William Gordon Cummings v. Jean Cummings ( 2023 )

RENDERED: FEBRUARY 17, 2023; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2022-CA-0387-MR
WILLIAM GORDON CUMMINGS APPELLANT
APPEAL FROM MCCRACKEN CIRCUIT COURT
v. HONORABLE DEANNA WISE HENSCHEL, JUDGE
ACTION NO. 20-CI-00732
SHERRY JEAN CUMMINGS APPELLEE
OPINION
AFFIRMING IN PART,
REVERSING IN PART,
AND REMANDING
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BEFORE: CALDWELL, ECKERLE, AND KAREM, JUDGES.
ECKERLE, JUDGE: William Gordon Cummings (Husband) appeals from a
judgment of the McCracken Family Court dividing assets as part of the dissolution
of his marriage to Sherry Jean Cummings (Wife). We agree with Husband that
Wife had the burden of accounting for marital jewelry in her possession at the time
of separation. Since the Family Court failed to assign her the burden of proof on
these items and failed to make sufficient findings concerning the items not
returned, we conclude that the Family Court abused its discretion in its division of
that marital property. However, we further conclude that the Family Court did not
clearly err or abuse its discretion in its division of the marital bank accounts or the
proceeds from the sale of Husband’s veterinary practice. Hence, we affirm in part,
reverse in part, and remand for additional findings and entry of a new judgment
with respect to the division of the jewelry.
I. Facts and Procedural History
Husband and Wife were married in February 2001. No children were
born of the marriage, but both parties had adult children from previous marriages.
Husband owned and operated a veterinary clinic since 1969. Wife began working
at the clinic 1998. She continued to work for the clinic after the marriage. She
testified that she was never paid for her employment, but there was evidence she
regularly received money from the clinic during the marriage. At the time the final
decree was entered, Wife was 73 years old, and Husband was 79 years old.
The parties separated for a short period in 2018, and then again in
2019. Wife filed this petition for dissolution of the marriage on November 2,
2020. The Family Court entered an interlocutory decree of dissolution on April 20,
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2021, reserving for later adjudication the issues relating to division of property,
allocation of debts, maintenance, and attorney fees.
Thereafter, the parties entered into an agreed mediation order, but
were unable to resolve the most significant disputed matters. The relevant disputed
issues concerned the valuation and division of marital jewelry, the division of
marital bank accounts, and the valuation and division of the marital portion of the
veterinary practice. The Family Court conducted periodic case management
conferences, and the parties engaged in discovery on the disputed issues.
Those matters proceeded to a bench trial on September 17, 2021. The
Family Court entered a final hearing order and supplemental decree on January 11,
2022, resolving all disputed issues. Thereafter, Husband filed a motion to correct a
clerical error in the decree and a motion to alter, amend, or vacate the order
pursuant to CR1 59.05. In an order entered on March 8, 2022, the Family Court
granted the motion to correct a clerical error involving a mathematical error in
calculating the total amount to be divided. However, it denied Husband’s motion
to modify other portions of the judgment. This appeal followed. Additional facts
will be set forth below as necessary.
1
Kentucky Rules of Civil Procedure.
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II. Standard of Review
Husband argues that the Trial Court abused its discretion in its
division of the marital jewelry and bank accounts. When dividing martial property
in a dissolution proceeding, the Family Court must perform the following steps:
(1) categorize each piece of contested property as either marital or non-marital; (2)
assign each party’s non-marital property to that party; and (3) equitably divide the
parties’ marital property. Travis v. Travis, 59 S.W.3d 904, 908-09 (Ky. 2001).
Trial Courts have broad discretion in dividing marital property, and this Court may
not disturb a Trial Court’s ruling on the division of marital property unless it has
abused its discretion. Smith v. Smith, 235 S.W.3d 1, 6 (Ky. App. 2006). “The test
for abuse of discretion is whether the trial judge’s decision was arbitrary,
unreasonable, unfair, or unsupported by sound legal principles.” Commonwealth v.
