Marriage of Schwartz and Harris , 370 Mont. 294 ( 2013 )

May 30 2013
DA 12-0381
IN THE SUPREME COURT OF THE STATE OF MONTANA
2013 MT 145IN RE THE MARRIAGE OF:
JEAN SCHWARTZ,
Petitioner and Appellee,
v.
GREGORY ELY HARRIS,
Respondent and Appellant.
APPEAL FROM: District Court of the Eleventh Judicial District,
In and For the County of Flathead, Cause No. DR-02-316(C)
Honorable Stewart E. Stadler, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
David F. Stufft; Attorney at Law; Kalispell, Montana
For Appellee:
Katherine P. Maxwell; Maxwell Law, PLLC; Kalispell, Montana
Submitted on Briefs: March 27, 2013
Decided: May 30, 2013
Filed:
__________________________________________
Clerk
Justice Jim Rice delivered the Opinion of the Court.
¶1 The marriage of Gregory Harris (Greg) and Jean Schwartz, formerly known as
Jean Harris (Jean), was dissolved by decree of the Eleventh Judicial District Court, which
also divided the marital estate. On appeal, Greg challenges various aspects of the
property division, including the selection of valuation dates, the identification and
valuation of marital property, the division of assets, and the adjustments made in making
the division, including an approximately $1.259 million equalization amount awarded to
Jean. We affirm in part, reverse in part, and remand for further proceedings.
¶2 We restate and address the following issues:1
¶3 1. Did the District Court err by valuing the estate as of 2009 instead of 2002,
when the parties separated?
¶4 2. Did the District Court err in its valuation of the Grizzly Security businesses?
¶5 3. Did the District Court err by failing to award Greg an offset credit for the
$400,000 paid to Jean between 2002 and 2009?
¶6 4. Did the District Court err by ordering that Greg pay a $1.259 million
equalization payment to Jean without providing a method of payment?
FACTUAL AND PROCEDURAL BACKGROUND
¶7 Greg and Jean were married in October 1988. Greg has ownership interests in
Grizzly Security Armored Express, Inc. and related businesses, including Grizzly
Security Alarms, Inc. and Grizzly Security ShredEx, Inc. (collectively “Grizzly Security
businesses”). Greg is the sole owner of Grizzly Security Armored Express and owns
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Greg frames numerous issues on appeal, most of which are either encompassed within the four
issues stated here, or supported by abbreviated arguments with little or no citation to authority.
To the extent that Greg has raised issues not encompassed by the four issues stated here, we
affirm the District Court’s determination of those other matters.
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one-half of Grizzly Security ShredEx and one-third of Grizzly Security Alarms. The
Grizzly Security businesses are formed as subchapter S corporations and all of Greg’s
income from the businesses is directly taxable to Greg. In 1995, Greg sustained a head
injury when he was assaulted while on work duty. This event has caused Greg memory
loss and severe headaches. Jean and Greg have four children, three of whom are adults.
¶8 In June 2002, Jean filed for dissolution of the marriage. She entered into a
contract to purchase a home later that year, and acquired the home in March 2003. Greg
agreed to make the mortgage, tax, and insurance payments on Jean’s behalf, and the
mortgage was placed in his name alone. In December 2002, the District Court issued its
Findings of Fact, Conclusions of Law and Order (Temporary Support Order). The
Temporary Support Order required Greg to pay $2,000 to Jean per month in temporary
family support in addition to paying for Jean’s vehicle expenses, medical insurance for
Jean and the children, and the children’s extracurricular and medical costs. The
Temporary Support Order did not reference Greg’s commitment to pay the mortgage
payments and costs on Jean’s home.
¶9 A trial was ultimately conducted on September 20 and 21, 2010, and February 22,
2011. Jean testified that she participated in operating the Grizzly Security businesses
during the marriage. She also stated that she and Greg had lived apart since 2002 and
that Greg pays the mortgage on her home. Jean testified that Greg managed Jean’s rental
properties and provided Jean with other financial support, that she provided non-
monetary support to Greg, and the parties had almost daily phone contact. She explained
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that she and Greg traveled together to the children’s sporting events, vacationed together,
and gave the children joint Christmas and birthday gifts.
¶10 David Smith, one of Jean’s experts, presented a complete appraisal for the Grizzly
Security businesses as of December 31, 2009, using an income-based approach.
Mr. Smith opined that Greg’s share of the fair market value of the businesses was
$2,584,700. James Kelley, a real estate expert, presented appraisal values for the parties’
real property based on appraisals conducted in November 2009 and April 2010.
