Appeal
from the Superior Court No. 3HO-12-00 166 CI of the State of
Alaska, Third Judicial District, Homer, Charles T. Huguelet,
Judge.
Dan
O'Phelan, Law Office of Dan O'Phelan LLC, Homer, for
Appellant.
Rachael Brennan, pro se, Homer, Appellee.
Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and
Carney, Justices.
OPINION
STOWERS, Chief Justice.
I.
INTRODUCTION
This
appeal presents a variety of issues relating to the divorce
of Kelly and Rachael Brennan. At the time of separation, the
couple controlled substantial assets, including a successful
fishing business, Individual Fishing Quotas (IFQs) that Kelly
obtained prior to his marriage to Rachael, and a large home
in Halibut Cove. The court ordered Kelly to pay $5, 000 per
month as interim spousal support. After trial, the superior
court determined that the IFQs had become marital property
through transmutation, and it divided most of the marital
estate 50/50. The property division included the proceeds
from two post-separation sales of IFQs; the court also
awarded Rachael half the gross proceeds from the post-trial
sale of the couple's fishing vessel, the F/V Alaska.
Kelly
appeals. He argues that the IFQs were his separate property
not subject to division; he also challenges several other
aspects of the court's property division, arguing that
the court abused its discretion in failing to account for
various tax liabilities, payments, alleged damage to marital
property, and other factors that he contends unfairly favored
Rachael. We conclude that the superior court applied the
wrong legal standard to its transmutation analysis regarding
the IFQs. We therefore reverse the determination that the
IFQs were marital property, and reverse the award to Rachael
ofproceeds from post-separation IFQ sales. We remand for the
superior court to reconsider these issues as well as the
overall equitable property distribution, and to explain its
reasoning for awarding Rachael gross rather than net proceeds
from the sale of the F/V Alaska. We find no error or abuse of
discretion regarding the other points raised on appeal.
II.
FACTS AND PROCEEDINGS
A.
Facts
Kelly
Brennan is a lifelong fisherman. He formed the fishing
business Eclipse, Inc. with his first wife, Mary, in 1981.
Through his work as a fisherman, he acquired IFQs from the
federal government, giving him the right to harvest specified
amounts of halibut and sablefish.[1]
Kelly
and Rachael Brennan met in the summer of 1991 when Rachael
was in her early 20s and Kelly was in his early 30s. Rachael
was working for a fish buyer at the time, but she left her
job to be with Kelly and began helping him with his fishing
business. The couple married in July 1994. During their
marriage, Kelly's settlement agreement with his ex-wife
required Kelly to make payments to her, which both he and
Rachael labeled "IFQ payments." Kelly's ex-wife
apparently also had a lien on the IFQs. Kelly was responsible
for all of the administrative tasks related to registering
and using IFQs during his marriage to Rachael.
The
fishing business was very successful and consistently
produced high spendable income. With the help of proceeds
from the sale of some IFQs, the couple built the largest home
in Halibut Cove at 6, 500 square feet with an apartment,
barn, dock, and outbuildings on 19.5 acres.
The
parties dispute the extent of their respective contributions
to the fishing business. Kelly fished and maintained the F/V
Alaska, and delegated all bookkeeping to Rachael. Rachael
testified to running errands for the business, outfitting and
cleaning the boat, helping obtain parts for the boat, paying
bills, maintaining financial records, tracking licenses, and
performing other tasks.
The
couple separated in April 2011 and split a substantial amount
of what were apparently marital funds at the
time.[2] Kelly continued to receive the income
produced by the fishing business. He bought land and built a
house in Seldovia that he titled in his new girlfriend's
name, and in October 2011 he sold a number of IFQs to one of
his deckhands for $110, 022.
Rachael,
who has a high school diploma, lived off what money Kelly
chose to give her. She claimed this consisted of an initial
$84, 000 after separation-of which she later returned $24,
000 - plus an additional $15, 000 in the summer of2012. Kelly
did not initially contest those figures-although he later
claimed the initial payment was $86, 000 - but he asserted
that Rachael received additional amounts, for a net total of
over $ 150, 000 in the first few months after separating, in
addition to the $ 15, 000 he gave her in 2012. The bulk of
the difference appears to be a $74, 000 transfer which Kelly
claimed went to Rachael, but which Rachael asserted went to
their joint "tax account" and not to her
individually. Rachael also used her credit card and loans
from friends to support herself.
B.
