In Re the Marriage of Williams

August 25 2009

DA 08-0236

IN THE SUPREME COURT OF THE STATE OF MONTANA

2009 MT 282

IN RE THE MARRIAGE OF
JENNY L. WILLIAMS,

Petitioner, Appellant and Cross-Appellee,

and

BOBBY L. WILLIAMS,

Respondent, Appellee and Cross-Appellant.

APPEAL FROM: District Court of the Thirteenth Judicial District,
In and For the County of Yellowstone, Cause No. DR 04-1205
Honorable G. Todd Baugh, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Mark D. Parker, Parker, Heitz & Cosgrove, Billings, Montana

For Appellee:

Stephen C. Mackey, Towe, Ball, Enright, Mackey & Sommerfeld, Billings,
Montana

Submitted on Briefs: May 20, 2009

Decided: August 25, 2009

Filed:

__________________________________________
Clerk
Justice Brian Morris delivered the Opinion of the Court.
¶1 Jenny L. Williams (Jenny) appeals from a decree entered in the Thirteenth Judicial

District, Yellowstone County, that dissolved her marriage to Bobby L. Williams (Bobby),

distributed their marital estate, and awarded child support. Bobby cross-appeals.

¶2 We review the following issues on appeal:

¶3 Did the District Court incorrectly include Bobby’s interest in B&J Properties in the

marital estate?

¶4 Did the District Court improperly reduce Bobby’s income for the calculation of child

support based on the fact that Bobby derived a portion of his income from B&J Properties?

¶5 Did the District Court improperly discount by 35% the value of Bobby’s interest in

B&J for the purposes of the distribution of marital property in order to reflect Bobby’s lack

of control in B&J Properties?

¶6 Did the District Court’s property apportionment incorrectly double count against

Jenny the retirement fund that she cashed out after the separation?

FACTUAL AND PROCEDURAL BACKGROUND

¶7 Jenny and Bobby married in June of 1994. Jenny was 20 and Bobby was 35 at the

time of the marriage. The parties have three minor children born in 1993, 1995, and 1998.

Jenny filed a petition for dissolution of marriage on September 17, 2004.

¶8 Jenny and Bobby have high school educations. During the marriage, Jenny stayed at

home and served as the primary caregiver for the three children. Bobby worked long hours

outside the home in the family trucking business.

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¶9 J.E. Williams, Bobby’s father, began his own trucking business under the name of J.E.

Williams Trucking, Inc. in 1969. Bobby began working in the business at a young age.

Bobby started working as a full-time employee of J.E. Williams Trucking, Inc. when he

graduated from high school in 1977. J.E. Williams began giving Bobby stock in J.E.

Williams Trucking, Inc. in 1982. Bobby became the sole shareholder of J.E. Williams

Trucking, Inc. in 2000, after the company redeemed all of J.E. Williams’s stock.

¶10 Bobby and his father also each owned one-half interests in WHW, Inc., and J.E.

Williams, Inc. WHW, Inc. is a trucking company that hauls a different type of cargo that

requires specialized trucks. J.E. Williams, Inc. handles the payroll for shop mechanics, owns

only a few trucks, and has no customers other than J.E. Williams Trucking, Inc.

¶11 J.E. Williams Trucking, Inc. and WHW, Inc. formed and were capitalized before the

marriage. J.E. Williams, Inc. split off from J.E. Williams Trucking, Inc. after Jenny and

Bobby had married. Bobby’s interest in the entities derives from the interest in J.E. Williams

Trucking, Inc. that his father originally gifted to him. Bobby manages all three entities. All

three entities operate out of the same location.

¶12 Bobby also received income from B&J Properties, LLC (B&J). The income that

Bobby received from B&J boosted his yearly taxable income to at least $200,000 to

$300,000. B&J is a closely held corporation owned 50% by Bobby and 50% by his father.

