No. 02-019
IN THE SUPREME COURT OF THE STATE OF MONTANA
2002 MT 281
IN RE THE MARRIAGE OF
PATRICK B. HAYES,
Petitioner and Respondent,
and
EILEEN A. HAYES,
Respondent and Appellant.
APPEAL FROM: District Court of the Fourth Judicial District,
In and For the County of Missoula,
Honorable Douglas G. Harkin, Judge Presiding
COUNSEL OF RECORD:
For Appellant:
Dennis E. Lind and Cynthia L. Cate, Datsopoulos, MacDonald & Lind,
Missoula, Montana
For Respondent:
Shelly F. Brander, Kaufman, Vidal & Hileman, Kalispell, Montana
Submitted on Briefs: May 23, 2002
Decided: December 10, 2002
Filed:
__________________________________________
Clerk
Justice W. William Leaphart delivered the Opinion of the Court.
¶1 The Petitioner, Eileen Hayes, n/k/a Eileen Larkin, appeals
from an Order issued by the District Court for the Fourth Judicial
District in Missoula County which distributed the marital estate
between her and the Respondent, Patrick Hayes. We affirm.
¶2 The following issues are presented on appeal:
1. Did the District Court err by not determining the net worth of
the marital estate prior to its distribution?
2. Did the District Court err by not considering the tax
consequences arising from the court-ordered sale of marital
properties?
3. Did the District Court err by not including Patrick’s
disability income in the marital estate or by not considering
the disability income in determining whether or not to award
maintenance to Eileen?
Factual and Procedural Background
¶ 3 Eileen and Patrick were married in Houston, Texas, on January
22, 1982, and have two children from the marriage. Both received
their chiropractic degrees; however, Eileen practiced for only one
year because of a knee injury. In 1984, the parties moved to
Colorado and opened a chiropractic clinic where Patrick practiced
as a chiropractor and Eileen handled the administrative
responsibilities. The clinic flourished; in 1989 Patrick had
20,000 patient visits. Patrick and Eileen were equal shareholders
in the clinic. In 1989, the parties acquired full ownership of the
office complex in which the clinic was located.
2
¶ 4 The parties acquired various other assets, including an
upscale home, an 80-acre ranch, a cabin, a motor home, and several
vehicles. In addition, the couple purchased a deluxe tax-free
disability insurance policy with all available future income
options and riders to protect the parties’ substantial income from
the clinic should Patrick become disabled.
¶ 5 In 1990, after suffering unexplained weight loss, heartburn
and fatigue, Patrick was diagnosed with Gastroesophageal Reflex
Disease. Patrick discontinued working as a chiropractor at that
time and began receiving private disability benefits. Patrick also
applied for and was awarded workers’ compensation benefits from the
State of Colorado. Patrick’s health continued to deteriorate. In
1992, Patrick was diagnosed with a terminal condition known as
Scleroderma, a progressive vascular autoimmune disease which will
shorten his life span. Although Patrick’s anticipated life
expectancy is unknown, one of Patrick’s treating physicians
testified that 80 percent of white males do not live ten years past
their diagnosis date. Patrick underwent esophagus surgery and
continues to receive periodic treatment related to the disease.
Patrick currently receives approximately $12,000 per month in tax-
free disability insurance benefits.
¶ 6 In 1990, Eileen and Patrick moved to Montana to further their
education. Both Patrick and Eileen enrolled at the University of
Montana and obtained their bachelor’s degrees. Eileen is currently
attending law school at the University of Montana where she will
receive her juris doctorate in 2003. After they moved to Montana,
3
the parties purchased property on Reserve Street in Missoula and
built a business complex known as the “Towne Court” for the purpose
of relocating Eileen’s quilting business. Eileen was responsible
for managing and operating the store.
¶ 7 The couple separated in the fall of 1998. Patrick
subsequently filed a Petition for Dissolution of Marriage with the
Montana Fourth Judicial District Court on April 28, 1999.
