Court Opinion

ID: 4568621
Source: CourtListenerOpinion
Date Created: 2020-09-22 23:06:51.588123+00
Date Added: 2024-06-11T13:28:11.590992
License: Public Domain

RENDERED: AUGUST 21, 2020; 10:00 A.M.
                        NOT TO BE PUBLISHED

                 Commonwealth of Kentucky
                           Court of Appeals

                            NOS. 2018-CA-001268-MR
                            AND 2018-CA-001293-MR

ROBERT PAUL ORBANK                             APPELLANT/CROSS-APPELLEE

     APPEAL AND CROSS-APPEAL FROM MADISON FAMILY COURT
v.        HONORABLE KIMBERLY BLAIR WALSON, JUDGE
                    ACTION NO. 14-CI-50335

NANCY ELIZABETH ORBANK                         APPELLEE/CROSS-APPELLANT

                                    OPINION
                                   AFFIRMING

                                   ** ** ** ** **

BEFORE: GOODWINE, LAMBERT, AND K. THOMPSON, JUDGES.

THOMPSON, K., JUDGE: Robert Paul Orbank (Bob) and Nancy Elizabeth

Orbank have filed appeals against each other regarding the Madison Family

Court’s findings of fact, conclusions of law, and decree of dissolution, specifically
disagreeing in how the $119,0001 proceeds from the sale of the marital house were

awarded. Bob argues that the family court erred in only granting him $90,000 of

the proceeds as his nonmarital property rather than all of it, while Nancy argues

that Bob did not adequately trace his previous nonmarital property, and it all

became marital property which should have been divided equally between them.

               In 1996, Bob divorced his first wife, Julianne Orbank, in Illinois. Bob

was awarded their marital residence on Limb Court in the divorce, which was

valued at $180,000. He was ordered to pay Julianne $90,000 for her half. To pay

her, Bob encumbered the property with a $110,000 mortgage.

               Bob and Nancy married in June 1997 in Illinois. Bob and Nancy lived

in the Limb Court home and continued to make payments on the mortgage and

then took out a second mortgage to make improvements to it.

               In 2002, Bob and Nancy purchased twenty-three acres on Locust Hill

Road in Waco, Kentucky for $75,000. This consisted of a $50,000 down payment

and a $25,000 promissory note. They planned to build a residence on this property

and obtained a $250,000 construction loan.

1
  The actual figure was $119,804.85. To make it easier to discuss the funds at issue, we will
refer to them with the same approximations that the family court and parties typically discussed
them, even if these are not exact rounded amounts.

                                               -2-
                 In 2002 and 2003, Bob received an inheritance from the Grace

Haymond Estate totaling about $49,0002 which was deposited into their joint

checking account. Bob testified in his deposition that $39,000 of that was used

toward constructing the home while Nancy testified in her deposition that she did

not know how that money, which was deposited into their joint checking account,

was used.

                 Bob and Nancy also received approximately $180,0003 from Bob’s

mother, Ann Orbank, in the form of checks that Bob wrote from his mother’s

checking account.4 Nancy testified in her deposition that the arrangements for this

money were made between Bob and Ann. Bob and Nancy consistently testified

that the $180,000 was a loan but they would only have to pay Ann back if she

needed the money for medical expenses. They also testified that this money went

into the construction of the Locust Hill house.

                 In 2005, Bob and Nancy moved into their Locust Hill residence and

sold the Limb Court property resulting in proceeds of $149,0005 which were

2
    The actual figure was $49,121.13.
3
    The actual figure is $181,616.35.
4
  The parties acknowledged that Ann previously jointly loaned them $70,000 which she later
forgave as a gift. The parties both acknowledge this $70,000 was a marital gift and it is not at
issue in the dissolution.
5
    The actual figure is $149,836.04.

                                                -3-
deposited into their joint checking account. Shortly after receiving these proceeds,

the parties purchased a certificate of deposit (CD) for $100,000. Because Nancy

could not find employment immediately after moving to Kentucky, she cashed out

$40,000 from a 401(k) to pay bills for the house, living expenses, and landscaping.

                 Bob’s mother, Ann, died in 2005. Prior to her death she did not need

any money back from the parties to pay for her medical expenses.

