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D. McDaniel v. R. McDaniel (4/3/92), 829 P 2d 303
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Notice: This is subject to formal correction
before publication in the Pacific Reporter.
Readers are requested to bring typographical
or other formal errors to the attention of
the Clerk of the Appellate Courts, 303 K
Street, Anchorage, Alaska 99501, in order
that corrections may be made prior to
permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
DONNA CLARICE MCDANIEL, )
) Supreme Court No. S-3985
Appellant, ) Superior Court No.
) 3AN-88-10964 Civil
v. )
) C O R R E C T E D
ROBERT JAMES MCDANIEL, ) O P I N I O N
)
Appellee. ) [No. 3826 - April 3, 1992]
)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage
David Stewart, Judge.
Appearances: William T. Ford,
Anchorage, for Appellant. Vincent P. Vitale,
Anchorage, for Appellee.
Before: Rabinowitz, Chief Justice,
Burke, Matthews, Compton and Moore, Justices.
COMPTON, Justice.
I. FACTUAL AND PROCEDURAL
BACKGROUND
Robert McDaniel and Donna McDaniel were married in June
1974. Although the couple had no children of their
own, they raised Donna's three children by a prior
marriage. The marriage effectively terminated in March
1988 when Donna moved to California. Robert
voluntarily paid Donna approximately $400 per month
from the time of separation until the time of trial and
paid some of her expenses as well. Robert filed a
complaint for divorce in November 1988.
Following a trial in February 1990, the court granted a
decree of divorce and ordered the division of marital
property. Donna and Robert each had acquired
real property prior to the marriage. Robert purchased
real property on Bennett Street in Grass Valley,
California in 1968 or 1969. Rental income from the
property was deposited into the parties' joint account,
while expenses and taxes on the property were paid out
of the joint account. During the marriage, the
McDaniels realized a net profit on the property. Donna
testified that she handled insurance and roofing
contracts on the property and that she had cleaned it
between renters. The trial court characterized her
involvement with the property as "minimal"and awarded
the property to Robert as his separate pre-marital
property.
Robert also sold other property in Grass Valley and
used part of the proceeds to purchase the McDaniels'
residence on Taft Street in Anchorage in November 1974.
Robert had started a heavy equipment trucking business,
McDaniel Trucking, prior to the parties' marriage. The
business was operated out of their Taft Street home.
By the time of the parties' separation, the company
owned fourteen trucks and miscellaneous equipment. At
trial Donna stipulated to appraisals valuing the
McDaniel Trucking equipment as of the date of the
parties' separation in 1988. Ted Sherwin, CPA,
testified for Robert to the value of the McDaniels'
assets. Sherwin testified that McDaniel Trucking
should be valued based on its net asset value minus
liabilities. In valuing McDaniel Trucking, Sherwin
used the stipulated value of the equipment, deducting
ten percent for cost of sale and another ten percent
for cost of shipping.
The trial court awarded McDaniel Trucking to Robert.
In valuing McDaniel Trucking, the trial court deducted
a ten percent cost of sale from the stipulated value of
the equipment. The trial court also deducted $47,767
which was in accounts payable at the time of the
parties' separation. By the time of trial, the company
had paid this debt and had $44,695 in a business
account.
The parties had purchased four lots in the MacKentie
subdivision in Anchorage, using three of the lots to
park the McDaniel Trucking vehicles. The remaining lot
contained two small houses which generated rental
income. The parties stipulated to a value of $114,500
for the four MacKentie lots. There was an outstanding
mortgage on the property of $138,798.52, as well as
outstanding maintenance costs. The court awarded the
lots to Robert assigning a negative equity of
$30,887.85.
In 1985 Robert had acquired a one-half interest in Span-
Alaska, a partnership between Mr. Harmon and himself.
The partnership had several assets including a Span
machine, a large boom truck and a foam machine. In
March 1988 Span-Alaska liabilities totaled $60,000. By
the time of trial the debt had been paid.
In valuing Span-Alaska the trial court deducted ten
percent for cost of sale. The court assigned Span-
Alaska a negative value of $5,815, taking into account
the partnership's debt as of the date of separation.
