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Wright v. Cramer

Court of Appeals of Ohio, Second District, Montgomery

March 2, 2018

TAMMY D. WRIGHT Plaintiff-Appellee
v.
RUSSELL E. CRAMER, JR. Defendant-Appellant

         Domestic Relations Appeal Trial Court Case No. 2015-DR-1034

          CHARLES D. LOWE, Atty. Reg. No. 0033209, Attorney for Plaintiff-Appellee.

          THOMAS G. EAGLE, Atty. Reg. No. 0034492, Attorney for Defendant-Appellant.

          OPINION

          WELBAUM, P.J.

         {¶ 1} In this case, Defendant-Appellant, Russell Cramer, appeals from a judgment and decree of divorce. In a single assignment of error, Cramer contends that the trial court erred in determining the nature of, and dividing, property. Plaintiff-Appellee, Tammy Wright, filed a notice of cross-appeal but subsequently dismissed her cross-appeal. As a result, only Cramer's appeal is before us.

         {¶ 2} For the reasons discussed below, we find the trial court erred in only one respect, and this was in connection with the court's judicial notice of S&P 500's return rates to calculate appreciation on the marital portion of Cramer's retirement accounts. In all other respects, the trial court did not abuse its discretion in classifying and dividing the parties' property. Accordingly, the judgment of the trial court will be affirmed in part and reversed in part, and will be remanded solely for the court to decide an appropriate method of calculating the appreciation of the marital portion of Cramer's retirement accounts.

         I. Facts and Course of Proceedings

         {¶ 3} Wright and Cramer were married on July 30, 2011, and no children were born as a result of the marriage. On October 30, 2015, Wright filed a divorce complaint against Cramer, and he then filed an answer and counterclaim for divorce on November 18, 2015. On February 2, 2016, the trial court ordered Cramer to pay Wright $1, 300 per month in temporary spousal support.

         {¶ 4} An evidentiary hearing was held on October 11, 2016, at which time the principal dispute was over division of the assets. On March 17, 2017, the trial court filed a decision granting the divorce and dividing the parties' assets. A final decree was filed on April 19, 2017, and Cramer timely appealed from the judgment. As was noted, Wright filed a cross appeal, but dismissed it in October 2017.

         II. Property Division

         {¶ 5} Cramer's sole assignment of error states that:

The Trial Court Erred in Determining the Nature of and Dividing Property.

         {¶ 6} Under this assignment of error, Cramer raises nine issues, which we will address separately.

         A. Increase in Value of Premarital Real Estate

         {¶ 7} Cramer's first issue for review states that:

An increase in the value of premarital real estate due to regular upkeep or market conditions remains that spouse's property.

         {¶ 8} Under this issue, Cramer contends that the trial court erred in awarding Wright one-half the marital increase in value (or $2, 345) of his premarital real estate. According to Cramer, the trial court incorrectly attributed this amount to mortgage pay-down, "upkeep, " and "market conditions." Cramer argues that there was no evidence of mortgage pay-down and no evidence of any improvements. Instead, any increase in value was attributable to passive market conditions and should have remained Cramer's separate property.

         {¶ 9} "In any divorce action, the starting point for a trial court's analysis is an equal division of marital assets." Neville v. Neville, 99 Ohio St.3d 275, 2003-Ohio-3624, 791 N.E.2d 434, ¶ 5, citing R.C. 3105.171(C). (Other citation omitted.) Under R.C. 3105.171(A)(3)(a), and as relevant here, "marital property" includes:

(i) All real and personal property that currently is owned by either or both of the spouses, including, but not limited to, the retirement benefits of the spouses, and that was acquired by either or both of the spouses during the marriage;
(ii) All interest that either or both of the spouses currently has in any real or personal property, including, but not limited to, the retirement benefits of the spouses, and that was acquired by either or both of the spouses during the marriage;
(iii) Except as otherwise provided in this section, all income and appreciation on separate property, due to the labor, monetary, or in-kind contribution of either or both of the spouses that occurred during the marriage;

         {¶ 10} R.C. 3105.171(A)(3)(b) further provides that "[m]arital property" does not include "separate property." The statute defines "separate property" as follows:

"Separate property" means all real and personal property and any interest in real or personal property that is found by the court to be any of the following:
(ii) Any real or personal property or interest in real or personal property that was acquired by one spouse prior to the date of the marriage;
(iii) Passive income and appreciation acquired from separate property by one spouse during the marriage;
(b) The commingling of separate property with other property of any type does not destroy the identity of the separate property as separate property, except when the separate property is not traceable.

R.C. 3105.171(A)(6)(a) and (b).

