Reed v. Reed

when entering and affirming the default judgment.14 We reverse
the review panel’s judgment and remand the cause to that court
for further remand to the trial judge for proceedings consistent
with this opinion with directions to vacate the default judgment
and award.
R eveRsed and Remanded .
14 See, Neb. Rev. Stat. § 48-185 (Reissue 2004); Phillips, supra note 7.
J effRey J ay R eed , appellee , v .
C hRistine J ennifeR R eed , appellant .
747 N.W.2d 18
Filed April 11, 2008. 	No. S-06-757.
1. Conveyances: Fraud: Equity: Appeal and Error. An appeal of a district court’s
determination that a transfer of an asset was not in violation of the Uniform
Fraudulent Transfer Act is equitable in nature.
2. Equity: Appeal and Error. In an appeal of an equity action, an appellate court
tries factual questions de novo on the record, reaching a conclusion independent of
the findings of the trial court.
3. Evidence: Appeal and Error. Where credible evidence is in conflict on a mate-
rial issue of fact, the appellate court will consider and may give weight to the fact
that the trial judge heard and observed the witnesses and accepted one version of
the facts rather than another.
4. Conveyances: Fraud: Proof. A person seeking to set aside a transfer under the
Uniform Fraudulent Transfer Act must first prove that he or she is a “creditor”
under the act and that the party against whom relief is sought is a “debtor.”
5. Conveyances: Fraud. The Uniform Fraudulent Transfer Act requires some nexus
between the claim upon which an individual’s creditor status depends and the
purpose for which that individual seeks to set aside a fraudulent transfer.
6. Divorce: Property Division: Equity: Fraud. A spouse’s right to an equitable
distribution of the marital estate is not a “right to payment” under the Uniform
Fraudulent Transfer Act.
Appeal from the District Court for Hall County: teResa K.
lutheR, Judge. Affirmed.
John W. Ballew, Jr., and Karisa D. Johnson, of Ballew,
Schneider, 	Covalt, 	Gaines 	& 	Engdahl, 	P.C., 	L.L.O., 	for
appellant.
418 	275 NEBRASKA REPORTS
Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
11/01/2026 04:54 AM CST

Mark Porto and John A. Wolf, of Shamberg, Wolf, McDermott
& Depue, for appellee.
heaviCan, 	C.J., 	WRight, 	C onnolly, 	geRRaRd, 	stephan,
mCC oRmaCK, and milleR-leRman, JJ.
heaviCan, C.J.
INTRODUCTION
Jeffrey Jay Reed petitioned for divorce from Christine
Jennifer Reed. Shortly before filing for divorce, Jeffrey’s inter-
ests in two business ventures—C.J. Reed Enterprises, Inc.,
and R.S. Wheel, L.L.C.—were transferred to third parties. At
trial, the district court for Hall County was asked to deter-
mine whether those transfers violated Nebraska’s Uniform
Fraudulent Transfer Act (UFTA).1 The district court concluded
that the transfers were not fraudulent and then dissolved the
parties’ remaining assets. Christine now appeals, challenging
the district court’s conclusion that the predivorce transfers of
Jeffrey’s business interests did not violate the UFTA. We affirm
the district court’s judgment for the reasons set forth below.
BACKGROUND
The only issues on appeal concern Jeffrey’s interests in two
businesses—C.J. Reed Enterprises and R.S. Wheel. Accordingly,
we include in our background discussion only the underlying
facts that directly relate to those two business interests.
C.J. R eed enteRpRises
In 1997, approximately 1 year after they were married,
Christine and Jeffrey formed C.J. Reed Enterprises. They
formed the business to purchase and operate a jewelry store.
Christine and Jeffrey obtained financing for the store from
Norwest Bank. Jeffrey’s parents, James and Precious Reed,
agreed to act as sureties on the loan from Norwest Bank. On
July 11, 1997, Christine, Jeffrey, James, and Precious executed
an agreement setting forth each party’s rights and obligations
stemming from James and Precious’ roles as sureties. At the
1 Neb. Rev. Stat. §§ 36-701 to 36-712 (Reissue 2004).
REED v. REED 	419
Cite as 275 Neb. 418

