Makris: Review of notable Indiana property division cases in 2020

Makris

In 2020, the Indiana Court of Appeals issued three notable decisions relating to the division of property in dissolution of marriage cases. From the interpretation of asset appreciation in premarital agreements to the admissibility of mediation evidence in actions to avoid or enforce a settlement agreement, the following are three cases that provide valuable takeaways for family law practitioners.

Interpretation of premaritalagreement as to growth of assets

William Thomas Thompson v. Lora Lou Wolfram, 19A-DR-2622, decided Dec. 22 (see IL opinion article, Page 26), emphasizes the importance of including a provision in a premarital agreement that addresses how an increase in the value of an asset is classified in the event of a divorce — specifically, whether it is marital or nonmarital property. In this case, the premarital agreement stated that all assets owned by each party at the time of the marriage, maintained separately after the marriage and not commingled with the other party’s assets were to remain that party’s separate property in the event of divorce. Assets that the parties acquired during the marriage would be considered marital property subject to equal division. The schedule of the husband’s nonmarital property provided a specific value for his retirement accounts at the time of the execution of the agreement. However, the agreement did not include a provision as to how growth of the retirement accounts would be treated upon dissolution of the marriage. At the time of the agreement, the husband’s retirement accounts totaled $97,477. At the time of the filing of the petition for dissolution of marriage, the retirement accounts were worth $994,523. The trial court ordered the increase in the accounts to be divided equally because the premarital agreement did not exclude contributions, earnings and appreciation made during the marriage from the marital estate.

The husband appealed, asserting that the intent of the parties in signing the premarital agreement was to protect their individual assets owned prior to the marriage, therefore the current value of his retirement accounts should remain his separate property. The wife argued that the agreement only protected the value of the asset at the time of the execution of the agreement. The Court of Appeals affirmed the trial court’s decision due to the ambiguity, noting that if the parties had intended for growth to be included, they could have included language such as “including any increase in value through whatever means” when defining nonmarital property. The dissent distinguishes this case from the facts of precedents and points out that the retirement accounts had been listed on the husband’s exhibit of separate property, were only in the husband’s name at the time of the marriage and were not commingled during the marriage, supporting a conclusion that they should have remained his separate property.

Admissibility of mediationevidence of omitted asset

In Russell G. Berg v. Stacey L. Berg, 19A-DC-3038, the parties entered into a mediated property settlement agreement in which each party would keep all stock accounts in his or her individual name and the husband would keep the jointly held stock accounts. In the agreement, the parties acknowledged that all assets and debts of the marriage were fully disclosed and reflected within the agreement. The wife later filed a Trial Rule 60(B) motion asserting that the husband’s stock account of approximately $122,000 had been omitted from the marital balance sheet that was relied upon at mediation. The wife’s motion included as exhibits two marital balance sheets and an affidavit by the wife stating that she had no knowledge of the account prior to or during mediation. The husband filed a motion to strike that objected to the admissibility of these exhibits. Following a hearing, the trial court denied both parties’ requests. The wife then filed a motion to correct error, which resulted in the trial court awarding her half of the value of the account due to finding that “fraud, constructive fraud, mutual mistake, or misrepresentation had occurred and Husband had breached a warranty.”

The Court of Appeals reversed the trial court’s decision, agreeing with the husband that the trial court judgment relied on inadmissible mediation evidence and that the proffered mediation evidence was inadmissible to prove contract avoidance. Based upon the Indiana Supreme Court precedent of Horner v. Carter, 981 N.E.2d 1212 (Ind. 2013), the Court of Appeals determined that mediation evidence could not be admitted for the noncollateral purpose of showing why the wife had agreed to the division of assets in the settlement agreement. Rather, the mediation evidence would be admissible only for purposes of enforcement of the settlement agreement. The court referenced the exception to Indiana Rule of Evidence 408, which allows for the use of mediation evidence “in collateral matters unrelated to the dispute that is the subject of the mediation” as well as noting the policy considerations in favor of maintaining confidentiality of the mediation process. The court did not find that a breach of warranty had occurred, pointing out that both parties had asserted in the settlement agreement that all assets had been correctly and fully disclosed as mutual warranties and the wife was now estopped from disputing the truth of her assertions. The dissent states that the husband’s argument as to the issue of admissibility of the wife’s exhibits should have been waived for lack of cogent reasoning pursuant to Indiana Appellate Rule 46(A)(8)(a) partly because the husband provided no authority as to why communications “in anticipation of mediation” as stated in his brief are inadmissible under Evidence Rule 408. A petition to transfer is pending before the Indiana Supreme Court.

Analysis of reasonablenessof debt in marital estate division

In Bringle v. Bringle, 19A-DN-3007, the issue before the Court of Appeals was whether the trial court erred by not including a shareholder debt owed by the husband to an S Corporation in which he was the sole shareholder as a marital liability. A footnote in the business valuation report of the company referenced the shareholder debt and that it “should be included in the marital balance sheet.” Husband’s marital estate balance sheet did not include the shareholder debt, but it was referenced in his narrative in support of his proposed valuation of the business as assets minus debts. As the only shareholder, husband owed the debt to himself with no due date, and the debt itself was intended for accounting purposes to avoid income taxes. The Court of Appeals noted that the “due from shareholder” debt was unenforceable and that the husband could not be both a debtor and a creditor to the same debt. The decision observes that the “touchstone and ultimate consideration is whether the division is just and reasonable,” and that it is “entirely appropriate for a trial court to look beneath the surface of bookkeeping entries and to consider the underlying facts.” A petition to transfer is pending before the Indiana Supreme Court.

Reminders to be gained from these decisions are to ensure that premarital agreements address how growth of assets will be classified in the event of divorce, to make certain that all assets and debts are fully disclosed and included in the marital balance sheet before a mediated settlement agreement is signed, and to apply appropriate scrutiny to claimed debts in the valuation of a marital estate based on the facts and circumstances of the case.•

Nicole Makris is an attorney at Cohen & Malad LLC in Indianapolis. Opinions expressed are those of the author.

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