Proceedings
Kelly
filed a complaint for divorce in May 2012. Rachel filed a
motion for interim support, interim possession of the marital
home, and attorney's fees in August 2012. In his
opposition, Kelly requested financial records and an
accounting of what Rachael had done with the money he had
already given her. After a hearing in November 2012, the
superior court awarded Rachael exclusive possession of the
Halibut Cove home, ordered the parties to prepare to sell the
home, and ordered Kelly to pay Rachael $5, 000 per month in
interim spousal support effective November 1. The court found
that this amount would allow Rachael to keep the property in
a condition that could be shown to potential buyers. The
court also ordered Kelly to pay Rachael $ 10, 000 in
attorney's fees. Kelly did not pay the attorney's
fees, and did not consistently pay the court-ordered spousal
support.
In May
2013 the court ordered Kelly to sell a batch of IFQs worth
about $83, 905 so he could pay spousal support arrears and
Rachael's attorney's fees. The IFQs were technically
held by Eclipse, Inc.; the court later explained that Kelly
used corporate assets as if they were his personal assets,
and it therefore treated them as such, effectively
disregarding the corporation for purposes of the property
division at divorce.[3] The court ordered that $18, 000 be used to
pay off a lien Kelly's ex-wife apparently had on the
IFQs; that money for any taxes on the sale be put in an
escrow account; that the broker's fee be paid; and that a
sum of $50, 000 be put in Rachael's law firm's trust
account for the payment of spousal support arrears, on-going
spousal support for June and July 2013, and attorney's
fees.
Kelly
thereafter filed motions requesting that Rachael be required
to disclose financial records relating to the marital estate
in order to find out whether she was really spending $4, 000
a month on property maintenance as she claimed. Rachael
opposed Kelly's motions, yet the court failed to rule on
them.
After a
two-day trial in July 2013 the court issued findings of fact
and conclusions of law. First, the court found that
Kelly's previously separate IFQs were transmuted during
the marriage into marital property. The court reasoned that
because Kelly gave Rachael an active role in the fishing
business for "nearly 20 years," made payments using
marital income from the fishing business for his
ex-wife's interest in the IFQs and also sold some of his
IFQs to purchase marital property, Kelly demonstrated both
the conduct and intent necessary to transmute presumptively
separate property obtained before marriage into marital
property subject to division. At the time of trial, these
remaining IFQs were worth $682, 868.
Second,
the court determined that a 50/50 division of the marital
assets was equitable despite Rachael's lack of skills and
Kelly's status as a successful fisherman.[4]The court
considered Kelly's contribution of his successful
pre-marital business to the marriage, his age, and medical
issues that would eventually limit his ability to fish
commercially. Consequently, the court awarded the fishing
business, including the IFQs, to Kelly, but ordered that
Rachael be paid her 50% share of the business value from the
sale of the Halibut Cove home and property. At the time the
court issued its decision, the house had not sold but was
listed at approximately $2.8 million dollars.
Third,
the court stated that "[t]he parties' personal
property was valued and/or allocated on the record at trial.
The remainder of the couple's personal property [was] to
be sold at auction and the proceeds divided . . .
50/50." The court denied Kelly's subsequent motion
for clarification on this issue.
Fourth,
the court ruled that Kelly was "entitled to an offset
for the $ 15, 000 provided to [Rachael] in 2012, and an
amount equal to one half of [the] pretrial spousal
support" because the amount "included funds needed
for upkeep of the jointly owned home." The court also
ordered Kelly to pay Rachael $1, 000 per month for one year
in spousal support and $10, 000 in attorney's fees.
Finally,
the court recognized that Kelly claimed Rachael had failed to
rent an apartment on the couple's property and allowed it
to deteriorate after he left the home, but the court provided
no offset for the alleged damage. The court awarded Rachael
$55, 000 from the proceeds from Kelly's October 2011 IFQ
sale to his deckhand for $110, 022. The court also ordered
that Rachael be paid $35, 000 as her half of the proceeds of
the sale of the F/V Alaska, marital property that Kelly had
sold for $70, 000 following trial.
Kelly
filed an Alaska Civil Rule 60(b) motion raising the issue of
the $74, 000 transfer, which he claimed was deposited into
Rachael's personal account, and he asked for an
evidentiary hearing on the issue. The court denied his motion
and request for an evidentiary hearing. Kelly appeals.
III.
