Brennan v. Brennan

Notice: This opinion is subject to correction before publication in the PACIFIC REPORTER.
Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,
303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email
corrections@akcourts.us.
THE SUPREME COURT OF THE STATE OF ALASKA
KELLY BRENNAN, )
) Supreme Court No. S-15576
Appellant, )
) Superior Court No. 3HO-12-00166 CI
v. )
) OPINION
RACHAEL BRENNAN, )
) No. 7272 – August 10, 2018
Appellee. )
)
Appeal from the Superior Court of the State of Alaska,
Third Judicial District, Homer, Charles T. Huguelet, Judge.
Appearances: 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.
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 of proceeds 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
1
As we explained in Ferguson v. Ferguson, 928 P.2d 597, 598 (Alaska
1996), “[t]he IFQ program is a federal regulatory response to various problems in the
halibut and sablefish fisheries . . . [which] replaces the previous ‘open access’ regulatory
regime with a limited access system.” Under the IFQ program, annual commercial
(continued...)
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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.
1
(...continued)
fishing quotas of halibut and sablefish are distributed among qualified “quota share
holders.” 50 C.F.R. § 679.40 (2017). Halibut and sablefish fisheries are managed under
separate quota systems. Id. To qualify for an IFQ, a person must have owned or leased
a vessel that commercially fished halibut or sablefish during 1988, 1989, or 1990.
Id. § 679.40(a)(2)-(3). The size of each quota share is determined in proportion to the
share holder’s history of landings from 1984 to 1990 for halibut, and from 1985 to 1990
for sablefish. Id. § 679.40(a)(4). Quota shares and annual quotas are transferable (with
some restrictions), and so can be resold for value. Id. § 679.41.
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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 of 2012. 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
2
The exact amount that Kelly and Rachael split when they separated is
unclear. Kelly’s pre- and post-trial briefs and the trial court’s findings of fact listed this
initial transfer as $86,000, but various affidavits indicate that it was $84,000, and
testimony on this point was unclear. Bank statements in the record from around that time
do not show either amount, but do show a transfer of $80,000 shortly before the
separation as well as additional transfers and payments on the same day in the amounts
of $8,000, $6,000, $4,443, and other smaller amounts.
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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
3
Neither party has challenged the superior court’s decision to treat corporate
assets as personal. We therefore do the same.
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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,
4
Rachael did not file a cross-appeal and does not challenge the court’s
equitable distribution.
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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
5
Beals v. Beals, 303 P.3d 453, 459 (Alaska 2013) (quoting Odom v. Odom,
141 P.3d 324, 330 (Alaska 2006)).
6
Id. (citing Odom, 141 P.3d at 330).
7
Id. (quoting Hanson v. Hanson, 125 P.3d 299, 304 (Alaska 2005)).
8
Id. (citing Doyle v. Doyle, 815 P.2d 366, 368 (Alaska 1991)).
9
Id. (quoting Doyle, 815 P.2d at 368).
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“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 of law,
which we review de novo.”15 However, we will “disregard any error or defect in the
10
Id. (citing Miller v. Miller, 105 P.3d 1136, 1140 (Alaska 2005)).
11
See Johnson v. Johnson, 239 P.3d 393, 404 (Alaska 2010) (treating a
“motion to clarify” that did not address merely “clerical error” as a motion for
reconsideration); Baseden v. State, 174 P.3d 233, 238 (Alaska 2008) (reviewing the
denial of a motion for reconsideration for abuse of discretion).
12
Johnson v. Johnson, 836 P.2d 930, 933 (Alaska 1992) (citing Burrell v.
Burrell, 537 P.2d 1, 7 (Alaska 1975)).
13
Beal v. Beal, 88 P.3d 104, 112 (Alaska 2004) (citing Johnson, 836 P.2d at
934).
14
See Taylor v. Johnston, 985 P.2d 460, 463, 466 (Alaska 1999); Simone H.
v. State, Dep’t of Health & Soc. Servs., Office of Children’s Servs., 320 P.3d 284, 287
(Alaska 2014).
