Filed January 13, 1999
IN THE COURT OF APPEALS OF THE STATE OF OREGON
In the Matter of the Marriage of
LINDA JEAN JONES,
Respondent,
and
THOMAS DOUGLAS JONES,
Appellant,
and
THOMAS DOUGLAS JONES, Trustee of
the Anna Mae and David H. Jones
Testamentary Trust B and the Thomas and
Linda Jones Revocable Family Trust,
Third-Party Respondent-Appellant,
and
ESTHER MAE JONES, a child attending
school, ORS 107.108(4),
Respondent.
(94P-20702; CA A92957)
Appeal from Circuit Court, Polk County.
Charles E. Luukinen, Judge.
Submitted on record and briefs August 29, 1997.
J. Michael Alexander and Burt, Swanson, Lathen, Alexander, McCann & Smith, P.C., filed the briefs for appellant and third-party respondent-appellant.
Russell Lipetzky and Saucy & Lipetzky, P.C., filed the brief for respondent Linda Jean Jones.
No appearance for respondent Esther Mae Jones.
Before Haselton, Presiding Judge, and Deits, Chief Judge, and Linder, Judge.
DEITS, C. J.
Judgment modified to delete paragraphs 4 through 4.3 and paragraph 11, and to award wife a money judgment of $550,000, of which $450,000 shall be payable within 30 days and the balance within one year from the entry of the appellate judgment, with interest thereon at the statutory rate; otherwise affirmed.
DEITS, C. J.
Husband appeals from the judgment in this dissolution action. His only
contentions on appeal concern the trial court's disposition of certain assets of a trust that
was established by husband's deceased parents and of which husband is the trustee.(1)
On
de novo review, we modify the judgment.
The parties were married in 1973. Husband was 73 and wife 54 at the time
the dissolution judgment was entered. The parties had one child, Esther. Husband had
three children by a prior marriage; wife had one child by an earlier marriage, whom
husband adopted. All of the children are adults.
The trust was created in 1974. Its income was to be used primarily for the
benefit of husband's parents during their lifetimes. Upon the survivor's death, certain cash
distributions were to be made from the trust principal, including $10,000 to each of three
designated educational institutions. The remaining trust assets were to be distributed in
shares of 80 percent to husband, five percent each to Esther and two of the other children,
and five percent to wife on the condition that she was still married to husband. Husband's
father and mother died in 1980 and 1981, respectively. However, no distribution of the
trust occurred. Instead, husband continued to use the income it generated as the primary
source of meeting family needs. At some point before the dissolution, husband purported
to purchase the distributive shares of the two beneficiary children other than Esther.
Esther was joined as a party to the dissolution proceeding, as was husband in his capacity
as trustee of the trust, as well as individually. The three educational institutions were not
joined.
After the hearing, the trial court prepared two opinion letters. In the first,
dated February 22, 1996, after outlining the foregoing factual background, the court
stated that husband had breached his fiduciary duty as trustee by failing to make the
required distributions and by continuing to use the trust income for his and his immediate
family's benefit. The letter also noted that the trust had been the main source of the
family's income during most of the marriage; that wife had participated extensively in the
care of her parents-in-law before their deaths and that husband had not rebutted the
presumption of equal contribution by wife to the trust as an asset; and that:
"The entire value of the trust is therefore to be included in the
valuation and distribution of assets in this case. To fail to acknowledge the
trust as an asset would be to ignore the reliance of the parties on this asset
during the term of the relationship."
The court proceeded to value the trust. After discounting the distributions due to
the educational entities and taking account of "the forfeiture of [wife's] interest" due to
the dissolution of the marriage, the court placed a value of $1,293,500 on husband's
distributive share. It then required husband either to make an "in-kind" distribution to
wife of two pieces of real property owned by the trust, or to pay her a so-called equalizing
judgment of $550,000. The court allowed husband 30 days within which to complete
performance under the in-kind distribution option. Finally, the court stated that husband
was to pay wife spousal support of $4,000 monthly until the in-kind distribution of the
trust property or the full payment of the equalizing amount was completed.
