Court Opinion

ID: 9374847
Source: CourtListenerOpinion
Date Created: 2023-02-24 15:05:34.347348+00
Date Added: 2024-06-11T17:16:53.579711
License: Public Domain

RENDERED: FEBRUARY 17, 2023; 10:00 A.M.
                       NOT TO BE PUBLISHED

                Commonwealth of Kentucky
                          Court of Appeals

                             NO. 2022-CA-0387-MR

WILLIAM GORDON CUMMINGS                                            APPELLANT

              APPEAL FROM MCCRACKEN CIRCUIT COURT
v.           HONORABLE DEANNA WISE HENSCHEL, JUDGE
                       ACTION NO. 20-CI-00732

SHERRY JEAN CUMMINGS                                                 APPELLEE

                                  OPINION
                             AFFIRMING IN PART,
                             REVERSING IN PART,
                              AND REMANDING

                                  ** ** ** ** **

BEFORE: CALDWELL, ECKERLE, AND KAREM, JUDGES.

ECKERLE, JUDGE: William Gordon Cummings (Husband) appeals from a

judgment of the McCracken Family Court dividing assets as part of the dissolution

of his marriage to Sherry Jean Cummings (Wife). We agree with Husband that

Wife had the burden of accounting for marital jewelry in her possession at the time
of separation. Since the Family Court failed to assign her the burden of proof on

these items and failed to make sufficient findings concerning the items not

returned, we conclude that the Family Court abused its discretion in its division of

that marital property. However, we further conclude that the Family Court did not

clearly err or abuse its discretion in its division of the marital bank accounts or the

proceeds from the sale of Husband’s veterinary practice. Hence, we affirm in part,

reverse in part, and remand for additional findings and entry of a new judgment

with respect to the division of the jewelry.

   I.     Facts and Procedural History

             Husband and Wife were married in February 2001. No children were

born of the marriage, but both parties had adult children from previous marriages.

Husband owned and operated a veterinary clinic since 1969. Wife began working

at the clinic 1998. She continued to work for the clinic after the marriage. She

testified that she was never paid for her employment, but there was evidence she

regularly received money from the clinic during the marriage. At the time the final

decree was entered, Wife was 73 years old, and Husband was 79 years old.

             The parties separated for a short period in 2018, and then again in

2019. Wife filed this petition for dissolution of the marriage on November 2,

2020. The Family Court entered an interlocutory decree of dissolution on April 20,

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2021, reserving for later adjudication the issues relating to division of property,

allocation of debts, maintenance, and attorney fees.

                Thereafter, the parties entered into an agreed mediation order, but

were unable to resolve the most significant disputed matters. The relevant disputed

issues concerned the valuation and division of marital jewelry, the division of

marital bank accounts, and the valuation and division of the marital portion of the

veterinary practice. The Family Court conducted periodic case management

conferences, and the parties engaged in discovery on the disputed issues.

                Those matters proceeded to a bench trial on September 17, 2021. The

Family Court entered a final hearing order and supplemental decree on January 11,

2022, resolving all disputed issues. Thereafter, Husband filed a motion to correct a

clerical error in the decree and a motion to alter, amend, or vacate the order

pursuant to CR1 59.05. In an order entered on March 8, 2022, the Family Court

granted the motion to correct a clerical error involving a mathematical error in

calculating the total amount to be divided. However, it denied Husband’s motion

to modify other portions of the judgment. This appeal followed. Additional facts

will be set forth below as necessary.

1
    Kentucky Rules of Civil Procedure.

                                           -3-
   II.    Standard of Review

             Husband argues that the Trial Court abused its discretion in its

division of the marital jewelry and bank accounts. When dividing martial property

in a dissolution proceeding, the Family Court must perform the following steps:

(1) categorize each piece of contested property as either marital or non-marital; (2)

assign each party’s non-marital property to that party; and (3) equitably divide the

parties’ marital property. Travis v. Travis, 59 S.W.3d 904, 908-09 (Ky. 2001).

Trial Courts have broad discretion in dividing marital property, and this Court may

not disturb a Trial Court’s ruling on the division of marital property unless it has

abused its discretion. Smith v. Smith, 235 S.W.3d 1, 6 (Ky. App. 2006). “The test

for abuse of discretion is whether the trial judge’s decision was arbitrary,

unreasonable, unfair, or unsupported by sound legal principles.” Commonwealth v.

