October 2010 #1. Division of Property in Hawaii:.

• Author: by Paul Tomar

Hawaii Bar Journal

2010.

October 2010 #1.

Division of Property in Hawaii:

Hawaii State Bar JournalOctober 2010Division of Property in Hawaii:by Paul TomarOverview.

The principles governing division of property in divo rce cases, and the process of dividing property, have changed dramatically over the past 27 years. In furtherance of attaining uniformity and predictability in division of property disputes, a new system of division of property, the Marital Partnership Model, has been judicially created. The hallmarks of the Marital Partnership Model are the categorization of property and the establishment of general rules of division for , each category. Based upon a series of leading appellate cases from 1983 through the mid-1990s, culminating in the Hawaii Supreme Court cases of Gussin v. Gussin, 76 Haw. 470, 836 P. 2d 484 (1992) and Tongas v. Tougas, 76 Haw. 19, 868 P. 2d 437 (1994), the Marital Partnership Model is now the "appropriate law to follow" in deciding cases under Hawaii's equitable distribution statute, HRS §580-47(a).(fn1) This new legal blueprint has thus supplanted Hawaii's long-standing system of equitable distribution, which has been on the books in Hawaii Revised Statutes since 1955, and remains on the books.(fn2)

The hallmark of equitable distribution is the application of broad statutory criteria to the unique facts of each case in determining how to divide property. The system confers broad discretion upon judges as to how to apply such criteria. The Marital Partnership Model changes all that. By applying to marital partnerships the very simple and basic rules governing the dissolution of business partnerships(fn3), most of the discretion previously exercised by Hawaii Family Court judges has been removed.(fn4)

Over the 18 years that the Marital Partnership Model has now formally been the governing } regime for division of prop-I erty a substantial body of I appellate decisions interpreting and fine-tuning the Marital Partnership Model, has been decided. With the benefit of extensive appellate case law, we can now look back at the adoption of the Marital Partnership Model, and examine the cumulative effect of specific appellate doctrines interpreting and applying the Marital Partnership Model. These doctrines include:

* The very high premium placed upon the full recovery of so called "capital contributions" to a marital partnership; * The recoverability of "capital contributions" even if they no longer exist at divorce; * The anti-tracing rule; * The anti-gifting presumption, and shifting the burden to I the donee to prove a gift; * The substantial limitations on the ability to obtain an adjudicated "equitable devia-rtion" from marital partnership principles; and * The anti-transmutation rule. With the benefit of such hindsight, fit is fair to ask: What has happened to the "equitable" in equitable distribution? More specifically, has division of property law evolved, to a point where the law now unduly favors the economically advantaged spouse?(fn5)

I. Understanding the Change in Division of Property Law.

To fully appreciate how division of property law has evolved in favor of economically advantaged spouses, a brief history of the evolution of division of property law in Hawaii follows Starting in 1955, when the Legislature of the Territory of H awaii ended Hawaii's 10-year experiment with comrrunity property laws,(fn6) division of property in Hawaii divorce matters had been governed exclu -sively by an equitable distribution regime, under which "all property, whether real, personal or mixed, community, joint, or separate' is to be divided in a "just and equitable" way, through the application of broad statutory criteria. HRS §580-47(a). [Emphasis added].

Hawaii's entire equitable distribution regime is codified in the first paragraph of HRS §580-47(a). That section, which has remained almost completely identical to its predecessor, §324-37 of the Revised Laws of Hawaii (1955), provides as follows:

Upon granting a divorce ... the court may make such further orders as shall appear just and equitable ... finally dividing and distributing the estate of the parties, real, personal, or mixed, whether community, joint, or separate.... In making such further orders, the 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.

One of the best examples of jurisprudence under the equitable distribution system is the seminal case of Carson v, Carson, 50 Haw. 182, 436 P. 2d 7 (1967). In that case, Husband was awarded all of the property that he brought into the marriage, as well as California property that he bought with his financial resources when his aunt was going to lose the property. The Hawaii Supreme Court reversed and remanded for further proceedings. The Court held that the failure to "fully and properly consider all of the factors set out in [the predecessor to HRS §580-47], and [placing] undue emphasis on a particular factor, excluding the consideration of other factors, was an abuse of discretion.

The Supreme Court explained:

The fact that it was separate property or labeled as such is relevant but not determinative. Under [the pred- ecessor to HRS §580-47], the division and distribution of all property, including separate property, must be just and equitable. Of course, we do not conclude that separate property must be divided and distributed in every divorce case. We simply hold that [the predecessor to HRS §580-47] specifies many factors to be considered in determining what distribution is just and equitable, and that undue emphasis on a particular factor is an abuse of discretion. [Emphasis added]. 50 Haw. at 184.

The Supreme Court equated Wife's non-financial contributions to the financial contributions of Husband.

In Richards v. Richards, 44 Haw. 491, 512-513, 355 E2d 188, 200, we recognized the concept that a wife may, by her efforts, as well as by her contribution of separate property, help to preserve her husband's separate property. ...

In the instant case, there is uncontradicted testimony that the wife aided in the accumulation and preservation of the husband's wealth . For example, the wife made her own dresses; purchased and refinished second-hand furniture to furnish their apartment in Washington, D. C; participated significantly in a social role in aiding the husband in his employment in Washington; and devoted full time without compensation for about three and a half years at a 'family business' distributing cosmetics, drugs and jewelry. When the business was later sold, the wife did not receive any of the proceeds as part of her separate property. She made no determined or systematic effort to accumulate property in her own name and thus to protect herself in the event of a divorce. Although profits of the business and the proceeds of its sale were spent by the husband and wife during the marriage, it still remains that the husband's separate property was thereby less burdened with living expenses during the marriage. Id. at 185.

The Court concluded that, "To require a wife to present in every case evidence that she brought money or property to the marriage as a condition precedent to participating in a distribution of her husband's separate property would defeat the purpose of Sec. 324-37."

Starting in 1983, however, a progression of decisions by the Intermediate Court of Appeals ["ICA'], almost all of which were authored by ICA Chief Judge James S. Burns, began to question the propriety of granting Family Court trial judges the type of broad discretion the Supreme Court mandated in

Carson. These decisions were based on the central premises that (a) the broad discretion of Family Court judges under equitable distribution needed to be narrowed with judicially created parameters, and (b) division of property outcomes in divorces needed to be more predictable.

The first hints of change appeared in Raupp v. Raupp, 3 Haw. App. 602, 658 P. 2d 329 (1983), and Mochida v. Mochida, 5 Haw. App. 348, 691E2d771 (1984), in which the ICA first sought to create "general rules" regarding division of property. Then, most notably in Hashimoto v. Hashimoto, 6 Haw. 424, 725 P. 2d 520(1986) and Malek v. Malek, 7 Haw. App. 377, 768 P2d 243 (1989), and Bennett v. Bennett, 8 Haw. App. 415, 807 P.2d 597 (1991), the ICA established five "categories" of property, and mandated that the Family Court judges organize all property under specific categories. The categories are as follows:

Category 1. The net market value [NMV], plus or minus, of all property separately owned by one spouse on the date of marriage (DOM) but excluding the NMV attributable to property that is subsequently legally gifted by the owner to the other spouse, to both spouses, or to a third party.

Category 2. The increase in the NMV of all property whose NMV on the DOM is included in category 1 and that the owner separately owns continuously from the DOM to the DOCOEPOT [date of the conclusion of the evidentiary part of the trial].

Category 3. The date-of-acqui-sition NMV plus or minus, of prop- erty separately acquired by gift or inheritance during the marriage but excluding the NMV attributable to property that is subsequently legally gifted by the...