Marshall v. Marshall , 298 Neb. 1 ( 2017 )

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www.nebraska.gov/apps-courts-epub/
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Nebraska Supreme Court A dvance Sheets
298 Nebraska R eports
MARSHALL v. MARSHALL
Cite as 298 Neb. 1
A my M arshall, appellee, v.
Brian W. M arshall, appellant.
___ N.W.2d ___
Filed October 13, 2017. No. S-15-035.
1. Divorce: Child Custody: Child Support: Property Division: Alimony:
Attorney Fees: Appeal and Error. In an action for the dissolution of
marriage, an appellate court reviews de novo on the record the trial
court’s determinations of custody, child support, property division,
alimony, and attorney fees; these determinations, however, are initially
entrusted to the trial court’s discretion and will normally be affirmed
absent an abuse of that discretion.
2. Judges: Words and Phrases. A judicial abuse of discretion exists if the
reasons or rulings of a trial judge are clearly untenable, unfairly depriv-
ing a litigant of a substantial right and denying just results in matters
submitted for disposition.
3. Evidence: Appeal and Error. When evidence is in conflict, an appel-
late court considers, 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. Divorce: Equity. In Nebraska, dissolution of marriage cases are equi-
table in nature.
5. Property Division. The purpose of a property division is to distribute
the marital assets equitably between the parties.
6. ____. The ultimate test for determining the appropriateness of the divi-
sion of property is fairness and reasonableness as determined by the
facts of each case. There is no mathematical formula by which property
awards can be precisely determined.
7. Property Division: Appeal and Error. A division of property will not
be disturbed on appeal unless it is patently unfair.
8. Property Division. Under Neb. Rev. Stat. § 42-365 (Reissue 2016),
the equitable division of property is a three-step process. The first step
is to classify the parties’ property as marital or nonmarital. The second
step is to value the marital assets and determine the marital liabilities
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MARSHALL v. MARSHALL
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of the parties. The third step is to calculate and divide the net marital
estate between the parties in accordance with the principles contained in
§ 42-365.
9. ____. Any given property can constitute a mixture of marital and non-
marital interests; a portion of an asset can be marital property while
another portion can be separate property.
10. ____. As a general rule, all property accumulated and acquired by either
spouse during the marriage is part of the marital estate, unless it falls
within an exception to the general rule.
11. ____. Compensation for purely personal losses is not in any sense a
product of marital efforts. Compensation for an injury that a spouse
has or will receive for pain, suffering, disfigurement, disability, or loss
of postdivorce earning capacity should not equitably be included in the
marital estate. On the other hand, compensation for past wages, medi-
cal expenses, and other items that compensate for the diminution of the
marital estate should equitably be included in the marital estate as they
properly replace losses of property created by marital partnership.
12. Property Division: Proof: Presumptions. The burden of proving that
all or a portion of an injury settlement is nonmarital rests on the spouse
making the claim. If the burden is not met, the presumption remains that
the proceeds from the settlement are marital property.
13. Property Division. The rule announced in Parde v. Parde, 258 Neb.
101, 602 N.W.2d 657 (1999), does not require either that a settlement
agreement itself must categorize the nature of the compensation or that
parties must present expert testimony as to how settlement proceeds
should be allocated. Rather, Parde simply requires competent evidence
as to the nature of and underlying reasons for the compensation.
14. Property Division: Proof. Where the evidence shows the settlement
proceeds were inadequate to compensate the purely personal losses
proved by the injured spouse, and also were inadequate to compensate
loses to the marital estate, inequity would generally result from classify-
ing all of the settlement proceeds as either marital or nonmarital.
15. Property Division. The principles announced in Parde v. Parde, 258
Neb. 101, 602 N.W.2d 657 (1999), can be applied to settlement proceeds
that have already been spent, so long as the nonmarital portion of the
settlement proceeds can be sufficiently traced.
16. ____. Setting aside nonmarital property is simple if the spouse pos-
sesses the original asset, but can be problematic if the original asset no
longer exists.
17. Property Division: Proof. Separate property becomes marital property
by commingling if it is inextricably mixed with marital property or with
the separate property of the other spouse. But if the separate property
remains segregated or is traceable into its product, commingling does
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MARSHALL v. MARSHALL
Cite as 298 Neb. 1
not occur. The burden of proof rests with the party claiming that prop-
erty is nonmarital.
18. Child Support: Rules of the Supreme Court. The Nebraska Child
Support Guidelines provide that in calculating the amount of child sup-
port to be paid, the court must consider the total monthly income, which
is defined as income of both parties derived from all sources, except
all means-tested public assistance benefits which includes any earned
income tax credit and payments received for children of prior marriages
and includes income that could be acquired by the parties through rea-
sonable efforts.
19. ____: ____. The Nebraska Supreme Court has not set forth a rigid defi-
nition of what constitutes income, but instead has relied upon a flexible,
fact-specific inquiry that recognizes the wide variety of circumstances
that may be present in child support cases.
20. Child Support: Taxation: Equity: Rules of the Supreme Court.
Income for the purposes of calculating child support is not necessarily
synonymous with taxable income. A flexible approach is taken in deter-
mining a person’s income for purposes of child support, because child
support proceedings are, despite the child support guidelines, equitable
in nature.