15
Patrick v. Municipality of Anchorage, Anchorage Transp. Comm’n, 305
P.3d 292, 297 (Alaska 2013) (citing D.M. v. State, Div. of Family & Youth Servs., 995
P.2d 205, 207 (Alaska 2000)).
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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”
16
Alaska R. Civ. P. 61.
17
Dickerson v. Williams, 956 P.2d 458, 462 (Alaska 1998) (citing Nelson v.
Jones, 781 P.2d 964, 968 (Alaska 1989)).
18
See Stinson v. Holder, 996 P.2d 1238, 1242 (Alaska 2000).
19
Beals v. Beals, 303 P.3d 453, 458 (Alaska 2013) (citing Doyle v. Doyle, 815
P.2d 366, 368 (Alaska 1991)).
20
Kessler v. Kessler, 411 P.3d 616, 618 (Alaska 2018).
21
Id. (quoting AS 25.24.160(a)(4)).
22
Horning v. Horning, 389 P.3d 61, 64 (Alaska 2017) (citing Hansen v.
Hansen, 119 P.3d 1005, 1009 (Alaska 2005)).
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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
23
Kessler, 411 P.3d at 619 (citing Sparks v. Sparks, 233 P.3d 1091, 1094,
1096 (Alaska 2010)).
24
Odom v. Odom, 141 P.3d 324, 330 (Alaska 2006) (citing Brooks v. Brooks,
733 P.2d 1044, 1058 (Alaska 1987)).
25
See id.; Bellanich v. Bellanich, 936 P.2d 141, 143 (Alaska 1997) (“The trial
court has broad discretion in fashioning a property division.”).
26
Ferguson v. Ferguson, 928 P.2d 597, 600 (Alaska 1996).
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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
27
See id. at 600 (citing Chotiner v. Chotiner, 829 P.2d 829, 832 (Alaska
1992)); see also Johns v. Johns, 945 P.2d 1222, 1226 (Alaska 1997) (citing Ferguson,
928 P.2d at 600) (“[A] spouse’s interest in an IFQ is his or her separate property to the
extent that the size of the quota share is attributable to labor performed prior to the
marriage, and marital property to the extent that it is attributable to labor performed
during the marriage.”).
28
411 P.3d at 619.
29
Id. (citing various cases using this and similar phrases).
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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
30
Id. (citing Sparks v. Sparks, 233 P.3d at 1094, 1096 (Alaska 2010); Thomas
v. Thomas, 171 P.3d 98, 107 (Alaska 2007); 1 BRETT R. TURNER, EQUITABLE
DISTRIBUTION OF PROPERTY § 5:69, at 665 (3d ed. 2005)).
31
Id.
32
Id.; see also Sparks, 233 P.3d at 1094 (“[S]eparate property may be
transmuted to marital property if the owner intends to convey the property to the marital
unit and the owner’s conduct demonstrates that intent.”), overruled on other grounds by
Engstrom v. Engstrom, 350 P.3d 766, 771 (Alaska 2015).
33
See 171 P.3d at 107-08.
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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
34
See Sheffield v. Sheffield, 265 P.3d 332 (Alaska 2011) (citing Josephine B.
v. State, Dep’t of Health & Soc. Servs., Office of Children’s Servs., 174 P.3d 217, 222
(Alaska 2007)).
35
Kessler, 411 P.3d at 621 (quoting Abood v. Abood, 119 P.3d 980, 988
(continued...)
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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
35
(...continued)
(Alaska 2005)).
36
Beals v. Beals, 303 P.3d 453, 459 (Alaska 2013) (quoting Doyle v. Doyle,
815 P.2d at 368 (Alaska 1991)).
37
See Kessler, 411 P.3d at 622 & n.32 (citing Odom v. Odom, 141 P.3d 324,
330 (Alaska 2006); Schmitz v. Schmitz, 88 P.3d 1116, 1125 (Alaska 2004)).
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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 record is devoid of any other sources of income apart
from the couple’s fishing business, it was reasonable for the court to infer that these IFQ
payments were made with marital income.