English, 993 S.W.2d 941, 945 (Ky. 1999). More specifically, a court abuses the
discretion afforded it when “(1) its decision rests on an error of law . . . or a clearly
erroneous factual finding, or (2) its decision . . . cannot be located within the range
of permissible decisions.” Miller v. Eldridge, 146 S.W.3d 909, 915 n.11 (Ky.
2004) (emphasis and citations omitted).
III. Division of Jewelry
Husband first argues that the Family Court failed to value and divide
the parties’ jewelry properly because Wife failed to turn over several items for
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valuation as directed. It was undisputed that the parties purchased a large amount
of jewelry and artwork during the marriage. The parties also agreed that most of
the jewelry was stored in a suitcase in their cabin in Illinois. Husband testified that
the suitcase went missing from the cabin after the parties separated. At trial, Wife
admitted to taking the suitcase from the cabin when they separated in 2018.
The parties did not maintain a system of what jewelry was stored at a
particular location and how much jewelry they owned at the time of separation.
However, there were photographs of the jewelry, which the parties used to
determine what jewelry had been turned over prior to trial. At a case management
conference on April 19, 2021, Husband stated his desire to inventory the jewelry
that Wife had taken when the parties separated. He also stated that the jewelry
would not be covered by his insurance unless it was in his possession. At the
conclusion of the hearing, the Trial Court directed Wife to provide all jewelry in
her possession to Husband’s counsel by May 7, 2021. The Family Court’s order
also provided that, once inventoried, the jewelry and other property were to be
placed in Husband’s possession so that he could place them in a safe, insured
location.
At a later case management hearing on August 24, 2021, Husband
advised the Family Court that Wife had not produced all of the jewelry by May 7.
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Wife’s counsel admitted that she retained possession of four items. The Family
Court directed her to turn over the remaining items by September 2 for appraisal.
At trial, Wife stated that she turned over all jewelry in her possession
with the exception of a diamond necklace valued at $13,000.00, a diamond love
bracelet upon which she did not place a value, a yellow diamond ring valued at
$26,500.00, and a ring and other silver jewelry valued at $4,070.00. Husband
produced receipts or invoices for all of the jewelry purchased through Gem
Shopping Network and America’s Auction Network. Based on a comparison
between the items returned by Wife and those invoices, he alleges that the total
value of the jewelry not returned was $477,937.00.
In its findings, the Family Court noted that there was no reliable
evidence about the disposition of the jewelry that was not accounted for at trial.
Nevertheless, the Family Court concluded:
The Court does find that certain items of jewelry were
not produced by the wife to the husband as ordered by
this Court. Photographs of jewelry provided to counsel
for the husband from counsel for the wife prior to the
April 2021 Case Management Conference show items of
jewelry that were not produced to the husband on May 7,
2021, including a large diamond necklace and numerous
rings. The Court finds that, unless specifically noted
above, all remaining jewelry is marital and shall be sold
in an agreeable manner and the parties shall equally
divide the proceeds.
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In ruling on Husband’s CR 59.05 motion, the Family Court stated that
Wife did not have the burden of proving what happened to the jewelry simply
because it was not produced prior to trial. The Family Court noted the testimony
that the parties purchased, sold, returned, and gave away a significant amount of
jewelry during the marriage. Consequently, the Family Court declined to presume
that the missing jewelry remained in her possession.
Husband argues that the Family Court failed to account for the
missing jewelry properly. As noted, the Family Court found that Wife failed to
comply with its orders to return all of the jewelry prior to trial. “Dissipation occurs
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.’” Heskett
v. Heskett, 245 S.W.3d 222, 227 (Ky. App. 2008) (quoting Brosick v. Brosick, 974
S.W.2d 498, 500 (Ky. App. 1998)). The party claiming dissipation must prove, by
a preponderance of the evidence, that dissipation occurred and the value of the
property. Brosick, 974 S.W.2d at 502. “Once the party alleging dissipation
establishes a prima facie case, the burden of proof shifts to the party charged with
the dissipation to produce evidence sufficient to show that the expenditures were
appropriate.” Id. If a party is proven to have dissipated marital assets, “the court
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will deem the wrongfully dissipated assets to have been received by the offending
party prior to the distribution.” Id. at 500.
