Court Opinion

ID: 9677232
Source: CourtListenerOpinion
Date Created: 2023-08-24 05:47:02.997776+00
Date Added: 2024-06-11T12:18:55.292748
License: Public Domain

JOSEPHINE LINKER Hart, Judge, dissenting. Even though the J insurance agency was incorporated two years after the marriage and appellant worked full time selling insurance during the twelve years of the marriage, the majority concluded that the corporation was nonmarital property. The majority also reasoned that because “the corporation was nonmarital property, it follows, under the facts of this case,” that the renewal commissions from the sale of insurance policies are “likewise nonmarital property.” I respectfully dissent because the majority’s opinion is contrary to our supreme court’s decision in Layman v. Layman, 292 Ark. 539, 731 S.W.2d 771 (1987), which held that passive appreciation of separate property should be classified as separate property, but active appreciation of the property resulting from spousal contribution of substantial effort or skill should be classified as marital property. See also Emily Osborn, The Treatment of Unearned Separate Property at Divorce in Common Law Property Jurisdictions, 1990 Wis. L. Rev. 903, 992 (1990). In Layman our supreme court stated, “We conclude that when one spouse makes significant contributions of time, effort and skill which are directly attributable to the increase in value of nonmarital property, as in this case, the presumption arises that such increase belongs to the marital estate.” Layman, 292 Ark. at 543, 731 S.W.2d at 774. In the case at bar, it is undisputed that appellee was the sole shareholder in the corporation and worked full time during the entire twelve years of marriage in the business. Thus, in my opinion, the increased value of Dalrymple Insurance Agency is marital property. At issue in this case is whether the chancellor erred by determining that the corporation and the renewal commissions and other residuals from the sale of insurance policies during the marriage was pre-marital property and, therefore, not subject to division. The chancellor’s specific statement of the law in open court was as follows: “The burden was on [appellant] to show that there was a significant contribution of capital, time, other resources to give her some sort of interest in the corporation. I don’t feel that burden was met.” Although that ruling was appealed indirectly, it is contrary to the holding in Aldridge v. Aldridge, 28 Ark. App. 175, 177, 773 S.W.2d 103, 104 (1989), which states that “[t]he burden is upon the party who asserts an interest in the property to establish that it is in fact separate property not subject to division.” By implication, appellant appealed that ruling by citing as error the court’s refusal to divide the stock of Dalrymple Insurance Agency, Inc. The parties in this case were married in June of 1987, and divorced on February 9, 2000. Prior to and during the marriage, appellee operated a business that sold insurance policies. The business was originally a sole proprietorship that became a closely-held corporation after the marriage and appellee was the sole shareholder.1 According to appellee’s exhibits, there was transferred into the corporation at the time of incorporation a net value of $4,335 (cash in the amount $3,328 and a vehicle with a basis $11,240, and an assumption of an installment note of $10,233). Prior to marriage and thereafter, appellee had only one account, and he deposited $23,000 of his soon-to-be-wife’s money into his account and wrote checks to pay his income taxes. Thus, the separate property of appellant and the earnings of the appellee were placed in that account for the duration of the sole proprietorship and transferred to the corporation, which was established after two years of marriage. Appellee asserts that he had no debts at the time of marriage; however, he also admits that but for appellant’s giving him $23,000, he would have had to find financing elsewhere. Based on this admission, it appears that appellee had nothing in his business on the date of marriage other than the difference, if any, between appellant’s $23,000 and the tax payment. Furthermore, appellee admits that after eighteen months of marriage, he incorporated the business, and all money in a new corporate account came from the old business account. In this regard he stated, “I did not know whether I could specifically identify any funds in the new account that were acquired prior to marriage.” Appellee wholly failed to trace either the $100 payment for the preferred stock or the transferred asset to pre-marital monies. Thus, appellee has failed to establish that the transferred funds constituted a nonmarital asset or that the consideration paid for the stock came from nonmarital funds. Moreover, it was appellee’s work efforts of selling insurance