Summary
The Nebraska Supreme Court addressed the classification of appreciation in a premarital business interest during dissolution of marriage. It held that appreciation caused by marital contributions, including the efforts of the owning spouse, is marital property under the active appreciation rule, and it vacated and remanded portions of the property division while otherwise affirming or reversing as specified.
Topics
Practice areas
Questions Presented
- Whether appreciation during the marriage of Robert's premarital 34-percent interest in Stephens & Smith was marital property.
- Whether the district court properly awarded support to Janet under Neb. Rev. Stat. § 42-362 for 120 months rather than for as long as her mental illness continued.
- Whether the district court abused its discretion by ordering transfer of ownership interests in Aardvark Antique Mall, The Mystic Pines Apartments, and Eagles Landing Apartments instead of ordering a cash award.
Holdings
- Appreciation or income of a nonmarital asset during the marriage is marital property to the extent it was caused by the active efforts of either spouse or both spouses. The owning spouse bears the burden of proving what portion of the appreciation was caused by passive forces or qualifying third-party efforts.
- The district court could not exclude the active appreciation of Stephens & Smith from the marital estate and substitute a Grace award. The Grace award was therefore vacated.
- Neb. Rev. Stat. § 42-362 does not require support to continue for the entire duration of a spouse's mental illness. The district court did not abuse its discretion by awarding support for 120 months, although it could reconsider the amount of alimony after reconsidering the property division.
- The district court did not abuse its discretion by awarding Janet ownership interests in specified businesses instead of a cash award.
Key quotations
“Thus, accrued investment earnings or appreciation of nonmarital assets during the marriage are presumed marital unless the party seeking the classification of the growth as nonmarital proves: (1) The growth is readily identifiable and traceable to the nonmarital portion of the account and (2) the growth is not due to the active efforts of either spouse.” (206)
“We hold that the appreciation or income of a nonmarital asset during the marriage is marital insofar as it was caused by the efforts of either spouse or both spouses.” (207)
“Despite the importance of each employee in a company, a company's value for purposes of active appreciation is attributable only to the efforts of first-tier management or similar persons with control over the asset's value.” (208)
Factual background
Robert and Janet Stephens were married for approximately 25 years. Robert cofounded Stephens & Smith Construction Co., Inc., before the marriage, owned 34 percent of its stock, and served as its full-time president throughout the marriage. His stock interest increased in value from approximately $298,459 at the time of marriage to approximately $5,044,934 at dissolution, while Robert exercised substantial managerial control over the company's operations, compensation, investments, and leadership. Janet suffered from a mental illness during the latter part of the marriage, was unable to work, and received Social Security disability income.
Procedural history
Robert Stephens filed for dissolution in 2014. The Lancaster County District Court classified Robert's interest in Stephens & Smith, including appreciation during the marriage, as nonmarital but awarded Janet a $1.1 million Grace award; it awarded Janet support under § 42-362 for 120 months and ordered transfer of certain business interests to her. Janet appealed, and the Nebraska Supreme Court affirmed in part, vacated in part, and reversed and remanded in part.
Remand instructions
The district court must include in the marital estate the entire increase from the date of marriage to dissolution in the value of Robert's 34-percent stock interest in Stephens & Smith, including appreciation attributable to retained earnings, determine the equitable distribution of that marital asset, and vacate the Grace award. The district court may reconsider the amount of alimony in light of the revised property division.