Jeffcoat v. Jeffcoat

FISCHER, Judge. Pamela H. Jeffcoat appeals from a judgment of the Circuit Court for Baltimore County arising out of divorce proceedings brought by her against James W. Jeffcoat, appellee. In this appeal, appellant raises the following issues: I. Did the court err by not including some of the value of marital property dissipated by appellee after separation and before trial in the value of marital property from which it could make a monetary award when appellee, immediately upon separation, removed virtually all of the parties’ jointly titled liquid assets from their joint names to an account in his name alone and then over the next 13 months spent substantially all those funds?

II

Did the court err in finding that a portion of life insurance proceeds paid more than two years prior to trial were non-marital when: 1) there was no proof of a gift of the policy, 2) there was no allegation that the policy had any value at the time of the transfer, 3) the policy was maintained only by marital funds, 4) there was no tracing of the policy proceeds to any existing asset, 5) the proceeds of the policy were commingled with marital property when received two years before trial, and 6) the commingled proceeds were further commingled with other marital assets by appellee?

III

Is it contrary to the Family Law Statute to order the parties to pay work related day care' expenses on the basis of their pro rata incomes after adjustment of their incomes for child support, and did the court err in not making a ³⁰⁵ finding regarding the parties’ incomes when the amount of income was disputed?

IV

Did the trial court err by not properly calculating the monetary award using the three step process of (1) identifying marital property, (2) valuing marital property, and (3) granting a monetary award? Facts The parties married in 1977, and two children were born of the marriage, James Richard, born in 1983, and Evan Cleave, born in 1989. Appellant insists the union was problematic from its outset. Appellee contends there were few stresses in the marriage until 1991, when appellee began law school.

In 1991, appellee left the family home, apparently at appellant’s suggestion. At a meeting on or about April 27, 1992, appellant informed appellee that she desired a divorce. Appellee responded by returning to live in the family home. Appellant’s attorney threatened court action if appellee did not leave the family home and appellee complied.

During the course of the marriage, the parties were able to accumulate substantial assets. According to appellant, their net worth totalled $763,000 at the time of separation. Upon leaving, appellee withdrew joint funds totaling approximately $218,000 and placed them in his name alone. He also borrowed the maximum amount possible on their home equity line of credit, approximately $82,000.

Appellee placed these funds in a bank account in his name. In addition to his control of the parties’ joint funds, appellant avers that appellee had income from earnings and other sources totaling $88,000. Appellant alleges appellee spent almost $300,000 during the one year period of the parties’ separation. According to appellant, appellee had spent all but approximately $68,000 of the joint funds by the trial date.

On October 23, 1979, appellee’s father transferred the ownership of Metropolitan Life Insurance Policy # 716102822 PR on the father’s life to appellee. When transferred, the policy was subject to a loan of $6,494. Appellee received $41,617.69 ³⁰⁶ from Metropolitan Life upon his father’s death in 1991. The proceeds from the insurance policy were placed in a joint checking account and, after the separation, in an account in appellee’s name.

The trial court ruled that appellant could only receive one half of $17,000 in premiums paid on the policy during the course of the marriage. The remainder of the insurance policy was deemed by the trial court to be non-marital property of appellee. A monetary award of $29,473 was granted to appellant. Appellee was permitted to retain the proceeds of the insurance policy on appellee’s deceased father as non-marital funds.

I. Appellant’s contention that the court erred in failing to find that appellee dissipated marital funds rests primarily on an allegation that the trial judge used an incorrect standard in evaluating appellee’s actions in spending marital monies. Appellant contends that the trial judge required that appellant prove fraud in order to show dissipation of assets had taken place. In Sharp v. Sharp, 58 Md.App. 386, 399 , 473 A.2d 499 (1984), -writing for this Court, Judge Alpert stated: [W]here a chancellor finds that property was intentionally dissipated in order to avoid inclusion of that property towards consideration of a monetary award, such intentional dissipation is no more than a fraud on marital rights, see Levin v. Levin, 166 Md. 451, 453 [, 171 A. 77 ] (1934). This correct statement of the law was expressed slightly differently in Ross v. Ross, 90 Md.App. 176,190 , 600 A.2d 891 , vacated on other grounds, 327 Md. 101 , 607 A.2d 933 (1992), wherein we observed: When a court finds that property was dissipated to the point of being a fraud on marital rights, it should consider the dissipated property as extant to be valued with other existing marital property.

