Stephens v. Stephens
297 Neb. 188
| Neb. | 2017Background
- Robert and Janet Stephens were married in 1991; divorce filed in 2014 after ~25 years of marriage and two children. Janet suffers from a long-term mental illness and receives disability income; a guardian ad litem represented her and is her guardian/conservator.
- Robert is cofounder and president of Stephens & Smith Construction Co., Inc., owning 34% of stock; his 1991 premarital interest was ≈ $298,459 and at dissolution ≈ $5,044,934.
- Robert worked full time as president throughout the marriage, participated in board-level decisionmaking, set his salary, guaranteed loans, and was involved in selecting/training leadership; the company had ~200 employees and multiple subsidiaries/partnership interests.
- The district court found many of Robert’s business interests nonmarital (including Stephens & Smith and its subsidiary R.I.P.) and excluded ~ $5 million appreciation from the marital estate; nonetheless the court awarded Janet a $1.1 million “Grace award” payable over time and ordered other property divisions and $1,000/month spousal support for 120 months.
- Janet appealed the classification of Stephens & Smith appreciation, the limited duration of spousal support under Neb. Rev. Stat. § 42-362, and the decree’s ordering of transfers when entity governing documents might preclude transfers.
Issues
| Issue | Plaintiff's Argument (Janet) | Defendant's Argument (Robert) | Held |
|---|---|---|---|
| Whether appreciation of Robert's Stephens & Smith stock during the marriage is marital property | Appreciation should be marital because Robert’s active efforts caused company growth | Appreciation is nonmarital because the stock was premarital and growth was passive/organic or due to market forces and third parties, so only nonowning-spouse efforts make appreciation marital | Reversed district court: appreciation during marriage is marital to the extent caused by either spouse’s active efforts; remanded to include the increase in value of Robert’s 34% interest and to redivide equitably (Grace award vacated) |
| Proper application of the active-appreciation rule to nonretirement business interests | The rule should treat appreciation caused by owning-spouse effort as marital | The rule should be limited so that only effort by the nonowning spouse converts appreciation to marital property | Court adopted an active-appreciation rule applicable to all nonmarital assets: appreciation is marital if caused by active efforts of either spouse; burden on owning spouse to prove growth was passive |
| Whether Grace awards can be used when appreciation is classified nonmarital | Grace award ok to achieve equity when classification excludes large premarital appreciation | Court relied on Grace previously to justify partial award | Court held Grace awards are not generally a substitute for proper dual-classification under Meints; vacated the Grace award here and directed inclusion of appreciation as marital when warranted |
| Duration of support under Neb. Rev. Stat. § 42-362 for mentally ill spouse | Support should continue while Janet remains mentally ill (indefinitely) | District court discretion to set a finite duration (120 months) | Affirmed: award of $1,000/month for 120 months was within trial court discretion; § 42-362 does not mandate support for the entire duration of illness and support may be revised later |
Key Cases Cited
- Meints v. Meints, 258 Neb. 1017 (establishing the three-step dual-classification property-division framework)
- Stanosheck v. Jeanette, 294 Neb. 138 (2016) (articulating test for when investment growth in a nonmarital retirement account may remain nonmarital)
- Coufal v. Coufal, 291 Neb. 378 (2015) (increase in premarital retirement capital may be nonmarital when not caused by spouses’ efforts)
- Rezac v. Rezac, 221 Neb. 516 (1985) (appreciation of premarital corporate stock treated as marital where increased by reinvestment/owner’s efforts)
- Grace v. Grace, 221 Neb. 695 (1986) (permitting equitable lump-sum awards—so-called "Grace awards"—where strict classification produced inequitable results)
- Van Newkirk v. Van Newkirk, 212 Neb. 730 (1982) (older rule limiting inclusion of inherited/gifted property unless spouse contributed to its improvement or care)