Petition for further review from the Court of Appeals,
Moore, Chief Judge, and Irwin and Bishop, Judges, on appeal
thereto from the District Court for Douglas County, Thomas A.
Otepka, Judge. Judgment of Court of Appeals reversed, and
cause remanded with directions.
Donald A. Roberts and Justin A. Roberts, of Lustgarten &
Roberts, P.C., L.L.O., for appellant.
Anthony W. Liakos, of Govier, Katskee, Suing & Maxell,
P.C., L.L.O., for appellee.
Heavican, C.J., Wright, Miller-Lerman, Cassel, Stacy,
K elch, and Funke, JJ.
Stacy, J.
Amy Marshall petitions for further review of the Nebraska
Court of Appeals’ opinion in Marshall v. Marshall.1 She
1
Marshall v. Marshall, 24 Neb. Ct. App. 254, 885 N.W.2d 742 (2016).
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MARSHALL v. MARSHALL
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argues the Court of Appeals misapplied the principles of
Parde v. Parde2 when determining how proceeds from a per-
sonal injury settlement should be classified in this dissolution
action. She also argues the appellate court erred in recalculat-
ing child support, reversing the property division, and revers-
ing the award of alimony. On further review, we reverse the
decision of the Court of Appeals and remand the cause with
directions to affirm the decree entered by the trial court.
I. FACTS
A complete recitation of the facts is set forth in the opinion
of the Court of Appeals.3 We summarize here only those facts
which are relevant to the issues on further review.
Amy and Brian W. Marshall married in 1993. Amy filed a
complaint for dissolution in February 2013, and trial was held
in October 2014. By that time, one of the parties’ two chil-
dren had reached the age of majority, and the other was 18.
Disputed issues at trial were child support, alimony, classifica-
tion and division of assets and debts, and attorney fees.
1. Trial Evidence
Most of the evidence at trial focused on two issues: how
to classify and allocate a personal injury settlement received
during the marriage and how to calculate Brian’s total monthly
income for purposes of child support and alimony. Given the
factually intensive nature of these issues, we recite in some
detail the evidence on which the district court relied.
(a) Personal Injury Settlement
In 2003, at age 34, Amy suffered a massive stroke. The
stroke left her with permanent disabilities, including significant
left-sided paralysis. Before the stroke, Amy had been taking
the anti-inflammatory drug Vioxx on a regular basis. She did
not have a prescription for Vioxx, but had been given free
samples of the drug by a physician.
2
Parde v. Parde, 258 Neb. 101, 602 N.W.2d 657 (1999).
3
Marshall, supra note 1.
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Amy and Brian ultimately reached a settlement with Merck
& Co., Inc. (Merck), the manufacturer of Vioxx. As part
of the agreement, Amy and Brian executed a release of all
claims. The release did not allocate the settlement proceeds
to any particular claim or category of damages. The release
contained a confidentiality provision limiting disclosure of
the amount of the settlement payments; we thus will not
reference the gross settlement amount in this opinion. It is
sufficient to note that after deducting attorney fees and costs,
Amy and Brian received net settlement proceeds totaling
$330,621.14.
It is undisputed that the parties spent nearly all the settle-
ment proceeds during their marriage. It is also undisputed that
they were able to trace where most of the settlement proceeds
were spent. As relevant to the issues on appeal, the evidence
showed they used $84,268.83 to pay off the mortgage on the
marital home and $90,123.36 to remodel the kitchen of that
home. Another $5,211.90 was used for additional remodeling
of the home. Brian put $20,000 into a new bank account in his
name and used $33,333 to purchase a one-third interest in a
business, “Elite Fitness.”
(i) Permanent Disability and
Pain and Suffering
After the stroke, Amy was hospitalized for 1 week and then
moved to a rehabilitation center for another 30 days. Once
she was released to return home, Amy continued rehabilita-
tion through physical therapy for approximately 4 years. Both
Amy and her mother testified at trial about how the stroke
affected her. The most complete explanation of Amy’s condi-
tion and limitations after the stroke came from her rehabilita-
tion physician:
Despite a complete course of rehabilitation, [Amy]
remains with rather significant left-sided paralysis. She
has no significant functional use of the left upper extrem-
ity. She previously worked as an owner/operator of a hair
salon. This stroke eliminated the functional use of her left
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hand and ultimately she gave up her career and sold her
salon. She has not been able to sustain reasonable work
as a hairstylist since her stroke.
Functional tasks have become much more difficult . .
. . [F]eeding is made more difficult as she is unable to cut
her meat, prepare foods that require two hands and eating
one-handed is simply clumsier and more difficult.
Likewise, dressing is performed entirely one-handed.
She must select clothes from her wardrobe that do not
have buttons or zippers. She also must perform toi-
leting and bathing tasks one-handed and with adaptive
equipment. These are performed more slowly and less
thoroughly with her one-handed techniques. She is also
unable to completely groom herself, particularly placing
deodorant on her right side. She has difficulty grooming
and bathing her right upper extremity with the paralyzed
left arm.
[Amy] has the residuals of a neurogenic bladder post
stroke. She has urinary urgency and must get to a bath-
room more frequently than prior to her stroke. She is also
more prone to the occasional bladder accident as a direct
result of her stroke.