Bobby and his father formed B&J, a real estate holding company, in 1995. B&J owned five

commercial real estate properties around the country and two commercial airplane hangers in

Billings.
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¶13 The District Court included B&J in the marital estate. The court reduced Bobby’s

income for child support calculation purposes, however, to reflect the fact that B&J was a

sub-chapter S corporation and Bobby, as a 50% owner, could not require B&J to pay out

income. The court also discounted the value of Bobby’s interest in B&J by 35% to account

for Bobby’s lack of control over the business due to his undivided 50% interest. The District

Court counted against Jenny in its property apportionment both the net proceeds of a

retirement account that she cashed out after the parties’ separation and the equity in a house

that she bought using the retirement account proceeds as a down payment. Jenny appeals

and Bobby cross-appeals.

STANDARD OF REVIEW

¶14 We review a district court’s distribution of marital property and child support award

to determine whether the court’s findings of fact are clearly erroneous. Bock v. Smith, 2005

MT 40, ¶ 14, 326 Mont. 123, 107 P.3d 488. A finding of fact is clearly erroneous if it is not

supported by substantial evidence, if the district court misapprehended the effect of the

evidence, or if our review of the record convinces us that the district court made a mistake.

Bock, ¶ 14. Absent clearly erroneous findings, we will affirm the district court unless we

identify an abuse of discretion. Bock, ¶ 14. A district court abuses its discretion when it acts

arbitrarily without conscientious judgment or so exceeds the bounds of reason as to work a

substantial injustice. In re Marriage of Crilly, 2005 MT 311, ¶ 10, 329 Mont. 479, 124 P.3d

1151. We review a district court’s conclusions of law to determine whether those

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conclusions are correct. In re Marriage of Bartsch, 2007 MT 136, ¶ 9, 337 Mont. 386, 162

P.3d 72.

DISCUSSION

¶15 Did the District Court incorrectly include Bobby’s interest in B&J Properties in the

marital estate?

¶16 Section 40-4-202(1), MCA, governs a district court’s division of property in a marital

dissolution. The 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 .

. . is in the name of the husband or wife or both.” Section 40-4-202(1), MCA. The district

court must consider many factors in its apportionment, including the duration of the

marriage, 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 party for future acquisition of capital assets and income. Section 40-4-202(1), MCA.

The court also shall consider the contribution of a spouse as a homemaker or to the family

unit. Section 40-4-202(1), MCA.

¶17 Section 40-4-202(1), MCA, also governs the court’s equitable distribution of property

acquired prior to the marriage or property acquired in exchange for property acquired before

the marriage. For prior acquired property, the court shall consider the contributions of the

other spouse to the marriage, including: (a) the nonmonetary contribution of a homemaker;

(b) the extent to which such contributions have facilitated the maintenance of this property;
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and (c) whether the property division serves as an alternative to maintenance arrangements.

Section 40-4-202(1)(a)–(c), MCA.

¶18 Bobby argues that his interest in B&J constitutes prior acquired property, as it was

“traceable exclusively to the premarital entity Williams Enterprises.” Bobby contends that

B&J “was capitalized solely with monies from Williams Enterprises and $50,000 each from

Bobby and [J.E.] Williams from prior savings.” The District Court acknowledged that most

of the business properties “find their genesis in J.E. Williams, Mr. Williams’ dad,” and

“significantly pre-date[] the marriage.” The court noted that “B&J, however, came into

existence shortly after the marriage.” The court included as apportionable property the B&J

properties outside of Billings and acquired during the marriage “given M.C.A. 40-4-202

considerations and the fact that the marital home secures a line of credit which paid at least

some of the taxes passed through to Mr. Williams” from B&J.

¶19 The District Court determined that the Billings properties constituted a pre-marital

asset for Bobby. Jenny does not challenge the District Court’s decision to exclude the B&J

properties in Billings from the marital estate. Bobby challenges the court’s decision to

include any portion of the B&J properties in the marital estate. As a result, for the purposes

of this opinion, we will refer to those B&J properties that the court included in the marital

estate simply as B&J.