The court awarded the interest in the partnership to
Robert, attributing one half of the negative value to
him.
In addition to the MacKentie lots, McDaniel Trucking
and the Span-Alaska partnership interest, the court
awarded various items of equipment to Robert. The
court valued the marital estate at $204,179.25 and
found a fifty-fifty division reasonable. The court
ordered Robert to pay Donna $17,000 within thirty days
of the decree. The court credited Robert for the money
paid during separation, and ordered the balance of
$84,090 payable over fifteen years in monthly payments
at eight percent interest. Alternatively, the court
ruled that Donna could receive a deed of trust from
Robert to secure the $84,090 by quitclaiming her
interest in the Taft Street property to him,
conditioned on the mortgage holder's agreement to hold
Donna harmless.
Donna appeals, claiming error in the following
determinations:
(a) determining that the
Bennett Street property is not
subject to division;
(b) valuing McDaniel Trucking
and Span-Alaska at the time of
separation, rather than at the time
of trial;
(c) allowing a ten percent
deduction for cost of sale
deduction in valuing McDaniel
Trucking and Span-Alaska . . .
where no sale of these assets was
anticipated;
(d) assigning a negative
value to Span-Alaska and the
MacKentie lots rather than
assigning these a zero value;
(e) ordering the payout
without security over fifteen years
at interest below the legal rate.
II. STANDARD OF REVIEW
We must determine whether the trial court's property
division was within the broad discretion granted to it
by AS 25.24.160(a)(4). Moffitt v. Moffitt, 749 P.2d
343, 346 (Alaska 1988). In a marriage of long
duration, where the parties have commingled their
assets, the trial court determines property division
using a three step process: (1) determining the
property available for distribution; (2) valuing that
property; and (3) equitably allocating that property.
Moffitt, 749 P.2d at 346. If the trial court makes
legal determinations at the first step, we review those
determinations under the independent judgment standard.
Id. The second step usually involves factual
determinations, which we may reverse only upon a
finding of clear error. Id. The third step is
reviewable under the abuse of discretion standard. We
will not disturb the allocation "unless it is clearly
unjust." Id. (quoting Wanberg v. Wanberg, 664 P.2d
568, 570 (Alaska 1983)).
III. DISCUSSION
A. The Bennett Street Property.
We must independently determine if the invasion of
Robert's Bennett Street property is required.
In limited circumstances invasion of one spouse's pre-
marital property may be required as a matter of law.
Burgess v. Burgess, 710 P.2d 417 (Alaska 1985); Wanberg
v. Wanberg, 664 P.2d 568, 571 (Alaska 1985). In
Wanberg, 664 P.2d at 571, we held that one such
circumstance was where the parties demonstrated an
intent to treat pre-marital property as joint property.
Holding that the entire equitable value of a lot was
subject to division even though it was held in one
parties' name, we explained:
The Wanbergs consistently combined their
efforts in improving and managing the
property, and used the building as their
joint personal residence for nearly two
years. Although Dianne's name never appeared
on the title to the Grandview lot, she signed
jointly with John when a permanent $120,000
loan was taken against the property. Under
these circumstances we hold that it was an
abuse of discretion for the trial court to
shield the property from equitable
distribution merely by affixing to the
property the label of "pre-marital asset."
Id. at 572. We also characterized as a marital asset other pre-
marital property owned by John that served as the
Wanbergs' residence for some of their marriage. Id. at
572.
At least two factors are relevant in this
determination: (1) the use of property as the parties'
personal residence, and (2) the ongoing maintenance and
managing of the property by both parties. Burgess, 710
P.2d at 420. See also Wanberg, 664 P.2d at 572
(characterizing as a marital asset pre-marital property
used as a residence for some of the marriage). The
focus of the analysis, however, remains on intent.
Participation by both spouses in the management and
maintenance of the property will not automatically
transform pre-marital into marital property. Rather,
the participation must be significant and evidence an
intent to operate jointly. See Brooks v. Brooks, 733
P.2d 1044, 1054 (Alaska 1987) (holding that the
performance of "some limited maintenance and management
tasks . . . cannot be said to rise to the level of
active interest in the ongoing maintenance, management
and control of the property necessary to demonstrate an
intent to hold the apartment complex jointly.").