Exercise is performed more difficultly with her par-
tially paralyzed left lower extremity. She is unable
to ride a bicycle and is certainly unable to go jog-
ging or ride an elliptical trainer. It is harder for her
to achieve cardiovascular fitness under her hemiparetic
circumstances.
Ambulation for [Amy] is clumsy and adaptive. She
swings her left lower extremity forward in a circumfer-
ential pattern and has difficulty maintaining static stance
on just her left lower extremity. She falls approximately
once per month and has had [an] assortment of mus-
culoskeletal bruises, sprains and strains as a result of
her falls.
[Amy] requires lifelong treatment with an antiplate-
let medication for her stroke. This slightly increases
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her overall risk of cerebral hemorrhage and certainly
increases the amount of bruising she suffers with normal
everyday activities.
[Amy] at the present time [December 23, 2009,] is
considered at maximum medical improvement in regard
to her left hemiparetic stroke residuals. She has adapted
her life to the near complete paralysis of her left upper
extremity and the partial paralysis of her left lower
extremity. Nonetheless, she has suffered significant func-
tional impairments in her activities of daily living as a
direct result of her stroke sequelae.
(ii) Past and Future
Lost Earnings
Before the stroke, Amy co-owned a hair salon and earned
approximately $43,580 per year. After the stroke, Amy was
not able to work at all for several years, so she sold her inter-
est in the hair salon. Later, she used proceeds from the sale of
her salon to remodel a portion of the basement of the parties’
home into a hair salon. She eventually returned to work as a
hairstylist, working about 3 hours a day, 2 to 3 days a week.
She has 10 loyal clients, mostly family and friends, who are
willing to assist her with styling. In 2013, the gross income
from Amy’s home salon was $6,375 and her expenses were
$7,000. Amy’s past lost earnings from the time of her stroke
until the parties’ separation exceeded the amount of the Merck
settlement proceeds. Her future lost earnings were estimated at
over $1,133,000.
(b) Child Support
For purposes of calculating child support, the parties agreed
on the amount of Amy’s total monthly income, but disagreed
regarding the amount of Brian’s total monthly income. The
evidence showed Brian had several sources of income, as well
as in-kind benefits.
Brian works as the property manager for Marshall
Enterprises, doing general property maintenance and upkeep.
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MARSHALL v. MARSHALL
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He owns 49 percent of Marshall Enterprises, and his mother
owns the remaining 51 percent. Marshall Enterprises man-
ages properties purchased by Brian’s parents and held in trust.
Brian testified that he receives a salary of $2,500 per month,
but his 2013 tax returns did not show any income from wages
or salary. In addition, Marshall Enterprises provides Brian a
truck, pays for maintenance and insurance on the truck, pays
his cell phone bill of approximately $270 per month, allows
Brian to live rent free in one of its rental properties that rents
for $1,000 per month, and provides health insurance for Brian
and his family.
Brian also operates a snow removal business. He testi-
fied he usually earns “$10,000 or more” annually from his
snow removal business. Brian’s income tax returns for 2009
through 2013 reported net profits for this business of $11,184,
$10,830, $15,958, $12,990, and $13,805, respectively. Also,
Brian’s bank account statements from January to August 2014
showed average monthly deposits of more than $7,400—well
in excess of what he claimed to be earning from his property
management and snow removal jobs—and he provided con-
flicting testimony regarding the source of those regular depos-
its. Brian denied having investment income, but his tax return
reported capital gains from the sale of stock acquired during
the marriage.
At trial, Amy argued the evidence showed Brian’s total
monthly income was $11,041.25. Brian argued the evidence
showed his total monthly income was $3,600. Generally, the
disparity reflected the parties’ differing valuations of Brian’s
in-kind benefits and their differing positions about the source
of the regular deposits into his bank account.
2. Dissolution Decree
The district court entered a 34-page decree, with 17 pages
of factual findings. We address only those portions of the
decree that are relevant to consideration of the issues on fur-
ther review.
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MARSHALL v. MARSHALL
Cite as 298 Neb. 1
(a) Merck Settlement Proceeds
The district court’s decree acknowledged the parties’ pri-
mary disagreement over what portion, if any, of the Merck
settlement proceeds were properly characterized as nonmarital.
It then recited and applied the principles announced in Parde
v. Parde.4 In that case, we held that settlement proceeds com-
pensating a spouse for “purely personal losses” such as pain,
suffering, disfigurement, disability, and postdivorce loss of
earning capacity are not part of the marital estate, but that
settlement proceeds for past wages, past medical expenses,
and other items that compensate for diminution of the marital
estate should be included in the marital estate.5 Under Parde,
the burden of proving that all or a portion of the settlement is
nonmarital rests on the spouse making the claim; if the burden
is not met, the settlement proceeds are presumed to be mari-
tal property.6
The district court noted that, like the settlement at issue in
Parde, the Merck settlement “was silent on allocation” of the
settlement proceeds. But the court went on to find:
Notwithstanding [the failure to allocate], the Court, as the
trier of fact and judge of the credibility of the witnesses,
had an opportunity, over two days of trial, to not only
see and hear Amy testify but [to] see how profoundly
and permanently she has been affected and disabled by
the massive stroke she sustained at such an early age
[and] Brian . . . is now seeking to receive credit for half
of the personal injury settlement of $330,621.14. The
Court did not need the settlement documents . . . to see
and appreciate the serious nature of Amy’s permanent
injuries. The settlement does not come close to compen-
sating Amy for her future pain, suffering, disfigurement,
[and] disability.