This evidence is sufficient to support the trial court’s finding that Kelly
“made payments on the IFQs throughout the entire marriage,” but it does not follow that
38
We note briefly that whether the IFQs were purchased during the marriage
is not strictly speaking relevant to a transmutation analysis: if IFQs were indeed
purchased with marital funds during the marriage, they would be presumptively marital
property and the transmutation doctrine would not be in issue. See Kessler, 411 P.3d at
618. This legal error aside, if the IFQs were purchased during the marriage, the trial
court’s ultimate conclusion that the IFQs were marital property would not be erroneous;
thus, the relevant question is whether the court clearly erred in finding that the IFQs were
purchased during the marriage.
39
The financial declaration refers to monthly income and expenses, but Kelly
completed it based on yearly figures.
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he was “purchasing” the IFQs from Mary. There is no indication that Mary had a present
ownership interest in the IFQs during Kelly’s marriage to Rachael — if she did, she
would not have needed a lien on them. At most, the evidence indicates that Mary may
have had the status of a secured creditor, similar to a mortgagee, with the “IFQ
payments” going towards reducing the balance of a secured debt. As we explained in
Kessler, most equitable distribution jurisdictions treat the use of marital funds to pay
down a secured debt on separate property as a contribution towards acquisition that
creates a marital interest in that property.40 But this doctrine is distinct from that of
transmutation, as such contributions create only a partial interest in property based on the
actual amount of the contributions.41
In short, the trial court’s factual findings underlying its transmutation
determination — the sale of IFQs to purchase the marital home, the “purchase” of IFQs
through the payments to Mary, and Rachael’s contribution to the fishing business — are
largely irrelevant to the question of transmutation, and certainly insufficient to establish
that Kelly intended to convey the IFQs to the marital estate. In concluding that “intent
to treat the IFQs as marital ha[d] been established” by the evidence on these issues, it is
clear that the superior court’s transmutation analysis was based on an incorrect legal
standard. We therefore reverse the transmutation determination. On remand, the
superior court should reconsider transmutation under the standard described here and in
Kessler. The parties are also free to litigate whether, alternatively, Rachael may have had
a marital property interest in the IFQs or the corporation that held them through the
doctrines of active appreciation or marital contribution to separate debt.
40
Kessler, 411 P.3d at 622 (citing 1 TURNER, supra note 29, § 5:26, at 399­
400; id. § 5:24, at 385-86). We have not yet decided whether to adopt this approach
under Alaska law; because the parties have not briefed this issue, we do not do so at this
time, but the parties are free to litigate this on remand.
41
See 1 TURNER, supra note 29, § 5:26, at 399-400.
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B. The Superior Court Did Not Abuse Its Discretion By Not Offsetting
The Value Of Personal Property Awarded To Rachael.
Kelly next argues that Rachael received a greater value in personal property
than he did in the court’s oral distribution of specific personal property items at trial —
around $24,700 more according to our calculations42 — but the court failed to account
for this disparity in its written findings and conclusions and erred in denying Kelly’s
motion for clarification on this issue. We disagree.
A superior court’s allocation of marital property is reviewed for abuse of
discretion and we reverse such an award only if it is clearly unjust.43 The denial of
motions for clarification, like those for reconsideration, are reviewed for abuse of
discretion.44 The superior court was well aware that it had allocated specific items of
personal property at trial; it stated it had done so in its findings of fact. The court then
allocated the rest of the personal property on a 50/50 basis. In response to Kelly’s
motion for clarification the court reaffirmed its oral personal property allocation at trial
and incorporated the portion of the transcript addressing personal property allocation into
its findings of fact. In crafting an equitable allocation, the court explicitly considered and
balanced numerous statutory factors, including the parties’ relative earning capacity, age,
health, financial condition, conduct, and circumstances. The court also noted that, but
for Kelly’s age and medical condition, it ordinarily would have awarded a larger portion
42
According to Kelly, Rachael was awarded another boat named SLIMER
($11,000), two horses ($2,200), a Ford pickup ($5,000) and diamond earrings ($3,000)
while Kelly was awarded a dump truck ($1,500). Our review of the record indicates that
SLIMER was actually valued at only $5,000, but Rachael also received an additional 18'
skiff valued at $11,000.
