SUPREME COURT NO: 20120281
Grand Forks County No: 18-10-C-1761
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
| Carl Michael Hoverson, | |||||||
| Plainti ff and Appellee | |||||||
| and Cross-Appellant, | |||||||
vs. | |||||||
| Sandra Morten Hoverson, | |||||||
| Defendant and Appellant | |||||||
| and Cross-Appeleet, | |||||||
BRIEF OF APPELLEE AND CROSS-APPELLANT CARL MICHAEL HOVERSON
Appeal From Memorandum Decision, Findings of Fact, Conclusions of Law, Order for Judgment and Judgment and Decree of Divorce dated April 30, 2012 and Judgment and Decree of Divorce dated May 1, 2012, by the Grand Forks County District Court, Northeast Central Judicial District, the Honorable Sonja Clapp, presiding
RESPECTFULLY SUBMITTED this 18th day of October, 2012.
| s/ Scott D. Jensen | |||||||||
| SCOTT D. JENSEN, ND ID#04315 | |||||||||
| For: | Camrud, Maddock, Olson & Larson, Ltd. | ||||||||
| 401 DeMers Avenue, Suite 500 | |||||||||
| P.O. Box 5849 | |||||||||
| Grand Forks, ND 58206 5849 | |||||||||
| Phone: | (701) 775-5595 | ||||||||
| Fax: | (701) 772-3743 | ||||||||
| sjensencamrudlaw | |||||||||
| ATTORNEY FOR DEFENDANT/APPELLEE | |||||||||
| AND CROSS-APPELLANT | |||||||||
TABLE OF CONTENTS
Page No., Paragraph No.
| Table of Contents | p. i |
| Table of Authorities | p. ii |
| Statement of the Issues | p. 1 |
| I.The Trial Court erred in awarding Sandra Hoverson 2.8 million | |
| dollars in assets p. 1 | |
| A.The finding that Carl was not guilty of non-economic | |
| fault is not clearly erroneous p. 1 | |
| B.The finding that Carl dissipated assets was erroneous, and the | |
| Court below did take it into account in division of assets p. 1 | |
| C.The Court did not err in using October 31, 2010 and | |
| December 31, 2010 as the valuation dates for the businesses p. 1 | |
| D.The Trial Court did not err in the manner in which it | |
| discounted the value of Hoverson Farms p. 1 | |
| II. | The Court erred in awarding even temporary support in this matter p. 1 |
| III. | The Court erred in awarding additional child support p. 1 |
| IV. | The Court erred in ordering Carl to pay Sandra's attorney's fees p. 1 |
| Standard of Review | ¶ 1 |
| Statement of the Case | ¶ 3 |
| Statement of the Facts | ¶ 5 |
| Law and Argument ¶ 54 | |
| I.The Trial Court Erred in Awarding Sandra Hoverson 2.8 Million | |
| Dollars in Assets ¶ 54 | |
| A.The finding that Carl was not guilty of non-economic | |
| fault is not clearly erroneous ¶ 71 | |
| B.The finding that Carl dissipated assets was erroneous, | |
| and the Court below did take it into account in division | |
| of assets ¶ 73 | |
| C.The Court did not err in using October 31, 2010 and | |
| December 31, 2010 as the valuation dates for | |
| the businesses ¶ 76 | |
| D.The Trial Court did not err in the manner in which it | |
| discounted the value of Hoverson Farms ¶ 78 | |
| II. | The Court erred in awarding even temporary support |
| in this matter ¶ 83 | |
| III. | The Court erred in awarding additional child support ¶ 91 |
| IV. | The Court erred in ordering Carl to pay Sandra's |
| attorney's fees ¶ 97 | |
| Conclusion | ¶ 100 |
TABLE OF AUTHORITIES
| Cases | Paragraph No. |
| Amsbaugh v. Amsbaugh, 2004 ND 11, 673 N.W.2d 601 | 55 |
| Buzick v. Buzick, 542 N.W.2d 756 (N.D. 1996) | 59, 60 |
| Fisher v. Fisher, 1997 ND 176, 568 N.W.2d 728 | 78 |
| Foreng v. Foreng, 509 N.W.2d 38 (N.D. 1993) | 98 |
| Gibb v. Sepe, 2004 ND 227, 690 N.W.2d 230 | 99 |
| Gustafson v. Gustafson, 2008 ND 233, 758 N.W.2d 895 | 87 |
| Halvorson v. Halvorson, 482 N.W.2d 869 (N.D. 1992) | 71 |
| Hanson v. Hanson, 2005 ND 82, 695 N.W.2d 205 | 96 |
| Hiltz v. Hiltz, 2008 ND 58, 746 N.W.2d 732 | 54, 55, 56, 58 |
| Hogue v. Hogue, 1998 ND 26, 574 N.W.2d 579 | 84 |
| Horner v. Horner, 2004 ND 165, 686 N.W.2d 131 | 59 |
| Hunt v. Hunt, 2010 ND 231, 791 N.W.2d 164 | 62 |
| Ingebretson v. Ingebretson, 2005 ND 41, 693 N.W.2d 1 | 84 |
| Interest of D.L.M., 2004 ND 38, 675 N.W.2d 187 | 1 |
| Kaiser v. Kaiser, 555 N.W.2d 585 (N.D. 1986) | 78 |
| Kostelecky v. Kostelecky, 2006 ND 120, 714 N.W.2d 845 | 61, 84 |
| Krueger v. Krueger, 2008 ND 90, 748 N.W.2d 671 | 1 |
| Lill v Lill, 520 N.W.2d 855 (N.D. 1994) | 2, 59, 60 |
| Lucy v. Lucy, 456 N.W.2d 539 (N.D. 1990) | 98 |
| McDowell v. McDowell, 2003 ND 174, 670 N.W.2d 876 | 1 |
| Moilan v. Moilan, 1999 ND 103, 598 N.W.2d 81 | 87 |
| Montgomery v. Montgomery, 481 N.W.2d 234 (N.D. 1992) | 95 |
| Oien v. Oien, 2005 ND 205, 706 N.W.2d 81 | 1 |
| Orgaard v. Orgaard, 1997 ND 34, 559 N.W.2d 546 | 58 |
| Paulson v. Paulson, 2010 ND 100, 783 N.W.2d 262 | 85 |
| Routledge v. Routledge, 377 N.W.2d 542 (N.D. 1985) | 60 |
| Rustand v. Rustand, 379 N.W.2d 806 (N.D. 1986) | 84 |
| Sack v. Sack, 2006 ND 57, 711 N.W.2d 157 | 84 |
| Sauer v. Hayes-Sauer, 493 N.W.2d 216 (N.D. App. 1992) | 60 |
| Schoenwald v. Schoenwald, 1999 ND 93, 593 N.W.2d 350 | 84 |
| Sommers v. Sommers, 2003 ND 77, 660 N.W.2d 586 | 1 |
| Striefel v. Striefel, 2004 ND 210, 689 N.W.2d 415 | 84 |
| Ulsaker v. White, 2006 ND 133, 717 N.W.2d 567 | 58 |
| Vann v. Vann, 2009 ND 118, 767 N.W.2d 855 | 64, 65, 66 |
| Wagner v. Wagner, 2007 ND 33, 728 N.W.2d 318 | 68, 87 |
| Weigel v. Weigel, 2000 ND 16, 604 N.W.2d 462 | 85 |
| Weir v. Weir, 374 N.W.2d 858 (N.D. 1985) | 84 |
| Wold v. Wold, 2008 ND 14, 744 N.W.2d 541 | 87 |
| Rules and Statutes | |
| N.D.C.C. §75-02-04.1-09 | 91 |
STATEMENT OF THE ISSUES
I. The Trial Court erred in awarding Sandra Hoverson 2.8 million
dollars in assets
A. The finding that Carl was not guilty of non-economic fault is
not clearly erroneous
B. The finding that Carl dissipated assets was erroneous, and the
Court below did take it into account in division of assets.
