Knight v. Knight

538 P.3d 601

Jared M. KNIGHT, Appellee,

v.Rebecca B. KNIGHT, Appellant.

No. 20210080-CA

Court of Appeals of Utah.

Filed August 10, 2023

Rehearing Denied November 28, 2023

Julie J. Nelson, Salt Lake City, Taylor Webb, and Stephen C. Clark, Salt Lake City, Attorneys for Appellant

Bart J. Johnsen and Alan S. Mouritsen, Salt Lake City, Attorneys for Appellee

Judge David N. Mortensen authored this Opinion, in which Judges Ryan D. Tenney and Amy J. Oliver concurred.

Opinion

MORTENSEN, Judge:

¶1 After a trial on cross-petitions, the district court entered findings of fact and conclusions of law and a final decree divorcing Rebecca and Jared Knight. Rebecca¹ appeals several aspects of the divorce decree, including the court's determination that she had no interest in a trust Jared's father established before the marriage and several of the court's calculations related to alimony. We affirm the district court's ruling with respect to Jared's trust, and we affirm in part and reverse in part with respect to the alimony calculations.

BACKGROUND

¶2 In October 1994, Jared's father, L. Randy Knight, created the RKF Jared M. Knight Trust (the Trust), an irrevocable trust. Randy named Jared as the sole beneficiary of the Trust and transferred a significant interest in RKF, LLC—an Arizona limited liability company formed in 1994 by Randy—to the Trust. The trust agreement for the Trust (Trust Agreement) specified that the Trust would be governed by Arizona law. The Trust Agreement also contained a "spendthrift provision" declaring that Jared lacked the "right to assign, transfer, encumber, or hypothecate his ... interest in the principal or income of the [T]rust in any manner." Additionally, the Trust Agreement granted Jared a power of withdrawal over the Trust principal such that Jared could withdraw up to one-fourth of the principal at age 30 (June 2002), up to one-third of the principal at age 35 (June 2007), and all the principal at age 40 (June 2012). To exercise this power, Jared would need to make "a request in writing."

¶3 In October 1995, Jared and Rebecca were married. During their marriage, the parties enjoyed a lavish lifestyle funded, in part, by the wealth of Jared's family.

¶4 In March 2008, Rebecca and Jared executed a "Property Agreement" (the Property Agreement), which stated, "All property which is now owned by JARED or by REBECCA, individually, ... is hereby declared to be, and hereby is, the community property of JARED and REBECCA." The Property Agreement specified that "to the extent necessary, JARED and REBECCA each hereby gives, grants, conveys and assigns to the other an interest in his or her property ... so as to transmute^{[2 ]} such property into the community property of JARED and REBECCA." The Property Agreement further declared, "All property hereafter acquired by JARED and REBECCA, or either of them, ... shall be deemed to be, and hereby declared to be, the community property of JARED and REBECCA." However, the Property Agreement carved out an exception: "Notwithstanding the foregoing, any property received by JARED and REBECCA by gift or inheritance after the date of this [Property] Agreement shall be the sole and separate property of the person receiving it, unless that person declares otherwise in writing." The Property Agreement is, like the Trust, governed by Arizona law.

¶5 In 2016, the Trust was decanted³ into a new trust. The new trust named Jared as sole initial trustee and therefore permitted Jared to distribute to himself, "upon his written request, up to the balance of the principal of his trust at any time."

¶6 In April 2018, Jared filed for divorce. Rebecca ultimately filed an amended counterclaim alleging that the principal of the Trust was marital property and therefore subject to equitable distribution under the terms of the Property Agreement.

