MEMORANDUM DECISION
Pursuant to Ind. Appellate Rule 65(D), this
Memorandum Decision shall not be regarded as
precedent or cited before any court except for the
purpose of establishing the defense of res judicata,
collateral estoppel, or the law of the case. Jul 28 2015, 9:58 am
ATTORNEY FOR APPELLANT
Laurie Baiden Bumb
Bumb & Vowels, LLP
Evansville, Indiana
IN THE
COURT OF APPEALS OF INDIANA
In re the Marriage of: July 28, 2015
Court of Appeals Case No.
Thomas E. Thompson, 74A05-1412-DR-598
Appellant-Respondent, Appeal from the Spencer Circuit
Court
v.
The Honorable Jonathan A. Dartt,
Judge
Donna B. Thompson, Cause No. 74C01-0801-DR-34
Appellee-Petitioner,
Bradford, Judge.
Case Summary
[1] Appellee-Petitioner Donna Thompson (“Wife”) filed for dissolution of
marriage from her former husband, Appellant-Respondent Thomas Thompson
(“Husband”). In separating the marital assets, the trial court awarded Husband
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the marital home and Husband’s 401(k) which accounted for the large majority
of the total marital estate. The trial court also ordered Husband to make a cash
equalization payment to Wife in order that the total assets would be split evenly
by the parties. The trial court instructed Husband to liquidate certain
retirement accounts, refinance the marital home, or obtain a loan to satisfy the
cash payment to Wife. The trial court further instructed that if such options
were insufficient, Husband would be required to sell the marital home. On
appeal, Husband argues that the trial court erred by failing to consider tax
consequences and costs of selling the home when valuating assets, resulting in
an unequal division of property. We agree and remand with instructions that
the trial court revaluate certain assets to account for the tax consequences and
costs of real estate sale that will likely be incurred as a result of the order.
Facts and Procedural History
[2] The parties were married on December 21, 1984 and have three adult children
together. On January 16, 2008, Wife filed a petition for dissolution of
marriage. On March 1, 2012, Husband retired from his job of twenty-three
years. The trial court held a hearing on February 11, 2014 regarding the
division of the marital estate. Among other assets, Husband had two pensions
which Wife requested be split by means of a Qualified Domestic Relations
Order (“QDRO”). In its June 26, 2014 decree of dissolution and property
division, the trial court ordered the marital assets separated as follows:
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2. The Petitioner/Wife shall receive and own as her property the
following property at the following values:
Half of Husband’s Millwright Pension that accrued QDRO
during marriage
Half of Husband’s ALCOA Defined Benefit
QDRO
(Pension) that accrued during marriage
2002 Pontiac Grand Am $1,200
2006 Chevy Aveo $8,000
Ed Jones joint [account] $23,096
Wife’s Freedom [account] $0.32
Wife’s American Funds IRA $57,871.41
Wife’s SMMC 401(a) $1,024.56
Wife’s SMMC 403(a) $2,038.53
Personal Property (equal value to Husband’s) -----------
TOTAL $90,231.00
3. The Respondent/Husband shall receive and own as [his] property
the following property at the following values:
Half of Husband’s Millwright Pension that accrued QDRO
during marriage
Half of Husband’s ALCOA Defined Benefit
QDRO
(Pension) that accrued during marriage
Marital home & real estate [] $97,000.00
1984 Chevy Blazer $500.00
Husband’s Freedom [account] $3,600.38
Husband’s ALCOA 401(k) Defined Contribution
$226,231.37
Plan
Personal Property (equal value to [Wife’s]) -----------
TOTAL $406,901.50
App. pp. 8-9.
[3] The trial court gave Husband additional credits totaling approximately $28,000
for personal funds spent on the parties’ children’s college expenses as well as for
certificates of deposit brought into the marriage. Excluding the pensions
divided by QDROs, Husband received $376,528.04 of the marital estate and
Wife received $88,044.31. The trial court ordered Husband to make a cash
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equalization payment to Wife in the amount of $144,241.86 in order that each
party receive a 50% share of the total net marital estate. The trial court
specified that Husband could satisfy this cash payment by liquidating certain
retirement accounts, refinancing the marital home, or obtaining a loan, and that
if those options were insufficient then Husband would be required to sell the
marital home.
[4] On July 18, 2014, Husband filed a motion to correct errors in which he argued,
among other things, that the trial court erred by failing to consider the tax
consequences of drawing funds from the parties’ tax deferred assets, including
Husband’s 401(k). The trial court denied Husband’s motion.
