IN THE SUPREME COURT OF THE
STATE OF NORTH DAKOTA
| Carl Michael Hoverson, | ||||||||
| Plaintiff, Appellee | ||||||||
| and Cross-Appellant, | APPELLANT'S BRIEF | |||||||
| vs. | Supreme Court File No. 20120281 | |||||||
| Sandra Morten Hoverson, | ||||||||
Defendant, Appellant
and Cross-Appellee.
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
| Robert J. Schultz, ND ID #04535 |
| Conmy Feste Ltd. |
| 406 Main Avenue, Suite 200 |
| P.O. Box 2686 |
| Fargo, North Dakota 58108-2686 |
| Telephone: (701) 293-9911 |
| Facsimile: (701) 293-3133 |
| ATTORNEYS FOR DEFENDANT/APPELLANT/CROSS-APPELLEE |
| TABLE OF CONTENTS | ||||||
| PAGE | ||||||
| STATEMENT OF THE ISSUES | 1 | |||||
| PARAGRAPH | ||||||
| STANDARD OF REVIEW | 1 | |||||
| STATEMENT OF THE CASE | 4 | |||||
| STATEMENT OF THE FACTS | 5 | |||||
| LAW AND ARGUMENT | 15 | |||||
| I. | The District Court's Spousal Support Award | |||||
| is Clearly Erroneous? | 15 | |||||
| A. | The Duration of Spousal Support Awarded is Clearly Erroneous | 21 | ||||
| B. | The Amount of Spousal Support Awarded | |||||
| is Clearly Erroneous | 24 | |||||
| i. | The Trial Court's Conclusion that the | |||||
| Substantial Disparity in Income has been | ||||||
| Adjusted by the Property Division | ||||||
| is Contrary to Law | 29 | |||||
| II. | The District Court's Property Division is Clearly Erroneous | 35 | ||||
| A. | The District Court's Conclusion that Carl was not | |||||
| Culpable of Non-Economic Fault is Clearly Erroneous | 40 | |||||
| B. | The District Court Erred in Failing to Take Into | |||||
| Consideration Carl's Dissipation of Assets by | ||||||
| Committing Economic Fault | 48 | |||||
| C. | The Formula Used by the District Court to Allocate the Division of Property is Contrary to Law | 51 | ||||
