Court Opinion

ID: 5081780
Source: CourtListenerOpinion
Date Created: 2021-10-01 12:42:09.173279+00
Date Added: 2024-06-11T08:20:14.878962
License: Public Domain

LAMBERT, Justice,
dissenting.
I dissent on grounds that the majority has misapplied KRS 403.190(2)(e). As with many statutes we are called upon to construe, this one is not a model of clarity. Nevertheless, it manifests an intention that the increase in value of nonmarital property, without efforts of the parties, be treated as nonmarital. In my view, the statute makes a clear distinction between active and passive increase in the value of a non-marital asset.
In Sousley v. Sousley, Ky., 614 S.W.2d 942 (1981), the Court took pains to point out that the creation, operation and sale of the business in which the nonmarital property had been invested was the way the owner earned the family living. The Court characterized the profit from the sale as his “stock in trade.” Clearly, therefore, Dr. Sousley actively used his nonmarital property as a vehicle to earn his primary living. The enhancement, therefore, was properly treated as marital. Likewise, Brunson v. Brunson, Ky.App., 669 S.W.2d 173 (1978), held that the increase in family net worth accumulated from income earned from a farm which was nonmarital property should be treated as marital property and properly divided between the parties. The foregoing cases stand only for the proposition that an increase in value of nonmarital property brought about by the active efforts of one or more of the parties constitutes marital property.
In contrast with Sousley and Brunson is Daniels v. Daniels, Ky.App., 726 S.W.2d 705 (1986). There, the Court of Appeals held that the gain in the value of stock purchased during the marriage with non-marital funds was not marital property. Quoting KRS 403.190(2)(e), the Court held that “a mere increase in the value of non-marital property remains nonmarital property.” Id. at 706. This was despite an argument that the nonmarital property owner used stock market expertise developed during the marriage to bring about the increase. Daniels recognized the essentially passive nature of the increase in value of common stocks and disregarded any modest activity such as reviewing investment publications the owner had engaged in.
Throughout the case law, one encounters the term “income” and this is often misunderstood by courts and counsel to be decisive. Rather than permit such a superficial label to be outcome-determinative and suspend any further analysis, the intent of the statute should be applied to determine whether the increase in value resulted from “efforts of the parties” or whether it was essentially passive enhancement. There is no logical distinction between the accumulation of interest in a bank account as in *901the case at bar, and the appreciation of common stock as in the Daniels case. In either instance, whatever activity the parties engaged in toward the enhancement was minimal and their efforts were directed toward other occupations. Cf., Sousley v. Sousley, supra, and Brunson v. Brunson, supra. The $40,000 appellee accumulated by virtue of interest income is exclusively an enhancement or appreciation of his $20,000 nonmarital property which should be assigned to him.
A final point should be made. The Internal Revenue Code treats certain gains as taxable and others as tax-deferred and others still as tax-free. This Court, in applying KRS 403.190 is not bound in any respect by the IRS Code definition of income. To the extent, however, that interest or the occurrence of an event which increases tax liability may occur, an adjustment can be made at the time of dissolution to attribute the increased tax liability to the nonmarital property owner.
STEPHENS, C.J., joins in this dissenting opinion.