NO. 88-100

IN THE SUPREME COURT OF THE STATEOF MONTANA
1-988

INRE THEMARRIAGE OF CHRISTINE BOZARTHMILESNICK, Petitioner and Respondent, and

THOKAS OWENMILESNICK, Respondent and.Appellant.

APPEAL FROM: District Court of the Eighteenth Judicial District, Inand 

### for the County ofGallatin, The Honorable Joseph Garyv, Judge presiding.

COUNSEL OF RECORD:

ForAppellant:

JamesA. Johnstone,Bozeman,Montana

For Respondent: John P. Atkins; Bryan & Atkins, Rozeman,Montana



### -

.. <;3 f2 (- , sled: Submitted onBriefs: Sept. 

### 1,1988 Decided: December 8,1988Mr. Justice William E. Bunt, Sr., delivered the Opinion of the Court.
Bothparties in a dissolution action appeal the property distribution ordered by the District Court of the Eighteenth Judicial District,GallatinCounty. Thehusband alsoappeals the District Court's refusal to allocate dependency exemptionsbetween theparties. We affirm. Thehusband raises the following issues on appeal: 1. Whether the District Court abused its discretion by refusing to allocate the tax exempti-onsfor the parties' dependent children. 2. Whether the District Court abused its discretion in valuing the husband's interest in a trucking partnership. 3. Whether the District Court abused its discretionby failing to include the ranch operating debtwhen it computed thenetworth of thehusband's estate. On cross-appeal, the wife adds the following issue for review: 1. Whether the District Court abused its discretionby discounting the value of the parties' stock in the family ranch corporation. Christine and ThomasMilesnick were married on September 15, 1979. Theywere separated on April 1, 1986. During the marriage, two sons were born. Thomas also adopted Christine's son of apreviousunion. The husband brought substantial assets into the marriage, including a truckingpartnership, a two-story home, the entire interest in 106 acres, and a one-half interest in 348 acres. The realpropertywas heavily encumbered. The other interest in the 348 acres was owned by the husband's parents. In 1980, the parents incorporated their holdings. Both Thomas and Christine were given, as qifts, shares in the corporation. Thomas received 

### 2,284 andChristine received 1,790 of the total 40,000 outstanding shares. Throughout the marriage the couple engaged in the farming and ranching business. The wife did not work outside thehome and ranch until February,1986. At the time of the dissolution hearing, she was employed as a secretary and swimming instructor. The wife petitioned for dissolution onAugust 29, 1986. A two-day hearing was held on May 28 and 29, 1987, after which the District Court issued findingsof fact,conclusions of law and a decree of dissolution with an accompanying memorandum. The District Court awarded theparties joint custody of the children and ordered the husband topay child support of $636 for 10months each year. The courtrecommended that the children reside with the wife during the schoolyear and at. least one month each summer but declined to specifically order such an arrangement, leaving it to the parties to work out the details themselves. The trial court divided the property of the parties by comparing the net value of the husband's separate assets as of 1979,the time of themarriage, and 1986, the time of the filing of the petition for dissolution. The court concluded that the husband's property had depreciated by $75,940 over the seven-year period. The court deducted the amount of depreciation from the value of themarital assets, leaving a net of $94,334. It then split that number inhalf, awarding each party 50 percent or $47,167. Determining that the marital property, consisting mainly of stock in First Security Bank and Milesnick Ranch, Inc., should remain with the husband, the court ordered Thomas to pay a monetary sum to Christine as her share of the property award. Thomaswasto pay an initial remittance of $30,000 with the balance to be paid in four annual installments of $4,300. Unhappy with the outcome of the decree, both parties moved the District Court to amend the findings of fact and conclusions of law. The court denied all but one of the parties' motions to amend. The amendment adopted, that allowing cost of living increases for child support, is not at issue here. The majority of the amendments denied comprise the topics of the present appeal. The first issue for our consideration concerns whether the District Court abused its discretion 

### by refusing to allocate the federal income tax exemptions for the parties' dependent children. Resolution of this question involves a two-step analysis. Wemust first examinewhether theMontana state courtshave jurisdiction to allocate the exemption. If the state courts have jurisdiction, we must then determine whether the District Court abused its discretion bl7 failing to make the allocation. Until the Tax Reform Act of 1984, there was general agreement that the state courts had the power to assign the dependency exemptions for the children of parties to a dissolutionaction. See,e.g., InRe theMarriage of Greeler