C. The court did not err in using October 31, 2010 and December 31,
2010 as the valuation dates for the businesses.
D. The trial court did not err in the manner in which it discounted the
value of Hoverson Farms.
II. The Court erred in awarding even temporary support in this matter.
III. The Court erred in awarding additional child support.
IV The Court erred in ordering Carl to pay Sandra's attorney's fees.
STANDARD OF REVIEW
[1] We agree that an award of spousal support will not be set aside on appeal unless clearly erroneous. Krueger v. Krueger, 2008 ND 90, ¶7, 748 N.W.2d 671. Valuations of property are only overturned if clearly erroneous. Sommers v. Sommers, 2003 ND 77, ¶8, 660 N.W.2d 586, 590. Child support cases are mixed questions of law and fact. This Court has stated that,
Child support determinations involve varying standards of review depending on the issue appealed. In the Interest of D.L.M., 2004 ND 38, ¶6, 675 N.W.2d 187, this Court applies a de novo standard of review for questions of law, a clearly erroneous standard of review for questions of fact, and an abuse-of-discretion standard of review for discretionary matters.
Oien v. Oien, 2005 ND 205, ¶7, 706 N.W.2d 81, citing McDowell v. McDowell, 2003 ND 174, ¶27, 670 N.W.2d 876.
[2] The issue of whether Sandra should have been awarded her attorney's fees is decided under an abuse of discretion standard. Lill v. Lill, 520 N.W.2d 855 (N.D.,1994).
STATEMENT OF THE CASE
[3] This is a divorce action tried to Judge Clapp on December 6, 7, 8 and 15 of 2011. (App. 37.) The main issue was this. After approximately a six year marriage punctuated by extensive absences of Sandra, where the parties kept their assets basically separate throughout the marriage, and where Sandra Hoverson did not contribute to the production of additional assets or maintain a family home due to her absences, is Sandra Hoverson entitled to a substantial portion of the assets earned and accumulated by Carl Hoverson over the course of his lifetime? Furthermore, after this short-term marriage, should Sandra Hoverson be entitled to substantial spousal support from Carl Hoverson?
[4] Carl contends in this appeal that Sandra was given too large a portion of the assets and was not entitled to spousal support. He contends that Sandra was given the resources to pay her own attorney's fees and that no increase above the presumptive level of child support should have been awarded.
STATEMENT OF THE FACTS
[5] This action was commenced by Summons and Complaint dated August 10, 2010. (App. 9-14.) A previous divorce action was instituted by Summons and Complaint dated January 4, 2010, but dismissed in March of 2010. (Tr. 12/6/11: 81.)
[6] At the time of trial, Carl was 56 years of age. (Tr. 12/6/11: 8.) Carl quit college in the spring of 1975 when his father developed cancer. He returned home and helped on the farm. (Tr. 12/6/11: 9, 13.)
[7] Carl started his own farming operation in 1976. (Tr. 12/6/11: 14.) He raises irrigated potatoes in the Larimore, ND area. (Tr. 12/6/11: 30.) He has a 50% interest in Hoverson Farms. (Tr. 12/6/11: 16-17.) His sons Michael and Casey work for Hoverson Farms, but have their own farming operation, Hoverson Brothers, which Carl is not involved in. (Tr. 12/6/11: 11, 163.) Michael and Casey each have a small ownership interest in the three other land holding businesses owned predominantly by Carl, CMC Farms, CHF Huntsville and CHF Union Lake. (Tr. 12/6/11: 83-84, 86.)
[8] Carl met Sandra in approximately February of 2004. (Tr. 12/6/11: 40.) Carl and Sandra Hoverson were married on May 8, 2004. (Tr. 12/6/11: 41.) They had been together in the same state, either North Dakota or Florida, for a short time, no more than several weeks. (Tr. 12/6/11: 41.)
[9] Sandra was 49 years of age. (Tr. 12/15/11: 6.) She was from North Dakota but had been living in Florida. (Tr. 12/6/11: 39 and 12/15/11: 7.) Sandra had been previously married three times. (App. 52.) She was educated as a radiologic, CT and MRI tech. (Tr. 12/6/11: 56.) Her Social Security Statement of earnings for 2004 showed $31,723 in income for a half a year. In 2003 she made approximately $57,000. (App. 42 and 305; Tr. 12/15/11: 9.)
[10] Carl set up the Hoverson Farms partnership with Ron Offut in 1994. (Tr. 12/6/11: 14-15.) The partnership was 50/50, with neither having a controlling interest. (Tr. 12/6/11: 17. App. 320-330.) Carl put almost all of his money and equipment into the business at the time of its inception. (Tr. 12/6/11: 17.) The business had tough years in both 1997 and 1999. The operation lost several million dollars, due to blight and poor weather. (Tr. 12/6/11: 25-26.) He worked brutally hard in the early years to make the business succeed. (Tr. 12/6/11: 37.) Carl's original salary from Hoverson Farms was $36,000 a year. (Tr. 12/6/11: 20.) In the later years, Carl earned a salary of $60,000. Id.
[11] Carl Hoverson was involved in most of the day to day decisions of Hoverson Farms. (Tr. 12/6/11: 18, 20.) The major decisions, however, were made jointly between Carl and Mr. Offut. (Tr. 12/6/11: 19.) Things like buying land, buying equipment, incurring debt, and disbursing profits were joint decisions. Id.
[12] As shown on trial Exhibit 67 (App. 386), Carl had one year, 1992, where he made $130,200. Other than that, his earnings from 1974 to 2000 were never more than $18,000. Id. The income was reduced in those years because the business expanded and put what otherwise would have been profits into growth of the company. Beginning in 2000, his Medicare taxed earnings (App. 386) were as follows:
2000 $0
2001 $699,183
2002 $812,370
2003 $461,929
2004 $1,518,105
2005 $502,195
2006 $732,207
2007 $1,157,656
2008 $3,188,273
2009 $2,299,539
[13] Following the devastating years towards the end of the 1990's, the business was finally starting to generate some income. (Tr. 12/6/11: 25.) The business also benefited from carry-over losses from the bad years. Very little tax was paid until 2004. The tax returns of Carl, and later Carl and Sandra, reflect the following:
Income Tax Returns, Carl, 2002 to 2003, joint, 2004 to 2010
Year AGI Federal Tax State Tax
2002 (1,273,657) $34,086 0 Exhibit 116 (Docket 206)
2003 (620,747) $29,439 0 Exhibit 117 (Docket 207)
2004 $1,070,618 $350,783 $45,481 Exhibit 118 (Docket 208)
2005 $525,640 $170,000 $22,252 Exhibit 119 (Docket 209)
2006 $814,895 $285,464 $39,744 Exhibit 17 (Docket 130)
2007 $1,193,875 $425,578 $59,914 Exhibit 18 (Docket 131)
2008 $3,405,195 $1,239,882 $179,875 Exhibit 19 (Docket 132)
2009 $2,701,625 $933,036 $118,252 Exhibit 20 (Docket 133)
2010 $1,735,303 $584,693 $72,725 Exhibit 21 (Docket 134)
[14] While there was income in 2002 and 2003, the massive losses from previous years kept the business from having to pay substantial income taxes until 2004. (Dockets 206, 207 and 208.)
[15] When Carl and Sandra had been together for perhaps no more than a few weeks, Sandra wanted to be married. (Tr. 12/6/11: 42.) She looked for rings and requested that the wedding ring cost no less than $25,000. Id. Carl spoke of a prenuptial agreement, but Sandra refused to discuss one. (Tr. 12/6/11: 43.) A couple of days after the wedding, Carl returned to North Dakota. Sandra's net worth at marriage was approximately $140,000. (App. 55.) (See also chart in post-trial brief Docket 100). Carl's net worth was approximately $2,958,677. Id. Sandra's assets were approximately 4.5% of the assets of the two at the time they were married.
