Court Opinion

ID: 9518038
Source: CourtListenerOpinion
Date Created: 2023-08-07 00:41:23.205279+00
Date Added: 2024-06-11T12:27:04.657463
License: Public Domain

SULLIVAN, Judge,
concurring in part and dissenting in part.
I concur with respect to Parts I A, II and III. I respectfully dissent with respect to that portion of Part I B which concerns valuation of the pension and 401(k) plans and with Part C insofar as it concerns the distribution of those assets.
In my view, the trial court erroneously utilized the after-tax values to determine the value of the assets includable in the marital pot.
The majority decision gives substantial significance to the fact that John withdrew his objection to admission of the accountant’s after-tax valuation of the pensions and 401(k) accounts. The withdrawal was premised upon a mistaken interpretation of the law. Counsel for John explained his withdrawal on grounds that the court “ha[d] to take into account what the possible tax effects might be under Indiana Case Law.” Tr. at 156-157 (emphasis supplied).
Withdrawing the objection to the testimony concerning the after-tax value of the pensions and 401 (k) accounts does not constitute a concession that those valuations might properly be used in determining the value of the assets to be included in the marital pot, as opposed to using those valuations in determining how to distribute the assets included in the pot. Notwithstanding that the evidence of both before-tax values and after-tax values was properly before the court, the court was nevertheless required to correctly apply the law to that evidence.
The controlling statute, I.C. § 31-15-7-7, as noted by the majority, provides that the court, “in dividing property under this chapter, shall consider the tax consequences of the property disposition with respect to the present and future economic circumstances.... ” The predecessor statute, Ind.Code § 31-1-11.5-11.1, which in pertinent part read identically to the present statute, was considered in Harlan v. Harlan, 544 N.E.2d 553 (Ind.Ct.App.1989). That Court of Appeals opinion was adopted by our Supreme Court. Harlan v. Harlan, 560 N.E.2d 1246 (Ind.1990). In doing so the Supreme Court noted that the husband’s argument was that that statute compelled consideration of “potential tax liabilities associated with an asset being awarded to a party, even if the tax consequences are not immediate and definite.” Id. Thus our Supreme Court rejected the husband’s argument in this regard and approved the Court of Appeals’ decision which clearly and unmistakably held:
*288“The thrust of the Statute is to recognize that there may be in the plan of division of marital property certain tax consequences which should be taken into account. The clear inference is that only tax consequences necessarily arising from the plan of distribution are to be taken into account, not speculative possibilities. The Statute specifically limits the trial court to consider only the tax consequences ‘of the property disposition.’” 544 N.E.2d at 555 (original emphasis).
Not only must the tax consequences considered be attributable to the plan of distribution of the marital assets, those tax consequences must be “direct or inherent and necessarily incurred tax consequences of the property distribution” and not “speculative possibilities.” Harlan, 560 N.E.2d at 1246 (adopting the Court of Appeals decision at 544 N.E.2d at 555). See also Dowden v. Allman, 696 N.E.2d 456 (Ind.Ct.App.1998); Knotts v. Knotts, 693 N.E.2d 962 (Ind.Ct.App.1998), trans. denied; Granger v. Granger, 579 N.E.2d 1319 (Ind.Ct.App.1991), trans. denied.
Footnote 7 of the majority opinion implies that the Mulvihill case rested, at least in part, upon a rationale that after-tax consequences were to be considered in a dissolution property distribution even if those tax consequences were to be felt at some distant time in the future. Such perceived rationale is to the effect that only speculative consequences are to be disregarded and that if there will be some tax consequences no matter how far into the future and no matter how and why those consequences are to be felt, such consequences are not speculative.
The Mulvihill court made its observation in this regard, only in attempting to distinguish Burkhart v. Burkhart, 169 Ind.App. 588, 349 N.E.2d 707 (1976). In the latter case this court affirmed the trial court’s disallowance of a tax consequence factor because there was no “foreseeable need or requirement to liquidate the stock to comply with the [dissolution] property [distribution].” Mulvihill, 471 N.E.2d at 13 (citing Burkhart, 169 Ind.App. at 593, 349 N.E.2d at 711). In my view, the holdings of Burkhart and Mulvihill are incompatible to the extent that they differ as to what is and is not a speculative tax consequence.10
In this regard, and although I concurred in the Court of Appeals decision in Harlan, upon reflection, I am unable to agree with the Harlan conclusion that the 1985 enactment of the predecessor statute to the present statute was an affirmation of the rationale of Mulvihill. The statute, as noted in Harlan, most assuredly affirmed the rationale of Burkhart and also of Wright v. Wright, 471 N.E.2d 1240, 1245 (Ind.Ct.App.1984), which like Burkhart disallowed a tax consequence consideration which was not a direct result of the property distribution ordered. But the affirmation of the rationale of Burkhart and Wright necessarily and effectively under*289cut the validity of the decision in Mulvi-hill.
As noted, the controlling statute, I.C. 31-15-7-7, deals only with property distribution under Chapter 7 which concerns the “Disposition of Property and Maintenance” solely within the context of the Indiana Dissolution of Marriage Act. It does not embrace a distribution of property in a different context or setting, such as a distribution of a decedent’s estate under the Probate Code or a distribution of corporate assets following a dissolution of the corporation. See Ind.Code 23-1-45-5, et. seq.
As also noted, the tax consequences to be considered upon such a marriage dissolution property distribution must not only be attributable to the plan of property distribution itself, but must be direct or inherent and necessarily incurred.
One might ask how such tax consequences can be direct or inherent and necessarily incurred unless such property distribution has been or is being made, or has been directed by a final order of the court. The question would then suggest that at the stage of the dissolution proceeding in which the court is merely enumerating and placing values upon the assets includable in the marital pot, there has been no dispo-sitional plan or order set forth and that therefore, any contemplation of tax consequences is premature.11
The question and its possible implications are not, however, presented to us in this case. Its answer must accordingly await another case on another day.
In the final analysis, as to the valuation of the marital assets, I would reverse and remand to the trial court to value the pension and 401 (k) plans at their respective pre-tax values and further to reconsider and perhaps reconfigure the distribution plan in order to achieve the intended 60%-40% division.12

. It is quite possible that the Mulvihill court was seizing upon a sentence in Burkhart, which in disallowing the tax consequence consideration, said: "This is not to say that the tax consequences are to be ignored.” 169 Ind.App. at 593, 349 N.E.2d at 711. However, that sentence was made in the clear context of an entirely different scenario, one in which, because of cash flow problems, the asset would have to be sold, redeemed or transferred in order to satisfy the distribution decree. In such instance, the tax consequences would not be speculative and would meet the requirement that the consequences be "direct or inherent and necessarily incurred” as a result of the property distribution. Harlan, 560 N.E.2d at 1246. The statement should not be construed to apply to cases in which a prospectively taxable transaction might or might not take place with regard to an asset distributed in the dissolution decree.

. A corresponding question could also be posed as to whether appropriate consideration of tax consequences attributable to a marital dissolution distribution of a pension plan or a 401(k) plan may be further restricted by the terms of the pension or 401(k) plan itself with respect to how and under what circumstances the asset may be distributed.

. Because under my view the trial court would be reconsidering the valuation of the marital assets, it would be no additional burden for the court to correct the value placed upon the 1996 Buick Roadmaster and to modify the distribution plan accordingly.