43
Urban v. Urban, 314 P.3d 513, 515 (Alaska 2013) (citing Barnett v.
Barnett, 238 P.3d 594, 597 (Alaska 2010)).
44
See Johnson v. Johnson, 239 P.3d 393, 404 (Alaska 2010); Baseden v.
State, 174 P.3d 233, 238 (Alaska 2008).
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of the marital assets to Rachael. Thus, the court’s decision to reaffirm the oral personal
property allocation at trial and to divide the remainder equally was not clearly unjust but
reflected a careful consideration and balancing of relevant factors, given the court’s view
of the case and the relative needs of the parties. We conclude that it was not an abuse of
discretion.
However, if the superior court on remand determines that the IFQs
remained entirely or partially separate property, it follows that in total less property was
marital and subject to distribution. In that case, a 50/50 split of marital property may no
longer be equitable, and the court may in its discretion revisit the overall division of
marital property.
C. The Superior Court Did Not Abuse Its Discretion By Not Crediting
Kelly For Alleged Overpayments Of Spousal Support.
Kelly argues that he paid too much spousal support because Rachael
inflated the amount needed to maintain the marital home and failed to disclose the extent
of her assets to the court. Kelly asks that we remand and require the trial court to give
him credit for the resulting overpayment.
Rachael asserted in her motion for interim spousal support that at the time
Kelly moved out of the marital home in April 2011 the couple split marital money, each
taking around $84,000 — of which Rachael later returned $24,000 — and that she
received an additional $15,000 from Kelly in the summer of 2012. In addition, she
declared in her affidavit and reported in her financial declaration that she had about
$4,000 in monthly expenses maintaining the Halibut Cove property and paying taxes,
utilities, and other costs, and that she “ha[d] no money to pay the bills.”
In response, Kelly relied on a bank statement to argue that he had actually
transferred more income to Rachael — about $152,342 — in the few months after
separating in addition to $15,000 he gave her in the summer of 2012. Kelly asserts on
appeal that Rachael did not include the receipt of these additional funds in her financial
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declaration, that he paid for taxes, heating fuel, and property maintenance performed by
third parties, and that Rachael therefore misrepresented her expenses.
At trial Rachael admitted that the expenses on her financial declaration were
just estimates and did not reflect actual payments. She also admitted that since
separation Kelly had paid all the property taxes on the Halibut Cove property, which was
inconsistent with her estimates in her financial declaration. Kelly testified, as he argues
now, that there was no explanation or evidence as to how all of the money he gave
Rachael was spent.
Kelly is correct that there is little documentation showing how Rachael
spent the funds she received from Kelly after separation and before the interim support
award. But the question here is not how the funds Rachael received were ultimately
spent, but whether the court’s interim spousal support award was properly based on
“sufficient factual findings concerning the parties’ needs and ability to pay,”45 or to put
it another way, whether the court abused its discretion in awarding Rachael $5,000 per
month.46 We conclude that there was support for the court’s award and that the award
was not an abuse of discretion.
First, while a detailed accounting of past expenses would have been a
stronger basis for the prospective award, the court’s determination was not without
support. Rachael asserted in her motion for interim support and supporting affidavit that
her $4,000 maintenance number included work needed to make the house marketable,
utility costs, significant transportation costs between Homer and Halibut Cove, and
support for her while working to maintain the property. While Kelly asserted at trial that
it did not cost $4,000 to maintain the home, he acknowledged that making improvements
45
Beal v. Beal, 88 P.3d 104, 112 (Alaska 2004) (citing Johnson v. Johnson,
836 P.2d 930, 934 (Alaska 1992)).
46
See Johnson, 836 P.2d at 933.
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to the house would cost more than merely maintaining the condition of the property, and
he did not address the other costs Rachael included in her maintenance figure, such as
costs of transportation.
