Felts v. Felts

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NO. 29482

IN THE INTERMEDIATE COURT OF APPEALS

OF THE STATE OF HAWAI‘I

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RODNEY MALCOM FELTS, Plaintiff-Appellant, =
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CANDIDA ABRIL FELTS, Defendant-Appellee he wn
APPEAL FROM THE FAMILY COURT OF THE THIRD CIRCUIT 2
(FC-D NO. 06-1-242K) <4 =
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MEMORANDUM OPINION
(By: Nakamura, C.J., Foley and Fujise, JJ.)

Plaintiff-Appellant Rodney Malcolm Felts (Husband)
appeals from the Divorce Decree filed on October 30, 2008, as
amended on November 21, 2008, in the Family Court of the Third
Circuit’? (family court).

On appeal, Husband contends:

(1) The family court erred by awarding Defendant -
Appellee Candida Abril Felts (Wife) the Kona Paradise marital
residence located on Boki St., Captain Cook, Hawai‘i (the marital
residence), which had been purchased prior to Husband and Wife's
marriage by Husband and paid for with Husband's funds. The
family court erred by finding that the marital residence had been
gifted or transmuted into marital partnership property merely
because Wife had signed a mortgage. In connection therewith,
Husband contends Findings of Fact (FOFs) 15 and 16, as set forth
in the Divorce Decree, are erroneous.

(2) The family court's finding and conclusion that it

could "deviate" from the Partnership Model Division and award the

* The Honorable Aley K. Auna, Jr. presided.
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marital residence to Wife was based on improper considerations of
Husband's alleged discovery abuse, misuse of funds, and lack of
accounting. This may have justified an "equalization" or
adjustment, but not an award of Husband's separate property to
Wife. In connection therewith, Husband contends FOFs 16, 42, and
43 are erroneous and Conclusions of Law (COLs) 1, 2, and 5 are
wrong.

(3) The family court erred by finding that the
proceeds from the Blagg/Felts Family Partnership, Ltd. (Family
‘Partnership) to Husband was "income" and divisible marital
property. In connection therewith, Husband contends FOFs 19, 20,
21, 29, 30, 40, and 41 are erroneous.

I. BACKGROUND

Husband and Wife married on August 7, 1997. They had
been a couple since 1980. In 1994, Husband purchased the marital
residence. Husband and Wife signed a mortgage agreement on April
29, 2002. They lived in the marital residence until their
separation in 2006.

Husband owned five acres of real property in the
Hale‘ili Subdivision, on which he intended to build a second
home.

Prior to the marriage, Husband acquired an interest in
the Family Partnership, and this interest continued during the
marriage until the partnership was dissolved in 2003. Husband
was a co-general partner and acted as the broker-in-charge of the
account. Husband received income for his services.

Husband also profited from buying and selling real
estate in Hawai‘i during the marriage.

Husband filed a complaint for divorce on September 26,
2006. Wife answered Husband's complaint and moved for an order
granting temporary relief, which included exclusive possession of
the marital residence during divorce proceedings. The family

court granted Wife's motion for temporary relief, and Husband
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vacated the home and traveled to Thailand where he spent "quite a
bit" of money.

On December 13, 2006, Wife served a first request for
answers to interrogatories and production of documents on
Husband. Wife thereafter sought an order from the family court
compelling Husband to provide complete answers to the
interrogatories and produce complete documents. Husband opposed
Wife's motion. On November 20, 2007, the family court granted
Wife's motion and ordered Husband to pay Wife's attorney's fees
and costs associated with bringing the motion.

On March 25, 2008, Wife filed a Motion for Partial
Summary Judgment, arguing that Husband's income from the Family
Partnership was neither a gift nor a inheritance and therefore
Husband was not entitled to a Category 3 capital contribution
credit for the income. Attached to wife's motion were tax forms
from the Family Partnership, indicating Husband's share of
capital, income, withdrawals, and distributions. Husband filed
an opposition to Wife's motion, arguing that his interest in the
Family Partnership and income from the partnership were gifts,
which entitled him to a category 3 capital contribution credit.
Husband also stated that it "is very clear from the evidence
which will be before the Court in trial that [Husband's] interest
in the [Family Partnership] was clearly a gift or inheritance."
(Emphasis added.) Husband did not support his opposition
memorandum with affidavits.

The family court granted Wife's motion for partial

summary judgment and concluded that

as a matter of law, the [Family Partnership] operated as a
business and that the income, distributions, and withdrawals
received by [Husband] from the Partnership during the
marriage, as evidenced for tax purposes through annual K-1
schedules, were not "gifts" and were not "inheritance."
[Husband] is thus not entitled to repayment of those funds
as a Category 3 capital contribution.

