Lesson on Missouri’s Marital Property Regime
March 9, 2016
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Explain why Missouri is called a “deferred community property state”
Recognize that Missouri has in common with other states a three-step process of
characterization, valuation and distribution and that the court has some discretion
at each of these steps, though mostly in distribution.
Articulate the particular Missouri approaches to transmutation, income from
separate property, contributions to separate property, division of teacher pensions,
and analytic method of characterizing compensation awards.
Use the Missouri statute and these doctrines on characterization of property and
debt to characterize and divide earnings, stock & dividends, real estate, small
businesses, personal injury awards and other property.
Method: Worksheet
Assignment: Read RSMo 452.330; Textbook Obrien case, notes following and notes on
dividing marital debt (pp. ??)
Evaluation: Individual answer to questions and surveys of class regarding agreement.
Worksheet on Missouri Property Characterization and Distribution Regime
1.
Like other property regimes, the basic values in the Missouri marital property
regime include:
 The presumption that marriage is an economic partnership.
 Property division is to be used to address post-divorce economic circumstances
before using spousal support
 Property division should sever economic ties of the couple
These values may sometimes conflict with one another. Give an example.
2.
Read Missouri Statute §452.330.1. In what three different legal proceedings does
§452.330 apply?
3.
Which of the following correctly characterizes the degree of discretion built into
the division of property and debts in §452.330.1? See Foraker v. Foraker, 133
S.W.3d 84 (Mo. Ct. App. 2004)
4.
a.
Missouri courts have little discretion in distribution of property and debts,
as equal division of property and debts is required to meet the general
policy that marriage is an economic partnership.
b.
Missouri courts have some discretion in the distribution of property and
debts as Missouri’s equitable distribution scheme allows consideration of
need and contribution.
c.
Missouri courts have a good deal of discretion because the statutory
factors a court may consider include five fairly broad factors including
need, contribution, and fault.
d.
Missouri courts have nearly unlimited discretion in distributing marital
property and debts as that statute does not effectively limit the factors the
court may consider.
§452.330.1(4) requires the court to consider “the conduct of the parties during the
marriage.” As a policy matter, what kind of conduct should justify a court in
awarding a disproportionate amount of the property to one spouse? Must the
conduct have an economic impact? Must it be a cause of the breakdown of the
marriage? May a court award property to a spouse based on their “good conduct”?
See Petties v. Petties, 129 S.W.3d 901 (W.D. App. 2004; Ballard v. Ballard, 77
S.W.3d 112, 118 (Mo. Ct. App. 2002); Weiss v. Weiss, 702 S.W.2d 948, 957 (Mo.
Ct. App. 1986).
5.
Read §452.330.2. Considering this statute, why do you think Missouri is referred
to as a “deferred community property” state?
6.
Read §452.330.3- 452.330.4 In which of the following circumstances will
property purchased by one spouse before marriage be considered marital property in
Missouri? See Spidle v. Spidle, 853 S.W.2d 311, 315 (Mo. Ct. App. 1993)
a.
The property was purchased in contemplation of marriage & intended to
be marital property
b.
The parties jointly titled the property subsequent to the marriage
c.
The parties commingled the property with marital property.
7.
In claiming that property held at the time of the dissolution is marital, who has the
burden of proof and what is that burden?
a.
The burden of proof is on that party claiming separate property and the
standard of proof is clear and convincing evidence.
b.
The burden of proof is on that party claiming separate property and the
standard of proof is weight of the evidence.
c.
The burden of proof is on that party claiming marital property and the
standard of proof is clear and convincing evidence.
d.
The burden of proof is on that party claiming marital property and the
standard of proof is weight of the evidence.
8.
Missouri applies the doctrine of transmutation rejected in the O’Brien v. O’Brien
case in your textbook. To prove that nonmarital property has transmuted to marital
property, Missouri looks for evidence of intent to create a gift to the marital estate. Smith
v. Smith, 785 S.W.2d 764 (Mo. App. E.D. 1990). Which of the following would be good
evidence of an intent to make a gift to the marital estate?
a.
Changing the title of the property to a joint title
b.
Pledging the property as security for a marital debt
c.
Treating the property as marital in terms of decisions regarding its
management and disposition.
d.
Commingling the property with marital property.
9.
Missouri takes a distinctly minority approach to characterization of income from
separate property. While the passive increase in the value of separate property is separate
(see §452.330.2(5)), income from separate property is marital. For example, suppose
Husband has shares of stock that are his separate property. The increase in the value of
that stock over time due to stock market fluctuations is also separate; however, the
dividends generated by the stock are considered marital. Knowing this rule, reconsider
§452.330.4. Why is this an especially important rule in Missouri?
10.
How would a Missouri court characterize the following property from the
O’Brien v. O’Brien case in your textbook:
a.
The gifts to the husband from wife’s aunt made for estate planning
purposes? See In re Marriage of Johnson, 856 S.W. 2d 921 (S.D. 1993).
b.