| D. | The District Court Committed Reversible Error | |||||
| in Valuing Assets as of October 31, 2010, Rather | ||||||
| Than Date of Divorce | 55 | |||||
| E. | The District Court Erred in Discounting the Value of | |||||
| Hoverson Farms | 62 | |||||
| III. | The Amount of Child Support Determined by the District Court | |||||
| is Clearly Erroneous | 77 | |||||
| TABLE OF AUTHORITIES | |
| CASES: | |
| PARAGRAPH | |
| Bachmeier v. Wallwork Truck Centers, 544 N.W.2d 122 (N.D.1996) | 2 |
| Bagan v. Bagan, 382 N.W.2d 645 (N.D.1986) | 79 |
| Bakes v. Bakes, 532 N.W.2d 666 (N.D.1995) | 29 |
| Barth v. Barth, 1999 ND 91, 593 N.W.2d 359 | 55 |
| Becker v. Becker, 2011 ND 107, 799 N.W.2d 53 | 66 |
| Behm v. Behm, 427 N.W.2d 332 (N.D.1988) | 43 |
| Boehm v. Boehm, 2002 ND 144, 651 N.W.2d 672 | 51 |
| Christmann v. Christmann, 1997 ND 209, 570 N.W.2d 221 | 35 |
| Donarski v. Donarski, 1998 ND 128, 581 N.W.2d 130 | 17 |
| Duff v. Kearns-Duff, 2010 ND 247, 792 N.W.2d 916 | 16 |
| Erickson v. Erickson, 384 N.W.2d 659 (N.D.1986) | 40 |
| Evenson v. Evenson, 2007 ND 194, 742 N.W.2d 833 | 55 |
| Fischer v. Fischer, 139 N.W.2d 845 (N.D.1966) | 35 |
| Fisher v. Fisher, 1997 ND 176, 568 N.W.2d 728 | 62 |
| Fox v. Fox, 2001 ND 88, 626 N.W.2d 660 | 17, 29 |
| Gibbon v. Gibbon, 1997 ND 210, 569 N.W.2d 707 | 51 |
| Grinaker v. Grinaker, 553 N.W.2d 204 (N.D.1996) | 55 |
| Gronland v. Gronland, 527 N.W.2d 250 (N.D.1995) | 22 |
| Halvorson v. Halvorson, 482 N.W.2D 869 (N.D.1992) | 48 |
| Heggen v. Heggen, 452 N.W.2d 96 (N.D.1990) | 79 |
| Heinz v. Heinz, 2001 ND 147, 632 N.W.2d 443 | 17, 37 |
| Heley v. Heley, 506 N.W.2d 715 (N.D.1993) | 30 |
| Hitz v. Hitz, 2008 ND 58, 746 N.W.2d 732 | 36 |
| Horner v. Horner, 2004 ND 165, 686 N.W.2d 131 | 36 |
| Hoverson v. Hoverson, 2001 ND 124, 629 N.W.2d 573 | 2, 37, 38, 55 |
| In re J.K., 1999 ND 182, 599 N.W.2d 337 | 2 |
| Ingebretson v. Ingebretson, 2005 ND 41, 693 N.W.2d 1 | 17 |
| Kaiser v. Kaiser, 555 N.W.2d 585 (N.D.1996) | 64, 65 |
| Kautzman v. Kautzman, 1998 ND 192, 585 N.W.2d 561 | 17, 56 |
| KBM, Inc. v. Mackichan, 483 N.W.2d 181 (N.D.1989) | 66 |
| Kluck v. Kluck, 1997 ND 41, 561 N.W.2d 263 | 35 |
| Krueger v. Krueger, 2008 ND 90, 748 N.W.2d 671 | 1, 17 |
| LaVoi v. LaVoi, 505 N.W.2d 384 (N.D.1993) | 21 |
| Linrud v. Linrud, 1998 ND 55, 574 N.W.2d 875 | 35, 51 |
| Marschner v. Marschner, 2001 ND 4, 621 N.W.2d 339 | 30, 31 |
| Mayo v. Mayo, 2000 ND 204, 619 N.W.2d 631 | 2 |
| Mellum v. Mellum, 2000 ND 47, 607 N.W.2d 580 | 42 |
| Moilan v. Moilan, 1999 ND 103, 598 N.W.2d 81 | 17, 18 |
| Montgomery v. Montgomery, 481 N.W.2d 234 (N.D.1992) | 78, 80 |
| Nelson v. Nelson, 1998 ND 176, 584 N.W.2d 527 | 51 |
| Nuveen v. Nuveen, 2011 ND 44, 795 N.W.2d 308 | 20 |
| Overland v. Overland, 2008 ND 6, 744 N.W.2d 67 | 15, 24 |
| Pearson v. Pearson, 2009 ND 154, 771 N.W.2d 288 | 15, 17, 21, 24 |
| Perala v. Carlson, 520 N.W.2d 839 (N.D.1994) | 80 |
| Pfliger v. Pfliger, 461 N.W.2d 432 (N.D.1990) | 44 |
| Reiser v. Reiser, 2001 ND 6, 621 N.W.2d 348 | 35, 36 |
| Sack v. Sack, 2006 ND 57, 711 N.W.2d 157 | 18 |
| Sateren v. Sateren, 488 N.W.2d 631 (N.D.1992) | 30, 31 |
| Schoenwald v. Schoenwald, 1999 ND 93, 593 N.W.2d 350 | 35 |
| Shields v. Shields, 2003 ND 16, 656 N.W.2d 712 | 24 |
| Thornton v. Klose, 2010 ND 141, 785 N.W.2d 891 | 3 |
| Ulsaker v. White, 2009 ND 18, 760 N.W.2d 82 | 35, 36, 55 |
| Wagner v. Wagner, 2007 ND 101, 733 N.W.2d 593 | 36 |
| Wald v. Wald, 556 N.W.2d 291 (N.D.1996) | 17 |
| Weir v. Weir, 374 N.W.2d 858 (N.D.1985) | 17 |
| Wiege v. Wiege, 518 N.W.2d 708 | 17, 30 |
| Wold v. Wold, 2008 ND 14, 744 N.W.2d 541 | 17 |
| Wolf v. Wolf, 474 N.W.2d 257 (N.D.1991) | 80 |
| Zacher v. Zacher, 493 N.W.2d 704 (N.D.App. 1992) | 41 |
| Zuger v. Zuger, 1997 ND 97, 563 N.W.2d 804 | 17, 57 |
| STATUTES: | |
| N.D.C.C. § 14-05-24.1 | 16 |
| N.D Admin. Code § 75-02-04.1-05(4) (2011) | 77 |
| N.D Admin. Code § 75-02-04.1-09(2)(b) | 77 |
| N.D Admin. Code § 75-02-04.1-10 | 78 |
STATEMENT OF ISSUES
I. Was the District Court's Spousal Support Award Clearly Erroneous?
A. Was the Duration of Spousal Support Awarded Clearly Erroneous?
B. Was the Amount of Spousal Support Awarded Clearly Erroneous?
i. Is the Trial Court's Conclusion that the Substantial Disparity in Income has been Adjusted by the Property Division Contrary to Law?
II. Was the District Court's Property Division Clearly Erroneous?
A. Is the District Court's Conclusion that Carl was not Culpable of Non-Economic Fault Clearly Erroneous?
B. Did the District Court Err in Failing to Take Into Consideration Carl's Dissipation of Assets by Committing Economic Fault?
C. Is the Formula Used by the District Court to Allocate the Division of Property Contrary to Law?
D. Did the District Court Commit Reversible Error in Valuing Assets as of October 31, 2010, Rather Than Date of Divorce?
E. Did the District Court Err in Discounting the Value of Hoverson Farms?
III. Is the Amount of Child Support Determined by the District Court Clearly Erroneous?
STANDARD OF REVIEW
[¶ 1] An award of spousal support is a finding of fact which will not be set aside on appeal unless it is clearly erroneous. Krueger v. Krueger, 2008 ND 90, ¶7, 748 N.W.2d 671.
[¶ 2] "A trial court's valuation of property is a finding of fact that is presumptively correct and subject to the clearly erroneous standard of review." Sommers v. Sommers, 2003 ND 77, ¶ 8, 660 N.W.2d 586, 590 (quoting Hoverson v. Hoverson, 2001 ND 124, ¶ 13, 629 N.W.2d 573). "The credibility of witnesses, including experts, and the weight to be given their testimony are questions of fact subject to the clearly erroneous standard of review under Rule 52(a), N.D.R.Civ.P. In re J.K., 1999 ND 182, ¶ 13, 599 N.W.2d 337; see also Bachmeier v. Wallwork Truck Centers, 544 N.W.2d 122, 126 (N.D.1996) (stating the Court's review of expert opinion is limited and '[w]e do not reweigh evidence on appeal.')." Mayo v. Mayo, 2000 ND 204, ¶ 24, 619 N.W.2d 631.
[¶ 3] The North Dakota Supreme Court addressed the standard of review of child support in Thornton v. Klose, 2010 ND 141, ¶ 10, 785 N.W.2d 891. In Thornton, the Supreme Court stated as follows:
Child support determinations may involve questions of law which are subject to the de novo standard of review, findings of fact which are subject to the clearly erroneous standard of review, and, in some limited areas, matters of discretion subject to the abuse of discretion standard of review. The district court errs as a matter of law if it fails to comply with the child support guidelines in determining an obligor's child support obligation. The interpretation and proper application of the provisions of the child support guidelines are questions of law, fully review able on appeal, and the failure to properly apply the guidelines to the facts is an error of law. In addition, the interpretation of the divorce judgment is a question of law, fully reviewable on appeal.
Id. at ¶ 10.
STATEMENT OF THE CASE
[¶ 4] Petitioner and Appellee, Carl Michael Hoverson ("Carl"), brought a divorce action against his wife, Sandra Morten Hoverson ("Sandra"), on August 13, 2010. (App. 9-14). Sandra served an Answer and Counterclaim dated October 13, 2010. (App. 16-17). A Reply to Counterclaim was served on November 11, 2011. (App. 20-22). Trial was held on December 6, 7, 8 and 15, 2011. (See generally Trans.). A Memorandum Decision, Findings of Fact, Conclusions of Law and Order for Judgment were issued by the district court on April 30, 2012. (App. 37-117). A Judgment and Decree of Divorce incorporating the terms of the Memorandum Decision, Findings of Fact, Conclusions of Law and Order for Judgment was entered on May 1, 2012. (App. 118-138). Defendant's Notice of Entry of Judgment was served and filed on May 1, 2012. (App. 139-140). Plaintiff's Notice of Entry of Judgment was served and filed on May 2, 2012. (App. 141-142). Notice of Appeal was served and filed on June 27, 2012. (App. 143-144). Notice of Cross Appeal was served and filed on June 29, 2012. (App. 145-147).
STATEMENT OF THE FACTS
[¶ 5] Carl and Sandra were married on May 8, 2004. (App. 11). Carl was born in 1955. (App. 12). Sandra was born in 1962. (App. 12). One child was born of the marriage, namely PMH born 2005. (App. 12).
[¶ 6] Carl and Sandra met in February of 2004 in Larimore. (12/06/11Trans. p. 40, ll. 10-15). Sandra was living in Seminole, Florida. (12/06/11Trans. p. 39, ll. 4-5). Carl and Sandra were married on May 8, 2004. (App. 11).
[¶ 7] Sandra lived in North Dakota through high school. (12/15/11 Trans. p. 6, ll. 19-21). Sandra attended college at Northwest Nazarene, UND and St. Pete Jr. College. (12/15/11 Trans. p. 6, ll. 19-25). Prior to the marriage, Sandra had a career in radiology, working full time as a Magnetic Resonance Imaging and Cat Scan Technologist for the Bay Pines Veterans Administration Hospital in Florida for over thirteen years. (12/15/11 Trans. p. 8, ll. 8-22).
[¶ 8] Soon after the parties married, Sandra became pregnant. (12/15/11 Trans. p. 10, ll. 5-8). The parties agreed that Carl would financially support the family, and Sandra would quit her job and become a stay-at-home mother. (12/06/11 Trans. p. 224, ll. 10-16). income for the last five years averaged two million dollars annually. (App. 40).
[¶ 9] One child was born of the marriage, PMH. (App. 12). PMH was born with a hemangioma on her lip. (12/15/11 Trans. p. 33, ll. 203-24). No doctors in North Dakota had the appropriate laser for treatment, so Sandra brought PMH to Florida for treatments. (12/15/11 Trans. p. 39, ll. 3-17). Because Sandra still owned her home in Florida, the parties would stay in Florida for periods of time. Carl, Sandra and P.M.H. spent time together as a family in both North Dakota and Florida.
[¶ 10] At trial, Carl conceded that he was culpable of infidelity. (12/06/12 Trans. p. 136, ll. 17).
Q Okay. do you have a relationship with another woman?
A I - - I have a relationship with another woman at this point.
Q And when did that start?
A Oh, probably in the last year and a half now.
(12/06/12 Trans. p. 136, ll. 17-21).
Q And you testified a fair amount about Sandra being upset thinking you were having an affair with someone else?
A Not just an affair. She's got, you know, like ten different women that she thinks I'm having an affair with at the same time.
Q Well, she accused you having affairs with all other women, right?
A Yeah, all the time.
Q And to a certain extent, she was right?
A Not - - not - - you know, not until, you know, like for the last year and a half. Before that, I had nothing to do with any of it; so - -
Q But you've been having an affair with another person - - I believe your testimony, at your deposition, was for the last two years.
A Yeah. I said year and a half, somewhere in there. I didn't exactly wrote [verbatim] a date down.
Q All right. Somewhere - - you've been having that relationship in the last year and a half or two years?