STANDARD OF REVIEW
"[T]he
characterization of property as separate or marital may
involve both legal and factual questions."[5] "Underlying
factual findings as to the parties' intent, actions, and
contributions to the marital estate are factual
questions."[6] "Findings of fact are reviewed for
clear error, but whether the trial court applied the correct
legal rule in exercising its discretion is a question of law
that we review de novo using our independent
judgment."[7] We review the equitable allocation of
property for an abuse of discretion.[8] "Additionally, the
trial court must render findings of ultimate fact that
support any decreed property division; the findings must be
explicit and sufficiently detailed to give this court a clear
understanding of the basis of the trial court's
decision."[9] "Whether a superior court's
findings are sufficiently clear is a legal question, which we
review de novo."[10]
A
motion for "clarification" that asks the court to
reconsider substantive matters is treated as a motion for
reconsideration, and its denial is reviewed for abuse of
discretion.[11] The award of interim spousal maintenance
under AS 25.24.140(a)(2) is committed to the sound discretion
of the trial court and reviewed for abuse of
discretion.[12] "The superior court must base its
interim support order on sufficient factual findings
concerning the parties' needs and ability to
pay."[13]
The
trial court's failure to rule on Kelly's request for
disclosure effectively acted as a denial of that request; we
review the denial of a request for disclosure for abuse of
discretion.[14] "Whether there was a violation of
due process is a question o flaw, which we review de
novo."[15] However, we will "disregard any
error or defect in the proceeding which does not affect the
substantial rights of the parties."[16] The denial of
a Civil Rule 60(b) motion is generally reviewed for an abuse
of discretion, [17] as is the denial of a request for an
evidentiary hearing on the subject of a Rule 60(b)
motion.[18]
IV. DISCUSSION
Under
Alaska law, equitable division of marital assets involves
three steps: (1) determining the specific property available
for distribution; (2) valuing the available property; and (3)
equitably dividing property available for
distribution.[19] In order to complete the first step, the
court must characterize assets as separate or marital, the
latter being subject to division.[20] Property acquired by one
spouse prior to the marriage is separate property, which is
not divisible but subject to "invasion" only
"when the balancing of the equities between the parties
requires it."[21] Marital property generally includes all
property acquired during the marriage, except for property
received by one spouse as a gift or inheritance, and property
acquired in exchange for separate property which is
maintained as separate.[22] However, initially separate property
may "transmute" into marital property through an
implied interspousal gift.[23] Once the trial court has
determined what property is marital and valued that property,
it must equitably divide it between the parties. An equal
division of property is presumptively equitable,
[24]
but the trial court has broad discretion in this
area.[25]
Kelly
argues that the superior court erred by (1) finding that the
IFQs were marital property subject to division via the
doctrine of transmutation; (2) failing to offset the value of
personal property orally awarded to Rachael at trial in its
written property division; (3) failing to credit Kelly for
overpayment of spousal support; (4) failing to address
alleged payments to Rachael of $74, 000 and $20, 000 or to
provide an evidentiary hearing on the subject of the $74, 000
payment when raised in a Rule 60(b) motion; (5) failing to
account for damage to the marital apartment allegedly caused
by Rachael in its property division; (6) failing to rule on
requests for records regarding the cost of maintaining the
marital home; and (7) failing to credit Kelly for tax
payments he made on the post-separation sale of IFQs and the
F/V Alaska.
A.
The Superior Court Applied An Incorrect Legal Standard When
Determining That The IFQs Transmuted To Marital
Property.
We have
established that an IFQ creates a property interest that may
be subject to division in a divorce.[26] The superior court found
that the IFQs were all based on work Kelly performed before
he married Rachael, so the IFQs were his separate property
when he entered the marriage.[27] However, the superior court
found that because Kelly made payments for the IFQs to his
ex-wife using marital income from the fishing business,
because Kelly sold IFQs to pay for the marital home, and
because Rachael had been working in the fishing business for
nearly 20 years, the evidence established an "intent to
treat the IFQs as marital." On that basis, the superior
court determined that the IFQs had all been transmuted to
marital property and were subject to division.
Kelly
challenges the superior court's transmutation finding by
arguing that (1) no evidence supports that the parties took
the actions relied on by the court to find transmutation and
the basis for the finding is clearly erroneous and (2) the
court's finding that the parties' alleged conduct
demonstrated an intent on his part to treat the IFQs as
marital was based on a misapplication of our case law.
As we
recently explained in Kessler v. Kessler, our prior
opinions have not always been precise in describing the
transmutation doctrine.[28] For the superior court to find
transmutation by implied interspousal gift, it is not enough
to show that a married couple has demonstrated "an
intent... to treat one spouse's separate property as
marital property."[29] First, the relevant intent is not
that of the "married parties" or the
"couple," but only that of the owning spouse - the
spouse whose separate property is in question.[30] Second, the
intent that must be shown is not merely intent to
"treat" separate property as marital, in the sense
of sharing the property during the marriage.[31] Rather, the
relevant question is whether the owning spouse intended
"to 'donate' or 'convey' separate
property to the marital unit or marital
estate."[32] The following sections discuss each of
the trial court's factual findings and how they relate to
this standard.