The court entered a temporary order embodying the above holdings. Thereafter,
however, a number of problems arose. Consequently, the court altered certain aspects of
its disposition, as summarized in a follow-up letter opinion of April 2, 1996:(2)
"The last issue is the form of Decree, particularly the matter of a
money judgment or the conveyance of certain realty. I had, in my original
letter opinion, allowed Respondent the option of causing a conveyance of
the real property or having the judgment and spousal support provisions
become effective. I am satisfied that Respondent intends to do whatever he
can to attempt to avoid the provisions of this Court's judgment in regard to
the trust asset matters. If I were to simply order the money judgment and
support, Respondent could claim that I allowed the trust to remain as a
separate entity whose assets are not reachable by Petitioner to satisfy the
[judgment] granted here. Respondent could maintain insufficient other
assets to satisfy Petitioner's [judgment], while enjoying the $100,000.00
annual proceeds from the trust during his [lifetime]. Upon his death, the
claim would be that the beneficial interest in the trust passed outside
Respondent's estate by designation. Given Respondent's age, actions and
obvious intentions, this scenario is quite likely. I [cannot] allow
Respondent to attempt to frustrate this Court's decision in such a fashion.
"Respondent failed to act within the time frames I had provided and
refuses to indicate how he would intend to proceed. I have therefore
determined that the most fair and equitable approach is to order the trust
dissolved and order that the service station and bare land real property be
transferred to Petitioner * * *. That is this Court's order."
Consistent with the second letter, paragraph 4 of the dissolution judgment orders:
"Husband, in his capacity as trustee for Third-Party Respondent
Anna Mae and David H. Jones Testamentary Trust B, shall immediately
transfer title to the properties described in paragraphs 4.1 and 4.2 hereof
from the Anna Mae and David H. Jones Testamentary Trust B by warranty
deed to Husband (as an individual). Husband (as an individual) shall then
immediately transfer fee simple title to said properties to Wife."
Relatedly, the judgment awards no spousal support, and it provides that the trust "shall be
deemed revoked effective 30 days after the date of this judgment."
Husband makes one assignment of error, which is directed in the main against
paragraph 4 of the judgment. However, he includes four "sub-assignments" within his
assignment, asserting respectively: (1) that the trial court had no authority to direct the
disposition it made of the trust and trust assets in this dissolution proceeding; (2) that it
could not take actions concerning the trust without joining all beneficiaries as parties; (3)
that California law rather than Oregon law applies to the "disposition of trust assets"; and
(4) that the court erred in finding that wife had "contributed equally" to the trust, or was
entitled to the amount the court awarded her on the basis of the court's valuation of the
trust assets.(3)
For the reasons discussed below, we agree with husband's first argument.
His second and third arguments are therefore academic, and we reject his fourth without
discussion.
In Melkonian and Melkonian, 55 Or App 586, 639 P2d 662 (1982), the daughter of
the parties to the dissolution was the beneficiary of a trust, consisting of corporate
securities, that was established by the child's grandmother before the dissolution. The
husband served as trustee and had acquired certain real property with the trust income. In
its dissolution judgment, the trial court purported to designate the wife as trustee with
respect to the real property, while husband remained trustee of the original trust. The
appeal arose from a modification order, in which the court directed the husband to pay the
taxes on the real property out of the proceeds of the securities trust. We agreed with the
husband that the trial court lacked the authority to do so, notwithstanding its "general
equitable powers" under the dissolution statutes. We explained:
"Neither did the trial court obtain jurisdiction under the full equity
powers of ORS 107.405. The securities were placed in trust, not by the
dissolution court, but by the husband's mother for the benefit of the parties'
daughter. The securities and the accumulated dividends, either in the bank
or reinvested in the real property next door to the parties' former family
home, are the daughter's property and were her property prior to the decree
of dissolution of her parents' marriage. Even assuming that the dissolution
court in 1977 had jurisdiction to designate wife the 'primary trustee' of the
real property adjacent to the former family home, the court cannot use its
jurisdiction pursuant to the dissolution statutes to order particular conduct
of husband as trustee of the daughter's property, when the property
belonged to the daughter prior to the dissolution.2" Melkonian, 55 Or App
at 589-90 (emphasis in original).
