Baughman v. Baughman , 2021 Ohio 2019 ( 2021 )

[Cite as Baughman v. Baughman, 2021-Ohio-2019.]
STATE OF OHIO ) IN THE COURT OF APPEALS
)ss: NINTH JUDICIAL DISTRICT
COUNTY OF SUMMIT )
CHRISTINE A. BAUGHMAN C.A. No. 29870
Appellant
v. APPEAL FROM JUDGMENT
ENTERED IN THE
JOSHUA R. BAUGHMAN COURT OF COMMON PLEAS
COUNTY OF SUMMIT, OHIO
Appellee CASE No. DR-2018-05-1364
DECISION AND JOURNAL ENTRY
Dated: June 16, 2021
HENSAL, Presiding Judge.
{¶1} Christine Baughman appeals a judgment entry of the Summit County Court of
Common Pleas, Domestic Relations Division. For the following reasons, this Court reverses.
I.
{¶2} The Baughmans married in 2006 and have not had any children together. At the
time of the marriage, Husband was a highly valued employee of a tire company, but he did not
own any stock or have an ownership interest in the company. In 2011, the tire company was
purchased by another company. Although Husband continued to work for the new company, he
received five million dollars in exchange for signing a five-year non-compete agreement, which
would begin to run upon his conclusion of employment with the new company. Husband’s
employment at the new company ended in October 2012. The parties used some of the five million
dollars to buy businesses, to buy and flip houses, and to live off during periods in which Husband
was unemployed.
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{¶3} In May 2018, Wife filed a complaint for divorce and Husband subsequently
counterclaimed for divorce. The parties entered into a separation agreement on every issue except
for disposition of the remainder of the five million dollars. That issue was tried before a magistrate
over three separate days in 2019. In February 2020, the magistrate found that the amount was paid
to Husband in exchange for his signing of the non-compete agreement, rejecting Husband’s
argument that it was deferred bonus compensation from the original tire company. The magistrate
nevertheless found that, because the payment arose from a non-compete agreement, it was
Husband’s separate property and awarded the remaining amount entirely to him. Wife objected to
the magistrate’s decision, but the trial court overruled her objection and adopted the magistrate’s
decision. Wife has appealed, assigning two errors.
II.
ASSIGNMENT OF ERROR I
THE TRIAL COURT ERRED IN FINDING COMPENSATION PAID TO
HUSBAND DURING THE MARRIAGE PURSUANT TO A NON-COMPETE
AGREEMENT WAS A NON-MARITAL ASSET.
{¶4} In her first assignment of error, Wife argues that the trial court incorrectly found
that the non-compete payment was Husband’s separate property. “We review a property division
in a divorce proceeding to determine whether the trial court abused its discretion.” Stepp v. Stepp,
9th Dist. Medina No. 03CA0052-M, 2004-Ohio-1617, ¶ 10. The characterization of property as
marital or separate, however, is a question of fact that we review under a manifest weight of the
evidence standard. Ostmann v. Ostmann, 168 Ohio App.3d 59, 2006-Ohio-3617, ¶ 9 (9th Dist.).
If the parties contest whether an asset is marital or separate property, the asset is presumed to be
marital property unless it is proven otherwise. C.S. v. M.S., 9th Dist. Summit No. 29070, 2019-
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Ohio-1876, ¶ 16. The party seeking to have the asset declared separate property has the burden of
proving that the asset is separate property. Id.{¶5} Revised Code Section 3105.171 governs the division of marital and separate
property. Under Section 3105.171(A)(3)(a)(i), marital property includes “[a]ll real and personal
property that currently is owned by either or both of the spouses, including, but not limited to, the
retirement benefits of the spouses, and that was acquired by either or both of the spouses during
the marriage[.]” Husband acknowledges that he received the five-million-dollar payment in April
2011, which was during the marriage. He also acknowledges that he departed the new company
18 months after signing the non-compete agreement, which was October 2012. Under the terms
of the agreement, Husband agreed not to compete for five years after he left the company.
Accordingly, the agreement concluded in October 2017. Wife did not file for divorce until May
2018.
{¶6} Although the definition of marital property is broad, it “does not include any
separate property.” R.C. 3105.171(A)(3)(b). Under Section 3105.171(A)(6)(a), “[s]eparate
property” means “[a]n inheritance by one spouse * * * during the course of the marriage; * * *
[a]ny real or personal property * * * that was acquired by one spouse prior to the date of the
marriage; * * * [and] [p]assive income and appreciation acquired from separate property by one
spouse during the marriage[.]” It also includes “[a]ny real or personal property or interest in real
or personal property acquired by one spouse after a decree of legal separation[,]” “[a]ny real or
personal property or interest in real or personal property that is excluded by a valid antenuptial
agreement[,]” “[c]ompensation to a spouse for the spouse’s personal injury,” and “[a]ny gift of
any real or personal property * * * made after the date of the marriage and that is proven by clear
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and convincing evidence to have been given to only one spouse.” The compensation Husband
received for signing the non-compete agreement does not fall into any of those categories.