[16] Carl at 49 years of age and with five adult children was not expecting to start a new family. (Tr. 12/6/11: 10, 44.) Carl expected that Sandra would be moving to North Dakota to live as a married couple. (Tr. 12/6/11: 47.) It surprised him when she told him that she wasn't "ready" to move to North Dakota. Sandra came to North Dakota for Memorial Day weekend in 2004 and then returned to Florida. (Tr. 12/6/11: 62.) In June, she told Carl she was pregnant. (Tr. 12/6/11: 64.) This too came as quite a surprise to Carl. Id. She had previously told Carl that she felt she was unable to get pregnant. (Tr. 12/6/11: 43.) She quit her job, but stayed in Florida. (Tr. 12/6/11: 56.) Carl went down to get her around June 20th. (Tr. 12/6/11: 63.) Sandra gave Carl one excuse after another, that there was always something else to do in Florida. Id. She clearly didn't want to come back.
[17] For about a month, Sandra stayed with Carl in a rural home owned by her parents. Sandra didn't cook. Her mom would occasionally bring them a meal. (Tr. 12/6/11: 70.) Sandra couldn't stand it in North Dakota and left again. She told Carl that she just wanted out of there. (Tr. 12/6/11: 63.) Sandra tried to stay in North Dakota again from sometime in October until the second week in November, but wanted to leave again. (Tr. 12/6/11: 66.) Carl spent less time at work to try to persuade her to stay. Arguments ensued. Sandra is a very vocal person. Carl didn't know what to do, so he took her back to Florida for several weeks. (Tr. 12/6/11: 72.) Eventually, Carl had to leave to attend to his business in North Dakota. Carl went back down to Florida on approximately January 25 for the expected birth of the baby. (Tr. 12/6/11: 73-74.) Carl stayed there for about two weeks after the birth, but could not get Sandra to return to North Dakota. (Tr. 12/6/11: 76.) Sandra didn't return even to visit until several months later. Id. Carl was not able to be with his new daughter. His work obligations kept him largely in North Dakota. He tried to communicate by phone, but it was not much of a relationship. (Tr. 12/6/11: 77.)
[18] Since that time, Carl and Sandra have not had a typical relationship. Sandra spent most of her time in Florida. (Tr. 12/6/11: 79-80.) She maintained her home there, her driver's license and homestead exemption. (Tr. 12/15/11: 49, 52.) Sandra asked Carl to pay off the mortgage on her house, and he did so. (Tr. 12/6/11: 45.) Carl paid for replacing the major items in her house. (Tr. 12/6/11: 61.) Sandra maintained her own financial accounts and retirement account, vehicle and assets in Florida. Sandra changed the beneficiary of her retirement account to PMH. She did not add Carl. (Tr. 12/15/11: 53.) Sandra deeded her house from her previous married name to Sandra Hoverson. She did not add Carl to that home even when deeding the home in 2008. Id.
[19] Sandra and Carl lived exclusively on Carl's income. Carl provided her with a monthly payment for her spending. (Tr. 12/6/11: 59.) At first it was smaller, but in the later years it was $4,000 a month. (Tr. 12/6/11: 60.) Sandra paid the bills for her Florida home from that amount. (Tr. 12/6/11: 59-60.) Sandra now receives well in excess of that amount between child support ($3,002 per month), temporary spousal support ($3,000 per month) and interest on the cash payments awarded to her (approximately $8,812 per month calculated at 4%) She has the ability to make approximately $5,000 a month working. (App. 80.) She has indicated that she has no intention of working. (See Findings, App. 42).
[20] Carl was subjected to abandonment, verbal abuse and poor treatment over the course of his marriage. The extent of this was detailed in the trial testimony. (See generally, Tr. 12/6/11: 39-82, 100-141; and Docket 167.)
[21] CMC Farms and CHF Huntsville are land holding businesses that started operations in 2009. Carl testified that annually he has had a meeting and transferred ownership of 1% each in CMC Farms, CHF Huntsville and CHF Union Lake (owning only a lake home on Union Lake, see Exhibit 35 [App. 370]) to sons Michael and Casey. (Tr. 12/6/11: 86, 156, 159, 161.) He testified that it is not a gift, and that there are no gift tax returns filed. (Tr. 12/6/11: 157.) He testified that the consideration for the transfers was the work and experience of his sons in running the businesses. (Tr. 12/6/11: 153.) They also have paid rents to use the businesses' farmland above the $100 an acre contracted for. (Tr. 12/6/11: 157.) The excess rents are above market and are paid so that the debts of the companies will cash flow. In light of this consideration, the 1% amounts have been transferred. See, for example, Exhibit 59 (Docket 164). CHF Union Lake has no income and no income tax returns. 1% amounts have also been transferred. See Exhibit 70 (Docket 169). Some of the excess rents are documented, such as those set forth in Exhibit 61 (Supp. App. 14). That document shows that Hoverson Brothers paid in excess of market rate rents as required to cash flow the business debt to Bremer Bank. Id.
[22] Carl testified to the year that Hoverson Farms was having in 2011. He indicated that it would be a breakeven year, or a small profit of $500,000 from which the tax will be paid and the balance split between he and Ronald Offut. The drop in income was due to the yield being down about 120 bags to the acre, as well as a reduced contract price with Simplot. Without crop insurance, the business would have lost money in 2011. (Tr. 12/6/11: 173-174.)
[23] Business valuation testimony was used by both sides. Scott Stinar is a CPA with the firm of Brady Martz. (Tr. 12/7/11: 7.) He valued three of the businesses. (Tr. 12/7/11: 16.) Hoverson Farms sells almost all of its potatoes to J.R. Simplot. An agreement is entered into defining price before the beginning of each crop year. (App. 157; Tr. 12/7/11: 10.) Most of the potatoes are put into storage upon harvest, and trucked to Simplot every hour, 24 hours a day, to keep the plant in operation. Some of the potatoes are dug and hauled to Simplot right from the field. (Tr. 12/7/11: 21.) The prices have been as follows:
Contract year 2010-11 2009-10 2008-9 2007-8 2006-7
Base cwt price-field $6.55 $8.05 $5.80 $5.55 $5.15
Base price stored $6.75 $8.30 $5.80 $5.55 $5.15
(App. 158.)
[24] The 2009-2010 contract price at $8.30 was substantially higher than it had ever been. Combined with decent yields, there was profitability in 2010, but just from the contract price of $6.75 one could tell that the high profitability would not be sustained in 2011. (App. 174.)
[25] The business is a large business, employing 43 full time employees and 177 seasonal and part time employees. (App. 158.) The business has a partnership agreement executed in 1994 between Mr. Offut and Mr. Hoverson, providing for a "Texas shootout" on termination. (Tr. 12/7/11: 25.) This effects the marketability of the 50% owned by Mr. Hoverson. (App. 160.) Mr. Stinar testified that Carl Hoverson's interest was not a controlling interest. (Tr. 12/7/11: 24-25.) While it was not a majority interest, it was not a minority interest, but it was a non-controlling interest because it took both partners to make major decisions about buying assets, incurring major debt, making capital expenditures, distributing profits and other important items. He testified that making the day to day decisions does not indicate the type of "control" that is looked at in doing a business valuation. Id.
[26] Mr. Stinar used an October 31, 2010 valuation date for the business (as did Leonard Sliwoski) as it was the last date for which there were records from which a determination could be made. (App. 150; Tr. 12/7/11: 34.) 2011's financial statements and tax returns would not have been completed until several months past the trial date.
Income Approach
[27] Mr. Stinar used an income approach. Schedule 5 of Exhibit 1 showed the estimated pretax income for the business as follows:
2010 2009 2008 2007 2006
$6,166,545 $5,599,601 $3,963,703 $4,153,763 $3,768,336
(App. 218.)
[28] He weighted each year, with five times the weight being given to 2010 as to 2006, four times the weight being given to 2009, etc. The estimated benefit stream was thus projected to be $5,050,000. (Tr. 12/7/11: 46-47, 53.)
