Court Opinion

ID: 9686114
Source: CourtListenerOpinion
Date Created: 2023-08-24 15:30:27.22197+00
Date Added: 2024-06-11T18:18:15.163927
License: Public Domain

*658HERTZ, Acting Justice
(concurring specially).
I fully concur, but write specially on the income tax issue.
At the trial, the parties stipulated that the pension and profit sharing plan had a value of One Hundred Eighty Thousand Two Hundred Four Dollars ($180,204), and that his shares in his professional association had a value of One Hundred Sixteen Thousand Nine Hundred Ninety-Two Dollars ($116,992). Dr. Kelley’s C.P.A. testified that there would be income tax payable in the amount of Thirty-Four Thousand Five Hundred Ninety Dollars ($34,-590) on the pension and profit sharing plan, and thereby reducing its total value to One Hundred Forty-Five Thousand Six Hundred Thirteen Dollars ($145,613). The C.P.A. also projected the income taxes on the sale of the shares in the association at Sixteen Thousand One Hundred Ninety-Nine Dollars ($16,199), thereby reducing the total value of the shares to One Hundred Thousand Seven Hundred Ninety-Three Dollars ($100,793). Accepting these figures, the trial court reduced the marital estate by a total sum of Fifty Thousand Seven Hundred Fifty-Nine Dollars ($50,759).
The court entered Findings as follows in justification of the reduction of the aforementioned sum from the total net marital estate: “Plaintiff has resigned effective year end 1984. After his resignation it is not reasonable to expect him to leave the investments in place or his former colleagues to allow it. It is unlikely that leaving such an investment in place would be practical, especially considering his plans to leave the country.”
The trial court also made the additional finding: “Also, in order to provide defendant with the shortfall property division she is entitled to, it is necessary for the funds to be liquidated.”
Dr. Kelley testified that he had resigned effective December 31, 1984, which is prior to the trial, and that he absolutely was not returning to the practice of pathology. The trial court believed this testimony and accepted it as a good faith action on the part of Dr. Kelley. I have no quarrel with this finding by the trial court. However, the court then went on to find that it was necessary for Dr. Kelley to liquidate those funds to pay the shortfall in the property distribution to Mrs. Kelley. I find no support in the record for this finding by the trial court.
The division by the court included the payment of the sum of Thirty-One Thousand Seven Hundred Twenty-One Dollars Eighty-Three Cents ($31,721.83) to Mrs. Kelley. If the income tax consequences had not been deducted from the net marital estate prior to the distribution of the remaining property, Mrs. Kelley would have been entitled to an additional payment of some Twenty-Five Thousand Three Hundred Seventy-Nine Dollars Fifty Cents ($25,379.50). The evidence establishes that Dr. Kelley could have made this payment without liquidating his pension and profit sharing plan. At the time of trial Dr. Kelley had Sixty-One Thousand Two Hundred Forty-Six Dollars Twenty-Three Cents ($61,246.23) in savings accounts, money market accounts, and IRA accounts. (See: Defendant’s Exhibit “J”). In addition, the court also had the option to have any shortfall paid over a period of time.
Dr. Kelley’s voluntary decision to seek employment and a different lifestyle that would compensate him at a rate of only seven percent of his normal earning capacity not only affected the trial court’s decision on alimony, but imposed an income tax burden unfairly on Mrs. Kelley. The trial judge’s laudable attempt to divide the property on a fifty-fifty basis was thereby thwarted by the unilateral action of Dr. Kelley.
Even if the $61,246.23 was somehow not available to Dr. Kelley for the cash payment to Mrs. Kelley, I would still hold Dr. Kelley solely responsible for the income taxes resulting from his decision to change his lifestyle.
Dr. Kelley relies on our decision in Lien v. Lien, 278 N.W.2d 436 (S.D.1979), where we held that a trial court may reduce the *659valuation of assets by the amount of tax consequences if the property division compels a total liquidation of assets. While I agree fully with the principle of law stated, it, nevertheless, has no application to the facts of this case.
Dr. Kelley concludes that it was the decree of the trial court which required the liquidation of his medical practice. All the decree did was to declare a cash payment due to Mrs. Kelley in order to keep faith with the fifty-fifty division of the property. Nowhere in the decree does it require Dr. Kelley to totally abandon his lucrative medical practice for a lifestyle that would drastically reduce his income. The decision to change his lifestyle, which would require him to sell his practice, was Dr. Kelley’s, and his alone. This is what clearly distinguishes this case from the Lien case. The Lien case stands for the proposition that where the decree of the court compels a liquidation of assets, then, and only then, can the trial court reduce the valuation of the assets by the amount of the tax consequences. (Emphasis mine.) The trial court misapplied the procedural application of this rule when it accepted Dr. Kelley’s “good faith” change in his lifestyle. In so doing, the trial court allowed Dr. Kelley to control the ultimate result of the property division. Instead of the decree of the court compelling the liquidation of his practice, it was Dr. Kelley’s voluntary and unilateral actions that required it.
It is certain that the deduction from the net marital property was the result of Dr. Kelley’s decision to leave the practice of pathology. The effect of the court’s decision was to require Mrs. Kelley to share half of the income tax burden created by Dr. Kelley as a result of his unilateral decision to terminate his practice and develop a different lifestyle.
The real issue is whether Dr. Kelley, financially situated as he was, was required to liquidate this property in order to comply with the distribution ordered by the court. I believe that the answer to this question is clearly no.
It is one thing to accept Dr. Kelley’s good faith change in his occupation and lifestyle, it is quite another when the court penalizes Mrs. Kelley for something neither she nor the court were responsible for.
To accept Dr. Kelley’s contention on this phase of the property distribution would prompt others similarly situated to claim a tax credit resulting from their own unilateral action not in anyway required by the distribution decreed by the trial court. Furthermore, what would prevent Dr. Kelley from returning to his medical practice after this appeal is finalized? Another “good faith” change in lifestyle is certainly not beyond the realm of possibility. He then would have used the system in a manner that good conscience and equity denounce in the strongest terms. This is just another reason why Dr. Kelley should not be entitled to a Twenty-Five Thousand Three Hundred Seventy-Nine Dollar Fifty Cent ($25,379.50) income tax contribution from Mrs. Kelley.
That Dr. Kelley can remove himself from his present employment and change his lifestyle is not the issue. I believe, however, that when a party voluntarily causes the tax consequences, he ought to bear full responsibility therefor and should not be permitted to pass half of his tax burden onto the other party, when neither that party nor the action by the court requires it. The totality of the distribution is not what carries the day, it is simple adherence to the concept of fundamental fairness that mandates such a result. The concept of equitable distribution, which is required by the statute and our cases, would be seriously eroded if we were to accede to Dr. Kelley’s claim.
This simply is not a case where the divorce decree causes immediate tax consequences. Dr. Kelley has not shown that he had to sell his property in order to satisfy the monetary award to Mrs. Kelley. To the contrary, all he has shown is that because of his change in his lifestyle it was necessary to sell this property. It is patently obvious that the trial court considered Dr. Kelley’s change of lifestyle as *660controlling in making the deduction for income taxes that the court did. The tax consequences here were in Dr. Kelley’s complete control; that being so, it is entirely appropriate to allocate to him all of the potential tax liability.
In short, regardless of the certainty of the tax liability, in the absence of proof that the taxable event has occurred either during the marriage or will occur in connection with the division of the property, I would hold that it would be error and an abuse of discretion for the trial court to deduct such taxes from the total marital estate prior to division.