time, Christine and Jeffrey each owned half of the 10,000 total
shares of C.J. Reed Enterprises stock. The agreement specified
that James and Precious could take title to all of the corpora-
tion’s stock if Christine or Jeffrey ever failed to discharge her
or his obligations as owners of C.J. Reed Enterprises to the
satisfaction of James and Precious. Among other things, the
agreement required Christine and Jeffrey to avoid “default” in
making “payment to trade creditors or any other creditors.”
In 2000, James and Precious paid Christine and Jeffrey’s
debt to Norwest Bank and thereby became the sole financiers of
Christine and Jeffrey’s business. The total principal on Christine
and Jeffrey’s loan was $576,595.92, and interest was calculated
at $188,163, assuming the loan was paid within 10 years. It is
not clear how much Christine and Jeffrey paid toward the loan
before May 2001. However, between May 2001 and the time
of the divorce proceeding, they paid a mere $3,000 toward the
principal and $40,000 toward the interest. Christine and Jeffrey
both concede that this constituted a “default” within the meaning
of their July 1997 agreement with James and Precious.
Nevertheless, James and Precious did not execute their right
to take title of C.J. Reed Enterprises stock until Jeffrey advised
James in early June 2004 of his intent to divorce Christine.
On June 11, 2004, approximately 2 weeks before Jeffrey filed
for divorce, James and Precious notified their attorney that
they wanted to exercise their option to take title of C.J. Reed
Enterprises. On June 15, James and Precious sent Christine and
Jeffrey separate letters informing them that James and Precious
were transferring all 10,000 shares of C.J. Reed Enterprises
stock into their names. Jeffrey filed for divorce on June 24.
R.s. W heel
In January 2004, Jeffrey formed R.S. Wheel with Dr. Steven
Schneider in order to purchase two parcels of land on South
Locust Street in Grand Island, Nebraska. At the time of pur-
chase, the land was situated across the street from a plot where
Wal-Mart was planning to open a store. R.S. Wheel purchased
this land for $380,000. The hope was that the land could be
resold for much more due to its proximity to emerging local
businesses. R.S. Wheel received financing from Home Federal
420 	275 NEBRASKA REPORTS

Savings and Loan, and as of January 12, 2006, R.S. Wheel
owed $383,842.70 on the loan and interest.
On June 18, 2004, 6 days before he filed for divorce, Jeffrey
transferred his interest in R.S. Wheel to Schneider. In return, on
June 21, Jeffrey received a check for $15,000. Schneider testi-
fied that prior to this transfer, he and Jeffrey discussed Jeffrey’s
plans to divorce Christine. On June 22, Jeffrey deposited the
check in an account held in his name only. Some of the funds
were spent on various debts.
In reviewing these facts, the district court specifically found
that the transfers were for legitimate reasons and not fraudulent
conveyances under the UFTA. Accordingly, the district court
did not consider either business interest when it made an equi-
table distribution of the marital estate between Christine and
Jeffrey. Christine now challenges that determination on appeal.
ASSIGNMENTS OF ERROR
Christine assigns, restated, consolidated, and renumbered,
that the district court erred by failing to find that the transfers
of Jeffrey’s interests in (1) C.J. Reed Enterprises and (2) R.S.
Wheel were fraudulent transfers in violation of the UFTA and
therefore subject to an equitable division among the parties as
property within the marital estate.
STANDARD OF REVIEW
[1-3] An appeal of a district court’s determination that a
transfer of an asset was not in violation of the UFTA is equi-
table in nature.2 In an appeal of an equity action, an appellate
court tries factual questions de novo on the record, reaching
a conclusion independent of the findings of the trial court.3
Where credible evidence is in conflict on a material issue of
fact, the appellate court will consider and may give weight to
2 Parker v. Parker, 268 Neb. 187, 681 N.W.2d 735 (2004) (citing Eli’s, Inc. v.
Lemen, 256 Neb. 515, 591 N.W.2d 543 (1999)).
3 Strunk v. Chromy-Strunk, 270 Neb. 917, 708 N.W.2d 821 (2006); Parker,
supra note 2.
REED v. REED 	421
Cite as 275 Neb. 418