Following two unsuccessful settlement conferences, the parties
proceeded to a bench trial in June 2001.
¶ 8 The District Court issued its Findings of Fact, Conclusions of
Law, and Order on July 19, 200l. The District Court awarded
Eileen her retirement account, personal stocks and bonds, and a
1996 Aerostar. The value of the assets awarded to Eileen total
approximately $55,000. Eileen was also awarded the $500,000 life
insurance policy on Patrick with a cash out value of $25,500. The
District Court denied her request for maintenance.
¶ 9 The District Court awarded Patrick his retirement account,
property on Lake Inez, a motor home, two vehicles, various
recreational and sporting goods, and a bank account. The value of
the assets awarded to Patrick total approximately $157,000. The
District Court also awarded Patrick the entirety of his disability
and social security benefits totaling approximately $13,500 per
month.
¶ 10 To address the disproportionate distribution of the estate,
the court ordered the immediate sale of various assets, including
the Towne Court property, the office complex in Colorado, and
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certain life insurance policies. The Order also provided that, in
the event the parties could not agree on a reasonable sales price
for the properties, the District Court would set a price which
would be reduced 5 percent monthly until they sold. The court
ordered that the net proceeds from the sale of these assets be
placed into an account and applied against the marital estate’s
debts. According to the District Court’s order, after the marital
debts were satisfied, Eileen was to receive a $100,000 cash payment
“as partial adjustment for the property distributed to Patrick.”
Eileen then would receive three-quarters of the remaining marital
estate and Patrick would receive one-quarter.
¶ 11 Thereafter, Eileen filed a motion for clarification and to
alter or amend the judgment in which she requested the following:
temporary family support pending sale of the marital property; that
Patrick continue to be responsible for the marital credit card
debt; that the court set forth a procedure for the sale of the
property; and that Patrick pay the taxes on the Towne Court. The
District Court issued an order on September 6, 2001, in response to
Eileen’s motion, denying her request for temporary family support
and addressing her other requests. ¶ 12 Subsequently, Eileen
filed a timely notice of appeal with respect to the District
Court’s Findings of Fact, Conclusions of Law, and Order and its
September 6, 2001, Order in response to her motion for
clarification and to alter or amend judgment.
5
Discussion
¶ 13 The distribution of marital property in a dissolution proceeding is governed by §
40-4-202, MCA. Under this statute, a district court is vested with broad discretion to
distribute the marital estate in a manner which is equitable to both parties. Marriage of
Lee (1997), 282 Mont. 410, 421, 938 P.2d 650, 657. In dividing a marital estate, the
district court must reach an equitable distribution, not necessarily an equal
distribution. Marriage of Wells (1996), 278 Mont. 413, 416, 925 P.2d 483, 485. We
review a district court’s division of marital property to determine whether the findings
on which it relied are clearly erroneous. Marriage of DeBuff, 2002 MT 159, ¶ 14, 310
Mont. 382, ¶ 14, 50 P.3d 1070, ¶14; Marriage of Engen, 1998 MT 153, ¶ 26, 289 Mont.
299, ¶ 26, 961 P.2d 738, ¶ 26. If the findings are not clearly erroneous, we will affirm the
distribution of property unless the district court abused its discretion. Marriage of Engen, ¶
26. The standard for abuse of discretion in a dissolution proceeding is whether the trial court
acted arbitrarily without employment of conscientious judgment or exceeded the bounds of
reason resulting in substantial injustice. Marriage of Engen, ¶ 26.
Issue 1
¶ 14 Did the District Court err by not determining the net worth of the marital estate?
¶ 15 Eileen argues that the District Court erred by not establishing the marital estate’s net
worth thereby abusing its discretion. In support of her argument, Eileen cites Marriage of
Dirnberger (1989), 237 Mont. 398, 773 P.2d 330, in which we ruled that a district court’s
failure to make a specific finding as to liabilities, thereby precluding a determination of net
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worth, was an abuse of discretion. Dirnberger, 237 Mont. at 402, 773 P.2d at 332. We
vacated the property division in that case and remanded it for a redetermination.