[29] Schedule 6 (App. 219) is Mr. Stinar's evaluation of the risk level in the projected benefit stream. Mr. Stinar determined that an overall capitalization rate of 16.6% was appropriate to use to reflect the risk inherent in Hoverson Farms. Schedule 7 (App. 220) shows his calculation of the value of 100% of Hoverson Farms before discounts. Mr. Stinar determined the value of the entire company, as if a C-Corporation, to be $18,467,404. (App. 220.)
[30] Mr. Stinar determined that there was some value to the owners to potentially avoid dividend tax. He determined that value to be $2,684,726 and added that on to the overall value. (App. 220.) He determined that there was an added value for a build-up in basis of $134,940 and added that on to the value as well. He also added back in the value of the beet stock, less a discount for non-controlling interest of 15%. The total value of the company, pre-discount, was thus $22,248,589. Id. (Tr. 12/7/11: 52.)
Asset approach
[31] Mr. Stinar's evaluation of the company on the asset approach is contained on Schedule 8 of Exhibit 1. (App. 221.) Three of the six potato warehouses, which were fully valued as assets in the land appraisals, were being leased with buyout provisions. They had payments that were owed on them under the leases as well as a pre-determined amount that would need to be paid to buy them out. The amount to be paid, reduced to present value by the interest rates reflected in the leases themselves, was $4,081,315. (App. 221.) Mr. Stinar revised the liabilities of the company to reflect those payments that were owed. (App. 221-222.) The resulting equity under the asset approach was $25,720,383 for the whole company, prior to any discounts. (App. 221-222, 185-187.)
Appropriate discounts
Lack of Control
[32] Mr. Stinar testified that the income approach and the asset approach are treated differently when evaluating appropriate discounts. The income approach, or Capitalized Cash Flow Method, takes into account discount rates and market information on minority interests. No further minority interest discount is needed under this income approach. Id.
[33] Under the asset approach, however, discounts are typically taken for lack of control. (Tr. 12/7/11: 66.) Mr. Stinar testified that median discounts for lack of control under relevant studies had averaged 21%, with the average discount for lack of control in 2010 being 24.2%. (App. 187-188.) Since 2001, median discounts had ranged from 14% to 28%. Mr. Stinar's opinion was that in light of the fact that this was a 50% non-controlling interest, and not a minority interest, that the discount should be at the lower end of the scale of 14-28%. His discount was 15%. (Tr. 12/7/11: 66-68.) This reduced the value of the asset value approach to $21,862.36. (App. 187.)
Lack of Marketability
[34] Pages 39 to 51 (App. 188-200) of Mr. Stinar's report deal with his analysis of the appropriate discount that should be taken for lack of marketability of Hoverson Farms. Numerous studies were cited. The information is summarized on page 50 of his report. (App. 199.) It indicates that marketability discounts for the various restricted stock studies have averaged 29%. The later studies, after 1992, have averaged 21%. (App. 199.) Factors influencing Hoverson Farms specifically were looked at. The business has no real prospect of doing a public offering or planned sale of the company. There is no active trading market. The partnership agreement from 1994 has provisions that become detrimental to a selling partner. However, the company has a high distribution payout ratio, and the 50% interest gives the right to veto unwanted decisions. All of the factors analyzed are set forth on page 50 of the report. Id.
[35] Mr. Stinar concluded that all factors combined mandated a 15% discount for lack of marketability of the 50% interest in Hoverson Farms. (App. 200; Tr. 12/7/11: 72.)
[36] When the discounts were considered, Carl's 50% interest was worth $9,406,000. (Tr. 12/7/11: 73.) With small exception, this was the amount the Court adopted as the value of Hoverson Farms. (The Court did update the value of one asset, the value of beet stock, as it could determine that the value of that stock past the October 31, 2010 valuation date).
[37] Leonard Sliwoski, a professor at MSU-Moorhead, also valued the businesses. Dr. Sliwoski was retained, long before trial. (App. 503; Tr. 12/8/11: 119.) He was given all requested financial information and was granted an interview with Carl Hoverson. (Tr. 12/8/11: 24, 121-122.) He issued reports dated October 21, 2011. New reports were issued for all four on December 2, 2011, one business day prior to trial in this matter. (Tr. 12/8/11: 128.) The monetary valuation of Hoverson Farms varied by millions of dollars between the October 21, 2011 and the December 2, 2011 reports.
[38] Dr. Sliwoski was hired to do only a letter report. (Tr. 12/8/11: 120.) That explains his reports' lack of detail. It does not explain the massive errors. While there could legitimately be differences of opinion between Mr. Stinar and Dr. Sliwoski over things like a capitalization rate or an appropriate level of discount, Dr. Sliwoski's reports were simply and admittedly inaccurately prepared. Unless Carl Hoverson had hired Scott Stinar to do responsive valuations, the numbers submitted to the Court would have been off by millions of dollars.
Valuation of Hoverson Farms
[39] In looking at the October 21 report of Dr. Sliwoski on the asset valuation approach, it was clear that numerous errors had been made. Table 4, the normalized balance sheet on page 4 of Exhibit 94 (Docket 186), Hoverson Farms valuation, lists $27,053,334 as the adjusted value of the fixed assets. That number is incorrect. On page 5 (Docket 186) there is an outline of what that number is comprised of. Under a), the amount of $5,881 is an amount for furniture and fixtures. It is admittedly wrong. See attachment to Exhibit 94 (Docket 186), Hoverson Farms valuation, page E-15, entry 318-752. (Tr. 12/7/11: 79.) He admitted this was wrong. (Tr. 12/8/11: 137-138.)
[40] Also incorrect is the addition of $89,002.76 of warehouse lease improvements. These were contained in the $701,951 of additions for leasehold improvements. See Exhibit 94 (Docket 186), HF valuation, page 5 and also see Exhibit 90 (Docket 182), page 1. These were counted twice by Dr. Sliwoski because they were valued as part of the warehouses in the Les Roos appraisal and also were added back on to the balance sheet by Dr. Sliwoski. This was admittedly wrong. (Tr. 12/7/11: 62-63, 79.)
[41] Also incorrect is the addition of the leasehold improvements of $612,498.73. See Exhibit 90 (Docket 182). (Tr. 12/7/11: 63-64.) This comprises the remainder of the amount of $701,951 of the additions to the balance sheet done by Dr. Sliwoski on page 5 of Exhibit 94. (Docket 186.) As indicated by Scott Stinar, these were projects done on rented land, which Hoverson Farms will not be entitled to when the leases expire. They are "sunk costs". (App. 186.) Dr. Sliwoski's testimony on this was unclear. He seemed to testify that the inclusion of some of them was admittedly mistaken, but didn't seem to have an understanding of how much. (Tr. 12/8/11: 147-148.) There was simply no legitimate basis for adding these things like tree clearing on a tenant's land as an asset on the Hoverson Farms balance sheet. (Tr. 12/7/11: 61.)
[42] There were other more simple mistakes. He simply reiterated mistakes made on the appraisals of Les Roos ($51,000) and/or Jeff Berg ($76,500 for an old pickup listed at $85,000 rather than $8,500) and used the older numbers before the correction. (Tr. 12/7/11: 57.)
[43] The biggest mistake on the asset valuation was simply not including the debt on the leased warehouses. This amounted to a $4,081,000 mistake in valuation on his October 21 report. (Tr. 12/7/11: 77; 12/8/11: 136.) The information was all provided to him. The warehouses were clearly listed as leased. There was no complicated math here.
[44] Dr. Sliwoski also made mistakes, some admitted, some not, in the income valuation. (These are extensively outlined in our post-trial brief). Dr. Sliwoski admitted that some mistakes were made. When calculating net income, he included Carl's income and the amount he "assumed" should be Carl's income twice, doubling up on Carl's actual income. (Tr. 12/8/11: 159.) See chart on page 7, Exhibit 94 (Docket 186), HF appraisal. Of course, his actual debt levels were off by at least the $4,081,000.