We conclude that the trial court did not err in
determining that Donna's involvement with the Bennett
Street property was not sufficient to impute an intent
by the parties to treat the property as joint property.
According to the record, Robert bought the Bennett
Street property in 1968 or 1969 and kept it solely in
his name throughout the marriage. The parties did not
reside on the property. Nor did they jointly incur
liability on the property as the parties had in
Wanberg. Although Donna testified to handling
insurance and roofing contracts in maintaining the
property and to cleaning the property between renters,
these efforts alone are insufficient to require
invading the property under the rationale of Wanberg
and Burgess.1
B. The Correct Date for Valuing McDaniel
Trucking and the Span-Alaska Partnership.
We recently explained in Ogard v. Ogard, 808 P.2d 815,
819 (Alaska 1991), that the valuation of marital
property should "be as close as practicable to the date
of trial." However, assets may be valued at a
different time in special situations, including where
"the value of marital property increases [after the
separation] due to the efforts of one of the spouses."
Id. at 820 (quoting Lawrence J. Golden, Equitable
Distribution of Property 7.02, at 208 (1983)). If
the trial court determines to use the date of
separation for valuation it should issue "specific
findings as to why the date of separation is the more
appropriate choice."Id. at 820.2
In this case the trial court awarded McDaniel Trucking
and all its assets to Robert, stating that "the only
practical valuation is the net value of the assets
minus the liabilities."It also awarded the Span-Alaska
partnership to him, stating:
There exists an interest in a
partnership known as Span-Alaska, including a
lot in Wasilla with a value of $9,500 and
other equipment and vehicles. The total
value of these assets is $59,150. There is a
10% cost of sale of some of these assets of
$4,965. The net value of the land and
personal property is $54,185. There exists a
$60,000 debt owed by the partnership. This
means that there is a negative equity of
$5,815. Mr. McDaniel owes one-half (1/2) of
this sum. This $2,907.50 shall be his sole
debt.
By the time of trial both McDaniel Trucking and Span-
Alaska had paid the debts which they owed at the time
of the McDaniels' separation. However, the trial court
was silent on why it valued these assets at the time of
separation rather than trial, affording this court an
inadequate basis for review. The issue of the
valuation of Span-Alaska and McDaniel Trucking must
thus be remanded for redetermination and written
findings of fact consistent with Ogard, to afford this
court a sufficient basis for review.
C. The Cost of Sale Deduction.
Donna argues that the court erred in allowing a ten
percent cost of sale deduction where no sale was
contemplated.
The Washington Court of Appeals considered the
propriety of the cost of sale deduction in In Re
Marriage of Berg, 737 P.2d 680 (Wash. App. 1987). The
court held:
In order to justify deduction for costs
of sale, there must be evidence in the record
(1) showing that the party who will receive
the asset intends an imminent sale, and (2)
supporting the estimated costs of sale.
Id. at 683. See also In Re Marriage of Martin, 695 P.2d 1148,
1151 (Wash. App. 1982) (holding that the allowance for
sale costs at a home was improper where there was no
evidence home was going to be sold); In Re Marriage of
Kopplin, 703 P.2d 251 (Or. App. 1985) (disallowing a
cost of sale deduction where there was no evidence of
spouse's intent to sell real property awarded to him).
There is nothing in the record indicating that Robert
intended to liquidate McDaniel Trucking or the Span-
Alaska partnership. In fact, the trial court awarded
these assets to Robert so he could continue operating
them.3 The trial court erred in allowing this
deduction.4
D. Negative Equity.
The trial court found:
There exist four (4) lots in Anchorage,
known as the MacKentie properties. The court
accepts the parties' stipulated value of
$114,500. There exist outstanding mortgages
of $138,797.85. In addition, there is debt
associated with the property in the amount of
$6,500. This money is owed to Kenai Supply
and Young Contracting. Thus, there exists a
negative equity of $30,887.
The trial court also assigned a negative value to Span-
Alaska of $5,818.