In this case, Husband presented extensive documentary evidence
showing the jewelry that the parties acquired during the marriage. He also
presented considerable evidence of the value of such jewelry through receipts and
invoices. Wife admitted that she took possession of most of the jewelry at the time
of their first separation. And Wife offered no evidence about what happened to the
jewelry while it was in her sole possession, even after the Family Court ordered it
returned. Under these circumstances, it would have been impossible for Husband
to prove that specific items were still held by the parties at the time Wife removed
them.
Therefore, we conclude that Husband met his burden of showing that
the jewelry remained in Wife’s possession at the time of trial. Since Wife did not
produce the property as directed, the burden shifted to her to account for those
items. She accounted for four items, and the trial court awarded those items to her.
However, she did not attempt to account for the numerous other items that
Husband alleged were in her possession.
Wife correctly notes that the Family Court ordered all jewelry to be
sold. She contends that Husband will not be injured until such time as any
allegedly missing jewelry is not included in the sale. However, the Family Court’s
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judgment provides no mechanism to require her to account for those items.
Indeed, the Family Court expressly declined to make a finding as to that jewelry,
even though it acknowledged that she remained in possession of at least some of
the disputed items. If Wife does not produce the items for sale, then she would be
rewarded for her failure to comply with the Family Court’s orders. Moreover,
Wife would unfairly benefit by sharing in an equal division of the proceeds from
the sale of the other marital jewelry. As a result, the order directing sale of “all
remaining jewelry” fails to identify adequately the property to be sold and divided.
Therefore, the Family Court’s judgment regarding the jewelry must be
set aside. On remand, Wife will have the burden of proof to account for the items
of jewelry that Husband has identified. The Family Court shall make findings
whether those items of jewelry remained in Wife’s possession following
separation. If the Family Court finds that Wife did not account for those items, it
shall determine the value of such jewelry and assign those amounts to her as part of
her share of the marital property. Husband will be entitled to a credit for those
amounts in the division of the proceeds from the sale of other marital jewelry.
IV. Division of Marital Bank Accounts
a. Finding as to Joint Efforts of the Parties
Husband next argues that the Family Court erred in its division of the
marital bank accounts, resulting in an inequitable division of marital property.
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KRS2 403.190(3) establishes a presumption that all property acquired during the
marriage is marital. KRS 403.190(1) grants the Trial Court wide discretion to
divide the marital property in “just proportions” after considering all relevant
factors. Smith, 235 S.W.3d at 6. Among other factors, KRS 403.190(1)(a) directs
the Trial Court to consider “[c]ontribution of each spouse to acquisition of the
marital property . . . .”
Husband contends that the Family Court erred in finding that Wife
made substantial contributions to the acquisition of marital property. He notes that
he operated the veterinary clinic for more than 30 years prior to the marriage, and
he came to the marriage with substantial assets. In contrast, Wife came to the
marriage with very few assets. While she continued to work for the clinic during
the marriage, Husband points out that she regularly received money from the clinic
in lieu of a salary. In contrast, he notes evidence of Wife’s spending during the
marriage, including gifts to family members. Under these circumstances, he
contends that the Family Court’s equal division of the bank accounts was
manifestly inequitable.
We agree with Husband that there was evidence that would have
supported a different division of the marital assets. However, the Family Court’s
2
Kentucky Revised Statutes.
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findings on this point were not clearly erroneous. The Family Court found that
Wife “worked diligently for the clinic” and also cared for the parties’ cattle on
their farm. There was no evidence that she was formally compensated for these
services during the marriage.
