Stephens v. Stephens
297 Neb. 188
| Neb. | 2017Background
- Robert and Janet Stephens married in 1991; Robert co-founded and was president of Stephens & Smith Construction Co., Inc., owning 34% of its stock. The marriage lasted ~25 years; two children were born in 1996.
- At marriage, Robert’s Stephens & Smith stock was valued at ~$298,459; at dissolution it was valued at ~$5,044,934. Robert worked full time as president throughout the marriage and had significant management/control responsibilities.
- Janet suffered from a mental illness during the last ~10 years of the marriage, received disability income, refused to participate in the proceedings, and was represented by a guardian ad litem.
- The district court classified many of Robert’s business interests (Infinity, Heritage, Smith & Stephens RE, Aardvark Partners, and Stephens & Smith including subsidiary R.I.P.) as nonmarital, finding appreciation passive; it did find certain real estate interests marital and split them 50/50.
- The district court awarded Janet a "Grace award" of $1.1 million (installments) despite treating Stephens & Smith as nonmarital, and ordered alimony of $1,000/month for 120 months under Neb. Rev. Stat. § 42-362.
- Janet appealed, arguing misclassification of Stephens & Smith appreciation, insufficient duration of support tied to her mental illness, and practical problems ordering transfers inconsistent with entity documents.
Issues
| Issue | Plaintiff's Argument (Janet) | Defendant's Argument (Robert) | Held |
|---|---|---|---|
| Whether appreciation of Robert’s Stephens & Smith stock during marriage is marital | Appreciation during marriage should be marital because driven by Robert’s active management; district court erred excluding it | Appreciation is nonmarital; only appreciation caused by nonowning spouse should be marital for business interests; growth was passive/organic | Court held appreciation is marital to the extent caused by either spouse’s efforts; reversed district court classification and vacated Grace award; remanded to include appreciation from marriage date and distribute equitably |
| Proper application of the active-appreciation rule (who counts as contributing) | Active appreciation includes efforts of owning spouse (and nonowning spouse); first-tier management efforts attributable to spouse | Argued precedent limits active-appreciation attribution or treats business appreciation differently than retirement accounts | Court adopts active-appreciation rule broadly: appreciation is marital if caused by active efforts of either spouse; first-tier management (e.g., president) can be primary cause; placing burden on owning spouse to prove nonmarital growth |
| Duration of spousal support under § 42-362 given Janet’s mental illness | Support should continue so long as mental illness persists | District court’s 120-month award is reasonable | Court affirmed alimony amount/duration as within trial court’s discretion; noted § 42-362 permits revision and award may be reconsidered on remand given reassessment of marital assets |
| Ordering transfer of partnership/business interests when entity documents may restrict transfers | Ordering transfer may be impractical if other partners must consent; court should order cash or alternative | Court ordered transfer of ownership interests to effect equal division | Court affirmed that awarding ownership interests (not immediate cash) was within discretion; directed parties may seek modification if transfer cannot be completed |
Key Cases Cited
- Van Newkirk v. Van Newkirk, 212 Neb. 730, 325 N.W.2d 832 (1982) (historically limited recognition of appreciation as marital absent contribution or care by spouse)
- Rezac v. Rezac, 221 Neb. 516, 378 N.W.2d 196 (1985) (held appreciation of premarital corporate stock may be marital when driven by reinvestment/owner’s efforts)
- Grace v. Grace, 221 Neb. 695, 380 N.W.2d 280 (1986) (approved post-hoc equitable "Grace award" when classification rules produced harsh results)
- Meints v. Meints, 258 Neb. 1017, 608 N.W.2d 564 (2000) (adopted three-step dual classification process: classify, value, divide)
- Coufal v. Coufal, 291 Neb. 378, 866 N.W.2d 74 (2015) (applied active-appreciation analysis to retirement-account growth and required proof appreciation not caused by spouses’ efforts)
- Stanosheck v. Jeanette, 294 Neb. 138, 881 N.W.2d 599 (2016) (held investment earnings on nonmarital retirement accounts may be nonmarital only if traceable and due solely to passive market forces)