OPINION OF THE COURT BY RECKTENWALD, C.J.
This case requires us to review the Family Court of the Third Circuit's (family court) division and distribution of marital property during the divorce action between Anthony Selvage (Selvage), a 71-year-old retired musician and trust fund beneficiary, and Laura Moire (Moire), a 56-year-old emergency room doctor.
After prolonged and contentious divorce proceedings, the family court
On appeal, the Intermediate Court of Appeals (ICA) affirmed the family court's decision in a Summary Disposition Order (SDO), reasoning that the family court did not abuse its discretion in declining to deviate from the partnership model of property division. In a concurring and dissenting opinion, Lisa Ginoza concluded that there were sufficient valid and relevant considerations
We conclude that remand to the family court is necessary. The vast financial inequity left between the parties constitutes an equitable consideration that may have warranted a deviation from the partnership model of marital property division. The family court's written decision does not adequately indicate that it considered Moire's proposed equitable considerations justifying deviation, and it is unclear why the family court rejected Moire's request to deviate from the partnership model.
A. Divorce Proceedings in Family Court
The parties were married on December 22, 1985, and separated on December 22, 2006. Selvage filed a Complaint for Divorce on August 27, 2008. The complaint alleged that the marriage was "irretrievably broken," that Selvage and Moire had two adult daughters together who were still dependent on them for support while attending college on the mainland, and that Selvage was entitled to alimony from Moire. Selvage stated that he was retired and living in Mountain View on Hawai`i island, and that Moire was a medical doctor living in Topanga, California.
In his first asset and debt statement, Selvage indicated that he owned two properties: an apartment in Topanga, California, worth $600,000 that he owned individually and rented out, and a house in Mountain View, Hawai`i, worth $390,000 that he owned jointly with Moire. Selvage's financial assets totaled $263,000.
On August 29, 2008, Selvage filed a motion requesting a fluctuating amount to pay Moire's bills and $1,600 per month in spousal support "to make ends meet without [him] drawing down on [his] inheritance as [he has] no retirement" or income beyond social security of $563 per month. He explained that he is "a minority beneficiary of a trust established by [his] parents, yet [has] had to loan [his] Wife's corporation approximately $55,000 to pay for the financial shortfalls."
In July 2009, Selvage filed updated Income and Expense and Asset and Debt Statements. He noted $11,200 in cash and bank accounts, as well as $116,500 in inheritance funds, and $12,000 in securities held jointly with Moire.
Moire shortly thereafter filed her own income, expense, asset, and debt statements with the family court. Moire stated that she only had a $1,000 monthly income and $2,835 in "regular monthly expenses." Moire's estimated real property values were significantly different from Selvage's: she estimated that the Topanga property was worth $1.2 million (where Selvage declared that it was worth $450,000), and the Hawai`i island property was worth $500,000 (where Selvage declared that it was worth $300,000). Moire listed several outstanding debts, including credit card debts of $36,181.
At the following court hearing, Selvage's attorney submitted a request for spousal support, alleging that Moire was "not being forthright in her filings with the court" and was stringing the trial along "waiting for [Selvage] to die[.]" Moire's attorney responded that his understanding was "that Mr. Selvage is the beneficiary of a rather large trust and he can withdraw as he wishes." He also added that although Selvage correctly identified Moire's "gross numbers," he failed to take into account the fact that the nature of her work as a traveling doctor required more expenditures like airline transportation, temporary housing, rental cars, and "more expensive food." He also added that Moire had lost her full-time job at Kahuku Hospital, and the lack of jobs available in Hilo put her in a "financial scramble."
The court stated that "it is not clear to me that Dr. Moire has been all together straight forward [sic] with the Court." The court also found that Selvage's income, "although not nonexistent, [is] quite limited[,]" and "Dr. Moire has a vastly more significant income of earning capacity. And again, the precise extent to which she is generating income is difficult to assess." The court then ordered Moire to pay temporary spousal support to Selvage in the amount of $l,500 a month, with Selvage "entitled to a credit back to the date of the initial filing[,]" totaling $22,500.
