Court Opinion

ID: 9540800
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:19:55.289744+00
Date Added: 2024-06-11T15:00:58.905713
License: Public Domain

Johnson, J.,
¶ 47. dissenting. With all due respect, I cannot join the majority's unquestioning deference to the family court’s decision excluding from the marital estate substantial assets that husband transferred to the parties’ children shortly before the divorce and awarding wife only about 20% of the devalued assets following a twenty-three-year marriage. I fear that our acquiescence to what occurred in this case may signal to future spouses contemplating divorce that, in the name of estate planning, they can diminish the marital estate by transferring assets to the parties’ children on the eve of the divorce without their partner’s knowledge or consent.
¶ 48.1 would not have this Court usurp the trial court’s role by reweighing the evidence or assessing the credibility of the witnesses. Bather, I believe that the undisputed facts of this case required the family court to include as part of the marital estate those assets that husband transferred in trust to the parties’ children immediately before and during the divorce proceedings. Cf. Klockow v. Klockow, 979 S.W.2d 482, 488 (Mo. Ct. App. 1998) (party claiming property is nonmarital bears burden of proving contention by clear and convincing evidence). I also believe that the court failed to adequately explain why other trust assets in which husband retained a controlling interest were not included in the marital estate. Finally, I find no evidence to support the family court’s one-third reduction in the value of husband’s 50% interest in several hotel properties based on his “minority” interest in the properties. I would vacate the family court’s property distribution and maintenance award and remand the case for the court *277to reconsider those matters after taking into account the entire marital estate.
I.
A.
¶ 49. There are two substantial assets in particular that the family court chose not to include as part of the marital estate. The first is 99% of the stock in Preferred Motor Inns of New England, the corporation that owns, among other properties, the Springfield Holiday Inn, which husband’s expert valued at $1.4 million at the time of the final divorce hearing. Husband purchased the Springfield Holiday Inn in 1994 after having received $1.4 million from the sale of his father’s business in 1988 and a $750,000 trust fund upon his father’s death in 1991. Later, husband set up Preferred Motor Inns to own and operate the Springfield Holiday Inn and other properties. In 1998, after the parties began to contemplate divorce, husband communicated with his Boston attorney about the possibility of transferring ownership of Preferred Motor Inns to the Crummey Trusts, which husband had established years earlier to provide for the parties’ children.
¶ 50. In January 1999, approximately one month before he filed for divorce, husband transferred 99% of the stock of Preferred Motor Inns to the Crummey Trusts. He retained the remaining 1% — the only voting stock — which allowed him to control use of the funds to support his business interests. At the same time, husband transferred the Exit 6 property to the Crummey Trusts at a supposed value of $60,000 — the same amount allowed annually for three children under Internal Revenue Service regulations — even though he had purchased the property for $140,000. Later, while the divorce action was pending, husband spent $750,000 in marital assets to upgrade the Springfield Holiday Inn that he had transferred to the children’s Crummey Trusts.
¶ 51. Notwithstanding the timing of the transfers with respect to the parties’ impending divorce, the family court decided not to include the value of these assets as part of the marital estate based on its finding that husband had made the transfers for the purpose of prudent estate planning and not to deplete the marital estate. Given the facts of this case, I would hold that the court abused its discretion by excluding the assets that husband transferred from the marital estate on the eve of the parties’ divorce. Regardless of husband’s stated intent, when one spouse transfers substantial assets from the marital estate immediately before an impending divorce without the consent of the other spouse and outside the pattern of previous financial transfers, the *278family court should include the transferred assets as part of the marital estate. Under such circumstances, there is no reason for the family court to have to divine the intent of the party who divested the marital estate of funds. Because the family court ultimately decides how to allocate the marital assets between the parties, the court should include all property that is fairly in the marital estate and then state its reasons for the allocation, keeping in mind the relevant statutory criteria. See 15 V.S.A. § 751(a) (“All property owned by either or both of the parties, however and whenever acquired, shall be subject to the jurisdiction of the court.”).
