Marriage of Hiser v. Hiser

BARTEAU, Judge,

dissenting.

I disagree with the majority’s view that the holdings of Harlan, DeHaan, and Gran-ger are limited to situations involving only purely “speculative” tax consequences; rather, I believe those decisions are directly applicable to tax consequences of transactions like the one before us here, which do not in any way “necessarily aris[e] from the plan of distribution.” For that reason, I believe the trial court abused its discretion in considering the tax consequences of these sales of options, which sales were made without participation by Diane or the Court, and I must dissent.

In Harlan, we explained for the first time the effect of Ind.Code § 31-1-11.5-11.1. We emphasized that the statute requires trial courts to “consider the tax consequences of the property distribution.” 544 N.E.2d at 555 (emphasis in original). We looked for guidance to our decisions prior to the enactment of the statute, noting that in a number of those decisions, the trial courts had properly concluded that “because the property disposition did not require the liquidation of any assets which would result in a tax liar bility, a reduction of the value of the marital estate due to a speculative tax liability was unwarranted.” Id. (emphasis supplied). We saw the statute as an “affirmation of the rationale” of those decisions. Id.

*929The majority correctly notes that Harold incurred real, and not speculative tax consequences. However, those tax consequences were a result of Harold’s unilateral decision to sell the options during the pendency of the dissolution proceedings, and were not “tax consequences of the property disposition,” Ind.Code § 31-1-11.5-11.1. Thus, they should not have been considered by the trial court.

In Granger, we explained that 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.” 579 N.E.2d at 1321 (emphasis supplied). There, the husband owned two Laundromats which he put up for sale after he filed for dissolution. Based on the valuation of the Laundromats, the trial court determined the anticipated tax liability from the sale, and reduced the marital estate by that amount. We reversed, not because of the speculative nature of the tax liability, but because the Laundromats had not been ordered sold as part of the parties’ property distribution. Because the sale was not ordered by the court, we determined that the “record does not establish the sale of both Laundromats was an immediate consequence of the property disposition.” 579 N.E.2d at 1321.

Similarly, the “taxable event” here — Harold’s sale of the stock options after the petition for dissolution had been filed — was not ordered by the court as part of the Hisers’ property distribution. Because there was no “court-ordered disposition” of that portion of the marital estate, the taxes incurred could not have been an “immediate consequence of the property distribution” as contemplated by the statute and our holding in Granger.

I believe the statute, as explained by our decisions, imposes two requirements for trial court consideration of tax consequences of a marital property disposition. First, there must be an actual, and not purely speculative, “tax consequence.” See, e.g., DeHaan, 572 N.E.2d at 1327, where we noted that the wife’s tax liability was only “potential” and “remote” because it depended on a future disposition of stock and “is not a direct consequence of the property disposition itself.” Second, the tax consequence must be a consequence of the property disposition — for example, a result of a court-ordered disposition of part of the marital estate as part of a marital property distribution. See, e.g., Granger, 579 N.E.2d at 1321.

Because the second requirement of the statute was not satisfied in this ease, the trial court abused its discretion in considering the tax consequences of Harold’s unilateral decision to sell the options and in reducing the marital estate accordingly. I would reverse.