A recent decision entered by the Fifth District Court of Appeal in Daytona Beach offers a stern warning to spouses who use misconduct in order to gain access to marital funds to invest. The case makes clear that one of the potential risks of engaging in misconduct in order to make an investment may be shouldering the full amount of the debt should you and your spouse divorce. In the Fifth Circuit case, a director of, and investor in, a Florida bank that failed had a $100,000 loan count as his separate, non-marital debt because he forged his wife’s signature on the loan documents.
Barry Mills was on the Board of Directors and a major investor in Florida State Bank, a startup bank established in 2007. Each of the bank’s directors was required to make an investment, and Mills’ portion was more than a quarter-million dollars. Mills’ wife, Brenda Mills, knew that her husband was a director of, and investor in, the bank, but she did not know the extent of the investment. Since the husband did not have sufficient cash available to make the full required investment, he acquired an additional $100,000 by taking out a second mortgage on the marital home. Fearing that the wife would not approve of the investment and the second mortgage, the husband did not ask her to sign the loan documents and instead forged her signature on the paperwork.
Ultimately, the Florida Division of Financial Institutions declined to issue the bank a charter. The bank went under, and Mills lost the entirety of his investment. Some time later, when the Millses were going through divorce proceedings, the issue of the failed bank investment again emerged. The wife argued that the entire $245,000 sum that the husband lost in the failed bank (including the $100,000 from the second mortgage) should be classified, for the purpose of determining equitable distribution, as the husband’s separate non-marital debt. The entirety of the debt should count as non-marital, the wife argued, since the husband forged her signature on the loan documents.
The trial court did not agree and counted the $100,000 sum from the second mortgage as marital debt. The court concluded that the husband made many investments during the marriage, several of which were profitable. Just as the wife was entitled to share in the profits made by the husband’s successful investments during the marriage that used marital funds, she also had to share the burden of debts arising from the husband’s failed investments made during the marriage that used marital funds.
The wife appealed, and the Fifth DCA reversed the ruling. While it is generally true that, as the trial court stated, a spouse’s investments using marital funds, both successful and unsuccessful, are marital and subject to equitable distribution in a divorce, that is not the case in instances in which one spouse engaged in misconduct. Florida defines forgery or the unauthorized signature of a spouse’s name as misconduct, and Section 61.075 of the Florida Statutes expressly states that, when an investment is the result of forgery, the associated debt is non-marital unless the non-signing spouse later gives her consent to the investment.
In the Millses’ divorce case, no proof emerged indicating that the wife ever approved the husband’s decision to take out a second mortgage to make an investment in the bank. In fact, the evidence indicated that the husband knew the wife would never approve and pro-actively worked to hide the loan from her. As a result, the appeals court ruled that the $100,000 should have counted as the husband’s non-marital debt, and it sent the case back to the trial court to redo the couple’s equitable distribution.
If you find yourself going through a divorce in which high-value assets (or high-value debts) are at issue, it is vital to have experienced divorce counsel on your side. The accomplished Florida high-asset divorce attorneys at Stok Folk + Kon are here to assist you. Our attorneys have the skills, the experience, and the determination to provide you with the representation you deserve.
Contact us online or by calling (305) 935-4440 to schedule your consultation.
More blog posts:
New Florida Supreme Court Decision Offers Beneficial Information for High-Asset Individuals Contemplating Prenuptial Agreements, Florida Business Lawyers Blog, Jan. 14, 2016
South Florida Wife Loses Claim Based Upon Increased Value of Husband’s Auto Dealership, Florida Business Lawyers Blog, Dec. 18, 2015