Opinion ID: 901626
Heading Depth: 1
Heading Rank: 5

Heading: Rick's Personal Guarantees

Text: [¶10.] Rick argues that the trial court erred by not including the amount of debt of Larson Cable Trailers that he personally guaranteed. Rick does not dispute the trial court's valuation of Larson Cable Trailer's at $0. However, Rick claims that the trial court abused its discretion when it failed to reduce his total assets by the amount of his personal guarantee, which he believed was $199,604.00. [¶11.] Joni argues that Rick's personally guaranteed loan is a contingent liability that was appropriately disregarded for purposes of computing Rick's net assets. This Court has discussed contingent liabilities in the context of divorce cases on prior occasions. In Wallahan v. Wallahan, this Court considered whether the trial court erred when it refused to apportion $384,000.00 in contingent liabilities between a husband and wife in a divorce action. 284 NW2d 21, 25-26 (SD 1979). In affirming the trial court, we noted that the husband had testified that the contingent liabilities [were] extremely remote and his ever being held liable on them [was] highly unlikely. Id. at 26. We stated, `[C]ontingent liabilities that may never be paid or that may be paid only in part need not be deducted in determining net worth.' Speculative contingent liabilities should not be considered in apportioning the parties' assets for purposes of a property division. Id. (quoting Wahl v. Wahl, 159 NW2d 651, 659 (Wis 1968)). [¶12.] We examined contingent liabilities again in Hansen v. Hansen, where we determined that two loans were not speculative or contingent liabilities because both the husband and wife testified that these debts existed and that the husband had made efforts to repay the debts. 302 NW2d 801, 802-03 (SD 1981) (holding that the trial court's finding that the loans were contingent was clearly erroneous). We offered the following explanation of contingent liabilities: Generally, something is a contingent liability when it depends upon some future event, which may or may not happen, thereby making it uncertain whether it will ever become a liability. Similarly, the word speculative has been found to have varying meanings. It is (s)ometimes ... used as ... a conclusion reached by the faculty or process of intellectual examination, search, and reasoning; sometimes as meaning conjecture, guesswork, and surmise. Id. at 803 (internal citations omitted). [¶13.] Based on Thorstenson's testimony, Rick's personal guarantee on the loan can fairly be characterized as a contingent liability. In placing a $0 value on Larson Cable Trailers, Thorstenson considered Rick's personal guarantee. Thorstenson testified that notwithstanding the loan, the business would not sell for less than $0. He further stated that if the company were forced into bankruptcy, Rick would not have to pay the loan because the assets of the company, the inventory and receivables, and the equipment would be very sufficient to repay that bank loan. Thorstenson also testified that at the time of trial, there was no indication of bankruptcy because [of] the good cash flow coming into [the business] this year. . . . [Larson Cable Trailers] looks like it's on its way to becoming a profitable company. [¶14.] An F&M bank official testified that Rick had personally guaranteed loans to the two businesses totaling $670,467.35. Larson Cable Trailers' portion of the loan was $180,000.00. In addition, Larson Digging had guaranteed the loan to Larson Cable Trailers making its assets a source of payment if the need arose. [¶15.] However, there was nothing in the record to indicate that bankruptcy or voluntary dissolution were on the horizon nor was there any evidence that F&M Bank had initiated an action to collect on Rick's personal guarantee. Even if these unlikely events were to occur, evidence indicated that the business assets would cover the loan. Therefore, if the guarantees were enforced, Rick would not be the only liable party nor would he be responsible for the entire amount. Accordingly, the trial court's failure to deduct the contingent liability of Rick's personal guarantee from his total assets was not an abuse of discretion.