John W. Hughes v. Heather K. McKenzie

• Court: Indiana Court of Appeals
• Decided: September 10, 2024
• Docket: 23A-DN-1816
• Status: Published

Opinion

IN THE

Court of Appeals of Indiana John W. Hughes, FILED Appellant-Respondent Sep 10 2024, 8:47 am

CLERK Indiana Supreme Court Court of Appeals v. and Tax Court

Heather K. McKenzie, Appellee-Petitioner

September 10, 2024 Court of Appeals Case No. 23A-DN-1816 Appeal from the Marion Superior Court The Honorable Danielle P. Gaughan, Judge Trial Court Cause No. 49D15-2110-DN-8576

Opinion by Judge Foley Judges Vaidik and Weissmann concur.

Court of Appeals of Indiana | Opinion 23A-DN-1816 | September 10, 2024 Page 1 of 14 Foley, Judge.

[1] John W. Hughes (“Husband”) appeals from the denial of his motion to correct

error, which challenged aspects of the decree dissolving his marriage to Heather

K. McKenzie (“Wife”). Husband raises four issues, which we restate as:

I. Whether the trial court abused its discretion in excluding approximately $130,000.00 in capital gains tax liability from the marital pot;

II. Whether the trial court erred in its allocation of Wife’s Chase savings account;

III. Whether the trial court erred in failing to credit Husband for $16,000.00 in post-hearing, court-ordered payments to Wife; and

IV. Whether the trial court abused its discretion in ordering Husband to pay $20,000.00 of Wife’s attorney’s fees.

[2] We affirm in part, reverse in part, and remand with instructions.

Facts and Procedural History [3] Husband and Wife married in April 1994, after cohabitating since 1989. They

have two adult children. Throughout most of the marriage, Husband worked

as a self-employed general contractor and historic restorer, while Wife focused

on child-rearing, homemaking, and assisting with Husband’s business affairs.

Husband and Wife used to live in Texas. Around 2012, they moved to Indiana.

For a couple of years, Husband regularly returned to Texas to finish projects.

Court of Appeals of Indiana | Opinion 23A-DN-1816 | September 10, 2024 Page 2 of 14 [4] Husband is the sole owner of John Hughes Ceramic Tile Contractor, Inc.

(“Hughes Tile”), which he started in Texas in 1985. In 2004, Husband and a

friend formed Blue Pinto, LLC (“Blue Pinto”), a Texas real estate investment

company in which Husband owns a 50% interest. In January 2020, Husband

opened a checking account for Blue Pinto at a Texas bank (“the Blue Pinto

account”). Husband did not inform Wife of the Blue Pinto account.

[5] In 2020 and 2021, Hughes Tile and Blue Pinto sold a substantial number of

assets. Based on Husband’s stake in these businesses, the transactions resulted

in about $130,000.00 of liability for capital gains taxes. As to Blue Pinto, the

entity sold certain assets for $125,673.47 on November 7, 2020. Blue Pinto sold

the rest of its assets for $734,171.57 on March 12, 2021. Shortly after each

transaction, the funds were deposited into the Blue Pinto account. Husband did

not inform Wife of these transactions. On September 24, 2021, Hughes Tile

sold a piece of real estate for $174,926.07. Wife was aware of the Hughes Tile

transaction. When Wife inquired about using proceeds from the sale to pay off

certain marital debts, Husband informed Wife that he wanted a divorce.

[6] Husband filed a petition for dissolution of marriage on October 6, 2021.

During the discovery phase, Wife served Husband with interrogatories related

to assets and liabilities. When Husband responded in April 2022, he did not

produce bank records for Blue Pinto. Wife’s counsel later conducted non-party

discovery, which revealed the Blue Pinto account. At that point, Wife learned

that the account had a balance of $371,315.64 when Husband filed his petition.

Court of Appeals of Indiana | Opinion 23A-DN-1816 | September 10, 2024 Page 3 of 14 [7] Following a preliminary hearing in June 2022, the trial court ordered Husband

to pay Wife $4,000.00 per month as temporary support during the pendency of

the dissolution matter. On August 23, 2022, Wife requested special findings

under Trial Rule 52(A). The trial court then conducted evidentiary hearings on

August 24, November 10, December 9, 2022, and February 9, 2023.