A Yes.
Q And the fact my client was upset about this, to a certain extent, is understandable, isn't it?
A I don't think so.
(12/06/12 Trans. p 216, ll. 13-25, p. 217, ll. 1-10).
[¶ 11] The Hoverson's assets have increased substantially during the marriage. In his prior divorce in 2000, Carl's 50% interest in Hoverson Farms was valued at $524,648. (App. 407). At the time of trial in 2011, the district court concluded Carl's 50% interest in Hoverson Farms was $9,530,017. (App. 75). Virtually all of the real estate owned by the parties was acquired during the marriage. (App 418-502, 596). The marital home of the parties was acquired during the marriage. (12/07/11 Trans. p. 165, ll. 6-11). CHF Huntsville, LLC and CMC Farms, LLC were both formed during the marriage. (App. 331-369).
[¶ 12] The trial court noted that Sandra's last full year of employment was in 2003, where she earned $57,000. (App. 42). She earned $31,000 for the first six months of 2004. (App. 42). The court noted that if Sandra, who was unemployed at the time of the divorce, decided to pursue a new career, she would need additional training and education. (App. 42). In discussing the circumstances and necessities of the parties, the court concluded that Carl's reasonable estimated monthly living expenses were $153,937.23. (App. 53, 80). The court then determined that a realistic budget for Sandra and PMH was $8,000 per month. (App. 54-55).
[¶ 13] The court noted that Carl committed economic fault by transferring assets in CHF Huntsville, CMC Farms and CHF Union Lake to his sons without consideration. (App. 71).
[¶ 14] The trial court awarded 19.4% of the business interests to Sandra in a property settlement payment but failed to award to Sandra any percentage of the Larimore home or financial accounts the parties had accumulated during the marriage. (App. 74-75). The trial court awarded Sandra spousal support in the amount of $3,000 per month for two years. (App. 79).
LAW AND ARGUMENT
I. The District Court's Spousal Support Award is Clearly Erroneous.
[¶ 15] The district court must consider the Ruff-Fischer guidelines when determining if an award of spousal support is appropriate. Overland v. Overland, 2008 ND 6, ¶ 16, 744 N.W.2d 67. The Ruff-Fischer guidelines are as follows:
the respective ages of the parties, their earning ability, the duration of the marriage and conduct of the parties during the marriage, their station in life, the circumstances and necessities of each, their health and physical condition, their financial circumstances as shown by the property owned at the time, its value at the time, its income-producing capacity, if any, whether accumulated before or after the marriage, and such other matters as may be material.
Pearson v. Pearson, 2009 ND 154, ¶ 6, 771 N.W.2d 288.
[¶ 16] Section 14-05-24.1 of the North Dakota Century Code provides, "[T]aking into consideration the circumstances of the parties, the court may require one party to pay spousal support to the other party for any period of time." "An award of spousal support is a finding of fact that will not be set aside on appeal unless it is clearly erroneous." Becker v. Becker, 2011 ND 107, ¶ 27, 799 N.W.2d 53 citing Duff v. Kearns-Duff, 2010 ND 247, ¶ 13, 792 N.W.2d 916.
[¶ 17] In North Dakota, it is appropriate for a court to award either rehabilitative and permanent spousal support. Pearson v. Pearson, 2009 ND 154, ¶ 13, 771 N.W.2d 228. In Pearson, Justice Maring wrote a lengthy dissenting opinion in which she discussed permanent and rehabilitative spousal support. Justice Maring, in discussing permanent spousal support, stated, in part, as follows:
Permanent spousal support may be appropriate when the marriage is a long-term marriage. See Moilan v. Moilan, 1999 ND 103, ¶ 10, 598 N.W.2d 81 ('The Ruff-Fischer guidelines . . . require consideration of . . . the duration of the marriage.'); Heinz v. Heinz, 2001 ND 147, ¶ 14, 632 N.W.2d 443 (holding award of permanent spousal support was appropriate in light of the parties' long-term marriage). Permanent spousal support 'is generally appropriate when a spouse cannot be equitably rehabilitated to make up for the opportunities lost in the course of the marriage.' Wold, 2008 ND 14, ¶ 14, 744 N.W.2d 541. 'Even when a spouse is capable of rehabilitation, permanent spousal support may be an appropriate remedy to ensure the parties equitably share the overall reduction in their separate standards of living.' Id.; Weir v. Weir, 374 N.W.2d 858, 864 (N.D.1985). 'Permanent support is not limited to a spouse who is incapable of any rehabilitation, . . . but may also be awarded to a spouse incapable of adequate rehabilitation or self-support.' Wiege, 518 N.W.2d at 711.
Id. at ¶ 21.
'Permanent spousal support is appropriate when an economically disadvantaged spouse cannot be equitably rehabilitated to make up for opportunities lost during the course of a marriage.' Krueger v. Krueger, 2008 ND 90, ¶ 9, 748 N.W.2d 671.
Id. at ¶ 23.
This Court, in Fox v. Fox, 2001 ND 88, ¶ 24, 626 N.W.2d 660 (quoting Wiege, 518 N.W.2d at 713 (Levine, J., concurring)), explains why permanent spousal support is appropriate when one spouse is disadvantaged by the marriage:
That mutual decision is of benefit to both partners during the life of the marriage but dissolution of the marriage is a different story. Permanent support is the price to be paid by the earlier mutual decision about the role to be played by each marital partner when, in fact, the economically disadvantaged partner cannot obtain, after training and reasonable time, the income necessary to live a life comparable to the one prior to divorce or comparable to the higher earner's post-divorce reduced standard of living.
Id. at ¶ 23.
This Court has also held that a spouse's limited marketable skills and the substantial disparity in the parties' income justify an award of permanent spousal support. Donarski v. Donarski, 1998 ND 128, ¶¶ 6, 8, 581 N.W.2d 130; see also Ingebretson v. Ingebretson, 2005 ND 41, ¶ 9, 693 N.W.2d 1 (holding permanent spousal support to maintain a disadvantaged spouse is appropriate when a substantial disparity exists between the spouses' incomes); Zuger v. Zuger, 1997 ND 97, ¶ 19, 563 N.W.2d 804 ('[P]ermanent support is thus appropriate when a substantial disparity between the earning abilities of the spouses exists.'); Wald v. Wald, 556 N.W.2d 291, 296-97 (N.D.1996) (holding a substantial disparity in income is an appropriate consideration in awarding spousal support). Professor Marcia O'Kelly explained the importance of the spouses' earning capacities in her law review article, entitled, Entitlements to Spousal Support After Divorce, 61 N.D. L. Rev. 225, 248-49 (1985):
[I]t is not surprising that the North Dakota Supreme Court often treats disparities between the earning capacities of former spouses as particularly significant. A spouse with an underdeveloped earning capacity who leaves a marriage of substantial duration has a stake in the career development and potential of the primary income-producer, because the career capacities of both spouses and the standards of living that those capacities make possible are a part of the aggregate tangible and intangible assets and liabilities for which both spouses share responsibility. That conclusion is simply another dimension of the recognition that marriage is a joint enterprise to which both spouses contribute in a variety of ways and for which both accept and share fiscal consequences.
Id. at ¶ 24.
We have also held that '[c]ontinuing a standard of living is a valid support consideration in a long-term marriage.' Wald, 556 N.W.2d at 296; see also Kautzman v. Kautzman, 1998 ND 192, ¶ 20, 585 N.W.2d 561 ('[S]pousal support was appropriate to allow [the wife] to continue her accustomed standard of living.'); Zuger, 1997 ND 97, ¶ 18, 563 N.W.2d 804 ('Permanent spousal support is ordered to maintain a somewhat comparable standard of living for a spouse who is incapable of adequate rehabilitation.').
Id. at ¶ 25.