¶ 52. A case on point is In re Marriage of Lee, 615 N.E.2d 1314 (Ill. App. Ct. 1993). There, the husband transferred over $250,000 into a trust for the parties’ children in the three months preceding the parties’ separation. The appellate court upheld the trial court’s decision to include the transferred funds as part of the marital estate, noting that the amount transferred shortly before the parties’ separation greatly exceeded the previous annual transfers of $10,000 per child into the trust, and that the husband did not inform the wife of the transfers. Id. at 1320. Noting further that “the expenditure did not benefit the joint marital enterprise,” the court rejected the husband’s argument that the transfers represented his taking advantage of a “rare opportunity” to benefit the children. Id. Compare Thames v. Thames, 477 N.W.2d 496, 498-99 (Mich. Ct. App. 1991) (upholding trial court’s inclusion as part of marital estate stock that husband transferred into irrevocable trust for benefit of parties’ minor child one month before filing for divorce), with Sanders v. Sanders, 902 P.2d 310, 317 (Alaska 1995) (upholding trial court’s exclusion of limited entry fishing permit from marital estate based on finding that wife had consented to husband’s transfer of permit to husband’s children).
¶ 53. Like his counterpart in Lee, husband transferred substantial marital assets to the parties’ children shortly before and during the divorce without informing wife, even though the transfers were out of line with husband’s previous history of giving $60,000 per year to the three children — the tax-free limit under IRS regulations. Indeed, never before had husband transferred to the children’s trusts assets anywhere near the amount that he transferred to the children shortly before the parties’ divorce. Similarly to Lee, husband and his trustee characterized the large predivorce transfers as a “brilliant” piece of estate planning aimed at taking advantage of new tax laws.
¶ 54. The family court accepted this explanation, focusing exclusively on whether the transfers represented good estate planning. Rather *279than considering the nature or timing of the transfers, or the effect of the transfers on the value of the marital estate, the court simply noted that the transfers were prudent financial investments that not only benefitted the children, but also allowed husband to maintain a stream of income, which, in turn, indirectly benefitted wife by increasing the amount of income husband had available to provide maintenance to her. The majority also accepts this reasoning, repeating the family court’s finding that husband’s transfer of assets to his children shortly before the parties’ divorce was undertaken with the intent of wisely providing for the children’s future while, at the same time, preserving a source of income and borrowing.
¶ 55. A spouse should not be able to “use a claim of ‘estate planning’ and unilaterally distribute marital assets to defeat another spouse’s equitable distribution claim.” Nagle v. Nagle, 799 A.2d 812, 822 (Pa. Super. Ct. 2002) (Del Sole, P.J., concurring in part and dissenting in part) (agreeing with majority that spouse should not be able to transfer marital assets in name of estate planning without explaining other spouse’s potential interest in plan); see Soutiere v. Soutiere, 163 Vt. 265, 271, 657 A.2d 206, 209 (1995) (citing line of cases “giving family court judges the power to include within marital assets property which has been placed in other names to avoid distribution to a spouse”). Husband’s claim that he was taking advantage of tax laws to benefit his children should not allow him to diminish the marital estate on the eve of the parties’ divorce under the guise of estate planning. See Lee, 615 N.E.2d at 1319 (“A transfer of marital assets does not escape classification as dissipation merely because it is to, or for, the benefit of children of the marriage.”). Otherwise, nothing would prevent any future spouse from making “prudent” financial transfers that diminish the marital estate. As the Lee court stated, “to allow spouses to make transfers of marital assets which automatically escape dissipation treatment if made to the parties’ children invites vindictive spouses to make such transfers for the primary purpose of depriving the other spouse of the use of his or her fair share of the marital estate.” Id. at 1320.
¶ 56. In upholding the family court’s decision not to include the Preferred Motor Inns stock as part of the marital estate, the majority relies upon the court’s finding that, to the extent possible, the parties did not want the marital assets liquidated or the trusts invaded. The majority refers to a brief exchange in which, at her attorney’s prompting, wife agreed that she wanted the trust assets that husband transferred to the children included as part of the marital estate, “but that *280the transactions not necessarily be set aside.” According to the majority, mother unfairly wanted the assets counted twice.