¶20 Bobby conceded that, according to tax returns, B&J officially came into existence on

January 9, 1995, six months after the marriage. B&J acquired during the marriage all of the

properties that the court included in the marital estate. Bobby testified that during the
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marriage he personally had guaranteed the loans that he and his dad used to acquire the B&J

properties. Substantial credible evidence supports the District Court’s determination that

B&J was not prior acquired property. Bock, ¶ 14.

¶21 Bobby insists that the court abused its discretion when it apportioned part of B&J to

Jenny, because “Jenny Williams put no money into B&J properties, nor did she provide any

labor, services, or contributions of any kind whatsoever to its preservation, maintenance,

operation, management, or acquisition.” Bobby emphasizes that Jenny “testified at trial that

she didn’t even know about B&J properties until the divorce proceedings.”

¶22 The District Court possessed “broad discretion” in its equitable apportionment of the

Williams’s property. Bartsch, ¶ 9. The District Court properly considered the applicable

statutory factors in equitably dividing the Williams’s property. Section 40-4-202(1), MCA.

The court concluded that a number of factors argued toward apportioning to Jenny an

equitable share of the property. The court noted that Bobby was a successful businessman,

and that Jenny had “a high school education, has never worked outside the home, has few

vocational skills, is not particularly employable and has virtually no estate outside this

marriage.” The court stated that Jenny’s role as homemaker had “facilitated the maintenance

of property by enabling [Bobby] to concentrate on business.” The court emphasized that it

intended “to set aside the property in lieu of maintenance.” See § 40-4-202(1), MCA.

Substantial credible evidence supports the court’s decision to include B&J properties in its

equitable apportionment of the couple’s property. Bock, ¶ 14; § 40-4-202(1), MCA.

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¶23 Moreover, the District Court properly could include B&J in the marital estate even if

B&J constituted pre-marital property. Section 40-4-202(1)(c), MCA, “makes clear [that]

pre-acquired property can be distributed to a non-acquiring spouse in lieu of maintenance,

regardless of whether she contributed to its increase in value, if ‘the property division serves

as an alternative to maintenance arrangements.’” In re Marriage of Rolf, 2003 MT 194, ¶ 22,

316 Mont. 517, 75 P.3d 770 (emphasis in original). The district court must state clearly its

intent to award the property in lieu of maintenance and make necessary findings supporting

an award of maintenance. Rolf, ¶¶ 22-23.

¶24 The District Court emphasized that it “intend[ed] to set aside property to Ms.

Williams in lieu of maintenance.” The District Court properly considered the factors

delineated in § 40-4-203, MCA, in determining maintenance awards. The District Court’s

decision to include B&J in the marital property was not clearly erroneous. Bock, ¶ 14.

¶25 Did the District Court improperly reduce Bobby’s income for the calculation of child

support based on the fact that Bobby derived a portion of his income from B&J Properties?

¶26 Jenny argues that the District Court improperly reduced Bobby’s child support

obligation to reflect the portion of Bobby’s income derived from B&J. The court recognized

that Bobby had “yearly taxable income from B&J that runs his taxable income up to

$200,000 to $300,000 or greater.” The court noted, however, that B&J was a sub-chapter S

corporation and stated that because Bobby was a 50% owner, he could “not require or force

B&J to pay out the income on which he is taxed and to date B&J has paid very little to the

owners.” The court added that “of course, when and if B&J pays out income on a regular
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basis, child support may be recalculated.” The court opined that the “child support

guidelines do not contemplate including passive, taxable but not received, not spendable

income which the recipient does not control.” The District Court determined that Bobby

should pay $1000 per month in child support, based upon $110,000 as Bobby’s income.

¶27 Section 40-4-204, MCA, governs a district court’s resolution of child support issues.

The district court must use the guidelines in all cases unless the court finds by clear and

convincing evidence that applying the guidelines would be unjust to the child or the parties.

Section 40-4-204(3)(a), MCA; In re Marriage of Albinger, 2002 MT 104, ¶ 12, 309 Mont.