Moreover, at the hearing preceding its order, the court noted that Rachael
was essentially fired from her job with the family fishing business and that $5,000 per
month to maintain a large property did not seem excessive. Later in its findings of fact
the court made specific findings as to the amounts of money Rachael received after
separation and her comparatively limited job skills vis-à-vis Kelly’s status as a successful
commercial fisherman; the court also explained its desire to keep the property in good
condition so it could be sold. This demonstrates that the court took into account the
parties’ needs and ability to pay, crafted its award to preserve — and ultimately sell —
the marital home, and provided for the reasonable and necessary living expenses of the
parties during the pendency of the divorce.47 We conclude the court’s decision to award
$5,000 a month in interim spousal support and not to credit Kelly for alleged
overpayments of spousal support was not an abuse of discretion.
D. The Superior Court Did Not Abuse Its Discretion Or Deny Kelly Due
Process By Not Explicitly Addressing Two Alleged Transfers
Occurring Shortly After Separation.
Kelly contends that shortly after the couple’s separation a $74,000 transfer
was made to Rachael’s account, not to the couple’s tax account as Rachael claimed; he
argues that the superior court failed to address this issue, failed to allow an evidentiary
hearing, and failed to grant relief under Civil Rule 60(b), thereby abusing its discretion
and denying Kelly due process. Kelly also asserts on appeal that he gave Rachael an
additional $20,000 in 2012, on top of the $15,000 he gave her in the summer of that year.
47
See Beal, 88 P.3d at 112 (citing Johnson, 836 P.2d at 934).
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Kelly’s suggestion that there was an additional payment of $20,000 was not
raised before the trial court, and Kelly has not identified any evidence in the record
showing that he paid $20,000 in addition to the earlier $15,000. The only evidence in
the record that Kelly paid Rachael $20,000 in 2012 is a statement of Rachael’s total
“cash flow” for 2012 and testimony about that document. That document shows a
transfer of $20,000 from Kelly to Rachael, but does not mention the transfer of $15,000
that same year, suggesting that the larger amount includes the smaller. And Kelly
testified at trial that the $20,000 he paid her in 2012 consisted of the $15,000 transfer,
plus $5,000 of court-ordered spousal support. Because the trial court credited Kelly both
for the $15,000 payment and for the payment of interim spousal support, it appears that
the trial court effectively addressed the entirety of the $20,000 Kelly now claims he paid
to Rachael in 2012.
A review of the trial transcript reveals limited testimony about a tax
account, and none in relation to a $74,000 payment. What it does show is that Rachael
testified the “tax account” and the money in it was used to pay for business expenses and
taxes. Additional declarations submitted in relation to Kelly’s Rule 60(b) motion add
little. Rachael declared in an affidavit that $74,000 in “additional funds” were
transferred to the couples’ joint “tax account” in April 2011 shortly after the couple
separated. Kelly declared that his accountant never informed him that Rachael paid a tax
matching the one described in her affidavit.
On this record, the court’s decision not to address the payment in its
decision implies that it credited Rachael’s testimony and determined the money had gone
to pay marital taxes or bills. Accordingly, there was no need to credit any party with the
payment because it was marital income used to satisfy a marital expense. We conclude
that the court’s decision not to address the $74,000 transfer was not an abuse of
discretion.
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Moreover, refusing to provide relief from the judgment or an evidentiary
hearing on this issue under Rule 60(b) was not an abuse of discretion. Kelly based his
request for relief on Rule 60(b)(1) mistake, surprise, or excusable neglect, (3) fraud, and
(6) “any other reason justifying relief.”48 Relief was not justified under any of these
categories. First, to gain relief under Rule 60(b)(1), “a party must show not only
‘neglect,’ but a valid ‘excuse’ therefor.”49 But Kelly’s request was not based on any
neglect, excusable or otherwise, in raising the issue of the $74,000, nor on any mistake
or surprise. On the contrary, he included the money transfer in the summary of payments
attached to his opposition to Rachael’s motion for interim support and he raised the issue
in both his pre- and post-trial briefs. Because Kelly himself raised the issue with the
court before trial, he cannot claim entitlement to relief based on mistake, surprise, or
excusable neglect. Nor can he complain that the trial court did not provide for a post-
trial evidentiary hearing, because the issue was raised at trial.