¶ 16 Patrick points out that several cases since Dirnberger have held that a specific finding
of net worth is not mandatory if the findings as a whole are sufficient to determine the
equitable nature of the division. In Marriage of Harkin, 2000 MT 105, 299 Mont. 298, 999
P.2d 969, we concluded that a district court did not abuse its discretion by not making a
specific finding of fact regarding the total assets and liabilities of the marital estate, and that
“a net valuation by the district court . . . is not always mandatory.” Harkin, ¶ 31 (quoting
Marriage of Walls (1996), 278 Mont. 413, 417, 925 P.2d 483, 485). In determining whether
a finding of net worth is necessary, we have stated that “the test is whether the findings as a
whole are sufficient to determine the net worth and to decide whether the distribution is
equitable.” Harkin, ¶ 31; Walls, 278 Mont. at 417, 925 P.2d at 485 (quoting Marriage of
Stephenson (1989), 237 Mont. 157, 160, 772 P.2d 846, 848).
¶ 17 Applying the test mentioned above, this Court must first determine whether the
findings as a whole are sufficient to determine the net worth of the marital estate. Naturally,
until the marital properties ordered sold are sold, it is impossible to calculate the net value of
the marital estate; however, the District Court’s inability to calculate the exact net worth does
not render its distribution of the marital estate inequitable. Except for the properties it
ordered the parties to sell, the District Court made specific findings regarding the valuation of
all the marital assets. Then, at trial, the parties agreed on the values of the properties ordered
sold except for the family residence. The District Court stated in its findings that in
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distributing the estate it had “estimated the net sums likely to be received upon the sale of
marital estate,” although it did not state what those estimations were. The District Court also
ordered that if the parties were unable to agree on a reasonable sale price for any of the
properties, the court would then set the sale price. We believe that these findings are
sufficient to determine the net worth of the marital estate, given that the value of a portion of
the estate is unknown and subject to the market’s determination.
¶ 18 Next, we consider whether the marital estate was equitably distributed. In distributing
the marital assets, the District Court considered the factors set forth in § 40-4-202(1), MCA.
Under this statute, the District Court may consider, among other factors, the age, health, and
opportunity of each spouse to acquire future capital assets and income. In the case at bar, a
significant disparity exists in the parties’ health and opportunity for future acquisition of
capital assets and income. Patrick, who was 44 at the time the petition for dissolution was
filed, has a terminal disease which substantially impairs the quality of his life and precludes
him from performing any gainful activity. The assets awarded to him, along with the
disability benefits to be discussed below, are his sole means to accumulate wealth and pay for
medical treatment. Eileen, on the other hand, is due to graduate from law school in 2003 and
will have the opportunity to earn income in the future.
¶ 19 These facts were properly considered by the District Court in its distribution of the
estate. The District Court did not abuse its discretion in finding that the disparity in the
parties’ health and future income potential weigh in favor of Patrick receiving his share of the
marital estate first in time, while his health is at its best, and Eileen receiving her share later
8
on, when the sales of the properties are concluded and the marital debts are satisfied.
Although the District Court could not make a specific finding of the estate’s net worth, the
findings of fact taken as a whole are sufficient to determine that the property distribution was
equitable. The District Court did not act arbitrarily nor did it fail to employ conscientious
judgment in its division of the marital estate. Indeed, “the emphasis placed on the parties’
needs and their relative financial situations indicates a careful exercise of the court’s
discretion.” Marriage of Stephenson (1989), 237 Mont. 157, 160, 772 P.2d 846, 848
(quoting Bailey v. Bailey (1979), 184 Mont. 418, 420, 603 P.2d 259, 260). Accordingly, we
hold the District Court did not err in failing to determine the net worth of the marital estate
nor abuse its discretion in distributing the marital estate.
