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Hamilton v. Hamilton

Supreme Court of Hawaii

June 30, 2016

DORINDA HAMILTON, Petitioner and Respondent/Plaintiff-Appellant/Cross-Appellee,
DAVID HAMILTON, Petitioner and Respondent/Defendant-Appellee/Cross-Appellant.


          Peter Van Name Esser and Michael S. Zola for petitioner/cross-appellee

          Rebecca A. Copeland for petitioner/cross-appellant



          McKENNA, J.

         I. Introduction

         This case arises from an appeal and cross-appeal from monetary decisions in a Divorce Decree. David Hamilton ("Husband") and Dorinda Hamilton ("Wife") seek review of the Intermediate Court of Appeals' ("ICA") September 25, 2014 Judgment on Appeal, filed pursuant to its August 29, 2014 Memorandum Opinion. The ICA affirmed in part and vacated in part the June 7, 2013 Divorce Decree of the Family Court of the Third Circuit ("family court").[1]

         The parties dispute the impact of a multi-million dollar inheritance received by Husband on the family court's determinations of property division, alimony, and attorney's fees and costs. With respect to property division, the family court found that a premarital economic partnership existed and implied that proceeds from an illegal marijuana operation may have constituted a portion of the marital real estate. In ultimately dividing and distributing the property, the family court awarded all inheritance funds remaining at trial to Husband as his marital separate property. It credited Husband for all sums withdrawn from his inheritance funds as a capital contribution to the marital estate. It then deducted these sums from the marital estate, thereby creating marital debt. That marital debt was then equally split between the parties, resulting in Wife owing Husband a substantial equalization payment. The family court then found that equitable considerations justified a deviation from marital partnership principles and credited Wife with an amount equal to her equalization payment. The family court awarded Wife spousal support during the pendency of the divorce proceedings and until December 2016, and the court also awarded her attorney's fees and costs.

         On appeal, the ICA ruled that the family court's premarital economic partnership finding was erroneous because it was based in part on an illegal business enterprise. The ICA vacated and remanded the portions of the Divorce Decree pertaining to property division and spousal support to the family court for recalculation after segregating proceeds from the illegal marijuana operation.

         We hold that, under the circumstances of this case, the ICA erred in vacating the property division and alimony awards to require a recalculation of these awards based on a segregation of proceeds from the illegal marijuana operation. We also hold that the family court erred, either by characterizing the entire $1, 511, 477 expended from Husband's inheritance account as Marital Partnership Property or by characterizing the $2, 051, 293 remaining in his inheritance account as Marital Separate Property, because the $1, 511, 447 expended included payment of inheritance taxes on Husband's entire inheritance, and if inheritance taxes are paid out of Marital Partnership Property, the remaining inheritance cannot be classified as Marital Separate Property. We further hold that the family court erred in summarily ruling before trial that all funds expended by Husband from his Marital Separate Property inheritance account constituted Category 3 Marital Partnership Property for which he was entitled to be repaid, without requiring Husband to fulfill his burden of establishing that such expenditures were in the nature of a contribution to or an investment in Marital Partnership Property, and then compounded the error by failing to allow and consider evidence of donative intent. We also hold that the family court erred in ordering an equal distribution of alleged partnership capital losses before deciding whether equitable considerations justified deviation from an equal distribution. Finally, we hold that the family court improperly applied marital partnership principles to fashion a property division award that was not just and equitable. We find no error in the award of attorney's fees and costs.

         We therefore affirm in part the ICA's Judgment on Appeal to the extent that it vacated the property division and alimony awards and remanded the case to the family court, but vacate the portion of the ICA's Judgment on Appeal directing the family court on remand to segregate the proceeds of the alleged marijuana operation from the property division. We remand the case to the family court for further proceedings consistent with this opinion.

         II. Background

         Husband and Wife were married on June 21, 1985 ("date of marriage") and separated in June 2010. The couple has two adult children.