Second, Rule 60(b)(3) “is aimed at judgments which were unfairly
obtained, not at those that are factually incorrect.”50 It provides relief where a judgment
was entered based on misconduct that materially “prevented the losing party from fully
and fairly presenting his case or defense.”51 Again, Kelly was able to raise the issue of
the $74,000 before the trial court. Mere uncertainty or disagreement as to the nature of
a payment does not show that the judgment was unfair or fraudulently obtained.
48
Alaska R. Civ. P. 60(b). While the language of clause (6) indicates a broad
catch-all provision, we have held that it is limited to “extraordinary circumstances.”
O’Link v. O’Link, 632 P.2d 225, 229-30 (Alaska 1981).
49
Dickerson v. Williams, 956 P.2d 459, 465 (Alaska 1998) (citing Rill v.
State, Dep’t of Highways, 669 P.2d 573, 576 (Alaska 1983)).
50
Babinec v. Yabuki, 799 P.2d 1325, 1333 (Alaska 1990) (quoting McCall
v. Coats, 777 P.2d 655, 658 (Alaska 1989)).
51
Id. (citing McCall, 777 P.2d at 658).
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Third, the factual dispute discussed above does not indicate any
“extraordinary circumstance” that would justify relief under Rule 60(b)(6). This catch­
all clause of Rule 60(b) “is reserved for extraordinary circumstances not covered by the
preceding clauses.”52 We have held that there are four factors to be considered before
setting aside a property division under Rule 60(b)(6): whether (1) the fundamental,
underlying assumption of the division has been destroyed; (2) the parties’ property
division was poorly thought out; (3) the property division was reached without the
benefit of counsel; or (4) the property in dispute was the parties’ principal asset.53 On
this record, none of these factors are present in relation to the $74,000 money transfer,
and there are no other indications of any extraordinary circumstance.
A motion under Civil Rule 60(b) does not “allow relitigation of issues that
have been resolved by the judgment.”54 The court heard and considered evidence
pertaining to the tax account and the $74,000 money transfer and apparently did not
credit Kelly’s argument. Because none of these categories support relief under Rule
60(b), we conclude the court’s denial of Kelly’s motion for relief and request for an
evidentiary hearing was not an abuse of discretion. Furthermore, because Kelly could
and did present arguments and evidence relating to the money transfer both before and
after trial, we conclude the court did not deny Kelly due process.
52
Johnson v. Johnson, 394 P.3d 598, 602 (Alaska 2017) (quoting O’Link, 632
P.2d at 229).
53
Id. at 602-03 (citing Hopper v. Hopper, 171 P.3d 124, 130 (Alaska 2007)).
54
Morris v. Morris, 908 P.2d 425, 429 (Alaska 1995) (quoting Burrell v.
Burrell, 696 P.2d 157, 163 (Alaska 1984)).
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E. The Superior Court Did Not Abuse Its Discretion By Not Accounting
For Alleged Damage To The Marital Apartment Caused By Rachael.
Kelly alleges that Rachael removed cabinets from an apartment on their
property and made other changes to the apartment. He argues she violated court orders,
completely destroyed the apartment, and deprived him of its use and rental income. He
asserts that the superior court erred by not including “distribution for the unilateral
damage to the apartment by Rachael” in its decision. We disagree.
While the record supports that Rachael removed carpeting and vintage
1980s cabinets from the apartment, Kelly’s claims that the apartment was destroyed, that
the cabinets were damaged, and that he lost rental income were contradicted by the
testimony of multiple witnesses. For example, the couple’s friend testified that the
apartment had been painted, described the changes as renovations, said that the cabinets
were covered and being stored in the boathouse, and did not believe any fixtures had
been removed from the apartment. Rachael testified that she wanted to update the
apartment to make the property more marketable. Rachael and another friend testified
that the apartment had not typically been rented out. Furthermore, the court explicitly
addressed Kelly’s claim of damage in its findings when discussing whether there had
been an unreasonable depletion of marital assets, and chose not to account for this claim
in its distribution of marital assets. Given the conflicting evidence in the record and the
court’s explicit treatment of Kelly’s claim, its decision not to account for alleged damage
to the apartment in its property division was not an abuse of discretion.
