IN THE SUPREME COURT OF THE STATE OF MONTANA

IN RE MARRIAGE OF JAMES WARREN DeCOSSE,

and DOROTHY ANN DeCOSSE, Respondent, Respondent, and Cross-Appellant.

APPEAL FROM: District Court ofthe Eighteenth Judicial District, In and for the County of Gallatin, The Honorable Thomas A. Olson, Judge presiding

COUNSEL OF RECORD: For Appellant: Edmund P. Sedivy,Jr.; Sedivy, Bennett & White; Bozeman, Montana For Respondent: Kent M. Kasting; Kasting, Combs & Kauffman; Bozeman, Montana

Submitted on Briefs: January 30, 1997 Decided: April 15, 1997 Filed:Justice Terry N. Trieweiler delivered the opinion of the Court. James Warren DeCosse filed apetition for dissolutionofhis marriage to Dorothy Ann DeCosse in the District Court for the Eighteenth Judicial District ~II Gallatin County. Following a nonjury trial, the District Court entered its decree andjudgment, m which it dissolved the parties' marriage and divided their marital assets. James appeals the District Court's valuation of his interest in the business by which he is employed. Dorothy cross-appealsthe District Court's refusal to considerher need for maintenance in the future, and the District Court's refbsal to award her attorney and expert witness fees. We reverse in part and affirm in part the judgment of the District Court and remand to that court for proceedings consistent with this opinion. The following issues are presented by the parties: 1. Did the District Court err when it valued James's interest in Gallatin Valley Fuiniture at $1,060,000 and ordered James to pay Dorothy $522,676 to equalize the marital property distribution? 2. Did the District Court abuse its discretionwhen it refused to reserve the issue of maintenance for future consideration dependent on Dorothy's health? 3. Did the District Court abuse its discretionwhen it declined to award Dorothy attorney fees and costs which she incurred responding to James's post-trial motions? FACTUAL BACKGROUND Dorothy and James DeCosse were married on July 14, 1973, and separated on May 26, 1993. At the time of their marriage,James was the manager ofhis father'sbusmess,

2Gallatin Valley Furniture, and owned thirty-five shares of stock in the company. When James's fatherretired in 1985,Gallatin Valley Furniture entered into a series of redemption agreementswith James's father and mother. Pursuant to those agreements, each ofJames's parents agreed to sell 1,640shares of stock to the corporation at a price of $232 per share. The total cost was to he paid in installments. Final payment was dueby June 28, 2000. In return, the remaining shareholders--who were James, and his sister and brother-in-law, Michelle and Dennis Cattin-agreed to several restrictions, includingan agreementthat the shareholderswouldnot sell their shares,except to each other,until James'sparents were fully paid pursuant to the terms of the redemption agreements. In addition, the remaining shareholders executed irrevocableproxies with which James's parents could liquidate the company in the event of any default in the redemption agreements. The value of James's parents' stock was determined at the time ofredemption by a certified public accountant,Wayne Neil. In valuing the stock,Neil used the income method of valuation, which is recommended by the American Institute of Certified Public Accountants for the valuation of closely held businesses. Pursuant to the income method, Neil weighted the average earnings of Gallatin Valley Furniture for the five years prior to redemption, giving the most recent year the greatest weight. He then applied both a high and low multiple for a return on investment consistent with reports in the National Home FurnishingsAssociation Manual and multiplied itby the weighted averagenet equity ofthe business to establish normal earnings. By subtracting the normal earnings figure from the weighted average earnings figure, Neil calculated the excess earnings. Neil then applied a

3capitalizationrate--the rate an investor would expect to receive forhis risks in the company-- and using both a low of fifteen percent and a high oftwenty percent, produced a value for the goodwill of the company. When Neil added that figure to the total value of the net tangible assets of Gallatin Valley Furniture,he determined a high and low fair market value of the business. To determine the per-share value, he dividedthose figures by the number of outstanding shares of stock. Neil arrived at the final figure of $232per shareby taking the median ofthe high and low figures and applying a twenty percent minority shareholder discount. In 1985, at the time James's parents executed the redemption agreements, James owned 466 sharesofGallatinValley Furniture stock,and Michelle and DennisCattin owned the remaining 466 shares. On June28,1985, at the sametime theredemption agreementwas signed, James, Michelle, and Dennis entered into a shareholders' agreement with Gallatin Valley Furniture. Pursuant to that agreement, James and Dennis were designated "shareholder-employees" and Michelle was designated a "shareholder." The agreement provided that all transfers or other dispositions of corporate stockmade during the lifetime

or at the death of a shareholder were subject to restriction. Specifically, the agreement provided that if a shareholder-employee attempted a "restrictive transfer" or died, retired, or

was disabled,the remaining shareholder-employee was given the first option to purchase the stock for the price andterms set forth in the agreement. The price per share was originally calculated at 5230 per share,but the shareholders' agreement provided that the shareholders would review the price each year. In addition, the agreement provided that if the

