Court Opinion

ID: 9677231
Source: CourtListenerOpinion
Date Created: 2023-08-24 05:47:02.993433+00
Date Added: 2024-06-11T12:18:55.280251
License: Public Domain

JOHN F. STROUD, Jr., Chief Judge. In this appeal, we are J asked to review the chancellor’s findings regarding the division of property and the allocation of debts in a divorce case. Appellant makes three arguments: 1) that the chancellor erred in ruling that appellee’s corporation, Dalrymple Insurance Agency, Inc., was nonmarital property; 2) that the chancellor erred in ruling that the agency’s renewal commissions were nonmarital property; and 3) that the chancellor erred in ruling that two bank notes representing approximately $41,000 in debt were marital debts rather than corporate debts. We affirm on the first two points and reverse on the last. Appellant and appellee were married in June 1987. Approximately thirty years prior to the marriage, appellee founded the Dalrymple Insurance Agency. He operated the business as a sole proprietorship until January 1989, eighteen months into the parties’ marriage. In that year, he transferred the assets of the sole proprietorship to Dalrymple Insurance Agency, Inc., in exchange for corporate stock. The stock was issued in his name only. In the divorce proceeding, filed in 1998, appellant asked the court to declare that the stock of Dalrymple Insurance Agency, Inc., was marital property. Appellee opposed appellant’s request on the ground that the stock was acquired in exchange for nonmarital property, i.e., the assets of the sole proprietorship. The chancellor ruled in favor of appellee and declared that the corporation was his separate property. The first issue on appeal is whether the chancellor’s ruling was in error.  Our standard of review in chancery cases is well settled. Chancery cases are reviewed de novo on appeal. See Hunt v. Hunt, 341 Ark. 173, 15 S.W.3d 334 (2000). With respect to the division of property in a divorce case, we affirm the chancellor’s findings unless they are clearly erroneous. See Jablonski v. Jablonski, 71 Ark. App. 33, 25 S.W.3d 433 (2000). Due deference is given to the chancellor’s superior ability to determine the credibility of the witnesses and the weight to be accorded their testimony. Hunt v. Hunt, supra. Marital property is all property acquired by either spouse subsequent to the marriage, with certain exceptions fisted in Ark. Code Ann. § 9-12-315(b) (Repl. 1998). The relevant exception in this case is contained in section 9-12-315(b)(2), which provides that property acquired in exchange for property acquired prior to the marriage is not marital property. Whether this exception applies depends upon whether appellee actually used nonmarital property to acquire the stock of Dalrymple Insurance Agency, Inc. The facts relevant to the acquisition of the corporate stock are as follows. In 1989, appellee executed a document that assigned his business assets to Dalrymple Insurance Agency, Inc., in exchange for 100 shares of common stock.1 The corporation’s 1989 tax return reflected that, as a result of the exchange, assets valued at $14,568 were received by the corporation. A stock certificate was issued evidencing appellee’s ownership of 100 shares in Dalrymple Insurance Agency, Inc. According to appellee, he used no marital assets to purchase the shares of stock.  Appellant argues on appeal that appellee did not prove that he acquired the corporate stock with nonmarital property.2 She claims first that, in effecting the exchange of assets from the sole proprietorship to the corporation, appellee drew on an account in which marital and nonmarital funds were commingled. She bases her claim on the assertion that, just prior to the marriage in 1987, appellee had only one bank account. She deduces that, as a result, it is likely that business and personal funds were commingled in that one account between 1987 and 1989 and that those commingled funds were later used to acquire the corporate stock. However, appellant’s argument is belied by her own testimony that, almost immediately after getting married, she and appellee opened a separate household account. Given that separate business and household accounts existed between 1987 and 1989, it would be pure speculation to assume that business and personal funds were commingled in either.  