4
Parde, supra note 2.
5
Id. at 109, 602 N.W.2d at 663.
6
Parde, supra note 2.
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MARSHALL v. MARSHALL
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The district court did not make an express finding allocat-
ing a certain percentage of the settlement proceeds as either
marital or nonmarital. Instead, after making factual findings
tracing the Merck settlement proceeds to several marital assets,
the court divided those assets between the parties and, in valu-
ing the assets, awarded a credit for nonmarital funds invested
in that asset. Specifically, the court found that $179,604 of the
Merck settlement proceeds had been used to pay off the mort-
gage and remodel the marital home. The court then awarded
Amy the marital home, valued at $348,600, and gave her a
credit of $179,604 against the value of the property to reflect
her nonmarital share of the settlement proceeds.
The court took a similar approach with Brian. It found that
he opened a bank account with $20,000 from the personal
injury settlement and, by the time of trial, had spent the account
down to $600. The court awarded Brian the account “as credit
against his derivative or marital claim to the settlement pro-
ceeds.” The court also found that Brian used $37,333.33 of
the personal injury settlement to purchase an interest in Elite
Fitness. The court awarded that business investment to Brian
“as a credit against his derivative or marital claim to the settle-
ment proceeds.”
(b) Division of Marital
Assets and Debts
Ultimately, the court calculated and divided the marital
estate such that Amy received the marital home and her per-
sonal vehicle; Brian received a rental home, two trucks and
two boats, his interest in Elite Fitness, and his 49-percent inter-
est in Marshall Enterprises. The parties were each awarded the
bank accounts in their own names, and the joint accounts were
divided equally. The court also divided equally the cash value
of various life insurance policies held by Brian. No equaliza-
tion payment was ordered.
(c) Child Support
The court’s decree noted the significant disparity in the
parties’ proposed child support calculations and described the
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MARSHALL v. MARSHALL
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evidence regarding Brian’s income as “confounding and at
times conflicting.” Nearly two pages of the court’s factual
findings were devoted to reciting what the court described as a
“few, but certainly not all, examples” of Brian’s contradictory
evidence regarding his income and investments.
Ultimately, the court arrived at Brian’s total monthly income
by splitting the difference between the parties’ suggested
income calculations for Brian and adjusting the figure down-
ward by several hundred dollars. The court explained that
its decision to split the difference was based on the conflict-
ing nature of the evidence, the best interests of the child and
her age (18), and the equities of the situation. Using a total
monthly income figure for Brian of $7,000, Brian was ordered
to pay $935 per month in child support.
(d) Alimony
After reciting and analyzing the factors set out in Neb.
Rev. Stat. § 42-365 (Reissue 2016), the district court ordered
Brian to pay Amy alimony of $2,000 per month for a period of
21 years.
3. Court of A ppeals’ Decision
Brian appealed the decree. As relevant to this appeal, he
assigned error to the district court’s (1) classification and divi-
sion of the marital estate, including classifying any portion
of the settlement proceeds as nonmarital; (2) calculation of
Brian’s income for child support purposes; and (3) award of
alimony. In a split decision, the Court of Appeals affirmed in
part, and in part reversed and remanded with directions.
(a) Settlement Proceeds
The Court of Appeals found that Amy “failed to sufficiently
demonstrate that any portion of the settlement proceeds were
nonmarital property.”7 It reasoned:
While it is clear that Amy’s stroke has left her with
serious physical impairments, it is also clear that her
7
Marshall, supra note 1, 24 Neb. Ct. App. at 258-59, 885 N.W.2d at 747.
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stroke resulted in a great reduction in the value of the
marital estate. The settlement proceeds received from
Merck were simply not enough to cover all of the dam-
ages incurred by the parties. And, Amy simply failed
to prove that any portion of the settlement proceeds
were specifically allocated to her purely personal losses.
In particular, Amy did not present any evidence which
showed that 54 percent of the settlement proceeds were
her nonmarital property. Thus, it is not clear how the
district court determined that the proceeds should be
broken down such that Amy received 54 percent of the
proceeds as her nonmarital property; Brian received 12.5
percent of the proceeds as his nonmarital property; and
the remaining 33.5 percent of the proceeds stayed in
the marital estate. Without specific proof about how the
settlement proceeds should be broken down, the presump-
tion remains that all of the proceeds from the personal
injury settlement are marital property. The district court
erred in arbitrarily setting aside any portion of the settle-
ment proceeds as nonmarital property. The entirety of the
proceeds should be included in the marital estate.8
In reaching this conclusion, the Court of Appeals empha-
sized that the settlement proceeds were inadequate to compen-
sate the marital estate for the income Amy lost after her stroke
and before the parties separated. It reasoned:
Evidence presented at trial revealed that prior to Amy’s
stroke, she worked full time as a hairdresser . . . . Her
annual wages for this employment totaled approximately
$43,580. After Amy’s stroke, she is essentially unable to
work as a hairdresser. She now earns a negligible amount
of money working only a few hours a week. Accordingly,
it is clear that the marital estate was greatly diminished
as a result of Amy’s lost wages. In fact, Amy’s lost
wages from the time of her stroke in 2003 through the
8
Id. at 263-64, 885 N.W.2d at 750.
