The Oregon Divorce Blog

New Case Law: Property division, inherited property, and a clear trial court record. February 14, 2008

On February 13, 2008, the Oregon Court of Appeals decided an interesting real property and equalizing judgment issue in Olson and Olson, ____ Or App _____ (2008). As a Portland, Oregon-based divorce attorney (Based in Oregon’s most populous county, Multnomah County), I am always interested in how the Oregon Court of Appeals adjusts trial court’s property divisions. The Olson decision addresses the issue of the division of inherited property, the division of appreciation on separately held property, presumptions regarding property division, the effect of credibility findings by the trial court, and the definition of what is a “just and proper” in dividing assets and liabilities.

The Olson decision dealt with husband’s appeal from a trial court ruling equally dividing husband’s inheritance (an 80 acre estate consisting of timber and a residence.) The trial court (in Lane county) treated the 80 acres as a marital asset and divided the inherited value and post-inheritance appreciation equally between the parties. Husband appealed in light of the Oregon Supreme Court’s ruling in Kunze and Kunze, 337 Or 122, 92 P3d 100 (2004), arguing the court should have excluded the inherited property from division, or awarded wife only a small fraction of the property’s value.

Wife and husband married in 1995, and divorced in 2006. In 1995, husband’s father (“grandfather”) lived on an 80 acre timber property. Father’s relationship with grandfather was strained, but father was closer to grandfather than other family members. The parties jointly considered buying the property from grandfather, but did not complete the purchase. They spent $3000 investigating the purchase. Husband and wife’s relationship with grandfather soured in 1997, and the parties shelved their plans to move to the property. Husband’s relationship with grandfather improved, but cwife’s did not.

Grandfather died in 2000, and husband inherited the entire estate. Husband transferred the 80 acres to himself in his sole name (the property was worth $330,000 at the time.) Wife was not put on title. Other proceeds of the estate were mixed with the parties’ finances. Husband sold equipment and deposited it into a joint account, and the parties spent $10,000 in joint funds on an attorney for the estate. Husband and wife continued to file joint income taxes. At the time of trial in 2006, husband’s inherited property was worth $465,000.

In Oregon, property division at trial is controlled by ORS 107.105(1)(f). Under the property division statute, property received by a party during the marriage (by inheritance, gift, wages, or otherwise) is considered a “marital asset”, which means the court assumes both contributed equally to earning the asset, and that the asset should be divided equally. This is a “rebuttable” presumption, meaning that either spouse can challenge the other spouse’s contribution to an asset (and thus argue to receive a larger share of the asset.) Herein lies the main dispute in Olson. The trial court held that wife, through her labor on the property, and the use of the joint account in maintaining the property, had established that the property was “marital” and subject to equal division. The trial court equally divided both the premarital value of the property, and the appreciation on the property during the marriage. The trial court did not make specific findings as to WHY it had exercised its’ discretion in awarding wife half of the inherited value and the appreciation on the property during the marriage.

In reducing wife’s property award, the Oregon Court of Appeals quoted the Oregon Supreme Court’s construction of ORS 107.105(1)(f):

In dividing the parties’ property, we follow ORS 107.105(1)(f), as construed in Kunze, 337 Or at 134-36. Under that case, we undertake a series of inquiries, described by the Supreme Court:

“If a party establishes that the property at issue is a marital asset * * *, then the court must apply the rebut table presumption of equal contribution under ORS 107.105(1)(f) as its next step in the analysis.* * * [T]he presumption directs the court that, unless proven otherwise, the court must find that both parties have contributed equally to the acquisition of marital assets. When the statutory presumption is not rebutted, this court has determined that, absent other considerations, the ‘just and proper’ division of the marital assets is an equal division between the parties. * * *

“Because the presumption of equal contribution under ORS 107.105(1)(f) is rebut table, either or both of the parties may seek to overcome it. If a party seeks to overcome that presumption, then that party has the burden of proving by a preponderance of the evidence that the other spouse’s efforts during the marriage did not contribute equally to the acquisition of the disputed marital asset. In assessing whether a party has satisfied that burden, ORS 107.105(1)(f) requires the court to consider both economic and non-economic espousal contributions, including the contributions of a spouse as a homemaker. ORS 107.105(1)(f) (court shall consider contribution of spouse as homemaker). If a party ultimately rebuts the presumption that the other spouse contributed equally to a disputed marital asset, then the court decides how to distribute that marital asset without regard to any presumption and, instead, considers only what is ‘just and proper in all the circumstances,’ including the proven contributions of the parties to the asset. When a party has proved that a marital asset was acquired free of any contributions from the other spouse, however, this court has determined that, absent other considerations, it is ‘just and proper’ to award that marital asset separately to the party who has overcome the statutory presumption.

“After the court makes its preliminary determination of the appropriate division of the marital assets by applying the statutory presumption, ORS 107.105(1)(f) next requires that the court consider what division of all the marital property–that is, both the marital assets and any other property that the parties had brought into the marriage–is ‘just and proper in all the circumstances.’ By contrast to the focus upon the parties’ respective contributions under the statutory presumption, the court’s final inquiry as to the ‘just and proper’ division concerns the equity of the property division in view of all the circumstances of the parties. * * * The trial court’s ultimate determination as to what property division is ‘just and proper in all the circumstances’ is a matter of discretion.”

The Oslon court held that for Wife to benefit from the premarital value of the property, she must show that her contribution to the property influenced the inheritance, and that grandfather intended for her to receive the estate. Wife did not show that her work on the property influenced the inheritance, or that she was the intended recipient of the estate. The court thus concluded that she did not influence the inheritance and also did not contribute equally to the acquisition of the property.

The Oslon court next considered whether Wife was entitled to a portion of the appreciation on the property during the marriage. The Olson court held that it must consider both economic and non-economic contributions in considering whether the presumption of equal contribution has been rebutted. Wife, without compensation, had primarily raised the partes’ children. She contributed her earned income to the family. She made substantial contributions of labor to grandfather’s property. The Olson court held that husband had not rebutted wife’s contribution to the appreciation on the 80 acres.

The court went on to award wife 25% of the pre-inheritance value of the property because it was “just and proper in all the circumstances.” In awarding wife a portion of the pre-inheritance value of the property, the court primarily considered that the property had been treated as “commingled” by the parties. While held in husband’s name alone, the parties had intermingled the property with their personal affairs, and jointly labored on the property. Wife has separately researched whether they were eligible for a Ballot Measure 37 claim. In considering what was “just and proper” the court found that some fraction of the inherited value, less than half, should be awarded to wife. The Court of Appeals awarded wife 25% of the inherited value, and 50% of the appreciation between inheritance and divorce. The Court of Appeals then reduced wife’s equalizing judgment.

The Court of Appeals went out of its way to explain that the trial court’s decision had been modified because the rationale for the decision was not clear in the court’s record. Normally, the Appellate court respects the lower court’s rulings as to husband and wife’s credibility, both express and implied. If the trial court record does not reflect why it made a credibility decision, it is subject to adjustment at the appellate level.

What lesson does Olson offer for a husband or wife facing a divorce trial in Oregon? First, present the court in a trial memorandum with the proper property division analysis under ORS 107.105(1)(f) and the Kunze case. Second, make sure the court’s ruling is clear in the final judgment (see our earlier post on well drafted judgments.) Third, make sure the court’s record and the divorce judgment includes findings as to WHY the court is making the specific property division. Make sure your lawyer asks the court to make specific findings of fact! If the trial court exercises discretion in dividing property, but does not explain why, you are leaving your decision open to reconsideration by a higher court.