¶11 Greg testified that the Grizzly Security businesses have become less viable since
the early 2000s and were losing some of its contracts. Greg also explained details about
his personal and business debt and his inability to secure additional financing. Greg’s
accountant testified and the District Court admitted Greg’s personal tax returns from
2001 through 2008 and tax returns for Grizzly Security from 2001 through 2009. Greg’s
business valuation expert, Todd Gardner, presented appraisals for the personal property
of the Grizzly Security businesses for 2002 and 2010 using an asset appraisal method.
Mr. Gardner said the appraisal value for the personal property of Grizzly Security
Armored Express was $48,250 for 2002. Mr. Gardner testified that the total value of the
personal property for Grizzly Security Armored Express, Grizzly Security Alarms, and
Grizzly Security ShredEx in 2010 was $376,945.
¶12 The District Court entered the Findings of Fact, Conclusions of Law and Decree
(Decree) on March 8, 2012. The Decree divided the marital assets, which included the
parties’ real property and the Grizzly Security businesses. The District Court used the
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2009 income-based appraisal for the Grizzly Security businesses presented by Mr. Smith.
The District Court granted the business interests to Greg and awarded Jean an
equalization payment in the amount of $1,259,903. With regard to the actual distribution
of assets, the District Court’s Decree simply stated “[t]he parties shall cooperate and
assist in the transfer of titles and possession necessary to accomplish the distribution set
forth herein.”
¶13 The day after the Decree was entered, Jean attempted to execute on the judgment
against Greg. The clerk of court initially entered the writ of execution but later voided it
because Jean had not waited 14 days as required by M. R. Civ. P. 62(a). Greg moved the
District Court for a stay of judgment pending appeal, asserting by reference to bank
letters declining to offer financing that he was unable to finance the equalization payment
he was ordered to pay to Jean. No further writs of execution were issued before this
appeal.
¶14 Greg filed a notice of appeal to this Court and also filed for bankruptcy in the
United States Bankruptcy Court for the District of Montana. On November 15, 2012, the
United States Bankruptcy Court entered an order modifying the automatic stay and
permitting the parties to seek final determination of this appeal.
STANDARD OF REVIEW
¶15 “We review family law cases for valuation and allocation of marital property to
determine whether the District Court’s findings are clearly erroneous.” In re Marriage of
Baide, 2004 MT 260, ¶ 7, 323 Mont. 104, 99 P.3d 178. A finding is clearly erroneous if
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it is not supported by substantial evidence, if the district court misapprehended the effect
of the evidence, or if our review of the record convinces us that the district court made a
mistake. In re Marriage of Williams, 2009 MT 282, ¶ 14, 352 Mont. 198, 217 P.3d 67(Williams I). If the findings are not clearly erroneous, we will affirm the division absent
an abuse of discretion. Williams I, ¶ 14. “A district court abuses its discretion if it acts
arbitrarily without conscientious judgment or exceeds the bounds of reason, resulting in
substantial injustice.” In re Marriage of Alexander, 2011 MT 1, ¶ 11, 359 Mont. 89, 246
P.3d 712; see also Williams I, ¶ 14. We review a district court’s conclusions of law for
correctness. Williams I, ¶ 14.
DISCUSSION
¶16 1. Did the District Court err by valuing the estate as of 2009 instead of 2002,
when the parties separated?
¶17 Greg argues that the District Court should have valued the marital property as of
2002, when the parties separated, rather than 2009. He notes that Jean filed the petition
for dissolution in 2002, and both parties agreed that the marriage was irretrievably broken
at that time. Greg asserts that he and Jean separated their assets and debts in 2002, and
have since filed separate tax returns, lived in separate homes, and made separate financial
decisions. Jean answers that the District Court did not err in using the 2009 valuation
date because she and Greg “continued to act as a married couple in many respects both
publicly and privately.” Jean explains that Greg continued to manage Jean’s rental
properties, provided Jean with financial support, and that the parties continued to spend
time together and had almost daily phone contact.
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¶18 As a general rule, “the value of the marital estate should be determined at or near
the time of dissolution.” In re Marriage of Swanson, 220 Mont. 490, 495, 716 P.2d 219,
222 (1986). “Generally, valuing the property near the time of dissolution results in
equitable apportionment, but unique circumstances may call for valuation at a different
time.” Alexander, ¶ 16 (citing In re Marriage of Geror, 2000 MT 60, ¶ 14, 299 Mont. 33,
996 P.2d 381). However, we have stated that equitable apportionment is more important
than “designating the moment” at which the court should value marital property.