Thereafter, the trial court issued an interim order for Husband to keep making

the $4,000.00 monthly payments until the entry of the dissolution decree.

[8] The trial court issued its findings of fact, conclusions of law, and final

dissolution decree on June 12, 2023. Therein, the trial court terminated

Husband’s obligation to make monthly payments to Wife as of the date of the

decree. The court also identified disparate economic circumstances, noting that

Wife had been borrowing money from an uncle to pay her attorney. At one

point, the trial court found that Husband had violated court orders, including

making intentional expenditures from a bank account in violation of a mutual

asset restraining order. The trial court found Husband in contempt. The trial

court ultimately ordered Husband to pay $20,000.00 of Wife’s attorney’s fees

“as a sanction for his contempt and because of delay that Husband caused

during the litigation.” Appellant’s App. Vol. II p. 68. As to the marital estate,

the trial court summarized the marital assets and liabilities in Exhibit A, which

was attached to the dissolution decree. See id. at 70. That exhibit did not list or

refer to approximately $130,000.00 in personal capital gains taxes that resulted

from the Blue Pinto and Hughes Tiles transactions. See id. As to these capital

gains taxes, the trial court at one point stated that “[t]he 2021 tax year was not

Court of Appeals of Indiana | Opinion 23A-DN-1816 | September 10, 2024 Page 4 of 14 complete on the date of filing, so the amount of taxes was speculative.” Id. at

59. However, at another point, the trial court stated that Husband did not take

advantage of lawful strategies to minimize those taxes and he “alone should be

responsible for the consequences of his decisions and actions.” Id. at 46. The

trial court’s Exhibit B included a section stating that Husband’s and Wife’s

2021 State and Federal Income Taxes” should be “segregated if part of marital

estate[.]” Id. at 71. The trial court did not assign a value to the parties’

respective tax liabilities. See id. However, the trial court assigned a value to all

other assets and liabilities and determined that the marital estate was valued at

$1,049,046.18. The court decided that each party was entitled to 50% of that

value. See id. at 71–72. To give effect to that division, the court distributed the

listed property and ordered Husband to make an equalization payment. See id.

[9] Husband moved to correct error, challenging the court’s failure to account for

$16,000.00 in monthly payments made to Wife after the final hearing but before

the decree. Wife agreed that Husband should be credited for these payments

but argued that the credits could be dealt with in enforcing the decree. The trial

court denied the motion to correct error. Husband now appeals.

Discussion and Decision [10] This appeal arises following the denial of Husband’s motion to correct error.

We generally review a ruling on a motion to correct error for an abuse of

discretion. See Bruder v. Seneca Mortg. Servs., LLC, 188 N.E.3d 469, 471 (Ind.

2022). However, to the extent the ruling turned on a question of law, our

Court of Appeals of Indiana | Opinion 23A-DN-1816 | September 10, 2024 Page 5 of 14 review is de novo. Id. Here, the motion to correct error involved the court’s

division of marital property. We apply the standard of review appropriate to

each underlying issue as discussed below.

I. Exclusion of Tax Liabilities [11] Husband contends that the trial court erred by excluding the $130,000.00 in

capital gains taxes from the marital pot and making him solely responsible for

that tax liability, which he claims resulted in an unequal division of the marital

estate.

[12] We review the division of marital property for an abuse of the trial court’s

discretion. Fobar v. Vonderahe, 771 N.E.2d 57, 59 (Ind. 2002). We reverse only

if the trial court’s decision is clearly against the logic and effect of the facts and

circumstances. Quillen v. Quillen, 671 N.E.2d 98, 102 (Ind. 1996). In

conducting our review, we will not set aside the trial court’s factual findings

unless they are clearly erroneous, meaning there is no evidence to support the

findings. Ind. Trial Rule 52(A); Fischer v. Heymann, 12 N.E.3d 867, 870 (Ind.

