No. 8 5 - 6 3 7
IN THE SUPREME COURT OF THE STATE OF MONTANA
1986
IN RE THE MARRIAGE OF
KAREN RAYE JOHNSTON,
Petitioner and Respondent,
and
GAROLD DAVE JOHNSTON,
Respondent and Appellant.
APPEAL FROM: District Court of the Seventh Judicial District,
In and for the County of Dawson,
The Honorable A. B. Martin, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Torger S. Oaas, Lewistown Montana
For Respondent:
R. W. Heineman, Wibaux, Montana
Submitted on Briefs: July 24, 1 9 8 6
Decided: October 9 , 1 9 8 6
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Filed:
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Mr. Justice William E. Hunt, Sr. delivered the Opinion of the
Court.
Appellant, Garold Dave Johnston, appeals from the
property settlement and award of attorney fees granted to
respondent, Karen Raye Johnston, by the Dawson County
District Court in a marital dissolution proceeding.
We affirm.
Appellant does not contest the grant of custody of their
three minor children to respondent or the child support
award. The issues on appeal are:
1. Did the District Court improperly deny appellant an
in-kind distribution of the marital estate's minority shares
in a closely-held family corporation and improperly required
the corporation to finance the distribution of these shares?
2. Did the District Court improperly determine the
value of the minority interest in the corporate shares of
stock?
3. Did the District Court improperly award attorney
fees to respondent?
Karen and Garold Johnston were married in 1967. In
1977, when their net worth was $47,801, they joined with the
husband's family in forming a family farm and ranch
corporation. The family members exchanged their real and
personal property for corporate shares. Karen and Garold
Johnston initially received 1250 shares for their
contribution of properties accumulated during the 10 years of
their marriage. They later received 180 shares as gifts for
a total of 1430 shares. Garold Johnston received $500 per
month for his work with the corporation. Each shareholder's
family, including Karen and Garold Johnson's family, was
provided with living expenses such as a home, vehicles,
utilities, health and vehicle insurance and groceries.
The parties' marriage was dissolved in 1983. The
marital property consisted primarily of corporate assets and
some personal property. The District Court found the
corporation's net worth to be $1,732,789 or $217 per share.
Consequently it valued the marital estate at $310,310. The
court gave appellant a choice of two alternative methods
whereby the value of the marital estate could be equitably
distributed.
The first method provided that the 1430 shares be
distributed to Garold Johnston and a 25% discount of the
marital estate would be made. Garold would pay Karen
Johnston $116,366 within 30 days of the judgment. Each party
would pay their own attorney fees.
The second method grants Karen Johnston $155,155 from
the marital estate plus costs and attorney fees. No discount
is provided on the value of the shares. Payment would be
made in ten equal annual installments with 10% interest per
annum. Karen would have a first security interest in the
1430 shares assigned to Garold for the total sum of the
judgment. If an annual installment is not paid, Garold would
promptly offer to sell and assign to the corporation and the
shareholders the number of shares necessary to raise the
installment amount at the price the offerees would be willing
to pay per share. If the corporation or the shareholders are
unwilling to buy, Garold would assign to Karen the number of
shares necessary to pay the installment payment. The price
of the shares would be determined by what Karen can sell the
shares for on the open market. Both parties must make
reasonable efforts to find a buyer. If a buyer cannot be
found within 30 days, Karen may then buy the shares at her
price in place of receipt of the annual installment.
Appellant argues that the District Court improperly
divided the marital assets. First appellant contends that
the District Court should. have made an in-kind distribution
of the shares in place of awarding annual payments to
respondent. The extensive findings of fact indicate that
appellant received a $500 monthly wage and annual bonuses
ranging from $1,000 to $2,500. The corporation provided each
family with a home, food, vehicles, utilities and insurance.
The District Court found these corporate benefits constituted
a substantial income substitute to appellant--at least the
equivalent of a $15,000 annual income when wages, bonuses,
fringe benefits and tax advantages were taken into account.
Besides respondent, appellant and his parents and
brothers are the only other shareholders and the sole actors
in the corporation. They have a supportive and common
interest in the preservation of their family enterprise.
Testimony was presented which indicated appellant's father,
the corporation's president, was opposed to purchasing any
minority shares respondent might own.
Appellant continues to receive all of the above benefits
from the corporation. Respondent has received nothing from
the corporation since her separation from appellant in 1983.
This Court has previously held that simply because the
option of making a distribution of stock in-kind was open to
the court, this is no reason the District Court had to select
it. Burleigh v. Burleigh (Mont. 1982), 650 P.2d 753, 757, 39
St.Rep. 1538, 1543, followed in In re the Marriage of Wessel
(Mont. 1986), 715 P.2d 45, 43 St.Rep. 405.
The District Court found that dividing the stock evenly
between the husband and wife would not produce an equitable
result. It reasoned that while the corporate by-law
restrictions reduce the a.ctua1 value of the shares
individually owned by the parties, they do not reduce the
underlying value of the shares in the hands of the family
corporation.