Alexander, ¶ 18. Further, we have concluded that “the date of separation can be used as
the appraisal date when one spouse accrued significant wealth and the other accrued
significant debts after the parties had separated but before formal dissolution.” In re
Marriage of Williams, 2011 MT 63, ¶ 26, 360 Mont. 46, 250 P.3d 850 (Williams II). We
have affirmed a district court’s use of the date of separation where the parties “began
managing their finances separately and eventually lived separately” from that time. In re
Marriage of Thorner, 2008 MT 270, ¶ 37, 345 Mont. 194, 190 P.3d 1063; see also In re
Marriage of Tipton, 2010 MT 144, ¶ 24, 357 Mont. 1, 239 P.3d 116.
¶19 The District Court found, based on facts testified to at trial, that Greg and Jean
“continued a family relationship until May[] 2009, and that the proper date to value and
distribute the marital estate is 2009.” The District Court listed several other factors upon
which it based its decision, including that Greg had voluntarily supported Jean from 2002
to 2009 by paying her mortgage. The District Court also found that Greg and Jean
continued to function as a “family unit” because, among other things, they traveled and
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vacationed together and gave the children joint Christmas and birthday gifts. The District
Court’s findings regarding the valuation date do not address whether either party accrued
significant individual debt or wealth in the period between separation and dissolution—
factors we noted in approving valuation of the estate at the time of separation in
Williams II.
¶20 The Decree was filed in March 2012, and under general rules, the 2009 values
would be most appropriate because they were closest to the time of dissolution. We are
not persuaded that the circumstances here required use of the 2002 property values to
avoid unfairness or inequity. The District Court’s findings are not clearly erroneous and
are supported by the record. Although the parties had been separated since 2002, we
conclude on this record that the District Court did not abuse its discretion in using the
2009 property values in distributing the marital estate.
¶21 2. Did the District Court err in its valuation of the Grizzly Security businesses?
¶22 Greg challenges the District Court’s adoption of Jean’s expert’s valuation of the
Grizzly Security businesses. Jean argues that the District Court acted well within its
discretion to accept Jean’s business valuations.
¶23 A district court has discretion to adopt any reasonable valuation of marital
property that is supported by the evidence. In re Marriage of Hedges, 2002 MT 204,
¶ 21, 311 Mont. 230, 53 P.3d 1273. We have stated that a district court’s valuation of a
business within a marital estate must be “a reasonable determination, supported by the
record and within the range of values presented by the parties.” Baide, ¶ 16.
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¶24 Jean’s expert, Mr. Smith, testified that Greg’s share of the Grizzly Security
businesses in 2009 based upon his income-based appraisal was $2,584,700. Greg’s
expert, Mr. Gardner, testified that the total value of the Grizzly Security businesses in
2009, using the asset appraisal method, was $376,945. The District Court adopted
Mr. Smith’s appraised values for the Grizzly Security businesses. While there was a
wide divergence between the values of the businesses attributed by the parties—a
circumstance we have previously described as “not surprising[]” in the context of
disputed property valuation, Hedges, ¶ 22—the District Court was within its discretion to
adopt one expert’s valuation when supported by the record. A district court is “in the
best position to judge the credibility of the testimony proffered by parties and witnesses”
and “we will defer to its resolution of any conflicting evidence.” Hedges, ¶ 22. The
valuation of the Grizzly Security businesses adopted by the District Court is within the
range of values presented by the parties, is supported by the record, and is reasonable.
We conclude the District Court did not abuse its discretion or clearly err in valuing the
businesses.
¶25 3. Did the District Court err by failing to award Greg an offset credit for the
$400,000 paid to Jean between 2002 and 2009?
¶26 Greg argues that “[a]lthough[] the Court acknowledges that Greg paid in excess of
$400,000 since the parties separated in 2002[,] Greg did not receive a credit for this
payment. That is not equitable.” Jean replies that “[m]uch of the money allegedly paid
to Jeanie was temporary family support, ordered by the court in 2002,” and that although
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“sums were expended in paying the mortgage on Jeanie’s home,” the equity in the home
“is shared by both parties in the division of property.”
¶27 In accordance with the Temporary Support Order, Greg paid $2,000 per month in
family-support cash payments to Jean, and paid for Jean’s vehicle, the family’s health
insurance, and the children’s activities during the years the parties were separated. In
addition to this ordered support, Greg also paid the costs of Jean’s housing, which, as far
as the record demonstrates, Greg continued to pay until the dissolution decree was
entered. For the years between 2002 and 2009, Greg calculated these payments to be
approximately $115,000. Jean thus received, beginning in 2002, a housing benefit at
Greg’s expense of the principal and interest payments, taxes, and insurance, and
ultimately received the house with the equity that Greg’s servicing of the debts and
payment of the expenses made possible.2 These housing expenses were not mandated by
the Temporary Support Order, and Greg made them voluntarily. These payments are
included within the approximately $400,000 that Greg claims to have paid to Jean.