policies during the marriage that generated the renewal commissions, which is the increase in value of the business and the corporation, and is a marital asset subject to division as an asset acquired during a marriage. See Ark. Code Ann. § 9-12-315 (Repl. 1998). To hold otherwise is to ignore the principle set out by our supreme court in Layman, 292 Ark. at 543, 731 S.W.2d at 773-74 (citations omitted), a case similar to the case at bar, as follows: The increase in the value of the nonmarital property, the stock in [Layman’s, Incorporated], is attributable in part to the time, effort and skill of [the husband] over an extended period of time. Those endeavors belonging to the marital estate, it follows that [the wife] is entitled to a share in the fruits of such efforts .... We conclude that when one spouse makes significant contributions of time, effort and skill which are directly attributable to the increase in value of nonmarital property ... the presumption arises that such increase belongs to the marital estate. This rationale is in accord with the general principle that “[w]here the appreciation in the value of separate property during the marriage is the result of efforts of either or both spouses, the appreciation is a marital asset.” 75 AM. JUR. 2D Divorce and Separation § 511 (1998). To find that the renewal commissions and other residuals are the property of the corporation and that appellant therefore is not entided to one half of that value is plainly contrary to the law. Appellee failed to introduce into evidence even one contract to establish that the corporation rather than appellee is the recipient of such residuals. Our law requires that an insurance broker or salesman be licensed. See Ark. Code Ann. § 23-64-203 (Supp. 1999). Appellee failed to establish entitlement to the residuals from the sale of the policies in the corporation. In fact, the evidence clearly establishes entitlement to the commissions and residuals in appellee. Appellee, in describing the renewals and commissions testified, as follows: When I refer to a lapse, that means that I do not get any more commissions, renewals or service fees. For example, a Prudential policy that he projected I would get, I think, about $100 a month renewals, lapses this year; that means I won’t get anything on it. Additionally, my business is universal life policies in which you reach a point in paying premiums where you pay them out to keep the policy in force for as long as you want; and at that point you quit paying premiums. That means I don’t get any more commissions. That’s generally the 12 to 15 year area. I guess the guiding light on that is if there are no premiums paid on disability, term insurance, universal life or group insurance, I don’t get any renewals. I remember a few years ago, some farmers in south Arkansas were having a difficult time, and they had enough cash in their policies to pay their premiums; so they skipped two or three years. If they didn’t pay a premium, I didn’t get a renewal commission. I have people do that every year. The record does not support the chancellor’s ruling nor this court’s holdings that the commissions and fees from the sale of the insurance policies are the property of the corporation. However, the majority holds that the commissions and residuals are corporate assets and are thus unavailable for distribution without the necessity of piercing the corporate veil. This holding allows the court to ignore the supreme court’s decision announced in McDermott v. McDermott, 336 Ark. 557, 986 S.W.2d 843 (1999). In McDermott, it was determined that attorney’s fees earned pursuant to a contingency fee contract made during the marriage is marital property even though the fee is not collected until some time in the future. In my opinion, renewal fees from insurance policies sold during the marriage are similar to an attorney’s contingency fee contract entered into during marriage and is thus a marital asset subject to division. Accordingly, as in Layman and McDermott, I would remand with instructions to determine the current fair-market value of the renewal fees, commissions and residuals from the sale of insurance policies and direct that an equal division of that value be made. Also, I would remand with instructions to determine the current fair-market value of the business reduced by the fair-market value of the business at the time of the marriage. The difference would be marital property, which would also be subject to equal division commensurate with Ark. Code Ann. § 9-12-315(a)(l)(A)(Repl. 1998). I agree with the majority in reversing the chancellor’s allocation of debts. Griffen, J., joins.   Rather than one hundred shares as stated by the majority, according to the record only one share of stock (preferred only) was tendered to appellee for a consideration of $100 in August of 1990.