         The parties met in early 1976 in New Zealand and began living together there soon after that. At the time, Wife had just finished her final semester at the University of Hawai'i at Hilo, while Husband worked on repairing a home and a forest restoration project. Approximately four or five months later, the parties moved to Massachusetts, where they lived and worked on Husband's family's farm and store for about three months.

         After leaving Massachusetts, the parties moved to the island of Hawai'i ("Big Island") in November 1976, where Husband began working on a county road crew. While on the Big Island, the parties apparently started an illegal marijuana operation. Wife testified that she was involved in the processing and transportation of the marijuana. Husband testified that the parties did not have a joint or mutual marijuana operation. He indicated it was a sideline with a few friends that continued until his son was born in 1987.

         At trial, the parties disputed whether marijuana proceeds were used to purchase real property. Wife testified that marijuana proceeds were used to purchase multiple properties prior to the date of marriage, as well as one additional property after the date of marriage, while Husband denied that allegation. On one of the properties, purchased in 1978 and titled in Husband's name, the parties jointly constructed a two-story house.

         In 1990, five years after the date of marriage, Husband obtained his real estate brokerage license. In 2003, he opened his own real estate firm. Husband testified that his income declined in 2006 due to a falling market and his father's passing. After Wife's 2010 divorce filing, Husband reported his gross monthly income as $1, 000.

         Wife performed part-time work or was a housewife not employed outside the home for much of the parties' relationship. From approximately 1996 to 2009, Wife worked part-time at her children's schools to obtain tuition assistance and health insurance. She also sold hand-painted clothing. As of the date of final separation in contemplation of divorce ("date of final separation"), she was collecting unemployment benefits. At the date of conclusion of the evidentiary portion of trial ("conclusion of trial"), [2] she earned approximately $1, 500 per month as a nanny.

         Between 2007 and 2011, Husband inherited amounts totaling $3, 550, 770 from his parents' estates. He deposited the monies into his separate Bank of Hawai'i account ("inheritance account"). At the conclusion of trial, the inheritance account had $2, 051, 293 remaining.

         Prior to marriage, the parties filed no joint tax returns.

         A. Family Court Proceedings

         1. Pre-Trial Proceedings

         On June 23, 2010, Wife filed a Complaint for Divorce. She then filed a motion for temporary relief, seeking, in part, temporary spousal support. In granting this request, the family court made the following finding:

Husband has historically used his existing inheritance funds for payment of the marital expenses and Wife's support. Having reviewed Wife's Income and Expense statement filed, the [family court] finds that it would be just and equitable to order that in addition to the above support orders, Husband shall pay to Wife $2000 per month in temporary spousal support beginning October 1, 2010.

         Wife later moved for an advance of attorney's fees, indicating a gross monthly income of $2, 080. Wife contended that an advance for fees was necessary because Husband had filed multiple pretrial motions for partial summary judgment. The family court granted the request for attorney's fees without prejudice to additional subsequent requests from Wife for good cause shown, and ordered Husband to advance $25, 000 to Wife's counsel.

         One of Husband's pretrial motions for partial summary judgment, entitled "Husband's Motion for Partial Summary Judgment to Strike the Defense and/or Argument that Husband Wasted his Category 3 Assets by Spending Money on Items Not Related to the Marriage or the Children" ("Category 3 motion for partial summary judgment"), asserted that Wife could not provide admissible evidence to establish that he "wasted" Category 3 assets.[3] In a declaration in support of the motion, Husband asserted:

In response to Plaintiff's Request for Answers to Interrogatories and for Production of Documents and Things, request number 9, I itemized all of the disbursements I made from my inheritance money with the exception of $88, 597.80, which was disbursed for the marriage and children's expenses. This amount was not itemized in Defendant's response to Plaintiff's interrogatory number 9, either because it consisted of small dollar transactions too numerous to breakdown [sic], e.g.[sic] $70 to KTA, etc [sic], or the credit card amounts were too difficult to itemize the family or children expenses [sic] without additional extensive effort, i.e.[sic] recreating the complete accounting.

