Opinion ID: 2332987
Heading Depth: 3
Heading Rank: 5

Heading: Substantial Active Role in Managing, Preserving, or Improving Property

Text: [¶ 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]