[¶ 18] A separate disadvantaged spouse finding is not a prerequisite to awarding spousal support. Sack v. Sack, 2006 ND 57, ¶ 14, 711 N.W.2d 157. This case is factually similar to that of Moilan v. Moilan, 1999 ND 103, 598 N.W.2d 81. In Moilan, during the marriage, the husband took care of the children while the wife advanced her career. Id. at ¶ ¶ 2-4. At the time of trial, there was a significant difference in the parties' incomes. Id. at ¶ 12. The district court denied the husband's request for spousal support and the husband appealed. On appeal, the North Dakota Supreme Court reversed, stating as follows:
Arne has a demonstrated need for additional financial support, and Melissa has the ability to pay support. Melissa earns $121,000 annually, nearly four times [the husband's] $34,000 salary. Melissa is living in the family home, valued at $180,000; Arne is living in a two-bedroom apartment. Arne turned down job offers and moved with Melissa when her educational or career plans dictated, and at times performed the role of stay-at-home dad so Melissa could pursue her career.
Id. at ¶ 12.
[¶ 19] On appeal, the North Dakota Supreme Court noted that the trial court had inappropriately applied a minimalist view of spousal support when it rejected Arne's request for spousal support. Id. ¶ 17.
[¶ 20] In Nuveen v. Nuveen, 2011 ND 44, 795 N.W.2d 308, Dr. Nuveen was an orthodontist residing in Grand Forks. Id. at ¶ 2. He and his wife were married for 16 years. Id. at ¶ 2. The district court found that the husband's career benefitted from his wife staying home to care for their children. Id. at ¶ 13. She was 43 at the time of trial and had a communications degree. Id. The court found that the wife had not worked outside the home since the parties' marriage and preferred to remain unemployed so she could take the children to their extracurricular activities. Id. The trial court noted that the wife would not have child support to help maintain her home and lifestyle after the children completed school. Id. The trial court found that the husband's wages over a five-year period ranged from a low of $400,000 to a high of over $600,000. Id. at ¶ 14. The district court concluded that the wife was entitled to $7,500 per month in permanent spousal support. Id. at ¶ 11. On appeal, the North Dakota Supreme Court affirmed.
A. The Duration of Spousal Support Awarded is Clearly Erroneous.
[¶ 21] Rehabilitative spousal support is appropriate "where the dependent spouse is still young, the marriage was of relatively short duration, and the dependent spouse has the ability to develop or redevelop qualifications for self support." LaVoi v. LaVoi, 505 N.W.2d 384, 386 (N.D.1993). Permanent spousal support is appropriate when the marriage is of a long duration and when a spouse cannot be equitably rehabilitated to make up for opportunities lost in the course of the marriage. Pearson, 2009 ND 154, ¶ 19, 771 N.W.2d 288. It also may be awarded when there is a substantial disparity between the spouse's incomes that cannot be readily adjusted by property division. Id. at ¶ 7.
[¶ 22] In Gronland v. Gronland, 527 N.W.2d 250 (N.D.1995), the defendant maintained an earning capacity that was three or four times the amount of the plaintiff's. Id. at 254. Based upon the disparity in the parties' incomes, permanent spousal support was awarded to the plaintiff and affirmed on appeal. Id.
[¶ 23] In this case, the trial court's findings of fact support an award of permanent spousal support. "The court is mindful of the fact that Sandra did contribute to the marriage by caring for PMH." (App. 71). Previously the trial court found that "It appears that Carl will most likely earn significantly more than Sandra and enjoy a higher standard of living. (App. 71). Also Sandra has not been actively engaged in her career for last eight years." (App. 71). The court also noted when discussing property distribution that "The parties also had a child and Sandra chose to stay home with the child. (App. 73-74). Carl told Sandra she would not have to work after their marriage." (App. 74). None of the court's findings of fact explain why permanent spousal support was denied. (App. 37-97). None of the court's findings of fact support an award of rehabilitative spousal support. (App. 37-97). The significant disparity in the parties' incomes is permanent. There is no finding of fact indicating Sandra will ever earn as much as Carl. (App. 37-97). Accordingly, the trial court's findings of fact support an award of permanent spousal support and the trial court's award of spousal support for two years is clearly erroneous.
B. The Amount of Spousal Support Awarded is Clearly Erroneous.
[¶ 24] Spousal support awards must be based upon the needs of the spouse seeking support and the supporting spouse's ability to pay. Overland v. Overland, 2008 ND 6, ¶ 16, 774 N.W.2d 67. "Spousal support awards must be made in consideration of the disadvantaged spouse's needs and of the supporting spouse's needs and ability to pay." Shields v. Shields, 2003 ND 16, ¶ 10, 656 N.W.2d 712. A spouse is disadvantaged if the spouse in question is one who has foregone opportunities or lost advantages as a consequence of the marriage and who has contributed to the supporting spouse's increased earning capacity during the marriage. Pearson, 2009 ND 154, ¶ 23, 771 N.W.2d 288.
[¶ 25] The trial court noted that Sandra's last full year of employment was in 2003, where she earned $57,000. (App. 42). She earned $31,000 for the first six months of 2004. (App. 42). Sandra became pregnant shortly after the parties' marriage in 2004 and gave birth to their daughter ten months after their marriage. (App. 42). The court noted that if Sandra, who was unemployed at the time of the divorce, decided to pursue a new career, she would need additional training and education. (App. 42). Sandra testified that Carl told her he could provide for her and she could be a stay at home mom. (App. 43).
[¶ 26] The trial court found that Carl did not expect Sandra to work outside of the home after their marriage. (App. 44). The court also concluded that by the time this action is concluded, the parties' actual years of marriage will be almost 8 years. (App. 44).
[¶ 27] The court noted that the birth of PMH is a factor and recognized Sandra's contributions for caring for PMH. (App. 45). The court noted that Sandra had not worked since 2004 and would need updated training if she were to pursue her prior career. (App. 52). When discussing child support, the court concluded that Carl's average adjusted gross income was $164,181 per month. (App. 80). In discussing the circumstances and necessities of the parties, the court concluded that Carl's reasonable estimated monthly living expenses were $153,937.23. (App. 80). The court then determined that a realistic budget for Sandra and PMH was $8,000 per month. (App. 54-55). The trial court concluded that post divorce, it was reasonable for Sandra and the parties' daughter to have anticipated monthly living expenses of $8,000 and it was reasonable for Carl alone to have estimated monthly living expenses of over $150,000 per month. (App. 53, 78).
[¶ 28] The trial court awarded Sandra $3,000 per month spousal support even though Carl earned $164,181 per month. (App. 79). The amount of spousal support awarded to Sandra is minimal and contrary to law. It is well documented and undisputed that Carl's income and net worth have increased dramatically during the parties' marriage. Sandra's role as a stay at home mother allowed Carl to focus his time and talents on farm related tasks. The amount of spousal support awarded will not allow Sandra to enjoy the standard of living post divorce which she enjoyed while married. The amount of spousal support awarded to Sandra is clearly erroneous.
i. The Trial Court's Conclusion that the Substantial Disparity in Income has been Adjusted by the Property Division is Contrary to Law.
[¶ 29] In North Dakota, a spouse is not required to deplete her property distribution in order to live. Fox v. Fox, 1999 ND 68, ¶ 24, 592 N.W.2d 541. See also Bakes v. Bakes, 532 N.W.2d 666 (N.D. 1995).
[¶ 30] The North Dakota Supreme Court also addressed this issue in Marschner v. Marschner, 2001 ND 4, ¶ 16, 621 N.W.2d 339. In Marschner, a farm case, the trial court awarded the farm to the husband and awarded the wife a settlement payment in cash. The trial court denied the wife's request for spousal support. Id. at ¶ 8. On appeal, the North Dakota Supreme Court reversed, concluding that a party is not required to deplete her property distribution in order to live. Id. at ¶ 19. In so holding, the North Dakota Supreme Court stated as follows:
We have reversed a decision of the trial court that required a spouse to use her property distribution payments to rehabilitate herself, while permitting the other spouse to retain income-earning property and use the income from that property to make the cash property distribution payments. Sateren v. Sateren, 488 N.W.2d 631 (N.D.1992) (noting the marital assets totaled $76,960 less debts of $20,449 but ordering the trial court to consider the payment of spousal support). See also Wiege v. Wiege, 518 N.W.2d 708 (N.D.1994); Heley v. Heley, 506 N.W.2d 715 (N.D.1993).