                 Bob served as the executor of Ann’s estate and in the final accounting

in 2006 listed Ann’s assets as including a $180,000 loan to Bob and Nancy. Bob

testified he was obligated to pay Ann’s estate back the loan amount, while Nancy

testified repayment only became an issue after Bob’s siblings discovered Ann’s

estate had almost no assets.

                 The distribution to Bob for his 45% share of Ann’s estate when the

loan was included as an estate asset was approximately $94,000.6 Because this

was less than the amount owed to the estate based on the loan, Bob and Nancy paid

the balance back after cashing the CD so that Bob’s sister and brother could

receive their inheritance.

                 On July 17, 2014, Nancy filed for dissolution. At this time, Bob was

seventy-five years old and Nancy was sixty-seven. Most of Bob’s and Nancy’s

money was invested in the Locust Hill residence. During the pendency of the

6
    The actual figure was $94,326.89.

                                            -4-
dissolution action, Bob and Nancy sold the Locust Hill property resulting in net

proceeds of $119,000 which were held in escrow pending the family court’s

division. The family court ordered the parties to submit memoranda regarding how

these proceeds should be divided. Bob argued that his $90,000 from the Limb

Court property was invested in the Locust Hill property and that he was entitled to

that amount and his inheritances which exceeded the total funds. Nancy raised

alternative theories, including that Bob’s nonmarital funds lost their nonmarital

character through comingling, so the funds should be split equally, and that Bob

was only entitled to $70,000 in nonmarital funds at most because he took out a

$110,000 mortgage to pay his ex-wife for her share.

             On August 21, 2017, a docket order was entered following the case

management conference. The family court found in relevant part: “Based upon

facts provided in memos, $90,000.00 home is nonmarital to [Bob]. Not sufficient

evidence to find other inheritance money nonmarital, so same will be deemed

marital unless new information is provided.”

             Both parties interpreted the family court’s finding as an invitation to

submit additional memoranda. Bob submitted a memorandum in which he tried to

explain existing information more thoroughly. He explained that the $94,000

which he received from his mother’s estate (but used toward paying back the loan)

plus the $90,000 from the Limb Court property is nonmarital and, as it exceeds the

                                         -5-
proceeds from the Locust Hill property, he is entitled to all the proceeds from the

Locust Hill property.

             In Nancy’s supplemental memorandum she challenged the finding

that the $90,000 equity Bob had in the Limb Court property was nonmarital

property. She provided evidence that the $149,000 proceeds from the Limb Court

property went into the parties’ checking account and were subsequently used for

both construction expenses and ordinary bills, arguing only approximately $28,800

of the proceeds could be traced to the Locust Hill property and, thus, the rest of it

became marital in character. She continued to dispute that the $180,000 was a loan

due the estate, arguing that if it had been a loan, Ann would have memorialized it

as she did a $70,000 loan to them which was later forgiven and made a gift.

             On April 12, 2018, the family court held the final hearing and heard

testimony from the parties. Nancy and Bob testified consistently with their

deposition testimony so we only address matters not previously discussed. Nancy

testified she was forced to take her Social Security benefits early because they

needed to pay bills for the house, and she continues to work because she cannot

afford to retire on the $1,100 a month she receives in Social Security benefits. She

acknowledged Bob had a nonmarital interest from the Limb Court property, denied

he had any further nonmarital interest, but testified she thought it would be fair for

her to receive half the total value of the house as she was working all these years of

                                          -6-
their marriage while Bob was retired. Nancy explained she did not believe it was

right that she had to help Bob pay his sister and brother after he wasted all of her

money and Ann’s money. Nancy recounted that after Ann died her daughter,

Karen, did not understand why there was nothing left so Bob made up the amount

his siblings were due out of the proceeds from their Limb Court house. Nancy

explained she did not know where the money from Ann went as they had taken out

a $250,000 construction loan, another $69,000 loan, and had lines of credit.

             Bob testified that the proceeds from the sale of the Limb Court home

went directly into the Locust Hill home, but also agreed that shortly thereafter they

purchased a CD which was cashed out a year later to pay his siblings $93,000.

Bob stated that the money from his mother was a loan that he did not have to pay

back during her lifetime, but he did have to pay the estate, so his siblings could get

their inheritance. Bob testified that he has a monthly income from retirement and

Social Security of $2,800.