437, 47 P.3d 820. If the court finds that the guideline amount is unjust or inappropriate in a

particular case, it must state its reasons for the record. Section 40-4-204(3)(b), MCA.

¶28 Admin. R. M. 37.62.106 guides the court in determining income for child support

purposes. Income for child support includes actual income, imputed income, or any

combination thereof that fairly reflects a parent’s resources available for child support.

Admin. R. M. 37.62.106(1). Actual income includes “economic benefit from whatever

source derived,” including, but not limited to, income from salaries, wages, earnings, profits,

dividends, and pensions. Admin. R. M. 37.62.106(2).

¶29 Bobby points to Gray v. Gray, 242 Mont. 69, 788 P.2d 909 (1990), to support his

contention that his income from B&J did not constitute actual available disposable income.

The wife in Gray argued that the district court improperly had failed to consider for child

support calculation purposes certain income that the husband had declined to report on his

tax returns. The income consisted of employment benefits, the value of unsold grain, and
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wages from driving a truck. Gray, 242 Mont. at 72, 788 P.2d at 911. This Court determined

that the district court had abused its discretion when it did not include the income in the child

support formula. Gray, 242 Mont. at 72, 788 P.2d at 911. The Court stated that when

determining income under the guidelines, “it is disposable income of the parent, and not their

income tax returns alone, which must be considered by the Court.” Gray, 242 Mont. at 73,

788 P.2d at 912. The Court emphasized that the district court “should have looked beyond

the tax returns,” although “tax returns are a valuable tool in the determination of the child

support.” Gray, 242 Mont. at 75, 788 P.2d at 913.

¶30 The husband in Albrecht v. Albrecht, 2002 MT 227, 311 Mont. 412, 56 P.3d 339,

deducted a number of business expenses on his tax return. The district court disregarded the

tax return as evidence of the husband’s income. Albrecht, ¶ 5. The district court noted “the

tendency of taxpayers to minimize income to avoid tax liability.” Albrecht, ¶ 16. This Court

concluded that the district court was not required to accept the tax returns as verification of

income. Albrecht, ¶ 18. The “parent’s disposable income rather than taxable income”

constitutes the income with which a court is concerned for child support purposes. Albrecht,

¶ 17. The Court pointed to evidence indicating that the husband’s tax returns were unreliable

for child support purposes due to the aggressive manner in which he had deducted the

expenses and the commingling of personal and business expenses. Albrecht, ¶ 18.

¶31 A district court must determine income for child support purposes “in a realistic

manner, taking into account the actual situation of the parties.” Albrecht, ¶ 7. In Gray and

Albrecht, the parent’s taxable income was lower than their actual disposable income due
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either to the omission of income from the tax returns or to overly aggressive deductions.

Gray, 242 Mont. at 72, 788 P.2d at 911; Albrecht, ¶¶ 4-5. Bobby attempts to apply the

principle from Gray and Albrecht to a distinguishable situation. Bobby claims that his

taxable income was much higher than his actual disposable income. The record indicates

that Bobby and his father chose to spend B&J’s income on items other than dividends. B&J

maintained a private plane. Bobby used $200,000 in B&J funds to buy a condominium in

Arizona. Bobby and his father also paid down B&J’s debt by nearly $400,000 each year.

This decision to pay down B&J’s debt essentially increased Bobby’s net worth by

approximately $200,000 each year.

¶32 This Court faced situations in Gray and Albrecht where the parents manipulated their

tax returns to minimize tax liability by underreporting income or aggressively deducting

expenses. Gray, 242 Mont. at 72, 788 P.2d at 911; Albrecht, ¶¶ 4-5. The Court recognized

that a trial court should consider disposable income rather than taxable income in order to

determine income realistically for child support purposes. Gray, 242 Mont. at 73, 788 P.2d

at 912; Albrecht, ¶ 17.