Issue 2
¶ 20 Did the District Court err by not considering the tax consequences which would result
from the sale of property ordered by the District Court?
¶ 21 The District Court ordered Eileen and Patrick to sell various properties, including the
Towne Court and office complex in Colorado, as well as the parties’ residence. The District
Court recognized in its findings that “[t]he sales expenses and tax consequences will diminish
the marital assets, but the need to disengage the parties recommends no other alternative.”
While the District Court did not calculate the specific tax consequences to be realized from
the sale, it stated that it had “estimated the net sums to be received upon the sale of the
marital property.”
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¶ 22 Eileen argues that the court should have, but did not and could not estimate the tax
consequences of the sale of those properties. At trial, neither Eileen nor Patrick requested
that the properties be sold, and thus did not present any evidence relating to the tax
consequences of such a sale. Eileen contends that by not considering the tax consequences of
those sales, the District Court abused its discretion.
¶ 23 In support of her argument, Eileen cites Marriage of Lee (1991), 249 Mont. 516, 519-
20, 816 P.2d 1076, 1078, where this Court held that a district court abused its discretion by
failing to address tax consequences associated with the distribution of a marital estate. In
Lee, a district court directed one spouse to liquidate his personal stock to satisfy the court-
ordered cash payment to the other spouse. In reversing the lower court this Court stated
“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.” Lee, 249 Mont. at 519, 816 P.2d at 1078 (quoting
Marriage of Beck (1981), 193 Mont. 166, 171, 631 P.2d 282, 285).
¶ 24 Patrick contends that Lee does not control in this case because the tax liabilities
arising from the sale of the properties are to be paid from the marital estate prior to
distribution and will not be borne by an individual spouse. Patrick points out that in Lee, the
tax consequences of the court-ordered sale directly reduced one spouse’s share of the marital
estate. Here, the tax consequences will reduce both parties’ portions of the estate. Because
the tax consequences of the court-ordered sale are to be borne by the marital estate and not an
individual party, and because neither party offered evidence regarding those consequences,
10
we believe that the District Court did not err by not considering the specific tax implications
of the sale.
Issue 3
¶ 25 Did the District Court abuse its discretion by not including Patrick’s disability income
in the marital estate or by not considering the disability income in determining whether or not
to award maintenance to Eileen?
¶ 26 While a court may consider the “opportunity of each for future acquisition of capital
assets and income,” under § 40-4-202, MCA, this does not mean that future income is
necessarily a part of the marital estate to be divided between the parties. Eileen states that
the disability insurance policy was part of the family’s retirement planning and was acquired
during the marriage with marital funds. Therefore, she maintains that the future benefits of
the policy, which total $12,000 monthly, should have been included in the marital estate or
considered in her request for maintenance. Patrick counters that the disability benefits
simply replace future income he would have earned if he did not have Scleroderma. He
further points out that the District Court correctly did not consider Eileen’s future income as
an attorney in its distribution of the marital estate. He also directs this Court to the District
Court’s findings “that the monthly income Patrick receives from his disability insurance
policy was considered when determining the distribution of the marital estate.” The District
Court, having considered Patrick’s disability benefits in its distribution of the marital estate,
did not abuse its discretion in awarding the entirety of the benefits to Patrick.
11
¶ 27 As to whether the disability benefits were properly considered by the District Court
for determining whether to award maintenance to Eileen, § 40-4-203, MCA, prescribes the
circumstances under which maintenance can be awarded. A court can order maintenance for
either spouse only if it finds that the spouse seeking maintenance “lacks sufficient property to
provide for his reasonable needs,” and “is unable to support himself through appropriate
employment . . . .” Section 40-4-203, MCA. The District Court found that “[t]he property
distribution made herein to Eileen provides her with sufficient property and funds to provide
for her reasonable needs.” In reviewing the court’s findings, it is obvious that Eileen can
provide for her reasonable needs and that maintenance is not necessary in this case.