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times of the parties’ separation 10 years later in 2013
totaled more than $100,000 over the entirety of the settle-
ment proceeds.9
Because it reversed the district court’s decision to exclude
portions of the personal injury settlement from the marital
estate, the Court of Appeals remanded the matter to the district
court to recalculate the value of the marital estate and to recon-
sider the equitable division of the marital assets.
(b) Child Support
The Court of Appeals found the district court erred in using
$7,000 as Brian’s monthly income for purposes of calculating
child support. It found that Amy’s proposed monthly income
figure for Brian was not supported by the record and therefore
concluded it was not reasonable for the district court to “‘split
the difference’” between Amy’s and Brian’s proposed figures
when determining Brian’s monthly income.10 The Court of
Appeals recalculated Brian’s monthly income based on its de
novo review of the evidence, and it found his monthly income
was $5,864.20, which it rounded up to $6,000. It then directed
the district court, on remand, to recalculate child support using
$6,000 as Brian’s monthly income figure.
(c) Alimony
The Court of Appeals found no abuse of discretion in order-
ing Brian to pay alimony of $2,000 per month for 21 years.
However, because it was remanding the matter to the district
court to recalculate and divide the marital estate and to recal-
culate Brian’s child support, it reversed the alimony award as
well, recognizing that when the district court performed these
recalculations, its determination regarding appropriate alimony
may be affected. As such, the Court of Appeals directed
the district court on remand to “reconsider the issue of ali-
mony in light of the changed circumstances resulting from
9
Id. at 263, 885 N.W.2d at 750.
10
Id. at 267, 885 N.W.2d at 752.
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the recalculation of both the marital estate and Brian’s cur-
rent income.”11
4. M atters Before Court
on Further R eview
Both parties have assigned error on further review, but only
Amy’s assignments are properly before us. Neb. Ct. R. App.
P. § 2-102(F)(1) (rev. 2015) requires that a petition for further
review and memorandum brief “must be filed within 30 days
after the release of the opinion of the Court of Appeals or the
entry of the order of the Court of Appeals finally disposing of
the appeal, whichever occurs later.”
The Court of Appeals’ opinion was released August 16,
2016. Amy timely filed for further review within 30 days of
that date, and we granted her petition. Brian, however, did
not petition for further review within 30 days of August 16.
Instead, after Amy’s petition was granted, he filed a brief
opposing the assignments Amy raised on further review and
purporting to cross-petition for further review to assign errors
of his own. This purported cross-petition was out of time. As
such, further review will be limited to the assignments raised
by Amy.
II. ASSIGNMENTS OF ERROR
Amy assigns the Court of Appeals erred in (1) determining
that the entirety of the settlement proceeds should be included
in the marital estate, (2) remanding the matter to the district
court for recalculation of the value of the marital estate and
redistribution of the assets and debts, (3) reversing the district
court’s award of alimony, and (4) remanding the matter for
recalculation of Brian’s child support obligation.
III. STANDARD OF REVIEW
[1] In an action for the dissolution of marriage, an appel-
late court reviews de novo on the record the trial court’s
11
Id. at 273-74, 885 N.W.2d at 756.
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determinations of custody, child support, property division,
alimony, and attorney fees; these determinations, however, are
initially entrusted to the trial court’s discretion and will nor-
mally be affirmed absent an abuse of that discretion.12
[2] A judicial abuse of discretion exists if the reasons or
rulings of a trial judge are clearly untenable, unfairly depriv-
ing a litigant of a substantial right and denying just results in
matters submitted for disposition.13
[3] When evidence is in conflict, an appellate court consid-
ers, 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.14
IV. ANALYSIS
1. Classification of
Settlement Proceeds
The primary issue in this appeal is whether the trial court
erred in classifying $179,604 of the settlement proceeds as
Amy’s nonmarital property and dividing the parties’ assets
based on that classification. Before directly addressing that
issue, we set out the general principles that guide our analysis.
[4-7] In Nebraska, dissolution of marriage cases are equi-
table in nature.15 The purpose of a property division is to dis-
tribute the marital assets equitably between the parties.16 The
ultimate test for determining the appropriateness of the divi-
sion of property is fairness and reasonableness as determined
by the facts of each case.17 There is no mathematical formula
by which property awards can be precisely determined.18 A
12
Donald v. Donald, 296 Neb. 123, 892 N.W.2d 100 (2017).
13
Bergmeier v. Bergmeier, 296 Neb. 440, 894 N.W.2d 266 (2017).
14
Erin W. v. Charissa W., 297 Neb. 143, 897 N.W.2d 858 (2017).
15
Laschanzky v. Laschanzky, 246 Neb. 705, 523 N.W.2d 29 (1994).
16
§ 42-365.
17
Meints v. Meints, 258 Neb. 1017, 608 N.W.2d 564 (2000).