Discussion and Decision
[5] Husband raises two issues on appeal: (1) whether the trial court abused its
discretion by failing to consider the costs of a real estate sale and tax
consequences of its property disposition, and (2) whether the trial court abused
its discretion by failing to order the division of Husband’s 401(k) by means of a
QDRO.
Standard of Review
[6] “We apply a strict standard of review to a court’s distribution of property upon
dissolution. The division of marital assets is a matter within the sound
discretion of the trial court.” Smith v. Smith, 854 N.E.2d 1, 5 (Ind. Ct. App.
2006) (citations omitted). “The presumption that a dissolution court correctly
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followed the law and made all the proper considerations when dividing the
property is one of the strongest presumptions applicable to our consideration on
appeal.” Id.
[7] However, because Wife neglected to file an appellee’s brief, our standard of
review is slightly different. Where one party fails to file an appellate brief, we
may reverse the trial court if the appellant presents a case of prima facie error.
Henderson v. Henderson, 919 N.E.2d 1207, 1210 (Ind. Ct. App. 2010). “Prima
facie error means at first sight, on first appearance, or on the face of it.” Id.
We will not undertake the burden of developing an argument on the Wife’s
behalf. Id.
I. Whether the Trial Court Erred by Failing to Consider
the Tax Consequences of its Asset Distribution
[8] Indiana Code Section 31-15-7-7 provides that “The court, in determining what
is just and reasonable in dividing property under this chapter, shall consider the
tax consequences of the property disposition with respect to the present and
future economic circumstances of each party.” The statute requires the trial
court to consider only the direct, immediate, or inherent and necessarily
incurred tax consequences of the property disposition. Harlan v. Harlan, 560
N.E.2d 1246 (Ind. 1990); Granger v. Granger, 579 N.E.2d 1319, 1321 (Ind. Ct.
App. 1991). “A taxable event must occur as a direct result of the court-ordered
disposition of the marital estate for the resulting tax to reduce the value of the
marital estate.” Granger, 579 N.E.2d at 1321.
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[9] The inclusion of costs of the sale of real estate in a trial court’s valuation of said
real estate has been analogized by this court to the consideration of tax
consequences under Section 31-15-7-7. Dowden v. Allman, 696 N.E.2d 456, 458
n.1 (Ind. Ct. App. 1998). Like tax considerations, we have held that it is only
appropriate for a trial court to consider the costs of sale of real estate in its
valuation when such costs will be incurred as a direct result of the trial court’s
disposition of property.
[10] In Granger, the husband filed a petition for dissolution of marriage and
subsequently listed two laundromats he owned for sale. 579 N.E.2d at 1320.
The trial court determined the anticipated tax liability from the sale of the two
laundromats and reduced the marital estate by that amount. The trial court
explained its consideration of the possible tax liabilities from the sale by stating
that although it did not “specifically order the sale of the laundromats,” there
would be no other way “under the circumstances, where [the husband] can
accomplish the things that have been required by this Court without the sale of
the laundromats.” Id. at 1321 (record citation omitted). On appeal, this court
found that there was a reasonable inference that husband could borrow the
necessary funds to meet his obligations under the property disposition should
his income be insufficient, and therefore, the sale of both laundromats was not
an immediate consequence of the property disposition. Id. Evidence which
indicated that husband could meet his financial burden without selling the
laundromats included husband’s personal income, the laundromats’ business
income, the fact that the vast majority of husband’s liabilities under the
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disposition were payable in monthly installments, and that each one of the
laundromats on their own was valued at an amount considerably higher than
husband’s total indebtness under the property division. 1 Id.
[11] In the instant case, the trial court’s order states as follows:
[Husband] shall pay said cash equalization [$144,241.86] to [Wife]
within seventy-five (75) days of the date of this Order such as by
liquidating certain retirement accounts, refinancing the marital real
estate and home, obtaining a loan, or a combination of the above. If
he is unable to satisfy the cash equalization from said resources, is
unable to refinance the real estate, or decides not to stay at said
residence, said real estate shall be listed for sale within forty-five (45)
days of this Order and sold through a licensed realtor.
App. p. 12.
[12] The record is devoid of any evidence regarding Husband’s ability to obtain a
personal loan or mortgage financing. At the time of the hearing, Husband was
unemployed and his total income consisted of monthly Social Security
Disability payments and distributions from his pensions.2 In contrast to
Granger, Husband has been ordered to make a larger cash payment within a
relatively short period of time and is on a fixed income. As the trial court
acknowledged in its order, it seems clear that Husband will be unable to satisfy
1
The trial court determined that husband would be liable for certain marital debts totaling $49,117.37, the
majority of which was composed of a mortgage and business debt, and was payable monthly. The trial court
also ordered husband to pay wife $6,168.23 within 180 days of the order. The laundromats were valued at
$110,000 and $80,000, carrying a total indebtedness of $19,000. Husband had a personal income of $30,000
per year. Id.