The quoted language in Ross apparently led the trial court in this case to say “I can’t find in this case, based on the ³⁰⁷ evidence I have heard, that there was a use of marital funds such as would constitute a fraud on the marital rights of the parties, and, therefore, I grant the motion on the issue of dissipation of assets.” It appears the court believed it had to find fraud before it could find dissipation of marital funds. Fraud can only be found by clear and convincing evidence. Aeropesca Ltd. v. Butler Aviation International, Inc., 44 Md.App. 610, 623 , 411 A.2d 1055 (1980). The same quantum of proof, clear and convincing evidence, is necessary to establish constructive fraud.

Dixon v. Process Corp., 38 Md.App. 644, 657 , 382 A.2d 893 (1978). The trial court’s finding is understandable in view of the holding in Ross, supra, relied upon by the trial court. Upon reflection, however, we see no adequate reason to require a higher degree of proof to establish dissipation than any other aspect of marital property. Under a proper standard, the trial court should be able to find dissipation by a preponderance of the evidence.

The case at bar is a perfect illustration of the injustice that may result by imposing an unreasonable burden of proof on a party who accuses the other of dissipation of assets. The parties in this case over a period of less than fifteen years accumulated substantial assets; although both were employed, neither had a large income. In spite of the expense of raising two children, and even sending them to private schools, they had acquired a net worth of over $760,000. It is clear that they were able to accomplish this by hard work, frugality, and sound fiscal management.

Notwithstanding this past record of sound fiscal management, in one year following the separation of the parties, appellee spent almost $300,000 of the parties’ money. This should be sufficient to establish a prima facie case of dissipation. Many state courts have considered dissipation of marital assets in determining the division of marital property. In Sharp v. Sharp, 58 Md.App. 386 , 473 A.2d 499 (1984), this Court held that ³⁰⁸ where a chancellor finds that property was intentionally dissipated in order to avoid inclusion of that property towards a consideration of a monetary award, such intentional dissipation is no more than a fraud on marital rights, see Levin v. Levin, 166 Md. 451, 453 , 171 A. 77 (1934), and the chancellor should consider the dissipated property as extant marital property ... to be valued with other existing marital property.

Sharp, 58 Md.App. at 399 , 473 A.2d 499 . In its discussion of dissipation, the Court examined other jurisdictions that have addressed intentional dissipation of marital assets for the purpose of avoiding equitable distribution. Foremost is Illinois, which has statutory law expressly providing that a chancellor in dividing marital property should consider dissipation of assets. Ill.Ann.Stat. ch. 40, § 503(c)(1) (Smith-Hurd 1980 Vol., 1983-84 Cum.Supp.).

This Court, in Sharp, 58 Md.App. at 401 , 473 A.2d 499 , cited Klingberg v. Klingberg, 68 Ill.App.3d 513 , 25 Ill.Dec. 246, 250 , 386 N.E.2d 517, 521 (1979), for the proposition that “[dissipation may be found where one spouse uses marital property for his or her own benefit for a purpose unrelated to the marriage at a time where the marriage is undergoing an irreconcilable breakdown.” A number of states have statutes that specifically list dissipation of assets or fraudulent conveyances as a factor for the court to consider. Lawrence J. Golden, Equitable Distribution of Property, § 8.15 (1983, 1993 Cum.Supp.) (listing Arizona, Illinois, Indiana, Montana, and West Virginia). Some states that have addressed dissipation of marital assets have followed Illinois law. Courts generally seem to adopt the Illinois Court’s definition of dissipation.