Therefore, we hold that the District Court did not abuse its discretion in awarding Patrick the
entirety of the disability benefits.
¶ 28 Today’s ruling underscores the principle that “[i]n dividing a marital estate, the district
court must reach an equitable distribution, not necessarily an equal distribution.” Marriage
of Wells (1996), 278 Mont. 413, 416, 925 P.2d 483, 485. The fact that a spouse’s quality and
length of life and future income potential is drastically reduced must be considered by the
court distributing the estate. We hold that given the facts of the case at bar, the District
Court divided the marital estate in an equitable fashion. Accordingly, we affirm the District
Court’s distribution of the marital estate.
/S/ W. WILLIAM LEAPHART
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We concur:
/S/ KARLA M. GRAY
/S/ TERRY N. TRIEWEILER
/S/ JIM REGNIER
13
Justice Patricia O. Cotter dissents.
¶3 I dissent from the Court's disposition of all three issues. I
would conclude the District Court's findings were not sufficient to
determine the net worth of the marital estate or to decide whether
the distribution was equitable. Moreover, I would conclude the
District Court abused its discretion when it failed to consider the
tax consequences arising from the court-ordered sale of the marital
properties, and failed to include Patrick's disability income in
the marital estate or in the alternative, to consider the
disability income in determining if maintenance would be awarded to
Eileen. I would reverse and remand to the District Court for
determination of an equitable apportionment of the marital estate,
and for re-evaluation of the maintenance question.
¶4 Under § 40-4-202(1), MCA, in a proceeding for dissolution of
marriage, a district court shall
equitably apportion between the parties the property and
assets belonging to either or both, however and whenever
acquired and whether the title thereto is in the name of
the husband or wife or both. In making apportionment,
the court shall consider the duration of the marriage and
prior marriage of either party; the age, health, station,
occupation, amount and sources of income, vocational
skills, employability, estate, liabilities, and needs of
each of the parties; custodial provisions; whether the
apportionment is in lieu of or in addition to
maintenance; and the opportunity of each for future
acquisition of capital assets and income. The court shall
also consider the contribution or dissipation of value of
the respective estates and the contribution of a spouse
as a homemaker or to the family unit.
¶5 While we have previously held that a net valuation by the
district court is not always mandatory in order for this Court to
properly review marital distributions, a district court's findings
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as a whole still must be sufficient to determine the net worth of
the marital estate and to decide whether the estate was distributed
equitably. See, Harkin, ¶ 31. I would conclude the District
Court's Findings of Fact, Conclusions of Law and Order wholly
failed to satisfy this requirement.
¶6 The District Court provided values for only a select group of
marital assets, distributing them as set forth in ¶¶ 8-9 of the
Majority Opinion. In addition, the court directed the parties to
sell three specified properties (Rolling Green residence, Towne
Court and Timeless Treasures Quilt Shop, and Woodland Park office
complex), and ordered payment of several debts out of the gross
sale proceeds. Of the remaining net balance, Eileen was to receive
$100,000 as a partial adjustment for property distributed to
Patrick. Finally, the court determined that 25 % of the remaining
net proceeds would be awarded to Patrick and 75 % to Eileen.
¶7 The Court concludes that even though a portion of the estate's
value is unknown (i.e., market values of the properties), the
findings are sufficient to determine the net worth of the estate
(See ¶ 17). I disagree. The District Court failed not only to assign an estimated
market value to each property, but also failed to provide values for the debts it ordered paid
from the gross proceeds. The Court notes that at trial the parties agreed on the values of the
properties ordered sold (See ¶ 17); however, the District Court failed to include those values
in its findings. Moreover, the record reflects the parties did not agree on the value of the
Rolling Green residence. Given these deficiencies in the District Court's order, it is
impossible for anyone to approximate what Eileen's portion of the marital estate will be.