[45] Some of the errors were corrected in the December 2 report and some were not. In the December 2 report, Dr. Sliwoski still didn't get the lease payment right, but he was a lot closer. (App. 506.) He was almost $4,000,000 closer to the right number but still $100,000 in error. He attempted to correct this number by having us write on the exhibits at trial but came up with a third incorrect number. (Tr. 12/8/11: 151.) He admitted that part of the error may have come from a transposition error on the December 2, 2011 report when on the lease purchase option he had entered the payment due as $248,124 instead of $428,124. (Tr. 12/8/11: 151-152.)
[46] In his December 2 report, he still doubled up on the furniture and fixtures, but this time had a new number and worse number, $9,820. (App. 507.) Where this number came from is unknown, but at trial he indicated it was wrong and could simply be eliminated. (Tr. 12/8/11: 139.) He listed $650,759 as the estimated value of leasehold improvements. (App. 507.) Again, where this number came from is unknown, but yet again he admitted it was wrong even in the second report, and that it should have been reduced to $560,003. (Tr. 12/8/11: 145.)
[47] He corrected the amount of $76,500 over the pickup. (App. 508.) He still made errors in listing the salary of Carl, doubling up his payments for the 2010 year. See Exhibit 147, chart, guaranteed payment expense, page 10 (App. 512).
[48] When all was said and done, it was basically Dr. Sliwoski's position that most of the difference between his value and Scott Stinar's value was in the discounts (and leasehold improvements). We noted the following:
[49] 1. Dr. Sliwoski came up with his discounts at a time when he believed
the debt of the company to be $4,081,000 lower than it really was. He didn't revise his discounts at all when he realized he had made these substantial errors.
[50] 2. Dr. Sliwoski indicated that Carl had a controlling interest in the
business by virtue of his management role (Tr. 12/8/11: 162-163), when that clearly is not the control that should be looked at. Dr. Sliwoski was misinformed or made incorrect assumptions about the level of control of Carl over Hoverson Farms. Ronald Offut plays a very active role in all important decisions.
[51] 3. Dr. Sliwoski relied on no authority for his determination of discounts
specific to a 50% interest. Scott Stinar cited several. One of the Treatises indicated that discounts in the range of 15% were indicated for 50% interests, stating that "However, 50% interests sometimes are discounted at about 15% from control value to reflect lack of control." See Exhibit 97 (Supp. App. 15), Treatise, Business Valuations, Discounts & Premiums, Shannon Pratt, 2001. The other treatise states with regard to a 50% interest that, "Clearly in both of these examples, some discount for lack of control should be considered." See Exhibit 98 (Supp. App. 16), Treatise, PPC's Guide to Business Valuations, Volume 1, 21st Ed., 2011, at page 8-18, section 803.15. Dr. Sliwoski failed to consider an appropriate discount. (Tr. 12/7/11: 69.)
Valuation of CHF Huntsville and CMC Farms
[52] Both Scott Stinar and Leonard Sliwoski also performed valuations of CHF Huntsville and CMC Farms. The differences were that Stinar valued the percentages owned by Carl at the time of the valuation dates and Dr. Sliwoski valued 100%. (Tr. 12/8/11: 191.) Dr. Sliwoski also reduced the values of the businesses by amounts of disbursements received by Carl and Sandra, thinking that the disbursements were inappropriate. (Tr. 12/8/11: 194-199.) That was proven to be incorrect at trial, the Trial Court disregarded that information, and it is not being appealed here.
[53] This case proceeded to trial after an interim order was entered in the spring of 2011. In her request for an interim order, Sandra sought exclusive use of both homes, shared use of the lake home, guideline child support, $65,000 a month in spousal support, attorneys fees of $25,000, both vehicles, two UND hockey tickets and one parking pass. She also asked that Carl pay most of her day to day expenses. (Supp. App.1-2.)
LAW AND ARGUMENT
I. The Trial Court Erred In Awarding Sandra Hoverson 2.8 Million Dollars In Assets
[54] A trial court must start with the presumption that all property held by either party whether jointly or individually is to be considered marital property. Hitz v. Hitz, 2008 ND 58, 746 N.W.2d 732. The trial court must then determine the total value of the marital estate in order to make an equitable division of property. Id. After a fair evaluation of the property is made, the entire marital estate must then be equitably divided. Id.
[55] A property division need not be equal to be equitable in a divorce action, but a substantial disparity must be explained. Id., Amsbaugh v. Amsbaugh, 2004 ND 11, §23, 673 N.W. 2d 601. In general, a lengthy marriage supports an equal division of marital assets. While there is no bright line division to determine whether a marriage should be deemed short or long term for purposes of marital property division, Id., the North Dakota cases give us some parameters to suggest that the Hoversons' marriage is a short-term marriage.
[56] The Hitz case was a marriage in June of 1994, with a divorce beginning in 2005 and ultimately concluding in a judgment in May of 2007. The trial court had awarded the parties 62% and 38% of the marital assets, basically the same percentages that they had brought into the marriage. The Court found that "Hitz and Konzak were married for over ten years, during which time they had no children and kept their finances relatively separate. Based upon the length of their marriage and the nature of their relationship, it would not be clear error to class the marriage as relatively short-term". 2008 ND 58 at ¶16.
[57] The Court measured the period of time from marriage until the suit for divorce commenced, which was over ten years, and found that that could be termed a short-term marriage. Here, the parties were married for only over six years, kept their finances separate and also kept their lives and living arrangements predominantly separate, against the wishes of Carl.
[58] In Orgaard v. Orgaard, 1997 ND 34, ¶11, 559 N.W.2d 546 the Court found that an 11 year marriage was relatively short lived. This was again measured from the time of marriage to the time of the start of suit, as cited in Hitz. In Ulsaker v. White, 2006 ND 133, ¶14, 717 N.W.2d 567 the Court found that a 16 year marriage was a long-term marriage.
[59] The Hoversons, married from 2004 to 2010, clearly had a short-term marriage. As stated in Horner v. Horner, 2004 ND 165, ¶12, 686 N.W.2d 131, a Court may unequally divide property in a short-term marriage and award the parties what each brought into the marriage, citing Buzick v. Buzick, 542 N.W.2d 756, 759 (ND 1996); and Lill v. Lill, 520 N.W.2d 855, 857 (ND 1994).
[60] In Buzick, the Trial Court gave the parties what they came into the marriage with, before looking at dividing the other assets. 542 N.W.2d 756. The Trial Court's decision was affirmed. In Lill v. Lill, the Court stated that "In a short-term marriage, it is entirely proper to award property that restores the parties to their premarital status, should the circumstances warrant". 520 N.W.2d at 857 (citing Routledge v. Routledge, 377 N.W.2d 542 (ND 1985) and Sauer v. Hayes-Sauer, 493 N.W.2d 216 (ND App. 1992)). The Court also stated that "here, however, because of the short duration of the marriage, the marital estate was divided to return the parties to their economic status before the marriage". 520 N.W.2d at 858. The division of property portion of the judgment was affirmed.
[61] Kostelecky v. Kostelecky, 2006 ND 120, 714 N.W.2d 845, was a marriage of seven years. This, of course, was found to be a short-term marriage. Id. at ¶5. In Kostelecky, the trial court awarded one party approximately $700,000 in net assets and the other approximately $156,000. An award of spousal support of $90,000 was also made from the party getting most of the assets to the other. Because proper reasons weren't set forth for the spousal support award, the division and spousal support award were remanded for further decision.
[62] The Court in Hunt v. Hunt, 2010 ND 231, 791 N.W.2d 164 was looking at a short-term marriage. (The parties were married in 1999 and the action was started in 2008). Id. at ¶2. Noted by the Supreme Court was that "The district court also heard testimony regarding the sporadic nine-year marriage, including the fact they each maintained separate residences". Id. at ¶11. The Court approved of an award (citing previous short-term marriage case law of a marriage of ten years) of a three to one split of the increase in retirement accounts, the one asset the parties did not agree on.
