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Court affirms exclusion of gifted property from division

By: dmc-admin//October 25, 2006//

Court affirms exclusion of gifted property from division

By: dmc-admin//October 25, 2006//

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Herman
Gregg Herman

In a recent decision, the Wisconsin Court of Appeals addressed the issue of the effect of gifted property on the division of the marital estate.

Since the opinion leaves open a number of questions, I will deal with it in two columns. This article will discuss the holding, and next week, I will analyze the holding and discuss its possible ramifications.

In Grumbeck v. Grumbeck, No. 2005AP2512 (Wis. Ct. App. Sept. 13, 2006) (recommended for publication), the court of appeals affirmed in part and reversed in part a judgment of divorce rendered by Kenosha County Circuit Court Judge Bruce E. Schroeder concerning an unequal division of the marital estate to the wife in light of excluding substantial gifted assets to the husband, as well as a maintenance issue related to income earned due to one of the gifted assets.

The trial court found that Jeffrey’s shares of two businesses were gifts and, therefore, nondivisible. The court awarded the shares to Jeffrey, but then divided the remaining estate unequally, giving Barbara extra assets amounting to exactly half the value of Jeffrey’s non-divisible shares. The end result was that Jeffrey and Barbara each received the same total award they would have, if the shares had been divisible.

Jeffrey argued that the circuit court’s maneuver was contrary to Wisconsin’s statutory scheme, which allows the division of gifted assets only in cases of hardship to the other spouse. The appellate court agreed and reversed the trial court, holding that although “a circuit court may consider substantial gifted assets when dividing the marital estate, it may not divide the marital estate to work a de facto splitting of those assets where there is no hardship.”

Wisconsin law excludes gifted and inherited property from property division, absent a showing of hardship. A finding of hardship requires more than a showing that essential needs require division of the separate property. Rather, a showing of financial deprivation or difficulty is required. Popp v. Popp, 146 Wis. 2d 778, 790-95, 432 N.W.2d 600 (1988). As a result, trial courts rarely, if ever, find hardship. Not surprisingly, there was no finding of hardship by the trial court in Grumbeck.

The “backdoor” to prevent inequity is for the party without the separate property to argue for an unequal division of the marital estate. Substantial assets not subject to division by the court is one factor that a court can consider in deviating from an equal division of the marital estate. Wis. Stat. Sec. 767.255(3)(c).

In certain cases, this deviation would seem fair. For example, if one spouse has separate property worth millions of dollars and the marital estate was worth $100,000, it might be fair to award the spouse without the large separate estate a larger portion of the $100,000.

In Grumbeck, the trial court did exactly that, but was reversed by the court of appeals on the basis that the court did not give proper consideration to the other factors in determining whether there should be an unequal division of the marital estate.

However, the appellate court did not specify what other factors should have been considered. Noting the “tension” between the presumption of an equal division of the marital estate and the discretion of the court in deviating, the court stated, “[W]e will not here attempt to chart the precise boundaries of a circuit court’s proper discretion in reconciling them.” The court went on to hold that, “[W]e do not here decide what sort of special circumstances would justify an unequal award in a different case where gifted property is considered; we only state that a long term marriage involving contributions to that marriage by both parties is not a ‘special circumstance.’”

Related Article

Appellate court’s property division decision is puzzling

In most cases where the appellate court reverses a trial court for an improper exercise of its discretion, the matter is remanded for reconsideration. In Grumbeck, however, the appellate court did not give the trial court a second opportunity. Rather, it remanded the matter with specific instructions to divide the marital estate equally without regard to the gifted property.

The case raises significant questions, including the extent of a trial court’s discretion and the difficulty in deviating from an equal division of estate. In my next column, I will discuss the potential implications of this decision.

Gregg Herman is a shareholder with Loeb & Herman S.C. in Milwaukee, which practices exclusively family law. Herman can be reached by e-mail at gherman@
loebherman.com
.

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