Id. at ¶ 16.
[¶ 31] In Marschner, the North Dakota Supreme Court concluded as follows:
[T]he effect of the property distribution is to require Carol Marschner to forego spousal support because she is to receive her property distribution in a cash payment. As a result, she will be required to deplete her property distribution for living expenses. Richard Marschner will retain the farm. The farm may be encumbered after the payments are made to Carol Marschner but Richard Marschner will retain an income-producing asset while Carol Marschner will have depleted her share of the property distribution to find a residence and otherwise subsist. Property distribution and spousal support are overlapping issues and are to be considered together. Sateren. The property division, viewed in a vacuum, may appear equitable, but when the denial of spousal support is included in the analysis, it is not equitable.
Id. at ¶ 22.
[¶ 32] In this case, the trial court awarded Sandra spousal support for two years in the amount of $3,000 per month. (App. 79). The court noted that Sandra had no earned income at the time of divorce and that Carl's income averaged $164,181 per month. (App. 38, 80).
[¶ 33] The court found that spousal support obligation was appropriate based upon the court's conclusion that "further the substantial disparity in income has been adjusted by the property division." (App. 78).
[¶ 34] The trial court's conclusion that the substantial disparity in income has been adjusted by the property division is contrary to law. The court awarded to Sandra $19.4% of the business assets, with Carl receiving the remainder, 80.6%. (App. 74). Sandra need not spend the property settlement payment to pay her living expenses. Since Sandra received significantly less than one-half of the marital estate and since there is a two million dollar annual disparity in the parties' earned income, the trial court's conclusion in reference to the amount of spousal support is clearly erroneous.
II. The District Court's Property Division is Clearly Erroneous.
[¶ 35] In dividing property, North Dakota courts "start with the view that marital property should be equally divided and, while the division need not be exactly equal to be equitable, the trial court must explain any substantial disparity." Christmann v. Christmann, 1997 ND 209, ¶ 7, 570 N.W.2d 221 (citing Kluck v. Kluck, 1997 ND 41, ¶ 25, 561 N.W.2d 263); Schoenwald v. Schoenwald, 1999 ND 93, ¶ 23, 593 N.W.2d 350; Linrud v. Linrud, 1998 ND 55, ¶ 7, 574; Reiser v. Reiser, 2001 ND 6, ¶ 10, 621 N.W.2d 348; Ulsaker, 2009 ND 18, ¶ 14. There is no set formula. Instead the trial court must consider the relevant factors under the Ruff-Fischer guidelines (citing Ruff v. Ruff, 78 N.D. 775, 52 N.W.2d 107 (1952); Fischer v. Fischer, 139 N.W.2d 845 (N.D.1966)).
[¶ 36] "[D]uration of a marriage is only one factor of the Ruff-Fischer guidelines and is not controlling in a distribution of marital property." Horner v. Horner, 2004 ND 165, ¶ 12, 686 N.W.2d 131; see also Ulsaker, 2009 ND 18, ¶ 14. The short-term marriage in Reiser v. Reiser, 2001 ND 6, 621 N.W.2d 348, began in October 1995. Id. at ¶ 2.The couple begin living separately at various times since November 1997 and separated for good in August 1999. Id. Still, the trial court made a nearly equal division of the property that was not governed by the parties' premarital agreement, a division that the Supreme Court of North Dakota upheld. Id. at ¶ 10. The court has considered a 12-year marriage "long-term." Wagner v. Wagner, 2007 ND 101, ¶ 16, 733 N.W.2d 593. The fact that the marriage resulted in a child further supports its qualification as "long-term." Wagner at ¶ 16 (noting the parties' long-term marriage of twelve years produced a child). In deeming the marriage in Hitz v. Hitz, 2008 ND 58, 746 N.W.2d 732 short term, the court noted that the marriage bore no children. Id. at ¶ 16.
[¶ 37] Sandra quit her job when she discovered she was pregnant so as to allow her to be a stay-at-home mother, a decision made together by the couple. (12/06/11 Trans. p. 224, ll. 10-16). She has attended to PMH's medical needs, which required the ability to travel frequently. (App. 43). At 49 years old, Sandra is of an age where reentry into the workforce will be more difficult. (App. 42). Even if she were to obtain employment equivalent to what she held before the marriage, Carl's income still greatly exceeds Sandra's. In addition, Carl is at fault in the breakdown of the marriage, having admitted to a long-term extramarital affair. (App. 47, 49). Fault of a party, both economic and noneconomic, is conduct that is properly to be considered under the Ruff-Fischer guidelines. Heinz v. Heinz, 2001 ND 147, ¶ 6, 632 N.W.2d 443; Hoverson, 2001 ND 124, ¶ 17.
[¶ 38] The trial court concluded that Sandra's premarital net worth was $140,000. (App. 55). Prior to the marriage, Carl claimed a net worth of approximately $1,000,000. (App. 55). His previous divorce was appealed. The decision can be found at Hoverson v. Hoverson, 2001 ND 124, 629 N.W.2d 573. His premarital net worth at the time of his prior divorce is noted in paragraph 6.
[¶ 39] Virtually all of the real estate owned by the parties, including the marital home, was acquired during the marriage. (App. 418-502, 596) (12/07/11 Trans. p. 190, ll. 4-6). CHF Huntsville, LLC and CMC Farms, LLC were both formed during the marriage. (App. 331-369).
A. The District Court's Conclusion that Carl was not Culpable of Non-Economic Fault is Clearly Erroneous.
[¶ 40] In dividing the assets and liabilities of the parties, the court must consider the Ruff-Fischer guidelines. One of the Ruff-Fischer guidelines is conduct of the parties. In Erickson v. Erickson, 384 N.W.2d 659 (N.D.1986), the trial court awarded the wife the majority of the parties' farmland. The husband appealed. On appeal, the North Dakota Supreme Court affirmed noting that the husband contributed to the destruction of the marriage in that he had admitted to at least one affair. Id. at 663.
[¶ 41] The North Dakota Court of Appeals addressed the fault issue in Zacher v. Zacher, 493 N.W.2d 704, 705 (N.D.App. 1992). In Zacher, the husband received more than half of the marital estate. Id. The trial court determined that the wife's infidelity resulted in destruction of the marriage. The trial court justified the unequal division of property based upon the wife's infidelity. Id. On appeal, the North Dakota Court of Appeals affirmed.
[¶ 42] In Mellum v. Mellum, 2000 ND 47, 607 N.W.2d 580, the trial court awarded the wife 65% of the assets and the husband 35%. Id. at ¶ 8. The unequal division of assets and liabilities was based, in part, upon the misconduct of the husband. Id. at ¶ 7. The husband had been unfaithful. Id. at ¶ 7. The North Dakota Supreme Court affirmed. Id. at ¶ 23.
[¶ 43] The North Dakota Supreme Court also addressed the fault issue in Behm v. Behm, 427 N.W.2d 332, 337 (N.D.1988). In Behm, the husband had been abusive and had extramarital affairs. Id. The trial court awarded a near equal division of all property. Id. The husband appealed based in part upon the fact that he had inherited property including a family business. Id. The North Dakota Supreme Court affirmed the equal division of assets emphasizing the husband's misconduct. Id.
[¶ 44] The Supreme Court also addressed the fault issue in Pfliger v. Pfliger, 461 N.W.2d 432, 437 (N.D.1990). In Pfliger, the trial court found that the husband was culpable of non-economic fault in that he had an affair. Id. The trial court factored in the husband's fault when making the property division. Id. The Supreme Court affirmed. In so affirming, it was noted that the husband "began associating with his secretary and the parties discontinued any meaningful personal relationship." Id.
[¶ 45] In this case, Carl conceded that he had been having an extra-marital affair. Carl testified as follows:
Q Okay. do you have a relationship with another woman?
A I - - I have a relationship with another woman at this point.
Q And when did that start?