On October 30, 2008, after a trial, the family court
issued the Divorce Decree. In the decree, the family court

deviated from partnership principles and awarded the marital

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residence to Wife. The family court also found that Husband's
interest in the Family Partnership was not separate property and
granted Husband a category 3 capital contribution credit of

$155,304.
On November 21, 2008, the family court filed an order,

amending Paragraph 5 (Real Property) on page 8 of the Divorce
Decree to reflect the correct address of the martial property.
Husband timely appealed.
II. STANDARDS OF . REVIEW

A. Abuse of Discretion
When reviewing family court decisions for an abuse of

discretion, the Hawai‘i Supreme Court has held:

The family court possesses wide discretion in making
its decisions and those decisions will not be set aside
unless there is a manifest abuse of discretion. Under the
abuse of discretion standard of review, the family court's
decision will not be disturbed unless the family court
disregarded rules or principles of law or practice to the
substantial detriment of a party litigant and its decision
clearly exceeded the bounds of reason.

In re Doe, 77 Hawai'i 109, 115, 883 P.2d 30, 36 (1994) (internal
quotation marks, citations, brackets, and ellipsis omitted).

B. Findings of Fact

In this jurisdiction, a trial court's [FsOF]
[sic] are subject to the clearly erroneous standard of
review. An FOF is clearly erroneous when, despite
evidence to support the finding, the appellate court
is left with the definite and firm conviction in
reviewing the entire evidence that a mistake has been
committed.

Chun v. Bd. of Trustees of the Employees' Retirement Sys. of
the State of Hawai‘i, 106 Hawai‘i 416, 430, 106 P.3d 339, 353
(2005), reconsideration denied, 106 Hawai‘i 477, 106 P.3d
1120 (2005) (internal quotation marks, citations, and
ellipses omitted) [.]

"An FOF is also clearly erroneous when the record
lacks substantial evidence to support the finding. We have
defined substantial evidence as credible evidence which is
of sufficient quality and probative value to enable a person
of reasonable caution to support a conclusion." Leslie v.
Estate of Tavares, 91 Hawai'i 394, 399, 984 P.2d 1220, 1225
(1999) (internal quotation marks and citations omitted) [.]

Inoue v. Inoue, 118 Hawai'i 86, 92-93, 185 P.3d 834, 840-41

(App.), cert. rejected, 118 Hawai'i 194, 186 P.3d 629 (2008).

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Cc. Conclusions of Law

A COL is not binding upon an appellate court
and is freely reviewable for its correctness. [An
appellate] court ordinarily reviews COLs under the
right/wrong standard. Thus, a COL that is supported
by the trial court's FOFs and that reflects an
application of the correct rule of law will not be
overturned. However, a COL that presents mixed
questions of fact and law is reviewed under the
clearly erroneous standard because the court's
conclusions are dependent upon the facts and
circumstances of each individual case.

{Chun v. Bd. of fTrs. of the Employees' Ret. Sys. of the
State of Hawai‘i, 106 Hawai‘i 416, 430, 106 P.3d 339, 353
(2005)] (internal quotation marks, citations, and brackets
[in origina] omitted) [.]

Inoue, 118 Hawai‘i at 93, 185 P.3d at 841.
IIL. DISCUSSION

A. ALTHOUGH THE FAMILY COURT FAILED TO MAKE FINDINGS
ON THE ELEMENTS OF A LEGAL GIFT, A REMAND IS NOT
REQUIRED FOR THOSE FINDINGS.

Husband contends the family court erred in finding that
he had effectively "gifted" the marital residence to himself and
Wife as marital property merely because he and Wife had signed a
mortgage on the property. Husband aruges that there was no
evidence of the legal elements of a gift.

Husband further argues that the family court's

following FOFs are clearly erroneous:

15. Both parties signed a mortgage agreement on
April 29, 2002.

16. As set forth below in "Conclusions of Law" and
in the discussion of deviation in particular, the court
finds it is just and equitable that the court deviate to
award the [marital] residence to Wife and that Husband
effectively "gifted" the [marital] residence to Husband and
Wife when the parties signed the mortgage agreement.

