Court Opinion

ID: 9394103
Source: CourtListenerOpinion
Date Created: 2023-05-12 14:04:49.994868+00
Date Added: 2024-06-11T17:18:57.444301
License: Public Domain

RENDERED: MAY 5, 2023; 10:00 A.M.
                         NOT TO BE PUBLISHED

                 Commonwealth of Kentucky
                           Court of Appeals
                              NO. 2022-CA-0706-MR

MICHAEL KELLY                                                          APPELLANT

                APPEAL FROM JEFFERSON CIRCUIT COURT
v.                HONORABLE DERWIN L. WEBB, JUDGE
                        ACTION NO. 15-CI-500163

NORA KELLY                                                               APPELLEE

                                     OPINION
                                    AFFIRMING

                                   ** ** ** ** **

BEFORE: COMBS, EASTON, AND ECKERLE, JUDGES.

COMBS, JUDGE: This appeal arises from a dissolution of marriage. Appellant,

Michael Kelly (Mike), appeals from a final judgment of the Jefferson Circuit Court

determining the division of the parties’ marital estate. Finding no error after our

review, we affirm.

             The parties were married on October 29, 1998. On January 20, 2015,

the Appellee, Nora Kelly (Nora), filed a petition for dissolution of marriage in

Jefferson Circuit Court. The case was tried on October 16, 2019. Nora, Mike, and
Mike’s mother, Billie Kelly, testified. The trial court’s order entered on December

6, 2019, provides in part as follows:

                    [Nora] previously filed for divorce in action
              number 13-CI-502810 in this Court. That matter was
              pending from January 2013 until August 2014. That
              action and the proceedings therein have been
              consolidated with this action.

              ...

                     . . . [T]his matter has been unnecessarily
              contentious and complicated. The Court heard testimony
              that [Mike] started a company incorporated as Kellco
              Company in 1993, prior to [their] marriage. When the
              parties met, both . . . worked at Naval Ordinance . . .
              [and] each left their jobs . . . at or shortly after . . . their
              marriage. From 1998 to present, neither party has
              worked in any capacity other than with . . . Kellco . . . .

              The evidence was conflicting. Mike testified that Kellco was thriving

and that it was worth least $800,000.00 at the time of marriage. However, Nora

testified that Kellco was not profitable at that time. She produced Kellco’s 1999

federal tax return showing a loss of approximately $1,000.00. The trial court

found that:

                      [Nora] testified that the parties worked together
              during the early years of their marriage to develop and
              grow Kellco into a successful machine business. [Nora]
              testified that she worked in the shop itself, by painting,
              wallpapering, landscaping, cleaning and performing other
              maintenance work. [Nora] also handled the payroll for
              the company, managed accounts, and kept the books . . . .
              [Mike] testified that [Nora] helped to clean but was not
              involved in the daily operations of the business. He also

                                            -2-
             stated his work for the company involved making parts
             with the machines.

             The trial court found that in June 1998, the parties purchased their

marital residence at 1409 Hobart Avenue in Louisville, Kentucky (the Hobart

residence), for $98,000.00. Nora testified that Mike bought the house as a wedding

gift for her. Mike testified that he did not make a gift of the house to Nora. On

this contested point, the trial court found as follows:

             [I]n 2000, Kellco purchased commercial real estate . . . at
             1600, 1601, and 1506 Nonny Lynn Drive from [Mike’s]
             parents and deeded the property in Kellco’s name. The
             sale price was $103,000.00. While [Nora] testified that
             the money used to purchase that land came from marital
             funds, [Mike] argues it came from his non-marital funds.
             However, [Mike] failed to produce any evidence to trace
             the purchase to non-marital funds. The Court further
             heard testimony that the parties used their earnings from
             the business to purchase many items of heavy machinery
             over the years and used those machines to fill orders for
             parts from Kellco.

             In 2002, the parties purchased their first rental property together at

1504 Hobart Drive (the Hobart rental), which was deeded in their joint names.

Nora testified that the Hobart rental was purchased with marital funds. Mike

testified that it was purchased with non-marital funds. The trial court found that

Mike “failed to produce any evidence to trace the purchase money from his non-

marital funds.”

