Opinion ID: 2332987
Heading Depth: 2
Heading Rank: 3

Heading: The Putnam Trust Stocks

Text: [¶ 14] The trial record establishes without contradiction that on December 21, 1992, Barry received ownership of seven individual stocks that were released from a trust that had been set up by Mr. Warner's grandfather and his first wife. . . . The term Putnam dealt with the trustee at the time. . . . [5] The court specifically found that [i]n 1992, the defendant received an additional inheritance of investments with a total value of approximately $94,000.00. [6] [¶ 15] Following Barry's acquisition of these securities in 1992, he sold all of his shares of three of the seven Putnam Trust stocks, and no evidence was introduced that would have enabled the court to trace the proceeds from these sales. The uncontradicted evidence demonstrates the following post-acquisition activity for the remaining four Putnam Trust stocks: [7] 1. Exxon 582 Shares Inherited in 1992 Shares Shares sold in 1995 2/1 Split 1997 Shares Shares sold in 1998 Shares Shares sold in 1999 664 Shares Currently Owned 2. General Electric 132 Shares Inherited in 1992 2/1 Split 1994 2/1 Split 1997 Shares Shares sold in 1998 428 Shares Currently Owned 3. Proctor & Gamble 264 Shares Inherited in 1992 5.190 Shares Dividend Reinvestment 2/1 Split 1997 Shares Shares gifted in 1997 11.506 Shares Dividend Reinvestment 501.886 Shares Currently Owned 4. Union Pacific 165 Shares Inherited in 1992 50 Shares Purchased in 1999 215 Shares Currently Owned [¶ 16] Apart from the purchase of fifty additional shares of Union Pacific stock in 1999, none of the shares of these four stocks were acquired by any method other than Barry's 1992 inheritance, subsequent stock splits and, in the case of Proctor & Gamble, dividend reinvestment. Both Barbara and her expert witness, a certified public accountant, offered no testimony or opinions regarding the Putnam Trust stocks. The court was not faced with choosing between two contradictory theories regarding the source of acquisition of the Exxon, General Electric, Proctor & Gamble, and Union Pacific stocks in the Warner portfolio as of the divorce trial. [¶ 17] Notwithstanding the detailed and uncontradicted information introduced with respect to the Putnam Trust stocks, the divorce judgment does not address these stocks separate from its more general discussion of Barry's overall stock portfolio. Although the court identified gaps in the evidence regarding the acquisition of the parties' securities as the basis for its conclusion that the entire portfolio was marital property, none of the gaps identified by the court pertain to the Putnam Trust stocks. The court ultimately concluded: All of the securities in the current portfolio were purchased during the marriage. The defendant has failed to demonstrate that marital funds were not invested in the currently held portfolio. See [19-A M.R.S.A.] § 953(2)(E)(1)(a) & (3) (1998 & Supp.2000). Further, the defendant had a substantial active role during the marriage in managing, preserving, or improving the property. See id. § 953(2)(E)(1)(b) & (2)(c). The stock portfolio is marital property and is awarded to the defendant as his exclusive property, subject to any encumbrances, which he will pay and will hold the plaintiff harmless therefrom. [¶ 18] In responding to Barry's post-judgment motion for reconsideration and, in particular, the judgment's treatment of the Putnam Trust stocks as marital property, the court made the following specific finding: The court relies on the language in the Divorce Judgment regarding the stock portfolio. The defendant's testimony was, in large part, rejected by the court as not credible. Further, a substantial active role in management of a portfolio is not disproved by a lack of trading activity in a particular investment. [¶ 19] Barry argues that because the court received evidence specific to the four remaining Putnam Trust stocks, it should have considered the post-acquisition history of each stock and not limited its analysis to the entire Warner stock portfolio as a whole. We agree. [¶ 20] Publicly traded securities are a species of property that generally require individual analysis under Maine's marital property statute. See, e.g., Clum v. Graves, 1999 ME 77, ¶ 14, 729 A.2d 900, 906 (discussing the securities that comprise the portfolio); Harriman v. Harriman, 1998 ME 108, ¶¶ 1-2, 710 