[63] In our case, the separate residences are a factor. The separate finances are a factor. The conduct of Sandra was a factor.
[64] In Vann v. Vann, 2009 ND 118, 767 N.W.2d 855, the Court was ruling on a request to reopen a divorce settlement. The husband claimed that the settlement was one-sided because it left him with far less than what he brought into the marriage, gave him only 7.5% of the net marital estate, and imposed a severe hardship on him after a seven year marriage. Id. at ¶21.
[65] The Court upheld the division set forth in the agreement, stating that the parties were married for approximately seven years and were separated for part of that time. Id. at ¶21. While the Vann's had no children, a similarity is that one party brought $2.5 million dollars into the marriage, while the husband brought less than $400,000 into it. He brought in only 12 percent of the assets and "quit his $80,000 a year job when the parties married, has significant skills, and likely has the ability to acquire future employment." Id. The Court cited the testimony below, stating that "James Vann admitted that, with the exception of his father's house, the parties lived off Gretchen Vann's assets during their seven year marriage". Id. at ¶23. Again, the facts are similar here. Sandra quit her job and the parties lived solely off of Carl's assets with the exception of the Florida home, on which Carl paid the mortgage and the expenses. The extra value of the marital estate from 2004 to 2011 came either from the increased value of Carl's assets or his efforts, both before the marriage and after the marriage. None of the increased value of Carl and Sandra's marital estate is due to the efforts of Sandra. She did not stay at home and she did not work at the business. As the Court below found, "Sandra has not been involved in the development or growth of Carl's farming operations." (App. at 71.)
[66] The Trial Court in Vann, despite the fact that it was just reviewing a requested vacation of the judgment, found the division "fair and reasonable based on the facts of the marriage". Id. at ¶27. The case was affirmed.
[67] The facts showed in this case that the Hoversons maintained separate residences, separate assets, and lived largely separate lives. Carl Hoverson brought the lion's share of the assets into this marriage. The parties lived almost exclusively on his assets and Sandra quit her job. The marriage was of short duration, with long periods of separation. Carl stayed in the marriage as long as he did only for the sake of his daughter. Sandra should have been given the assets that she came into the marriage with. Even if the Court had given Sandra the same percentage of assets that she came into the marriage with, about 4.5%, that would have given her approximately $450,000 in payments from Carl (or other assets) in addition to the approximately $188,000 that her separate assets are now worth . That result would have Carl paying for everything the parties spent during six plus years of marriage, plus paying her mortgage, plus paying her another $450,000.
[68] The trial Court in this matter made extremely specific findings as to the Ruff Fischer guidelines. The Court found that "the parties were apart about half of their married years". (App. 43.) She found it to be "essentially a six (6) plus year marriage". (App. 44.) She found that, unlike Wagner v. Wagner, 2007 ND 33, 728 N.W.2d 318, "Sandra did not significantly contribute to the marriage during her many absences". (App. 45.) She found it to be a short term marriage. Id. The parties testified to different reasons for Sandra's long absences from North Dakota. Sandra claimed that circumstances required her presence in Florida. Judge Clapp found that, "It appears to this court that Sandra did not want to live in North Dakota." (App. 47.) She found that, "Sandra lived in Florida with PMH for significant periods of time against Carl's wishes." (App. 71.) Carl testified to an affair that began after he served Sandra with the first divorce action. The Court found that this "contributed to the decline of the marriage, but that it was just one of several causes related to the failure of this marriage". (App. 49.) She found that prior to marriage, Sandra was living on $5,000 per month. (App. 54.) It found her reasonable monthly expenses to be approximately $8,000. (App. 78.) On asset valuation issues, she found, "This court finds Stinar's valuation of Hoverson Farms to be more credible for numerous reasons." (App. 64.) She found that Carl does not have a controlling interest in Hoverson Farms.
[69] The trial Court's findings were extremely specific. But the Court erred when it made its eventual ruling splitting the Hoversons' assets. The Court ruled that Carl had built up his business over 36 years. The Court found that the marriage was approximately 7 years in duration. (App. 74.) During 7/36 of the time Carl spent accumulating assets he was married to Sandra, or 19.4%. The Court then used this as a basis for awarding Sandra 19.4 percent of the business assets.
[70] The method of determining how much to award Sandra in this fashion may arguably be an acceptable method, in that it recognizes the length of the marriage and the years of effort that were required. However, the logic only supports awarding Sandra one-half of 19.4% of the assets. If Carl and Sandra had been married (and together) the whole 36 years, logic would tell us that Sandra may be entitled to half of 100%, not the full 100%. The Court's logic does not justify an award to Sandra of 19.4% of the business assets. The award of 2.6 million dollars in business assets should be cut in half. Certainly this Court should not award Sandra more than awarded by the Trial Court as suggested in Sandra's appeal.
A. The finding that Carl was not guilty of non-economic
fault is not clearly erroneous.
[71] Sandra argues in her appeal that Carl must be considered guilty of non-economic fault. A trial court's determination of economic or non-economic fault is a finding of fact that should not be set aside unless it is clearly erroneous. Halvorson v. Halvorson, 482 N.W.2d 869, 871 (N.D. 1992).
[72] The Court below performed a careful analysis of the conduct of the parties, which begins on page 10 of the Court's decision. The Court found the conduct to be "greatly contested". (App. 46.) Disagreements included whether they would have children, why they were separated for substantial periods of time, Sandra's use of alcohol and other factors. The Court specifically found that Sandra did not begin living in North Dakota on a regular basis until after Carl sued her for divorce. (App. 47.) There was disputed testimony about whether the parties continued any type of a sexual relationship after 2006, with Carl indicating that they did not. Carl admitted to having an affair beginning after the initial divorce proceeding was started in 2010. Id. The Court found that there was no evidence of any other affair. (App. 49.) The Court indicated that while the affair after the first proceeding was started contributed to the decline of the marriage, it was just one of several causes for the failure of the marriage. Id. The Court found that both parties were at fault for the breakdown of the marriage and that neither committed marital fault. This finding is entirely consistent with the facts and entirely consistent with North Dakota law. The marriage was in all practical sense over by January of 2010. It was likely doomed from its inception when Sandra did not return from Florida and the two did not live as a couple.
B. The finding that Carl dissipated assets was erroneous,
and the Court below did take it into account in division
of assets.
[73] The District Court found that Carl dissipated marital assets when he annually gave two of his five children a 1% interest in the three land holding businesses. Carl felt that those transfers were made for consideration. He testified to the fact that they paid extra rents for agricultural land, over market rate and over the amounts in the leases. He testified that they helped manage and run the businesses and that their services were worth some type of compensation. (Tr. 12/6/11: 153, 157.)
[74] Judge Clapp disagreed, finding that the transfers were without consideration. We disagree with that finding and assert that it is contrary to the evidence submitted. Furthermore, we disagree with the assertion by Sandra that the Court didn't take this into consideration when determining the division of assets. The trial court below clearly took the finding into account. The trial Judge valued the assets as if the transfers had never been made, and gave Sandra her purported share of the transferred percentages. (App. 66.) Six percent of Scott Stinar's valuation was added to CHF Huntsville to determine its value. (App. 66.) Four percent was added to CMC Farms. (App. 68.) CHF Union Lake was valued by Judge Clapp as if Carl owned the whole thing. Id.
[75] The trial judge awarded Sandra her "share" of the transferred assets, thus penalizing Carl financially by dividing an asset the couple did not own.
C. The court did not err in using October 31, 2010 and
December 31, 2010 as the valuation dates for the
businesses.