Wife counters that there was substantial evidence in
the record supporting the family court's FOFs.
In Gussin v. Gussin, 73 Haw. 470, 836 P.2d 484 (1992),

the Hawai‘i Supreme Court concluded that this court erred in
failing to remand to the family court the issue of whether a

legal gift had been made where the family court failed make
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findings on the elements of a legal gift. Id. at 489, 836 P.2d
at 494 ("Because the family court failed to make any findings as
to donative intent or any other element bearing on whether a
legal gift had been made, we conclude that the ICA erred in not
remanding the issue of gift for the family court to decide.").
The family court in the instant case did not make
findings on the elements of a legal gift. However, a remand is
not required pursuant to Gussin because there is a separate
independent basis for the family court's awarding of the marital

residence to wife. See Taylor-Rice v. State, 91 Hawai'i 60, 73,

979 P.2d 1086, 1099 (1999) (Reviewing court "may affirm a
judgment of the trial court on any ground in the record which

supports affirmance.").

B. THE FAMILY COURT PROPERLY DEVIATED FROM THE
PARTNERSHIP MODEL DIVISION TO AWARD THE MARITAL
RESIDENCE TO WIFE.

Husband contends the family court erred in deviating
from the Partnership Model Division to award Wife the marital
residence because the "decision was based on improper
considerations, specifically, [Husbands'] purported discovery
abuse, misuse of funds, and his lack of accounting."

On May 30, 2008, the family court explained its
rationale for deviating from partnership principles and awarding

the marital residence to Wife:

Deviation. The Court may deviate from marital-
partnership principles in dividing marital-partnership
property where there are valid and relevant considerations.
In doing so, the Court must follow Hawaii Revised Statutes
[HRS §] 580-47(a) to consider the respective merits of the
parties, the relative abilities of the parties, the
condition in which each party will be left by the divorce,
and all other circumstances of the case.

Husband has derived much of his income from monies
obtained through inheritance and through buying and selling
real estate. The Court, however, could not find in exhibits
specific documents or other corroborating evidence referring
to his inheritance during marriage that assets prior to date
of marriage [sic], except as noted above.

Wife has sought discovery and husband has always
indicated that he has turned over all requested discovery.
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following

Had husband provided documentation, the Court would have had
a truer picture of Category 1 and Category 3 assets. The
Court can only conclude that all discovery was not
adequately provided.

The parties were ordered not to waste assets. Yet
husband has spent hundreds of thousands of dollars without
accounting for where these funds were coming from or going
to. For example, the difference in the beginning and ending
balances of Exhibits T and Exhibit 3.

Based on the foregoing and considering the factors
listed above, and under the circumstances of this case, it
would be just and equitable to award the [marital] residence
to wife and the Hale‘ili residence to husband. And I've
noted that in the allocation chart.

In the Divorce Decree, the family court made the

FOFS:

16. As set forth below in "Conclusions of Law" and
in the discussion of deviation in particular, the court
finds it is just and equitable that the court deviate to
award the [marital] residence to Wife and that Husband
effectively "gifted" the [marital] residence to Husband and
Wife when the parties signed the mortgage agreement.

42. Wife has consistently sought discovery from
Husband, and Husband has indicated that he has turned over
all requested discovery.

43. The parties were ordered not to waste assets.
Yet, Husband has spent hundreds of thousands of the dollars
without accounting for where these funds are coming from or
going to (for example: the difference between the beginning
and ending balances of Exhibits T and 3).

The family court also made these COLs:

1. Marital separate property is (a) all property
covered by a valid premarital agreement, (b) all property
covered by a valid postnuptial agreement and (c) all
property that was acquired by a party during the marriage by
gift or inheritance, was expressly classified by the party
as his/her separate property, and after acquisition, was
maintained by itself and/or sources other than one or both
of the parties and was funded by sources other than by the
marital partnership income or property.

2. The Court may deviate from marital partnership
principles in dividing marital partnership property where
there are valid and relevant considerations. In doing so,

the Court must follow [HRS] § 580-47(a) to consider the
respective merits of the parties, the relative abilities of
the parties, the condition in which each party will be left
by the divorce, and all other circumstances of the case.

Based upon the Husband's expenditure of hundreds of

thousands of dollars since being ordered not to waste
assets, and his failure to account for where these assets

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went, and considering all of the factors listed above and
all of the circumstances of this case as they have been
admitted. into evidence in this case, it is just and
equitable for the Court to deviate in this case and make the
following orders:

5. REAL PROPERTY. Wife is awarded the [marital
residence]. Husband is awarded the Hale‘ili residence
located at .. . Hale‘ili Road, Captain Cook, Hawaii, and

the building materials on the same property.

