09/12/2017
DA 16-0600
Case Number: DA 16-0600
IN THE SUPREME COURT OF THE STATE OF MONTANA
2017 MT 223
IN RE THE MARRIAGE OF:
SANDRA J. BROESDER,
Petitioner and Appellee,
and
DONALD W. BROESDER,
Respondent and Appellant.
APPEAL FROM: District Court of the Eighth Judicial District,
In and For the County of Cascade, Cause No. ADR 12-138
Honorable Gregory G. Pinski, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Jason T. Holden, Katie R. Ranta, Faure Holden Attorneys at Law, P.C.,
Great Falls, Montana
Jeffrey S. Ferguson, Attorney at Law, Great Falls, Montana
For Appellee:
Antonia P. Marra, Marra, Evenson & Bell, P.C., Great Falls, Montana
Submitted on Briefs: August 16, 2017
Decided: September 12, 2017
Filed:
__________________________________________
Clerk
Justice Jim Rice delivered the Opinion of the Court.
¶1 Donald W. Broesder appeals the Order issued by the Eighth Judicial District Court,
Cascade County, affirming and adopting the Standing Master’s April 13, 2016 Findings of
Fact, Conclusions of Law, and Decree of Dissolution, which dissolved the marriage
between Donald and Sandra Broesder. We reverse and remand, addressing the following
restated issue:
Did the District Court err by failing to consider the tax consequences of the
distribution of the marital estate, resulting in an inequitable distribution?
FACTUAL AND PROCEDURAL BACKGROUND
¶2 Since 1951, Donald has lived and worked on the Broesder family ranch, which was
homesteaded by Donald’s grandfather in 1911, and then owned by his parents. Donald and
Sandra were married in 1976, and for approximately 35 years they lived and worked on the
ranch. Together with their sons, Seth Broesder and Shane Broesder, and daughter-in-law,
Sarah Broesder, Donald and Sandra own the ranch in a small corporation with restrictions
upon the sale of stock.
¶3 During the marriage, Donald worked exclusively on the ranch, while Sandra worked
both on the ranch and elsewhere, including serving as a Pondera County Commissioner.
Sandra’s non-ranch income was used for personal expenses, as well as for ranch and family
expenses. Seth, Sarah, and Shane have also worked on the ranch. Ranch shares were given
to Donald and Sandra to compensate them for their work on the ranch, and for property
and assets, which they transferred to the ranch corporation when it was originally
incorporated. Shares of the ranch corporation are held as follows:
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Owner Shares Owned Ownership Percentage
Donald 9909 39.65%
Sandra 9908 39.64%
Seth 4087 16.35%
Sarah 600 2.40%
Shane 496 1.96%
Total 25,000 100%
¶4 The parties agree the ranch is the significant marital asset, and the land is the
significant ranch asset. The total value of the ranch is approximately $3.1 million, with the
land valued at approximately $2.3 million. Donald and Sandra both have minimal personal
assets. As counsel for Sandra stated, at the hearing before the District Court, the land is
“really the majority asset of the corporation. And, in fact, that was the reason the other
shareholders sought to intervene.”
¶5 Seth and Sarah moved to intervene in the matter, arguing that intervention was
necessary to protect their interests in the ranch. The Standing Master denied the motion
for intervention, reasoning “[t]he notion that an equitable division in this matter cannot be
achieved without compelling the sale of assets is speculative.”
¶6 During the proceedings, Donald suggested Sandra keep her ranch shares as her
portion of the marital estate, but Sandra offered it would be necessary, in that event, for her
to be given “some sort of control” over ranch decisions, as well as receiving reimbursement
for living costs the ranch had provided during the marriage. Regarding possible sale
between them, Donald suggested using the book value of $10.25 per share set, in 2003, by
the shareholders pursuant to their stock agreement as the value of Sandra’s interest.
However, the resulting value of $101,557 was unrepresentative of the fair market value of
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Sandra’s shares, and the Standing Master concluded such a price would constitute a
windfall for Donald, who was unwilling to sell his shares for that price. Sandra thought
the ranch assets should be valued at $4 million, but regarding a buyout of the shares, Sandra
testified:
Q. If the Court values the marital portion of the corporation, and values the
corporation at $4 million, could either you or Don realistically get a loan to
purchase the other’s interest at this point?
A. Probably not. I don’t see how the ranch cash flow could service that
amount of debt.
¶7 The Standing Master determined Donald’s interest in the ranch to be $1,159,541
and Sandra’s interest to be $1,159,424. Following this determination, the Standing Master
ordered Donald to pay Sandra the sum of $1,159,4831 for her interest in the ranch, with
$50,000 to be paid within 60 days and the remainder within 24 months. The Standing
Master ordered Sandra would not unreasonably withhold her consent to actions taken by
Donald in furtherance of the judgment, including “liquidation of the corporate property.”
However, no consideration was given to the tax implications of liquidating ranch property
and assets to satisfy the judgment.
¶8 Donald filed objections to the Standing Master’s Order, and the District Court
conducted a hearing. Donald urged consideration of the tax implications of a sale, which
the District Court acknowledged:
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There is a $59 discrepancy between Sandra’s interest in the Ranch and the amount Donald was
ordered to pay her for her interest. There is no explanation in the record for this discrepancy.