English, 993 S.W.2d 941, 945 (Ky. 1999). More specifically, a court abuses the

discretion afforded it when “(1) its decision rests on an error of law . . . or a clearly

erroneous factual finding, or (2) its decision . . . cannot be located within the range

of permissible decisions.” Miller v. Eldridge, 146 S.W.3d 909, 915 n.11 (Ky.

2004) (emphasis and citations omitted).

   III.   Division of Jewelry

             Husband first argues that the Family Court failed to value and divide

the parties’ jewelry properly because Wife failed to turn over several items for

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valuation as directed. It was undisputed that the parties purchased a large amount

of jewelry and artwork during the marriage. The parties also agreed that most of

the jewelry was stored in a suitcase in their cabin in Illinois. Husband testified that

the suitcase went missing from the cabin after the parties separated. At trial, Wife

admitted to taking the suitcase from the cabin when they separated in 2018.

             The parties did not maintain a system of what jewelry was stored at a

particular location and how much jewelry they owned at the time of separation.

However, there were photographs of the jewelry, which the parties used to

determine what jewelry had been turned over prior to trial. At a case management

conference on April 19, 2021, Husband stated his desire to inventory the jewelry

that Wife had taken when the parties separated. He also stated that the jewelry

would not be covered by his insurance unless it was in his possession. At the

conclusion of the hearing, the Trial Court directed Wife to provide all jewelry in

her possession to Husband’s counsel by May 7, 2021. The Family Court’s order

also provided that, once inventoried, the jewelry and other property were to be

placed in Husband’s possession so that he could place them in a safe, insured

location.

             At a later case management hearing on August 24, 2021, Husband

advised the Family Court that Wife had not produced all of the jewelry by May 7.

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Wife’s counsel admitted that she retained possession of four items. The Family

Court directed her to turn over the remaining items by September 2 for appraisal.

             At trial, Wife stated that she turned over all jewelry in her possession

with the exception of a diamond necklace valued at $13,000.00, a diamond love

bracelet upon which she did not place a value, a yellow diamond ring valued at

$26,500.00, and a ring and other silver jewelry valued at $4,070.00. Husband

produced receipts or invoices for all of the jewelry purchased through Gem

Shopping Network and America’s Auction Network. Based on a comparison

between the items returned by Wife and those invoices, he alleges that the total

value of the jewelry not returned was $477,937.00.

             In its findings, the Family Court noted that there was no reliable

evidence about the disposition of the jewelry that was not accounted for at trial.

Nevertheless, the Family Court concluded:

             The Court does find that certain items of jewelry were
             not produced by the wife to the husband as ordered by
             this Court. Photographs of jewelry provided to counsel
             for the husband from counsel for the wife prior to the
             April 2021 Case Management Conference show items of
             jewelry that were not produced to the husband on May 7,
             2021, including a large diamond necklace and numerous
             rings. The Court finds that, unless specifically noted
             above, all remaining jewelry is marital and shall be sold
             in an agreeable manner and the parties shall equally
             divide the proceeds.

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             In ruling on Husband’s CR 59.05 motion, the Family Court stated that

Wife did not have the burden of proving what happened to the jewelry simply

because it was not produced prior to trial. The Family Court noted the testimony

that the parties purchased, sold, returned, and gave away a significant amount of

jewelry during the marriage. Consequently, the Family Court declined to presume

that the missing jewelry remained in her possession.

             Husband argues that the Family Court failed to account for the

missing jewelry properly. As noted, the Family Court found that Wife failed to

comply with its orders to return all of the jewelry prior to trial. “Dissipation occurs

when ‘marital property is expended (1) during a period when there is a separation

or dissolution impending; and (2) where there is a clear showing of intent to

deprive one’s spouse of her proportionate share of the marital property.’” Heskett

v. Heskett, 245 S.W.3d 222, 227 (Ky. App. 2008) (quoting Brosick v. Brosick, 974

S.W.2d 498, 500 (Ky. App. 1998)). The party claiming dissipation must prove, by

a preponderance of the evidence, that dissipation occurred and the value of the

property. Brosick, 974 S.W.2d at 502. “Once the party alleging dissipation

establishes a prima facie case, the burden of proof shifts to the party charged with

the dissipation to produce evidence sufficient to show that the expenditures were

appropriate.” Id. If a party is proven to have dissipated marital assets, “the court

                                          -7-
will deem the wrongfully dissipated assets to have been received by the offending

party prior to the distribution.” Id. at 500.