A.2d 923-24 (listing individual stocks). A portfolio is not a species of property unless the evidence regarding the portfolio fails to reasonably permit the trial court to identify and distinguish the various investments comprising it. [8] It is not sufficient for a divorce court to limit its analysis under 19-A M.R.S.A. § 953 to a stock portfolio as a whole when it has before it discrete information that reasonably permits an assessment of some or all of the individual securities that comprise the portfolio. [9] [¶ 21] Here, the court had before it detailed information pertaining to the acquisition and subsequent history of the four Putnam Trust stocks inherited by Barry in 1992 that he still owned at the time of the divorce hearing. In addition, Adams testified at length regarding his tracing and evaluation of each of these stocks. Although it would have been very helpful in this complicated case for Barry to have offered an illustrative aid, see M.R. Evid. 616, or summary exhibit, see M.R. Evid. 1006, that graphically segregated the Putnam Trust stocks from the rest of the Warners' portfolio, Adams's testimony and, in particular, his working papers received in evidence, provided a clear picture and history of each stock. [10] The court's finding that the Putnam Trust stocks were inherited in 1992 with a value of $94,000 reflects that it was cognizant of the evidence specific to the Putnam Trust stocks. Its failure to analyze those stocks separate from the Warners' overall portfolio, however, resulted in its erroneous conclusion that all of the securities in the current portfolio were purchased during the marriage. This conclusion directly conflicts with its separate finding that Barry inherited the Putnam Trust stocks in 1992.
[¶ 22] The analysis of the evidence pertaining to the Putnam Trust stocks begins with the application of the marital property presumption. 19-A M.R.S.A. § 953(3). Because the stocks were acquired during the marriage, the stocks are presumptively marital property. Section 953(3) directs that [t]he presumption of marital property is overcome by a showing that the property was acquired by a method listed in subsection 2. Id. The next step, therefore, is to determine whether, by a preponderance, the evidence establishes any of the five statutory exceptions for overcoming the marital property presumption set forth in section 953(2)(A)-(E). 19-A M.R.S.A. § 953(2)(A)-(E) (1998 & Supp.2001). One of the methods of acquisition listed in section 953(2) is bequests. Id. § 953(2)(A) (1998). Here, the divorce court found that the Putnam Trust stocks were acquired by a bequest when it concluded that they were inherited by Barry in 1992. This finding is sufficient to overcome the marital property presumption. [¶ 23] Having determined that the property was acquired by a method that is an exception to the marital property presumption, the court must next determine whether the shares of stock currently owned are the same as those acquired by a bequest. This is relatively simple with respect to the Union Pacific stock because the number of shares currently owned were not affected by any sales, gifts, or dividend reinvestment but only by a separate purchase of fifty additional shares. The fifty additional shares fall squarely within the marital property presumption and were properly treated as such by the court. The acquisition of fifty additional shares does not, however, affect the nonmarital character of the 165 inherited shares. [¶ 24] The analysis is only slightly more complicated with respect to the remaining three securities: Exxon, General Electric, and Proctor & Gamble. The number of shares of Exxon, General Electric, and Proctor & Gamble stock currently owned by Barry are greater than those acquired in 1992 as a result of either stock splits or dividend reinvestment.
[¶ 25] A stock split is defined as [t]he issuance of two or more new shares in exchange for each old share without changing the proportional ownership interests of each shareholder. BLACK'S LAW DICTIONARY 1432 (7th ed.1999). It does not constitute income to the owner of the stock, nor does it generate an increase in the investment's value. The fact that the number of shares of Exxon, General Electric, and Proctor & Gamble stock increased following their acquisition due to stock splits is a neutral event with respect to the application of Maine's marital property statute.
