Stephens v. Stephens
899 N.W.2d 582
Neb.2017Background
- Robert and Janet Stephens married in 1991; divorce filed in 2014 after ~25 years of marriage; twin sons born in 1996. Janet has a long‑term mental illness and limited income; a guardian ad litem/guardian was appointed for her.
- Robert is cofounder and president of Stephens & Smith Construction Co., Inc., owned 34% of its stock at dissolution; stock valued at ~$298,459 at marriage and ~$5,044,934 at dissolution.
- Robert worked full time as president throughout the marriage, set his own salary, participated in major decisions, trained leadership, and personally guaranteed loans; the company had ~200 employees and several subsidiaries/partnerships tied to its value.
- Trial court classified most interests (Infinity, Heritage, Smith & Stephens Real Estate, Aardvark Partners, and Stephens & Smith including R.I.P.) as nonmarital, excluded ~ $5M appreciation from the marital estate, but awarded Janet a $1.1M "Grace award" paid in installments; awarded certain real estate interests as marital and split others.
- Court awarded Janet $1,000/month alimony for 120 months under Neb. Rev. Stat. § 42‑362 and life insurance security; Janet appealed challenging (1) classification of Stephens & Smith appreciation, (2) duration of spousal support, and (3) ordering transfers in entities that require partner consent.
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 Robert's active efforts caused growth | Appreciation is nonmarital; only appreciation due to nonowning spouse’s efforts should be marital; company growth was passive/organic | Court held appreciation during marriage is marital to the extent caused by active efforts of either spouse; reversed exclusion of Stephens & Smith appreciation and vacated Grace award; remanded to value/divide marital portion |
| Standard for allocating appreciation of nonmarital assets (active vs passive) | N/A (raised by appeal of classification) | N/A | Court adopts active appreciation rule: growth presumed marital unless owning spouse proves growth is traceable to nonmarital portion and not due to active efforts of either spouse; burden on owning spouse to prove otherwise |
| Validity/amount of the Grace award (equitable award despite nonmarital classification) | Grace award inadequate/ improperly used because appreciation is marital | Trial court may use Grace award when fairness requires despite nonmarital classification | Grace award vacated as inseparable from incorrect nonmarital classification; equitable adjustment must follow after proper inclusion of appreciation |
| Duration of spousal support under § 42‑362 for mentally ill spouse | Support should continue so long as Janet remains mentally ill | 120 months award is within court discretion | Affirmed: trial court did not abuse discretion in awarding $1,000/month for 120 months; court may reconsider amount/duration on remand given changed asset classification |
| Transfer of partnership/business interests when organizational documents may restrict transfers | Transfer to Janet may be impractical if other partners do not consent; should be cash instead | Court ordered transfers and gave Robert 30 days to complete; if transfers fail, parties may seek modification | Affirmed: ordering transfers (rather than immediate cash) was within discretion; parties may seek modification if transfers cannot be effected |
Key Cases Cited
- Van Newkirk v. Van Newkirk, 212 Neb. 730 (discusses treatment of premarital gifts/inheritances and appreciation)
- Rezac v. Rezac, 221 Neb. 516 (upheld treating premarital corporate stock appreciation as marital where owning spouse’s efforts caused growth)
- Grace v. Grace, 221 Neb. 695 (approved equitable "Grace" awards in limited circumstances despite nonmarital classification)
- Meints v. Meints, 258 Neb. 1017 (adopts dual classification: classify marital vs nonmarital, then value and divide)
- Stanosheck v. Jeanette, 294 Neb. 138 (applies test for treating investment earnings on nonmarital retirement accounts as nonmarital when growth traceable and passive)
- Coufal v. Coufal, 291 Neb. 378 (addresses increase in premarital retirement capital and active efforts)