18
See Thiltges v. Thiltges, 247 Neb. 371, 527 N.W.2d 853 (1995).
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division of property will not be disturbed on appeal unless it is
patently unfair.19 As we stated in Parde v. Parde,20 “In equity,
there is rarely one tidy answer that fits every size and type of
problem that courts are called upon to resolve.”
[8,9] Under § 42-365, the equitable division of property is
a three-step process.21 The first step is to classify the parties’
property as marital or nonmarital. The second step is to value
the marital assets and determine the marital liabilities of the
parties. The third step is to calculate and divide the net marital
estate between the parties in accordance with the principles
contained in § 42-365.22 We have recognized that any given
property can constitute a mixture of marital and nonmarital
interests; a portion of an asset can be marital property while
another portion can be separate property.23
[10] As a general rule, all property accumulated and acquired
by either spouse during the marriage is part of the marital
estate, unless it falls within an exception to the general rule.24
In the instant case, Amy relies on the exception for that por-
tion of personal injury settlement proceeds which compensate
a spouse for his or her “purely personal losses.”25
Amy argues the trial court did not abuse its discretion in
classifying and allocating the personal injury settlement pro-
ceeds, and she claims the Court of Appeals erred in finding
there was a failure of proof. We agree, and begin our analysis
with a discussion of the seminal case, Parde v. Parde.
In Parde, the husband was injured on the job during
the marriage and ultimately received a settlement from his
19
See Heser v. Heser, 231 Neb. 928, 438 N.W.2d 795 (1989).
20
Parde, supra note 2, 258 Neb. at 108, 602 N.W.2d at 662.
21
Stephens v. Stephens, 297 Neb. 188, 899 N.W.2d 582 (2017); Despain v.
Despain, 290 Neb. 32, 858 N.W.2d 566 (2015).
22
Id.
23
Stephens, supra note 21.
24
Gangwish v. Gangwish, 267 Neb. 901, 678 N.W.2d 503 (2004).
25
See Parde, supra note 2, 258 Neb. at 109, 602 N.W.2d at 663.
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employer. Part of the settlement provided a cash payment, and
part required the employer to fund an annuity which had not
yet come due when the parties divorced. By that time, the cash
portion of the settlement had been spent and was reflected in
the assets of the parties; those assets were divided pursuant to
the parties’ settlement agreement. But a primary issue during
the dissolution proceedings was whether the future annuity
should be included or excluded from the marital estate. The
district court found the annuity should be classified as marital
property, and the husband appealed. The Court of Appeals
reversed, finding the trial court had abused its discretion in
failing to exclude the annuity as nonmarital property. We
granted further review to clarify what we characterized as
an “unnecessarily . . . muddled area of the law—determining
which portions of an injured spouse’s personal injury settle-
ment should be included in the marital estate for purposes of
property division.26
[11,12] We observed there are two general approaches to
the issue: the mechanical approach and the analytic approach.
Under the mechanical approach, applied by a minority of juris-
dictions, personal injury awards are treated entirely as mari-
tal property. Under the analytic approach, courts analyze the
nature and underlying reasons for the compensation, and clas-
sify it accordingly. We found the analytic approach to be more
consistent with the basic rule that the marital estate should
include only property created by the marital partnership, and
we adopted that approach. We explained:
Compensation for purely personal losses is not in any
sense a product of marital efforts. We, therefore, hold
that compensation for an injury that a spouse has or will
receive for pain, suffering, disfigurement, disability, or
loss of postdivorce earning capacity should not equita-
bly be included in the marital estate. On the other hand,
compensation for past wages, medical expenses, and other
26
Id. at 106, 602 N.W.2d at 661.
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items that compensate for the diminution of the marital
estate should equitably be included in the marital estate
as they properly replace losses of property created by
marital partnership.27
Parde emphasized that the burden of proving that all or a
portion of the settlement is nonmarital rests on the spouse
making the claim.28 If the burden is not met, the presump-
tion remains that the proceeds from the settlement are mari-
tal property.
In Parde, we applied the analytic approach and concluded
that the cash portion of the settlement, which had been spent
and was reflected in the parties’ assets, more than adequately
compensated the marital estate for any wages the husband
lost during the marriage. We further held that the district
court abused its discretion in classifying the annuity as mari-
tal. We rejected the wife’s argument that the husband had
failed to meet his burden of proof because he had not offered
“direct evidence” establishing that the annuity “carried a spe-
cific designation showing it was for a nonmarital purpose.”29
We explained:
While the husband’s evidence did not consist of a settle-
ment document with a tidy breakdown of each dollar of
the settlement into well-defined categories, the testimony
. . . when considered with the language of the Release
itself and the settlement as a whole, proved what portion
of the entire settlement is to be reasonably considered
as lost wages during the marriage and, thus, as a marital
asset. By proving what portion of the entire settlement
should be considered as a marital asset, the husband has
necessarily proved what portion could properly be viewed
as nonmarital property.30
27
Id. at 109-10, 602 N.W.2d at 663.
28
See id.
29
Id. at 112, 602 N.W.2d at 664-65.
30
Id. at 112-13, 602 N.W.2d at 665.
