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B. Money v. M. Money (5/21/93), 852 P 2d 1158
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NOTICE: This opinion 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
BETTY ANN MONEY, )
) File No. S-4864
Appellant, )
) 3AN 89 7903 CI
v. )
)
MELVYN D. MONEY, ) O P I N I O N
)
Appellee. ) [No. 3958 - May 21, 1993]
________________________________)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Peter A. Michalski, Judge.
Appearances: Linda M. Cerro, Anchorage, and
R. Scott Taylor, Rice, Volland and Gleason,
Anchorage, for Appellant. Mark H. Wittow and
Frances S. Purdy, Preston Thorgrimson Shidler
Gates & Ellis, Anchorage, and Jeffrey M.
Feldman, Young, Sanders & Feldman, Anchorage,
for Appellee.
Before: Moore, Chief Justice, Rabinowitz,
Burke, Matthews and Compton, Justices.
BURKE, Justice.
I. INTRODUCTION
In this divorce case, Betty Money ("Betty") appeals the
superior court's Findings of Fact and Conclusions of Law, its
open court decision on reconsideration and its Decree of Divorce.
Betty asks this court to reverse the superior court's property
division, its alimony and child support awards, its valuation of
a closely held corporation, and its attorney's fee award. She
also argues the superior court erred in not considering the tax
consequences of the property division, in determining that a life
insurance policy belonged to Melvyn Money ("Melvyn"), and in not
requiring Melvyn to post security for his obligations.
The superior court erred only in not considering
relevant statutory factors when dividing the marital property.
The case is remanded for this purpose. Otherwise, we affirm.
II. DISCUSSION
A. THE DISTRIBUTION OF MARITAL PROPERTY.
1. The Equal Division
The superior court divided the marital property
equally, without comment. Betty asks this court to overturn the
property division because the court failed to consider relevant
statutory, or "Merrill"factors.1
It is well settled that the superior court must state
the facts upon which it bases its property division. Merrill v.
Merrill, 368 P.2d 546, 547-48 (Alaska 1962). We have remanded
cases where the superior court failed to do this. See, e.g. Lang
v. Lang, 741 P.2d 1193, 1195-96 (Alaska 1987) (superior court
must supply the appellate court with a clear understanding of the
basis of its decision); Brooks v. Brooks, 677 P.2d 1230, 1233-34
(Alaska 1984) (remand appropriate where there was nothing in the
record to indicate what weight the superior court gave to
husband's physical problems).
In the present case, the superior court failed to
address any of the relevant statutory factors. While it is true
that an equal distribution is presumptively equitable, Burcell v.
Burcell, 713 P.2d 802, 805 (Alaska 1986), it was incumbent upon
the superior court to address the evidence Betty presented.
Lang, 741 P.2d at 1193; Brooks, 677 P.2d at 1230.
On remand, the superior court should consider the
factors identified in AS 25.24.160(a)(4)(A) through (I) with
particular emphasis to the earning capacities of the parties, the
health of the parties, and the income producing capacity of the
properties.
2. The Valuation of Parts, Inc.
The superior court determined that Parts, Inc. should
be valued at $600,000. The clearly erroneous standard of review
applies to this determination. Moffitt v. Moffitt, 749 P.2d 343,
346 (Alaska 1988). A finding is clearly erroneous and should be
set aside when the court is left with a definite and firm
conviction on the entire record that a mistake has been made.
Peters v. Juneau-Douglas Girl Scout Council, 519 P.2d 826, 833
(Alaska 1974). The record supports the superior court's
valuation.
Melvyn's expert CPA, Daniel Hewko, used two different
methods to value Parts, Inc.: 1) capitalization of earnings and
2) the purchase price provided by the Stock Purchase and
Redemption Agreement (the "buy-sell agreement"). Under the
first, he valued the property at $562,000; under the second, at
$600,000.