F. The Failure To Rule On Kelly’s Pre-Trial Motions For Disclosure And
Request For A Hearing Was Harmless.
Kelly argues the superior court abused its discretion and denied him due
process when it failed to rule on his motions for disclosure of financial records and for
disclosure of records of maintenance on the marital home, and his request for a hearing.
We conclude the court’s failure to rule on these motions was harmless. In Taylor v.
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Johnston, a medical malpractice case, we addressed a court’s failure to rule on the
plaintiff’s discovery motion to obtain information to impeach the defendant at trial.55
Because the court permitted the complaining party to introduce substantial amounts of
impeachment evidence at trial, accuse the defendant of misrepresentation and falsifying
his medical credentials, and offer testimony supporting those allegations, we concluded
that the court’s failure to rule on the motion to reopen discovery was harmless.56 Like
in Taylor, though the court failed to rule on Kelly’s motions, it allowed Kelly to question
Rachael about her statements on her financial declaration, permitted Kelly to accuse her
of misrepresenting information to the court, and allowed Kelly to offer his own
testimony and that of another witness to contradict Rachael’s maintenance claims. Thus,
as in Taylor, the court’s failure to rule was harmless.
We analyze Kelly’s due process claim under the familiar three-part test set
out in Mathews v. Eldridge.57 We consider and balance the private interest affected, the
risk of erroneous deprivation of such interests through the procedures used and value of
additional procedural safeguards, and the government’s interest, including the function
involved and the burden of additional procedural requirements.58 Here, the potential
overpayment in spousal support, a purely economic interest, is “not [a] particularly
compelling private interest[]”;59 the state has an interest in efficiently adjudicating
divorce cases; and considering that Kelly was able to present evidence and testimony to
55
985 P.2d 460, 466 (Alaska 1999).
56
Id.
57
424 U.S. 319 (1976).
58
Blaufuss v. Ball, 305 P.3d 281, 286 (Alaska 2013) (citing Borkowski v.
Snowden, 665 P.2d 22, 27-28 (Alaska 1983); Mathews, 424 U.S. at 335).
59
See Hertz v. State, Dep’t of Corr., 230 P.3d 663, 672 (Alaska 2010) (citing
Midgett v. Cook Inlet Pre-Trial Facility, 53 P.3d 1105, 1112 (Alaska 2002)).
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counter Rachael’s, both the risk of erroneous overpayment of spousal support and the
added benefit of additional disclosures or an additional hearing were relatively small.60
Even if the superior court erred in failing to rule on Kelly’s motions for disclosure and
request for a hearing, we conclude that any error, including any due process error, was
harmless.
G. The Superior Court Must Explain Its Reasoning For Awarding
Rachael Pre-Tax Proceeds For The Sale Of The F/V ALASKA.
Kelly argues that the superior court abused its discretion because its
division of marital property did not credit him for taxes he paid on the sale of the F/V
ALASKA. Kelly sold the vessel for $70,000 after trial, and the superior court awarded
Rachael exactly half of this amount, $35,000. Thus, the superior court appears to have
awarded Rachael pre-tax gross proceeds rather than net proceeds from this sale.
The superior court has broad discretion in valuing and allocating property
in a divorce.61 But the findings and reasoning underlying any property division “must
be explicit and sufficiently detailed to give this court a clear understanding of the basis
of the trial court’s decision.”62 In light of Rachael’s relative lack of ability to generate
income in comparison to Kelly, and the prospect that Rachael would receive very little
income until the Halibut Cove property sold, it may well have been reasonable for the
court to favor Rachael when distributing the sale proceeds, as these were liquid assets
capable of immediate distribution. But without some indication of the trial court’s actual
reasoning, this is mere speculation on our part. On remand, the superior court must
60
See id.
61
Odom v. Odom, 141 P.3d 324, 332 (Alaska 2006) (citing Cox v. Cox, 882
P.2d 909, 913 (Alaska 1994)).
62
See Beals v. Beals, 303 P.3d 453, 459 (Alaska 2013) (quoting Doyle v.
Doyle, 815 P.2d 366, 368 (Alaska 1991)).
