Smith case addresses alimony and transmutation issues

Posted Sunday, September 30th, 2018 by Gregory Forman
Filed under Alimony/Spousal Support, Equitable Distribution/Property Division, Of Interest to Family Court Litigants, Of Interest to Family Law Attorneys, South Carolina Appellate Decisions, South Carolina Specific

While there is nothing surprising in the September 19, 2018 Court of Appeals opinion in Smith v. Smith, 425 S.C. 119, 819 S.E.2d 769 (Ct. App. 2018), the decision addresses some novel issues of alimony and equitable distribution.

Smith stems from a divorce action filed by Wife on December 27, 2013. For the previous five years Husband had (admittedly) engaged in a pattern of adultery and unprotected extramarital sex and (alleged) group sex. Early in the marriage Wife had worked in the insurance claims industry but became a stay-at-home mother after she gave birth to twins. In the year prior to trial Husband had earned $182,128.10 as a senior nuclear reactor operator, which included his annual incentive pay bonus of $21,522.03 and overtime pay of $20,369.64.

In setting alimony the family court imputed Wife minimum wage, determined Husband’s earning capacity was $174,000 based upon anticipated overtime income of $12,000 per year, and awarded Wife $1,500 per month in permanent periodic alimony. On appeal Husband argued that Wife did not need alimony and that she should have only been awarded rehabilitative alimony. He noted that Wife earned $50,000 per year prior to the marriage and claimed she received $40,000 per year in gross rental income from properties she was awarded in equitable distribution.

The Court of Appeals rejected these arguments, noting that Wife had quit her employment to raise the parties’ children and that Husband presented no evidence to demonstrate her current earning capacity. It also rejected Husband argument that, primarily because this was a short marriage (11 years), Wife should have only been awarded rehabilitative alimony, noting:

We find no evidence to support Husband’s claim that rehabilitative alimony is appropriate. The record fails to demonstrate exceptional circumstances, the time necessary for Wife to acquire job training or skills, the likelihood that Wife will successfully complete retraining, or Wife’s likelihood of success in the job market sufficient to completely support herself.

Frankly, given Husband’s serial adultery, I would consider him lucky that only 10% of his income is going towards alimony.

Wife cross-appealed four issues. First she appealed the family court’s failure to award her a portion of a bonus Husband received on March 15, 2014 for services rendered in 2013. Given that Wife filed this divorce action on December 27, 2013, the Court of Appeals found that this bonus was marital, as it was compensation for services rendered prior to the date of filing. Thus, it added this bonus to the marital estate.

Wife also appealed a portion of the equitable distribution order that awarded a 401k to Husband but made her liable for the 401k loan (which Husband was instructed to pay and deduct from his alimony obligation). The Court of Appeals noted that “the family court is encouraged to make final dispositions of property interests when possible or, in the alternative, cite compelling reasons for awarding fractional or joint interests.” Finding no compelling reasons to keep the parties’ interests in this 401k together for eighty-four months, the Court of Appeals made Husband responsible for the 401k loan.

Wife also appealed the portion of the family court order finding that the marital home that was purchased with funds from her premarital home was transmuted. Here, the Court of Appeals affirmed the transmutation finding because the parties used a joint account and commingled funds for the down payment and monthly payments on this property.

Finally, Wife appealed an award of 54.3% of the marital estate. The Court of Appeals, based upon Husband’s fault and Wife’s substantial pre-marital contribution to the marital estate, agreed, and bumped her percentage of the award to 60%.

Professor Roy Stuckey and I disagree on whether paying a home mortgage from marital funds results in transmutation. He cites the case of Nestberg v. Nestberg, 394 S.C. 618, 716 S.E.2d 310 (Ct. App. 2011) in support. I see Nestberg as an outlier. He thinks folks should be able to maintain pre-marital homes with marital funds without transmuting those homes. I disagree but think the family court should be more willing to do substantial deviations from 50/50 divisions when it finds transmutation.

In one of my own appeals decided the same day as Smith, Bojilov v. Bojilov, I successfully argued for an increase from 60% to 70% of the portion of the equity my client should have been awarded in a transmuted marital home. Whether to find such transmutation and how to handle distribution of transmuted property is a philosophical argument that our appellate courts seem to have little interest in resolving. However those attorneys who find this sort of thing interesting will find this portion of the Smith case interesting.

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