A Oh, probably in the last year and a half now.
(12/06/12 Trans. p. 136, ll. 17-21).
Q And you testified a fair amount about Sandra being upset thinking you were having an affair with someone else?
A Not just an affair. She's got, you know, like ten different women that she thinks I'm having an affair with at the same time.
Q Well, she accused you having affairs with all other women, right?
A Yeah, all the time.
Q And to a certain extent, she was right?
A Not - - not - - you know, not until, you know, like for the last year and a half. Before that, I had nothing to do with any of it; so - -
Q But you've been having an affair with another person - - I believe your testimony, at your deposition, was for the last two years.
A Yeah. I said year and a half, somewhere in there. I didn't exactly wrote [verbatim] a date down.
Q All right. Somewhere - - you've been having that relationship in the last year and a half or two years?
A Yes.
Q And the fact my client was upset about this, to a certain extent, is understandable, isn't it?
A I don't think so.
(12/06/12 Trans. p 216, ll. 13-25, p. 217, ll. 1-10).
[¶ 46] The trial court noted that the extra-marital affair continued even when the parties attempted to reconcile and that the extra-marital affair contributed to the decline of the parties' marriage. (App. 49). Even though the trial court found that Carl had an ongoing, lengthy extra-marital affair, the trial court concluded that "Neither party committed non-economic fault." (App. 49).
[¶ 47] The trial court's conclusion that neither party committed non-economic fault is directly contradicted by the trial court's finding that Carl had an ongoing extra-marital affair. The trial court's conclusion that Carl did not commit non-economic fault is clearly erroneous. This erroneous conclusion impacted both the trial court's conclusion on the amount and duration of spousal support and the trial court's conclusion in reference to the distribution of assets and liabilities.
B. The District Court Erred in Failing to Take Into Consideration Carl's Disipation of Assets by Committing Economic Fault.
[¶ 48] The North Dakota Supreme Court addressed economic fault in Halvorson v. Halvorson, 482 N.W.2D 869 (N.D.1992). In Halvorson, the husband transferred 40 acres of land and all of the parties' cattle and machinery to one of his sons without consideration. Id. The trial court included the value of the dissipated property in the marital estate and awarded the dissipated property to the husband. Id. The trial court then divided the assets equally and required the husband to pay an additional $20,000 to the wife. Id. The unequal division of assets and liabilities was justified due to the husband's economic and non-economic fault. Id. The North Dakota Supreme Court affirmed.
[¶ 49] In this case, the trial court found that "Carl committed economic fault by transferring assets in CHF Huntsville, CMC Farms and CHF Union Lake to his sons without consideration. (App. 71). Some of the later transfers were also in violation of the temporary restraining provisions." (App. 71). The court also noted "Finally, the court did find that Carl committed economic fault by transferring membership to his sons in CHF Huntsville, CMC Farms and CHF Union Lake without consideration." (App. 74).
[¶ 50] Even though the court found that Carl committed economic fault by transferring assets to his children without consideration and in violation of the restraining provisions of the summons, the court did not sanction Carl in any manner for being culpable of economic fault. (App. 37-97). Rather, the court, in dividing the business assets, awarded to Sandra 19.6%, awarding the remainder, 80.4% to Carl, even though he was the individual culpable of economic fault. (App. 74-75). The court's failure to sanction Carl in any manner for committing economic fault is clearly erroneous.
C. The Formula Used by the District Court to Allocate the Division of Property is Contrary to Law and Clearly Erroneous.
[¶ 51] In North Dakota, the trial court must divide the property based on the circumstances of each individual case, as there is no set formula for dividing a marital estate. Linrud v. Linrud, 1998 ND 55, ¶ 7, 574 N.W.2d 875, citing Gibbon v. Gibbon, 1997 ND 210, ¶ 7, 569 N.W.2d 707. The North Dakota Supreme Court has, on several occasions, noted that "there is no set formula for dividing a marital estate." Nelson v. Nelson, 1998 ND 176, ¶ 6, 584 N.W.2d 527. See e.g., Boehm v. Boehm, 2002 ND 144, ¶ 9, 651 N.W.2d 672, Gibbon v. Gibbon, 1997 ND 210, ¶ 6, 569 N.W.2d 707.
[¶ 52] In this case, the trial court found that at the time of trial, the parties had been married in excess of seven years and that Carl had been engaged in the farming business for approximately 36 years. (App. 74). The court found that the seven years of marriage represented approximately 19.4% of 36 years and applied the 19.4% to the business holdings of the parties. (App. 74). The trial court awarded 100% of the Larimore home to Carl, even though the home was acquired during the marriage. (App. 74). The trial court awarded to Carl 100% of an IRA and 100% of an investment account even though both assets were acquired during the marriage. (App. 74). The court awarded to Carl 100% of the note from Fallon, even though this note was incurred during the marriage. (App. 75). Furthermore, CHF Huntsville, CMC Farms, and CHF Union Lake were all acquired during the marriage. (App. 331-384).
[¶ 53] The trial court provided no explanation for failing to award to Sandra any portion of various assets which were acquired during the marriage. (App. 74-75).
[¶ 54] The formula used by the district court is contrary to law and ignores the Ruff-Fischer guidelines. Furthermore, the formula used by the district court is factually inaccurate. At the time of trial, the parties had been married for over seven and a half years. (App. 74). Even though Carl may have started farming when he graduated from high school, it was only during the marriage that Carl acquired real estate. (App. 418-502, 596). Hoverson Farms did not begin in 1976 but rather, was formed in 1994. (App. 41). Carl's income prior to the parties' marriage was minimal. (App. 41). Carl's social security earnings statement show that from the period of 1974 through 2000, he earned an average of less than $10,000 per year. (App. 41). It was only during the parties' marriage that Carl's income drastically increased. (App. 386). The trial court used the formula for allocating to Sandra a portion of the business interests but failed to use a similar formula to allocate to Sandra any portion of various other assets of the parties. (App. 74). Since the formula used by the trial court is contrary to law and is factually inaccurate, the application of the formula so as to arrive at the proposed division of assets and liabilities is clearly erroneous.
D. The District Court Committed Reversible Error in Valuing Assets as of October 31, 2010, Rather Than Date of Divorce.
[¶ 55] Property in a divorce proceeding is to be valued at the time of trial. Grinaker v. Grinaker, 553 N.W.2d 204, 208-09 (N.D.1996); Evenson v. Evenson, 2007 ND 194, 742 N.W.2d 833 (citing Hoverson, 2001 ND 124, ¶ 12; Barth v. Barth, 1999 ND 91, ¶ 8, 593 N.W.2d 359) ("Ordinarily, the proper method of valuing marital property in a divorce is the fair market value as of the date of trial"); Ulsaker v. White, 2009 ND 18, ¶ 17, 760 N.W.2d 82. Updating the valuation as close to trial as possible will serve the goal of dividing property based on the most accurate understanding of the parties' finances. See Evenson,2007 ND 194, 742 N.W.2d at 833-35.
[¶ 56] In Kautzman v. Kautzman 1998 ND 192, 585 N.W.2d 561, the couple, Rachel and Robert, owned a construction company, Kautzman Construction (KCI). Originally, the trial court found that "'it was not reasonably possible to make a precise accounting of the value of KCI as of the time of trial' and found 'that the value was at least $581,860.00.'" Id. at ¶ 23. Both Rachel and Robert moved for amended findings of fact. The trial court then found that KCI was worth at least $301,001.58, looking at its value as of December 31, 1996. Id. at ¶ 25. The trial was not completed until September 1997. At trial, Rachel introduced evidence of revenue generated in between January and September of 1997. The Supreme Court of North Dakota found that the trial court's valuation was clearly erroneous because it did not consider increases from December 31, 1996 until trial ended in September 1997. Id. at ¶ 26. Therefore, the Court was left with "a definite and firm conviction the trial court made a mistake in valuing KCI by not including retained earnings from 1997 revenue." Id. at ¶ 28.