The jointly titled investment account opened containing:
- funds from inheritances and gifts
- marital funds
- funds from dividends and share reinvestment gains
McDonough v. McDonough, 762 S.W.2d 827 (Mo. App., E.D. 1988).
11.
For property acquired over a period of time, Missouri follows the “source of
funds” rule for property acquisitions. The source of funds rule allowed compensation for
marital efforts and property contributed to the acquisition or enhancement of the value of
the asset. Such contributions would not otherwise be reflected in the title ownership of
the property. The equitable theory of the rule also gave the marital estate a proportionate
share of the total appreciated value of the property, even if due only to general economic
conditions and not attributable to any further marital effort or contribution. "Thus, the
spouse who contributed nonmarital funds, and the marital unit that contributed marital
funds each [received] a proportionate and fair return on their investment." Neal v. Neal,
776 S.W.2d 861 (Mo. App. S.D. 1989).
Suppose that Husband purchases a home before marriage, with title in his name only.
The value of the home at purchase is $60,000, and he makes $10,000 in payments on the
house before marriage. During marriage, husband is the sole wage earner. His salary
goes into his own separately titled checking account, from which he makes house
payments. At the time of the divorce, the house has been paid off and its value has
increased to $120,000 due to market factors in the area. In Missouri, how much, if any,
of the value of the house is marital property? Hoffmann v. Hoffmann, 676 S.W.2d 817
(Mo. 1984); Brooks v. Brooks, 911 S.W. 2d 631 (Mo. App. E. D. 1995
a.
None, the inception of title rule holds that, absent husband's joint titling
the house or otherwise making a gift to the marital estate, the entire house
is separate.
b.
All, by commingling marital property (the house payments) with separate
property, the entire value of the house has transmuted to marital property.
c.
None, since the house was purchased entirely with funds husband kept
separate.
d.
$49,800 (The percentage of marital contribution to entire contribution 5/6ths multiplied by the value actively acquired during the marriage $60,000).
e.
$50,000. The value of the marital contributions
f.
$99,600. (The percentage of marital contribution to the entire contribution
- 5/6ths multiplied by the equity in the house - $120,000).
12.
Suppose Wife in the previous case also proves that she has contributed to the
value of the house by her careful landscaping and redecorating. Recall that in the
O’Brien case in your text quoted the Missouri rule on marital contributions to separate
property. What did that case provide that Wife would have to prove in order for the value
of her contributions to separate property to be recognized as creating a marital interest in
the property?
13.
How do courts in Missouri treat compensation payments, such as disability
insurance awards? Missouri courts have adopted an analytic approach, asking what the
award was intended to replace. To the extent the recovery compensates for losses to the
marital estate, it is marital property. To the extent it compensates for losses to a spouse’s
separate estate, it is separate. Heslop v. Heslop, 967 S.W.2d 249 (Mo. 1998). In re
Marriage of Tullier, 989 S.W.2d 607 (Mo. App. S.D. 1999).
So, suppose Husband is injured in a products liability accident. He sues the manufacturer
of the product, claiming lost wages, pain and suffering and past and future medical
expenses. While he and wife are separated, the jury returns a verdict for $850,000. How
much if any of this amount is marital property?
14.
Some forms of income are not subject to division, such as social security
payments. In Missouri, teacher retirement accounts, like Social Security benefits, cannot
be divided in a dissolution proceeding. In re Marriage of Woodson, 92 S.W.3d 780, 783
(Mo. banc 2003). Mo. Rev. Stat. § 169.572. Instead, teacher's retirement benefits must
be classified as nonmarital property. Given this rule, should a court nonetheless take into
account a substantial pension paid through a teacher retirement fund to the teacher spouse
as a basis for awarding a disproportionate share of the marital property to the non-teacher
spouse, all other factors being equal?
15.
Bonus Review Questions: Harold and Wanda are getting divorced. The major
economic issue to be determined is the character of stock held by Harold in a family
corporation. Before the marriage, Harold held a 20% interest in the family corporation
(along with his two sisters - who had 20% each - and his father, who held 40%).
Harold’s father acted as chairman of the board of directors. Harold was the corporation’s
sales and marketing officer. At the time of the marriage, the value of husband’s interest
in this privately-held close-corporation was estimated to be $400,000. Over the course of
the 10 year marriage, that interest increased to $1,000,000. During those ten years,
husband’s salary from the corporation remained steady at $45,000 a year. No dividends
were paid out during that time, as the board of directors voted to retain all earning in the
corporation. During the marriage, Wanda was a homemaker and also assisted Harold in
the business by traveling with him to various sales conferences and regularly hosting
dinner parties for clients. Watkins v. Watkins, Hoffman v. Hoffman, 676 S.W.2d 817
(Mo. 1984); Heineman v. Heineman, 769 S.W.2d 130 (Mo. App. W.D. 1989). What
are the arguments Wanda and Harold would make regarding the characterization of the
property? What evidence would each side need to develop to support their arguments?
16.