             In this case, Husband presented extensive documentary evidence

showing the jewelry that the parties acquired during the marriage. He also

presented considerable evidence of the value of such jewelry through receipts and

invoices. Wife admitted that she took possession of most of the jewelry at the time

of their first separation. And Wife offered no evidence about what happened to the

jewelry while it was in her sole possession, even after the Family Court ordered it

returned. Under these circumstances, it would have been impossible for Husband

to prove that specific items were still held by the parties at the time Wife removed

them.

             Therefore, we conclude that Husband met his burden of showing that

the jewelry remained in Wife’s possession at the time of trial. Since Wife did not

produce the property as directed, the burden shifted to her to account for those

items. She accounted for four items, and the trial court awarded those items to her.

However, she did not attempt to account for the numerous other items that

Husband alleged were in her possession.

             Wife correctly notes that the Family Court ordered all jewelry to be

sold. She contends that Husband will not be injured until such time as any

allegedly missing jewelry is not included in the sale. However, the Family Court’s

                                           -8-
judgment provides no mechanism to require her to account for those items.

Indeed, the Family Court expressly declined to make a finding as to that jewelry,

even though it acknowledged that she remained in possession of at least some of

the disputed items. If Wife does not produce the items for sale, then she would be

rewarded for her failure to comply with the Family Court’s orders. Moreover,

Wife would unfairly benefit by sharing in an equal division of the proceeds from

the sale of the other marital jewelry. As a result, the order directing sale of “all

remaining jewelry” fails to identify adequately the property to be sold and divided.

             Therefore, the Family Court’s judgment regarding the jewelry must be

set aside. On remand, Wife will have the burden of proof to account for the items

of jewelry that Husband has identified. The Family Court shall make findings

whether those items of jewelry remained in Wife’s possession following

separation. If the Family Court finds that Wife did not account for those items, it

shall determine the value of such jewelry and assign those amounts to her as part of

her share of the marital property. Husband will be entitled to a credit for those

amounts in the division of the proceeds from the sale of other marital jewelry.

   IV.    Division of Marital Bank Accounts

          a. Finding as to Joint Efforts of the Parties

             Husband next argues that the Family Court erred in its division of the

marital bank accounts, resulting in an inequitable division of marital property.

                                          -9-
KRS2 403.190(3) establishes a presumption that all property acquired during the

marriage is marital. KRS 403.190(1) grants the Trial Court wide discretion to

divide the marital property in “just proportions” after considering all relevant

factors. Smith, 235 S.W.3d at 6. Among other factors, KRS 403.190(1)(a) directs

the Trial Court to consider “[c]ontribution of each spouse to acquisition of the

marital property . . . .”

                Husband contends that the Family Court erred in finding that Wife

made substantial contributions to the acquisition of marital property. He notes that

he operated the veterinary clinic for more than 30 years prior to the marriage, and

he came to the marriage with substantial assets. In contrast, Wife came to the

marriage with very few assets. While she continued to work for the clinic during

the marriage, Husband points out that she regularly received money from the clinic

in lieu of a salary. In contrast, he notes evidence of Wife’s spending during the

marriage, including gifts to family members. Under these circumstances, he

contends that the Family Court’s equal division of the bank accounts was

manifestly inequitable.

                We agree with Husband that there was evidence that would have

supported a different division of the marital assets. However, the Family Court’s

2
    Kentucky Revised Statutes.

                                          -10-
findings on this point were not clearly erroneous. The Family Court found that

Wife “worked diligently for the clinic” and also cared for the parties’ cattle on

their farm. There was no evidence that she was formally compensated for these

services during the marriage.