[¶ 57] The North Dakota Supreme Court has cited a number of "common sense" reasons supporting its typical trial date valuation rule, including that "the trial court hears the evidence on value at trial, and the evidence will ordinarily give a current value for the property." Grinaker, 553 N.W.2d at 209; see also Zuger v. Zuger, 1997 ND 97, ¶ 10, 563 N.W.2d 804.
[¶ 58] Hoverson Farms is a general partnership. (App. 320).This business was started on April 4, 1994 and is owned 50.0 percent by Carl and Ronald Offutt. (App. 320). The business grows irrigated potatoes on both owned and leased land that are primarily sold to J.R. Simplot Company. (App. 58). This business uses a fiscal year ending October 31st for reporting purposes. (App. 503-595). Both Sliwoski and Stinar appraised Carl's 50.0 percent partnership interest in Hoverson Farms as of October 31, 2010. (App. 148-302, 503-595).
[¶ 59] The trial court valued Hoverson Farms as of October 31, 2010, even though trial was held a year later, in December of 2011. (App. 37, 59). As of the trial date, Hoverson Farms had completed operations for the fiscal year ending October 31, 2011. However, completed financial information for this fiscal year was not available at trial. Stinar, Carl's expert, testified at trial regarding his estimate of the income Hoverson Farms would generate for the fiscal year ending October 31, 2011. (12/07/11 Trans. p. 129, ll. 18-25, p. 130, ll. 1). Stinar testified as follows:
Q Now, on Schedule 5, do you estimate what the future income will be of Hoverson Farms?
A The pretax income, yes, we do.
Q And what is your estimate?
A $5,050,000
Q Could you turn to Schedule 7. And on the top of Schedule 7, is that where you have that number estimated net income for next year before tax of $5,000,000?
A That's correct.
(12/07/11 Trans. p. 129, ll. 18-25, p. 130, ll. 1)
[¶ 60] The trial court made one adjustment to the value of Hoverson Farms, increasing the value of the American Crystal Sugar Beet Stock. (App. 65). No other adjustment was made to the value of Hoverson Farms even though the court used an October 31, 2010, valuation date. (App. 65).
[¶ 61] The court previously concluded that Hoverson Farms had been highly profitable. (App. 62). The trial court noted that Carl's own expert, under the income approach, stated that the pre-tax income of Hoverson Farms in 2006 was $3,768,336 and that the pre-tax income had almost doubled to $6,166,545 in 2010. (App. 62). By valuing Hoverson Farms as of October 31, 2010, the recipient of the assets, in this case, Carl, was unjustly enriched since one year of income and one year of appreciation was ignored. As such, the trial court's conclusion to value Hoverson Farms as of October 31, 2010, rather than date of trial is clearly erroneous.
E. The District Court Erred in Discounting the Value of Hoverson Farms.
[¶ 62] The North Dakota Supreme Court, in Fisher v. Fisher, 1997 ND 176, 568 N.W.2d 728, addressed the issue of whether, in a divorce proceeding, a closely held business should be discounted for minority interest. In Fisher, the district court divided a closely held corporation awarding a majority of the stock to the husband and a minority to the wife. Id. at ¶ 10. On appeal, the wife argued that the shares allocated to her should be discounted because she had a minority interest subject to control by her husband. Id. at ¶ 13. On appeal, the North Dakota Supreme Court disagreed, concluding that there should not be a minority discount. Id. at ¶ 24.
[¶ 63] In so holding, the North Dakota Supreme Court concluded as follows: "To divide the marital estate the trial court did not err in valuing each of Sheila's minority shares at the same value as each of Gene's controlling shares." Id. at ¶ 24.
[¶ 64] The North Dakota Supreme Court also addressed the issue of discounts in a divorce proceeding in Kaiser v. Kaiser, 555 N.W.2d 585, 587. (N.D.1996). In Kaiser, the district court applied an 11.3% minority interest discount in a family held corporation in a divorce. On appeal, the North Dakota Supreme Court rejected that the discount was inadequate and should have been greater. Id.
[¶ 65] In Kaiser, the North Dakota Supreme Court held that in a divorce proceeding, minority shares in a closely held corporation did not require a minority discount of more than 11.3%. Id.
[¶ 66] The North Dakota Supreme Court also addressed the discount issue in KBM, Inc. v. Mackichan, 483 N.W.2d 181, 184 (N.D.1989). In KBM, at trial, one of the parties argued that there should be a 33% minority share holder discount. Id. The district court disagreed and did not allow any minority shareholder discount. Id. On appeal, the North Dakota Supreme Court affirmed. Id.
[¶ 67] In this case, both parties retained an expert witness. (App. 57). Each witness authored a report. (App. 148-302, 503-595). Each witness testified at trial. (See generally Trans.). Both parties' experts valued Hoverson Farms. (App. 148-302, 503-595).
[¶ 68] Sliwoski's asset approach conclusion was determined as follows.
$26,256,280 Estimated fair market value of 100 percent of partnership equity as of October 31, 2010 as testified by Sliwoski at trial
(2,625,628) 10.0 percent discount for lack of marketability
$23,630,652 Estimated fair market value of 100 percent of partnership equity adjusted for lack of marketability discount as of October 31, 2010 as testified by Sliwoski at trial
$23,630,652 Estimated fair market value of 100 percent of partnership equity adjusted for lack of marketability discount as of October 31, 2010 as testified by Sliwoski at trial
× 50.0% Carl's ownership percentage
$11,815,326 Estimated fair market value under the asset approach of Carl's 50.0 percent partnership interest as of October 31, 2010 as testified by Sliwoski at trial
or
approximately
$11,815,000
(App. 503-595).
[¶ 69] Stinar's asset approach conclusion was determined as follows.
a) $25,720,383 Estimated fair market value of 100 percent of partnership equity as depicted on page 2 of Schedule 8 of the Stinar report
(3,858,057) 15.0 percent discount for lack of control as discussed on page 38 of the Stinar report
$21,862,326 Estimated fair market value of 100 percent of partnership equity as of October 31, 2010 adjusted for discount for lack of control as discussed on page 38 of the Stinar report
b) (3,279,349) 15.0 percent discount for lack of marketability as discussed on page 52 of the Stinar report
$18,582,977 Estimated fair market value of 100 percent of partnership equity as of October 31, 2010 adjusted for both the discount for lack of control, as discussed on page 38 of the Stinar report, and the discount for lack of marketability as discussed on page 52 of the Stinar report
c) $18,582,977 Estimated fair market value of 100 percent of partnership equity as of October 31, 2010 adjusted for both the discount for lack of control, as discussed on page 38 of the Stinar report, and the discount for lack of marketability as discussed on page 52 of the Stinar report
× 50.0% Carl's ownership percentage
$9,291,489 Estimated fair market value under the asset approach of Carl's 50.0 percent interest as of October 31, 2010
or
approximately
$9,291,000
(App. 148-302).
[¶ 70] The significant difference between each experts conclusion was in reference to the applicable discount. (See generally 12/07/12 and 12/08/12 Trans.). Dr. Sliwoski concluded that a 10% discount for lack of marketability was appropriate. (App. 59). Carl's expert, Stinar, concluded a 15% discount for lack of marketability was appropriate and that an additional 15% discount for lack of control was appropriate. (See generally, 12/07/12 Trans.) When the two discounts were combined, the result was 27%. (App. 148-302).
[¶ 71] The overall difference in the asset approach valuation conclusion is $2,524,000 (Sliwoski's conclusion of $11,815,000 compared to Stinar's conclusion of $9,291,000). Therefore, all but $267,949 of the $2,524,000 difference in Sliwoski's and Stinar's asset approach conclusion relates to valuation discounts.
[¶ 72] As Sliwoski testified at trial, Carl, as a 50.0 percent partner in Hoverson Farms, has not suffered from lack of control. (12/08/11 Trans. p. 57, ll. 10-24). At trial, Carl testified that he was managing partner of Hoverson Farms and that, as managing partner, he was in charge of day to day managing decisions including, but not limited to, hiring and firing. (12/07/12 Trans. p. 155, ll. 19-25, p. 156, ll. 1-7).