Bonus Review Question: Upon entering the marriage, Harold had a vacation
cottage at Lake of the Ozarks. By way of a pre-nuptial agreement, freely bargained with
full disclosure and representation for both, the parties agreed that the cottage is Harold’s
separate property. For the past five years, Harold has taken all the rents from the cottage
and invested them in purchasing an additional cottage. How do you characterize these
cottages? See Box v. Box, 968 S.W.2d 161 (Mo. Ct. App. 1998)
17.
Look again at §452.330.1. You will notice that courts may divide not only
marital property but also marital debt. How does one determine that a debt is “marital”?
For example,
a.
Suppose Mary and Harry plan a huge wedding, with Mary incurring
$10,000 in debts relating to the wedding. Unfortunately, the glamour
wore off quickly and the couple divorced three years later with most of
this debt still unpaid. Is the $10,000 wedding debt a “marital debt”?
Cross v. Cross, 30 SW3d 233 (Mo. App. ED 2000); In re Marriage of
Thomas, 21 SW3d 168 (Mo. App. 2000)
b.
During the marriage, Mary applied for several credit cards under her name
only and incurred substantial credit card debt. Is this marital debt?
c.
Harry earned his law degree in those three years. Is the $45,000 in student
loans he took out marital debt? Does it affect your judgment if you
know that professional degrees are not property subject to division in
Missouri). Studyvin v. Studyvin, 779 S.W.2d 338 (Mo. App. S.D. 1989)
18.
Recall that, even if a court divides debts, the divorce decree is not binding on
third-party creditors, who can seek to enforce debts against any responsible party. Given
that fact, if you were representing the spouse whose name is on debts but who will not be
allocated those debts in the divorce, in what form of a judgment or order would you want
the court to “divide” the debt?
ANSWERS TO
Worksheet on Missouri Property Characterization and Distribution Regime
1.
Like other property regimes, the basic values in the Missouri marital property
regime include:
 The presumption that marriage is an economic partnership.
 Property division is to be used to address post-divorce economic circumstances
before using spousal support
 Property division should sever economic ties of the couple
These values may sometimes conflict with one another. Give an example.
2.
Read Missouri Statute §452.330.1. In what three different legal proceedings does
§452.330 apply?
3.
Which of the following correctly characterizes the degree of discretion built into
the division of property and debts in §452.330.1?
a.
Missouri courts have little discretion in distribution of property and debts,
as equal division of property and debts is required to meet the general
policy that marriage is an economic partnership.
While the statute does not require equal division of property, as a
practical matter, this is the starting point from which the court works.
Missouri has never expressly states the equal is presumed to be equitable
absent factors to the contrary, but common sense tells us this is the only
way to proceed in actually negotiating or litigating a division of property.
If you want more than half, you will have to prove why you should have
more than half.
b.
Missouri courts have some discretion in the distribution of property and
debts as Missouri’s equitable distribution scheme allows consideration of
need and contribution.
It is true that need and contribution are factors, but they are not the only
factors.
c.
Missouri courts have a good deal of discretion because the statutory
factors a court may consider include five fairly broad factors including
need, contribution, and fault.
The court not only may, but must, consider the five statutory factors: that
is, the value of non-marital property set aside to each spouse in its
division of marital property, the economic circumstances of each spouse,
the contribution of each spouse to the acquisition of property, the conduct
of the parties, and the custodial arrangement. However, the factors listed
in § 452.330.1 are not exclusive, and the trial court has great flexibility
and far-reaching power in dividing the marital property. There is no
formula respecting the weight to be given by the trial court to the relevant
factors set out in § 452.330.1.
d.
Missouri courts have nearly unlimited discretion in distributing marital
property and debts as that statute does not effectively limit the factors the
court may consider.
§452.330.1 provides the standard for division of marital assets is “in such
proportions as the court deems just” and includes a list of non-exclusive
factors.
Here is how the Missouri courts speak about the degree of discretion the
trial court has:
The trial court has substantial discretion in dividing marital property, and
appellate courts will not interfere unless the division is so heavily
weighted in favor of one party to amount to an abuse of discretion. The
trial court abuses its discretion only if its ruling is clearly against the
logic of the circumstances then before it and is so arbitrary and
unreasonable as to shock the sense of justice and indicate a lack of careful
consideration. An appellate court presumes that the trial court's division
of marital property is correct. On appeal, the party challenging the
division has the burden of overcoming this presumption. Foraker v.
Foraker, 133 S.W.3d 84 (Mo. Ct. App. 2004)
Distribution of marital property does not have to be equal to be equitable.
Numerous unequal divisions of marital property with significant
disparities in the values of the awards to a husband and wife have been
upheld on appeal. E.g., see Scott v. Scott, 645 S.W.2d 193, 195 (Mo.App.
1982); Stamme v. Stamme, 589 S.W.2d 50 (Mo.App. 1979); Arp v. Arp,
572 S.W.2d 232 (Mo.App. 1978); In re Marriage of Burris, 557 S.W.2d
917 (Mo.App. 1977); In re Marriage of Vanet, 544 S.W.2d 236 (Mo.App.
1976).
4.