             Additionally, the trial court found that:

                                          -3-
            [I]n 2003, Kellco was sold for . . . $500,000.00.
            However, the parties retained the [real] property on
            Nonny Lynn Drive, selling only the business name and
            some machinery. The real estate was deeded from
            Kellco into [Mike’s] individual name. While the deed
            states that the transfer was “for nominal consideration,”
            [Mike] acknowledged that no money changed hands
            during this transaction. The proceeds of that sale were
            used to open investment accounts with Edward Jones in
            their individual names as well as in their joint names.
            The parties also used the funds to begin developing the
            Nonny Lynn Drive property with the intention of
            managing rental property there. The parties paved the
            property, ran water and electric lines, and erected three
            (3) large warehouse style buildings which were
            completed around 2005. . . . The Court heard testimony
            that [Mike] would work odd jobs with the equipment
            purchased and each party participated in trying to rent
            and manage the other units on the property.

                   Then, in 2010, the parties purchased a new
            residence located at 13701 Rutland Road in Goshen,
            Kentucky, deeded jointly to the parties. [Nora] testified
            that the funds to purchase the residence may have come
            from the parties[’] Edward Jones accounts, rental income,
            or earnings related to the machines business being
            conducted at Nonny Lynn Drive. [Mike] claimed the
            purchase money came from Kellco[,] . . . that “everything
            came from Kellco.” However, [Mike] failed to produce
            any evidence to trac[e] the purchase money to his non-
            marital funds.

            The trial court found that in 2012, the parties sold their Hobart

residence for $149,000.00, leaving them with: the Rutland Road residence, the

Hobart rental property, the commercial property on Nonny Lynn Drive, and their

Edward Jones accounts. The trial court found as follows:

                                        -4-
       [Nora] introduced certified records from Edward
Jones to demonstrate that [Mike] transferred all of the
parties’ investment assets. Approximately $379,607.56
from the parties’ joint names into an Edward Jones
account in his sole name. As of August 30, 2013, the
parties[’] Edward Jones investment accounts were valued
at $435,467.57. Then in September of 2013, [Mike]
opened a new Edward Jones account jointly with his
mother, Billie Kelly, and transferred all the parties’
assets, totaling $401,397.51 into that new account. Then
in 2017, [Mike] cashed out all the accounts and received
a check in the amount of $327,061.36. [Nora] testified
that she did not know of nor did she agree to these
transfers. [Mike] further acknowledged he emptied the
accounts without [Nora’s] knowledge. [Mike] testified
he did this to pay bills and acknowledged that he had not
given any of those funds to [Nora].

       In January of 2014, the parties executed a
quitclaim deed transferring their respective interests in
the Nonny Lynn Drive property to [Mike’s] mother. At
the time this was done, the parties were subject to a
Status Quo Order filed in the parties[’] first divorce
action prohibiting the parties from disposing of any
property without an Order of the Court. [Nora] testified
that she was pressured into signing the quitclaim deed,
and that [Mike] repeatedly asked her to transfer the
property to his mother for tax reasons while assuring her
that they were not giving up their interest in the property.
[Nora] further stated she believed the parties were trying
to reconcile and felt that she had to sign the deed. [Nora]
was not given an opportunity to show the deed to her
attorney in the pending divorce action. She had no
intention of giving up her interest in the property, and she
did not receive any money from the transfer of the
property.

       In contrast, [Mike] testified it was [Nora’s] idea to
sell the property to [Mike]’s mother. At the time there
was no mortgage on the property and the parties were

                            -5-
                only paying property taxes on the property, and one of
                the units was rented and producing income at the time.
                [Mike] testified that his mother gave him $250,000.00 in
                cash which he allegedly then gave to [Nora]. He also
                stated he received another $250,000.00 in cash from his
                mother later and that he had spent it all. The Court also
                heard testimony from Billie Kelly stating that she gave
                [Mike] $250,000.00 in cash “for Nora” but when deposed
                Billie Kelly stated she gave the Respondent $250,000.00
                in cash total and denied ever giving [Nora] any money.
                She [Billie Kelly] further stated at the time of the
                purchase she believed the property was worth at least
                $500,000.00 but that she only paid $250,000.00.