         {¶ 11} Because trial courts have broad discretion over the division of assets, we review the court's decision for abuse of discretion. Neville, 99 Ohio St.3d 275, 2003-Ohio-3624, 791 N.E.2d 434, at ¶ 5. " 'Abuse of discretion' has been defined as an attitude that is unreasonable, arbitrary, or unconscionable." (Citation omitted.) AAAA Enterprises, Inc. v. River Place Community Urban Redevelopment Corp., 50 Ohio St.3d 157, 161, 553 N.E.2d 597 (1990). The Supreme Court of Ohio has stressed that "most instances of abuse of discretion will result in decisions that are simply unreasonable * * *." Id. In addition, the court has said that "[a] decision is unreasonable if there is no sound reasoning process that would support that decision." Id.

         {¶ 12} There was no dispute at trial about the fact that a residence on Brampton Hill Road belonged to Cramer before marriage, and that the parties lived in the residence during their marriage. The parties also stipulated that the residence's value was $222, 940 in 2011 and was $227, 630 when the marriage ended. The increase during marriage, therefore, was $4, 690. In July 2013, Cramer placed the property in the name of both parties. Wright testified that Cramer intended to gift her with a one-half interest, while Cramer testified that this was done for purposes of estate planning.

         {¶ 13} In its decision, the trial court found that the residence was Cramer's separate property, but found the increase in value to be marital, based on mortgage payments, labor to upkeep the home, and market conditions. The court, therefore, awarded Wright one-half the marital increase, or $2, 345. After considering the record, we find no abuse of discretion.

         {¶ 14} Contrary to Cramer's contention, the evidence of record indicates that a $100, 000 mortgage on the property was taken out prior to the marriage and was satisfied on November 30, 2015, shortly after Wright left the premises. Wright indicated that she was unaware that the property had been mortgaged, and only became aware of the mortgage shortly before trial. Cramer did not dispute any of these facts at trial. The income tax returns also show itemized deductions for mortgage interest during the marriage. See, e.g., Plaintiff's Ex. 5, p. 3 (2012 tax return, depicting a $1, 682.58 deduction for home mortgage interest).

         {¶ 15} The Supreme Court of Ohio has stressed that "[t]he plain language of R.C. 3105.17[1](A)(3)(a)(iii) unambiguously mandates that when either spouse makes a labor, money, or in-kind contribution that causes an increase in the value of separate property, that increase in value is deemed marital property." (Emphasis sic; citations omitted.) Middendorf v. Middendorf, 82 Ohio St.3d 397, 400, 696 N.E.2d 575 (1998). Whether Wright knew about the mortgage or paid on it during the marriage is irrelevant, as the statute requires only that either spouse made an expenditure or effort during the marriage. Cramer offered no evidence to dispute that money was paid to decrease the mortgage (and thereby increased the property's value) during the term of the marriage. As a result, the trial court did not act unreasonably, capriciously, or arbitrarily in concluding that one- half the value of the appreciation should be awarded to Wright.

         B. Use of Rate of Return Based on Judicial Notice

         {¶ 16} Cramer's second issue for review states that:

A trial court abuses its discretion in determining a martial asset by creating a hypothetical rate of return based on judicial notice of a randomly selected investment index fund instead of the actual account statements in evidence.

         {¶ 17} In its decision, the trial court concluded that Cramer had $649, 890.19 in premarital funds in his Simplified Employee Pension ("SEP") account, and that an additional $193, 805.90 was deposited during the marriage. [1] The court took judicial notice of the S&P 500 rate of return during each year of marriage, and added interest to the marital amount. The total amount of interest added was $77, 835.83. This resulted in a total amount of $271, 641.73, and the court awarded half, or $135, 820.86 to Wright. The trial court calculated the interest by beginning in 2011 with a marital value of zero, and added interest each year on the existing amount. The interest rates of return the court used were as follows: 2.11% in 2011; 16.00% in 2012; 32.39% in 2013; 13.69% in 2014, and 1.38% in 2015. Doc. #50, p. 12.

         {¶ 18} According to Cramer, the trial court abused its discretion in ordering payment based on a hypothetical rate rather than what was actually earned. Cramer argues that this was arbitrary and resulted in an amount that significantly exceeded the showing he made of what was actually earned.

         {¶ 19} The problem here is that Cramer's "proof was very scanty. He appeared at trial with two spreadsheets that he had prepared to show the amount of martial increase in his retirement accounts. However, Cramer did not provide the court with underlying documentation, and the fact is that it would have been impossible to determine the rate of interest on the transactions due to the frequency in which funds moved in and out of retirement accounts and were reinvested. For example, Cramer testified there had been a significant amount of movement from one fund to another, that some of the funds did not have a history chart, and that some account values changed quarterly, some changed yearly, and some changed daily. His comment was that he believed the amount he testified to was "fairly accurate." Transcript of proceedings, p. 100.

         {¶ 20} Cramer further stated that he did not have any documents with him to show reinvestment withdrawals or additions that took place between the date of marriage and the date of separation. He indicated that the stack of documents reflecting this would be about two feet high, and his best estimate would be that there were twice as many transactions in his accounts as there were days between his marriage and the date the divorce was filed. Id. at pp. 172 and 185. Given the 51-month length of marriage and an average 30-day month, this would mean that more than 3, 000 transactions occurred.