§452.330.1(4) requires the court to consider “the conduct of the parties during the
marriage.” As a policy matter, what kind of conduct should justify a court in awarding a
disproportionate amount of the property to one spouse? Must the conduct have an
economic impact? Must it be a cause of the breakdown of the marriage? May a court
award property to a spouse based on their “good conduct”?
For general discussion of the rule, see Ballard v. Ballard, 77 S.W.3d 112, 118
(Mo. Ct. App. 2002):
Under § 452.330.1(4), the trial court is required to consider the parties'
conduct during the marriage when dividing the marital property. Nelson v.
Nelson, 25 S.W.3d 511, 517 (Mo. App. 2000))However, misconduct by a
spouse cannot be used by the court to punish that spouse by awarding a
disproportionate share of the marital estate to the other spouse. Messer v.
Messer, 41 S.W.3d 640, 643 (Mo. App. 2001). The rationale for considering
the misconduct of the spouses in dividing marital property is that "if one
spouse is compelled to contribute more to the partnership endeavor due to
the other's misconduct, he or she is entitled to have the errant spouse's
misconduct taken into consideration . . . in dividing marital property." In re
Marriage of Ballay, 924 S.W.2d 572, 578 (Mo. App. 1996) (citation
omitted). Thus, not all misconduct requires a disproportionate division of
marital property. Id. "Even if the trial court believes the evidence of
misconduct, it may still divide the marital property in substantially equal
fashion." Messer, 41 S.W.3d at 643. "It is only when misconduct of one
spouse changes the balance so that the other must assume a greater share
of the partnership load that it is appropriate that such misconduct affect the
distribution of property." Nelson, 25 S.W.3d at 519.
The added burden placed on a spouse sufficient to justify a
disproportionate division of marital property does not have to be a
financial one. McIntosh v. McIntosh, 41 S.W.3d 60, 69 (Mo. App. 2001).
Other misconduct, specifically extramarital affairs and the birth of
illegitimate children, as alleged in our case, have been found to be added
burdens sufficient to justify a disproportionate division of marital property.
See Halupa v. Halupa, 943 S.W.2d 272, 277 (Mo. App. 1997) (citing
evidence of husband's adultery as a factor in its division of the marital
property); Lawrence v. Lawrence, 938 S.W.2d 333, 338 (Mo. App. 1997)
(recognizing that husband's adultery caused wife severe emotional harm
which could be considered in division of marital property); Dodson v.
Dodson, 904 S.W.2d 3, 8-9 (Mo. App. 1995) (holding that marital
misconduct to be considered by the trial court in dividing the marital
property included, inter alia, Husband's seven extramarital affairs and his
fathering an illegitimate child); Yount v. Yount, 821 S.W.2d 876, 881 (Mo.
App. 1991) (holding that Husband's illicit relationships constituted marital
misconduct that should be considered by the trial court); and Divine v.
Divine, 752 S.W.2d 76, 78 (Mo. App. 1988) (holding that sexual infidelity is
misconduct that can be considered by a trial court). However, evidence
alone of adultery or fathering an illegitimate child is not enough to justify a
disproportionate division of property. There must also be evidence of the
specific added burdens the non-offending spouse is claiming he or she
suffered as a result of such misconduct. See Messer, 41 S.W.3d at 643
(holding that a review of the record did not indicate that Wife's alleged
affair placed an added emotional or financial burden on Husband to
support a disproportionate division of property); Balven v. Balven, 734
S.W.2d 909, 913 (Mo. App. 1987) (holding that Husband's admitted affair
near the end of the marriage in and of itself did not support an unequal
division of property where nothing in the record indicated that this
relationship imposed additional burdens on his wife); Rising v. Rising, 608
S.W.2d 510, 512 (Mo. App. 1980) (holding that an unequal distribution of
property in favor of the Husband was not warranted where there was no
evidence that the Husband suffered additional burdens when his wife
moved out of their home and lived with another man prior to the
dissolution); and Burtscher v. Burtscher, 563 S.W.2d 526, 528 (Mo. App.
1978) (holding that there was no evidence that the Husband's extramarital
affair near the end of the marriage placed any particular burdens on the
Wife which would cause the trial court's distribution of marital property to
be unfair).
As the foregoing analysis of the pertinent cases points out…, marital
misconduct does not have to cause or contribute to cause the breakup of the
marriage in order to be considered as a justification for a disproportionate
award of marital property. While misconduct found to cause or contribute
to cause the breakup of a marriage would logically constitute an added
burden, misconduct not rising to that level could still be found to
constitute an added burden on the marriage, justifying a disproportionate
division of marital property.
Does this language mean a spouse can get more property for “good conduct”?
Consider this discussion of the same argument in the context of the maintenance
statute:
Regarding the fourth factor emphasized by the wife, her "good" conduct
during the marriage, note is taken that the parties stipulated that marital
misconduct was not an issue and, moreover, the evidence revealed that
both spouses were free of any marital misconduct. Cases addressing the
"conduct of a party seeking maintenance during the marriage" as provided
in § 452.335.2(7), supra, do so in terms of "misconduct" rather than "good"
conduct. See, e.g.: Schnitker v. Schnitker, 646 S.W.2d 123, 125-26 (Mo.