¶ 57. In my view, the majority makes too much of wife’s lone response and fails to consider the context in which it was made. Wife’s comment arose during her testimony concerning her expenses. Wife asked the court to give her enough money to allow her to make an annual donation to the children’s trust accounts equal to that of husband. She attempted to explain how husband’s control over the money available to the parties’ children made her feel devalued and undermined her relationship with the children. In this context, she initially stated that she wanted the trust transfers set aside, but then, at her attorney’s prompting, agreed that, although she wanted the trust assets included in the marital estate, she did not necessarily want the transactions set aside.
¶ 58. Wife’s comment is understandable. By transferring substantial marital assets into the children’s trusts shortly before the divorce, husband placed wife in the unenviable position of having to decide whether to oppose the transfer of assets to her own children. Like husband, wife wanted to provide for the children, as she had done during the parties’ lengthy marriage. Having been an equal partner during the marriage, wife wanted only to continue to be an equal provider for the children following the parties’ divorce. Instead, she felt that her contributions during the marriage had been devalued by husband’s control over the marital assets, including those assets that he transferred to the children's trusts shortly before the divorce.
¶ 59. The majority is correct that the marital assets cannot be counted twice, but wife stated only that she did not necessarily want the trust transfers set aside. By making this single comment, wife did not waive her request to treat the trust assets as part of the marital estate. Both the majority and husband repeatedly refer to the parties’ agreement on how to treat the trust assets, but apparently there was no written agreement. Indeed, husband cites the record only once concerning any agreement between the parties. There, his trial attorney states merely that he and wife “both agree that however the Court looks at this[,] liquidation or for sale is not the way to arrive at where you’re going.” On the other hand, in her proposed findings, wife asked the family court to find that husband had fraudulently transferred marital assets to the children’s trusts shortly before the divorce. Under these circumstances, the court should have included those assets as part of the marital estate.
*281B.
¶ 60. The second major asset that the family court excluded from the marital estate is the Lawrence Kasser Irrevocable Trust of 1992. As noted, the $750,000 trust fund became part .of the marital estate after husband’s father died in 1991. Its value increased to $850,000 by the time of the final divorce hearing. The court considered the trust only as a source of income for husband and not as part of the marital estate based on its finding that husband had no right to invade the principal of the trust. Yet, the court also found that husband has a limited right to invade the principal of the trust and that he has the power to appoint or replace the trustee. The court did not explain the nature of husband’s limited right to invade the trust, but one of the trust provisions allows husband to use as much of the trust as the trustee deems appropriate for husband’s “welfare, comfort, and support” as long as husband’s physician certifies him to be “disabled in any manner.” Nevertheless, the court was reassured that husband would not invade the principal for his own benefit because a prudent fiduciary would not do so unless there was dire need, and that was not likely here.
¶ 61. Unlike the majority, I cannot accept the family court’s reasoning. To the extent that the court relies on its finding thát husband cannot invade the principal of the trust, that finding is clearly erroneous and inconsistent with the trust document and another court finding that husband has a limited right to invade the principal of the trust. Further, regardless of what husband or a prudent advisor might do, the point is that husband has the power, if he so chooses, to replace the trustee and invade the principal of the trust. Therefore, husband has control over the trust, and there is no reason to exclude it from the marital estate.
