McDonald v. Johnson, — So.3d —-, 2012 WL 246468 (Fla. 2d DCA January 27, 2012)

Can second wife subpoena MCC’s business records in connection with a potential elective-share claim? 2d DCA says YES

What divorce attorneys do and what trusts-and-estates lawyers do overlaps all the time. Often that overlap occurs at the planning stage, when working together on drafting a pre-nuptuial or marital settlement agreement, but not always. Sometimes it happens in the probate context, which appears to be the case in this instance.

Case Study:

Paul D. McDonald lived quite a life. Among his many accomplishments was founding the McDonald Construction Corporation (MCC), a large and apparently successful construction company in Lakeland, Florida. Mr. McDonald was survived by descendants of his first marriage as well as a second wife, Sandra Gill McDonald. (Blended family: think automatic litigation red flag!) The 2d DCA’s opinion doesn’t go into MCC’s ownership structure post Mr. McDonald’s death, but I’m guessing it remained closely held, and the majority owners (either directly as shareholders or indirectly as trust beneficiaries) were descendants of Mr. McDonald’s first marriage.

At issue in this opinion was whether Mr. McDonald’s second wife could subpoena MCC’s confidential business records to figure out if she should assert an elective share claim. Whether or not the elective share claim  made sense apparently turned on whether the appreciation in value of Mr. McDonald’s MCC stock (which he’d previously transferred to his revocable trust) was a marital asset (as defined by F.S. 61.075). Note the overlap between core inheritance and family law issues going on here. Also, as to why this discovery issue was litigated to the extent it was, my guess is that MCC’s run/owned by folks who aren’t exactly thrilled by the prospect of second wife gaining access to their private financial affairs (e.g., who’s getting paid what). As explained by the 2d DCA, the trial court said NO to the MCC subpoena:

To assist her in deciding whether to take the elective share, see § 732.201, Fla. Stat. (2010), the surviving spouse sought financial information from MCC that she asserted was relevant to determining whether the value of MCC’s stock had increased during the marriage due to the efforts of the decedent. See § 732.2155(6)(c). The probate court ruled that the MCC stock was not part of the probate estate, and therefore, the information requested was not relevant. It further ruled that the value of the MCC stock is excluded from the surviving spouse’s elective share calculation pursuant to section 732.2155(6).

Can second wife subpoena MCC’s business records in connection with a potential elective-share claim? YES

What’s most interesting about this case isn’t why the 2d DCA reversed (“quashed”) the trial court’s discovery order, it’s how the court tied together two tricky statutes (one familiar mostly to probate lawyers and the other familiar mostly to divorce attorneys) to addresses a question that apparently hasn’t come up before. All parties agreed the discovery order being litigated turned on an interpretation of subsection “(c)” of section 732.2155(6), which cross references to F.S. 61.075. According to the 2d DCA, “[t]here are no cases interpreting subsection (6)(c),” which provides as follows:

(6) Sections 732.201-732.2155 do not affect any interest in property held, as of the decedent’s death, in a trust, whether revocable or irrevocable, if: . . . (c) The property was a nonmarital asset as defined in s. 61.075 immediately prior to the decedent’s death.

The trial court read this statute to mean it applied only to nonmarital assets. Since second wife’s elective-share claim depended on the opposite conclusion (i.e., appreciation of the MCC stock was a marital asset), the trial court concluded the elective-share statute didn’t apply, thus no discovery. When it comes to discovery disputes, arguing for a narrow ruling (i.e., limiting discovery) is always an uphill battle. So it’s no surprise the 2d DCA read the statute way more expansively than the trial court, opening MCC’s doors to second wife’s subpoena of its business records. Here’s why:

We conclude that the fact that section 732.2155(6)(c) cites to section 61.075 without a specific citation to the subsection defining nonmarital property indicates the legislature’s intent that the entire statute, which defines both marital and nonmarital property, is to be considered in determining whether the property in the revocable trust was nonmarital at the time of death. The definition of marital assets includes “[t]he enhancement in value and appreciation of nonmarital assets resulting either from the efforts of either party during the marriage or from the contribution to or expenditure thereon of marital funds or other forms of marital assets, or both.” § 61.075(6)(a)(1)(b), Fla. Stat. (2010). In other words, if the value of the MCC stock in the decedent’s revocable trust increased pursuant to the terms of section 61.075(6)(a)(1)(b), that increase would not be excluded from the elective share under section 732.2155(6)(c). Thus, to the extent the information sought by the surviving spouse is necessary to her determination whether the MCC stock value was enhanced during the marriage due to the efforts of the decedent, it is relevant.

Accordingly, we grant the surviving spouse’s petition for writ of certiorari and quash the probate court’s order sustaining the Respondents’ objections to her discovery request.

Lesson learned?

When a case is being litigated, the process is often much worse than the outcome (even if you lose at trial). One reason for this dynamic is the wide-ranging and open discovery process encouraged by Florida law. There’s lots of good reasons for our generous discovery rules, but (like everything else) they can be abused. And when that abuse happens, a tool that’s supposed to discourage litigation by narrowing the issues in dispute is instead improperly used as a “club” against an adversary. I’m not saying that’s what’s going on in this case, but it’s possible.

So what’s it all mean for divorce attorneys and trusts-and-estates lawyers working on these kind of cases at the planning stage? You need to factor in creative post-death elective-share litigation when crafting marital agreements. Even if her elective-share claim is unsuccessful, the discovery afforded to a second wife often viewed as “hostile” by the family members of the first marriage can’t be overlooked.

By the way, reading between the lines, I think the risk of abusive discovery tactics was hinted at by the 2d DCA when it made clear that just because it was ruling against the estate’s categorical discovery objection (which turned on a very specific reading of 732.2155(6)(c)), didn’t mean the target of the subpoena, MCC, was barred from asserting all of the generally applicable discovery objections open to it once the subpoena was served. In other words, the game’s not over yet.

Our holding does not affect MCC’s right to file objections to any subpoena it is served in conjunction with the surviving spouse’s discovery request. See Fla. R. Civ. P. 1.351.