{¶7} The trial court did not analyze Section 3105.171 in determining whether the non-
compete payment was marital or separate property. Instead, it determined that any proceeds of a
non-compete agreement are separate property under this Court’s decision in Blodgett v. Blodgett,
9th Dist. Summit No. 13547, 1988 WL 110926 (Oct. 19, 1988). In Blodgett, the parties married
in 1975 and around the same time Mr. Blodgett purchased a company. At some point prior to the
parties’ separation in 1986, Mr. Blodgett sold the company for several million dollars. Three
payments were at issue in the case: (1) the initial sale payment, (2) an incentive payment to Mr.
Blodgett if the net worth of the company increased by a certain amount by August 31, 1989, and
(3) a future payment to Mr. Blodgett if he did not compete with the purchaser. This Court
determined that the initial payment and incentive payment were both marital assets. Id. at * 2. It
determined that the future non-compete payment was Mr. Blodgett’s separate property, however,
because it was “solely to prevent [him] from exercising his business acumen in competition against
[purchaser].” Id. This Court noted that there was evidence that, absent the agreement, Mr. Blodgett
could start a new company that could supplant the purchaser and that the non-compete payment
was worthwhile to the buyer to protect its investment. Id.
{¶8} There are substantive differences between Blodgett and this case. First, Blodgett
predates Section 3105.171 and its definitions of marital and separate property. There are no similar
definitions discussed in Blodgett. Second, the non-compete payment had not been made by the
time of the parties’ divorce in Blodgett and remained conditional on Husband’s continued
adherence to the non-compete agreement. In this case, Husband received the payment in 2011 and
had fully completed the non-compete agreement by the time of the parties’ divorce. Blodgett,
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therefore, is legally and factually distinguishable from this case. This case is also distinguishable
from the other cases cited by the trial court and Husband, each of which rely on Blodgett.
Banchefsky v. Banchefsky, 10th Dist. Franklin No. 09AP-1011, 2010-Ohio-4267, ¶ 5 (explaining
that party signed non-compete agreement after petition for divorce was filed and that agreement
would not conclude until five years after the divorce); Brown v. Brown, 10th Dist. Franklin No.
93AP-634, 1993 WL 498150, *8 (Dec. 2, 1993) (explaining that the nature of the non-compete
agreement at issue was of future income because it was calculated by taking husband’s base pay
and multiplying it by the number of years he would be prohibited from competing); Hoeft v. Hoeft,
74 Ohio App.3d 809, 811-815 (6th Dist.1991) (explaining that non-compete agreement was
entered into while divorce action was pending and that the associated payment, which was payable
in monthly installments, was husband’s future earnings).
{¶9} Husband argues that part of the five-million-dollar payment qualifies as his separate
property because it was actually paid to him as a bonus for his years of outstanding service to the
original tire company. According to Husband, because he began working for that company before
the marriage, at least part of the bonus constitutes his separate property under Section
3105.171(A)(6)(a)(ii) because it is property he acquired before the date of the marriage. The trial
court, however, rejected this argument and found that the entire sum was paid by the new company
in exchange for Husband’s agreement not to compete with it for five years after he leaves the
company.
{¶10} Blodgett did not hold that every sum received in exchange for a non-competition
agreement is a party’s separate property. It has also been supplanted by the definitions of marital
and separate property now found in Section 3105.171. Upon review of the record, we conclude
that the trial court incorrectly determined that the remaining balance of the five million dollars that
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Husband received in exchange for entering a non-compete agreement is his separate property. The
payment does not meet any of the definitions of separate property under Section
3105.171(A)(6)(a). Wife’s first assignment of error is sustained.
ASSIGNMENT OF ERROR II
THE TRIAL COURT ERRED IN ACCEPTING THE PARTIES’ SEPARATION
AGREEMENT AS TO SPOUSAL SUPPORT BEFORE COMPLETING ITS
PROPERTY DIVISION AND IN FAILING TO REVISE THE SPOUSAL
SUPPORT ORDER AFTER ITS PROPERTY DIVISION DECISION WHICH
ALLOCATED HUSBAND TWO MILLION DOLLARS IN SEPARATE
PROPERTY.
{¶11} In her second assignment of error, Wife argues that the trial court should have
revisited the spousal support award after finding that the payment Husband received for signing
the non-compete agreement was his separate property. Considering the resolution of Wife’s first
assignment of error, we conclude that this issue is moot. See App.R. 12(A)(1)(c).
III.
{¶12} Wife’s first assignment of error is sustained. Her second assignment of error is
moot. The judgment of the Summit County Court of Common Pleas, Domestic Relations Division
is reversed, and this matter is remanded for proceedings consistent with this decision.
Judgment reversed,
and cause remanded.
There were reasonable grounds for this appeal.
We order that a special mandate issue out of this Court, directing the Court of Common
Pleas, County of Summit, State of Ohio, to carry this judgment into execution. A certified copy
of this journal entry shall constitute the mandate, pursuant to App.R. 27.
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Immediately upon the filing hereof, this document shall constitute the journal entry of
judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the period
for review shall begin to run. App.R. 22(C). The Clerk of the Court of Appeals is instructed to
mail a notice of entry of this judgment to the parties and to make a notation of the mailing in the
docket, pursuant to App.R. 30.
Costs taxed to Appellee.
JENNIFER HENSAL
FOR THE COURT
CALLAHAN, J.
SUTTON, J.
CONCUR.
APPEARANCES:
CORINNE HOOVER SIX, Attorney at Law, for Appellant.
RANDAL LOWRY and ADAM MORRIS, Attorneys at Law, for Appellee.