Hewko considered the buy-sell agreement to be the best
indicator of value of Melvyn's share in Parts, Inc. Under the
agreement, a shareholder interested in selling his stock must
first offer it to the corporation. If the corporation declines,
then individual stockholders have a 30 day option to purchase the
stock. Hewko testified that no "prudent investor"would pay more
for Melvyn's share than the price established by the agreement.
Ted Sherwinn, Betty's expert CPA, agreed that the value
of Melvyn's share of Parts, Inc. under the buy-sell agreement was
$600,000, but suggested that this value was "not necessarily
indicative of fair market value." He theorized that
shareholders may deflate the value of the stock for estate tax
purposes. Betty points out that the buy-sell agreement provided
that the agreement price "may not accurately reflect the fair
market value of the Stock." She also notes that some courts are
cautious about using buy-sell agreement valuations. See, e.g. In
Re Marriage of Hall, 692 P.2d 175, 180 (Wash. 1984) (suggesting
that a court relying on a buy-sell agreement valuation should
determine what factors other than fair market value were
considered in setting the price).
However, other courts have approved the use of buy-sell
agreement valuations for valuing closely held corporations in
divorce cases. See, e.g. Hertz v. Hertz, 657 P.2d 1169, 1174
(N.M. 1983) ("[A] non-shareholder spouse is bound to the same
terms of a shareholder valuation agreement which affects the
shareholder spouse. This insures that the non-shareholder spouse
does not receive a greater value than that of the shareholder.");
Amodio v. Amodio, 509 N.E.2d 936, 937 (N.Y. 1987) (price fixed by
a buy-sell agreement, though not conclusive, should by
considered). We hold that a trial court is not bound by a buy-
sell agreement valuation, but may consider such a valuation when
valuing marital property, especially when that valuation is
supported by other valuation methods.
Hewko's valuation under the buy-sell agreement is
corroborated by his capitalization of earnings valuation of
$562,000. Hewko used Sherwinn's calculations, with one
exception: For each year, he subtracted an "Additional Income
Tax Payable." Betty complains that these taxes are "entirely
fictional." Hewko's reason for subtracting them makes sense:
If bonuses and profit sharing are added back into each year's net
income as if they were never distributed, then the taxes payable
on the increased income should also be recomputed.
Betty also argues that Hewko's valuation is clearly
erroneous because, for 1990, he ignored Parts, Inc.'s status as a
Subchapter S corporation. As a Subchapter S corporation, Parts,
Inc. passes its tax burden on to its shareholders who pay a pro-
rata share of the corporate taxes. Hewko nevertheless
subtracted an "Additional Income Tax Payable"for 1990. His
theory is that the prudent investor would seek to value Parts,
Inc. as he would any other company, and would therefore desire an
income figure with income taxes already subtracted. The superior
court accepted Hewko's theory. It found fault with Sherwinn's
valuation in part because
Mr. Sherwinn used gross income to
calculate valuations of $933,000 and
$860,000. The problem with such an approach,
of course, is that it applies a multiplier
effect to the funds used to pay taxes and
establishes a value of the property from
which no prudent investor could earn a true
return anywhere near the hypothetical amounts
being suggested under the assumptions made.
We think this reasoning is sound.
Alternatively, the superior court's capitalization of
earnings valuation can be affirmed on an entirely different
basis. The parties disputed the minority and marketability
discount rates that should be applied to Melvyn's share of Parts,
Inc. when calculating a value under the capitalization of
earnings method. The discount rates reflect the limited
marketability of a minority share in a closely held corporation.
Sherwinn used a 15% minority interest discount rate. Hewko
testified that minority and marketability discount rates usually
average 35%. But see In re Marriage of Belt, 672 P.2d 1205, 1207-
08 (Or. App. 1983) (court applied a 50% discount rate to a
minority share in a closely held corporation). The superior court
rejected Sherwinn's valuation because it felt that substantially
higher minority and marketability discounts than those used by
Mr. Sherwinn should have been applied to the business. If
Hewko's "average"discount rate of 35% is applied to Sherwinn's
valuation, the adjusted valuation becomes $560,000.
