Stephens v. Stephens, 297 Neb. 188

Background

Robert and Janet Stephens married in 1991; they have twin sons and divorced in 2014. Robert co‑founded and was president (34% owner) of Stephens & Smith Construction Co., which appreciated from about $298,459 (1991) to about $5,044,934 at dissolution.
Janet suffered from a mental illness in the last ~10 years of the marriage, received SSDI, refused to participate in proceedings, and was represented by a guardian ad litem who also served as her guardian/conservator.
The district court classified several business and real estate interests as either marital or nonmarital; it found Robert’s interests in several entities nonmarital (including Stephens & Smith and its subsidiary R.I.P.), but treated Aardvark Antique Mall, The Mystic Pines Apartments, and Eagles Landing Apartments as marital and ordered joint ownership transfers.
The district court excluded the ~$5 million appreciation in Stephens & Smith as nonmarital, awarded Janet a $1.1 million “Grace award” payable in installments, and awarded Janet $1,000/month spousal support for 120 months under Neb. Rev. Stat. § 42‑362 (mental illness ground).
Janet appealed, arguing (1) the appreciation in Stephens & Smith was marital, (2) spousal support should continue as long as her mental illness persists, and (3) the court erred in ordering transfers of partnership interests when articles may prohibit transfers.

Issues

Issue	Janet's Argument	Robert's Argument	Held
Whether appreciation of Robert’s Stephens & Smith stock during marriage is marital property	Appreciation during marriage is marital and subject to equitable division	Appreciation is nonmarital because it resulted from passive/market forces or Robert’s pre‑marriage ownership and not from Janet’s efforts	Court held appreciation is marital to the extent caused by either spouse’s efforts; reversed exclusion of Stephens & Smith appreciation and vacated Grace award; remanded for valuation/division
Proper application of active appreciation rule to business interests	Active appreciation includes efforts of either spouse; thus Robert’s active management makes appreciation marital	Robert contends active appreciation rule should be limited so that only nonowning spouse’s efforts create marital interest in business appreciation	Court adopts active appreciation rule broadly: appreciation of nonmarital assets during marriage is presumed marital unless owning spouse proves growth traceable to nonmarital forces or not due to active efforts of either spouse; burden on owning spouse
Duration of spousal support under § 42‑362 for mentally ill spouse	Support should continue while Janet remains mentally ill	Court awarded 120 months; Robert did not contest amount/duration	Court affirmed discretion to limit award to 120 months; no abuse of discretion found but district court may reconsider in light of reclassification of assets
Ordering transfer of partnership/business interests when organizational documents may restrict transfers	Janet feared nonconsent by other partners would frustrate transfer; argued court should award cash instead	Court ordered transfer and gave Robert 30 days to document joint ownership; alternative remedies available if transfer fails	Court affirmed district court’s decision to award ownership interests rather than cash and allowed post‑decree modification if transfers cannot be effected

Key Cases Cited

Van Newkirk v. Van Newkirk, 212 Neb. 730 (discusses inherited/gift property and equities in classifying appreciation)
Rezac v. Rezac, 221 Neb. 516 (recognizes appreciation of premarital corporate stock as marital when caused by husband’s contributions)
Grace v. Grace, 221 Neb. 695 (permitted equitable lump‑sum awards from nonmarital assets in exceptional circumstances)
Meints v. Meints, 258 Neb. 1017 (adopts three‑step dual classification/value/divide process for equitable property division)
Stanosheck v. Jeanette, 294 Neb. 138 (adopts test for treating investment growth on nonmarital retirement accounts as nonmarital when growth is identifiable and not due to spouse efforts)
Coufal v. Coufal, 291 Neb. 378 (applies active appreciation analysis to premarital retirement assets)
Black v. Black, 223 Neb. 203 (spousal support for mentally ill spouse should continue only as long as illness continues or until remarriage)