¶28 The District Court acknowledged that Greg paid “in excess of $400,000” to Jean,
but did not specifically delineate how this amount factored into the District Court’s
apportionment of the marital estate.3 In our analysis of the payments making up the
$400,000, it is clear that most of those funds were paid in support of Jean and the
2
The District Court determined that Jean’s house had an appraised value of $270,000, and that
the mortgage secured a debt in the amount of $161,000.
3
The District Court made a passing reference to Greg’s payment of $400,000 in its discussion of
Jean’s excess compensation claim, which it rejected as vague and subjective. However, the
District Court made no specific connection or offset between these two claims.
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children pursuant to the Temporary Support Order. These payments were for ongoing
support of the family during the long period of marital separation and we find no reason
to conclude that the District Court erred by not granting a specific credit to Greg for those
payments.
¶29 However, beyond the support payments, Greg also provided cost-free housing for
Jean that she enjoyed over many years and, further, by these efforts prudently created a
sizeable, appreciable asset for her benefit. As a matter of equitable distribution, we
conclude that Greg should have received a credit against his overall obligation to Jean for
the post-separation housing payments he voluntarily made, beginning March 2003
through the date the Decree was entered. While such a credit may seem inconsistent with
the determination to value the estate as of 2009, and with the inclusion of the house
within the estate, Greg’s provision of Jean’s separate housing was likewise contrary to
the premise that the parties were functioning as a normal family unit during these years,
and the expense was above and beyond the obligations imposed upon Greg by the Court
during the lengthy separation period.
¶30 Upon a determination that the district court has erred in distributing the marital
estate, we have previously remanded with instructions directing the court how to
equitably reapportion the marital estate. See e.g., Williams I, ¶¶ 40, 45; affirmed in
Williams II, ¶¶ 6, 8; Baide, ¶ 18. Greg calculated the amount paid for Jean’s housing to
be about $115,000, but a specific factual determination in that regard was not made.
Thus, on remand, the District Court should specifically calculate the amount Greg paid
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for Jean’s housing between 2003 and the entry of the Decree in 2012, and grant a credit
in that amount toward the equalization payment he owes to Jean.
¶31 4. Did the District Court err by ordering that Greg pay a $1.259 million
equalization payment to Jean without providing a method of payment?
¶32 Greg asserts that the large equalization payment ordered by the District Court
makes it “economically not feasible for Greg to pay the $1.259 million judgment” and
that he has been forced to file for bankruptcy as a result of the obligation. Greg argues
further that even if the assets of his businesses were sold, the net value of the assets after
paying the debt would not generate enough revenue to pay the judgment and the statutory
10% interest per annum. Jean argues that the District Court gave Greg autonomy in
deciding how the equalization payment should be paid.
¶33 We have previously held that a district court should allow a reasonable amount of
time for a party to pay a monetary award in a property settlement. Baide, ¶ 18. This
Court also considered the implications of a deferred monetary award in In re Marriage of
Westland, 257 Mont. 169, 848 P.2d 492 (1993). The district court in Westland rejected
the husband’s proposed $50,000 annual equalization payments because the wife would
have no assurance of receiving her annual payment. Westland, 257 Mont. at 172, 848
P.2d at 494. The district court expressed concern that the husband could potentially
transfer assets to the wife’s detriment or file for bankruptcy and discharge his debt.
Westland, 257 Mont. at 172, 848 P.2d at 494. The wife’s future payments would be
unsecured. Westland, 257 Mont. at 172, 848 P.2d at 494.
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¶34 However, even taking into account the concerns articulated in Westland, a
deferred monetary award may be appropriate in some situations. A noted treatise on
marital property distribution provides the following instruction:
In the relatively common situation where a monetary award is used to
award the nonowning spouse part of the value of a business, the award
should not be so large as to interfere with the business’ future profitable
operation.
It is not error per se to make an award greater than the payor’s liquid
assets, if the payor can sell or refinance property to meet the obligation.