             Except for the division of the proceeds from the sale of the veterinary

clinic, Husband does not argue that he traced his non-marital property into the

marital bank accounts held at the time of separation. Thus, there was no need for

the Family Court to determine whether the increase in value of those funds was

attributable to the joint efforts of the parties. See Travis, 59 S.W.3d at 910-11.

Furthermore, the parties were married for nearly 20 years, which warrants a

reasonable inference that most of the assets were marital. Consequently, we

cannot find that the Family Court clearly erred or abused its discretion in its equal

division of most marital assets.

          b. Division of Proceeds from the Sale of the Veterinary Clinic

             Husband separately argues that the Family Court abused its discretion

in its division of the proceeds of the sale of the veterinary clinic. He purchased the

practice in 1969 and operated it continuously until 2020. After the parties

separated, Husband sold the veterinary practice to Dr. Fred Fleshman, a long-time

employee of the practice. The sale of the practice did not include the real property,

which Husband retained and leased to Dr. Fleshman. In addition, the sale

                                         -11-
agreement provided that Dr. Fleshman would retain Husband as an employee at a

salary of $50,000.00 per year. Dr. Fleshman testified that the revenue and business

of the practice had remained constant between 2001 and the current date.

             Husband also presented the report and deposition of Dr. William

Crank, a retired veterinarian who specializes in the buying, selling, and valuation

of veterinary practices. Husband and Dr. Fleshman retained Dr. Crank during their

negotiations for the sale of the practice. Dr. Crank valued the practice at

$298,887.00, with $83,530.00 being the tangible value of equipment and

inventory, and goodwill being $215,547.00. Dr. Fleshman paid the purchase price

of $311,887.00 for the clinic, which was offset by a $19,241.05 payment from

Husband.

             At the time of the final hearing, the remaining $292,645.95 was being

held for division and payment of taxes. After payment of taxes, the Family Court

allocated 60%, or $135,489.57, to Husband and 40%, or $90,326.38 to Wife.

Husband primarily focuses on missing records from the practice that would have

more clearly established the value of the practice at the time of the marriage. He

notes that Wife served as bookkeeper for the practice during this period and had

access to those records. He also notes that many records and financial items

disappeared when Wife left the clinic in 2018. Since these missing records made it

more difficult to establish his non-marital interest in the clinic, Husband argues

                                         -12-
that the Family Court should have presumed that the records would have supported

his non-marital claim.

             But in making its division of the proceeds from the sale of the clinic,

the Family Court did not consider the value of the clinic at the time of the

marriage. As noted above, the Family Court concluded that most of the sale price

was attributable to ongoing enterprise goodwill, which would be considered

marital. In reaching this determination, the Family Court examined Gaskill v.

Robbins, 282 S.W.3d 306 (Ky. 2009), in which the Kentucky Supreme Court

addressed the divisibility of the value of goodwill in a closely-held professional

practice. The Supreme Court noted that “[t]he question of how to value goodwill

of a business has been a source of contention for many years, with trial courts left

to decipher competing and frequently inconsistent theories and accounting

practices into something meaningful.” Id. at 312. Although it is generally

accepted in existing Kentucky law that goodwill is a factor to be considered in

arriving at the value of a business, the Supreme Court found no consistent

Kentucky authority whether goodwill can be divided between the business and the

individual. Id.

             To address this matter of first impression, the Supreme Court

considered approaches from other states. The Court found the analysis of the

                                        -13-
Supreme Court of West Virginia in May v. May, 214 W.Va. 394, 589 S.E.2d 536

(2003), to be especially useful:

                    In May, the Supreme Court of West Virginia found
             from its survey that 13 courts made no distinction
             between personal and enterprise goodwill, 5 courts held
             that goodwill is not a part of marital property, and 24
             states differentiated between personal and enterprise
             goodwill. . . . The May court joined the 24 jurisdictions
             that distinguish between enterprise and personal
             goodwill. In reaching its decision, the court relied
             substantially on an opinion of the Supreme Court of
             Indiana, which explained in detail the rationale behind
             distinguishing between personal and enterprise goodwill
             as follows:

                          Goodwill has been described as the
                   value of a business or practice that exceeds
                   the combined value of the net assets used in
                   the business. Goodwill in a professional
                   practice may be attributable to the business
                   enterprise itself by virtue of its existing
                   arrangements with suppliers, customers or
                   others, and its anticipated future customer
                   base due to factors attributable to the
                   business. It may also be attributable to the
                   individual owner’s personal skill, training or
                   reputation. This distinction is sometimes
                   reflected in the use of the term “enterprise
                   goodwill,” as opposed to “personal
                   goodwill.”