¶ 62. The family court repeatedly states, and the majority apparently agrees, that certain interests of husband’s are being accounted for as a source of income rather than part of the marital estate. Husband encourages this approach, asserting that the parties agreed not to liquidate his hotel interests or invade the various trusts so that his income stream could be preserved. But any agreement the parties had that husband not be required to liquidate his hotel interests or invade the income-producing trusts is not the same as stipulating that the family court need not include those assets in the marital estate in determining an equitable property division. Wife may not want the marital estate liquidated, but she is entitled to have all of it counted. Even if the parties’ financial circumstances prevented the family court from ordering an immediate lump-sum payment representing wife’s *282share of the marital estate, wife is still entitled to a full accounting, and an equitable division, of the value of the entire marital estate. Cf. Cabot v. Cabot, 166 Vt. 485, 496, 499, 697 A.2d 644, 651, 653 (1997) (court acted within its discretion by awarding wife $1.5 million but no maintenance following twelve-year marriage in which major asset was husband’s $4 million investment account).
II.
¶ 63. The trial court not only failed to include substantial assets in the marital estate, but also reduced the value of the remaining seven hotel properties because of husband’s “minority” interest in those properties. In fact, husband’s interest is not a true minority interest; rather, it is a 50% share. Husband’s expert estimated one-half of the value of those seven properties to be approximately $3 million, far below the value placed on the properties by wife’s expert. The court found husband’s expert to be more credible, and wife does not contest his valuation. She does challenge, however, the family court’s further reduction of that value based on husband’s “minority” interest in the properties. Husband actually testified that because he did not own controlling shares of the properties, nobody would buy his shares and, therefore, their aggregate fair market value was zero. Husband’s expert suggested that the investment community’s interest in a noncontrolling share of hotel properties would be “significantly diminished,” but conceded that he had “not taken this to another level of determining what, if any, that discount would be ... because the empirical data to determine a discount on a minority interest in hotels of this type is virtually impossible to find.”
¶ 64. Based on this evidence alone — husband’s valuation at zero and his expert’s valuation at $3 million minus an indeterminable “discount” — the family court further reduced the value of husband’s 50% hotel interests by $1 million. In my view, the testimony of husband’s expert is so vague and uncertain as to any “discount” that it cannot support the court’s $1 million reduction in the value of the hotels. Furthermore, even if I accepted, for the sake of argument, that husband’s interest is a minority interest, his expert presented no figures or method for calculating any discounted value. Rather, after speculating that investors would have a limited interest in a minority share of the hotel properties, the expert acknowledged that there is no empirical evidence from which to discount the value of hotel properties based on a minority interest.
*283¶ 65. The situation here is not comparable to Goodrich v. Goodrich, 158 Vt. 587, 613 A.2d 203 (1992), the case upon which the majority relies. Ante, ¶ 28. In that case, we held that the trial court did not err in discounting the face value of the wife’s 5% share of a company founded by her great-grandfather because the stock was not readily marketable and the record did not reflect any special rights or powers attending the minority interest. Id. at 591, 613 A.2d at 205-06. In rejecting the husband’s argument concerning the value of his wife’s minority interest, we cited the “small percentage of the outstanding stock, coupled with no apparent power to affect the management of the company.” Id. at 592, 613 A.2d at 206. We also distinguished the case that the husband relied on therein, noting that it concerned a spouse who was one of three founders of the business and held 22% of the business’s stock. Id.
¶ 66. Here, husband owned a full 50% of the hotel properties — an interest equal to all other interests combined. Further, the evidence was undisputed that the hotel operating agreements contained provisions establishing a mechanism under which the partners would buy out each other based on the full value of the entire business as a going concern. In light of these circumstances, the family court’s further devaluing of husband’s interest in his hotel properties based on his “minority” interest was clearly erroneous.
¶ 67. This is not, as the majority concludes, a decision within “the range of evidence.” Ante, ¶ 27; see Kanaan v. Kanaan, 163 Vt. 402, 407-08, 659 A.2d 128, 132 (1995) (trial court’s valuation of closely held business may be upheld if it is within range of evidence). Aside from husband’s incredible statement that his 50% interest in seven hotels is worth zero, the only other evidence was husband’s expert surmising that investors would not be willing to pay full value, but acknowledging that he had no methodology to devalue husband’s interest in the hotels based on his 50% ownership. In short, far from being within the “range of evidence,” there is no evidence.
III.
