Merriken v. Merriken

ALPERT, Judge. In this action, appellant, Calvert C. Merriken, Jr. (“Cal”), appeals an Opinion and Judgment issued by the Honorable Elroy G. Boyer of the Circuit Court for Kent County that granted appellee, Joan C. Merriken (“Joan”), a divorce on ⁵²⁵ the grounds of constructive desertion, entered a marital property award and judgment of $495,640 against Cal, and awarded Joan $30,000 in attorneys’ fees. We are asked to consider: I. Did the Court err in determining that the husband constructively deserted and/or abandoned his wife when the evidence failed to support that determination?

II

Did the Court err in creating marital property values by splitting the difference between the higher and lower present values offered by the respective parties?

III

Did the Court err in its finding that virtually 100% of the husband’s property was marital when it consisted essentially of inherited properties?

IV

Did the Court err in finding the wife’s property to be nonmarital by reason of inheritance where the wife failed to report it as inherited in estate returns and other sworn papers filed by her in judicial proceedings? V. Did the Court err in concluding that “non-marital properties” and capital gains taxes were irrelevant in determining the marital award?

VI

Did the Court err in granting attorneys’ fees in a marital property case in the absence of an applicable statute or rule? FACTS AND PROCEEDINGS Joan C. Merriken and Cal C. Merriken were married in Delaware in June of 1951. Cal spent the first year of the marriage serving with the Armed Services in Korea while Joan taught school. After returning from Korea, Cal continued his education at Washington College and Joan continued teaching.

Prior to receiving a degree, Cal left Washington College and went to work in Joan’s father’s fertilizer business. In July of 1953, their only child, Susan, was born, whereupon Joan stopped working. In 1955, with the aid of Joan’s family, Cal formed his own fertilizer business. He operated this business until he sold it in 1972.

During this time, he also helped manage his ⁵²⁶ family's properties from their office in Denton (“the Denton business”). Cal’s father was a lawyer and a landowner; and he, along with Cal’s mother, brother, and other relatives, left Cal property that he has managed over the years. Cal inherited real estate and stock from both his parents’ estates and from his father’s real estate company, Merriken, Inc. In 1956, Joan contracted tuberculosis and spent nearly a year away from her family in various hospitals. She finally was released from the hospital in April, 1957, at which time the Merriken family moved into “Chesmar,” the house that Cal’s father had begun to build for Cal and Joan in 1955.

According to Joan, this house was a gift from Cal’s father. She claims that she fully participated in choosing the lot and drawing up the plans for the house. She and Cal visited the construction site on numerous occasions, had free access to it, held it out to the world as their own, and had authority to make changes regarding the building plans. Construction on the house ceased in December of 1955 when Cal’s father committed suicide.

After a number of months went by, Cal proceeded to complete construction, using money loaned to him by his mother and what Joan claims were marital funds. Joan testified that she fully participated in Chesmar’s care, maintenance, and improvement, and believed that she owned the house jointly with Cal. They lived in Chesmar until their final separation in February of 1986. She claims that she only learned from her attorney in this case that Cal individually bought Chesmar from Merriken, Inc. and that her name had never been on the deed.

According to Cal, his father picked out the lot for them and began building the house, but it was not completed at his death. Cal claims that his father never told Joan that he was giving her the house, nor was it even in his father’s name. Cal paid for it to be finished, using a loan from his mother and a $10,000 inheritance from his grandfather. Cal alleges that none of Joan’s money was used.

Cal further explained that he bought the house from Merriken, ⁵²⁷ Inc. in 1957, using treasury stock that he inherited from his father. Joan stayed home with Susan until 1963, when she became a full-time teacher. In 1967, she helped found the Kent School in Chestertown. She became its first headmistress, a position she still maintains.

During the early 1970’s, Cal’s mother and brother died. Susan, who had graduated from Goucher College and had become a CPA, married and moved out of the home. Joan claims that these events ultimately led to the deterioration of the parties’ relationship. Cal’s drinking became alcoholic rather than social, and he began to exhibit violent behavior.

Joan was battered several times, hospitalized once, and advised to leave Cal by her family doctor, Dr. Dick. In 1972, after the death of his brother, Cal sold the fertilizer business so that he could manage the Denton business on a full-time basis. Cal characterizes the business as involving properties that he received directly from Merriken, Inc., that he purchased, and that he inherited and then subdivided for sale of individual lots. His business activities have included collecting rents, managing family houses and rentals, selling timber from his properties, and leasing farmland.

