Indiana Supreme Court Recognizes Wide Range of Methods to Secure Property Settlement Judgments, Plus the Need for Definitive Evidence of Divorce Tax Consequences

At a Glance

• The husband alleged the trial court lacked authority to order him to obtain life insurance and subsidize the policy with the wife as owner and beneficiary. Cooley reminds family law practitioners of the broad scope of security measures that can be employed to ensure that property settlement judgments are paid.
• The husband contended that the trial court erred by not considering the tax consequences of his pension payments to the wife once he retired, but did not provide definitive evidence of actual or potential consequences. The opinion also reiterates the need for definitive evidence rather than conjecture or speculative possibilities.

On March 20, 2024, a unanimous Indiana Supreme Court decided Cooley v. Cooley, which reiterates the wide range of security methods available to Indiana trial courts to ensure payment of property settlement judgments, as well as the need to present sufficient evidence of tax consequences necessarily incurred by divorce property dispositions.

Background

Cooley involved a wife’s petition to dissolve the parties’ nearly 26-year marriage. Early in their marriage, the husband started a career with the Morgan County Sheriff’s Department and enrolled in its retirement plan. The wife also worked throughout the marriage, but, as the couple agreed, took lower-paying jobs close to home so that she could care for their children. When the wife filed for divorce, the husband was eligible to retire and receive benefits, but continued working. At that time, the husband’s sheriff’s pension had a market value of $1,101,110.82, constituting over 85% of the parties’ $1,257,935.96 marital estate. The husband’s pension could not be divided through a qualified domestic relations order (QDRO).

The parties’ stipulated marital balance sheet proposed an equal distribution of assets that awarded the pension to the husband and an equalization payment to the wife. Yet, both in and out of the trial court, the husband persistently stated he was not willing to share his pension with the wife. As a result, the wife expressed concern that she “will get nothing and he will pay me nothing.” The wife asked the trial court to order the husband to make monthly payments and obtain a life insurance policy that named her as owner and beneficiary. The husband acknowledged his pension benefits accrued during the marriage, but he did not believe the wife was entitled to half of the value. The husband even testified that, to keep the wife from receiving any of the benefits, he might ignore a trial court order requiring the husband to alert the wife of his retirement and make payments to her. In response to the wife’s life insurance request, the husband conveyed that he would only comply with such an order if he got “to name the beneficiary.”

The trial court entered an order dissolving the parties’ marriage and awarding each party an equal share of their marital estate, resulting in a $475,043.29 equalization payment owed by the husband to the wife. Because the husband did not have the liquid assets to make the equalization payment in full, the trial court ordered the husband to pay the wife $400.00 monthly until he retired and then, upon retirement, pay her half of his monthly pension benefit, calculated through the date she filed for divorce. The trial court also ordered the husband to obtain a $475,000.00 life insurance policy, with the wife as the policy owner and beneficiary, to provide some assurance that the wife would receive her share of the marital estate. The wife was required to pay the insurance premiums, which would be added to the equalization payment. The trial court permitted the parties to lower the policy’s value over time to reflect the balance due, based on the husband’s required monthly payments. Once the wife received the equalization payment due to her, both the life insurance policy and the husband’s monthly payments would end.

The husband appealed, and the Indiana Court of Appeals affirmed in part, reversed in part, and remanded with instructions. Cooley v. Cooley, 209 N.E.3d 11 (Ind. Ct. App. 2023). The Indiana Supreme Court granted the wife’s petition to transfer, vacated the Indiana Court of Appeals’ opinion, and affirmed. The husband raised two issues.

The First Issue

The husband first alleged that the trial court lacked the authority to order him to obtain life insurance and subsidize the life insurance policy. Indiana Code section 31-15-7-8 provides that a trial court “may provide for the security, bond, or other guarantee that is satisfactory to the court to secure the division of property.” This statutory language provides courts with “the broadest possible discretion in requiring security.” Birkhimer v. Birkhimer, 981 N.E.2d 111, 127-28 (Ind. Ct. App. 2012). Until 1997, Indiana Code section 31-1-11.5-15 gave trial courts the authority to use “security, bond, or other guarantee” to secure a child support obligation and a property division. The Indiana General Assembly then used this same language and replaced that statute with two statutes that give courts the same authority (Ind. Code §§ 31-16-6-5 and 31-15-7-8). Indiana Code section 31-15-7-8 does not define “security, bond, or other guarantee,” so the Indiana Supreme Court construed those terms “in their plain, or ordinary and usual, sense.” Ind. Code § 1-1-4-1(1).

The Indiana Supreme Court held that ordering a party to obtain life insurance is a “security” or “guarantee” since it ensures the other party will receive his or her share of the marital estate. The trial court’s evidence-based finding supported its judgment requiring the husband to obtain and subsidize a life insurance policy for the wife’s benefit. The husband had disagreed with the equalization payment and testified that he might not follow the trial court’s order. It was the husband’s concerning statements and conduct that required the trial court to secure the wife’s share through the policy that the husband would subsidize. Thus, the life insurance arrangement was not alimony, as the husband alleged, but rather reflected the trial court’s broad authority under Indiana Code section 31-15-7-8 to secure the wife’s share of the marital estate. Contrary to the husband’s claim, requiring him to subsidize the policy did not increase the value of the parties’ marital estate. Debts incurred by one party after a petition for dissolution of marriage is filed are generally not included in the marital estate. Johnson v. Johnson, 181 N.E.3d 364, 374 (Ind. Ct. App. 2021). Indiana Code section 31-15-7-8 provides courts with a range of tools to ensure that each party in a divorce receives his or her share of the marital estate, and the trial court used this tool.

The Second Issue

The husband also contended that the trial court erred by not considering the tax consequences of his monthly pension payments to the wife once he retired. The Indiana Supreme Court noted that Indiana Code section 31-15-7-7 requires trial courts to “consider the tax consequences of the property disposition with respect to the present and future economic circumstances of each party.” By this plain language, courts need only consider the tax consequences of “the property disposition” for those that are immediate and “necessarily incurred.” Harlan v. Harlan, 544 N.E.2d 553, 555 (Ind. Ct. App. 1989), aff’d. 560 N.E.2d 1246 (Ind. 1990). If a party fails to provide evidence of immediate and direct tax consequences, that party cannot argue that a court erred by not considering potential tax consequences, and the issue is waived. See Hardin v. Hardin, 964 N.E.2d 247, 254 (Ind. Ct. App. 2012). The husband testified that he would have to pay taxes on his pension benefit distributions, but merely guessed that his tax rate “could be” 10%. The husband did not provide the trial court with any definitive evidence of what his actual or potential tax consequences would be when he retires and begins receiving his monthly distributions. A trial court cannot manufacture a party’s tax consequences based on such conjecture or “speculative possibilities.” Harlan, 544 N.E.2d at 555. Because that is all the trial court was presented with, the husband waived this issue.

The Implications for Family Law Practitioners

Cooley reminds family law practitioners of the broad scope of security measures that can be employed to ensure that property settlement judgments are paid, and pulls back from recent Indiana Court of Appeals’ decisions regarding when tax consequences of divorce property division can be considered by a trial court. The opinion also reiterates the need for definitive evidence as to tax consequences rather than conjecture or speculative possibilities.