Such an award is not ideal, however, for there are various disadvantages to
compelling sale in the divorce case. Most importantly, sale requires
payment of capital gains costs, commissions, and other expenses, and
property often fails to earn full value when sold under the pressure of
divorce. Because of these disadvantages, an immediate monetary award
which exceeds the value of the payor’s liquid assets is a remedy of last
rather than first resort. A better option would be division in kind (if
division can be accomplished without violating the rule against
co-ownership), or a monetary award deferred over sufficient time for liquid
funds to be accumulated without sale. If the payor cannot reasonably sell
assets or borrow liquid funds to pay an immediate monetary award, the
making of such an award is error.
Brett R. Turner, Equitable Distribution of Property vol. 3, § 9.9, 31-33 (3d. ed., West
2005). In the right circumstances, a deferred monetary award may be preferable to an
ordered sale of assets, particularly where the assets of the estate do not permit a division
of property in kind or an immediate monetary award. Turner, Equitable Distribution of
Property vol. 3, at § 9.10, 36. In cases where a deferred monetary award is the preferable
method to distribute the marital estate, the district court should endeavor to state a sum
certain,4 provide for a certain and specific payment schedule over a reasonable period of
4
See M. R. Civ. P. 58.
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time,5 be secured,6 and include interest on the award. See generally Turner, Equitable
Distribution of Property vol. 3, at § 9.10, 37-45 (citing cases). While a financial
obligation imposed by a decree that is silent regarding interest is subject to the 10%
statutory interest rate under § 25-9-205, MCA, the district court retains discretion to set
an alternate rate of interest. See Thorner, ¶ 49; Hedges, ¶ 24. If the district court sets an
interest rate that varies from the statutory rate, it must be fair and reasonable. In re
Marriage of Gibson, 206 Mont. 460, 466, 671 P.2d 629, 633 (1983) (“[O]nce a person is
liable for a money judgment and payment is not made, the person entitled to the judgment
is further entitled to a fair rate of interest.”) (discussing Knudson v. Knudson, 191 Mont.
204, 208, 622 P.2d 1025, 1027 (1981)); see also Turner, Equitable Distribution of
Property vol. 3, at § 9.10, 42-43.
¶35 After review of the record, we conclude that Greg’s request for a deferred
monetary award with a payment plan is justified under these circumstances. Greg would
otherwise be faced with selling the assets of his businesses in order to satisfy the
judgment, thereby losing the bulk of the marital estate distributed to him and
undermining his future ability to earn an income. The provision of the Decree merely
5
See e.g. McAvoy v. McAvoy, 662 So. 2d 744 (Fla. Dist. Ct. App. 5th Dist. 1995) (payment
schedule required in $59,805 lump sum equitable distribution); Haren v. Haren, 922 N.E.2d 284(Ohio App. 2009) (trial court erred by not providing guidance stating when equalization payment
was to be made).
6
See e.g. Head v. Head, 714 So. 2d 231, 240-41 (La. Ct. App. 2d Cir. 1998) (requiring husband
to sign secured promissory note with acceleration clause to secure deferred equalization
payment); Jayaram v. Jayaram, 62 A.D.3d 951, 954, 880 N.Y.S.2d 305, 308 (N.Y. App. 2009)
(requiring husband to obtain life insurance to secure remaining amount of distributive award).
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providing that “[t]he parties shall cooperate and assist in the transfer of titles and
possession necessary to accomplish the distribution set forth herein” fails to provide a
sufficient framework for implementing the distribution of the estate. A structured
payment plan would provide finality in the equitable division of the marital estate as
required by § 40-4-202(1), MCA. Williams II, ¶ 27.
¶36 Given the large equalization payment the District Court found appropriate to
award to Jean, the apparent difficulty in securing financing for such a payment, and the
lack of guidance provided by the Decree, we conclude it is appropriate to remand to the
District Court for adoption of a reasonable payment plan consistent with the guidelines
for implementation of such plans within dissolution of a marital estate, as discussed
herein.
CONCLUSION
¶37 On remand, the District Court should calculate the amount Greg has expended for
Jean’s housing, as stated in ¶ 30, and credit that amount toward the equalization payment
Greg owes to Jean. The District Court should also implement a reasonable payment plan
for Greg’s equalization obligation to Jean, as provided herein. It is not intended that this
remand will require a reapportionment or redistribution of the entire marital estate,
although the District Court is not precluded from making minor adjustments in
distribution if necessary to implement this opinion. It is within the District Court’s
discretion to hold an additional hearing or to decide these issues upon the current record,
if sufficient.
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¶38 Affirmed in part, reversed in part, and remanded to the District Court for further
proceedings in accordance herewith.
/S/ JIM RICE
We concur:
/S/ MIKE McGRATH
/S/ PATRICIA COTTER
/S/ LAURIE McKINNON
/S/ BRIAN MORRIS
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