Ashareholders failedto recalculate the price of the stock on a yearly basis, the corporation's accountantwould value the stock pursuant to the samemethod used to calculate the original stock price. The agreement established fifteen annual installmentswith an interest rate of ten percent as the terms of any purchase from one shareholderby another. At each annual shareholders' meeting from 1985 through 1994, Wayne Neil recalculated the fair market value ofGallatin Valley Furniture stockpursuant to the income method of valuation. Each year, the shareholders and directors of the corporation adopted the fair market value calculated by Neil. At their 1994 meeting, which occurred prior to the dissolution proceedings at issuein this case,Neil calculated the fair market value ofthe stock at $744.85 per share. At that time, James owned 521 shares of Gallatin Valley Furniture stock and Michelle and Dennis owned the remaining 521 shares. At the dissolutionproceedings in October 1994, Wayne Neil testified for James that pursuant to the income valuation method James's share of the stock in Gallatin Valley Furniture was worth $388,066.85 prior to a minority shareholders' discount. However, Dorothy's business valuation expert, Martin Connell, testified that the value of James's one-half interestin Gallatin Valley Furniture ranged from S1,171,026.50to $1,373,544.00, depending on which of four methods of business valuation were employed. In his final report, Connellvalued the business at $2,650,000. Connell therefore determined that James's one-half share was equal to $1,325,000. Connell admitted at trial that he did not take the 1985restrictive shareholders'agreement into account in determining the fair market value of Gallatin Valley Furniture.

5On May 9,1995, the District Courtenteredits findingsoffact and conclusions oflaw. In its findings regarding James's interest in Gallatin Valley Furniture, the court determined that "[tlhe Shareholder's Agreement has no application to these proceedings." The court therefore accepted Connell's valuation of Gallatin Valley Furniture, and held that James's share of the company was $1,325,000 minus twenty percent for minority shareholders' discount and lack ofmarketability. Accordingly,the court held thatJames's share ofGallatin Valley Furniture was worth $1,060,000. The court awarded James his share of Gallatin Valley Furniture and ordered James to pay Dorothy the sum of $522,676 to equalize the property distribution. Based on its substantial monetary property cash award to Dorothy, the court determined that Dorothy would not be entitled to maintenance. The court further determined that each party would be responsible for his or her own attorney and expert witness fees. ISSUE 1 Did the District Court err when it valued James's interest

### in Gallatin Valley Furniture at $1,060,000 and ordered James to pay Dorothy $522,676 to equalize the marital property distribution? This Court reviews the factual findings of a district court relating to the division of marital property to determine whether the court's findings are clearly erroneous. In re Marriage ofDanelson (1992),253 Mont. 310,317, 833 P.2d 215,219. We review a district court's conclusions of law relating to the division of marital property to determine whether those conclusions are correct. Marriage ofDanelson, 253 Mont. at 3 17, 833 P.2d at 219-20.

6On appeal, James maintains that the District Court's findings of fact regarding the valuation of his interest in Gallatin Valley Furniture are clearly erroneous. Specifically, James asserts that the District Court erred when it refused to apply the 1985 shareholders' agreementin its determinationof the fairmarketvalue ofhis shares of stockin the company. James maintains that he has no interest in Gallatin Valley Furniture other than through his stock, which cannot be transferred or sold other than according to the terms of the shareholders' agreement. Because the value of his stock is limited by that agreement to $310,453.48 for his 521 shares, James contends that the District Court's valuation of his interest in the business at $1,060,000is clearly erroneous. This Court has addressed the issue of the effect of a restrictive shareholders' agreementon the valuation of an interest in a closely held corporation on two occasions. In 

### In re Marriage ofJorgensen (1979), 180 Mont. 294, 590 P.2d 606, we upheld a district court's determinationofthe fairmarket value of stock in a closely held corporation at a price fixed by a restrictive shareholders' agreement. We held: In considering the range of values which the evidence offered, it is apparent the District Court did not abuse its discretion in fixing the value of the shares at



### . . . the amount decided upon by all the shareholders. especially applicable in view of the fact that any shareholder wishing to transfer the same is presentlybound by the terms of the agreement. As long as the agreement is operative no shareholder can go upon the market and obtain more for his shares. Each shareholder is restricted to the price and to the purchasers set forth in the agreement. 