[¶ 26] The increase in the number of shares of stock resulting from dividend reinvestment  here, 16.696 shares of Proctor & Gamble stock  is generally also a neutral event for purposes of applying Maine's marital property statute to shares of stock acquired by one of the methods listed in section 953(2)(A)-(E). The income reflected in the dividend of a publicly traded security is the product of the company's financial performance, not the effort or contributions of either or both spouses. A spouse's decision to have dividends reinvested in the stock, rather than paid as cash, is a routine investment decision that does not transform the inherited shares of stock responsible for the reinvested dividends into marital property. In addition, as is considered in greater detail below, the new shares acquired through reinvested income are also nonmarital property unless either or both spouses had a substantial active role during the marriage in managing, preserving or improving the property. 19-A M.R.S.A. § 953(2)(E)(1)(b) (Supp.2001).
[¶ 27] As publicly traded securities, any increase in the market value of the shares of Exxon, General Electric, Proctor & Gamble, and Union Pacific during the marriage was the product of market forces, not Barry's marital effort. The increase in value of a nonmarital asset resulting strictly from market forces has generally been treated as also constituting nonmarital property. See, e.g., Clum, 1999 ME 77, ¶ 13, 729 A.2d at 906 (explaining that [i]f the appreciation occurs because of increases in market value, the appreciation remains nonmarital property.); Nordberg v. Nordberg, 658 A.2d 217, 219 (Me.1995) (finding nonmarital funds at issue remained nonmarital despite increase in value of funds due to fluctuations in the market during course of marriage); Macdonald v. Macdonald, 532 A.2d 1046, 1050 (Me.1987) (stating that the increase in value. . . attributable to the inherent value of the property and the economic factors affecting it is nonmarital property). This view is now codified in section 953(2)(E), which expressly establishes [t]he increase in value of a spouse's nonmarital property as an exception to marital property, and section 953(2)(E)(1)(a), which further provides that `[i]ncrease in value' includes ... [a]ppreciation resulting from market forces. 19-A M.R.S.A. § 953(2)(E)(1)(a) (Supp.2001). Thus, the increase in value of the shares of the Putnam Trust stocks resulting from market appreciation is nonmarital property.
[¶ 28] The final step in the analysis of the four remaining Putnam Trust stocks is to consider the application of section 953(2)(E)(1)-(2). [11] The divorce court concluded that all increases in the value of the Warners' stock portfolio, which includes the four remaining Putnam Trust stocks, were entirely marital property, in part because Barry played a substantial active role during the marriage in managing, preserving, or improving the property. It further concluded with respect to the Putnam Trust stocks that a substantial active role in management of a portfolio is not disproved by a lack of trading activity in a particular investment. In reaching these conclusions, the court misconstrued section 953(2)(E)(1)-(2). [¶ 29] In 2000, the Maine Legislature revised the marital property statute as it pertains to the treatment of the increase in value of nonmarital property during marriage in response to our decisions in Clum v. Graves, 1999 ME 77, 729 A.2d 900, and Harriman v. Harriman, 1998 ME 108, 710 A.2d 923. See P.L.1999, ch. 665, § 1 (effective August 11, 2000). In Clum and Harriman, we treated the portion of the increased value of nonmarital investment assets resulting from both market appreciation and the reinvestment of income such as dividends and capital gains as marital property. Clum, 1999 ME at 77, ¶ 15, 729 A.2d at 906; Harriman, 1998 ME 108, ¶ 8, 710 A.2d at 924-25. In so ruling, we focused upon the well-established principle that the party asserting that the increase in value of an otherwise nonmarital asset is also nonmartial property has the burden of proving the same. See Kapler v. Kapler, 2000 ME 131, ¶ 755 A.2d 502, 506. [¶ 30] At the time Clum and Harriman were decided, section 953(2)(E) of the marital property statute provided, in pertinent part, that `marital property' means all property acquired by either spouse subsequent to the marriage, except: ... E. The increase in value of property acquired prior to marriage. 