[76] The trial in this matter was originally set to be heard in August of 2011. (Docket 24). Sandra requested a continuance on the grounds that the substantial appraisals of Jeff Berg and her expert Leonard Sliwoski could not be completed in time for trial. Carl objected to the continuance. The trial court ruled that the continuance would be granted until December of 2011, but that further discovery would not be mandated to update the financial information unless Sandra made a further motion to the Court. (Supp. App. 3-10, generally.) The real estate appraisals, at significant cost, had been completed. The financial documents for numerous years had already been provided. New numbers for the years ending October 31, 2011 and December 31, 2011 would not be available until early 2012, and incomplete information would have been more speculative. The trial court indicated that Sandra could make a motion to the Court if they wanted the issue considered further. (Supp. App. 9.) She did not do so. At trial, the judge allowed the value of beet stock owned by Hoverson Farms to be updated, to the benefit of Sandra, as it could be determined without starting over on valuations. (App. 65.)
[77] Using the business year ends as the valuation date was a logical decision. Furthermore, it had little practical effect to do so. 2011 was not expected to be a profitable year for Hoverson Farms due to price reduction on potatoes and decreased yields. Sandra was given an opportunity to move to change the valuation dates. No motion was made. No reversible error was committed. Hoverson Farms was valued based on an income stream expectation of over $5,050,000 for 2011 and subsequent years, and by the time of trial it was infinitely clear that the income would be one tenth of that or less. (Tr. 12/6/11: 173-174.) That would only have had the effect of driving the value of Hoverson Farms down, at least on the income method.
D. The trial court did not err in the manner in which it
discounted the value of Hoverson Farms.
[78] In this case, both of the experts concluded that discounts were appropriate. Sandra cites Fisher v. Fisher, 1997 ND 176, 568 N.W.2d 728 for the proposition that a discount was not appropriate. Fisher is a case where the HUSBAND AND WIFE were the majority and minority owners. Here, Ronald Offut is an equal partner in Hoverson Farms. In the world of business and in simple common sense, a buyer will not pay as much for a business when he doesn't have control. Scott Stinar cited numerous learned treatises and authorities for the proposition that a discount should be taken in a 50-50 lack of control situation. (App. 187-188.) Leonard Sliwoski cited nothing for his contention that a discount should not be applied. This court has ruled that discounts can be appropriate in family held corporations on divorce. Kaiser v. Kaiser, 555 N.W. 2d 585, 587 (ND 1986).
[79] Each of the cases that is cited by Sandra depends on its own facts and circumstances. Here Dr. Sliwoski thought a 10% discount for marketability was appropriate and Scott Stinar thought 15% was appropriate. The trial judge evaluated the strength of the testimony and their demeanor. She agreed with Stinar. She found that "Carl does not have a controlling interest in Hoverson Farms and the Partnership Agreement has restrictions on transferability. These factors affect the liquidity and marketability of Hoverson Farms and support the 15% marketability discount". (App. 60.) She also agreed with the lack of control discount. She specifically found that "Sliwoski does not analyze the lack of control factor in his report". Id. The Court cited with approval from Stinar's report indicating that "He applied 15 percent lack of control discount to the "Asset Based Approach" method, but not to the "Income Approach", as the income method does not require a lack of control discount. Stinar states that the median discounts due to lack of control fall between 14 to 28 percent. Based upon Carl's 50 percent interest, the lack of control should fall at the low end or 15 percent." Citation omitted, (App. 63.)
[80] Two things contained in Appellant's brief require specific response. One is that Appellant in her brief asserts that when Carl divorced his first wife that his net worth in 2000 was only slightly above a half a million dollars. This may be true, but it is due to the devastating years in the potato business in 2007 and 2009. Carl had successful years from 2000 to 2003 as shown in the financial records and tax returns. It is not inconsistent that his net worth was up to three million dollars by the time of his second marriage.
[81] The second is that numerous references are made to a 27% discount. It should be noted that while there was a 27% discount from the asset based method, there was only a 15% discount on the income based method. Scott Stinar weighted the two approaches 30% to assets and 70% to the income method. (Tr. 12/7/11: 73.) It is incorrect to state that he took a 27% discount on the total valuation.
[82] The Court here extensively evaluated the valuations, discounts and testimony. It chose from between different methods. Based on the difference in quality of work done in the reports, it was not surprising that the Court agreed with Mr. Stinar on the discounts.
II. The Court Erred In Awarding Even Temporary Support In This
Matter.
[83] North Dakota allows for both permanent spousal support and rehabilitative spousal support. The North Dakota Supreme Court recognizes permanent spousal support and rehabilitative spousal support as two distinct remedies.
[84] A comprehensive analysis of the Ruff-Fischer guidelines is important when determining spousal support. Sack v. Sack, 2006 ND 57, 711 N.W.2d 157. Neither is particularly appropriate in the context of this short term marriage. As stated in Kostelecky v. Kostelecky, 2006 ND 120, 714 N.W.2d 845. [¶ 14] Property division and spousal support are interrelated and intertwined and often must be considered together. Striefel v. Striefel, 2004 ND 210
[¶ 15] A majority of this Court recently eliminated the requirement for a district court to make a specific finding of a "disadvantaged spouse" before awarding spousal support. Sack v. Sack, 2006 ND 57, ¶ 12, 711 N.W.2d 157; but see Id. at ¶¶ 19-34 (Sandstrom, J., dissenting). The majority in Sack nevertheless explicitly emphasized, "[W]e elect to dispose of the 'disadvantaged spouse' doctrine and reemphasize the importance of a comprehensive analysis under the Ruff-Fischer guidelines when determining the appropriateness of rehabilitative spousal support. In doing so, we do not retreat from the reasons and rationale for rehabilitative support." Id. at ¶ 12.
* * *
Rehabilitative spousal support is awarded to equalize the burdens of divorce or to restore an economically disadvantaged spouse to independent status, by providing an opportunity for a disadvantaged spouse to seek education, training, or experience that will enable the spouse to become self-supporting. Striefel, 2004 ND 210, ¶ 16, 689 N.W.2d 415; Rustand v. Rustand, 379 N.W.2d 806, 807 (N.D.1986). * * *
[¶ 19] However, unlike the district courts in Weir and Hanson, the district court here found the parties' marriage was short-term. Moreover, both parties have ongoing potentially income-generating businesses, and assets exist for distribution. The district court's award of spousal support appears to be more in the nature of property distribution rather than a determination of the need for rehabilitative support. However, this Court will not speculate on the district court's rationale in awarding spousal support. We conclude the district court's spousal support award to recognize and reward Barrett's contributions to the marriage is not sufficient for us to understand the basis for the district court's spousal support award under the Ruff-Fischer guidelines. We therefore reverse and remand to the district court for further explanation of its spousal support award.
Kostelecky, 2006 ND 120 at ¶¶14, 15, 19.
[85] Prior decisions in North Dakota indicate that just because a marriage is short term, spousal support is not always contraindicated. But there has to be some reason for it under the Ruff-Fischer guidelines. Paulson v. Paulson, 2010 ND 100, ¶10, 783 N.W.2d 262 (citing Weigel v. Weigel, 2000 ND 16, ¶16, 604 N.W2d 462).
[86] Here, Sandra stayed out of the workforce while PMH was in school. But she did not do so to "maintain a marital residence and act as a homemaker" as has been referenced in previous ND decisions. She did so largely in the State of Florida. Any opportunities she has missed have been few. She is still licensed in her field and capable of working in either North Dakota or in Florida. The Court found she was capable of working. (App. 42.) She has a history of making in excess of $60,000 per year. Id. This, with her other payments, is more than her need, as a realistic budget for her indicates. She was given over $3,000 per month in child support. (App. 108.) She is capable of supporting herself on the income that she could make and the support that she will be given.