15
Moreover, it is also uncertain whether there would even be sufficient net proceeds to cover
the $100,000 due Eileen--which constitutes her adjustment for property distributed to
Patrick--let alone what would be left for the 25-75 distribution of the remaining balance.
¶8 The District Court's findings also fail to clarify the value
of various life insurance policies that it ordered cashed out or
put towards the proceeds of the properties' sale. There was
disputed testimony as to the actual value of the $500,000 policy
that was awarded to Eileen. While the policy apparently had a cash
surrender value of $25,500, the District Court's findings failed to
take into account the undisputed fact that the policy was
encumbered by a loan, and that to secure the policy, Eileen would
have to pay $9,000 in interest, or approximately $750 per month.
Moreover, the court also ordered Eileen's $500,000 life insurance
policy cashed out or canceled, but failed to include a cash-out
value for the policy. Finally, the court ordered the parties to
either cancel or cash out the two remaining insurance policies and
directed any proceeds to be applied towards the income from the
properties' sale. However, in its findings, the court indicated a
cash value for only one of these policies.
¶9 We do know that the court awarded Patrick all of the
disability benefits, which amounted to approximately $12,000 a
month, with an estimated increase of $500 per month every year.
Patrick also received approximately $1200 per month in social
security benefits. Therefore, if Patrick lives 10 more years, to
age 56 (the District Court estimated his life span to be between 50
and 60), this amounts to roughly $2 million, tax free. Given the
16
significant value of this award to Patrick, the court's failure to
ascertain the real property values, debt and tax consequences, or potential proceeds from
cashed-out insurance policies becomes even more troubling for Eileen, as it is the properties'
ultimate net value which will determine what Eileen receives from the marital estate.
¶10 The Court notes that neither party presented evidence concerning the tax conse-
quences attributable to the sales. However, neither party anticipated the District Court would
order the sale of the properties, with the exception of perhaps the Woodland Park complex,
and thus neither sought to introduce evidence of potential tax liabilities. Eileen sought an
opportunity to present evidence of the tax consequences in her motion for clarification
following the court's Findings of Fact, Conclusions of Law and Order; however, the court
failed to conduct a hearing on the matter. In remanding this matter to the District Court, I
would instruct the court to consider the tax consequences associated with selling the
properties and to reflect those liabilities in the net marital estate, in accordance with our
holding in Marriage of Lee. See, Lee, 249 Mont. at 519-20, 816 P.2d at 1078 (citation
omitted) ("[W]here 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.").
¶11 Finally, because I would conclude the District Court failed to adequately determine
the value of the marital estate and hence had no adequate basis upon which to distribute it, I
must dissent from the Court’s disposition of Issue Three. The District Court’s finding that
the property distribution provides Eileen with sufficient property and funds to meet her
17
needs, with which this Court agrees at ¶ 27 of its Opinion, is wholly unsupported by the
Findings of Fact and Conclusions of Law. There is simply no underpinning to support the
Court’s conclusion that the District Court did not err in failing to include Patrick’s significant
disability income either in the marital estate, or in a determination as to the propriety of
maintenance. As a consequence of the inadequacy of the court’s Findings and Conclusions,
there is no way to assess whether Eileen will end up with any property or funds, much less
whether they will be significant enough to meet her needs.
¶12 I would therefore remand this matter to the District Court for determination of
equitable apportionment of the marital estate, taking into consideration the value of the three
properties ordered sold, and the amount of debt associated with the properties, including tax
consequences from the court-ordered sale. I would further direct the court to reassess the
value of the insurance policies, taking into account all encumbrances and limitations on their
value. Finally, once these matters are determined, I would then direct the court to address
and resolve Issue 3, based upon an informed valuation of the marital estate. I dissent from
our refusal to do so
/S/ PATRICIA COTTER
Justice Jim Rice joins in the foregoing dissent.
/S/ JIM RICE
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