### Marriage ofJorgensen, 180 Mont. at 300, 590 P.2d at 610 (emphasis added). In addition, in

### In re Marriage ofMcLean (1993),257 Mont. 55,61,849P.2d 1012, 1015-16,we uphelda district court's determination that oneparty's interest in a law firm did not include the value of the goodwill of a partnership interest where that party had entered into a good faith agreement with the law firm to disclaim any interest in that goodwill. In neither case, however, were we faced with the situation, as here, in which the district court did not consider the effect of a negotiated shareholders' agreement on a company's value. A majority ofjurisdictions holds that a restrictive agreement, while not conclusive evidence of the value of an interest in a closely held corporation, is a factor that must be considered by a trial court in the stock valuation process. See, 

### e.g.,in re Marriage of Micalizio (Cal. Ct. App. 1988), 199 Cal. App. 3d 662, 675-76; Stearns v. Stearns (Conn. 1985),494A.2d 595, 598;In reMarriage ofPetterson (Minn. Ct. App. 1985), 366 N.W.2d 685,688; Amodio v. Anzodio (N.Y. 1987), 509 N.E.2d 936,936-37; Poore v. Poore (N.C. Ct. App. 1985), 331 S.E.2d 266,270; Buckl v. Buckl (Pa. Super. Ct. 1988),542 A.2d 65,70; Suther v. Suther (Wash. Ct. App. 1% I),627P.2d 110,113. InAmodio, the New York Court ofAppeals held: There is no uniform mle for valuing stock in closely held corporations.



### . . 

## . Whatever method is used, however, take into consideration inhibitions on the transfer of the corporate interest resulting from a limited market or contractual provisions. If transfer of the stock of a closely held corporation is restrictedby a bona fidebuy-sell ageement which predates the marital discord. the price fixed by the agreement. although not conclusive. is a factor which shouldbe considered. Amodio, 509N.E.2d at 936-37 (citations omitted) (emphasis added). In that case, the New York Court of Appeals held that the trial court properly disregarded the testimony of theplaintiff's expert, who did not consider the restrictions set forth in the shareholders' agreement in his analysis of the value of the corporate stock. Because the only other evidence of the corporation's value was the stockprice value set forth in the shareholders' agreement, the New York Court ofAppeals held that that value was conclusive as "the only evidence in the record of [thecorporation's] actual value." Amodio, 509N.E.2d at 937. We agree that James's only ownership interest in the Gallatin Valley Furniture business is representedby the stock which has been issued to him. Furthermore, so long as the existing shareholders' agreement is in effect, James cannot transfer his stock for more than the price set forth in that agreement. Therefore, we hold that ifthe shareholdershave employed an acceptedmethod ofvaluation and there is no evidence that the valuation was undertaken in bad faith or for the purpose of avoiding marital or debtorJcreditor responsibilities, there is apresumption that the valuation of stock set forth in a shareholders' agreement is the real value of a shareholder's interest in a closely held corporation. In this case, Dorothy's experttestified that he did not consider the 1985 shareholders' agreement in any of the four methods he used to calculate the value of James's interest in Gallatin ValleyFurniture. Therefore, pursuant to the reasoning of,4inodio, the only evidence before the District Court ofthe stock's "actual value" was Neil's valuation in the amount of $310,453.48. That value, negotiated in a good faith arms-length transaction, representsthe price to which James would be limited should he attempt to transfer or sell his stock to satisfy the judgment against him. It also represents the amount that would have passed toJames's estate had he died while married to Dorothy during that period of valuation. 