¶33 The closely held corporation also presents a situation susceptible to substantial

manipulation. In the case of a closely held corporation, however, a court’s failure to

consider taxable income increases the possibility of manipulation. The District Court

decided not to include Bobby’s taxable income from B&J as child support income because

B&J did not have to pay out money to Bobby. B&J instead could use the money for other

purposes, including paying down its debt or reinvesting in the corporation. The court then
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tied any future decision by B&J to pay out income with a corresponding increase in Bobby’s

child support obligation. The District Court’s decision provides Bobby and his father with

substantial incentive to spend B&J’s income on anything other than dividends. The District

Court on remand should use Bobby’s tax returns, B&J’s financial statements, and any other

relevant information to determine objectively Bobby’s income for child support purposes.

¶34 Did the District Court improperly discount by 35% the value of Bobby’s interest in

B&J for the purposes of the distribution of marital property in order to reflect Bobby’s lack

of control in B&J Properties?

¶35 The District Court determined that the portion of the B&J properties subject to

apportionment had “a net value of $3,360,930 and Mr. Williams’ 50% interest is

$1,680,465.” The court reduced the value of Bobby’s interest by 35%, however, “to reach an

equitable value for apportionment.” The court emphasized that Bobby had an undivided

50% interest and “lack[ed] enough control to operate the business without the concurrence of

his dad.” The court noted that “a non-controlling interest in a family business is not saleable

at face value.”

¶36 Jenny relies on Buxbaum v. Buxbaum, 214 Mont. 1, 8, 692 P.2d 411, 414 (1984), to

support her argument that “discounting for lack of control is not allowed when the

underlying valuation is asset-based.” Jenny contends that this Court “has steadfastly

followed this rule without any apparent exception.” Bobby “recognize[s] that this precedent

exists in Montana,” and concedes that “perhaps the court’s rationale . . . was phrased

inartfully.” Bobby argues that the court simply used its equitable powers to lower the value
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of B&J subject to apportionment rather than determine a value and equitably distribute that

amount. See Bartsch, ¶ 9; § 40-4-202(1), MCA. Bobby notes that “[t]he court could have

stated that 65% [of B&J] was included in the marital estate or simply concluded that Jenny

was entitled to the value of 32.5% of the value of Bobby’s interest” in B&J.

¶37 This Court has condoned discounting when the trial court estimated the market value

of the stock because there was no market value on which to rely. See Buxbaum, 214 Mont.

at 8, 692 P.2d at 414; see also In re Marriage of Johnston, 223 Mont 383, 726 P.2d 322

(1986). A review of this precedent makes it clear, however, that lack of a reliable market

value merely represents one consideration in a court’s determination of whether it should

discount a parties’ interest in a closely held corporation.

¶38 The wife in In re Milesnick, 235 Mont. 88, 97, 765 P.2d 751, 757 (1988), relied on

Buxbaum for the proposition that discounting stock is improper whenever the market value is

founded on net asset value. This Court disagreed: “This is not so. Whether a discount is

proper depends on the facts of the case, not on the method used to ascertain the underlying

value of the stock.” In re Milesnick, 235 Mont. at 97, 765 P.2d at 757. The Court stated that

“[a] discount for a minority interest is appropriate when the minority shareholder has no

ability to control salaries, dividends, profit distributions, and day-to-day corporate

operations.” In re Milesnick, 235 Mont. at 97, 765 P.2d at 757; see also In re Marriage of

Davies, 266 Mont. 466, 476-77, 880 P.2d 1368, 1375 (1994).

¶39 The wife in In re Milesnick, 235 Mont. at 97, 765 P.2d at 756, contended that the

district court improperly had discounted the value of the parties’ stock in the family ranch.
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This Court affirmed the district court’s discounting of the Milesnicks’ stock. In re Milesnick,

235 Mont. at 98, 765 P.2d at 757. The Court noted that “there is no doubt that the

[Milesnicks] were minority shareholders.” In re Milesnick, 235 Mont. at 97, 765 P.2d at

757. The Court emphasized that the Milesnicks together only owned a little over 10 percent

of the total stock of the corporation. In re Milesnick, 235 Mont. at 98, 765 P.2d at 757. The

husband worked with his parents on the ranch and had some input into day-to-day

operations, but the parents had final say on all major decisions. In re Milesnick, 235 Mont.

at 98, 765 P.2d at 757.