         Although Husband's motion summarily asserted that all sums expended were for marital and children's expenses, his response to interrogatory number 9 included amounts such as $111, 885.00 to the Commonwealth of Massachusetts Taxes and $326, 540.00 to the United States Treasury. In addition, Husband's heading for his interrogatory 9 itemization of alleged Category 3 disbursements included the following characterization: "Category 3 Inheritance Account." After this heading, he included the inheritance tax payments.

         Wife objected to the motion based on Husband's failure to establish prima facie entitlement to a grant of the motion and due to the existence of genuine issues of material facts as to whether all sums were expended for marital purposes. The family court nevertheless granted this motion, ruling[4] that "[Husband] spent his Category 3 assets for marital purposes[] [for] which he is entitled to be repaid."

         2. Trial Order and Divorce Decree

         After trial, on February 13, 2013, the family court entered its Order Re: Divorce Trial Held on December 22 and 23, 2011. The family court found that the parties had formed a premarital economic partnership in 1976 that lasted until they married in 1985:

9. The parties met in New Zealand in 1976. They began living together soon after they met. They continued to cohabitate uninterrupted until DOM.
10. The parties financially supported each other during their cohabitation before DOM.
11. They resided and worked together in New Zealand, Massachusetts, and Hawaii prior to DOM.
12. Husband worked at various jobs while Wife contributed her services to their living arrangement. Wife did, however, work on Husband's parents' farm and store in Massachusetts, which contributed to the parties' living expenses and support.
13. After moving to Hawaii and prior to DOM, Husband worked for the County of Hawaii. The parties received food stamps and Husband received a stipend from the State of Hawaii. Wife was not employed, but contributed to the parties' living support.
14. In 1977, the parties started growing marijuana and both worked on growing, processing, transporting the finished product, and selling it.
15. In 1978, the parties jointly purchased property for $17, 000. The parties jointly built a two-story house on that property.
16. During 1977 and 1978 the parties travelled together to Thailand to look for orchids to establish an orchid company with other business partners. They purchased orchids and shipped them back to Hawaii.
17. The parties also bought and sold other real property prior to DOM from the proceeds of their joint earnings.

         From 2007 to 2011, Husband inherited from his parents' estates amounts totaling $3, 550, 770, and he deposited these funds into his separate inheritance account. As of the conclusion of trial, $2, 051, 293 remained in Husband's inheritance account. The family court found that the parties had no written premarital or post-marital agreement, and categorized this sum as Husband's Marital Separate Property, finding:

24. Husband expressly classified his inherited funds as his separate property by depositing them into the Bank of Hawaii and labeled it "separate." This account was created solely for the purpose of holding and maintaining Husband's inheritance. No funds from any other source were deposited into this account and this account was maintained by itself and was funded only by interest earned.

         The family court also found that the entire $1, 499, 477 withdrawn by Husband had been used "to invest in a business that eventually failed and has no present value, for the purchase of the Kala Cottage office, automobiles, and other assets, to fund the Vanguard account in the amount of $50, 000, to pay taxes, to pay for the private school and post-high school education of the parties' children, and to support and maintain the family and the family's lifestyle." Consistent with its pretrial summary judgment ruling, the family court then found that the entire amount was a Category 3 capital contribution credit. With an additional $12, 000 for a 2009 cash gift from Husband's mother to him that had apparently been spent, the family court found that Husband's Category 3 credits totaled $1, 511, 477.

         As noted earlier, the family court had already ruled before trial that Husband was entitled to be repaid all of his Category 3 expenditures as having been used for marital purposes. After trial, the family court found that "[that] Wife did not meet her burden that Husband specifically intended these funds as a gift to her.

         By the conclusion of trial, the value of the parties' assets was $466, 522. Because of its finding of $1, 511, 477 in Category 3 expenditures by Husband, the family court found a marital estate valued at negative $1, 044, 955, for which Wife would otherwise have to repay Husband $522, 478 as an equalization payment. For property division, Wife was awarded $1, 396 in bank accounts, a retirement account worth $13, 000, and a used Suzuki valued at $13, 000. Wife's equalization payment increased by half of those amounts, to a total of $549, 873.