In Jackson v. Jackson, 84 Hawai‘i 319, 933 P.2d 1353

(App. 1997), this court explained the family court's division of
marital property under the Partnership Model Division:

The Partnership Model requires the family court, when
deciding the division and distribution of the Marital
Partnership Property of the parties part of divorce cases,
to proceed as follows: (1) find the relevant facts; start
at the Partnership Model Division and (2) (a) decide whether
oer not the facts present any valid and relevant
considerations authorizing a deviation From the Partnership
Model Division and, if so, (b) itemize those considerations;
if the answer to question (2) (a) is "yes," exercise its
discretion and (3) decide whether or not there will be a
deviation; and, if the answer to question (3) is "yes,"
exercise its discretion and (4) decide the extent of the
deviation.

Question (2) (a) is a question of law. The family
court's answer to it is reviewed under the right/wrong
standard of appellate review. Questions (3) and (4) are
discretionary matters. The family court's answers to them
are reviewed under the abuse of discretion standard of
appellate review.

Id. at 332-33, 933 P.2d at 1366-67 (footnote omitted). In
Jackson, this court also explained how the family court arrives
at valid and relevant considerations that. justify deviating from

partnership principles:

In determining whether one or more valid and relevant
considerations authorize the family court to deviate from
the Partnership Model, the family "court shall take into
consideration: the respective merits of the parties, the
relative abilities of the parties, the condition in which
each party will be left by the divorce, the burdens imposed
upon either party for the benefit of the children of the
parties, and all other circumstances of the case." HRS
§ 580-47(a). (1993). Other than relative circumstances of
the parties when they entered into the marital partnership
and possible exceptional situations, the above quoted part
of HRS § 580-47(a) requires the family court to focus on the
present and the future, not the past.

Id. at 333, 933 P.2d at 1367.
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HRS § 580-47(a) (2006 Repl.) authorizes the family
court to "make any further orders as shall appear just and
equitable" for purposes of support and property division during
divorce. The family court is expressly authorized to order a
final division and distribution of "the estate of the parties,
real, personal, or mixed, whether community, joint or separate."
id. In doing so, § 580-47(a) mandates that the family court
consider the "the respective merits of the parties, the relative
abilities of the parties, the condition in which each party will

be left by the divorce .. . and all other circumstances of the

Case." Id. (emphasis added).

We conclude that HRS § 580-47(a} is broad enough to
encompass Husband's purported discovery abuse, misuse of funds,
and his lack of accounting as valid and relevant considerations
for deviating from partnership principles. We note however that
the family court did not base its decision on these factors
alone. The Divorce Decree expressly stated that "considering all
of the factors listed above and all of the circumstances of this
case as they have been admitted into evidence in this case, it is
just and equitable for the Court to deviate in this case[.]"

The evidence at trial indicated that during the
marriage, husband profited handsomely from buying and selling
real estate properties. The evidence also indicated that Wife,
although gainfully employed, suffered from lupus, and although
Wife had an interest in a coffee farm, the annual income
generated from this interest was paltry.

We conclude the family court did not err in deviating
from partnership principles pursuant to HRS § 580-47(a) and
awarding the marital residence to Wife.

Cc. THE FAMILY COURT PROPERLY CONCLUDED THAT THE
PROCEEDS FROM THE FAMILY PARTNERSHIP TO HUSBAND
WERE NOT HIS MARITAL SEPARATE PROPERTY.

Husband contends the family court erred in finding that

his interest in the Family Partnership was not "Marital Separate
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Property." The family court made the following FOFs with respect

to husband's partnership interest:

19. Husband's interest in the [Family Partnership]
was acquired prior to the marriage and his interest in the
[Family Partnership] continued during the marriage until the
[Family Partnership] dissolved in 2003. Husband's interest
in the [Family Partnership] is not separate property.

20. The court has previously ruled that the income
and distributions received by Husband from the [Family
Partnership] during the marriage shall not be considered
gifts or inheritance. (See, Order Granting [Wife's] Motion
for Partial Summary Judgment filed on April 28, 2008.)

21. The income and distribution from the [Family
Partnership] was used to sustain the marriage and Husband.

29. Husband received inheritance during the marriage
from the Estate of Alba Felts Blagg totaling $155,304
(Exhibit L). There is no other evidence or exhibit

corroborating Husband's category 3 assets to support his
Closing Argument.

30. Husband is entitled to a Category 3 capital
contribution credit of $155,304.

40. Husband has not introduced exhibits or other
corroborating evidence to support his claims that he
received much of his income from monies obtained through
inheritance.

41. Husband has derived income from the [Family
Partnership] and buying and selling real estate.

At trial, the family court identified the disputed and

undisputed aspects of husband's Family Partnership interest:

THE COURT: You know, there's no dispute, at least in
my mind, unless, [Wife's Counsel], you see it otherwise,
that this partnership that was created, was created as a
result of gifts from a relative. You know, that's not in
dispute.