2014). We review legal conclusions de novo. Fobar, 771 N.E.2d at 59.

[13] Indiana adheres to a “one pot” theory of marital property, which means that

“all marital property goes into the marital pot for division, whether it was

owned by either spouse before the marriage, acquired by either spouse after the

marriage and before final separation of the parties, or acquired by their joint

efforts.” Falatovics v. Falatovics, 15 N.E.3d 108, 110 (Ind. Ct. App. 2014) (citing

Ind. Code § 31-15-7-4(a)). “The requirement that all marital assets be placed in

Court of Appeals of Indiana | Opinion 23A-DN-1816 | September 10, 2024 Page 6 of 14 the marital pot is meant to [e]nsure that the trial court first determines th[e]

value [of the marital estate] before endeavoring to divide property.” Id.

(quoting Montgomery v. Faust, 910 N.E.2d 234, 238 (Ind. Ct. App. 2009)). This

approach “prohibits the exclusion of any asset in which a party has a vested

interest from the scope of the trial court’s power to divide and award.” Id.

[14] Pursuant to Indiana Code section 31-15-7-4(b), the trial court must divide the

marital estate in a “just and reasonable manner.” In deciding how to divide the

marital estate, “[t]he court shall presume that an equal division . . . is just and

reasonable.” I.C. § 31-15-7-5. However, a party may rebut this presumption by

presenting evidence that an equal division would not be just and reasonable

under the circumstances. See id. Regarding the division of the marital estate,

the court “may decide to award a particular asset solely to one spouse as part of

its just and reasonable property division[.]” Falatovics, 15 N.E.3d at 110.

However, the court “must first include the asset in its consideration of the

marital estate to be divided.” Id. Indeed, under the “one pot” approach, “[t]he

systematic exclusion of any marital asset from the marital pot is erroneous.” Id.

[15] Indiana Code section 31-15-7-5 outlines several factors pertinent to a court’s

decision to deviate from the presumptive equal division of the estate, including:

(1) The contribution of each spouse to the acquisition of the property, regardless of whether the contribution was income producing.

(2) The extent to which the property was acquired by each spouse:

Court of Appeals of Indiana | Opinion 23A-DN-1816 | September 10, 2024 Page 7 of 14 (A) before the marriage; or

(B) through inheritance or gift.

(3) The economic circumstances of each spouse at the time the disposition of the property is to become effective, including the desirability of awarding the family residence or the right to dwell in the family residence for such periods as the court considers just to the spouse having custody of any children.

(4) The conduct of the parties during the marriage as related to the disposition or dissipation of their property.

(5) The earnings or earning ability of the parties as related to:

(A) a final division of property; and

(B) a final determination of the property rights of the parties.

[16] Tax obligations arising from events during the marriage are typically considered

marital liabilities. See Crider v. Crider, 26 N.E.3d 1045, 1049–50 (Ind. Ct. App.

2015) (placing tax liability in the marital pot when the liability stemmed from

“underpayment of taxes during the marriage”); cf. Moore v. Moore, 695 N.E.2d

1004, 1009–10 (Ind. Ct. App. 1998) (determining that a tax refund issued after

the filing date should have been placed in the marital pot because it represented

the “return of taxes [that] were overpaid during the marriage”). Therefore, in In

re Marriage of Pulley, we concluded that the trial court erred when its dissolution

decree reflected that the court intended a 60/40 split, and yet, it ordered one

Court of Appeals of Indiana | Opinion 23A-DN-1816 | September 10, 2024 Page 8 of 14 party to pay back taxes, which “amount[ed] to a substantial deviation from the

attempted 60/40 split.” 652 N.E.2d 528, 531 (Ind. Ct. App. 1995), trans. denied.

We concluded that remand was warranted under the circumstances, noting that

the court had “improperly excluded tax liabilities from the marital pot[.]” Id.