Except for the division of the proceeds from the sale of the veterinary
clinic, Husband does not argue that he traced his non-marital property into the
marital bank accounts held at the time of separation. Thus, there was no need for
the Family Court to determine whether the increase in value of those funds was
attributable to the joint efforts of the parties. See Travis, 59 S.W.3d at 910-11.
Furthermore, the parties were married for nearly 20 years, which warrants a
reasonable inference that most of the assets were marital. Consequently, we
cannot find that the Family Court clearly erred or abused its discretion in its equal
division of most marital assets.
b. Division of Proceeds from the Sale of the Veterinary Clinic
Husband separately argues that the Family Court abused its discretion
in its division of the proceeds of the sale of the veterinary clinic. He purchased the
practice in 1969 and operated it continuously until 2020. After the parties
separated, Husband sold the veterinary practice to Dr. Fred Fleshman, a long-time
employee of the practice. The sale of the practice did not include the real property,
which Husband retained and leased to Dr. Fleshman. In addition, the sale
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agreement provided that Dr. Fleshman would retain Husband as an employee at a
salary of $50,000.00 per year. Dr. Fleshman testified that the revenue and business
of the practice had remained constant between 2001 and the current date.
Husband also presented the report and deposition of Dr. William
Crank, a retired veterinarian who specializes in the buying, selling, and valuation
of veterinary practices. Husband and Dr. Fleshman retained Dr. Crank during their
negotiations for the sale of the practice. Dr. Crank valued the practice at
$298,887.00, with $83,530.00 being the tangible value of equipment and
inventory, and goodwill being $215,547.00. Dr. Fleshman paid the purchase price
of $311,887.00 for the clinic, which was offset by a $19,241.05 payment from
Husband.
At the time of the final hearing, the remaining $292,645.95 was being
held for division and payment of taxes. After payment of taxes, the Family Court
allocated 60%, or $135,489.57, to Husband and 40%, or $90,326.38 to Wife.
Husband primarily focuses on missing records from the practice that would have
more clearly established the value of the practice at the time of the marriage. He
notes that Wife served as bookkeeper for the practice during this period and had
access to those records. He also notes that many records and financial items
disappeared when Wife left the clinic in 2018. Since these missing records made it
more difficult to establish his non-marital interest in the clinic, Husband argues
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that the Family Court should have presumed that the records would have supported
his non-marital claim.
But in making its division of the proceeds from the sale of the clinic,
the Family Court did not consider the value of the clinic at the time of the
marriage. As noted above, the Family Court concluded that most of the sale price
was attributable to ongoing enterprise goodwill, which would be considered
marital. In reaching this determination, the Family Court examined Gaskill v.
Robbins, 282 S.W.3d 306 (Ky. 2009), in which the Kentucky Supreme Court
addressed the divisibility of the value of goodwill in a closely-held professional
practice. The Supreme Court noted that “[t]he question of how to value goodwill
of a business has been a source of contention for many years, with trial courts left
to decipher competing and frequently inconsistent theories and accounting
practices into something meaningful.” Id. at 312. Although it is generally
accepted in existing Kentucky law that goodwill is a factor to be considered in
arriving at the value of a business, the Supreme Court found no consistent
Kentucky authority whether goodwill can be divided between the business and the
individual. Id.
To address this matter of first impression, the Supreme Court
considered approaches from other states. The Court found the analysis of the
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Supreme Court of West Virginia in May v. May, 214 W.Va. 394, 589 S.E.2d 536(2003), to be especially useful:
In May, the Supreme Court of West Virginia found
from its survey that 13 courts made no distinction
between personal and enterprise goodwill, 5 courts held
that goodwill is not a part of marital property, and 24
states differentiated between personal and enterprise
goodwill. . . . The May court joined the 24 jurisdictions
that distinguish between enterprise and personal
goodwill. In reaching its decision, the court relied
substantially on an opinion of the Supreme Court of
Indiana, which explained in detail the rationale behind
distinguishing between personal and enterprise goodwill
as follows:
Goodwill has been described as the
value of a business or practice that exceeds
the combined value of the net assets used in
the business. Goodwill in a professional
practice may be attributable to the business
enterprise itself by virtue of its existing
arrangements with suppliers, customers or
others, and its anticipated future customer
base due to factors attributable to the
business. It may also be attributable to the
individual owner’s personal skill, training or
reputation. This distinction is sometimes
reflected in the use of the term “enterprise
goodwill,” as opposed to “personal
goodwill.”