             The findings of fact, conclusions of law, and decree of dissolution

were entered on May 18, 2018. The family court stated it previously traced Bob’s

$90,000 nonmarital interest from the Limb Court property in its docket entry

during the case management conference and concluded that the $180,000 loan and

repayment had no nonmarital component. It concluded there was confusion over

                                         -7-
the way the debt was paid, and Bob failed to prove that he should be awarded any

amount as a nonmarital share.

             The family court awarded Bob $90,000 as his nonmarital share,

awarded Nancy a golf cart and $2,500 from the escrow to equalize the award of

personal property, awarded Bob and Nancy their own retirement accounts, and

determined that in awarding marital property in just proportions to award the

remaining balance of the escrow amount of $27,304.85 to Nancy.

             Both Bob and Nancy filed motions to alter, amend, or vacate. Nancy

requested additional findings and argued that Bob did not adequately trace his

nonmarital funds. She asked that she be awarded the agreed upon $2,500 to

equalize personal property out of Bob’s nonmarital funds. Alternatively, she

requested a new trial. Bob argued that the family court’s decision to award

$29,804.85 to Nancy was unjust as this was his nonmarital property and she was

wrongfully awarded a marital retirement account.

             In the family court’s order, it provided further factual findings and

explanations of its actions but did not change its awards. As to its ruling that Bob

had a $90,000 nonmarital interest in the proceeds from the marital residence, the

family court stated this was adequately documented through Bob’s divorce decree

and canceled checks, along with the parties’ testimony, noting that Nancy admitted

                                         -8-
in her deposition that Bob received $90,000 from his first marital home and

dissolution.

               As to the money from Ann, which was received pursuant to the “loan”

and from her estate, the family court found:

               the parties jointly made decisions regarding the money
               initially “loaned” to them from [Bob’s] mother. There
               was testimony the money was both a gift and a loan to
               both parties while his mother was still alive. The only
               caveat being the parties pay her back if she were to need
               it. The parties invested that money, as well as some
               possible non-marital retirement of [Nancy], into the
               Locust Hill property. The parties did not believe they
               would ever have to repay his mother and it only became
               an issue upon his mother’s death when his sibling
               became aware of the gift/loan. There was no written
               proof as to the original nature of the $180,000 they
               received from [Bob’s] mother. [Bob] discussed it with
               his mother alone and [Nancy] relied on what he told her
               regarding the “loan.” It is clear the parties did jointly
               invest in the Locust Hill property and did not come close
               to recouping the money invested in it. The Court does
               believe it to be inherently unfair to summarily rule [Bob]
               should receive the money he received from his mother’s
               estate . . . . The parties made these choices together, co-
               mingled funds from various sources, and made bad
               decisions as to how to invest their money. Clearly, they
               poured money into the Locust Hill property which they
               did not recover. For the Court to then have [Bob] walk
               away with his claim of inheritance and his non-marital
               claim of $90,000 would be unconscionable. These
               parties are not young [Bob is 78, Nancy is 70] and for
               this Court to give what little remains of their funds to
               [Bob] would not be an equitable division.

                                           -9-
              On appeal, Bob argues that he showed by clear and convincing

evidence that his nonmarital interest in the Locust Hill property exceeds its value,

and he is entitled to have all the proceeds from it. He states he proved that the

$180,000 loan which he repaid with exclusively nonmarital funds (his $90,000

from the previous property and the inheritance he was due from Ann) means that

he is entitled to the proceeds.

              Nancy argues that the docket order was a preliminary finding and the

family court erred in not considering her additional proof and not determining that

Bob’s nonmarital interest in the proceeds of Limb Court was extinguished when

the funds were comingled with marital funds and spent on other things besides just

the construction of the Locust Hill home, including the purchase of a $100,000

CD.7 She argues that her salary, the construction loan, and the proceeds from the

sale of the Limb Court property were all placed in their joint account and, as a

result, Bob failed to establish by clear and convincing evidence the presumption

that the proceeds of the sale of the residence had a nonmarital component.

              A family court has wide discretion in dividing marital property, which

we review for abuse of discretion, while “[t]he question of whether an item is

7
 Nancy lists checks paid out of this checking account by referencing bank statements from July
26, 2005, and August 24, 2005, which are in the record. She argues that checks totaling
$28,277.04 were paid that related to the construction or loan on the Locust Hill home, the
$100,000 CD, credit card bills totaling $13,766.25, and other miscellaneous bills.