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Here, the parties do not dispute that the personal injury
settlement with Merck represents compensation for any and all
damages sustained by Amy, Brian, and the marital estate as a
result of Amy’s stroke. But applying the principles announced
in Parde to the instant appeal is complicated by two things: (1)
the fact that the evidence shows the settlement proceeds were
insufficient to compensate either Amy or the marital estate for
the losses proved at trial and (2) the fact that the settlement
proceeds have largely been spent. Although Parde did not
directly address these complicating factors, we find nothing in
the approach taken by the district court that was inconsistent
with the general principles articulated in Parde.
The district court recognized that Amy had the burden, as
the one claiming some or all of the settlement proceeds were
nonmarital, to present evidence showing that all or a portion of
the proceeds were specifically allocated to her purely personal
losses.31 The first issue, therefore, is whether she presented
evidence sufficient to meet this burden of proof.
The Court of Appeals held that Amy “simply failed to
prove that any portion of the settlement proceeds were spe-
cifically allocated to her purely personal losses.”32 Our de
novo review of the record leads us to a different conclu-
sion. Amy presented her own testimony, testimony from her
mother, evidence from her treating physician as to the nature
and extent of her physical injuries, and evidence of future
lost earnings. The trial court found this evidence credible
and made an express finding that the settlement proceeds
did “not come close to compensating Amy” for her purely
personal losses. All of this evidence demonstrated that Amy
has sustained a significant amount of uniquely personal loss
and implicitly demonstrated that a significant portion of the
settlement proceeds was necessarily allocated to compensate
her for this loss.
31
See id.
32
Marshall, supra note 1, 24 Neb. App. at 263, 885 N.W.2d at 750.
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[13] We take this opportunity to clarify that the rule
announced in Parde does not require either that the settlement
agreement itself must categorize the nature of the compensa-
tion or that parties must present expert testimony as to how
settlement proceeds should be allocated. Rather, Parde simply
requires competent evidence as to the nature of and underly-
ing reasons for the compensation. It is not at all uncommon
for personal injury settlement agreements to be silent regard-
ing allocation, and we soundly reject any suggestion that such
silence compels the conclusion that the entire settlement must
be classified as marital property.
We also reject any suggestion that the analytic approach
adopted in Parde requires testimony or evidence of a par-
ticular mathematical breakdown of the settlement proceeds.
District court judges are well acquainted with personal injury
evidence and damages and are called upon regularly to deter-
mine and allocate such damages. Indeed, case law from other
jurisdictions indicates that neither mathematical allocation of
settlement proceeds nor expert testimony as to allocation is
required and that trial courts instead allocate damages based on
personal testimony and other evidence.33 As the Supreme Court
of Alaska has stated:
Although mathematically exact allocation of [a personal
injury] award may not be possible, we are confident
of the ability of the trial court to make a reasonable
apportionment. Like the Supreme Court of New Jersey,
“[w]e do not expect that the allocation of such awards
will present any serious problems. Trial courts are used
to allocating and tracing assets in equitable distribu-
tion cases.”34
33
See, Tramel v. Tramel, 740 So. 2d 286 (Miss. 1999); Dalessio v. Dalessio,
409 Mass. 821, 570 N.E.2d 139 (1991); Bandow v. Bandow, 794 P.2d 1346
(Alaska 1990).
34
Bandow, supra note 33, 794 P.2d at 1350, quoting Landwehr v. Landwehr,
111 N.J. 491, 545 A.2d 738 (1988).
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[14] We acknowledge, as did both the lower court and
the Court of Appeals, that the total amount of compensation
here was inadequate to fully compensate either Amy or the
marital estate for the full extent of losses suffered. That does
not mean, however, that either all or none of the settlement
proceeds must be classified as nonmarital. Indeed, where, as
here, the evidence shows the settlement proceeds were inad-
equate to compensate the purely personal losses proved by the
injured spouse, and also were inadequate to compensate loses
to the marital estate, inequity would generally result from
classifying all of the settlement proceeds as either marital
or nonmarital.
We have recognized that any given property can constitute
a mixture of marital and nonmarital interests; a portion of
an asset can be marital property while another portion can
be separate property.35 As our recitation of the facts demon-
strates, there was substantial evidence presented to the district
court that the stroke caused Amy significant personal pain,
suffering, disfigurement, disability, and loss of postdivorce
earning capacity. While the marital estate also suffered sig-
nificant loss due to Amy’s lost wages, we cannot find that the
district court abused its discretion in classifying slightly more
than one-half of the settlement proceeds as Amy’s nonmari-
tal property.
[15-17] This case also demonstrates that the principles
announced in Parde can be applied to settlement proceeds that
have already been spent, so long as the nonmarital portion of
the settlement proceeds can be sufficiently traced. We have
recognized that setting aside nonmarital property is simple if
the spouse possesses the original asset, but can be problem-
atic if the original asset no longer exists.36 Separate property
becomes marital property by commingling if it is inextricably
mixed with marital property or with the separate property of
35
Stephens, supra note 21.
36
Brozek v. Brozek, 292 Neb. 681, 874 N.W.2d 17 (2016).