¶ 68. Putting aside the assets that the trial court excluded from the marital estate, wife still received only slightly more than 20% of the estate following a twenty-three-year marriage in which she served as a homemaker for her family while husband built up his businesses. If the trial court had included all of the marital assets, as outlined above, and credibly justified in a written decision a 20% share to wife, there might be no grounds to disturb the court’s decision. But when wife receives *284only 20% of an estate that has already been greatly reduced by excluding substantial assets, I cannot find the property division equitable.
¶ 69. It is difficult to discern from the family court’s decision why wife received such a small part of the reduced marital estate, although the court stated that it considered 15 V.S.A. § 751(b)(10) — “the party through whom the property was acquired” — to be a major factor in its property division. By way of explanation, the court briefly noted that the parties’ assets did not begin to accumulate rapidly until after 1988, when husband’s father gave husband $1.4 million from the sale of the father’s businesses, including a business that husband had started in the early 1970’s while working for his father before the parties were married.
¶ 70.1 believe that the family court abused its discretion by making this factor so significant that wife received only 20% of the marital assets. “Although § 751(b)(10) allows the court to give weight to ‘the party through whom the property was acquired,’ there are limits to the court’s discretion.” Dreves v. Dreves, 160 Vt. 330, 334, 628 A.2d 558, 560 (1993); see 15 V.S.A. § 751(a) (“property owned by either or both of the parties, however and whenever acquired” is subject to family court’s jurisdiction). In Dreves, we reversed the family court’s decision to give the wife only 12.5% of the parties’ assets, finding insufficient the court’s explanation that the marriage was fairly short (six years) and nearly all of the assets were originally attributable to the husband. Id. at 335, 628 A.2d at 561.
¶ 71. Here, the parties were married for twenty-three years. While husband built up his businesses, wife was a homemaker for him and the parties’ three children. Although the financial resources that provided the capital for husband to expand his businesses came from his family, he obtained those resources long before the parties divorced, and he used them during the lengthy marriage while wife supported him in his endeavors. Indeed, the major asset — the $1.4 million from the sale of his father’s businesses — came into the marriage in 1988, the same year that the parties’ third child was born, and fifteen years before the family court’s final divorce order. Under these circumstances, the original source of the income, although a relevant factor, is less significant than it would have been had this been a short-term marriage.
¶72. This ease can be compared to Hanaway v. Hanaway, 527 N.W.2d 792 (Mich. Ct. App. 1995), in which the wife argued that the trial court erred by failing to include as a marital asset stock in the *285husband’s family business, resulting in her receiving only 20% of the marital estate. In rejecting the trial court’s reasoning that wife had not contributed to the acquisition and growth of the business, the appellate court stated as follows:
The business clearly prospered during the marriage. While the source of [husband’s] interest in the company was his father’s annual gifts of stock, the financial yield over time from that interest and the increased value of that interest necessarily reflected [husband’s] investment of time and effort in maintaining and increasing the business, an investment that was facilitated by [wife’s] long-term commitment to remain at home to run the household and care for the children.
Although initially given to [husband] by his father, the interest in the business was a major asset of the marriage that [husband] was permitted to cultivate and nurture over the years. It is inequitable to deprive [wife] of any share of the business or its value on the basis that she enjoyed the benefits of [husband’s] salary over the years. The fruits of [husband’s] efforts in the business were both the increase in the value of the business since 1968 and the salary he drew over the years. The parties were building an asset as well as enjoying its fruits on an ongoing basis. That [wife’s] contribution to the asset came in the form of household and family services is irrelevant.
Id at 799-800.
¶ 73. The same can be said in the instant case. While acknowledging that wife made a significant, nonmonetary contribution to the parties’ marriage, the family court does not appear to have fully compensated her for that contribution. Even with its exclusions and reductions in the marital estate, the court gave wife only about $650,000 out of $3.2 million, or just over 20%. The record and the relevant statutory criteria do not support such a one-sided property distribution.