2
Husband’s Social Security Disability benefits and pension payments (after being reduced by the QDROs)
amounted to approximately $41,500 per year.
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the cash payment without liquidating a portion of his retirement accounts,
selling his home, or both.3 Accordingly, we think that there will clearly be a
direct, necessarily-incurred tax consequence as a result of the trial court’s order.
Because the retirement accounts are comprised of pre-tax funds, liquidation of
those accounts will almost certainly cause Husband to incur a significant tax
liability. More directly, the trial court stated in its property disposition, and in
its order on Husband’s motion to correct errors, that Husband must sell the
marital home if he is unable to satisfy the cash equalization by other means.
There would certainly be standard sale-related costs incurred by Husband if he
were forced to sell the marital home, costs which the trial court neglected to
consider in its order. Accordingly, we find that the trial court erred in failing to
consider both the tax consequences of drawing from Husband’s 401(k) assets
and the real estate costs associated with the sale of the marital home.
[13] “[T]he trial court’s judgment might provide alternative plans of distribution,
one which appropriately considers resulting tax consequences and one which
does not involve tax consequences.” Granger, 579 N.E.2d at 1321 n.2. On
remand, the trial court shall consider the costs and/or tax consequences of its
property valuation based on the options it provides Husband to meet his cash
equalization, be that liquidating his tax-deferred accounts, selling the marital
3
We note that the court valued the marital home at $97,000. Assuming that Husband can sell the home for
that price, not including any sale costs, Husband would still be approximately $47,000 shy of the cash
equalization payment. Therefore, it is unlikely that he will be able to satisfy the order without liquidating
retirement accounts.
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home, or otherwise, with the appropriate adjustment of the valuation of those
assets contingent upon the manner in which Husband chooses to meet his
equalization liability.4
II. Whether the Trial Court Erred by Failing to Divide
Husband’s 401(k) Using a QDRO
[14] Husband argues that dividing his 401(k) via a QDRO would have been a more
equitable method of distribution and that doing so would have reduced the cash
equalization payment to only $31,126.18, thus eliminating the tax consequence
issue by preventing the need to liquidate accounts or sell the house. We
disagree for several reasons. Firstly, although a QDRO would allow the parties
to split the 401(k) without creating tax consequences, there are risks and
complexities inherent in their use with respect to 401(k)’s. Preparing a QDRO
takes time and must comply with the employer and benefit plan’s requirements.
Often, the value of a 401(k) will fall before a QDRO can be implemented,
resulting in difficulties satisfying the property disposition.5 See e.g. Ehman v.
4
Husband briefly acknowledges in his appellate brief that a trial court is not required to consider tax
consequences if such consequences were not presented by the party. Hardin v. Hardin, 964 N.E.2d 247, 254
(Ind. Ct. App. 2012). However, he argues that the issue could not have been anticipated because neither
party contemplated the liquidation of the Husband’s 401(k) during trial and expected a QDRO to divide the
401(k) rather than a cash payment. First, waiver is an affirmative defense and because Wife did not file a
brief, we will not develop her argument for her. Second, we agree that the tax consequence issue was not
readily apparent prior to the trial court’s ruling and further note that Husband appropriately raised the issue
in his motion to correct errors after it became apparent. As such, we decline to find that Husband waived this
argument on appeal.
5
We note that the value of Husband’s 401(k) fell from approximately $312,000 at the time Wife filed her
petition for dissolution in 2008, to approximately $260,000 at the time of his retirement in 2012.
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Ehman, 941 N.E.2d 1103 (Ind. Ct. App. 2011); Case v. Case, 794 N.E.2d 514
(Ind. Ct. App. 2003).
[15] Furthermore, neither party specified to the trial court by what means they
wished the 401(k) to be split. Husband made no argument at trial that a QDRO
would be a superior method to divide the 401(k). Finally, Husband cited no
cases or statutes in support of his contention that the trial court was required to
use QDRO as opposed to a cash equalization payment. In light of the
significant discretion afforded a trial court in its division of property and lack of
support for Husband’s argument on this issue, we affirm the trial court’s
judgment with regards to the means by which it chose to divide the marital
assets.
[16] The judgment of the trial court is affirmed in part, reversed in part, and
remanded with instructions.
May, J., and Crone, J., concur.
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