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the other spouse.37 But if the separate property remains seg-
regated or is traceable into its product, commingling does not
occur.38 The burden of proof rests with the party claiming that
property is nonmarital.39
Here, that burden was met. The evidence was undisputed
that $179,604 of the settlement proceeds was used to pay off
the mortgage and remodel the marital home. After tracing
that portion of the settlement proceeds to the marital home,
the district court awarded Amy the marital home, valued
at $348,600, and gave her a credit of $179,604 against the
value of the property to reflect her nonmarital share of the
settlement proceeds. This approach was equitable, consistent
with the principles articulated in Parde, and supported by
the evidence.
For all of these reasons, we find the trial court did not
abuse its discretion in classifying and allocating Amy’s non-
marital share of the settlement proceeds in the context of
dividing the marital estate. To the extent the Court of Appeals
concluded otherwise, we reverse.
2. Child Support
The Court of Appeals found the district court abused its
discretion in determining Brian’s total monthly income was
$7,000 for purposes of the child support calculation. Based on
its de novo review of the evidence, the Court of Appeals deter-
mined Brian’s total monthly income was $6,000 and remanded
the matter to the district court with instructions to recalculate
child support using the lower monthly income figure. On
further review, we find no abuse of discretion in the district
court’s calculation of Brian’s monthly income.
[18] The Nebraska Child Support Guidelines provide that in
calculating the amount of child support to be paid, the court
37
Id.
38
Id.
39
Id.
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must consider the total monthly income, which is defined as
“income of both parties derived from all sources, except all
means-tested public assistance benefits which includes any
earned income tax credit and payments received for children
of prior marriages” and includes income that could be acquired
by the parties through reasonable efforts.40
[19,20] We have not set forth a rigid definition of what
constitutes income, but instead we have relied upon a flex-
ible, fact-specific inquiry that recognizes the wide variety of
circumstances that may be present in child support cases.41
Thus, income for the purposes of calculating child support is
not necessarily synonymous with taxable income.42 We take
this flexible approach in determining a person’s “income” for
purposes of child support, because child support proceedings
are, despite the child support guidelines, equitable in nature.43
Thus, a court is allowed, for example, to add “in-kind” ben-
efits, derived from an employer or other third party, to a
party’s income.44
The decree described the evidence of Brian’s income as
“confounding and at times conflicting.” Our de novo review
of the record supports that characterization. The evidence
adduced at trial could conceivably support a variety of reason-
able monthly income calculations, but the trial court ultimately
decided: “Based upon the evidence and the conflicting nature
of same, [the minor’s] age, her best interests, the equities of
the situation and the need to later address alimony, the Court
. . . split[s] the difference between the [parties’] suggested
monthly gross incomes for Brian . . . and adjust[s] that differ-
ence downward slightly . . . .”
40
Neb. Ct. R. § 4-204 (rev. 2016).
41
Gangwish, supra note 24; Workman v. Workman, 262 Neb. 373, 632
N.W.2d 286 (2001).
42
Gangwish, supra note 24.
43
Id.
44
Workman, supra note 41.
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While we do not generally endorse the practice of split-
ting the difference in making child support calculations, we
acknowledge the practice of splitting the difference is used
occasionally by trial courts, sitting in equity, when there is a
conflict in the evidence.45 But regardless of the rationale uti-
lized by the trial court, our de novo review of the record does
not show an abuse of discretion in using a figure of $7,000 as
Brian’s monthly income.
The Court of Appeals engaged in an exhaustive de novo
review of the record and determined it supported a finding that
Brian’s monthly income was $6,000. In doing so, however, it
relied extensively on Brian’s testimony and evidence produced
by Brian with respect to his monthly income. Although our
review is de novo, we cannot discount that the trial judge, who
was in the best position to observe the witnesses’ demeanor
and credibility, expressed significant concern about Brian’s
credibility and the contradictory nature of the evidence Brian
presented. When evidence is in conflict, an appellate court
considers, 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.46 In light of the conflicting nature
of the evidence, the trial court’s concerns about Brian’s cred-
ibility, and particularly because the minor child was 18 at the
time of trial and the support order was to last only a matter of
months, we cannot find the trial court abused its discretion in
finding that Brian’s total monthly income for child support pur-
poses was $7,000. We therefore reverse the Court of Appeals’
decision on this issue.
3. A limony
Finally, although the Court of Appeals found no abuse of
discretion in the district court’s alimony award, it reversed the
award, because it was remanding the matter for recalculation
45
See, Shald v. Shald, 216 Neb. 897, 346 N.W.2d 406 (1984); Sneckenberg
v. Sneckenberg, 9 Neb. Ct. App. 609, 616 N.W.2d 68 (2000).
46
Erin W., supra note 14.
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and division of the marital estate and for recalculation of child
support and wanted the trial court to have an opportunity to
reconsider the issue of alimony as well. Because we con-
clude on further review that the district court’s decree should
be affirmed, there is no need to reconsider alimony, and this
aspect of the Court of Appeals’ opinion is reversed as moot.
V. CONCLUSION
For the foregoing reasons, we find no abuse of discretion
in the trial court’s classification and allocation of the personal
injury award or in the trial court’s determination of Brian’s
monthly income for purposes of calculating child support. We
therefore reverse the Court of Appeals’ decision and remand
the matter with directions to affirm the decree of the dis-
trict court.
R eversed and remanded with directions.