The superior court's $600,000 valuation, then, is
supported by the buy-sell agreement valuation, by the capital
ization of earnings method with hypothetical taxes subtracted,
and by the capitalization of earnings method using "average"
discount rates. It was not clearly erroneous to factor taxes
into the valuation calculus, nor was it clearly erroneous to use
a marketability discount rate higher than 15%. We affirm the
superior court's valuation of Parts, Inc.
3. The Valuation of the West Coast Life
Insurance Policy.
Betty sought an equitable division of the cash value of
a whole life insurance policy issued by West Coast Life Insurance
Company. The superior court awarded the policy to Melvyn,
determining that it was a pre-marital asset.
Melvyn's mother took out the policy for him when he was
four years old. He was not sure of its face value, although he
thought it was $10,000. Melvyn claims he was not able to produce
official records on the policy because that information was not
in his possession. Once the parties married, the $13.38
quarterly premiums were paid out of a joint checking account.
Melvyn testified that the policy paid dividends which offset the
annual premiums.
The policy is obviously a pre-marital asset. The
properly presented issue is whether the superior court should
have invaded this asset to balance the equities between the
parties. AS 25.24.160(a)(4). A trial court has broad discretion
with respect to invasion of pre-marital assets. Wanberg v.
Wanberg, 664 P.2d 568, 570 (Alaska 1983). However, we have held
that
[i]n limited circumstances invasion of
one spouse's property acquired before
coverture may be required as a matter of law.
One such circumstance is where the parties,
by their actions during marriage, demonstrate
their intention to treat specific items of
property as joint holdings . . . . Such
intention is manifest when both spouses can
be shown to have taken an active interest in
the ongoing maintenance, management, and
control of specific assets.
Id. at 571 (footnote omitted). The fact that the premiums were
paid from a joint checking account does not mean that Betty took
"an active interest in the maintenance, management, and control
of"the policy. Since the premiums equalled the dividends, Betty
has not really contributed toward the maintenance of the asset.
The superior court did not abuse its broad discretion by refusing
to invade the pre-marital asset.
4. Tax Consequences of Property Division.
Betty argues that the superior court erred in failing
to address the tax consequences of its property distribution.
She claims that since her maintenance needs were not fulfilled by
the alimony and child support awards, she will be forced to sell
assets to meet expenses. Betty suggests that if she withdrew her
award of $154,000 from Melvyn's profit sharing plan she would
realize only $110,800 because of taxes and penalties. Her
position is that the superior court should have taken this
potential loss into account when dividing the property.
Betty's reliance on Oberhansly v. Oberhansly, 798 P.2d
883 (Alaska 1990), is misplaced. In that case, we held that the
superior court must consider only the "immediate and specific tax
consequences of its division of property . . . . At the same
time, the court is not required to speculate on or to consider
tax consequences in the absence of proof that a taxable event
will occur in connection with the division of property." Id. at
887. In Oberhansly, this court directed the superior court to
consider the tax consequences of its order requiring a spouse to
withdraw his retirement account for property division purposes.
The parties in that case agreed that this withdrawal would have
immediate tax consequences. Id. at 886-87.
The tax consequences Betty theorizes are speculative
and not immediate. Unlike the situation in Oberhansly, it is far
from certain here that "a taxable event will occur in connection
with the division of property." Id. at 887. Thus, the superior
court was not required to consider the tax consequences of the
property division.
5. Security.
Betty asked the superior court to require Melvyn to
post security for the spousal and child support awards, the
mortgages on the two properties Betty received, and the $89,911
promissory note. The superior court denied the request. This
decision will be reviewed for abuse of discretion. See Hunt v.
Hunt, 698 P.2d 1168, 1171 (Alaska 1985).