¶7 Jared filed a motion for partial summary judgment on this point, arguing that the Property Agreement "did not transmute assets held by the [Trust]" into marital property. Jared asserted that the Property Agreement did not apply to the Trust because, at the time he entered into the Property Agreement, he did not own the Trust principal under Arizona law. He pointed to the statute in effect in 2008—the year the parties entered into the Property Agreement—which stated that "if the trust instrument provides that a beneficiary's interest in principal is not subject to voluntary or involuntary transfer, the beneficiary's interest in principal shall not be transferred." Ariz. Rev. Stat. Ann. § 14-7702(a) (2008). The statute further specified that a court may not order the satisfaction of a money judgment against a beneficiary until "[a]fter an amount of principal becomes immediately due and payable to the beneficiary." Id. § 14-7702(b). It explained that "[i]f an amount of principal is due and payable only at a future date, or only on the occurrence of a future event, whether the occurrence of that event is within the control of the beneficiary, the amount of the principal is not immediately due and payable to the beneficiary."Id. Jared asserted that the Trust's "disbursement mechanism squarely fit[ ] within the framework of Arizona Revised Statute Section 14-7702(B) as it was written in 2008" because the Trust's requirement that Jared submit a written request for disbursement of the Trust principal rendered the principal "not immediately due and payable." See id. And Jared argued that, because he never submitted a written disbursement request or withdrew any principal of the Trust, "[a]s a matter of Arizona law as it existed at the time that the Property Agreement was executed in 2008, no amount of the Trust principal is ‘now owned’ or ‘hereafter acquired’ " by Jared, so the Property Agreement did not apply to the Trust.

¶8 Rebecca opposed Jared's motion and filed her own motion for partial summary judgment. Rebecca argued that Jared's beneficial interest in the Trust was a property interest that Jared owned at the time of the Property Agreement. She also asserted that Jared's power of withdrawal gave him an ownership interest in the Trust principal that he was eligible to withdraw as of the date of the Property Agreement. She said, "Consistent with the common understanding of ‘property’ as comprising a set of rights (a ‘bundle of sticks’ in the law-school formulation), if among those rights a person has the right to control the disposition of an asset, that asset is his property, and he has ownership of the property." Rebecca further avowed that "[t]he Arizona statute on which Jared relies ... has nothing to do with the question before this [c]ourt" because it applies to "the rights of ‘creditors’ to access property held in trust for a beneficiary when the trust features a ‘spendthrift’ clause" and Rebecca was not a creditor. Accordingly, Rebecca claimed that the Trust's spendthrift clause "did not limit Jared's ability to transmute his property interest in the Trust or its underlying assets into community property, and he plainly did so by signing the Property Agreement." Rebecca argued that the Restatement (Third) of Trusts instead applied and made it "clear that trust assets subject to an exercisable power of withdrawal are ‘property.’ " (Citing Restatement (Third) of Trusts § 56 cmt. b. (Am. L. Inst. 2003) ("Trust property subject to a presently exercisable general power of appointment (a power by which the property may be appointed to the donee, including one in the form of a power of withdrawal), because of the power's equivalence to ownership, is treated as property of the donee. " (emphasis added))).

¶9 The court denied Rebecca's motion for partial summary judgment and granted Jared's. The court reasoned that "the legal position taken in [t]he Restatement (Third) of Trusts § 56 was not the law in Arizona until 2009, when it [was] partially codified as part of the Arizona Trust Code," and it rejected Rebecca's argument that "the spendthrift clause specifically disengages for purposes of the exercise of a power of withdrawal [and] expressly allows a trustee to transfer withdrawn property to a beneficiary." The court determined, instead, that Arizona Revised Statutes section 14-7702 applied because—regardless of whether Rebecca was a "creditor"—"that statute ... define[d] when an amount is due and payable and separately define[d] the rights of creditors." Accordingly, the court concluded that "[n]o amount of the Trust principal is due or payable within the meaning of that statute, and it is therefore protected against ... the disbursement sought by [Rebecca]." The court thus ruled that because Jared's interest in the Trust principal was "not subject to voluntary or involuntary transfer," see Ariz. Rev. Stat. Ann. § 14-7702(a) (2008), it could not be transferred through the Property Agreement.

¶10 The parties then proceeded to trial on the other issues involved in their divorce, including distribution of the marital estate and alimony. The district court entered its order, later entering its findings of fact and conclusions of law and issuing the divorce decree. As relevant to this appeal, in its alimony calculations, the court made several reductions to Rebecca's claimed expenses.

¶11 First, the court made several modifications to the expenses Rebecca submitted related to home maintenance. The court eliminated the snow removal expense of $175 per month, stating, "The parties never paid for snow removal during the marriage[,] and this expense was not part of the marital [lifestyle]." It eliminated the monthly "[p]ool/[s]pa maintenance" expense of $373.33, reasoning that "[t]he parties did not have pool maintenance expense[s] during the marriage as the pool was maintained by the parties" and "[t]his new expense was only incurred after separation and because [Rebecca] is not cleaning the pool despite acknowledging she is capable of doing so." And it eliminated the monthly landscaping expense of $414.66 because "[t]his was not an expense that was incurred...