                          Enterprise goodwill is based on the
                   intangible, but generally marketable,
                   existence in a business of established
                   relations with employees, customers and
                   suppliers. Factors affecting this goodwill
                   may include a business’s location, its name
                   recognition, its business reputation, or a

                                        -14-
                  variety of other factors depending on the
                  business. Ultimately these factors must, in
                  one way or another, contribute to the
                  anticipated future profitability of the
                  business. Enterprise goodwill is an asset of
                  the business and accordingly is property that
                  is divisible in a dissolution to the extent that
                  it inheres in the business, independent of any
                  single individual’s personal efforts and will
                  outlast any person’s involvement in the
                  business. It is not necessarily marketable in
                  the sense that there is a ready and easily
                  priced market for it, but it is in general
                  transferrable to others and has a value to
                  others.

                  ...

                         In contrast, the goodwill that depends
                  on the continued presence of a particular
                  individual is a personal asset, and any value
                  that attaches to a business as a result of this
                  “personal goodwill” represents nothing more
                  than the future earning capacity of the
                  individual and is not divisible. Professional
                  goodwill as a divisible marital asset has
                  received a variety of treatments in different
                  jurisdictions, some distinguishing divisible
                  enterprise goodwill from nondivisible
                  personal goodwill and some not.

Gaskill, 282 S.W.3d at 313-14 (quoting Yoon v. Yoon, 711 N.E.2d 1265, 1268-70

(Ind. 1999)).

                                       -15-
             In the current case, the Family Court applied this analysis to conclude

that the goodwill associated with the sale of the veterinary practice was enterprise

goodwill, not personal goodwill.

             Dr. Fleshman testified that he found benefit in retaining
             the existing location, name, employees and current client
             list of the clinic as being its source of value. He testified
             that he expected to have just as strong of a business after
             [Husband] fully retires and noted that many of the current
             patients come to see him rather than [Husband] because
             of his own relationships. Part of the sale agreement
             required Dr. Fleshman to retain [Husband] at a salary of
             $50,000.00 per year which indicates that his future
             earning capacity has already been accounted for and
             would not have figured into the sale price. In the
             testimony of Dr. Crank, the broker who negotiated the
             sale between [Husband] and Dr. Fleshman, he indicated
             that the only ongoing value provided by [Husband] was
             the use of his name and the existence of the current
             clientele, both of which are factors that are clearly
             enterprise rather than personal goodwill.

             . . . Considering the fact that the clinic would have no
             value but for the ongoing marital efforts of the parties
             and that the only goodwill that could have factored into
             the sale price was enterprise goodwill, the sales proceeds
             from the sale of the clinic are determined to be marital in
             nature.

             Husband does not take issue with any of these findings. Since the

Family Court found that the value of the practice was mostly attributable to

ongoing enterprise goodwill, it properly concluded that the sale proceeds were

marital and subject to division. Furthermore, there was no evidence that the

equipment and inventory of the clinic included any substantial non-marital

                                         -16-
component. As a result, we find no indication that the Family Court’s 60-40 split

of those proceeds amounted to an abuse of its discretion.

   V.    Conclusion

             Accordingly, we reverse the judgment of the McCracken Family

Court with respect to its valuation and division of the marital jewelry. On remand,

the Family Court shall assign to Wife the burden of proving the disposition and

value of any items of jewelry not turned over for sale as required by the Family

Court’s orders. The Family Court shall make findings as to the items that Wife did

not sufficiently account, the value of those items, and the credit to which Husband

is entitled for his share of the proceeds from the sale of the jewelry. We affirm the

Family Court’s judgment in all other respects.

             ALL CONCUR.

BRIEF FOR APPELLANT:                       BRIEF FOR APPELLEE:

Tiffany Gabehart Poindexter                Joseph B. Roark
Paducah, Kentucky                          Paducah, Kentucky

Bradly A. Miller
Paducah, Kentucky

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