                The trial court further found that after the sale, Mike had hired an

engineer to survey the Nonny Lynn property and paid him over $9,000 with funds

from the parties’ marital liquidated Edward Jones accounts. In 2017, Billie sold

the Nonny Lynn property for $867,500.00. Billie received $274,000.00 and held a

mortgage for the balance.

                The trial court found that parties presently own the Rutland Road

realty and the Hobart rental property. Neither had a mortgage or any encumbrance.

The parties introduced their respective appraisals for Rutland Road: Nora’s at

$324,000.00 and Mike’s at $400,000.00. The Hobart rental property was appraised

at $124,000.00.

                The trial court discussed the applicable law: that KRS1 403.190

controls the disposition of property and that the basic rule is that all property

1
    Kentucky Revised Statutes.

                                            -6-
acquired during the marriage is presumed to be marital unless subject to an

exception in KRS 403.190(2). Once classified as marital or non-marital, the

marital property is to be divided equitably by the court. The trial court further

explained that dissipation “requires that a party used marital assets for a non-

marital purpose.” Brosick v. Brosick, 974 S.W.2d 498, 502 (Ky. App. 1998). The

court noted that “[t]he court may find dissipation 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.” Id. at 500.

             The trial court found that the Rutland Road, Hobart rental, and Nonny

Lynn Drive properties were all acquired during the course of the marriage and that

Nora claimed they were marital. The trial court found that Mike had failed to meet

his burden of proof to refute Nora’s claims, characterizing Mike’s “testimony to be

less than credible.”

             The trial court determined the proceeds from the sale of Kellco and

any property purchased with those proceeds to be marital in nature. The court

explained that Mike failed to introduce any evidence to refute that Kellco’s growth

was due to the parties’ joint efforts and failed to introduce any expert testimony

regarding Kellco’s value prior to marriage, observing that the 1999 tax returns

(introduced by Nora) indicated that it was operating at a loss.

                                         -7-
             The trial court valued Rutland Road at $362,000.00 -- splitting the

difference between the parties’ two appraisals -- and valued the Hobart rental at

$124,000.00. The court concluded that both properties were marital, that they

were acquired during the marriage, and that no evidence was presented to support a

non-marital component in either property. The court divided the properties

equitably between the parties with each receiving one-half of the value:

$181,000.00 for Rutland Road and $62,000.00 for the Hobart rental property.

             The trial court further found that:

             the [Nonny Lynn] property was purchased with funds
             obtained as the result of the parties’ ownership of Kellco.
             The property was then later improved with the proceeds
             of the sale of Kellco[,] before being sold in 2017 for
             $867,500.00 according to the property records introduced
             by [Nora] and then verified by [Mike’s] mother.
             Therefore, this property will be valued at the $867,500.00
             and is subject to equitable distribution, with the proceeds
             being equitably divided between the parties, with each
             party receiving one-half the value, or $433,750.00.
             However, [Mike] testified that he has already received
             $500,000.00 which shall be considered an advance on his
             portion of the marital estate.

             The trial court found that Mike “created a significant disparity in the

distribution of the assets by selling the marital property in violation of a Court

Order” and by closing out the parties’ Edward Jones accounts:

             Had he not done so, each party would be entitled to
             $840,280 in marital assets. Those assets being one-half
             of Rutland at $181,000.00; one-half of Hobart at
             $62,000.00; one-half of Nonny Lynn at $433,750.00; and

                                          -8-
                one-half of the Edward Jones accounts at $163,530.00;
                totaling each parties’ [sic] one-half interest in the marital
                assets of $840,280.00. However, [Mike] has already
                received $824,061.00 in marital assets where [Nora] has
                received $0.00. Therefore, [Nora] is entitled to her one-
                half of the marital assets of $840,280.00 and [Michael] is
                entitled to $16,219.00, the remaining balance of his
                marital portion minus what he has already received. In
                other words, [Nora] is entitled to $824,061, once [Mike]
                is credited for his remaining marital portion.

                The trial court awarded Nora the Rutland residence and the Hobart

rental in their entirety, thus satisfying “$486,000.00 of [Nora’s] marital claim.

Additionally, [Nora] shall be entitled to receive an additional $338,061.00 and is

therefore awarded a common law judgment against [Mike] in that amount, plus

interest at the rate of 12% per annum.”