Appellant claims further that appellee’s evidence was simply insufficient to sustain his burden of proving that the stock was acquired in exchange for nonmarital property. We disagree. First, appellee testified that he used strictly nonmarital funds to acquire the stock. This testimony was not disputed by appellant. When the issue is whether a source of funds is marital or nonmarital, we defer to the chancellor’s superior position to resolve credibility questions pertaining to the issue. See Wright v. Wright, 29 Ark. App. 20, 779 S.W.2d 183 (1989). Second, appellee had operated the business as his own for thirty years before he married the appellant. It is therefore unlikely that, by changing the business from a sole proprietorship to a closely held corporation for tax purposes, he intended to change its status from nonmarital to marital property. Third, the stock certificates were issued solely to appellee, a factor considered significant in Cate v. Cate, 35 Ark. App. 79, 812 S.W.2d 697 (1991). Fourth, as already discussed, there was no evidence that business and personal funds were commingled. Finally, the assignment and tax documents reflected appellee’s intention that the acquisition of stock be accomplished solely by the transfer of business assets. In fight of these factors, we affirm the chancellor’s decision that the corporation was nonmarital property.  The dissent would have us apply the holding of Layman v. Layman, 292 Ark. 539, 731 S.W.2d 771 (1987), and declare that any increase in the value of the corporation became marital property by virtue of appellee’s efforts. This point is not argued by appellant. It is well recognized that, if a party fails to make a particular argument on appeal, that argument is considered abandoned. Texarkana Housing Auth. v. Johnson Constr. Co., Inc., 264 Ark. 523, 573 S.W.2d 316 (1978). Any basis for reversing a case on appeal should originate in the arguments advanced by the appellant, not from arguments created by appellate judges. Appellant argues next that the agency’s renewal commissions should have been declared marital property subject to division. At the time of the divorce, Dalrymple Insurance Agency, Inc., was authorized to sell fife and disability policies for approximately eight companies. Expert testimony was given at trial to the effect that insurance companies commonly pay renewal commissions to agencies from the second through the tenth years following issuance of the policy, so long as premiums are paid and the policy remains in force. Appellant’s expert determined that the net present value of renewals collectible by the agency through 2008 was $330,094. Appellee’s expert determined that the net present value of the renewals was $69,139. The chancellor, however, did not reach the issue of valuation because he found that “Dalrymple Insurance Agency, Inc., and its renewal commissions are non-marital property and [appellant] is not awarded any interest therein.”  Having affirmed the chancellor’s determination that the corporation was nonmarital property, it follows, under the facts of this case, that the corporation’s renewal commissions are -likewise nonmarital property. There is no showing that the corporation’s assets have any marital-property value, given the fact that the corporation itself is nonmarital property.3 Further, if the renewals are considered income rather than assets, they are income from property acquired in exchange for property acquired prior to marriage and thus are exempt from the definition of marital property. See Ark. Code Ann. § 9-12-315(b)(7) (Repl. 1998).  Appellant argues that such reasoning is faulty because appellee is the sole stockholder of Dalrymple Insurance Agency, Inc., and the corporation’s earnings should be deemed his earnings. Appellant is, in effect, asking us to disregard the corporate form and treat appellee and the corporation as one. This is contrary to our law. The fact that one person owns all the stock in a corporation does not make him and the corporation one and the same. Atkinson v. Reid, 185 Ark. 301, 47 S.W.2d 571 (1932). A corporation and its stockholders are separate and distinct entities, even though a stockholder may own the majority of the stock. Thomsen Family Trust v. Peterson Family Enters., Inc., 66 Ark. App. 294, 989 S.W.2d 934 (1999). A stockholder does not acquire any estate in the property of a corporation by virtue of his stock ownership; the full legal and equitable title thereto is in the corporation. Id.  