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Mr. Ferguson: [T]here’s absolutely no tax consequences figured into this,
either. You and I both know that if this ranch is liquidated, the tax
consequences are going to be enormous.
The Court: True, because of the low basis and the high sale value.
Mr. Ferguson: Absolutely.
The Court: There’s no doubt about that.
¶9 The District Court affirmed and adopted the Standing Master’s Order, reasoning the
Standing Master had “considered the totality of circumstances, limited marital assets, and
equitably structured a way for Donald to satisfy the marital property division.” The court
did not address the tax consequences in its written order. Donald appeals.
STANDARD OF REVIEW
¶10 Two standards of review are relevant in cases involving both a standing master and
the district court: the standard the district court applies to the master’s report and the
standard we apply to the district court’s decision. In re Marriage of Davis, 2016 MT
52, ¶ 4, 382 Mont. 378, 367 P.3d 400 (citing In re Marriage of Kostelnik, 2015 MT
283, ¶ 15, 381 Mont. 182, 357 P.3d 912). We review a district court’s decisions de novo
to determine whether it applied the correct standard of review to a standing master’s
findings of fact and conclusions of law. Kostelnik, ¶ 15 (citing In re Marriage of Patton,
2015 MT 7, ¶ 17, 378 Mont. 22, 340 P.3d 1242). A district court reviews a standing
master’s findings of fact for clear error, Patton, ¶ 24, and its conclusions of law to
determine if they are correct, Patton, ¶ 43.
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DISCUSSION
¶11 Did the District Court err by failing to consider the tax consequences of the
distribution of the marital estate, resulting in an inequitable distribution?
¶12 Donald argues the Standing Master and District Court failed to consider the tax
consequences of the practical conclusion of the District Court’s order, a “forced liquidation
of Broesder Ranch, Inc.,” resulting in an “inequitable and unconscionable” distribution of
the martial estate. Sandra argues Donald failed to present evidence of tax consequences,
merely raising the issue in legal arguments to the District Court, and that the distribution
of the marital estate was nonetheless fair and equitable.
¶13 “In a proceeding for dissolution of a marriage, . . . the court . . . shall, . . . finally
equitably apportion between the parties the property and assets belonging to either or
both. . . .” Section 40-4-202(1), MCA. This statute and public policy demand an equitable
distribution of the marital estate, including tax liability. We have previously held “where
a property distribution ordered by a court includes a taxable event precipitating a concrete
and immediate tax liability, such tax liability should be considered by the court before
entering its final judgment.” In re Marriage of Clark, 2015 MT 263, ¶ 16, 381 Mont. 50,
357 P.3d 314 (citing In re Marriage of Beck, 193 Mont. 166, 172, 631 P.2d 282, 285
(1981)). We have also held determining the existence of a “concrete and immediate” tax
event caused by a distribution order “requires examining the context around the distribution
order.” Clark, ¶ 18. “To find that a taxable event is concrete and immediate, we have not
demanded that the distribution order specifically direct the very event that triggers
taxation.” Clark, ¶ 18. However, “we have demanded that the distribution order at least
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reasonably appear to trigger a taxable event” in the context of the surrounding
circumstances. Clark, ¶ 18.
¶14 The decree here does not expressly mandate liquidation of the ranch. However, it
orders Donald to pay $1.1 million to Sandra for her share of the martial estate, and the
record fails to establish that there are available assets in the marital estate for such a
payment or that financing a purchase of Sandra’s shares at fair market value is feasible.
Thus, the “liquidation of corporate property” referenced by the Standing Master would
appear to be a necessity to satisfy the judgment—the ranch would have to be sold, which
would “reasonably appear to trigger a taxable event.” Clark, ¶ 18. Notwithstanding this
eventuality, the tax consequences were not “considered by the court before entering its
final judgment.” Clark, ¶ 16.
¶15 Theorizing on the application of federal and state corporate and capital gains taxes,
Donald argues on appeal that sale of the ranch property would trigger over $1 million in
taxes, which, after distribution to the other shareholders, would leave Donald with almost
enough funds to satisfy the decreed payment to Sandra, and nothing for himself. Such a
scenario would obviously be inequitable. Whether Donald’s scenario is accurate is
unknown, as there is no record evidence of the tax consequences of liquidation, but
nonetheless serves to illustrate the need to follow Clark in this instance and assess the tax
implications, even if Donald only generally raised the issue before the District Court.
While we have adopted no firm rule, we have cautioned about ordering the sale of a
spouse’s business assets “in order to satisfy the judgment, thereby losing the bulk of the
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marital estate distributed to him and undermining his future ability to earn an income.”
Schwartz v. Harris, 2013 MT 145, ¶ 35, 370 Mont. 294, 308 P.3d 949.
¶16 The Standing Master erred as a matter of law by failing to consider the tax
consequences of the likely result that the ranch would be sold to satisfy the judgment, and
the District Court erred in adopting this conclusion. We reverse and remand this matter for
a new trial or, in the discretion of the District Court, such further proceedings as would be
necessary to implement this opinion.
/S/ JIM RICE
We concur:
/S/ MIKE McGRATH
/S/ BETH BAKER
/S/ MICHAEL E WHEAT
/S/ JAMES JEREMIAH SHEA
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