He alleges that “[h]is day-to-day income and operational expenses were a net loss but permitted him to hold the real estate for ultimate sale.” Thus, although his activities in real estate management consistently lost money, he profited on the sale of the realty as well as the sale of timber. The lots comprising his major development, Passapae Landing, have all been sold but two. These sales brought substantial capital gains, totalling $209,658 in 1988. Cal says that all of the income from the Denton business went into a single bank account from which he made all purchases, collected all income and rents, and made all his disbursements.

According to Cal, the Denton business was in his name, and all sources of income that flowed into the account were nonmarital. Joan virtually had no participation in the business. ⁵²⁸ Cal states that he also drew on the Denton business account for household expenses and personal bills. They had a common, joint food account into which Cal put several hundred dollars every month. Joan had a separate account from which she paid the maid, bought her clothing, and paid for her share of the taxes.

Cal notes that Joan admitted that her salary went into her account and that she never contributed to his business and that he paid the house taxes, gas and electric, telephone, insurance, house maintenance, and cleaning bills. She managed her own property, maintained her own records, and had separate bank accounts. According to Cal, Joan paid no other regular household expenses other than paying for the maid and for her clothing. He says they “kept their substantial finances largely separate from the other.” According to Joan, Cal did not draw a salary from the Denton business, but drew funds from it as needed by the Merriken family.

Household expenses were paid from Joan’s bank account, into which she placed her entire salary, and Cal would make up any shortfall using the Denton account. They drew as little money from that account as possible in order that Cal could concentrate on building up the business for their future. Accordingly, they lived modestly. She fully participated in the business by continually discussing business matters with Cal, and by providing her input concerning decisions that needed to be made.

She executed various documents for the business and was personally liable on various loans entered into for the business. In 1985, Joan’s mother died. Joan was appointed to be the estate’s personal representative; she was its primary beneficiary. According to Joan, her mother had, several years prior to her death, given her certain bearer bonds in an envelope that was marked “The Property of Joan Culver Merriken,” and also had given her some furniture and furnishings that were moved to Chesmar at Joan’s mother’s direction.

Joan claims that she believed that these items of property did not have to be listed on the estate tax and therefore she did not list them. She added that if she had ⁵²⁹ been wrong, she would correct her mistake. Cal insists that these items should be regarded as marital property, not inherited or nonmarital property. The parties separated on February 14, 1986.

Joan claims that Cal pushed her out of the house that day, in the middle of a snow storm, and locked the door. She then told Cal that she would not consider reconciling until he did something about his drinking problem and his violent behavior and became involved in psychotherapy. On two further occasions, however, the parties cohabited. They took a week-long trip together to Florida in March of 1986, and Joan went with Cal to visit his relatives for Easter, at which time the two spent the night together.

Joan filed for divorce on September 14, 1987, seeking an absolute divorce on the alternative grounds of adultery, voluntary separation, and constructive desertion. She also sought attorney’s fees. She amended her complaint on May 15, 1989, reiterating the aforementioned grounds for divorce and adding an alternative ground of two years separation. The parties entered into a lengthy stipulation detailing their respective positions concerning each item of property.

The trial was held from September 18 through October 2, 1989. After the court granted Joan a divorce on the grounds of constructive desertion, entered a marital award and judgment against Cal, and awarded Joan attorney’s fees, Cal noted this appeal. The foregoing facts will be supplemented in the discussion, as relevant. I. In its opinion, the trial court found that appellant had constructively deserted and/or abandoned his wife in that his drinking and violent behavior made life intolerable for her and which conduct gave her no option but to leave the household.

The desertion and/or abandonment has continued for a period in excess of one (1) year prior to the ⁵³⁰ filing of the Complaint in this case. Wife left the household and the parties finally separated on March 14, 1986. Appellant insists that the evidence did not support a finding that he had constructively deserted appellee. In any event, he argues, the week-long Florida vacation, during which the parties engaged in marital relations, amounted to condonation by appellee of his drinking and abusive behavior.

We first note that we deem that there was sufficient evidence before the trial court to support its finding. As documented supra, Cal had been abusive to Joan for nearly a decade before their separation. During his violent episodes, he had blackened her eyes, injured her in a manner that required hospitalization, pushed her, threatened her, damaged her personal property, and locked her out of their home. Their neighbors had had to call the police for Joan’s protection.

She testified that she lived in constant readiness of having to flee; she always had her coat and pocketbook near the door. The evidence of physical abuse was substantiated by her doctor’s testimony. Cal even agreed that he drank too much and became violent. This behavior culminated in the incident during the snowstorm of February, 1986, wherein Cal locked Joan out of the house.