[17] Husband likens this case to Pulley. He directs us to portions of the dissolution

decree indicating that the trial court was attempting a 50/50 split, and yet, the

trial court ordered him solely responsible for the capital gains taxes. He argues

that, as in Pulley, the court improperly excluded the tax liability from the

marital estate. We agree. Here, it is undisputed that the Blue Pinto and

Hughes Tile transactions resulted in approximately $130,000.00 of capital gains

tax liability. The tax return including the calculation of the taxes and payment

of the taxes were not yet due when Husband petitioned to dissolve the marriage

in October 2021. However, the tax liability resulted from transactions that took

place during the marriage. In the dissolution decree, the trial court determined

that Husband should be solely responsible for the tax liability. Yet, based on

the content of the decree, as supplemented by Exhibits A and B, the trial court

did not assign a value to the tax liability and, thus, did not account for that tax

liability in giving effect to its otherwise-equal division of the marital estate.

This approach reflects that the court did not place the tax liability in the marital

estate. See, e.g., Montgomery, 910 N.E.2d at 238 (“The requirement that all

marital assets be placed in the marital pot is meant to [e]nsure that the trial

court first determines th[e] value [of the marital estate] before endeavoring to

divide property.”). Although the court may deviate from the presumptive equal

Court of Appeals of Indiana | Opinion 23A-DN-1816 | September 10, 2024 Page 9 of 14 division, it must first place all property in the marital pot, decide on a valuation,

and then distribute the marital property in a just and reasonable manner. See id.

(emphasizing the importance of assigning a value to the entire marital estate,

noting that, to the extent the trial court is inclined to distribute certain property

to one of the spouses, “knowing the numerical split of the entire estate might

alter the trial court’s view of the appropriateness of its property division”).

[18] We reverse the handling of the capital gains taxes and remand with instructions

to the trial court to place this tax liability in the marital pot, assign a value to the

liability, then make any findings or deviation from the original 50/50 division

of the marital estate.

II. Allocation of Wife’s Chase Savings Account [19] Husband asserts, and Wife agrees, that the trial court erred in its allocation of

Wife’s Chase savings account. At one point, the court found that this account

had a value of $5,018.92 and awarded it to Wife. See Appellant’s App. Vol. II

pp. 66, 71. However, in its summary of the marital estate (Exhibit B to the final

order), the trial court assigned $3,000.00 of the account’s value to Husband

while only $2,018.92 remained with Wife. Id. at 71. We remand this issue to

the trial court with instructions to correct its order to reflect that the entire

balance of $5,018.92 is assigned to Wife. The trial court should then review the

overall division of marital property to ensure that the corrected decree is aligned

with the court’s intended division of the marital estate.

Court of Appeals of Indiana | Opinion 23A-DN-1816 | September 10, 2024 Page 10 of 14 III. Credit for Post-Hearing Payments [20] Husband contends the trial court erred by failing to credit him for $16,000.00 in

court-ordered payments to Wife between March and June 2023. We agree.

[21] On February 21, 2023—after the final evidentiary hearing on February 9, 2023,

but before issuing the final decree—the trial court ordered Husband to continue

making monthly payments of $4,000.00 to Wife “until a decree of dissolution is

entered.” Id. at 183. The trial court entered its final decree on June 12, 2023.

That decree accounted for payments made through February 2023 but did not

address the subsequent payments. See id. at 61, 65.

[22] Wife does not dispute that Husband should be credited for these post-hearing

payments. However, Wife suggests that, rather than modify the decree to

account for those payments, Husband could be credited when the parties carry

out other provisions of the dissolution decree. See Appellee’s Br. p. 45. Given

the parties’ general agreement on this issue, we conclude that the court erred in

failing to account for the $16,000.00 in interim payments. To ensure the proper

documentation of those payments, we reverse this aspect of the decree and

remand with instructions for the trial court to formally credit Husband

$16,000.00 against his overall property distribution obligation to Wife.

III. Award of Attorney’s Fees [23] Husband challenges the decision to award Wife $20,000.00 in attorney’s fees,

which the court characterized as a sanction for Husband’s discovery violations

Court of Appeals of Indiana | Opinion 23A-DN-1816 | September 10, 2024 Page 11 of 14 and other misconduct. See Appellant’s App. Vol. II p. 68–69. Husband argues

the award is excessive and not limited to fees incurred due to his misconduct.