Enterprise goodwill is based on the
intangible, but generally marketable,
existence in a business of established
relations with employees, customers and
suppliers. Factors affecting this goodwill
may include a business’s location, its name
recognition, its business reputation, or a
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variety of other factors depending on the
business. Ultimately these factors must, in
one way or another, contribute to the
anticipated future profitability of the
business. Enterprise goodwill is an asset of
the business and accordingly is property that
is divisible in a dissolution to the extent that
it inheres in the business, independent of any
single individual’s personal efforts and will
outlast any person’s involvement in the
business. It is not necessarily marketable in
the sense that there is a ready and easily
priced market for it, but it is in general
transferrable to others and has a value to
others.
...
In contrast, the goodwill that depends
on the continued presence of a particular
individual is a personal asset, and any value
that attaches to a business as a result of this
“personal goodwill” represents nothing more
than the future earning capacity of the
individual and is not divisible. Professional
goodwill as a divisible marital asset has
received a variety of treatments in different
jurisdictions, some distinguishing divisible
enterprise goodwill from nondivisible
personal goodwill and some not.
Gaskill, 282 S.W.3d at 313-14 (quoting Yoon v. Yoon, 711 N.E.2d 1265, 1268-70
(Ind. 1999)).
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In the current case, the Family Court applied this analysis to conclude
that the goodwill associated with the sale of the veterinary practice was enterprise
goodwill, not personal goodwill.
Dr. Fleshman testified that he found benefit in retaining
the existing location, name, employees and current client
list of the clinic as being its source of value. He testified
that he expected to have just as strong of a business after
[Husband] fully retires and noted that many of the current
patients come to see him rather than [Husband] because
of his own relationships. Part of the sale agreement
required Dr. Fleshman to retain [Husband] at a salary of
$50,000.00 per year which indicates that his future
earning capacity has already been accounted for and
would not have figured into the sale price. In the
testimony of Dr. Crank, the broker who negotiated the
sale between [Husband] and Dr. Fleshman, he indicated
that the only ongoing value provided by [Husband] was
the use of his name and the existence of the current
clientele, both of which are factors that are clearly
enterprise rather than personal goodwill.
. . . Considering the fact that the clinic would have no
value but for the ongoing marital efforts of the parties
and that the only goodwill that could have factored into
the sale price was enterprise goodwill, the sales proceeds
from the sale of the clinic are determined to be marital in
nature.
Husband does not take issue with any of these findings. Since the
Family Court found that the value of the practice was mostly attributable to
ongoing enterprise goodwill, it properly concluded that the sale proceeds were
marital and subject to division. Furthermore, there was no evidence that the
equipment and inventory of the clinic included any substantial non-marital
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component. As a result, we find no indication that the Family Court’s 60-40 split
of those proceeds amounted to an abuse of its discretion.
V. Conclusion
Accordingly, we reverse the judgment of the McCracken Family
Court with respect to its valuation and division of the marital jewelry. On remand,
the Family Court shall assign to Wife the burden of proving the disposition and
value of any items of jewelry not turned over for sale as required by the Family
Court’s orders. The Family Court shall make findings as to the items that Wife did
not sufficiently account, the value of those items, and the credit to which Husband
is entitled for his share of the proceeds from the sale of the jewelry. We affirm the
Family Court’s judgment in all other respects.
ALL CONCUR.
BRIEF FOR APPELLANT: BRIEF FOR APPELLEE:
Tiffany Gabehart Poindexter Joseph B. Roark
Paducah, Kentucky Paducah, Kentucky
Bradly A. Miller
Paducah, Kentucky
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