In the footnote to that passage, we proceeded to question even that assumption, although
the original dissolution judgment was not directly before us. We said:
"It is questionable whether the court had authority to designate wife
as trustee of the unimproved lot. The lot was purchased with trust funds
and became a part of the trust corpus. The decree in essence modified a
trust created by the child's grandmother. In a dissolution proceeding, the
court has authority to distribute only the property of the parties. ORS
107.105(1)(e); 107.105(1)(f)(A)." Id. at 590 n 2.
The issue in Melkonian differs from those in other cases that hold that courts in
dissolution proceedings do have certain authority over trust assets, in some instances
including the power to order distribution. In Killam v. Killam, 251 Or 59, 444 P2d 479
(1968), for example, the Supreme Court approved a trial court order directing the
partition and sale of certain property that was held in trust solely for the benefit of the
husband and wife. In Wetmore v. Wetmore, 5 Or 469 (1875), the court essentially pierced
the veil and held that the husband could not escape the wife's claim to a share of the
property in question by conveying it to a friend to hold in trust for the husband's benefit. Another variation on the theme was presented in Becker and Becker, 122 Or App
567, 858 P2d 480, rev den 318 Or 60 (1993). We held that the trial court acted within its
authority by prospectively ordering the wife to pay an equalizing judgment to the husband
at such later time as she received distribution of her share of the trust of which she was a
beneficiary. We concluded that, under the facts, the trust interest was not a marital asset
because the presumption of equal contribution had been rebutted. Nonetheless, we noted
that "the court on dissolution may distribute 'the real or personal property, or both, of
either or both of the parties.' ORS 107.105(1)(f)." We continued:
"The pertinent question here is whether the court's disposition of the
parties' assets is 'just and proper in all the circumstances.' ORS
107.105(1)((f). We conclude that it is. The parties used wife's income from
the 1947 Trust to supplement husband's income and intended to continue
using it during their retirement. During the marriage, wife's entitlement to
her trust interest was never in doubt. They used husband's salary and did
not save for retirement in anticipation that wife's trust receipts and
husband's pension would keep them financially secure during retirement.
The judgment partially compensates husband for his reliance on wife's
assets for retirement.
"Wife argues that a spendthrift provision prevented the court from
attaching a judgment lien to her share of the 1947 Trust corpus. However,
the judgment is not a lien on the trust corpus. It requires wife to pay
$1,024,644 when the trustee distributes the corpus. That sum does not have
to be paid from the trust corpus; the judgment establishes only a time for
payment. Husband received no interest in the trust itself." Becker, 122 Or
App at 571-72 (footnote and citations omitted).
The principles that emerge from the cited cases and similar ones are
straightforward and internally consistent. To summarize, the court in a dissolution
proceeding generally may not directly control the disposition of a trust that is established
by trustees other than the parties and independently of the proceeding, at least when there
are beneficiaries other than or in addition to the husband and wife. That principle is not
affected by the fact that the husband or wife is the trustee of the trust. The court may,
nevertheless, consider the parties' interests as beneficiaries of the trust and may treat those
interests in much the same way as the parties' other individual or marital property, short
of ordering direct distribution from the trust. The court does have authority to deal with a
trust and its assets directly under circumstances where the trust itself is a sham to conceal
or distort the parties' interests in the property it contains. On appropriate occasions, the
court may also exercise direct authority over the disposition of trust assets when the
husband, the wife or both are its only beneficiaries. Regardless of the limitations on a
dissolution court's authority to order direct actions by a trustee with respect to trust
property, the court may order the division or distribution of a party's trust benefits
effective as of the time they are received or are reachable by the party. It is also within
the court's authority to direct the division of nontrust property or to enter equalizing
money judgments that are based in whole or in part on the value of trust assets or interests
that cannot be (or are not ordered to be) reached directly.
This case comes close to falling in a gray area under the foregoing principles.