Betty argues that to require her to pay for security,
or to allow the indebtedness to go unsecured, is not a fair
allocation of the economic effect of the divorce. She suggests
that Melvyn can easily provide the requested security at no
monetary cost to himself by simply pledging shares of his Parts,
Inc. stock. She also proposes other alternatives, such as
issuing an order that any unpaid support would be an enforceable
lien against Melvyn's estate in the event of his death.
These creative suggestions would have come within the
ambit of the superior court's discretion. See H.P.A. v. S.C.A.,
704 P.2d 205, 210 and n.4 (Alaska 1985) (approving the use of
insurance for child support "where appropriate"and encouraging
the use of other creative means to achieve the same result). We
cannot, however, conversely say that it was an abuse of
discretion to not require security. Betty, of course, is not
required to purchase security, and there is nothing in the record
to indicate that Melvyn will not cover his obligations. We
affirm. See Hunt, 698 P.2d at 1171 (husband not required to give
wife a security interest to ensure his periodic payment of her
share of a business).
B. ALIMONY
Betty sought alimony of $2500 per month until December
1991, and $2250 monthly support from January 1992 through June
1995. The superior court awarded her rehabilitative alimony of
$1000 a month for 24 months "to aid the plaintiff while she is
preparing to enter the job market and to organize the
considerable non-liquid and non-income producing property being
distributed to her from the marital estate." This award will be
reviewed for abuse of discretion. Bays v. Bays, 807 P.2d 482,
485 (Alaska 1991).
Although the superior court designated its alimony
award as rehabilitative, it appears the court awarded both
rehabilitative and reorientation alimony. Rehabilitative alimony
is appropriate "when the recipient spouse intends to apply the
alimony toward job training designed to lead to employment."
Jones v. Jones, 835 P.2d 1173, 1178-79 (Alaska 1992). It is
"properly limited to job training or other means directly related
to the end of securing for one party a source of earned income."
Schanck v. Schanck, 717 P.2d 1, 5 (Alaska 1986). Reorientation
alimony is designed to "allow the requesting spouse an
opportunity to adjust to the changed financial circumstances
accompanying a divorce." Jones, 835 P.2d at 1179 (quoting
Richmond v. Richmond, 779 P.2d 1211, 1215 n.6 (Alaska 1989)). By
awarding Betty alimony to aid her in preparing for the job market
and to help her organize her portion of the marital estate
assets, the superior court effectively awarded Betty both
rehabilitative and reorientation alimony.
After reviewing the record, we are satisfied that the
superior court's award of $1000 a month for two years achieves
the purpose of both rehabilitative and reorientation alimony,
which is "to help a spouse adapt to the changed financial
circumstances following his or her divorce." Jones, 835 P.2d at
1179. We affirm the superior court's alimony award.2
C. CHILD SUPPORT
The parties agreed that Betty should have custody of
their two minor children, aged 17 and 4. Betty sought a child
support award of $2500 per month through June 1992, adjusted to
$1900 thereafter. The superior court awarded her $1350 per month
until June 1992 and $1000 thereafter. In addition, it required
Melvyn to include the children on his health insurance plan, and
to pay 50% of any uninsured medical expenses. This award will be
reversed "only if this court has a definite and firm conviction
based on the record as a whole that a mistake has been made or
the trial court abused its discretion."Hunt, 698 P.2d at 1172.
The parties agreed that Melvyn's annual income was
greater than $60,000. The superior court multiplied $60,000 by
the percentages found in Civil Rule 90.3(a)(2)(B) to arrive at
its award. Rule 90.3(c)(2) allows an additional award only if it
is "just and proper, taking into account the needs of the
children, the standard of living of the children and the extent
to which that standard should be reflective of the supporting
parent's ability to pay."