                On December 16, 2019, Mike filed a motion to alter, amend, or vacate

pursuant to CR2 59, which the trial court denied by order entered on January 27,

2021. With respect to Mike’s argument that the Nonny Lynn property -- or its

equivalent in funds -- was not part of the marital estate, the trial court explained

that “there was significant bad faith” on the part of Mike and his mother towards

Nora regarding the “transfer and ‘sale’ of this property.” It found that the property

“was transferred without any benefit being received by [Nora]. . . . Again, this

2
    Kentucky Rules of Civil Procedure.

                                             -9-
court believes that Michael Kelly and Billie Kelly acted in concert and in bad faith

to exclude Nora Kelly from their business dealings together . . . .”

              Mike now appeals. He contends that the trial court’s findings of fact

and conclusions of law were erroneous as a matter of law, that they were not

supported by the evidence, and that the trial court’s decision was an abuse of

discretion.

              At the outset of our analysis, we note the pertinent reasoning of

Sexton v. Sexton, 125 S.W.3d 258, 264-66 (Ky. 2004).

                     The disposition of parties’ property in a
              dissolution-of-marriage action is governed by KRS
              403.190, and neither record title nor the form in which it
              is held, e.g., partnership, corporation, or sole
              proprietorship, is controlling or determinative. 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. . . .
              Kentucky courts have typically applied the “source of
              funds” rule. . . . [which] 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.

              ...

                                          -10-
                      . . . Tracing is defined as the process of tracking
              property’s ownership or characteristics from the time of
              its origin to the present. In the context of tracing
              nonmarital property, when the original property claimed
              to be nonmarital is no longer owned, the nonmarital
              claimant must trace the previously owned property into
              a presently owned specific asset. The concept of tracing
              is judicially created and arises from KRS 403.190(3)’s
              presumption that all property acquired after the marriage
              is marital property unless shown to come within one of
              KRS 403.190(2)’s exceptions. A party claiming that
              property, or an interest therein, acquired during the
              marriage is nonmarital bears the burden of proof.

(Emphases added) (internal quotation marks, footnotes, and citations omitted).

             We owe a high level of deference to properly supported findings of the

trial court. “[W]e may not disturb the trial cour’s rulings on property-division

issues unless the trial court has abused its discretion. . . . [F]actual findings . . . 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).

              Mike contends that the Nonny Lynn Drive property was not a marital

asset when the divorce was filed; i.e., that he and Nora had divested themselves of

the property years earlier and that it was Billie who sold it. Mike submits that

including the sum of $867,500.00 for purposes of equitable distribution is clearly

erroneous and an abuse of discretion. We disagree.

                                           -11-
              “[F]raudulent or dissipative transfers of marital property may be

avoided or otherwise counteracted so as to vindicate a spouse’s interest in support

or in an equitable division of the marital estate.” Gripshover v. Gripshover, 246

S.W.3d 460, 466 (Ky. 2008). In Gripshover, our Supreme Court cited Solomon v.

Solomon, 383 Md. 176, 857 A.2d 1109 (2004), which explains that:

                    [g]enerally, property disposed of before trial
             cannot be marital property. An exception to the general
             rule has been recognized when a court finds that property
             was intentionally dissipated in order to avoid inclusion of
             the property towards consideration of a monetary award.

Solomon, 857 A.2d at 1124 (internal quotation marks and citations omitted).

             Duffy v. Duffy, 540 S.W.3d 821, 828-29 (Ky. App. 2018), discusses

the concept of dissipation additionally:

             Dissipation must be demonstrated by a preponderance of
             the evidence, and the family court’s findings of fact are
             upheld if supported by substantial evidence. Kleet v.
             Kleet, 264 S.W.3d 610, 617 (Ky. App. 2007). The family
             court acts as fact-finder and possesses the sole authority
             to assess the credibility of witnesses. If dissipation is
             found to have occurred, “the court will deem the
             wrongfully dissipated assets to have been received by the
             offending party prior to the distribution.” Brosick, 974
             S.W.2d at 500. The equitable relief fashioned by the
             court must bear some relation to the evidence presented.