the fact that the trial judge heard and observed the witnesses
and accepted one version of the facts rather than another.4
ANALYSIS
As the Nebraska Court of Appeals aptly summarized, the
UFTA allows a creditor to reach an asset that a debtor has
transferred if the transfer bears certain indicia of fraud.5 In
other words, under the UFTA, “‘transfers of property designed
to place a debtor’s assets beyond the reach of the debtor’s
creditors are void as to the creditors.’”6
[4] It is elementary, therefore, that a person seeking to set
aside a transfer under the UFTA must first prove that he or she
is a “creditor” under the UFTA and that the party against whom
relief is sought is a “debtor.” The UFTA defines a “creditor” as
“a person who has a claim”7 and a “debtor” as “a person who is
liable on a claim.”8 A “claim” is defined as “a right to payment,
whether or not the right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured.”9
Christine believes she is a creditor of Jeffrey because he
owes her payments for child and spousal support. Those sup-
port obligations vest Christine with a right to payments for
which Jeffrey is liable. It appears, therefore, that Jeffrey is a
debtor of Christine under the UFTA with respect to his support
obligations.10 Jeffrey concedes as much, but questions whether
that permits Christine to invoke the UFTA in this case.
As Jeffrey points out, Christine is not asking that predivorce
transfers of Jeffrey’s business interests be set aside in order
to satisfy Jeffrey’s support obligations. Rather, Christine uses
her status as a “creditor” for support purposes as the basis
4 Strunk, supra note 3; Parker, supra note 2.
5 Trew v. Trew, 5 Neb. App. 255, 558 N.W.2d 314 (1996), reversed on other
grounds 252 Neb. 555, 567 N.W.2d 284 (1997).
6 National Loan Investors, L.P. v. Givens, 952 P.2d 1067, 1069 (Utah 1998).
7 § 36-702(4).
8 § 36-702(6).
9 § 36-702(3) (emphasis supplied).
10 See Parker, supra note 2.
422 	275 NEBRASKA REPORTS

for her request that the transferred assets be put back into the
marital estate. The question, then, is whether the UFTA permits
Christine to use her status as a creditor for one particular claim
to seek relief for an unrelated purpose.
[5] As set forth in the UFTA, “[i]n an action for relief
against a transfer . . . under the [UFTA], a creditor . . . may
obtain . . . avoidance of the transfer” only “to the extent nec-
essary to satisfy the creditor’s claim.”11 We read this language
as requiring some nexus between the claim upon which an
individual’s creditor status depends and the purpose for which
that individual seeks to set aside a fraudulent transfer. In other
words, Christine’s status as a creditor for purposes of child
and spousal support might entitle her to set aside a fraudulent
transfer by Jeffrey if necessary to secure her rights to those sup-
port payments. (Of course, Christine does claim that the alleg-
edly fraudulent transfers would interfere with Jeffrey’s ability
to meet his child or spousal support obligations.) But under
§ 36-708(a)(1), Christine’s right to support payments does not
automatically render her a creditor for purposes of the interest
she is asserting in this case—the right to an equitable share of
the marital estate. Christine’s ability to qualify as a creditor for
that purpose must therefore arise independently.
For Christine to qualify as a creditor for purposes of the
equitable division of the marital estate, her right to an equitable
division must be a “claim” within the meaning of the UFTA.
Again, the UFTA defines a “claim” as a “right to payment.”12
Therefore, properly framed, the question is whether a spouse’s
right to an equitable division of the marital estate qualifies as a
“right to payment” for which the other spouse is liable.
We have not addressed that question before, and as far as we
can see, neither have appellate courts in any other jurisdiction.
In Caldwell v. Caldwell,13 the Wisconsin Supreme Court con-
cluded—without elaborating on its rationale—that a wife quali-
fied as a “creditor” in light of her right to an equitable division
11 § 36-708(a)(1).
12 § 36-702(3).
13 Caldwell v. Caldwell, 5 Wis. 2d 146, 92 N.W.2d 356 (1958).
REED v. REED 	423
Cite as 275 Neb. 418