Several months later, Selvage filed motions asserting that Moire had not paid him any court-ordered spousal support and that he needed financial assistance from Moire to help fund their daughter's college tuition and living expenses. After a hearing on Selvage's motions, the court entered judgment in favor of Selvage and against Moire for $36,000 in delinquent spousal support and ordered the parties to "equally share the expenses for [Daughter]'s college expenses.
In his second updated income and expense statement, Selvage listed $29,010 in personal bank accounts, $6,587 in a Bank of Hawai`i account belonging to Daughter, and $336,686 in a Wells Fargo Portfolio Management Account. He also listed $1,566,227 in the Sternoff Trust. Selvage stated that the value of the Topanga property had risen from $450,000 to $490,000, but the value of the Mountain View property had fallen even farther, from $300,000 to $135,000.
Moire also filed an updated Income and Expense Statement, in which she listed her total monthly income as $3,100 and her total monthly expenses as $10,514 (including $7,633 in monthly debt servicing payments). Moire's and Selvage's statements continued to differ drastically. She listed the Topanga property as valued at $800,000, but listed no value for the Mountain View property, stating instead that the property had not been appraised. Her debts jointly held with Selvage included $5,223.58 to the State of Hawai`i in taxes; $13,472 for their daughter's Chase credit card; $47,500 to "NAMASTE"; and $20,000 in a 1999 tax lien to the State of California. Her individual debts included $34,795 in credit card debt and $19,000 to "E.M.H.P."
Relevant to the issues at hand, Selvage testified to the following during the trial: that he wanted Moire to equally share Daughter's college expenses with him, that he had put about $112,000 over time from his trust into Moire's corporation and had only received $17,000 back, that he had recently received a "bulk figure" of $1,540,000 in inheritance, that he spent $135,000 in arbitration and $225,000 in attorneys' fees in litigation over his inheritance with his half-sister through "owner draws" on his trust account, that Moire came into the marriage with "around $90,000" of student loan debt, and that Moire had removed Selvage's posters and two of his violins from the Topanga property.
Moire testified that although she did not recall the exact amount of student loan debt, it had been much less than the $90,000 Selvage had testified to, and that at least $30,000 of the debt had been paid off as a personal gift to her.
After the trial, Selvage filed a Proposed Findings of Fact (FOF), Conclusions of Law (COL), and Decision of the Court. On the same day, Moire filed her Written Closing Argument in place of a proposed decision. Moire argued that she should be awarded the Hawai`i property because it was bought during the marriage, and it would be equitable for both parties to have residences. She also argued that the court should deny Selvage's claim seeking Category 3 reimbursement for the money he spent on litigation over his trust inheritance. She argued that Selvage's interest in the trust vested when his mother passed away in 2004. According to Moire, "any appreciation of income from that point forward would be construed as category 4 property subject to division[.]"
Moire also argued that deviation from Hawaii's standard partnership model of property division was warranted given the circumstances of this case and "the condition that each party will be left in at the conclusion of this case." Noting that "Hawai`i law requires the distribution to be equitable, and does not limit the Court to an equal division," she added that "this was a very long marriage with substantial assets at stake. Wife worked and paid the bills, and when could not, paid them with her disability settlement. . . . If Husband's requests are followed, it will result in Husband receiving all, or a disproportionate share of the marital estate."
The court ruled against Moire on the majority of the issues. Specifically, the court stated that it found "[Selvage] to be more—[Selvage]'s testimony to be credible. And [found] that [Moire]'s just reference [sic] to the Income and Expense and Asset and Debt Statement is not to be [sic] sufficient for this Court to award her any type of credit regarding those accounts as well as debts." The court made no comment on Moire's request for deviation in her closing argument and did not explain how it arrived at its property divisions.