         {¶ 21} As support for his position that the court could not use hypothetical rates, Cramer relies on Mays v. Mays, 2d Dist. Miami No. 2000-CA-54, 2001 WL 1219345 (Oct. 12, 2001). In Mays, we rejected an expert's evaluation of passive appreciation in a retirement account because the expert's evaluation failed to consider actual rates of return, but instead relied on "hypothetical numbers." Id. at *5. We, thus, concluded that "[w]ith no properly admitted evidence to establish the amount of passive appreciation traceable to Mr. Mays' separate property, the court erred by awarding Mr. Mays this appreciation." Id. We also commented that there was no question that the subject was "fit for expert testimony, since it relates to matters beyond the ken of the average layperson." Id. at *4.

         {¶ 22} Notably, in Mays, both sides had presented experts at trial. The wife's expert testified that the actual rate of return should have been used, while the husband's expert testified that even though actual rates were available, he used averages to make his calculations. Id. Because the trial court had relied on this unreliable evidence from the husband's expert, we sustained the wife's assignment of error. Id. at *5. We then stated that:

Upon remand, Mr. Mays will have the opportunity to present the evidence he would have presented had the trial court excluded, as it should have done, [his expert's] testimony on this subject. Upon remand, the trial court may wish to consider two options: (1) it may appoint a special master to determine actual appreciation on the account; or (2) it may allow the parties to present additional expert testimony regarding that amount of appreciation. In either case, those numbers used to arrive at the amount of passive appreciation traceable to Mr. Mays' separate property should be calculated by using the actual rates of returns and fees during the time period in question, instead of hypothetical, average rates of returns and fees.

Mays, 2d Dist. Miami No. 2000-CA-54, 2001 WL 1219345, at *5.

         {¶ 23} "Where * * * a party seeks to have a portion of the appreciation in a retirement account deemed passive and separate, that party bears the burden of establishing such by a preponderance of the evidence." (Citation and footnote omitted.) Measor v. Measor, 160 Ohio App.3d 60, 2005-Ohio-1417, 825 N.E.2d 1169, ¶ 43 (11th Dist.). In Measor, the trial court concluded that a husband failed to meet his burden of establishing that passive appreciation in his retirement account was separate. Among the findings made by the trial court was that many historical records were missing, that the husband's expert used an average rate of return rather than the actual rate of return, and that the husband " 'failed to prove marital contributions, including any earnings thereon.' " Id. at ¶ 37-40 and 45.

         {¶ 24} In the case before us, the trial court clearly concluded that Cramer failed to prove the amount of interest attributable to passive appreciation in his retirement accounts from pre-marital or separate property, as opposed to marital property. We agree. Cramer's statement that his calculations were "fairly accurate" is insufficient, and as in Measor, many historical records were missing. The issue, however, is whether the trial court correctly resolved the problem by taking judicial notice of rates of return and applying them.

         {¶ 25} Evid.R. 201(C) provides that "[a] court may take judicial notice, whether requested or not." Under Evid.R. 201(B), "[a] judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Judicial notice also may be taken at "any stage of the proceeding." Evid.R. 201(F).

         {¶ 26} In addressing Cramer's argument, Wright relies on Schroeder v. Schroeder, 2d Dist. Montgomery No. 22237, 2008-Ohio-3875, where we took "judicial notice that Series EE U.S. savings bonds do not mature one year after their purchase." (Emphasis sic.) Id. at ¶ 18, citing generally, 31 C.F.R. Part 351. This comment was dicta, however, as we had already decided to reverse the trial court's calculation of the value of the bonds. Id. at ¶ 17-18. Furthermore, taking judicial notice of regulations differs from taking judicial note of rates of return.

         {¶ 27} More to the point is Stamm v. Stamm, 6th Dist. Fulton No. F-08-009, 2009-Ohio-4924. In that case, the trial court used a 4.69% published rate of 20-year Treasury bills to calculate the anticipated yearly rate of return on income-producing assets that were distributed to a spouse. Id. at ¶ 17. The affected spouse argued this was error because there was no evidence in the record supporting the rate of return and use of the rate of return " 'could not reasonably be anticipated.' " Id. at ¶ 41-42. However, the Sixth District Court of Appeals found no abuse of discretion, stating that:

Judicial notice of adjudicative facts is governed by Evid.R. 201. Under Evid.R. 201(C) "[a] court may take judicial notice, whether requested or not." The kind of facts subject to judicial notice include those facts "capable of accurate and ready determination" by sources "whose accuracy cannot reasonably be questioned." Evid.R. 201(B)(2). Daily interest rates on treasury bills are published and readily available to anyone. Accordingly, judicial notice ...

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