App. 1983); Rasmussen v. Rasmussen, supra, 627 S.W.2d at 119; J.A.A. v.
A.D.A., 581 S.W.2d 889, 897 (Mo. App. 1979); and In re Marriage of
Carmack, 55025 S.W.2d 815 (Mo. App. 1977). Inclusion of the marital
conduct factor in § 452.335, supra, is a departure from § 308 of the
Uniform Marriage and Divorce Act which makes no mention of marital
conduct as a relevant factor in determining maintenance awards. Inclusion
of the marital conduct factor in § 452.335.2 (7), supra, appears to be a
lingering vestige of the law which preceded enactment of the Dissolution of
Marriage Act whereby marital misconduct was penalized and relied upon
to defeat or reduce otherwise justified amounts of alimony. See, e.g.: Willis
v. Willis, 274 S.W.2d 621 (Mo. App. 1954); and Stokes v. Stokes, 222
S.W.2d 108 (Mo. App. 1949). This court concludes that retention of this
vestige of the prior law in no way evinces a legislative intent to reward the
good conduct of a spouse seeking maintenance at the expense of a spouse
ordered to pay maintenance. The good conduct of a spouse during
marriage evidences fulfillment of the marriage vow and is a sufficient
reward in and of itself. It defies credulity to yield to the wife's argument
that it was intended to impose a penalty on the husband whose conduct, as
previously noted, was also exemplary.
Weiss v. Weiss, 702 S.W.2d 948, 957 (Mo. Ct. App. 1986)
Finally, consider the impact a financial misconduct may have on property
division:
If a party has squandered marital property (including income or
funds received during the marriage), then the trial court may include
that property in the marital property division, even though it no
longer exists, allocating it to the spouse that squandered it or
ordering that spouse to reimburse the other party. The burden of
establishing that marital property has been squandered lies with the
spouse claiming that the asset was squandered, who must come
forward with evidence in support of that contention.
Petties v. Petties, 129 S.W.3d 901 (W.D. App. 2004)
4.
Read §452.330.2. Considering this statute, why do you think Missouri is referred
to as a “deferred community property” state?
Missouri characterizes property similarly to the systems used in many community
property states. However, unlike community property states, where that
characterization applies to the right to property during the marriage, at death, at
dissolution, in creditor actions, etc.; Missouri’s characterization of “marital
property” applies “for purposes of sections 452.300 to 452.415 only” – that is,
divorce.
6.
Read §452.330.3- 452.330.4 In which of the following circumstances
will property purchased by one spouse before marriage be considered marital property in
Missouri?
a) The property was purchased in contemplation of marriage & intended to be
marital property
b) The parties jointly titled the property subsequent to the marriage
c) The parties commingled the property with marital property
Note that you will begin with the presumption that all this property would be marital.
Even if the purchasing spouse can prove that the property was acquired prior to the
marriage, however, the other spouse may be able to prove that the property was marital
in each of these situations. A if you can prove that intent, B if you can prove that the joint
titling is evidence of an intent to transmute the property, C only if there is additional
evidence of transmutation because the statute expressly says that commingling alone is
insufficient.
Placing of separate property of a spouse into the joint names of both spouses creates a
presumption that the property transferred becomes marital property, and clear and
convincing evidence is required to show the transfer was not intended as a gift. Property
acquired after marriage which is placed in joint names is presumed to be marital
property, even if one spouse furnished all the consideration. Spidle v. Spidle, 853
S.W.2d 311, 315 (Mo. Ct. App. 1993)
7.
In claiming that property held at the time of the dissolution is marital, who has the
burden of proof and what is that burden?
a)
The burden of proof is on that party claiming separate property and the standard
of proof is clear and convincing evidence.
b)
The burden of proof is on that party claiming separate property and the standard
of proof is weight of the evidence.
c)
The burden of proof is on that party claiming marital property and the standard of
proof is clear and convincing evidence.
d)
The burden of proof is on that party claiming marital property and the standard of
proof is weight of the evidence.
The burden is on the party claiming the separate nature of the property to prove
with clear, cogent and convincing evidence that the property was acquired in the
manner described. Mere conclusory testimony of one party, without
corroboration, will not satisfy the required threshold of proof. Reed v. Reed, 762
S.W.2d 78 (Mo. App. S.D. 1988).
8.
Missouri applies the doctrine of transmutation rejected in the O’Brien v. O’Brien
case in your textbook. To prove that nonmarital property has transmuted to marital
property, Missouri looks for evidence of intent to create a gift to the marital estate.
Which of the following would be good evidence of an intent to make a gift to the marital
estate?
a.
Changing the title of the property to a joint title
b.
Pledging the property as security for a marital debt
c.
Treating the property as marital in terms of decisions regarding its
management and disposition.
d.
Commingling the property with marital property.