(Minn.Ct.App. 1985), 368 N.W.2d 2; MacDonald v. MacDonald (N.H. 1982), 443 A.2d 1017; Niederkorn v. Niederkorn (Mo.Ct.App. 1981), 616 S.W.2d 529. The pertinent statute at that time, 26 USC S 152(e) (1976), provided that the custodial parent received the exemption unless the dissolution decree gave the exemption to the noncustodial parent and that parent provided at least $600 toward the support of the child during the year. If the divorce decree

was silent on the matter, the noncustodial parent was entitled to the exemption if he or she provided $1,200 ormore in child support during the year and the custodial parent could not establish that he or she contributedmore. The dependency exemption provision of the Internal Revenue Code was originally enacted in 1967. Its aim was toprovide avehicleby which divorced parents could negotiate the exemption between themselves without involving the Internal Revenue Service (Service). - See, Comment, Tax Planning in Divorce: Both Spouses Benefit from the Tax Reform Act of 1984 (1985), 21 Willamette L.Rev. 767, 801. Unfortunately, the statute did not promote amicable parental settlements. The Service continually found itself caught in battles over which parent was entitled to the exemption. Therefore, in 1984, Congress amended the law. The present statute provides that the parent with physical custody of the child for the greater part of the year shall take the exemption unless (1) he or she signs a waiver that releasesthe exemption to the noncustodial parent

or (2) the noncustodial parent received the right to claim an exemption in a divorce decree dated prior to January 1, 1985 and he or she contributed at least $600 per year in support. 26 U.S.C. § 152(e). There is no mention in the statute, as amended, of the effect of the allocation of exemptions in a decree ofdissolution issued after January 

### 1, 1985. 

### A small number of courts have held that the 1984 amendments divested the states of jurisdiction to award dependency exemptions in conjunction with dissolution actions. Lorenzv. Lorenz (Mich.Ct.App. 1988), 419N.W.2d 770; In Re theMarriage ofVinson (0r.Ct.App. 1987), 732 P.2d 79, review denied, 736 P.2d 566. Themajority of courts thathave considered the question, however, have held that the amendments to 26 USC § 152(e)were enacted merely to promote administrative efficiency and were not intended to encroachupon the state's power todetermine financial matters between the parties in a dissolutionaction. Hughesv. Hughes (Ohio 1988),518N.E.2d 1213,cert. denied,

### -U.S. 

## , 109 S.Ct. 

### - 124, -L.Ed.2d - ;Crossv. Cross (W.Va. 19871,363 S.E.2d 449; In Re the Marriage of Lincoln (Ariz.Ct.App. 1987), 746 p.2d 13;Fudenbergv. Molstad (Minn.Ct.App. 19861, 390N.W.2d

The majority's position is supported by the explanation of the changes given by the Staff of the Joint Congressional Committee on Taxation. The present rules governing the allocations of the dependency exemption are often subjective and present difficult problems of proof and substantiation. The Internal Revenue Service becomes involved in many disputes between parents who both claim the dependency exemption based on providing support over the applicable thresholds. The cost to the parties and the Government to resolve these disputes is relatively high and the Government generally has little tax revenue at stake in the outcome. The committee wishes to provide more certainty by allowing the custodial spouse the exemption unless that spousewaives his or her right to claim the exemption. Thus, dependency disputes between parents will be resolved without the involvement of the Internal Revenue Service.

H.R. Rep. No. 432, Part 11, 98th Cong., 2d Sess. 1498-99, reprinted 

### - in 1984 U.S. Code Cong. & Ad. News 697, 1140. The above reportpersuades us that the 1984 changes were not enacted to strip state courts of the power to allocate dependency exemptions between parties to a dissolution action. The report demonstrates that the purpose of the amendments was to reduce the Service's involvement in litigation over questions of dependency exemptions. We see no reason why a state court'sallocation of thedeductions in a decree of dissolutionwill interferewith this goal. If a custodial parent d-efiesa district court's order by refusing

### to sign thewaiver of exemptions,the noncustodial parent can enforce the decree by way of a contempt action in state court. The Serviceneed notbe involved inany aspect of the dispute. Having decided that the District Court had the jurisdiction to allocate dependency exemptions,we must now determinewhether the court abused its discretionby refusing to do so. We hold that the assignment of dependency deductions is a factor a district court may consider when ordering child support. It is not an abuse of discretion, however, for a district court to refuse to award the exemptions to eitherparty. A 

