Marriage of Broesder, 2017 MT 223 (Sept. 12, 2017) (Rice, J.) (5-0, rev’d)
Issue: Whether the district court erred by failing to consider the tax consequences of the distribution of the marital estate, resulting in an inequitable distribution.
Short Answer: Yes.
Reversed and remanded
Facts: Donald and Sandra married in 1976, and lived and worked on Donald’s family ranch for about 35 years. They own the ranch in a close corporation with their sons, Seth and Shane, and their daughter-in-law, Sarah. The corporation has restrictions on the sale of stock.
During the marriage, Donald worked exclusively on the ranch. Sandra worked on the ranch and elsewhere, including serving as Pondera County Commissioner. Her non-ranch income was used for personal, ranch, and family expenses. The sons and daughter-in-law have also worked on the ranch.
Donald owns 39.65% of the ranch shares, Sandra owns 39.64%, Seth owns 16.35%, Sarah owns 2.4%, and Shane owns 1.96%. The total value of the ranch is about $3.1 million with the land valued at about $2.3 million. Donald and Sandra have minimal personal assets.
Seth and Sarah moved to intervene in the dissolution, arguing it was necessary to protect their interests in the ranch. The standing master denied their motion, reasoning that the premise that an equitable division of marital property could not be achieved without selling assets was speculative.
Donald suggested Sandra keep her ranch shares as her portion of the marital estate, and Sandra responded that in that event she would want some sort of control over ranch decisions, plus reimbursements for living expenses the ranch provided her during the marriage. Donald also suggested using the book value set by the shareholders in 2003 of $10.25 per share set, but the standing master concluded that the resulting value to Sandara of $101,557 would constitute a windfall for Donald.
The standing master valued Donald’s interest in the ranch as $1,159,541, and Sandra’s as $1,159,424, and ordered Donald to pay Sandra the value of her interest. No consideration was given to the tax implications of liquidating the ranch to satisfy the judgment.
Procedural Posture & Holding: Donald filed objections and the district court held a hearing. Donald urged the court to consider the tax implications, which the district court acknowledged would be enormous. The district court nonetheless affirmed and adopted the standing master’s order. Donald appeals, and the Supreme Court reverses.
Reasoning: Both § 40-4-202(1), MCA and public policy demand an equitable distribution of the marital estate, including tax liability. The decree here does not expressly mandate liquidation of the ranch, but it orders Donald to pay $1.1 million to Sandra. The record fails to establish that there are available assets in the marital estate for such a payment or that financing is feasible. Thus, the “liquidation of corporate property” referenced by the standing master would appear to be necessary to satisfy the judgment. The ranch would have to be sold, which would “reasonably appear to trigger a taxable event.” As a result, the tax consequences should have been considered.