[87] When determining spousal support, the trial court must consider both the supporting spouse's needs and ability to pay and the receiving spouse's income and needs. Gustafson v. Gustafson, 2008 ND 233, ¶6, 758 N.W.2d 895. The court does not need to determine whether a spouse is disadvantaged by the divorce to award spousal support to that spouse. Wold v. Wold, 2008 ND 14, ¶13, 744 N.W.2d 541. The trial court may award permanent or rehabilitative spousal support. "Rehabilitative spousal support is awarded to equalize the burdens of divorce or to restore an economically disadvantaged spouse to independent status by providing a disadvantaged spouse an opportunity to acquire an education, training, work skills, or experience to become self-supporting." Wagner v. Wagner, 2007 ND 33, ¶8, 728 N.W.2d 318. "Rehabilitative support is appropriate when one spouse has bypassed opportunities or lost advantages as a consequence of the marriage or when one spouse has contributed during the marriage to the other's increased earning capacity or moved to further the other's career." Moilan v. Moilan, 1999 ND 103, ¶11, 598 N.W.2d 81.
[88] The Court here found that, "because of Sandra's significant absences during the first approximately 6 years of their marriage, she was not able to significantly contribute to the marital household or assist Carl in building his career. " (App. 77.)
[89] The Court determined that Sandra had a realistic budget of $8,000 per month. (App. 78.) The Court awarded her $3,000 per month in child support and $3,000 per month in spousal support but failed to consider the more than $8,800 per month she is making or can make on the 2.6 million dollars she was awarded in payments. Carl is paying her 4%. One payment has already been made, but presumably she can make a comparable amount on that cash payment that has been received. The Court did not mention or discuss that income source at all in awarding temporary support. The award of temporary support should be reversed.
[90] Here, Sandra has the ability to make as much money now as she did before this marriage. She had been receiving support for a year and a half while PMH had been in school, but had shown no inclination to find employment. She cannot show that she requires spousal support based on need. Spousal support payments, permanent or rehabilitative, under these circumstances are inappropriate.
III. The Court Erred In Awarding Additional Child Support.
[91] The presumptive level of child support for someone with Carl's income is $2,102 per month, the top of the child support guidelines for one child. There has been no showing that would warrant increased child support under the North Dakota child support guidelines. Inquiry into whether there should be additional child support paid is evaluated under N.D.C.C. §75-02-04.1-09(2):
The presumption that the amount of child support that would result from the application of this chapter, except for this subsection, is the correct amount of child support is rebutted only if a preponderance of the evidence establishes that a deviation from the guidelines is in the best interest of the supported children, and
* * * * *
b. The increased ability of an obligor, with a monthly net income which exceeds twelve thousand five hundred dollars, to provide child support.
N.D.C.C. §75-02-04.1-09(2)(b).
[92] Here there has been testimony that Carl's net income is in excess of $12,500 per month net, and at least at present it is substantially in excess of that. (App. 80.) But there has been no testimony to show that a deviation from the child support guidelines would be in the best interests of PMH. Carl will not have his child wanting for things in her life, and this issue can always be re-evaluated down the road. But in this trial there was no showing of a need for deviation from the child support guidelines, or that such a deviation would be in the best interest of PMH.
[93] The Court's judgment determined that, "Sandra did not present any specific evidence of the child's appropriate needs, nor did she propose an amount for the upward deviation." (App. 80.). The Court found that if Sandra returns to work, she should be able to earn about $5,000 per month. Id.
[94] In evaluating the issue of Sandra's need, again the Court failed to consider the interest income available on 2.6 million dollars. The Court found a shortfall of $900 when in reality Sandra will have an excess of approximately $8,000 per month.
[95] In Montgomery v. Montgomery, 481 N.W.2d 234 (N.D. 1992) the former husband was a staff physician for a Fargo clinic. The former wife had completed training as a dental hygienist and worked part time. The trial court found that the former husband's monthly net income was $14,000 and former wife's income was $758.22 while the reasonable monthly expenses of the wife and children were $4,368. The Court set the child support obligation of the former husband at $3,500 per month. Id. at 236. This was done basically to cover her need. The former wife had a shortfall.
[96] This Court in Hanson v. Hanson, 2005 ND 82, 695 N.W.2d 205 also considered the issue of an obligor who makes more than the upper limit of the child support guideline chart. In Hanson, the former husband's net income was over $18,000 per month. The Child Support Guidelines prescribed $3,543 as the presumptively correct amount for two children for an obligor who made $12,500 or more per month, which was then also the highest enumerated bracket. The district court departed upward from $3,543 to $4,400, a difference of $857. The Court stated that, "The Guidelines allow a district court to depart upward from the presumptively correct child support amount in cases that involve an obligor that earns more than $12,500 per month." Id. at ¶29. The Court cited the language from the Guideline and then stated that,
Hanson argues the district court was clearly erroneous in deviating from the $3,543 instead of $3,050. The district court was aware that Hanson had two children living at home, but it failed to incorporate the two sections of the Child Support Guidelines that would have adjusted Hanson's presumptively correct obligation downward. The district court did not err by departing upward, because Hanson's monthly net income was greater than $12,500, but it did err in calculating the presumptively correct amount from which to depart.
Id. at ¶30. The Hanson case was remanded to consider the effect of the two children living with the obligor. Here, Sandra has income well in excess of her $8,000 in need. There is no need for increased child support.
IV. The Court Erred In Ordering Carl To Pay Sandra's Attorney's
Fees.
[97] Carl paid $25,000 to Sandra at the time of the Interim Order hearing in this matter, to pay for her attorney's fees. He has paid his own counsel. He paid for all of the appraisals that were used in this matter, including the appraisals on the home in Larimore, the lake home, the Florida home, the Les Roos agricultural land appraisal, and the Jeff Berg equipment appraisal. (App. 97.) The only expert he did not pay for was Leonard Sliwoski, and the trial Court below made it infinitely clear that he should not have had to pay for that work. Id.
[98] The principal standards guiding an award of attorney fees in a divorce action are one spouse's need and the other's ability to pay. Foreng v. Foreng, 509 N.W.2d 38, 41 (N.D.1993). The court should consider the property owned by each party, their relative incomes, whether property is liquid or fixed assets, and whether the action of either party has unreasonably increased the time spent on the case. Lucy v. Lucy, 456 N.W.2d 539, 544 (N.D.1990). An award of attorney fees should not be overturned unless the trial court abused its discretion. Foreng, 509 N.W.2d at 41.
[99] Here, Sandra was awarded close to $3,000,000 in property and deferred payments. (App. 113.) She has already received the first payment of over a half a million dollars and has another payment due on December 31, 2012. Id. She does not have the need to have Carl pay for her attorney, at least in addition to the $25,000 that has previously been paid. In addition, Sandra offered no evidence in this case as to what the amount of her attorney's fees was. The Courts have disallowed attorney's fees in circumstances where a party has offered no evidence of the amount that remains unpaid. See, Gibb v. Sepe, 2004 ND 227, 690 N.W.2d 230. This Court should find an abuse of discretion in awarding Sandra Hoverson fees, sight unseen, in this action in light of her substantial property award. Further attorneys fees should be paid by each party.
CONCLUSION
[100] This Court should affirm on the issues raised by Sandra, and should at minimum reduce the award of assets to Sandra from 19.4% to half of that in accordance with the rationale of the trial court. Furthermore, since the trial court failed to consider income that Sandra is making or will be able to make from the cash payments in this matter, she is not in need of additional child support or spousal support. Further, Sandra has sufficient assets to pay her own attorneys' fees in this divorce.
CERTIFICATE OF COMPLIANCE
[101] The undersigned certifies the above brief is in compliance with N.D.R.App.P. 32(a) and was prepared with proportional type face and that the total number of words in the above brief, excluding words in the Table of Contents, Table of Authorities, signature block, Certificate of Service and Certificate of Compliance totals 10,449.
Dated this 18th day of October, 2012.
| /s/ Scott D. Jensen | ||||||
| SCOTT D. JENSEN, ND ID #04315 | ||||||
| For: | Camrud, Maddock, Olson & Larson, Ltd. | |||||
| 401 DeMers Avenue, Suite 500 | ||||||
| P.O. Box 5849 | ||||||
| Grand Forks, ND 58206-5849 | ||||||
| Phone:(701) 775-5595 | ||||||
| ATTORN EYS FOR APPELLEE AND | ||||||
| CROSS APPELLANT | ||||||