### failure to assign the deductions to the noncustodial parent does not prevent that party from ever receiving the exemptions. The tax codeprovides that the custodialparent may voluntarily relinquishthe exemptions to the otherparent by signing a waiver. This provision provides flexibility. It allows the parties to examine, on a yearly basis, their respectivetaxburdens to ascertainwhichpartywould benefit most from the exemptions. TheDistrictCourtmay not wish to interfere with this flexibility by ordering the custodial parent to execute a waiver orbe subject to contempt. Furthermore,by providing that the custodialparentmay claim the exemption unless he or she executes a release, the statute has given that parent added leverage to ensure that the noncustodial parent pays the court-ordered child support. By leaving the exemptions in the hands of the custodial parent, the district court gives the noncustodial parent an incentive to keep current with his or her child support payments. It also gives the custodial parent added bargaining power at tax time. In summary, we hold that the 1984 

### amendments to the federal statute regarding exemptions for dependent childrenof divorced parents did not divest state courts of jurisdiction to allocate the exemptions in a decree of dissolution. A district court may assign the exemptions j.f it finds that the allocations would serve the best interests of the childrenand theparties. However,a district court's refusal to award the exemptions does not constitute an abuse of discretion. The next issue called to our attention concerns the value of the husband's interest in a trucking partnership. The husband argues that no substantial credible evidence exists to supportthe partnershipvalue foundby the District Court. In 1977, the husband formed a partnership with another individual. The partnership purchased a cattle truck and a Public Service Commission permit authorizing the commercial hauling of livestock throughout the state. In 1984, the truck was destroyed. The only partnership asset that remained at the time of the dissolutionwas the PSC permit. The husband testified that the partnership was worth $2,000. The wife did not testify as to the value of the partnership, although she estimated its worth as $2,500 in her proposed findings of fact and conclusions of law. The District Court valued the partnership at $10,000. The court based its valuation on the tax returns of the parties, such returns showing a partnership gain three out of five years. A district court has far reaching discretionary powers to determine the value of property in a dissolution action. Its valuation can be premised on expert testimony, lay testimony, documentary evidence, or any combination thereof. See In Re theMarriage of Reich (Mont.1986), 720 P.2d 286, 

### - 287-88, 43 St.Rep. 1167, 1168-69; InRe the Marriage of Garst (1983),206 Mont. 89, 94-95, 669 P.2d 1063, 1066. As long as the valuation is reasonable 

### in light of the evidencesubmitted, wewill not disturb that finding on appeal. InRe the Marriage of Luisi (Mont. 1988), 756 P.2d 456, 459, 45 St.Rep. 1023, 1026; In Re the Marriage of Staudt (Mont. 1985), 700 P.2d 175, 177, 42 St.Rep. 740, 743. Conflicting evidence was before the District Court in the present case. When confrontedwith conflicting evidence, the courtmust use its fact-finding powers to determinewhich evidence is more credible. Having had the opportunity to observe the witnesses, the trial court is in a position superior to that of the appellate court to judge the credibility of the testimony. In Re the Custody of Holm

(1985),698P.2d 414, 417, 42 St.Rep. 504, 507. Unless there is a clearpreponderance of the evidence against theDistrict Court's valuation, its findings, where based on substantial though conflicting evidence,will notbe disturbed on appeal. Garst, 206Mont. at 93-94,669P.2d at 1066. The conflicting evidence in the instantcase leadsus to conclude that theDistrict Courtdid not abuse itsdiscretion by assessing the partnership value at $10,000. On one hand, the husband testified that the livestock truck was destroyed in 1984 and that the value of the remaining asset, the PSC permit, was only $2,000. The 1986 tax return, which attributed no income to the partnership, supported the husband's appraisal. On the otherhand, the 1981 to 1985 tax returns reflected partnership gains three out of five years. The 1985 return in particular showed an income of $12,638,

even though the truck had not been in service that year. The husband testified that a portion of the 1985 income was due to an insurance settlement on the truck. However, no evidence was introduced to account for the remainder of that year's income. There was also testimony that the permit couldbe leased to other trucking outfits for apercentage of the profits.With all of the evidence taken together, it was reasonable for the District Court to assume that, although the truck had been destroyed. in 1984, the partnership retained income producing potential and thus had a higher value than that attributed to it by the husband. There was substantial documentary evidence to support the District Court's valuation. Thevaluationwas reasonable in light of the evidence submitted. There was no abuse of discretion. Thehusband next contends that theDistrict Court abused its discretion by failing to include the 1986 farm operating debt when it computed the net worth of his estate. The husband argues that the trial court erred

### by valuing thedebt at a time different from the time atwhich it evaluated the other assets and liabilities. We do not agree that this procedurewas error. Generally, valuationof assets should bemade at or near the time of the dissolution hearing. In Re the Marriage of Hammill (Mont.1987), 732P.2d 403, 406,44 St.Rep. 220, 223. This rule,however, isnothard and fast. The choiceof time for valuation iswithin the broad discretion of the district court. In Re the Marriage of Krause (1982!, 200 Mont. 368, 379, 654 P.2d 963, 968; In Re the Marriage of Krum (1980!, 188 Mont. 498, 503, 614P.2d 525, 527. Ifa singlevaluation date would lead to an inequitable distribution of property, the District Court may choose several different times for valuation. See, In Re the Marriage of Halverson (Mont. 