All of these would be evidence. The strongest, but not absolutely determinative,
evidence of this intent is placing the property in joint title. This creates a
rebuttable presumption of transmutation, which can be overcome only by clear
and convincing evidence that no gift was intended. Smith v. Smith, 785 S.W.2d 764
(Mo. App. E.D. 1990). This is so even where one spouse furnished all of the
consideration. Doll v. Doll, 819 S.W.2d 739 (Mo. App. E.D. 1991). Other
evidence of transmutation may be the treatment of the property as marital
property or the commingling of the separate property with marital property. Why
can we consider evidence of commingling for transmutation given §452.330.4?
Because the statute only says it may not solely transmute property; not that it may
not be considered.
9.
Missouri takes a distinctly minority approach to characterization of income from
separate property. While the passive increase in the value of separate property is separate
(see §452.330.2(5)), income from separate property is marital. For example, suppose
Husband has shares of stock that are his separate property. The increase in the value of
that stock over time due to stock market fluctuations is also separate; however, the
dividends generated by the stock are considered marital, Knowing this rule, reconsider
§452.330.4. Why is this an especially important rule in Missouri?
Otherwise, interest on separate investments that is not immediately distributed from the
account would transmute the entire account into marital property. Indeed, at one time,
Missouri followed the Illinois rule that any commingling of marital property with
separate property transmuted the entire corpus to marital property. For example, in
Cartwright v. Cartwright, 707 S.W. 2d 469 (Mo. App. E.D. 1986) the court held that
when interest earned on a separate certificate of deposit during the marriage is
commingled with the separate principal, the entire fund became transmuted to marital
property. In 1988 the Missouri General Assembly amended §452.330 by adding a
paragraph 4.
10.
How would a Missouri court characterize the following property from the
O’Brien v. O’Brien case in your textbook:
a.
The gifts to the husband from wife’s aunt made for estate planning
purposes?
b.
The jointly titled investment account opened containing:
- funds from inheritances and gifts
- marital funds
- funds from dividends and share reinvestment gains
.
Given these standards, how would a Missouri court deal with the following
property in the O’Brien case?
9.
a.
The gifts to the husband from wife’s aunt made for estate planning
purposes? See In re Marriage of Johnson, 856 S.W. 2d 921 (S.D. 1993).
b.
The jointly titled investment account opened containing:
- funds from inheritances and gifts
- marital funds
- funds from dividends and share reinvestment gains
A party claiming a gift must prove the gift with clear and convincing evidence.
Scism v. Scism, 844 S.W. 2d 506 (Mo. App. E.D. 1992); Heineman v. Heineman,
769 S.W. 2d 137 (Mo. App. E.D. 1989). Note that with titled property, the gift is
presumed to be made to the titleholder. Once the title interest is proven, there is
no need to prove the elements of gift described above. It is not for the trial court to
look to the donor's motive in making the gift. In re Marriage of Johnson, 856 S.W.
2d 921 (S.D. 1993).
As for the account, part of the source of funds of the account would be considered
marital (the dividends). Moreover, this was a jointly titled account, which creates
a very strong presumption of transmutation. Even evidence of intent other than to
make a gift may not rebut the presumption that one also intended to make a gift to
the marital estate. McDonough v. McDonough, 762 S.W.2d 827 (Mo. App., E.D.
1988).
Separately titling property does not create as strong a presumption of intent to
transmute to separate property. For example, in Selby v. Selby, 149 S.W.3d 472
(Mo. App. W.D. 2004) the parties conveyed certain marital assets to husband’s
trust for estate planning purposes; husband claimed this conveyance transmuted
the marital property to separate property. Court of appeals found that putting
marital property in a trust in husband’s name does not mean that wife no longer
has an interest in the property. “We believe it would be against public policy to
hold that when married couples place property into a trust in one name that
property automatically becomes separate property and the other spouse loses the
marital interest. Families, particularly in the case of second marriages, often use
trusts as a part of estate planning. Testamentary trusts, such as these, are not
created to change the character of the property or to prepare for divorce. We are
not going to create a rule that complicates estate planning goals by suddenly
declaring that such trusts destroy marital assets.”
11.
For property acquired over a period of time, Missouri follows the “source of
funds” rule for property acquisitions. The source of funds rule allowed compensation
for marital efforts and property contributed to the acquisition or enhancement of
the value of the asset. Such contributions would not otherwise be reflected in the
title ownership of the property. The equitable theory of the rule also gave the
marital estate a proportionate share of the total appreciated value of the property,
even if due only to general economic conditions and not attributable to any further
marital effort or contribution. "Thus, the spouse who contributed nonmarital funds,
and the marital unit that contributed marital funds each [received] a proportionate
and fair return on their investment." Neal v. Neal, 776 S.W.2d 861 (Mo. App. S.D.
1989).
Suppose that Husband purchases a home before marriage, with title in his name only.