         In addition to retaining the $2, 051, 293 remaining in his inheritance account, for property division, Husband was awarded $57, 835 in liquid cash accounts, a $8, 645 IRA account, a $32, 865 Chevy Camaro, a $1, 000 Jeep Cherokee, the marital residence with equity of $243, 781, and his office cottage then valued at $95, 000.

         With respect to the marital residence and the office cottage awarded to Husband, the family court found that in 2007, Husband had purchased it for $180, 000 with inheritance funds. Prior to its purchase, Wife had co-signed a $250, 000 equity loan secured by the marital residence so that Husband could purchase the cottage for his real estate business. The equity loan was supposed to be paid off from the anticipated inheritance, and Wife testified she would not have agreed to co-sign the home equity loan if she had known that Husband was not going to pay off the equity loan with his inheritance.

         Both parties were awarded their respective personal and household property.

         Because of the significant equalization payment that would otherwise be owed by Wife to Husband, the family court then determined that sufficient "valid and relevant considerations" [5] existed to justify an equitable deviation from marital partnership principles. It ruled that giving Wife a credit equal to her equalization payment would be just and equitable. In support of this deviation, the family court considered the following:

57. ... Wife's equalization payment to Husband is substantial.
58. Husband's marital separate property and Category 1 and 3 capital contribution credits far exceed the value of the property that is being allocated between the parties.
60. Wife is 57 years old and has been employed from time to time at little over minimum wage over the years the parties have been together. She needs further assistance to meet her needs at the lifestyle she has been accustomed to during the years the parties resided together.
61. Husband is 59 years old, has worked all his life, has owned and operated several businesses, and has sufficient assets to support himself very well for a number of years.
62. Husband's employability is much better than Wife's.
63. Husband is entitled a substantial capital contribution credit due of his Category 1 and 3 assets. Wife will be left with comparably very nominal assets. Further, Husband has substantial marital separate property he inherited from his parents' estates.
64. The parties started their PEP in 1976 and have resided together for about 34 years. This is a relatively long relationship.

         As to spousal support, the family court made the following findings:

68. The parties have lived together since 1976 and separated in 2010. Over these approximate 34 years, they have enjoyed a modest life style; raising children together, purchasing and selling real property, operating several businesses, building the marital residence, etc. Husband was the primary bread winner. Although Wife worked from time to time, she remained primarily a homemaker the majority of the time and generally stayed at home to raise the parties' children and to support the family. The children attended private school and they are now adults.
69. When Wife was laid off from Parker School in 2009, she began receiving unemployment benefits. In 2011 she found work as a nanny and makes approximately $1, 600 gross a month.
70. Husband inherited over 3.5 million dollars from his parents' estates resulting in the parties enjoying a relatively higher standard of living. Wife enjoyed regular therapy, massages, new clothing, and elective cosmetic dental work. Husband enjoyed an expensive vintage car and multiple trips to Southeast Asia. They built a modest home together.
71. Wife has received $2, 000 per month in court-ordered temporary spousal support.
72. Wife is employable, albeit limited, because of her age.
73. After divorce, Wife will, however, need continued support to pay for her health insurance and other medical expenses as well as to assist her in other daily and monthly expenses.
74. Following the divorce, Wife will no longer have the benefit of residing at the marital residence. She will now need further financial assistance.
75. Husband currently spends about $12, 000 per month for family support. He will now live at the marital residence. His monthly expenses will go down.
76. It would be just and equitable to award Wife continued spousal support for a period of five years commencing January 2012 (the month following trial), as follows: $2, 000 per month until Wife moves out of the marital residence, then $3, 000 per month commencing the first month after Wife moves out of the marital residence and through December 2017.

         Later, in response to Husband's motion for reconsideration, the family court amended finding of fact No. 7 6 regarding spousal support to reduce Wife's alimony award by one year.[6]

         As to attorney's fees and costs, the family court concluded that because of Husband's superior financial condition, it would be just and equitable to award Wife a portion of her attorney's fees and costs up to $5, 000. Wife's counsel later submitted an itemized accounting of fees incurred through preparation of the closing argument and reply, reflecting ...

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