She testified that she drove away, praying for the strength never to return. She then told Cal that she would not return until he improved his drinking and his violent behavior and began a program of psychotherapy. This evidence established a pattern of persistent conduct which is detrimental to the safety or health of the complaining spouse, or so demeaning to his or her self-respect as to be intolerable. Murphy v. Murphy, 248 Md. 455, 460 , 237 A.2d 523 (1968).

We do not consider that Joan’s cohabitation with Cal after she left amounted to condonation of his previous behavior. 1 Although we have stated that “resumption of marital relations is evidence of condonation,” see Moore v. ⁵³¹ Moore, 36 Md.App. 696, 699 , 375 A.2d 37 (1977), we qualified that by noting that [w]hen misconduct is condoned, there is an implied promise that the marital offenses or acts rendering the marital relation intolerable will not be repeated by the erring spouse and that the offended party will be treated with conjugal kindness. When the conditions upon which the original misconduct was condoned are breached, the original grievances are immediately revived as a cause or causes for divorce. Id. at 699 , 375 A.2d 37 (footnotes omitted); see also Dorsey v. Dorsey, 245 Md. 703, 704 , 227 A.2d 617 (1967) (holding that “where the husband breaches [the implied condition that he will not repeat the marital offenses] by maintaining his illicit relationship, the right to the remedy for former marital offenses revives”). In the case sub judice, it is clear that even assuming arguendo that Joan condoned Cal’s behavior by sleeping with him in Florida in March and April of 1986, her “original grievances [were] immediately revived” as a result of his subsequent behavior.

In part, Joan had conditioned reconciliation on Cal’s doing something about his drinking; she was afraid of him when he was drunk because he became violent. Cal himself testified that he still drinks every day, although he claims to have moderated his drinking. Furthermore, there was no real evidence before the court that would suggest that Cal has worked on his violent behavior, another of Joan’s reasons for leaving. He still drinks, which admittedly causes him to become violent.

Moreover, after having dinner together in early July of 1986 in Rehoboth, Cal grabbed Joan’s breast while on a public street and then called her a “bitch” when she was taken aback by this advance and left her to get to her home by herself. And, at this time in July, he had already become involved with another woman, whom he had met on June 1, 1986, and had taken to a stock car race in Dover about a month later, before his dinner with Joan. As of the end of July, he was sleeping with the other woman, and he ⁵³² began living with her in September, 1986. Finally, although he had begun a psychotherapy program in December, 1985, this program ended in October, 1986.

The lower court had the opportunity to hear the witnesses and evaluate their testimony. Its findings of fact were supported by substantial evidence. We therefore determine that no error was committed in granting appellee a divorce on the grounds of constructive desertion. II. & III.

Appellant next contends that the court erred in its categorization and valuation of the properties in Exhibits 5 and 9. The crux of appellant’s complaint is that the court erroneously found that certain properties were marital. The forthcoming analysis will indicate that we agree that the court improperly considered some of the factors constituting the monetary award, thus necessitating remand in order that there be a fair and equitable adjustment of the property interests of the parties. Marital Property The current Maryland Property Disposition in Annulment and Divorce Act (“the Marital Property Act”), see Md. Fam.Law Code Ann. §§ 8-201 to -213 (1984 & Supp.1990) (formerly Md.Cts. & Jud.Proc.Code Ann. § 3-6A-01 to -08 (1980)) provides for “an equitable monetary award which is designed to accomplish an equitable division in an indirect manner.” Ohm v. Ohm, 49 Md.App. 392 , 396 n. 2, 431 A.2d 1371 (1981).

The proper designation of marital property is crucial to fashioning a monetary award, because the value of nonmarital property is not subject to equitable distribution. See Harper v. Harper, 294 Md. 54, 81 , 448 A.2d 916 (1982). We previously have explained that the concept of marital property was created by the legislature to describe the status of property acquired during the marriage, however titled (as defined in Md.Family Law Code Ann. §§ 8-201(e) (1984)), ⁵³³ title to which may have given rise to a potential inequity, upon dissolution of the marriage. That inequity, conceptually, may be corrected via a different legislative creature called the ‘monetary award.’ Thus, the only function of ‘marital property’ is to form a base for a ‘monetary award.’ Falise v. Falise, 63 Md.App. 574, 580 , 493 A.2d 385 (1985).