1.
IFQ sales during the marriage
The
superior court's transmutation determination was based in
part on its finding that IFQs "were sold to pay for
marital assets." Kelly argues that there was no evidence
of any sale of IFQs during the marriage. But Kelly testified
that he sold two partial IFQs to buy property in Halibut Cove
that was titled in Rachael's name. This testimony is
consistent with concessions in Kelly's brief. In light of
these concessions and evidence in the record, the superior
court did not clearly err in finding that IFQ sales occurred
during the marriage. However, as we noted in Thomas v.
Thomas, the use of some separate property to cover
marital expenses does not necessarily render other separate
property marital.[33] The sale of separate property IFQs to
fund the construction of a marital home titled in
Rachael's name is not relevant to determining whether
Kelly had the intent to convey the remaining IFQs to the
marital estate. To the extent this sale was evidence of
Kelly's intent to convey any separate property
to the marital estate, that property is the Halibut Cove
home.
2.
Rachael's contribution to the fishing business
The
transmutation analysis was also based in part on
Rachael's work "as bookkeeper and onshore liaison
for the [fishing] business" for "nearly 20
years." Kelly argues that "there was little to
nothing admitted at trial that showed Rachael worked at all
with the fishing business" and no evidence as to when
she may have performed this work. There certainly is
conflicting testimony on this point, but there is ample
support in the record for the court's factual
determination that Rachael kept the books and acted as an
onshore liaison for the fishing business when Kelly was at
sea. The couple's long time friend testified to observing
Rachael doing various work required to operate the fishing
business. Rachael testified to running errands for the
business, outfitting and cleaning the boat, helping obtain
parts for the boat, paying bills, maintaining financial
records, tracking licenses, and performing other tasks. Kelly
conceded that for the most part he delegated all bookkeeping
to Rachael, though he repeatedly characterized her
contributions as minimal. Given the support in the record and
the deference we give to the credibility determinations of
the trial court, [34] the court did not clearly err in finding
that Rachael contributed to the fishing business.
But in
order for the non-owning spouse's contribution to a
separate property business "to be relevant to the owning
spouse's donative intent, 'the non-owning
spouse's "participation must be significant and
evidence an intent to operate jointly."'
"[35] Although we can glean from the trial
court's analysis that it considered Rachael's
contribution "significant," the court did not
appear to consider whether that contribution specifically
evidenced an intent on Kelly's part to operate the
fishing business jointly and therefore to convey to the
marital unit either the IFQs or the corporation that held
them, Eclipse, Inc. Because the court's findings of
donative intent are not "explicit and sufficiently
detailed to give this court a clear understanding of the
basis of the trial court's decision, "[36] they are
insufficient to support the transmutation determination.
We
note, however, that even in the absence of donative intent
sufficient to support a finding of transmutation for either
the business or the IFQs, Rachael's contributions may
still have given her an interest in the fishing business
under the doctrine of active appreciation. Under this
doctrine, some portion of a separate-property business might
be marital property if marital contributions to the business
caused some appreciation in its value during the
marriage.[37]
3.
IFQ purchases during the marriage
Finally,
the trial court's transmutation analysis was based on its
finding that "marital funds were used to purchase the
IFQs." Kelly asserts that "[t]here was never any
evidence at trial that any IFQs were purchased during
Kelly's marriage to Rachael" nor any evidence that
Kelly "used marital income to pay any expenses for the
IFQs." The critical disagreement between Kelly and the
court is over the evidence for and characterization of
Kelly's payments to his ex-wife Mary, who apparently had
liens against Kelly's IFQs. Kelly asserts the evidence
only supports that he paid down a general debt arising from
his first marriage. The court viewed the payments as the
purchase of IFQs with marital income.[38]
The
evidence surrounding the settlement agreement between Kelly
and his first wife and payments pursuant to that agreement is
scant, as the superior court acknowledged, but it is
sufficient to support a finding that the payments to Mary
were for the IFQs specifically, and not for a "general
debt." When questioned about the terms of his prior
divorce settlement, Kelly testified that he "had to
reimburse [Mary] for some halibut shares" but that he
was "done paying her" at the time of trial. At a
status hearing, Kelly testified that Mary had a lien on the
court-ordered sale of IFQs, and the IFQ sale document noted
that Mary "has a lien against these shares with a
balance due of approximately $18, 000." And as the court
noted in its findings, Kelly's financial declaration from
October 2012 lists a yearly expense of $17, 500 labeled
"IFQ payment."[39] Finally, given that the ...