### See Marriage ofJorgensen, 180 Mont. at 300,590 P.2d at 610. Therefore, because the District Court accepted Dorothy's expert's valuation, which

wasprepared without reference to the 1985 shareholders' agreement, and because the District Court refused to take that agreement into account when it valued James's interest in the business, we hold that the District Court's finding that James's interest in Gallatin Valley Furniture was $1,060,000 is clearly erroneous. We remand this case to the District Court with instructions that James's interest in Gallatin Valley Furniture should be valued at $310,453.48. We further instructthe District Court to equitably divide the parties' property and assets,pursuant to $40-4-202, MCA, based on this valuation, and to reassess Dorothy's need for maintenance in light ofthe correctedvalue ofthe marital estate and the manner in which it is redivided. Based on our holding that the District Court erred when it valued James's interest in Gallatin Valley Furniture without reference to the pre-existing shareholders' agreement,we donot reach Dorothy's claim on cross-appeal that she is entitled to attorney fees she incurred in connectionwith this appeal. ISSUE 2 Did the District Court abuse its discretion when it refused to reserve the issue of maintenance for future considerationdependent on Dorothy's health? We review a court's award of maintenance or failure to award maintenance to determine whether the court abused its discretion. 

### In re Marriage ofSmith (1993), 260 Mont. 533, 535, 861 P.2d 189, 190.The District Court based its decision to deny maintenance on the following finding: In view of the substantial assets being received, most of which are income-producing, this is not an appropriate case to award [Dorothy] separate maintenance. The distribution of the property coupled with her earnings,will enable [Dorothy] to maintain a reasonable standard of living. The court declinesto keep the issue ofEuture maintenance open, as requestedby counsel for [Dorothy]. Although (prior to our decision regarding the valuation of James's business interest), Dorothy did not disputethe court's decision not to award her maintenance, she contends that the District Court erred when it failed to recognize that her ongoing health problems might necessitate a need for maintenance in the future. Dorothy maintains that, based on her health problems--which includeneuromuscular damage,back problems, abenign tumor in her liver, and a chemical imbalance--the District Court shouldnot have precluded her fromrequesting

an award ofmaintenance in the future, dependingupon complicationswhich could arise in her health situation. We will consider this issue, even though the District Court has been instructedto reconsider itsmaintenance decision, because we donot know what the outcome ofthat reconsiderationwill be, andbecause, depending on the District Court's decision, this issue may still be relevant. Section40-4-208, MCA,provides that a district court may, in certain instances, order

a modification of a maintenanceprovision in a decree of dissolution. That section provides in relevant part: (1) Except as otherwise provided in 40-4-201(6), a decree may be modified by a court as to maintenance or support only as to installments accruing subsequent to actual notice to the parties of the motion for modification.(2) (a) Whenever the decree proposed for modification does not contain provisions relating to maintenance or support, modification under subsection (1) may only be made within 2 years ofthe date of the decree. (b) Whenever the decree proposed formodification contains provisions relating to maintenance or support, modification under subsection (1) may only be made: (i) upon a showing of changed circumstances so substantial and continuing as to make the terms unconscionable; (ii) upon written consent of the parties; or (iii) upon application by the department of public health and human services, whenever the department of public health and human services is providing services under Title IV-D ofthe federal Social Security Act



### . . . . In 

### In re Marriage of Cooper (1985),216 Mont. 34,37,699 P.2d 1044, 1046, we held: 

### A petition for modification with respect to maintenance 

### must be considered by the District Court if it is filed within two years of the date the decree is rendered, regardless of whether the decree contains provisions for maintenance or whether maintenance payments are currently being paid. If two years has expired since the dissolution decreewas rendered, modification is still possible when the decree contains a provision relating to maintenance. When maintenance payments are currently mandated under the decree, a modification petition must be consideredby the District Court. (Emphasis added.) We concludethat a district court's obligationto entertain a motion to modify its prior decision regarding maintenance is defined by statute and not by the decree for which modification is sought. For example,pursuant to the District Court's original decree of dissolution, entered December 1, 1995--which did not contain a provision awarding Dorothy maintenance-- Dorothy would have been able to petition that court for modification of its decision not to award maintenance until December 1, 1997, regardless of language to the contrary in the court's findings of fact and conclusions of law. Section40-4-208(2)(a), MCA. In light ofthis Court's decision to remand this case to the District Court for reconsideration of marital property division andmaintenance, however, that date is no longer applicable. If, on remand. the District Courtreaffirms in its amended decree that Dorothy is not entitled tomaintenance, Dorothy can still move for modification ofmaintenance within two years ofthe date ofthat amended decree, pursuant to (j 40-4-208(2)(a), MCA. If, however, the District Court determines in its amended decree that Dorothy is entitled to maintenance, Dorothy will have