[24] Indiana Code section 31-15-10-1 allows a court in a dissolution proceeding to

order a party to pay a reasonable amount for the other party’s attorney’s fees.

In making such an award, the court should consider the parties’ resources, their

economic conditions, their ability to engage in gainful employment and earn

income, and other factors bearing on the reasonableness of the award. Eads v.

Eads, 114 N.E.3d 868, 879 (Ind. Ct. App. 2018). Moreover, misconduct that

directly results in additional litigation expenses may be taken into account. Id.

We review the trial court’s award of attorney’s fees for an abuse of discretion.

Troyer v. Troyer, 987 N.E.2d 1130, 1142 (Ind. Ct. App. 2013), trans. denied.

[25] Here, the trial court ordered Husband to pay $20,000.00 of Wife’s attorney’s

fees. At one point, the court characterized the award of attorney’s fees as a

sanction for Husband’s misconduct. However, other aspects of the decree

indicated the award was also based on the parties’ economic circumstances.

[26] As to Husband’s misconduct, the court found that Wife’s attorney fees were

increased significantly by Husband’s failure to disclose assets, violation of court

orders, and delays in complying with deadlines. See Appellant’s App. Vol. II p.

58. Specifically, the trial court found that Husband’s “inadequate and

incomplete” discovery responses necessitated additional discovery efforts by

Wife, including non-party discovery in Texas. Id. The trial court also found

Court of Appeals of Indiana | Opinion 23A-DN-1816 | September 10, 2024 Page 12 of 14 that Husband violated court orders, including withdrawing over $131,000.00

from an account in violation of a mutual asset restraining order. Id. at 53–55.

[27] Husband argues that the $20,000.00 award is excessive because it is not limited

to fees incurred as a result of his misconduct. Appellant’s Br. pp. 23–24.

However, the fee award was not based solely on Husband’s misconduct.

Rather, it was also based on the parties’ disparate economic circumstances,

which is a proper consideration in awarding attorney’s fees. See In re Marriage of

Bartley, 712 N.E.2d 537, 546 (Ind. Ct. App. 1999) (“An award of attorney’s fees

is proper when one party is in a superior position to pay fees over the other

party.”). In a section titled “Attorney Fees,” the trial court specifically found

that “Wife does not have the means to pay her attorney fees.” Appellant’s App.

Vol. II p. 57. The trial court further found that, while Husband had been

controlling most of the marital assets during the proceedings, Wife “ha[d] been

borrowing money from an uncle to make payments to her attorney[.]” Id. at

57–58, 61–62.

[28] Based on the unchallenged findings, we cannot say that awarding $20,000.00 in

attorney’s fees to Wife was clearly against the logic and effect of the facts and

circumstances. We therefore affirm the award of attorney’s fees to Wife.

Conclusion [29] We affirm the award of attorney’s fees to Wife. However, we reverse and

remand due to the exclusion of the capital gains tax liability from the marital

estate and the erroneous assignment of a portion of Wife’s Chase savings

Court of Appeals of Indiana | Opinion 23A-DN-1816 | September 10, 2024 Page 13 of 14 account. On remand, we instruct the trial court to place the tax liability in the

marital pot and assign a value to that liability. We also instruct the trial court

to correct the error regarding the Chase savings account. In light of these

issues, we direct the trial court to make additional findings or adjustments as

necessary to reflect the intended division of the estate. On remand, the court

should also formally credit Husband with $16,000.00 in post-hearing payments.

[30] Affirmed in part, reversed in part, and remanded with instructions.

Vaidik, J., and Weissmann, J., concur.

ATTORNEYS FOR APPELLANT Alexander N. Moseley Julie C. Dixon Dixon & Moseley, P.C. Indianapolis, Indiana

ATTORNEYS FOR APPELLEE Lisa M. Johnson Brownsburg, Indiana Donna J. Bays Bays Family Law Zionsville, Indiana

Court of Appeals of Indiana | Opinion 23A-DN-1816 | September 10, 2024 Page 14 of 14