The value of the home at purchase is $60,000, and he makes $10,000 in payments on the
house before marriage. During marriage, husband is the sole wage earner. His salary
goes into his own separately titled checking account, from which he makes house
payments. At the time of the divorce, the house has been paid off and its value has
increased to $120,000 due to market factors in the area. In Missouri, how much, if any,
of the value of the house is marital property? Hoffmann v. Hoffmann, 676 S.W.2d 817
(Mo. 1984)
a)
None, the inception of title rule holds that, absent husband's joint titling the house
or otherwise making a gift to the marital estate, the entire house is separate.
b)
All, by commingling marital property (the house payments) with separate property,
the entire value of the house has transmuted to marital property.
c)
None, since the house was purchased entirely with funds husband kept separate.
d) $49,800 (The percentage of marital contribution to entire contribution - 5/6ths
multiplied by the value actively acquired during the marriage - $60,000).
e)
$50,000. The value of the marital contributions
f)
$99,600. (The percentage of marital contribution to entire contribution - 5/6ths
multiplied by the equity in the house - $120,000).
§452.330.2(5) indicates that separate property includes, “The increase in the
value of property acquired prior to the marriage…unless marital assets including
labor, have contributed to such increases and then only to the extent of such
contributions.” That would seem to indicate that (e), the value of the
contributions would be the correct answer.
However, before this statute was enacted, when Missouri adopted the “source of
funds” rule, courts instead consider that the marital contributions actual
constitute an “acquisition” such that a percentage of the property becomes
marital property, and so does even the passive appreciation in the value of that
property. See Moritz v. Moritz, 844 S.W. 2d 109 (Mo. App. W.D. 1992), in which
the court stated "In order to determine the marital interest in debt-free property
that has been acquired by the investment of both marital and nonmarital funds, the
proper formula to use is: marital contribution/total contribution x value..." See
also Brooks v. Brooks, 911 S.W. 2d 631 (Mo. App. E. D. 1995). Thus, under
Missouri case law, the correct answer would be (f).
12.
Suppose Wife in the previous case also proves that she has contributed to the
value of the house by her careful landscaping and redecorating. Recall that in the
O’Brien case in your text quoted the Missouri rule on marital contributions to separate
property. What did that case provide that Wife would have to prove in order for the value
of her contributions to separate property to be recognized as creating a marital interest in
the property?
The Missouri Court of Appeals has repeatedly held that several factors must be shown in
order for a spouse to be awarded a proportionate share of the increase in value of the
other spouse's separate property, including: (1) a contribution of substantial services; (2)
a direct correlation between those services and the increase in value; (3) the amount of
the increase in value; (4) the performance of the services during the marriage; and (5)
the value of the services, lack of compensation, or inadequate compensation. Meservey
v. Meservey, 841 S.W.2d 240, 245-46 (Mo. Ct. App. 1992); Klaus v. Klaus, 918 S.W.2d
407, 409 (Mo. Ct. App. 1996).
13.
How do courts in Missouri treat compensation payments, such as disability
insurance awards? Missouri courts have adopted an analytic approach, asking what the
award was intended to replace. To the extent the recovery compensates for losses to the
marital estate, it is marital property. To the extent it compensates for losses to a spouse’s
separate estate, it is separate. Heslop v. Heslop, 967 S.W.2d 249 (Mo. 1998). In re
Marriage of Tullier, 989 S.W.2d 607 (Mo. App. S.D. 1999).
So, suppose Husband is injured in a products liability accident. He sues the manufacturer
of the product, claiming lost wages, pain and suffering and past and future medical
expenses. While he and wife are separated, the jury returns a verdict for $850,000. How
much if any of this amount is marital property?
Probably all of it unless Husband can overcome the presumption of marital
property (it was acquired during the marriage, even though the parties were
separated, so long as there was not a decree of legal separation). He would need
to do so by showing that portion of the award that was intended to compensate for
post-divorce earnings or expenses. An unliquidated claim for damages arising
from personal injury during the marriage is marital property for purposes of the
dissolution of marriage proceeding. Jobe v. Jobe, 708 S.W. 2d 322 (Mo.App. S.D.
1989). The proceeds of a personal injury settlement received by one of the parties
during the marriage are marital, Zimmer v. Zimmer, 770 S.W. 2d 514 (Mo. App.,
W.D. 1989) (annuity settlement); Nixon v.Nixon, 525 S.W. 2d 835 (Mo. App., E.D.
1975)(lump sum settlement proceeds); including proceeds from actions under
"FELA," the Federal Employers' Liability Act (45 U.S.C. Sections 51 et seq.).
Gonzalez v. Gonzalez, 689 S.W. 2d 383 (Mo. App. E.D. 1985).
Disability insurance benefits are considered substitutes for lost earnings occasioned by an
inability to work, and therefore the same as postdissolution earnings. As a result, they are
non-marital property under §452.330.2(3) RSMo. Sherman v. Sherman, 740 S.W.2d 203
(Mo. App. W.D. 1987). A lump sum award of workers' compensation benefits, including
an award prior to dissolution, is nonmarital to the extent the award compensated the
recipient for future loss of earnings that had accrued since the dissolution of the marriage.
Pauley v. Pauley, 771 S.W.2d 105 (Mo. App. E.D. 1989).
14.