Even if half of the 1430 shares were retained by
respondent, she would remain an outsider in this closely-held
family corporation. She would not receive income or benefits
from the corporation because she is no longer a part of the
farming operation. She would not receive dividends as the
corporation has never issued them.
An in-kind distribution of closely-held corporate shares
is not required when this would not produce an equitable
settlement between the parties. Sufficient evidence appears
on the record to uphold the District Court's conclusion that
an in-kind distribution of these shares would provide little
benefit to respondent. The District Court was correct in
presenting other methods of distribution for the estate.
Appellant contends that the District Court required the
closely-held corporation, Johnston/Will, Inc., to finance the
distribution of the marital estate's minority shares and that
this was improper as such since the corporation was not a
party to this suit. The record does not support this
contention. Johnston/Will, Inc.'s corporate by-laws restrict
the sale of stock by shareholders. The stock must first be
offered to the corporation for sale. If the corporation does
not buy within 30 days, the shares are offered to the
shareholders for sale. Shareholders then have 30 days to
match the asking price before an outside sale can be made.
The alternative methods presented by the court took
these restrictions into account. The corporation was not
required to fund the distribution. Under the second method,
the method chosen by appellant, the corporation was simply
provided with a chance to purchase shares pursuant to the
by-law restrictions should appellant not meet the annual
installment obligations due to respondent. This is fully in
keeping with the provisions of § 40-4-202, MCA.
Appellant next contends the District Court improperly
valued the jointly-owned stock by failing to take into
account the net worth of the husband and wife before they
joined Johnston/Will, Inc. and improperly failed to discount
the shares of stock in its valuation. Appellant notes that
this Court has previously held that a district court must
consider the matter of a discount of minority stock in making
its decision. In re the Marriage of Buxbaum (Mont. 1984),
692 P.2d 411, 41 St.Rep. 2243. Appellant argues the District
Court was in error when it failed to discount the stock in
question because of its minority position. He contends that
appropriate significance was not given to the
preincorporation net worth. The value of the shares was
based solely on the underlying value of the corporation.
Appellant argues that as a result they were given too high a
value.
The District Court found the parties' net worth to be
$47,801 just prior to incorporation in December, 1977. At
trial, the corporation's accountant testified for appellant
and projected the corporation's net worth to be $1,284,839.
In contrast, respondent's expert witness stated it was
$2,179,738. The District Court found the net worth to be
$1,732,789 or $217 per share.
The record indicates that the District Court did
consider the possibility of discounting the value of the
parties' minority shares. Un.der the method chosen by
appellant, the court concluded. that it was not proper to
discount the value per share of stock for market value
purposes even though it was a minority interest. This was
not found to be a situation where a discount would accurately
reflect a minority shareholder's lack of ability to control
salaries, dividends or other corporate benefits. In re the
Marriage of Buxbaum (Mont. 1984), 692 P.2d 411, 41 St.Rep.
2243. Valuation of the shares was done by looking to the
underlying value of the corporation.
In valuing the assets in a marital dissolution case, it
must be noted that the District Court has broad discretion to
determine net worth. In re the Marriage of Kaasa (1979), 181
Mont. 18, 22, 591 P.2d 1110, 1112. We will not set aside a
district court's finding of fact unless the finding
represents an abuse of discretion. Reese v. Reese (1977),
185 Mont. 52, 55, 604 P.2d 326, 328 followed in In re the
Marriage of Reich (Mont. 1986), 720 P.2d 286, 288, 43 St.Rep.
1167, 1168. The record indicates the District Court
considered the preincorporation net worth and the valuation
testimony of both parties. There was no abuse of di-scretion
by the District Court and the findings on this matter will
not be disturbed.
Finally on this issue, the Court is aware that no
testimony exists in the record that the net worth of the
corporation was exactly $1,732,789 or $217 per share. We
have held that a district court is free to find a value for
marital property within the range of evidence submitted. In
re the Marriage of Staudt (Mont. 1985), 700 P.2d 175, 178, 42
St.Rep. 740, 744. This value was well within that range of
evidence submitted and was thoughtfully arrived at by the
District Court. We uphold the District Court's valuation of
the corporate stock owned by the marital estate.
Appellant's final contention is that the District Court
erred in awarding attorney fees to respondent. Section
40-4-110, MCA, allows attorney fees after both parties'
financial resources are considered. After hearing on the
matter, the District Court awarded $7,205.00 in attorney fees
to respondent.
An award under this statute is "largely discretionary
with the District Court, and we will not disturb its judgment
in the absence of an abuse of that discretion." In re the
Marriage of Milanovich (Mont. 1985), 697 P.2d 927, 929, 42
St.Rep. 436, 439, quoting Talmage v. Gruss (1983), 202 Mont.
410, 412, 658 P.2d 419, 420. The record indicates that the
parties financial resources were fully considered. No abuse
of discretion was made by the District Court. The award of
attorney fees to respondent is affirmed.
The judgment of the District rt is affirmed in full.
./ / Chief Justice 7