In its FOFs relevant to this appeal, the court determined that Moire was a licensed physician with a monthly income of $6,666, and Selvage was unemployed. The court repeatedly stated that it declined to assign debts or assets to Moire because it did not find her testimony credible and because the court had not received evidence of them. The court also found that Moire's failure to provide a password for a website to Selvage was "another example of how [Moire] fails to cooperate and ignores court Orders." Regarding Moire's student loans, the court found the value at $30,000. The court further found that Selvage had been gifted $251,940 from his parents, which had been used for "marital expenses as as [sic] well as to supplement and support [Moire]'s business when [Moire] failed to have sufficient funds in her professional corporation." The final relevant FOF was that Selvage had received inheritance in the amount of $2,270,199.90 and been gifted personal property valued at $52,000 in October 2010, which "is [Selvage]'s category three claim."
The only relevant COLs were the following:
The court then issued its Divorce Decree and distributed the relevant property as follows: Selvage was awarded the Topanga property "inasmuch as [he] owned this property prior to marriage[,]" the Mountain View property, and all interest in the Sternoff Trust. The family court also awarded Selvage an equalization payment from Moire in the amount of $29,219.76.
Based on the family court's Property Division Chart, it appears that Moire's equalization payment was based on the court's calculation that Moire was responsible for a $34,000 decrease in net value of the partnership during the marriage, based on $30,000 in student loans and $4,000 for Selvage's art collection posters and musical instruments that Moire removed from the Topanga property during the time leading up to the trial. The family court appears to have utilized a formula located at the bottom of the chart, which resulted in Moire receiving a total value of $37,059.11.
B. Moire's Appeal and the ICA's Decision
In her appeal to the ICA, Moire alleged three points of error by the family court:
In its SDO and subsequent Judgment, the ICA affirmed the family court's Findings of Fact, Conclusions of Law, and Divorce Decree. On the first point of error, where Moire argued that the $385,000 that Selvage spent in litigation with his half-sister "did not `contribute' to the couple's marital partnership and should therefore be deducted from Selvage's Category 3 Credit," the ICA explained that "Hawai`i courts have never held that an inheritance's [net market value (NMV)] reflects the inheritance minus any acquisition or maintenance costs. . . . Hawai`i law requires only that, if all valid and relevant considerations are equal, Category 3 NMVs are repaid to the
The ICA noted that "Selvage paid the expenses with trust funds, which he requested and received from the trust." The ICA thus concluded that "the Family Court did not abuse its discretion in declining to deduct the litigation expenses from Selvage's Category 3 Credit Award[.]"
On Moire's second point of error, the ICA concluded that although Moire correctly stated the point of law, she "fail[ed] to establish that the trust distributions in question, although denominated as `Trust income,' represented anything other than periodic distributions to Selvage of the trust corpus." Therefore, the "Family Court did not abuse its discretion in not excluding any increase in the value of the inheritance corpus before its acquisition by Selvage."
As to Moire's third point of error, the ICA acknowledged that the "Family Court did not make an express finding regarding inequity[.]" However, after considering the family court's findings that Moire failed to provide credible evidence on this point, the ICA "[could not] say that the Family Court erred in not finding the alleged inequity to be [an equitable consideration justifying deviation]" because no authority "requires a court to enter explicit findings if it finds no [equitable considerations] that warrant deviation" from the partnership model.
Judge Ginoza concurred with the majority opinion on Moire's first and second points of error, but dissented on the third point. According to the dissent, when deciding the division and distribution of marital partnership property, the family court is required to:
C. Moire's Application for Writ of Certiorari
Moire timely filed her application for writ of certiorari on September 29, 2015. Moire presents essentially the same three issues that she presented to the ICA:
II. Standard of Review
A. Property Division
"We review the family court's final division and distribution of the estate of the parties under the abuse of discretion standard, in view of the factors set forth in [Hawai`i Revised Statutes (HRS)] § 580-47
The ICA appropriately affirmed the family court's refusal to deduct costs of litigation from Selvage's separate inheritance award as well as the family court's determination that Selvage's inheritance did not generate partnership income. However, the financial disparity between the parties constituted an equitable consideration justifying deviation, such that the family court abused its discretion by not considering whether to deviate from the Partnership Model.
A. Selvage's Category 3 Credit Award Was Properly Calculated.
The family court did not abuse its discretion when it refused to deduct inheritance-related expenses from Selvage's separate Category 3 credit award. "Hawai`i law follows a framework based on partnership principles for the division of marital partnership property during divorce proceedings."