Some forms of income are not subject to division, such as social security
payments. In Missouri, teacher retirement accounts, like Social Security benefits, cannot
be divided in a dissolution proceeding. In re Marriage of Woodson, 92 S.W.3d 780, 783
(Mo. banc 2003). Mo. Rev. Stat. § 169.572. Instead, teacher's retirement benefits must
be classified as nonmarital property. Given this rule, should a court nonetheless take into
account a substantial pension paid through a teacher retirement fund to the teacher spouse
as a basis for awarding a disproportionate share of the marital property to the non-teacher
spouse, all other factors being equal?
The Missouri courts have held that while the trial court must consider the value of
nonmarital property before equitably dividing the marital property, it may not consider
the nonmarital property to such an extent that it has a substantial material impact on the
overall division of marital property. Yet, the benefits or potential benefits from the
teacher's retirement account are economic factors to be considered, along with other
factors in the disposition of property.
15. Bonus Review Questions: Harold and Wanda are getting divorced. The major
economic issue to be determined is the character of stock held by Harold in a family
corporation. Before the marriage, Harold held a 20% interest in the family corporation
(along with his two sisters - who had 20% each - and his father, who held 40%).
Harold’s father acted as chairman of the board of directors. Harold was the corporation’s
sales and marketing officer. At the time of the marriage, the value of husband’s interest
in this privately-held close-corporation was estimated to be $400,000. Over the course of
the 10 year marriage, that interest increased to $1,000,000. During those ten years,
husband’s salary from the corporation remained steady at $45,000 a year. No dividends
were paid out during that time, as the board of directors voted to retain all earning in the
corporation. During the marriage, Wanda was a homemaker and also assisted Harold in
the business by traveling with him to various sales conferences and regularly hosting
dinner parties for clients. Watkins v. Watkins, Hoffman v. Hoffman, 676 S.W.2d 817
(Mo. 1984); Heineman v. Heineman, 769 S.W.2d 130 (Mo. App. W.D. 1989). What
are the arguments Wanda and Harold would make regarding the characterization of the
property? What evidence would each side need to develop to support their arguments?
16.
Bonus Review Question: Upon entering the marriage, Harold had a vacation
cottage at Lake of the Ozarks. By way of a pre-nuptial agreement, freely bargained with
full disclosure and representation for both, the parties agreed that the cottage is Harold’s
separate property. For the past five years, Harold has taken all the rents from the cottage
and invested them in purchasing an additional cottage. How do you characterize these
cottages? See Box v. Box, 968 S.W.2d 161 (Mo. Ct. App. 1998)
Where a spouse receives rental income from non-marital property during a marriage, the
income is marital property. Therefore, the second cottage would be marital.
17.
Look again at §452.330.1. You will notice that courts may divide not only
marital property but also marital debt. How does one determine that a debt is “marital”?
For example,
a.
Suppose Mary and Harry plan a huge wedding, with Mary incurring
$10,000 in debts relating to the wedding. Unfortunately, the glamour
wore off quickly and the couple divorced three years later with most of
this debt still unpaid. Is the $10,000 wedding debt a “marital debt”?
Cross v. Cross, 30 SW3d 233 (Mo. App. ED 2000); In re Marriage of
Thomas, 21 SW3d 168 (Mo. App. 2000)
b.
During the marriage, Mary applied for several credit cards under her name
only and incurred substantial credit card debt. Is this marital debt?
c.
Harry earned his law degree in those three years. Is the $45,000 in student
loans he took out marital debt? Does it affect your judgment if you
know that professional degrees are not property subject to division in
Missouri). Studyvin v. Studyvin, 779 S.W.2d 338 (Mo. App. S.D. 1989)
Missouri courts hold that marital debt is debt incurred during marriage or in
contemplation of marriage. It does not matter that one spouse did not control or actively
participate in the decision to incur a debt. These would all be marital debts, but the court
would certainly consider to whose benefit the debt inured in the division of the debt.
18.
Recall that, even if a court divides debts, the divorce decree is not binding on
third-party creditors, who can seek to enforce debts against any responsible party. Given
that fact, if you were representing the spouse whose name is on debts but who will not be
allocated those debts in the divorce, in what form of a judgment or order would you want
the court to “divide” the debt?
Any judgment to pay a debt should be bolstered by an additional obligation to indemnify
the other party. Courts may order one party to pay a debt directly. Gross v. Gross, 557
SW 2d 448 (Mo. App. WD 1977) or to pay a lump sum judgment to a party adjudicated
responsible to pay the debts. McCully v. McCully, 550 SW 2d 911 (Mo. App. WD 1977).
c. The court may order a party to indemnify the other party on the debt, once the
responsibility for payment has been adjudicated. Rawlings v. Rawlings, 36 SW 3d 795
(Mo. App. WD 2001).
An adjudicated obligation to pay a debt has been likened to an
award of maintenance or child support; accordingly, contempt will lie and
imprisonment may be ordered. Haley v. Haley, 648 SW 2d 890 (Mo. App.
ED 1982); Angell v. Angell, 674 SW 2d 147 (Mo. App. WD 1984).