Although the trust is an ongoing legal entity, it was subject to full distribution and
termination over 15 years ago under the terms of its governing instruments. Although
there are beneficiaries other than the parties, husband now has a beneficial claim to
approximately 90 percent of the trust assets. Further, although the parties have
cognizable property and income sources outside the trust, the trust has provided their
primary support through most of the marriage. Nonetheless, we conclude that this case
does not quite come within the area of the trial court's authority to make direct
dispositions of the trust property. The trust is a separate legal entity with beneficiaries
other than husband; the fact that he as trustee has failed to manage the trust in the manner
required by its terms does not divest it of those characteristics, and his management of the
trust is not susceptible to redress in this judicial proceeding. Consequently, we agree with
husband that the court lacked the authority to order the distribution described in its second
letter opinion and memorialized in paragraph 4 of the judgment.
However, the alternative division of property proposed in the trial court's first
letter was well within its authority and, on de novo review, we generally agree with the
property division delineated in that letter. Although neither the trial court nor we have the
authority in this case to order husband as trustee to distribute trust assets to himself or to
wife, we may require him to pay a money judgment in an amount calculated to
accomplish a fair and equitable division of the parties' property, taking into account the
value of the property in the trust.
The trial court's first letter set the amount of the money judgment at $550,000. In
so doing, the court noted that that amount was significantly greater than the value of the
two trust properties that would be conveyed under the in-kind alternative. Wife argues
that, in the event that we are unable to sustain the in-kind distribution requirement in the
judgment, we should award her a money judgment of $646,750, which is one half of the
value of husband's beneficial interest in the trust.(4)
In Taylor and Taylor, 124 Or App 581, 863 P2d 473 (1993), rev den 319 Or
626 (1994), we held that we could not increase the amount of the money judgment that
the trial court had awarded wife, because husband was the appellant and wife had not
cross-appealed. Here, unlike Taylor, we are effectively replacing an award of real
property with a money judgment, rather than increasing an existing money judgment, and
we are doing so in response to husband's argument that the trial court had no authority to
direct the distribution of the real property.
Wife also makes a second cross-assignment, through which she seeks an
award of spousal support, in the event that we reverse the trial court's property division.
Although we are providing for a property distribution that is functionally similar to that of
the trial court, our disposition does modify the property division in the judgment.
However, the cross-assignment does not suffice to raise the spousal support issue.
Because the judgment awarded no spousal support, a cross-appeal was necessary in order
to obtain that relief that the judgment did not give wife. See Artman v. Ray, 263 Or 529,
501 P2d 63, 502 P2d 1376 (1972); Hofer v. Hofer, 244 Or 88, 415 P2d 753 (1966);
Taylor and Taylor, 124 Or App 581, 863 P2d 473 (1993), rev den 319 Or 626 (1994).
Husband responds that, if we reverse the in-kind distribution provision in the judgment,
we should remand the property division issue to the trial court "for further proceedings."
We are not persuaded by either argument. Wife presents us with no basis for arriving at a
figure other than $550,000, except that that figure is less than one half of the value of
husband's interest in the trust. However, given the fact that the trust was not the only
property in the marital estate nor the only property that was included in--or considered in
reaching--the trial court's overall division, wife's contention does not demonstrate that the
change she seeks or any other changes that we might make would represent a significant
improvement over the figure at which the trial court arrived. See McCoy and McCoy, 28
Or App 919, 562 P2d 207, mod 29 Or App 287, 563 P2d 738 (1977). Similarly, we
discern no reason why a remand to the trial court is necessary. The parties have had a full
opportunity to present evidence and the trial court has already made a determination of
the appropriate amount of the money judgment--albeit that amount was not included in
the final judgment. There is no reason for not finally resolving the issues now, in the
exercise of our de novo review. We conclude that husband should pay wife a money
judgment of $550,000, in lieu of the direct transfer of trust assets that we have held the
trial court lacked the authority to order. Of that amount, $450,000, the equivalent of the
value of the two trust properties that the trial court ordered distributed, shall be paid
within 30 days of the entry of the appellate judgment.(5)
Judgment modified to delete paragraphs 4 through 4.3 and paragraph 11, and to award
wife a money judgment of $550,000, of which $450,000 shall be payable within 30 days and
the balance within one year from the entry of the appellate judgment, with interest thereon
at the statutory rate; otherwise affirmed.
The trial court's division of the parties' other property is not challenged on
appeal.