See e.g., Monte v. Monte, 212 N.J.Super. 557 , 515 A.2d 1233 (Ct.App.Div.1986); Clements v. Clements, 10 Va.App. 580 , 397 S.E.2d 257 (1990). In Melrod v. Melrod, 83 Md.App. 180 , 574 A.2d 1 , cert. denied, 321 Md. 67 , 580 A.2d 1077 (1990), this Court held that there was no evidence suggesting that the husband had dissipated proceeds from a sale of a partnership in order to ³⁰⁹ deprive the wife of her marital rights. Melrod, 83 Md.App. at 194 , 574 A.2d 1 . This suggests that, to prove dissipation, the party claiming dissipation must present affirmative evidence.

In Rock v. Rock, 86 Md.App. 598 , 587 A.2d 1133 (1991), this Court placed the burden on the dissipating spouse. Rock, 86 Md.App. at 619-620 , 587 A.2d 1133 . Recently, in Ross v. Ross, 90 Md.App. 176, 190 , 600 A.2d 891 (1992), this Court cited Sharp and held that “[t]he spouse alleging dissipation has the burden of proving dissipation and the value of such property.” Other courts disagree as to who bears the burden of proving the purpose of a conveyance. In some states, once the injured spouse makes a prima facie case that marital funds were spent once the marriage was breaking up, the burden shifts to the dissipating spouse to prove that the funds were spent for a proper purpose.

Golden, at 375-376 (1993 Supp.). In In re Marriage of Partyka, 158 Ill.App.3d 545 , 110 Ill.Dec. 499 , 511 N.E.2d 676 (1987), the court held: Once it is established that one party has liquidated marital assets, the party charged with dissipation must establish by clear and specific evidence how the funds were spent; general and vague statements that they were spent on marital expenses or bills are inadequate to avoid a finding of dissipation. Partyka, 110 Ill.Dec. at 503 , 511 N.E.2d at 680 (citing In re Marriage of Smith, 128 Ill.App.3d 1017 , 84 Ill.Dec. 242 , 471 N.E.2d 1008 (1984)). In In re Marriage of Smith, 128 Ill.App.3d 1017 , 84 Ill.Dec. 242 , 471 N.E.2d 1008 (1984), the Illinois court examined many of its own opinions as well as the decisions of other jurisdictions, including Barriger v. Barriger, 514 S.W.2d 114 (Ky.1974), Cooksey v. Cooksey, 280 S.C. 347 , 312 S.E.2d 581 (1984), and E.E.C. v. E.J.C., 457 A.2d 688 (Del.1983), in order to determine that the burden of proof is on the party charged with the dissipation.

More recently, the court noted: Once a prima facie case of dissipation is made, the party charged with dissipation must establish by clear and con ³¹⁰ vincing evidence how the funds were spent; general and vague statements are not enough. In re Marriage of Murphy, 259 Ill.App.3d 336 , 197 Ill.Dec. 671, 673 , 631 N.E.2d 893, 895 (1994). Illinois appears to be the only state requiring the dissipating spouse to prove by clear and convincing evidence that the funds were used for a marital purpose. See Golden, at 384 (1993 Supp.).

Whereas in Illinois the dissipating spouse must prove by clear and convincing evidence that the property was not dissipated, other states require proof only by a preponderance of the evidence. In Manaker v. Manaker, 11 Conn.App. 653 , 528 A.2d 1170 (1987), the Connecticut court held that the “party which has control over marital assets and is charged with their dissipation has the burden of accounting for those assets.” The court continued, “This burden is met by a preponderance of the evidence.” Manaker, 528 A.2d at 1173 . The Connecticut court referred to In re Marriage of Smith, 128 Ill.App.3d 1017 , 84 Ill.Dec. 242 , 471 N.E.2d 1008 (1984), and opined that the Illinois court’s use of the language of “clear and specific evidence” referred to “the probative value of evidence and hot the quantum of the evidence which was necessary to sustain the burden of proof.” Manaker, 528 A.2d at 1173 . The Court of Appeals of Virginia, in Clements v. Clements, 10 Va.App. 580 , 397 S.E.2d 257 (1990), relied on Illinois law to define dissipation.

Citing In re Marriage of Smith, 128 Ill.App.3d 1017 , 84 Ill.Dec. 242 , 471 N.E.2d 1008 (1984) and Manaker v. Manaker, 11 Conn.App. 653 , 528 A.2d 1170 (1987), the court stated