[¶ 73] Carl receives an annual guaranteed payment, or salary, for managing Hoverson Farms, and he has hired his two sons as employees of Hoverson Farms. (12/08/11 Trans. p. 57, ll. 10-19). Hoverson Farms has distributed earnings annually to partners in an amount not required for operations. (12/08/11 Trans. p. 57, ll. 10-21). Annual distributions have been significant. (12/08/11 Trans. p. 57, ll. 10-21). Collective consideration of these items indicates that Carl has never suffered from lack of control from owning a 50.0 percent partnership interest. (12/08/11 Trans. p. 57, ll. 10-25. p. 58, ll. 1-4). Therefore, application of a lack of control discount is inappropriate.
[¶ 74] Sliwoski testified at trial that when farming businesses are sold, or become marketable, the process usually takes place at auction. (12/08/11 Trans. p. 52, ll. 14-25, p. 53, ll. 1-15). Costs to prepare assets for auction and auctioneer fees usually approximate 10.0 percent of asset selling prices. (12/08/11 Trans. p. 52, ll. 14-25, p. 53, ll. 1-17). Collective consideration of these items supports Sliwoski's conclusion that a 10.0 percent lack of marketability discount is relevant for Carl's 50.0 percent partnership interest. (12/08/11 Trans. p. 50, ll. 18-25, p. 51, ll. 1-3).
[¶ 75] It should be noted when Carl was divorced in 2000 from his first wife that he also had a 50.0 percent partnership interest in Hoverson Farms. (App. 405). The Findings of Fact, Conclusions of Law, Order of Judgment and Judgment dated June 8, 2000, specifically Fact 22 through 25, indicate that Carl's 50.0 percent partnership interest was valued using an asset approach with a 5.0 percent total valuation discount. (App. 405-406). Specifically, facts 22 through 25 state the following:
22. The Court finds that the value of Hoverson Farms, as a going concern, is as follows:
Equity as of 12/31/98 + $728,825
Equipment and Machinery + $ 59,970
Leased Equipment + $312,618
Warehouse Leases + $236,958
Land - $ 23,434
Inventory - $ 69,416
American Crystal Beet Stock - $141,400
Value Before Discount $1,104,521
5% Key Employee Discount - $ 55,226
Net Value $1,049,295
23. The defendant's one-half share of the net value of Hoverson Farms amount to $524,648. The Court has adopted the valuations primarily of Ron Bleth, the plaintiff's expert. However, as to owned equipment, the Court has taken the equipment as shown in Defendant's Exhibit 228A and applied a 10 year straight line depreciation rate to arrive at total owned equipment value of $2,081,731, compared to the amount stated by defendant's expert in the amount of $2,021,761 (also shown in Defendant's Exhibit 228A), resulting in a plus adjustment of $59,970. The leased equipment adjustment is valued at Mr. Bleth's estimate, based on original values less a 10% annual depreciation rate and less the unpaid lease principal. The warehouse leases are valued as per Bleth's testimony, except that the interest adjustment of $214,187 is not added back in since that was satisfactorily explained by Tyler Falk, defendant's expert. In essence, the value of the warehouse leases is the appraised value, without the functional obsolescence discount of 25% because of the large size of the warehouses, although the Court is accepting Bleth's estimate of useful life and depreciation. Finally, the American Crystal stock must be valued at its reduced values as of December 31, 1998. The stock clearly is worth less on the market because of conditions in the sugar industry.
24. The valuation of Hoverson Farms is based on the fair market value of the business itself, which precludes an auction value or selling off assets piecemeal. The valuation is based on what a willing buyer would pay for the business as a whole. All witnesses agreed that a business such as this required considerable amounts of farm equipment and machinery, including irrigation equipment, and large warehouses to store the potatoes. There was no evidence that there were no buyers for such a business, and indeed, agribusiness in the Red River Valley is moving toward larger scale operations to spread costs over an increased number of units of production.
25. The net result, using the above valuation for the farm, would indicate that the $1,700,000 investment of the parties in Hoverson Farms has shrunk to approximately $500,000.
(App. 405-406).
[¶ 76] In this case, the trial court adopted Carl's expert's opinion and applied a 27% discount. (App. 65). The 27% discount applied by the trial court is clearly erroneous.
III. The Amount of Child Support Determined by the District Court is Clearly Erroneous.
[¶ 77] NDAC § 75-02-04.1-09(2)(b) provides for an upward deviation from the guideline calculation when the deviation is in the best interest of the supported child and the obligor has a net income exceeding $12,500.00 per month. For self-employed obligors, child support is governed by NDAC § 75-02-04.1-05(4) (2011), which provides:
Self-employment activities may experience significant changes in production and income over time. To the extent that information is reasonably available, the average of the most recent five years of each self-employment activity, if undertaken on a substantially similar scale, must be used to determine self-employment income. When self-employment activity has not been operated on a substantially similar scale for five years, a shorter period may be used.
[¶ 78] An income of $12,500 or more per month is the highest enumerated bracket for the Child Support Guidelines. NDAC § 75-02-04.1-10. When an obligor's monthly income exceeds this highest bracket, "the court must make a further inquiry to determine an amount appropriate to the needs of the children and the ability of the parent to pay." Montgomery v. Montgomery, 481 N.W.2d 234, 236 (N.D.1992).
[¶ 79] This Court has previously stated that "needs" addressed by child support are the child's "appropriate needs." Heggen v. Heggen, 452 N.W.2d 96 (N.D.1990).
We say 'appropriate' advisedly because it is likely that the 'needs' of a child in a family with substantial income are more expansive because of the standard of living the family has enjoyed. Where there are sufficient resources, children of divorce are entitled to enjoy a standard of living post-divorce comparable to that enjoyed while the family was intact. Bagan v. Bagan, 382 N.W.2d 645, 648 (N.D.1986).
[¶ 80] In Montgomery v. Montgomery, 481 N.W.2d 234 (N.D.1992), the obligor earned $14,000 per month. The district court awarded child support in the amount of $3,500 per month, and the obligor appealed. Id. at 235. On appeal, the North Dakota Supreme Court upheld an upward deviation from the child support guidelines, despite the father's argument that the support award far exceeded the actual monthly living expenses attributable to the children. Id. at 236. The court noted that, "'children should be able to enjoy more than the subsistence level of support if the parents can afford greater amounts.'" Id. (quoting Wolf v. Wolf, 474 N.W.2d 257 (N.D.1991) see also Perala v. Carlson, 520 N.W.2d 839, 842 (N.D.1994) ("[A]ppropriate needs are not limited to a "subsistence level of support," but can also be based on his standard of living.").
[¶ 81] Carl's adjusted gross income for the past five years is as follows:
2010: $1,735,303
2009: $2,701,625
2008 $3,405,195
2007: $1,193,875
2006: $814,895
Average: $1,970,178.60
(App. 80).
[¶ 82] The district court in this case only granted an upward deviation in the amount of $900 for a total monthly child support obligation of $3,002, even though Carl's income is $164,000 per month. (App. 81). There is no question that Carl has the ability to pay a much greater amount of child support. He is clearly able to provide PMH with a standard of living well above the subsistence level of support. PMH is entitled to a post-divorce standard of living comparable to that enjoyed by the family before the divorce. Therefore, the amount of the upward deviation in child support is clearly erroneous.
CONCLUSION
[¶ 83] Appellant, Sandra Morten Hoverson, respectfully requests that this court issue an order reversing the district court's decision regarding (1) the amount and duration of spousal support; (2) the division of assets; and (3) the upward deviation in child support.
| Dated this 24th day of September, 2012. | |||||||
| /s/ Robert J. Schultz | |||||||
| Robert J. Schultz, ND ID #04535 | |||||||
| Conmy Feste Ltd. | |||||||
| 406 Main Avenue, Suite 200 | |||||||
| P.O. Box 2686 | |||||||
| Fargo, ND 58108-2686 | |||||||
| Telephone (701) 293-9911 | |||||||
| ATTORNEYS FOR | |||||||
| RESPONDENT/APPELLANT | |||||||