The NMVs "in Categories 1 and 3 are the parties' `capital contributions,' and pursuant to general partnership law, they are returned to each spouse."
Under Hawai`i partnership law, "each partner is deemed to have an account that is credited with an amount equal to the money plus the value of any other property,
All of the money that Selvage spent on litigation came from his inheritance trust funds. Because Selvage was the one who contributed to the litigation expenses—not Moire—and because those expenses were paid with trust fund money constituting Category 3 property, the family court did not abuse its discretion in crediting that property back to him.
Additionally, Selvage did not spend hundreds of thousands of dollars in litigation to only obtain money for himself.
B. Selvage's Category 3 Inheritance Did Not Generate Category 4 Income.
Moire argues that the ICA committed grave error in affirming the family court's ruling that the $597,330.59 that Selvage received as "trust income" from June 2005 to May 2010 should be classified as Category 3 property. Moire asserts that because these payments were received before the corpus of the trust was distributed in 2010, they represent an "increase in value" of Category 3 property (the corpus) that should be categorized as Category 4 property and divided equally between Selvage and Moire.
In response, Selvage argues that "Moire offers no authority that payments received by a spouse from a trust before the trust corpus is resolved constitute Category 4 marital assets that must be shared with the non-owning spouse." He also argues that "Moire offered no evidence that any of Selvage's Category 3 capital contributions between 2005 and 2010 generated any profits, or that these payments generated Category 4 income."
The ICA correctly concluded that the family court did not abuse its discretion when it refused to treat Selvage's trust income as a Category 4 asset. The family court found that Selvage "received the balance of the inheritance sometime in October 2010," totaling $2,270,199.90 in both income and corpus added together. That entire sum constituted Category 3 property. Therefore, Selvage should be awarded the entire interest in the Sternoff Trust as his "sole and separate property."
The ICA correctly stated that Moire "fail[ed] to establish that the trust distributions in question . . . represented anything other than periodic distributions . . . of the trust corpus." Although the distributions were classified as "trust income," this term does not fall within the meaning of Category 4 property, which only "includes the
Accordingly, without any evidence that the trust income or corpus earned interest or increased in net value after becoming part of the marital estate, the ICA did not err and the family court did not abuse its discretion in finding there was no Category 4 property related to Selvage's inheritance.
C. The Inequitable Property Division Between The Parties Constituted An Equitable Consideration That Likely Warranted Deviation From The Partnership Model.
Moire argues that the family court should have deviated from the partnership model. She contends that the court's property division was not equitable because, after subtracting the spousal support judgment against her, she will be left with virtually nothing—but Selvage would be "awarded about $2.85 million[.]"
In response, Selvage's primary argument is that HRS § 580-47(a) "requires the family court to focus on the present and the future, not the past" (quoting
Family courts typically do not deviate from the partnership model without equitable considerations that justify doing so.
135 Hawai`i at 350, 350 P.3d at 1018 (citations and internal quotation marks omitted).
Here, the family court failed to comply with the second part of the
The family court did not explain its rationale for ignoring Moire's request for deviation. It is therefore unclear to what extent the family court followed
The family court has "wide discretion" in determining whether circumstances justify deviation from the partnership model.
When assessing whether a situation warrants deviation from the partnership model, the family court must "focus on the
Even though the family court determined that Moire had greater future earning potential than Selvage, that should not have been the end of its analysis. The vast disparity in the parties' circumstances after the divorce, and the limited assets with which Moire will be left, constitutes an equitable consideration justifying deviation, and therefore, the family court should have explicitly stated why it chose not to deviate from the partnership model.
For the foregoing reasons, we hold that the family court erred in not identifying equitable considerations that could have justified deviating from the partnership model when the divorce left significant financial disparity between the spouses. The family court further erred by not explaining why it rejected Moire's request to deviate from the partnership model. Accordingly, we vacate in part the ICA's August 3, 2015 judgment on appeal and remand to the family court for determination of whether and to what extent it will exercise its discretion in deviating from the partnership model, and to enter appropriate findings on the record.