                                             -10-
marital or nonmarital is reviewed under a two-tiered scrutiny in which the factual

findings made by the court are reviewed under the clearly erroneous standard and

the ultimate legal conclusion denominating the item as marital or nonmarital is

reviewed de novo.” Smith v. Smith, 235 S.W.3d 1, 6 (Ky.App. 2006) (footnote

omitted).

             “In a proceeding for dissolution of the marriage . . . the court shall

assign each spouse’s property to him [and] . . . also shall divide the marital

property . . . in just proportions[.]” Kentucky Revised Statutes (KRS) 403.190(1).

Property is not marital if it is “[p]roperty acquired in exchange for property

acquired before the marriage[.]” KRS 403.190(2)(b).

             Under KRS 403.190, a trial court utilizes a three-step
             process to divide the parties’ property: (1) the trial court
             first characterizes each item of property as marital or
             nonmarital; (2) the trial court then assigns each party’s
             nonmarital property to that party; and (3) finally, the trial
             court equitably divides the marital property between the
             parties. An item of property will often consist of both
             nonmarital and marital components, and when this
             occurs, a trial court must determine the parties’ separate
             nonmarital and marital shares or interests in the property
             on the basis of the evidence before the court. Neither
             title nor the form in which property is held determines
             the parties’ interests in the property; rather, Kentucky
             courts have typically applied the “source of funds” rule to
             characterize property or to determine parties’ nonmarital
             and marital interests in such property. The “source of
             funds rule” simply means that the character of the
             property, i.e., whether it is marital, nonmarital, or both, is
             determined by the source of the funds used to acquire the
             property.

                                         -11-
Sexton v. Sexton, 125 S.W.3d 258, 264-65 (Ky. 2004) (internal quotation marks

and citations omitted). When a party claims that funds in property acquired during

the marriage are nonmarital, that party bears the burden of proof in tracing the

previously owned property into the present property. Id. at 266.

             As to the factual finding that the family court made regarding Bob

having a $90,000 nonmarital interest in the proceeds from the Locust Hill property,

there is nothing clearly erroneous about the family court accepting Bob’s evidence

as to his prior divorce in which he was awarded a $90,000 interest in the Limb

Court property as Nancy acknowledged. Whether this money was all directly

invested in the Locust Hill property, or part of it was paid into construction bills

for the house and another portion was indirectly invested by cashing the CD to

replace funds expended to construct the home pursuant to Ann’s “loan,” it was

adequately traced. Assigning this property as nonmarital was correct.

             As to the division of the remaining marital funds, as provided in KRS

403.190(1), the family court “shall divide the marital property . . . in just

proportions considering all relevant factors including: . . . (d) Economic

circumstances of each spouse when the division of property is to become

effective[.]” It is well established that “a ‘just’ division is not necessarily an equal

division” and we will defer to the family court’s broad discretion in dividing

marital assets absent an abuse in that discretion. Cobane v. Cobane, 544 S.W.3d
-12-
672, 684 (Ky.App. 2018). Considering that Nancy testified that she was forced to

continue working in her seventies because she could not afford to retire and there

was very little marital property left to divide, the family court acted appropriately

in awarding the balance to Nancy that had not already been awarded to her to

equalize the property division.

             Nancy also argues that the final judgment left out a $2,500 equalizing

payment to her for personal property that the parties had agreed upon. However,

as Bob points out, the family court order did award Nancy this $2,500. The issue

is that Nancy wanted to be awarded the $2,500 out of Bob’s nonmarital award,

rather than out of the escrowed amount. The family court properly acted within its

discretion in determining that Nancy would receive this amount out of the marital

funds because the personal property that Bob received more of was marital

property.

             Accordingly, we affirm the family court’s assignment and division of

the assets in its decree of dissolution.

             ALL CONCUR.

 BRIEFS FOR APPELLANT/CROSS-                 BRIEF FOR APPELLEE/CROSS-
 APPELLEE:                                   APPELLANT:

 Jimmy Dale Williams                         Beverly Arvin Brewer
 Richmond, Kentucky                          Jerry W. Gilbert
                                             Richmond, Kentucky

                                           -13-