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address this issue.
H. Because We Reverse The Superior Court’s Transmutation Finding
Regarding The IFQs, We Also Reverse The Superior Court’s Orders
Awarding Rachael Part Of The Proceeds From IFQ Sales.
Kelly raises the issue of the superior court’s treatment of post-separation
IFQ sales. In May 2013 the superior court ordered Kelly to sell some IFQs to pay
spousal support arrears and Rachael’s attorney’s fees. The court revisited this IFQ sale
in a July 2014 order responding to Rachael’s motion for clarification and ordered that
Rachael receive half of the remaining proceeds after taxes and brokers fees were taken
out. The court also awarded Rachael “50 percent of the proceeds” of the October 2011
IFQ sale for $110,022.
Because we reverse the superior’s transmutation finding, the court’s orders
granting Rachael half the proceeds of these sales cannot stand. Without a valid
transmutation finding or other basis for concluding that the IFQs were marital property,
the IFQs were Kelly’s separate property. As such, the IFQs and the proceeds from their
sale were not subject to division. The superior court does have the authority to invade
a party’s separate property “when the balancing of the equities between the parties
requires it,”63 but in the absence of a finding to that effect, we cannot uphold an order
dividing proceeds from the sale of separate property.64
Kelly also argues that the superior court abused its discretion by not
crediting him for paying taxes on both of these sales. With respect to the 2013 sale, the
court order specifically provided that money for taxes on the sale be paid from the
63
AS 25.24.160(a)(4); Green v. Green, 29 P.3d 854, 860 (Alaska 2001).
64
This holding does not affect the superior court’s order for part of the
proceeds to go towards spousal support arrears and attorney’s fees, as those payments
do not constitute a division of marital property.
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proceeds. This means that regardless of whether the IFQs were separate or marital
property, the court order made Kelly responsible for the tax payment in direct proportion
to his ownership interest, and he was therefore not entitled to a credit.65
With respect to the 2011 sale, it appears the superior court intended for
Rachael to receive 50% of pre-tax proceeds: in the July 2014 order, the court ordered
Kelly’s attorney to pay Rachael $55,000 from the proceeds of the sale, almost exactly
half of the $110,022 gross proceeds. Because we cannot uphold awarding Rachael any
of the proceeds without a valid basis for treating them as marital property or for invading
separate property, we do not need to address whether this particular award was an abuse
of discretion. But we again note that the superior court has discretion to divide the
proceeds from the sale of marital property unevenly if doing so is necessary to achieve
an equitable distribution of property, so long as the court’s reasoning is “explicit and
sufficiently detailed to give this court a clear understanding of the basis of the trial
court’s decision.”66
V. CONCLUSION
We AFFIRM the superior court’s decision not to offset the value of
personal property awarded to Rachael, its decision not to credit Kelly for alleged
overpayments of spousal support, its denial of Kelly’s Civil Rule 60(b) motion, and its
decision not to account for alleged damage to the marital apartment. We conclude that
any error in the superior court’s failure to rule on Kelly’s motions for disclosure was
harmless. However, we REVERSE the superior court’s determination that all of the
65
In other words, if the IFQs were Kelly’s separate property then Kelly was
solely responsible for paying the taxes on the sale. If, on the other hand, the IFQs were
marital property then Kelly alone did not pay the taxes; the marital estate did. Either
way, Kelly was not entitled to a credit for his share of the tax payment.
66
See Beals, 303 P.3d at 459 (quoting Doyle, 815 P.2d at 368).
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IFQs were marital property, and REVERSE the awards to Rachael of proceeds from the
post-separation sale of IFQs. We REMAND for proceedings consistent with this opinion
for reconsideration of whether there existed a marital interest in the IFQs or in Eclipse,
Inc. In light of its characterization of the IFQs and the fishing business, the superior
court on remand should reconsider the award of IFQ sale proceeds to Rachael, and
should explain or amend its award of gross pre-tax proceeds from the sale of the F/V
ALASKA. The superior court may in its discretion reevaluate on remand the overall
property division to ensure an equitable distribution. We do not retain jurisdiction.
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