¶40 Bobby owned 50% of B&J. Bobby and his father possessed equal power “to control

salaries, dividends, profit distributions, and day-to-day corporate operations.” In re

Milesnick, 235 Mont. at 97, 765 P.2d at 757. Bobby used B&J funds to service and fly the

company airplane and to stay current as a pilot. Bobby’s alleged lack of control in B&J

occurred only after his father took the company checkbook from Bobby after Bobby had

spent $200,000 for a down payment on a condominium in Arizona. The District Court

improperly discounted the value of Bobby’s interest in B&J. Bock, ¶ 14. The District Court

on remand should consider the entire value of Bobby’s interest in that portion of the B&J

properties included in the marital estate in equitably reapportioning the Williams’s marital

estate.

¶41 Did the District Court’s property apportionment incorrectly double count against

Jenny the retirement fund that she cashed out after the separation?

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¶42 Jenny withdrew $67,706 after taxes from a 401(k) and IRA in Bobby’s name after the

parties’ separation. The parties had stipulated that the District Court would count the net

amount that Jenny had withdrawn from the accounts against “whatever amount of marital

property [the court] would otherwise determine [Jenny] was entitled to.” The District Court

counted against Jenny the $67,706 from the retirement fund. The court also counted against

Jenny in its property apportionment $80,324 in equity from a town house at 3451 Dunlop

Avenue [Dunlop property] that she bought shortly after cashing out the retirement accounts.

¶43 Jenny argues that the District Court’s apportionment constituted double counting of

the proceeds of the retirement accounts. Bobby suggests that Jenny may not have used the

retirement funds towards the Dunlop property. Bobby’s Proposed Finding of Fact No. 44

stated in part that “Jenny used [the proceeds of the retirement funds] to purchase a home at

3451 Dunlop Avenue.” The court adopted Jenny’s Proposed Finding of Fact No. 29, which

provided in part that “[p]er Stipulation and Court order, Bobby provided the Morgan Stanley

and Raymond James accounts to Jenny, which Jenny utilized to purchase the 3451 Dunlop

Avenue town home.”

¶44 Bobby strenuously objected to Jenny’s purchase of the Dunlop property before trial.

Bobby’s counsel asked Jenny: “Isn’t it true, you’re going to hand $339,000 to the Buschers

to buy [the Dunlop property]?” Jenny replied: “I have a loan.” Bobby’s counsel then stated:

“Well, $263,000 is a loan and the rest of it is this retirement money.” Bobby’s counsel later

objected to Jenny “taking all of the money that she’s got, $80,000 in cash, and devoting it all

to one thing.”
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¶45 The record indicates that Jenny used the $67,706 from the retirement funds as a down

payment on the Dunlop property. The District Court properly counted against Jenny the

$80,324 in equity in the Dunlop property. The court improperly double counted the

retirement money when it also counted against Jenny the original $67,706 from the

retirement funds. On remand, the District Court should count only the $80,324 against Jenny

in its property apportionment.

CONCLUSION

¶46 We remand and direct the District Court to re-calculate Bobby’s child support

obligation and reapportion the Williams’s entire marital estate. The marital estate includes

the full value of Bobby’s interest in the portion of the B&J properties that the court earlier

determined should be included in the Williams’s marital estate. Our decision likely affects

the equitable factors that the District Court must consider when apportioning the Williams’s

marital estate. Section 40-4-202(1), MCA. The District Court should exercise its “broad

discretion” to apportion equitably the estate in a manner consistent with this opinion.

Bartsch, ¶ 9.

¶47 Affirmed in part, reversed in part, and remanded for further proceedings consistent

with this opinion.

/S/ BRIAN MORRIS

We Concur:

/S/ MIKE McGRATH
/S/ PATRICIA O. COTTER
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/S/ W. WILLIAM LEAPHART
/S/ JAMES C. NELSON

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