What your client claims to be in dispute is the income
from the [Family Partnership] that he received. He says
that's continued -- that is -- should be considered
inheritance. And I've already ruled on that. He says,
well, they put it into a business, an ongoing concern.

And in my view, regardless of how that concern was
created, the business concern was created, it's nowa
business. And whatever funds he received from that
business, I've determined and ruled that it is income. So
it's not an issue how it was funded. I think [Wife's
Counsel] would stipulate it was funded because of gifts from
[Husband's] mother --

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[Wife's Counsel]:. Grandmother.

THE COURT: Oh, grandmother, while she was still
living. That's not an issue.

Husband argues that "under Hawaii law, property that
has been gifted and inherited by one spouse, and maintained as
separate property throughout the marriage is treated as Separate
Marital Property, including any appreciation, returns or
earnings."

In Hussey v. Hussey, 77 Hawai‘i 202, 206-07, 881 P,2d

1270, 1274-75 (App. 1994), overruled on other grounds by State v.

Gonsales, 91 Hawai'i 446, 984 P.2d 1272 (App. 1999), this court

established three categories of property in divorce proceedings:

Premarital Separate Property. This was the property
owned by each spouse immediately prior to their marriage or
cohabitation that was concluded by their marriage. Upon
marriage, this property became either Marital Separate
Property or Marital Partnership Property.

Marital Separate Property. This is the following
property owned by one or both of the spouses at the time of
the divorce:

a. All property that was excluded from the marital
partnership by an agreement in conformity with the Hawai'i
Uniform Premarital Agreement Act (HUPAA), HRS chapter 572D
(Supp. 1992).

b. All property that was excluded from the marital

partnership by a valid contract. [Tougas v. Tougas, 76
Hawai‘i 19, 24, 868 P.2d 437, 442 (1994)]; and

Cc. All property that (1) was acquired by the
spouse-owner during the marriage by gift or inheritance,
(2) was expressly classified by the donee/heir-spouse-owner
as his or her separate property, and (3) after acquisition,
was maintained by itself and/or sources other than one or
both of the spouses and funded by sources other than marital
partnership income or property.

Marital Partnership Property. All property that is
not Marital Separate Property.

Husband alleges that marital separate property under
Hussey is not limited to the principal, but includes any
appreciation, gains or earnings on the principal. Husband urges

this court to accept the unfounded proposition that because the

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assets of the Family Partnership were undisputably a gift and
Husband independently managed these assets, any appreciation,
gains or earnings from these assets remained his separate
property as gifts. .

We disagree. Under Hussey, there are three classes of
marital separate property. 77 Hawai'i at 206-07, 881 P.2d at
1274-75. The evidence makes no mention of any valid prenuptial
agreement or contract excluding husband's appreciation, gains or
earnings from the marital estate. Therefore these proceeds may
only qualify as marital separate property if husband can

demonstrate that they

(1) [were] acquired by the spouse-owner during the marriage
by gift or inheritance, (2) [were] expressly classified by
the donee/heir-spouse-owner as his or her separate property,
and (3) after acquisition, [were] maintained by itself
and/or sources other than one or both of the spouses and
funded by sources other than marital partnership income or
property.

Id. at 207, 881 P.2d at 1275.

Husband did not raise in the family court a material
issue as to whether the appreciation, gains and earnings from his
partnership interest qualified as marital separate property.’
Additionally, husband's brief on appeal fails to indicate record
references supporting the claim that the appreciation, gains, and
earnings were gifts. Therefore, these proceeds from a gift-
source do not qualify as marital separate property under Hussey.

The family court's FOFs are therefore not clearly
erroneous and its COLs are not wrong. Inoue, 118 Hawai‘i at 92-

93, 185 P.3d at 840-41.

* There are no supporting affidavits attached to Husband's opposition
to Wife's motion for partial summary judgment on the issue of whether the
appreciation, gains, and earnings from Husband's partnership interest were
Marital separate property.

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Iv. CONCLUSION
The Divorce Decree filed on October 30, 2008, as
amended on November 21, 2008, in the Family Court of the Third
Circuit is affirmed.

DATED: Honolulu, Hawai‘i, July 15, 2010.

On the briefs:

John §. Carroll (4 ’ 2 Weal.

for Plaintiff-Appellant.
Chief Judge

Kimberly A. Jackson
Andrea H. Alden

(Law Offices of Kimberly
A. Jackson, LLLC) Ee tN /
for Defendant-Appellee. .

Associate Judge

awa: 0 hy

Associate Judgé

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