an unlimited time in which to file her motion formodification ofmaintenance, pursuant to (j 40-4-208(2)(b), MCA. In either case, the District Court will be required to entertain Dorothy's motion formodification ofmaintenance, pursuant to (j 40-4-208, MCA. Therefore, tothe extent that the District Court concluded it didnot have to reconsider marntenance after the entry of its decree and judgment, we conclude that the court erred. However, in light of our resolution of Issue 1, and the fact that any future motion for modification is controlled by statute, we conclude that error was harmless. ISSUE 3 Did the District Court abuse its discretion when it refused to award Dorothy attorney fees and costs she incurred in her response to James's post-trial motions? A district court's decision to award or not to award attorney fees is largely discretionary. We will not disturb a district court's judgment related to the issue of attorney fees absent an abuse ofthat discretion. 

### In re Marriage ofSwanson (1986), 220 Mont. 490, 496, 716 P.2d 219,223.In this case, Dorothy contends that the District Court abused its discretion when it declinedto award her attorneyand expert witness fees which she incurredin orderto respond to James's post-trial motion to amend the District Court's findingsof fact and conclusions of law. Dorothy maintainsthat the District Court had authority,pursuant to $40-4-1 10,MCA, to award her post-trial costs for James's allegedly meritlessmotion to amend. Section40-4-1 10,MCA, provides: The court from time to time, after considering the financial resources ofboth 

### &, may order a party to pay a reasonable amount for the cost to the other party ofmaintaining or defending any proceedings under chapters 1and 4 of this title and for attorney's fees, including sums forlegal servicesrendered and costs incurred prior to the commencement ofthe proceedings or afker entry of judgment. The court may order that the amount be paid directly to the attorney,who may enforcethe order in his name. (Emphasis added.) Pursuantto that section, the District Court is required to "consider[]the financialresources ofboth parties" when it decides whether costs and attorney fees should be awarded. In the underlying dissolution action in this case,the District Court concluded that: Each party has been awarded substantial property interests some of which have significantfitture earning potential. Consequently, each party has the means, resources and ability to pay hisiher own attorney'siexpert witness fees and costs without assistance from the other. Although we conclude that the District Court did not abuse its discretion when it declinedto award attorney fees and coststo Dorothy based on its division of property in its original decree, we do not know what the parties' property or income will be followingthe amended decree, and therefore,hold that Dorothy is not precluded from raising the issue ofattorney fees on remand sothat it can be considered in light ofthe parties' actual "financial resources." CONCLUSION We reverse the District Court's valuation of James's interest in Gallatin Valley Furniture, and remand to that court for entry ofjudgment consistent with this opinion, and for redistribution of the parties' marital assets and reevaluation of Dorothy's need for maintenance, fees, and costs in light ofthis holding. In addition, we concludethat any future application or motion for modification of whatever decision the court makes regarding Dorothy's need formaintenance is controlledby § 40-4-208,

### MCA, notwithstanding language to the contrary in the court's decree or judgment.

We Concur: AJustice Karla M. Gray, specially concurring,

I concur in the Court's opinion on issues two andthree and specially concur on issue

one, regarding the valuation ofJames' interest in Gallatin Valley Furniture. In that regard, I agree with our adoption oftheAmodio rationale and, as a result, with our conclusion that Neil's valuation of James' interest was conclusive on the District Courtbecause it was the only valuation in evidence which took the restrictive shareholders' agreement into account. 1disagree, however, with the Court's creation of a presumption that the valuation of stock contained in a shareholders' agreement is the real value of a shareholder's interest in

a closely held corporation if the shareholders have employed an accepted method of valuation andthere isno evidence that the valuation was undertaken in bad faith or for the purpose of avoiding marital or debtoricreditor responsibilities. 

### I see no need for such a presumption in light ofthe fact that there isno uniform rule forvaluing stockin closely h corporations. 

### SeeAmodio, 509 N.E.2d at 936. Solong as the valuation method used takes intoconsideration inhibitions on thetransfer ofsuch stock arising from limited marketability

orrestrictions in a shareholders' agreement, there isno reason forthis Court to give favored treatment to the valuation contained in the shareholders' agreement by according it a presumption of "real value."