### - 1988)~ 749 p.2d 518, 45 St.Rep. 162; In Re the Marriage of Hurley (Mont. 1.986), 721 P.2d 1279, 1286, 43 St.Rep. 1271,

In the instant case, the District Court used September, 1986, a time shortly after the petition for dissolutionhad been filed, as the valuation date for the majority of the assets and liabilities. The court assessed the operatingdebt, however, as of the date of the dissolution hearing, nine months after the petition had been filed. The husband argues that this failure to appraise all of the assets and liabilities at the same time resulted in an overvaluation of his networth. In September, 1986, the husband owned livestock w0rt.h $138,319 and owed an operating debt of $24,000. By the time of the dissolution hearing, some of the cattlehad been sold and the operating debt had been paid with the proceeds. The sale of the cattle and payment of the debt were made to effectuate a tax savings to the husband. In itsmemorandum denying the husband'smotion to amend the findings of fact, the trial court recognized that, alonq with erasing the operating debt, the sale of cattle reduced the value of the herd. The court refused, however, to include the operating debt in its computations. It also declined to decrease its valuation of the herd. The court stated that these factors had been included in its overall valuation of the assets as well as its decision to distribute the property equally between the parties. Under the circumstances, we cannot hold that the District Court abused its discretion. The memorandum demonstrates that the court considered the factsaspresented and determined that differing valuation dates would aid in the equitable division of the property. In the final analysis, an equitable distribution was accomplished. We thereforeaffirm theDistrict Courtonthis issue. On cross appeal, thewife argues that theDistrict Court erred by discounting the value of the parties1 stock in the Milesnick family corporation. Shemaintains thatdiscounting stock in a closely held corporation is improper where the stock's value has been based on an appraisal of the underlying assets.Milesnick Ranch, Inc. was formed by the husband's parents in 1980. Soon after the creationof the corporation, the parents began gifting the stock to their children and their children's spouses. Through this gifting program Thomas received 2,284 and Christine received 1,790 of the total 40,000 sharesoutstanding. Ina letter introduced into evidenceby thehusband, the corporation's accountantsplaced the fairmarket value of the Milesnick Ranch stock at $53.85 per share. The appraisalwas based onnet asset value, that is,the sum of the fairmarket value of the assets less the liabilities. In its findings of fact, the District Court discounted the stockby 25 percent, from $53.85 to $40.39, to take into account the couple's status asminority shareholdersin the corporation. We have previously approved the practice of discounting stock in a closely held corporation. In Re the Marriage of Jorgensen (1979), 180 Mont. 294, 300, 590 P.2d 606, 610. However, a district court need not discount the stock in a close corporation in all instances. See, In Re the Marriage of Johnston (Mont. 1986), 726 P.2d 322, 43 St.Rep. 1808; InRe theMarriage of Buxbaum (1984),214Mont. 1, 692P.2d 411. The wife relies on Buxbaum for the proposition that discounting stock is improper whenever the market value is founded on net asset value, as it is in the instant case. This is not so. Whether a discount isproper depends on the facts of the case, not on the method used to ascertain the underlying value of the stock. In Buxbaum we approved the district court's decision not to discount for a minority interest because the court found that, even though the husband was a minority shareholder,he had actual control of the corporation.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. Jorqensen, 180Mont. at 300, 590 P.2d at 610. In thepresent case, there isnodoubt that Thomas and Christine Milesnick were minority shareholders. Together they owned only 4,074 shares of stock, a little over 10 percent of the total number. Furthermore, although Thomas worked with his parents on the ranch and had some input into day-to-day operations, the parents had the final say on all major decisions. We do not believe, under these circumstances, that the District Court abused its discretionby discounting the stock in Mil-esnick Ranch by 25 percent due to the parties'minority interest in the corporation. In conclusion, we hold that the District Court did not err in its valuation of the husband's partnership interestor in its valuation of the parties' stock in Milesnick Ranch. Nor did the District Court err by failing to include the operating debt in its computation of the net worth of the husband's estate or by refusing to all-ocate the tax exemptions for the parties' dependent children. We affirm the District Court.

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