19-A M.R.S.A. § 953(2)(E) (1998). In both Clum and Harriman the party claiming that the increase in value was nonmarital property failed to meet its burden of proof by failing to introduce evidence from which the court could distinguish (1) the increased value of a stock or mutual fund resulting from market forces, from (2) the increased value of a stock or mutual fund resulting from the reinvestment of income through reinvested dividends or capital gains. We therefore concluded that all of the increases in value should be treated as marital property in accordance with the marital property presumption, 19-A M.R.S.A. § 953(3). [¶ 31] In response to these holdings, section 953(2)(E) (1998) was amended by the Legislature. [12] See 19-A M.R.S.A. § 953(2)(E)(1)-(2) (Supp.2001). Revised section 953(2)(E)(1)(a) establishes that to the extent a party demonstrates that the increase in value of a spouse's nonmarital stock resulted from market forces, the increased value is nonmarital property regardless of whether the spouse or spouses played a substantial active role in managing the stock. In addition, sections 953(2)(E)(1)(b) and (2)(c) establish that to the extent a party demonstrates that the increase in value of a spouse's nonmarital stock resulted from reinvested income and capital gain, the increased value is nonmarital property unless it is also established that either or both spouses had a substantial active role during the marriage in managing, preserving or improving the property. [13] 19-A M.R.S.A. § 953(2)(E)(1)(b) & (2)(c) (Supp.2001). [¶ 32] In this case, the increase in value of the four remaining Putnam Trust stocks, as distinguished from the Warners' portfolio as a whole, must be analyzed pursuant to section 953(2)(E)(1) and (2). It is not sufficient to conclude that, overall, a spouse was substantially and actively involved in the management of a couple's investment portfolio and that, a fortiori, the same is true for each investment within the portfolio. Section 953(2)(E)(1)(b) and (2)(c) is focused upon a spouse's substantial active role ... in managing, preserving or improving the property  and not, more generally, upon all property of the same type or character. Id. § 953(2)(E)(1)(b) & (2)(c) (emphasis added). In addition, pursuant to section 953(2)(E)(1)(b) & (2)(c), the question of whether Barry had a substantial active role in managing the Putnam Trust stocks only applies to the shares of stock acquired with reinvested income and does not apply to increases in the value of the stocks resulting from market forces. [¶ 33] Although the record supports the court's finding that Barry had and continues to have a substantial active role in managing [his] investments, [14] the only evidence specific to any action taken by him over a nine-year period associated with an increase in value of the Proctor & Gamble stock from reinvested income and capital gain was the decision to enroll in the stock's dividend reinvestment program. The routine and rudimentary nature of the decision to enroll in a dividend reinvestment program does not constitute substantial or active management, particularly where there is no evidence as to the time, energy, and resources expended in conjunction with the decision. [15] See Nordberg, 658 A.2d at 219 (explaining that spouse's single act of directing transfer of funds from account established prior to marriage to another account did not affect funds' nonmarital status). [¶ 34] We conclude that the court's finding that Barry had a substantial active role in managing [his] investments cannot, without more, form the basis for concluding that he had a substantial active role in the managing [his] investments cannot, without more, form the basis for concluding that he had a substantial active role in the management of the four remaining Putnam Trust stocks and, in particular, the increase in value associated with the Proctor & Gamble stock. Further, even if we assume that he did have a substantial active role in the management of the Putnam Trust stocks, the only portion of the stocks that can potentially be deemed marital property in accordance with section 953(2)(E)(1)(b) and (2)(c) are the 16.696 shares of Proctor & Gamble stock that were acquired during the marriage through reinvested income. Notwithstanding evidence of Barry's substantial active role in the management of his portfolio as a whole, all of the original shares of stock he inherited in 1992, as increased by stock splits, should be treated as nonmarital property pursuant to section 953(2)(A); the increase in value of those shares of stock due to market forces should be treated as nonmarital property pursuant to section 953(2)(E)(1)(a); and the increase in the number of shares of Proctor & Gamble stock acquired with reinvested income should be treated as non-marital property pursuant to section 953(2)(E)(1)(b) and (2)(c). [¶ 35] Together, the four Putnam Trust stocks comprise approximately $166,424 of the stock portfolio valued at approximately $545,977 awarded by the divorce judgment to Barry as marital property. On remand, the court will need to reconsider its overall distribution of the Warners' marital property after setting apart to Barry the four Putnam Trust stocks as nonmarital property. [16]