As a general rule Alaska courts consider marital debt
in valuing the marital estate. Mack v. Mack, 816 P.2d
197, 199 (Alaska 1991). For example, we set aside a
property division and remanded with instructions to not
only consider all marital assets but to "clearly
identify all debts incurred by the parties" in
determining the overall division in Burcell v. Burcell,
713 P.2d 802, 805 (Alaska 1986). See also Burgess, 710
P.2d at 421-23 (considering one spouse's assumption of
joint debts as a factor in dividing marital assets and
accounting for the mortgage in valuing the home).
Zero valuation of negative equity is the exception.
Mack, 816 P.2d at 199. In Mack, we held that it was
only the "peculiar nature"of the nonrecourse debt,
which allowed the party to default without incurring a
loss, that justified the trial court's decision to
ignore the negative equity of real property. Id. at
199-200.
The parties stipulated to the value of the MacKentie
lots. The trial court recognized existing debt on the
property in valuing it. The trial court's valuation of
the MacKentie lots is supported by the record.
Span-Alaska presents a different problem. However, we
need not reach the issue of whether the valuation of
Span-Alaska should fall under an exception to the
general valuation method as was the case in Mack.
In March 1988 the Span-Alaska liabilities totaled
$60,000. By the time of trial the debt had been paid.
It is precisely because the trial court valued Span-
Alaska at the time of the parties' separation that the
question of its negative equity arises. As discussed
in section B above, the Span-Alaska valuation must be
remanded for redetermination and written findings of
fact consistent with Ogard.
E. The Terms of the Payout.
In her brief, Donna alleges the following error in the
trial court's allocation of this marital asset: (1)
ordering an interest payment at eight percent, where
the legal rate is 10.5 percent; (2) assigning a fifteen
year term to the payout; and (3) failing to award her
security for the payout.5
a. Interest Rate.
Although a trial court has discretion whether to award
interest on a judgment in a divorce proceeding, when
interest is awarded it must be "to the same extent
interest on judgments generally is allowed by statute."
Dixon v. Dixon, 747 P.2d 1169, 1171 (Alaska 1987). AS
09.30.070 sets the interest rate for judgments at 10.5
percent a year. Therefore, the trial court erred in
awarding interest at eight percent.6
b. Fifteen Year Payout Term.
Although the trial court rendered findings of fact to
support its equal division of the marital estate, it
did not render findings to support the terms of the
payment scheme. The trial court found:
17. Both parties are in relatively
good health. Both are in their fifties.
Mrs. McDaniels [sic] has some back problems,
which are relatively easily treated. These
problems do not make her unemployable. She is
limited from heavy, repeated lifting.
Mr. McDaniels [sic] has been in the
trucking industry during almost all of his
worklife. He has been successful in this
endeavor. He has a good chance of success in
the future. He has the greater earning
potential. Mrs. McDaniel will be in an entry
level position when she starts work again.
This is a fourteen (14) year marriage. They
had no children of their own. However, Mr.
McDaniels [sic] was of great assistance in
helping Mrs. McDaniel to raise her four (4)
children from a previous marriage. Mrs.
McDaniel will have some future medical
expenses. She needs help in obtaining
transportation. Mr. McDaniel will have to
earn sufficient funds to pay the outstanding
business debts existing at the time of
divorce. Based on the foregoing a
fifty/fifty (50/50) division of the marital
estate is reasonable.
18. Within thirty (30) days, Mr.
McDaniels [sic] will pay $17,000 to Mrs.
McDaniel, as he suggested. In addition, the
$400 per month he paid to her during
separation represented earnings of McDaniel
Trucking, Inc. Accordingly, she is entitled
to keep that money. He is entitled to a
credit for that amount. In addition, Mrs.
McDaniel shall receive $84,090 payable at 8%
over fifteen (15) years.
We thus do not have a sufficient basis to review the
trial court's determination regarding the term of the
payout and remand this issue to the trial court to
render sufficient findings.
IV. CONCLUSION
The case is remanded to the trial court for (1)
redetermination and written findings of fact on the
date for and valuation of McDaniel Trucking and the
Span-Alaska partnership; (2) redetermination of the
length of the payout term; and (3) modification of
interest to the rate of 10.5 percent. We affirm the
trial court's determination that the Bennett Street
property is Robert's separate property and the trial
court's valuation of the MacKentie lots.