             In the case before us, the trial court found that the Nonny Lynn

property was marital; that it was sold in violation of a status quo order; that Mike

had created a significant disparity in the distribution of assets by selling the marital

                                           -12-
Nonny Lynn property in violation of a status quo court order; and that Mike and

his mother acted in concert and bad faith regarding the Nonny Lynn property,

which was transferred without Nora’s receiving any benefit. We agree with Nora

that the trial court acted within its discretion to accept $867,500.00 as the value of

the Nonny Lynn Drive property based upon the testimony presented at trial. The

trial court divided that value equally between the parties. The trial court’s findings

have a substantial evidentiary foundation and satisfy the holding in Duffy, supra,

requiring that the remedy crafted by the court be related to evidence duly

presented. We find no abuse of discretion.

              Mike contends that the trial court’s finding that the parties owned

machinery and equipment valued at $75,000.00 is clearly erroneous. He provides

no reference to the record, nor does he cite any authority.3 “[B]are assertions of

legal error are insufficient to warrant review.” Burgess v. Austin, 658 S.W.3d 487,

491 (Ky. App. 2022).

              Mike asserts that the trial court erred in finding that the Edward Jones

account should be valued $327,061.36. That is the amount that Mike received

3
  Appellant’s brief was submitted in December 2022, before the Kentucky Rules of Appellate
Procedure (RAP) took effect. Under either version of the rule, Appellant’s brief is deficient.
Kentucky Rule of Civil Procedure (CR) 76.12(4)(c)(v) required “ample supportive references to
the record and citations of authority pertinent to each issue of law . . . .” Now RAP 32(A)(4)
requires “ample references to the specific location in the record and citations of authority
pertinent to each issue of law . . . .”

                                             -13-
when he cashed it out. The trial court’s finding is supported by substantial

evidence. The trial court was aware of Michael’s testimony that he liquidated the

account to pay bills. The trial court divided the value of the account equally

between the parties. Again, we find no error.

               Mike contends that the trial court made a specific finding that the

Hobart residence was his non-marital property,4 that it was sold for $149,000.00,

but that he received no credit for these funds (which he claims should have been

set aside as his separate property). However, Mike was not entitled to a credit

because he failed to trace any “previously owned property into a presently owned

specific asset.” Sexton, supra. We find no error.

               Mike also argues that the trial court erred in assigning a value of

$362,000.00 to Rutland Road by splitting the difference between the parties’

appraisals. Because once again he cites no authority to support this argument, we

deem it to have been waived.

               [A]n alleged error may be deemed waived where an
               appellant fails to cite any authority in support of the
               issues and arguments advanced on appeal. Without any
               argument or citation of authorities, an appellate court has
               little or no indication of why the assignment represents
               an error. It is not our function as an appellate court to
               research and construct a party’s legal arguments, and we

4
  Michael refers us to pages 394-405 of the record on appeal; that citation is simply the trial
court’s December 16, 2019, order in its entirety. We do not recall such a finding in our line-by-
line review of the trial court’s order.

                                              -14-
             decline to do so here.

Hadley v. Citizen Deposit Bank, 186 S.W.3d 754, 759 (Ky. App. 2005) (internal

quotation marks and citations omitted).

             Mike also claims that his mother, Billie, should have been joined as a

party, citing Gripshover, supra. In Gripshover, the wife argued that the lack of a

bona fide gift rendered an irrevocable trust a sham. The Supreme Court noted that

the wife did not join the real estate partnership, the partners, the trustee, or the

beneficiaries -- all of whom would be necessary parties to an action seeking to

avoid the partnership or the trust. Gripshover is clearly distinguishable, and

nothing in our reading of it suggests that Billie Kelly should have been joined as a

party in the case before us, which can be resolved without her presence as a party.

             Last of all, Mike questions how he could be ordered to pay

$10,000.00 in attorney fees to a spouse who has just been awarded all of the

parties’ assets. We note, however, that the trial court awarded each party a 50%

share of the marital assets. We find no error in the court’s exercise of its discretion

on this issue.

             We affirm the judgment of the Jefferson Circuit Court.

             ALL CONCUR.

                                          -15-
BRIEF FOR APPELLANT:     BRIEF FOR APPELLEE:

Thomas M. Denbow         Mary Rives Chauvin
Louisville, Kentucky     Louisville, Kentucky

                       -16-