiller, the husband argued that his interest in a company called Garnet was Marital Separate Property, not subject to equitable distribution under Hussey. Id. at 309, 205 P.3d at 574. The husband testified, inter alia, that his interest in Garnet was property acquired during the marriage by gift; he characterized Garnet as his sole and separate property during the marriage; and he asserted that he had not made any payments for Garnet and was not involved with its management. Id. at 310, 205 P.3d at 575. The ICA concluded that the husband's interest in Garnet was a gift-hence [the husband's] separate property. Id. However, the ICA determined that there is a contradiction in the case law in this jurisdiction regarding whether a family court can award separate property to a non-owner spouse. Id. The ICA contrasted Markham, which held that the family court's discretion encompasses the authority to award separate property to the non-owning spouse, Schiller, 120 Hawai'i at 310, 205 P.3d at 575 (quoting Markham, 80 Hawai'i at 286, 909 P.2d at 614), with Hussey, which held that the family court cannot award any Marital Separate Property to the non-owner spouse[.] Id. at 310-11, 205 P.3d at 575-76 (quoting Hussey, 77 Hawai'i at 207, 881 P.2d at 1275). The ICA determined that in Hussey, this court's paraphrasing of the holding in Tougas was inaccurate and that Markham controls this case. Schiller, 120 Hawai'i at 311, 205 P.3d at 576. Accordingly, the ICA held in Schiller that under the holding of Markham, the family court may `award separate property to the non-owning spouse.' 120 Hawai'i at 312, 205 P.3d at 577 (citation omitted).