The judgment of the superior is AFFIRMED in part,
REVERSED in part and REMANDED for further proceedings
consistent with this opinion.
_______________________________
1. Alternatively, Donna claims that "The property should
have been . . . invaded under Brooks v. Brooks, 733
P.2d 1044, 1053 (Alaska 1987) to balance equities
between the parties." In Brooks we recognized that two
circumstances support the equitable invasion of the
post-marital appreciation of pre-marital property:
"first, where the parties demonstrate their intent to
treat premarital property as joint property . . . ; and
second, where one spouse's contribution to the marital
community, pecuniary or otherwise, has benefited the
other spouse's premarital property." Id. at 1053
(citations omitted). We have addressed the first
circumstance above. The second circumstance is
relevant to the post-marital appreciation of pre-
marital property, focusing on one spouse's contribution
to the appreciation of the other spouse's property.
Invasion of the post-marital appreciation of the
Bennett Street property is not at issue here.
Therefore, Brooks is not applicable to Donna's claim
regarding the equitable invasion of the Bennett Street
property itself.
2. Moreover, this court has held that generally in divorce
proceedings the trial court must render findings
sufficiently explicit to allow an understanding of the
basis for its decision. Lewis v. Lewis, 785 P.2d 550,
552 (Alaska 1990); Lang v. Lang, 741 P.2d 1193, 1195
(Alaska 1987); Merrill v. Merrill, 368 P.2d 546, 547-48
(Alaska 1962).
3. As the trial court explains:
[T]he only practical assignment of these
two items of business interest are to
Mr. McDaniel. Obviously . . . he is the one
who has the particular skill and ability to
continue with McDaniel Trucking. . . .
Mrs. McDaniel being outside Alaska and
not in a position to effectively manage that
and maintain its business relationship with
the partner in Span Alaska, hence the only
practical assignment of Span Alaska is as
well to Mr. McDaniel.
(Emphasis added).
4. Robert's argument that Donna cannot challenge the
valuation because she stipulated to the value of the
McDaniel Trucking equipment and offered no valuation
evidence of her own is unpersuasive. Although Donna
stipulated to the value of the trucks she did not
stipulate to Robert's expert's work sheet on which was
presented the valuation of the business, including the
cost of sale deduction. Moreover, Donna objected to
the cost of sale deduction. Although Donna did not
present her own evidence valuing McDaniel Trucking, she
did timely raise an objection to the allowance of the
ten percent cost of sale deduction.
5. In her Statement of Points on Appeal Donna stated:
The trial court erred by ordering that
the promissory note given the appellant by
the appellee as part of the division of the
marital estate bear rate of interest less
than the market or legal rate then
prevailing.
In her supplemental Statement of Points on Appeal she
stated:
The trial court erred by ordering that
the promissory note given the Appellant by
Appellee as part of a division of marital
estate bear a rate of interest less than the
market or legal rate then prevailing.
Thus Donna's contention regarding the term of the
payout and her claim concerning security on the
judgment were not specifically set forth in her Points
on Appeal as required by Appellate Rule 210(e). Robert
briefed the issue relating to the payout term but did
not brief the issue concerning security.
In support of her argument Donna notes that Robert
received all the parties' assets, while she received
only her right to be paid for her interest in the
assets; that her payment was to be generated by
Robert's efforts in using the marital assets; that
absent her release from the Taft residence deed of
trust, she was awarded only a personal promissory note
from Robert; and that if something were to happen to
Robert or business declined all the marital assets
would be lost to creditors while she would have no
priority to receive compensation.
We only address the issues of the payout interest rate
and the payout term. We address the payout term issue,
though Donna does not raise it in her Points on Appeal
since Robert commented on it in his brief and therefore
will not be prejudiced by our choosing to address it.
However, we do not address the issue of payout
security, since we conclude that the issue was not
properly raised and that the result is not plainly
erroneous.
6. Donna relies on AS 45.45.010 as setting the 10.5
percent interest rate. However, that section applies
to interest rates in trade practices. The interest
rate for court judgments is set out in AS 09.30.070.
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