of the marital estate. Although Caldwell was not decided under
the UFTA, the Wisconsin act at issue was very similar to mod-
ern versions of the UFTA.
There is, however, considerable force to the other side of
the argument. As a general matter, “payment” is defined as the
“[p]erformance of an obligation by the delivery of money or
some other valuable thing accepted in partial or full discharge
of the obligation.”14 But it would be quite a stretch to say, for
example, that a husband performs an obligation to his wife
during the divorce court’s equitable division of the marital
estate. In making this argument in his brief, Jeffrey points out
that, “[a]s opposed to traditional ‘payment’ obligations, neither
spouse ‘owes’ the other spouse anything in a property division.
Rather, the court determines how to divide the property which
already belongs to them.”15
[6] We agree and hold that a spouse’s right to an equitable
distribution of the marital estate is not a “right to payment”
under the UFTA. Accordingly, the UFTA does not apply in
cases where, as here, an individual believes that his or her for-
mer spouse fraudulently transferred assets before the divorce
to prevent those assets from being equitably distributed as part
of the marital estate. Instead, such a claim is perhaps more
properly litigated as a claim for dissipation of marital assets.16
Obviously, this conclusion renders it unnecessary for us to
determine whether the predivorce transfers of Jeffrey’s busi-
ness interests were fraudulent in violation of the UFTA. And
because Christine did not assign errors or present arguments
related to any other theories of recovery, we affirm the district
court’s judgment.
CONCLUSION
Christine argues that the predivorce transfers of Jeffrey’s busi-
ness interests should be set aside as fraudulent transfers under
14 Black’s Law Dictionary 1165 (8th ed. 2004).
15 Brief for appellee at 8 (emphasis supplied).
16 See, e.g., Harris v. Harris, 261 Neb. 75, 621 N.W.2d 491 (2001); Herron v.
Johnson, 714 A.2d 783 (D.C. 1998); Jeffcoat v. Jeffcoat, 102 Md. App. 301,
649 A.2d 1137 (1994).
424 	275 NEBRASKA REPORTS

the UFTA and thereby equitably distributed as part of the mari-
tal estate. Christine’s argument is based on the belief that she
is a creditor of Jeffrey for child and spousal support purposes.
We hold, however, that the UFTA requires some nexus between
the claim for which a party is asserting creditor status and the
type of relief sought. We also hold that a former spouse’s right
to an equitable division of the marital estate is not a “right to
payment” under the UFTA, and thus a former spouse does not
qualify as a “creditor” under the UFTA by virtue of his or her
right to an equitable share of the marital estate.
As a result, the UFTA does not apply to Christine’s claims
that the predivorce transfers of Jeffrey’s business interests
should be set aside as fraudulent. We therefore affirm the dis-
trict court’s refusal to include Jeffrey’s interests in C.J. Reed
Enterprises and R.S. Wheel in the marital estate.
affiRmed .
B eRens and tate , p.C., appellee , v . iRon mountain
infoRmation management , inC., appellant .
747 N.W.2d 383
Filed April 11, 2008. 	No. S-07-193.
1. Declaratory Judgments: Appeal and Error. When a declaratory judgment
action presents a question of law, an appellate court has an obligation to reach its
conclusion independently of the conclusion reached by the trial court with regard
to that question.
2. Contracts: Damages: Penalties and Forfeitures. Generally, the question whether
a sum mentioned in a contract is to be considered as liquidated damages or as
a penalty is a question of law, dependent on the construction of the contract by
the court.
3. Contracts: Breach of Contract: Stipulations. Parties to a contract may override
the application of the judicial remedy for breach of a contract by stipulating, in
advance, to the sum to be paid in the event of a breach.
4. Contracts: Breach of Contract: Stipulations: Damages. A stipulated sum
is for liquidated damages only (1) where the damages which the parties might
reasonably anticipate are difficult to ascertain because of their indefiniteness or
uncertainty and (2) where the amount stipulated either is a reasonable estimate
of the damages which would probably be caused by a breach or is reasonably
proportionate to the damages which have actually been caused by the breach.
BERENS & TATE v. IRON MT. INFO. MGMT. 	425
Cite as 275 Neb. 425