¶ 74. The family court also awarded wife maintenance starting at $5500 per month and reaching $7500 per month by July 2006 based on its conclusion that husband’s income was $300,000 per year and wife’s was zero. Factoring in the court’s findings that husband had expenses of $180,000 per year, and wife had expenses of $72,000 per year, wife’s maintenance award represents between $6,000 below and $18,000 above her expenses, while husband is left with substantial income above and beyond his expenses. Thus, wife will most likely be forced to *286use some of her property distribution to pay for part of her living expenses. Meanwhile, a significant portion of husband’s expenses are educational costs that will end in the next few years and that could have been paid out of the children’s trust funds.
¶ 75. Moreover, husband has substantial reported income above the $800,000 that the family court calculated in making its maintenance award. Since the middle to late nineties, husband’s tax returns have indicated an adjusted gross income of over $500,000 per year. For purposes of determining an appropriate maintenance award, however, the family court concluded that husband had a yearly income of only $300,000, noting that much of the income he reported to the IRS was pass-through income that was reinvested in his properties rather than distributed directly to him. I do not quarrel with the family court’s finding that much of husband’s income was not distributed to him, but it is still income to husband. That he chooses to reinvest it in his companies to increase the value of his assets is an investment choice on his part. Yet the trial court inexplicably failed to recognize that this income is increasing husband’s earning power and assets, some of which were excluded from the marital estate.
IV.
¶ 76. Considering all of these facts, I cannot agree with the majority that the family court’s property division and maintenance award are equitable. The majority recites at length how much money wife will receive under the family court’s order. The issue, however, is not whether wife will be able to live comfortably on assets awarded to her by the court, but rather whether she obtained a fair share of the parties’ substantial assets, given all of the relevant factors, including the length of the marriage, her role during the marriage, and the parties’ standard of living during the marriage. The record plainly demonstrates that the family court awarded wife a very small percentage of the parties’ assets following a lengthy marriage in which she raised the parties’ children. I recognize that wife most likely will never be in financial need, but, the fact remains, she did not receive her fair share of the parties’ large estate.
¶ 77.1 also recognize that this was a very difficult case to try because husband’s financial investments are quite complicated. But as long as parties with large and complicated marital estates invoke the jurisdiction of the family court to divide their property, the court must be up to the task. In hindsight, notwithstanding that the parties hired their own *287experts, this case should have been referred to a master at the expense of the parties, and could be so referred on remand.5
¶ 78. My primary concern, however, is that the majority is creating a precedent that allows one spouse to unilaterally divert significant marital assets to the parties’ children and thus diminish the marital estate on the eve of a divorce in the name of estate planning. This is particularly troubling because we need not create such a precedent nor burden the family court with the impossible task of divining the motives of parties who have every incentive to defeat the interests of their spouses. I would hold that the family court abused its discretion in this case by: (1) excluding from the marital estate the significant assets that husband transferred into the children’s trusts shortly before and during the divorce proceedings; (2) excluding the large trust that he controlled for himself and the children’s benefit; and (3) reducing the value of husband’s 50% interest in his hotel properties based on an illusory “minority” ownership that even his own expert could not value. Particular circumstances and characteristics concerning the parties’ assets may affect how those assets are distributed between husband and wife, but however they are eventually distributed, they must be recognized for what they are — marital assets. I would remand the matter for the court to reconsider its property division and maintenance award after taking into account the entire marital estate and all of the relevant statutory criteria.
¶ 79. I am authorized to state that Justice Skoglund joins in this dissent.

 The majority notes that wife objected to the family court’s proposal to allow a master to value husband’s hotel interests and determine his yearly income. In my view, the court should have referred those factual determinations to a master despite wife’s objection, given the exceptional situation created by husband’s complicated financial dealings. Moreover, even if the complexity of husband’s finances could not be considered an “exceptional condition,” a master’s role in this situation would be more analogous to that of an accountant as opposed to a decision maker. See V.R.C.P. 53(b)(2) (“[I]n an action to be tried without a juiy, save in matters of account, a reference shall be made only upon a showing that some exceptional condition requires it or when provided by law.”).