In special circumstances, we will disregard the corporate facade when the corporate form has been illegally abused to the injury of a third party. Id. However, there is no evidence here that appellee abused the corporate form and therefore no basis for us to treat appellee and the corporation as one entity. The dissent refers to testimony by appellee that “I,” meaning appellee himself, was entitled to commissions from insurance companies. The first-person testimony by the sole shareholder of a corporation is not cause to disregard the corporate form and declare the corporate assets to be his assets. Based upon the foregoing, we affirm the chancellor’s ruling that the renewal commissions are not marital property. In doing so, we do not imply that an insurance agency’s renewal commissions may never be considered marital property. Other jurisdictions have recognized that renewal coinmissions on policies sold during marriage may be considered marital property. See Pangburn v. Pangburn, 152 Ariz. 227, 731 P.2d 122 (Ct. App. 1986); Niroo v. Niroo, 313 Md. 226, 545 A.2d 35 (1988); Bigbie v. Bigbie, 898 P.2d 1271 (Okla. 1995); Freeman v. Freeman, 318 S.C. 265, 457 S.E.2d 3 (Ct. App. 1995). We do not reach that issue today, however. Our affirmance of the chancellor’s ruling is based upon the particular facts of this case and the particular arguments made by appellant. The remaining issue is whether the chancellor erred in declaring certain debts to be marital debts rather than corporate debts. In his decree, the chancellor found that the parties had $75,885 in marital debts, which included a $21,000 note to Metropolitan National Bank and a $19,999 note to Mercantile Bank. Appellant was ordered to pay $33,534.50 of the total debt. She argues that the Metropolitan and Mercantile debts should have been assigned to Dalrymple Insurance Agency, Inc., and that the chancellor erred in ordering her to pay any part of them. We agree.  A chancery court has the authority to consider allocation of debt in a divorce case. Anderson v. Anderson, 60 Ark. App. 221, 963 S.W.2d 604 (1998). Findings concerning the assignment of marital debts are not reversed unless they are clearly erroneous. See Grace v. Grace, 326 Ark. 312, 930 S.W.2d 362 (1996). A chancellor’s finding will be deemed clearly erroneous when, although there is evidence to support it, the reviewing court, on the entire evidence, is left with the definite and firm conviction that a mistake has been committed. Atkinson v. Atkinson, 72 Ark. App. 15, 32 S.W.3d 41 (2000). The Metropolitan Bank note reflects that it was executed in 1997 for the purpose of “short-term working capital for business purposes.” The borrower was listed as “W Alwyn Dalrymple and Dalrymple Insurance Agency, Inc.” The note bore signature lines for appellee individually and as president of the corporation. It was renewed in 1998 and stated its purpose as “to renew and increase line of credit... for operating capital.” It was renewed again in 1999 after the parties separated and was changed to remove the corporation’s name. However, it still stated that the purpose of the loan was a “line of credit for operating capital.” The Mercantile Bank note was executed in 1998. It listed appellee as the borrower and carried the following notation: “[r]enewal/line of credit originally used to carry insurance receivables.” Despite the language clearly identifying the notes as pertaining to appellee’s business, the agency’s office manager, Laura Baldwin, testified that the loans were in fact used for the appellant’s and appellee’s personal living expenses.  Upon our de novo review, we disagree with the chancellor’s decision to decide this issue on the basis of testimony that was directly contrary to what was shown on the written instruments. Baldwin’s assertion that the bank documents were wrong is not sufficient in this case to contradict the plain language of those documents. We therefore reverse and remand on this point with directions that the Metropolitan and Mercantile notes be assigned to the Dalrymple Insurance Agency, Inc., rather than allocated between appellant and appellee. Affirmed in part; reversed in part and remanded. Vaught, Crabtree, and Roaf, JJ., agree. HART and GRIFFEN, JJ., dissent in part.   While appellee was only issued one share of preferred stock in 1990, the assignment of assets reflects that he was issued 100 shares of common stock in 1989 in exchange for his business assets.    Appellant does not argue that the value of the stock appreciated during the marriage or that she is entided to a portion of such appreciation.    Although a spouse’s contribution to an increase in the value of nonmarital property may be considered in making a property division, see Smith v. Smith, 32 Ark. App. 175, 798 S.W.2d 442 (1990), the chancellor in this case expressly found that no such contribution was made by appellant, and that finding is not challenged on appeal.