Betty argues that the court's award is inadequate
because it will force her to "invade her equities substantially
to not just maintain the children's accustomed standard of
living, but to provide for their basic support." The record does
not support her contention. Betty submitted a monthly budget
with itemized costs totalling $5,261. However, this figure
includes mortgage payments on the Money's residence and their
Rocky Lake cabin totalling $927.65. According to the property
division, Melvyn must make these payments. Betty's budget also
does not account for Melvyn's responsibility for half of the
children's uninsured health coverage.3 Subtracting just these
two expenses from Betty's budget reduces the monthly total to
$3905.
Rule 90.3 only requires that the non-custodial parent
contribute toward the "reasonable"needs of his/her children.
Coats v. Finn, 779 P.2d 775, 776 (Alaska 1989). Betty's budget
contains a number of expenses that go beyond reasonable need.
For example, Betty claimed a $500 expense for her son's summer
hockey camp. The superior court refused to require Melvyn to pay
this expense, concluding that while Melvyn might choose to
contribute to or fund all of the camp's expenses, an order
requiring him to do so could not be supported by law or equity.
The superior court did not abuse its discretion in making this
determination.
The budget includes other questionable expenses. Betty
claimed $40 a month for her daughter's gymnastics class. At
trial, she admitted that her daughter was not enrolled in such a
class. Betty claimed $430 a month for her three year old
daughter's psychotherapy sessions. However, evidence at trial
indicated that the treatment would only take about six months.
The children's needs can be met by the superior court's
award, which followed the Rule 90.3 formula. It was not clearly
erroneous to deny an additional award.
D. ATTORNEY'S FEES
Betty sought an attorney's fee award of $15,000. After
considering the parties' earning ability, the court awarded her
$2,500. This award cannot be disturbed unless it is arbitrary or
manifestly unreasonable. Zimin v. Zimin, 837 P.2d 118, 124
(Alaska 1992).
Melvyn's earning capacity is greater than Betty's.
"[I]n deciding whether a fee award is appropriate, the court must
also consider the parties' relative economic situations as well
as their earning capacity." Id. The present case is analogous
to H.P.A. v. S.C.A., 704 P.2d 205, 212 (Alaska 1985), where
"[t]he crux of Wife's argument is that Husband has a lot more
money and greater earning power, and he can much more easily
afford to pay her attorney's fees." This court affirmed the
denial of fees in H.P.A. because "Wife's resources and
capabilities are sufficient enough that a court could reasonably
expect her to pay her own fees." Id.
Betty's half of the property division includes more
than enough cash to cover her remaining attorney's fees. See
Siggelkow v. Siggelkow, 643 P.2d 985, 989 (Alaska 1982) (Wife
"received a substantial property award from which she could have
paid her attorney's fees."). Since the superior court took the
parties' disparate earning capacities into account when it
awarded Betty $2500 in attorney's fees, its award will not be
disturbed.
III. CONCLUSION
This case is REMANDED for the superior court to
consider those statutory property division factors which may
weigh in favor of a greater award to Betty. On all other issues,
the superior court is AFFIRMED.
_______________________________
1. The factors this court articulated in Merrill v.
Merrill, 368 P.2d 546, 547-48 n.4 (Alaska 1962), have been
codified at AS 25.24.160(a)(4).
2. Betty also argues that the superior court's alimony
award should be reversed because it is not enough to meet her
expenses. Betty reiterates her Merrill factor arguments to
support her position that she deserves more alimony. This
portion of Betty's alimony argument is distinct from her argument
that she needs rehabilitative alimony to pay for her paralegal
schooling. See Schank 717 P.2d at 5. Betty's maintenance needs
should be addressed, on remand, in the property division, not
through additional alimony. Ramsey v. Ramsey, 834 P.2d 807, 809-
10 (Alaska 1992).
3. According to Betty's budget, the children's monthly
medical expenses total $857. This figure was arrived at by
dividing the monthly psychiatrist expense in half (the budget
allocates $830 to Betty and Jennifer's psychiatrist) and adding
the $442 allocated to "Insurance (2 children's deduct)."
Pursuant to the divorce decree, Melvyn would be responsible for
$429 of this expense.
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