Opinion ID: 2584589
Heading Depth: 4
Heading Rank: 1

Heading: The AETNA settlement annuity

Text: The designation of damages in a tort settlement does not control whether the proceeds are marital or separate. [6] Under our decision in Bandow v. Bandow, [7] the trial court must carry out an analysis of what the damages were intended to replace. [8] Compensation that replaces post-divorce future earnings is separate, while compensation for economic loss to the marital unit is marital. [9] Furthermore, compensation for pre-divorce non-economic damages, such as pain and suffering, is generally separate property. [10] In certain circumstances, separate property may be transmuted to marital property if the owner intends to convey the property to the marital unit and the owner's conduct demonstrates that intent. [11] We have held that placing separate settlement proceeds into joint title raised a presumption that the party intended to donate separate property to the marital unit. [12] Here, there were three types of periodic payments set out in Section 2.1 of Sheila's settlement agreement, in addition to a lump sum payment that covered the loss of income to the marital estate before the settlement: 2.1(A)  Monthly payments of $4,362 (increasing annually by two percent) continuing for the lives of Sheila Sparks and Richard Sparks; 2.1(B)  semi-annual payments of $19,500 payable to Sheila for four years; and 2.1(C)  monthly payments of $1,934.95, payable to Sheila for 191 months. The superior court held that the payments provided for in 2.1(A) and 2.1(C) were marital and accordingly awarded them to both parties (Section 2.1(A) payments were awarded equally to the parties, while 2.1(C) payments were divided by coverture fraction). Finding that the 2.1(B) payments were separate property, and that the parties stipulated that they should be held for the parties' son, the court awarded them all to Sheila. Sheila argues that the payments in 2.1(A) and (B) are designated as damages on account of personal physical injuries or sickness, while the payment in 2.1(C) was intended to replace future lost income. She asks us to conclude that Sections 2.1(A) and 2.1(B) were intended to replace personal injury damages and therefore, under Bandow v. Bandow, [13] must be separate property. Because the court awarded Section 2.1(B) to Sheila as her separate property, she appeals only the designation of the annuity in 2.1(A), the payments which were designated to be paid for the lives of Sheila Sparks and Richard Sparks. The third provision of the settlement periodic payments, in Section 2.1(C), was intended to replace disability benefit payments from the time of the settlement forward. The trial court awarded Sheila this income in full until she reached retirement age. Because she would receive these benefits in lieu of retirement benefits, the court treated these benefits like retirement benefits earned during the marriage, which are divided using a coverture fraction based on the length of the marriage. This is the correct treatment under Conner v. Conner, [14] which held that income replacement such as workers' compensation and long-term disability replaces retirement benefits after the payee reaches retirement age. [15] Therefore, it was proper to treat the post-retirement portion as imputed retirement payments and apply the coverture fraction to that payment. Sheila argues that Conner is inapplicable to 2.1(A) and (B), and we agree. However, she appears to concede that under Conner, the payments in Section 2.1(C) could be a partial replacement for long-term disability benefits and thus marital property. In fact, the agreement is explicit and clear that the Section 2.1(C) payments replace long-term disability benefits. We therefore agree with the trial court that the retirement portion is a marital asset under Conner. The Section 2.1(A) annuity was designated as a personal injury payment. However, there were factual disputes regarding Sheila's intent to convey the settlement to the marital unit. Given that she may have had such an intent, the issue arose whether the personal injury money had been transmuted into marital property. [16] The inquiry into whether the property was transmuted required the court to weigh factual evidence of conduct showing an intent to make a donation to the marital unit. [17] We have held in the past that where an inheriting spouse has represented that the proceeds of an inheritance would be shared by the parties, this evidence is not sufficient to overcome the strong presumption that an inheritance is separate property. [18] Similarly, we have concluded that an inheriting spouse's belief and representation that the inherited assets would be available for [both parties] during the marriage do not suffice to warrant a finding that the assets were converted to marital property. [19] A spouse's statement that separate property will be available to both spouses must be understood as referring to the period during which the parties remained married. [20] In Sampson, we concluded that [b]ecause the inheriting [husband] made no promises to [his wife] upon which she relied, a finding that the husband intended to transmute his inheritance into marital property was clearly erroneous. [21] The key issue in transmutation cases involving a claim that the separate property has been transmuted based on a theory of implied interspousal gift is the presence of donative intent. [22] In evaluating and determining the intent of the alleged donor, [t]he best proof of intent to transmute is ... an express statement by the owning spouse that he intended to give the other spouse an interest in the property. [23] The persuasiveness of a spouse's express promise to make a gift of separate property to the other spouse depends on the context and circumstances of the promise, [24] and [w]here the statement was made with some degree of formality, it is likely to carry significant weight. ... [25] Here, there was formal documentation of Sheila's decision to transmute the separate property, and she communicated that decision to Richard through both words and conduct. Richard is designated explicitly as a payee in Exhibit A, Addendum 1 to the settlement for Section 2.1(A) payments, showing an intent to treat these payments differently from the other portions of the settlement. The payments are to continue for the lives of Sheila Sparks and Richard Sparks and for a minimum of 20 years. Although the settlement empowers Sheila to designate a beneficiary for the 2.1(A) payments in the event that both she and Richard died, it prohibits her from selling, encumbering, or assigning the 2.1(A) payments during her lifetime. Richard testified at trial that Sheila was counseled that naming Richard as a payee for the duration of his life would make it not ... just her money anymore. He also testified that he and Sheila decided together to structure that portion of the annuity as our long term retirement, and deliberately made it payable to both of them contrary to her attorney's advice. Sheila argues that she understood her attorney to be telling her not to put the annuity in his name, but that she assumed it would be fine to put the payments in both names and that she could later change the payees. She testified that the annuity is solely my ownership. But the settlement does not support that assertion, nor does it give her the power to remove Richard as payee before his death. Multiple inferences are possible regarding her intent at the time she signed the settlement entitling both parties to payment of the 2.1(A) annuity. The conflicts between Richard's testimony and Sheila's testimony, and between Sheila's testimony and the settlement and addendum, required the trial court to weigh the evidence of intent based on the credibility of the two parties to decide Sheila's intent at the time the settlement was drafted. [26] It was not clear error based on the evidence before the court to find that Sheila promised Richard he would be entitled to part of the 2.1(A) annuity.