To achieve this equitable distribution of marital property, the court must adhere to the three-step process outlined in the Marital Property Act. See Harper, 294 Md. at 79 , 448 A.2d 916 . Accordingly, (1) if an equitable adjustment over and above the distribution of the spouse’s property in accordance with its title is an issue, the court shall determine which property is marital property; (2) the court shall then determine the value of all marital property; (3) finally, the court may make a monetary award as an adjustment of the parties’ ‘equities and rights’ concerning marital property____ If an award is deemed appropriate, the court shall then consider each of the [ten] factors enumerated in [§ 8-205(a) ] in determining a fair and equitable amount and the method of its payment. Ward v. Ward, 52 Md.App. 336, 339 , 449 A.2d 443 (1982) (emphasis in original); see also Harper, 294 Md. at 79 , 448 A.2d 916 .

Statutorily, “marital property” is defined as “property, however titled, acquired by 1 or both parties during the marriage.” Md.Fam.Law Code Ann. § 8-201(e)(l) (1984). The term “marital property” specifically excludes property that is: (i) acquired before the marriage; (ii) acquired by inheritance or gift from a third party; (iii) excluded by valid agreement; or (iv) directly traceable to any of these sources. Id. § 8-201(e)(2). As in the case sub judice, “[t]he attempt to trace existing property to an excluded source may cause ⁵³⁴ considerable debate between husband and wife.” J. Fader, II, and R. Gilbert, Maryland Family Law 387 (1990).

In Harper , the Court of Appeals addressed the concern that nonmarital property will be “transmuted” into marital property, in contravention of the clear legislative intent to preserve for spouses that which is nonmarital property. See Harper, 294 Md. at 80 , 448 A.2d 916 . To obviate this possibility, the Court adopted the “source of funds” theory. Under that theory, when property is acquired by an expenditure of both nonmarital and marital property, the property is characterized as part nonmarital and part marital.

Thus, a spouse contributing nonmarital property is entitled to an interest in the property in the ratio of the nonmarital investment to the total nonmarital and marital investment in the property. The remaining property is characterized as marital property and its value is subject to equitable distribution. Thus, the spouse who contributed nonmarital funds, and the marital unit that contributed marital funds each receive a proportionate and fair return on their investment. Id. at 80 , 448 A.2d 916 .

Appellant protests the categorization of the fifteen parcels in Exhibit 5. Seven properties were inherited: namely, the Houston Branch, Hynson-White, Eddington, Venable, and Mitchell timberland properties, and Passapae Lots 12 and 32. The latter two properties were developed as part of a subdivision. The remaining eight properties include Chesmar and seven properties purchased with what appellant claims were nonmarital funds — the Padgett property, the Kent Gunning Club, the Chestertown lot, the Stokely Office Building, the Carter/Parker lot, the Seymour property, and the Quillen property.

The court found that all of these properties, although titled in appellant’s name, were marital. In so doing, the court failed to act in accordance with the mandate of Harper , as it did not distinguish the nonmarital character of the properties. ⁵³⁵ Appellant should have been credited with the non-naarital portion of the property, i.e., that portion which he inherited or which is directly traceable to the inherited property; that value should have been excluded from the monetary award. Any monetary award that does not distinguish the value of inherited property held by one or both parties is in clear contravention to the Marital Property Act, which purposely excludes property “acquired by inheritance or gift from a third party.” Md.Fam.Law Code Ann. § 8-201(e)(2)(ii) (1984). We define the value of the inherited property as the value that the property held at the time it was inherited, or such value as it has acquired by virtue of passive appreciation.

Insofar as the value of inherited property is increased by the expenditure of marital funds for its upkeep and/or development, the amount of such increase or accretion is marital, and therefore is to be included in the monetary award. On remand, the value of the inherited property, as defined above, must be determined, and then excluded from the calculation of the monetary award. We do not agree with appellant’s contention that the court erred in characterizing as marital (1) the real property appellant purchased during the marriage and (2) the personal property, set forth in Exhibit 9, including stocks, bonds, IRAs, bank accounts, mortgages, and life insurance policies. Appellant insists that all of these properties were acquired with nonmarital funds, i.e., from the sale of inherited properties or the income from the development of those properties.

The trial court disagreed, and stated in its opinion: Mr. Merriken allegedly inherited a large quantity of real property from various members of his family. This property and any property acquired from a sale of any portion thereof, as discussed above, would normally be considered non-marital since it was inherited. However, due to Mr. Merriken’s activity with regard to the property and any proceeds received therefrom, some of the character of the property was changed. Although we conclude that, based on the evidence before it, the court properly determined that these properties were, ⁵³⁶ in part, marital because of appellant’s active efforts to increase his inherited property and to further acquire properties, the court failed to assess the precise accretion of value due to appellant’s efforts.

Appellant’s efforts during the marriage were “marital” efforts. For each property, it should have been determined