Stephens v. Stephens, 297 Neb. 188

Background

Robert and Janet Stephens married in 1991; three-decade marriage with twin children born 1996; Robert cofounder and 34% shareholder/president of Stephens & Smith Construction Co., Inc. (company value rose from ~$298k to ~$5.04M for his interest during the marriage).
Janet suffered serious mental illness during last ~10 years of marriage, is disabled, receives ~$1,500/month SSDI, and refused to participate in trial; a guardian ad litem represented her interests.
Trial evidence consisted primarily of Robert’s testimony and 166 exhibits; Robert conceded some assets were marital (certain real estate holdings and retirement plans) but maintained the large appreciation in his corporate interests was nonmarital.
The district court treated most appreciation in several business interests (including Stephens & Smith and subsidiary R.I.P.) as nonmarital, awarded Robert those interests, but awarded Janet a $1.1M "Grace award" payable in installments and $1,000/month spousal support for 120 months.
Janet appealed, arguing (1) the company appreciation should be marital, (2) support should continue while her mental illness persists, and (3) the court erred in ordering transfers of partnership interests when articles may bar 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 during marriage is marital because it resulted from Robert's active efforts and should be subject to equitable division	Appreciation is nonmarital because original stock was premarital and growth was due to passive/market/organic forces or third parties, not marital effort of Janet	Court adopts active-appreciation rule: appreciation during marriage is marital to extent caused by efforts of either spouse; reversed district court's finding that all appreciation was nonmarital and vacated Grace award; remanded to include appreciation as marital and re-divide
Proper application of "Grace" awards when an asset is treated as nonmarital	Grace award was insufficient and improperly used to address equity when appreciation should be marital	Grace award justified because entire company deemed nonmarital under precedent	Grace framework limited under modern dual-classification; court vacated Grace award and directed reconsideration after including appreciation as marital
Duration of spousal support under Neb. Rev. Stat. § 42-362 for a mentally ill spouse	Support should continue for as long as Janet remains mentally ill	District court's 120-month term was within discretion	Court affirmed award amount/duration as not an abuse of discretion but noted court may reconsider alimony given change in marital estate on remand
Ordering transfer of partnership/business interests despite organizational restrictions	Transfer may be impractical if other partners won't consent; court should order cash instead	Transfer of ownership interests (not cash) is equitable and court ordered Robert to effect transfers; if transfers fail, parties may seek modification	Court affirmed ordering transfers (not cash); potential modification available if transfers cannot be completed

Key Cases Cited

Van Newkirk v. Van Newkirk, 212 Neb. 730 (discusses treatment of inherited/premarital property and spousal contributions)
Rezac v. Rezac, 221 Neb. 516 (approves treating appreciation of premarital corporate stock as marital where increased by reinvestment/owner's efforts)
Grace v. Grace, 221 Neb. 695 (allowed equitable award to spouse despite classifying asset as nonmarital; source of "Grace award" practice)
Meints v. Meints, 258 Neb. 1017 (adopts three-step dual-classification approach to property division)
Stanosheck v. Jeanette, 294 Neb. 138 (articulates test for classifying investment growth on nonmarital retirement accounts as nonmarital only when traceable and not due to spouse efforts)
Coufal v. Coufal, 291 Neb. 378 (applies active-appreciation principles to premarital retirement capital growth)