Burkhart v. Burkhart

• Decision Date: 29 June 1976
• Docket Number: No. 1--775A132,1--775A132
• Citation: 349 N.E.2d 707,169 Ind.App. 588
• Parties: John BURKHART, Plaintiff-Appellant, v. Ardath Y. BURKHART, Defendant-Appellee.
• Court: Indiana Appellate Court

Page 707

349 N.E.2d 707

169 Ind.App. 588

John BURKHART, Plaintiff-Appellant, v.Ardath Y. BURKHART, Defendant-Appellee.

No. 1--775A132.

Court of Appeals of Indiana, First District.

June 29, 1976.

Rehearing Denied Aug. 5, 1976.

Charles E. Barker, Stephen W. Terry, Jr., Indianapolis, for plaintiff-appellant.

William F. Welch, McHale, Cook & Welch, Indianapolis, Stephen A. Free, Ging, Free & Brand, Greenfield, for defendant-appellee.

LOWDERMILK, Judge.

Plaintiff-appellantJohn Burkhart(Husband) brought an action for absolute divorce against his wife, defendant-appelleeArdath Y. Burkhart(Wife).The ground for the divorce alleged by the Husband was 'cruel and inhuman treatment,' which was 'somewhat constrained' on him by the law, and he characterized as 'better terminology' that he'somewhat gradually fell out of love' with his wife.

The Wife eventually filed a counterclaim for absolute divorce.The trial court denied the Husband's claims, granted an absolute divorce to the Wife, and ordered an appropriate property settlement.The Husband appeals from the award, contending that the trial court abused its discretion in awarding 69 per cent of the marital estate to the Wife, that such award causes the Husband severe cash flow and income tax problems, and that the award of attorneys' fees in the amount of $50,000 was both procedurally improper and excessive in amount.

Although two distinct issues are raised in regard to the trial court's division of the marital estate, we feel that the Husband has somewhat confused the issues by his characterization of the problem in his presentation to this court.In addition, the various asserts of the marital estate have not been precisely evaluated in all regards, and the trial court decree did not assign a set value to each individual asset that was awarded to each party.Both the Husband and the Wife choose to use the figures relied on by the other party in the trial court, for purposes of this appeal.Inasmuch as the division of the majority of the assets is not in dispute, we do not find the problems presented to be insurmountable.

Briefly stated, the marital estate consisted of a large residence in Indianapolis; various lake properties at Culver, Indiana; several other pieces of real property, some of which were purchased by the Husband after this action began; various bank accounts, partnership interests, and oil and gas interests; various stocks and notes of a value in excess of $300,000; and the main asset, 319,437 common shares of College/University Corp.(C/U) stock, which was valued at $8.50 per share at the time of trial. but which had certain selling restrictions and other problems that limited its general marketability.

The trial court's award pretty much adopted the previous agreement of the parties.There was no dispute over who was to receive which items from the marital estate, other than the stock, certain cash payments, and the award of attorneys' fees.Specifically, the court awarded the Wife the residences in Indianapolis and at Culver; her personal items; $75,000 in cash within six months; 119 monthly installments of $2,100 cash taxable to the Husband; up to 119 monthly installments of $1,666, but only for as long as she may live, and thus taxable to the Wife; support payments of $4,625 per month but to be paid only after 119 months, and to continue for the rest of her life; $50,000 attorneys' fees; and five annual payments of the value of 10,000 shares of C/U stock, value to be determined on January 10th of each year, starting in 1976.In addition, 100,000 shares of C/U stock was to be held in escrow for up to ten years, as security for the performance of the Husband's obligations, with 10,000 shares being freed of the escrow every year.

The Husband received the remainder of the marital estate, which included several valuable real properties; all of the other stocks and bonds then held; his personal items; and title to all 319,437 shares of C/U, 100,000 shares of which were previously pledged to secure certain notes, and 100,000 additional shares of which were subject to the escrow previously discussed.The Husband retained all other incidents of ownership in the escrow shares, including the right to receive dividends.Additionally, the Husband was ordered to assume and pay all of the existing obligations of the marital estate, including all mortgages, notes, and previously pledged gifts.Many of these debts arose as a result of the acquisition of numerous properties subsequent to the time the Husband initially filed this action.

The Husband's only disagreement with the award concerns the following items: the cash payment of $75,000; the attorneys' fees award of $50,000; the cash payments of the value of 10,000 shares of C/U stock; and the escrow account restriction on the 100,000 shares of C/U.He contends that these items throw the award heavily out of balance in favor of the Wife, and further creates a severe cash flow problem, inasmuch as there is little available cash in the estate, and complete liquidation of all C/U stock to pay these amounts would cause a capital gains tax of $962,000 to be imposed on his share of the estate.

Using the figures relied on in the Husband's brief, the following table represents the various assets of the marital estate:

Total Assets
                -----------------
                Owned by Wife      $   54,116
                Owned by Husband    3,814,300
                Total debts owed   (1,029,600)
                Owned jointly         375,000
                                   -----------
                   Net Estate      $3,213,816
                

The Husband claims that the Wife was awarded 69.2% of the net marital estate.He arrives at this figure as follows:

            Assets Awarded to Wife  Assets Awarded to Husband
                ----------------------------------  -------------------------
                Owned by Wife               54,116
                Owned by Husband                     3,814,300
                  Less Debts                        (1,029,600)
                Owned Jointly              375,000
                                        -------------------------------------
                  Sub total                429,116   2,784,700
                Transferred by Decree
                Cash: 119 months
                  at $2100/mo.             249,900   (249,900)
                " 119 months
                  at $1666/mo.             198,254   (198,254)
                " Rest of
                  life at $4,625/mo.       131,720   (131,720)
                50,000 C/U shares
                  at $8.50/share           425,000   (425,000)
                Wife's attorneys'
                  fees                      50,000   (50,000)
                Lump sum award              75,000   (75,000)
                Capital gains tax
                  due on liquidation
                  of stock to pay
                  cash awards
                                                     (962,000)
                                        ----------  -------------------------
                Fair Value
                After Taxes             $1,558,990  $ 692,826
                Per Cent of
                Net Assets                   69.2%     30.8%
                

We do not agree that the above represents an accurate picture of the status of the parties following the decree.First of all, there is no requirement that any of the 319,437 shares of C/U stock be liquidated, and in fact, 200,000 shares are not available for sale even if the Husband should desire to do so.Thus, the $962,000 deduction in the above table is not proper.This is not to say that the tax consequences are to be ignored.The issue the Husband raises concerns a very real problem of cash flow, and will be discussed below.But where there is no requirement that the shares actually be transferred, and where the decree can be satisfied without such a mandatory transfer, there is no assurance that any such capital gains tax will ever have to be paid, and the inclusion of such a speculative obligation in the debts assumed by the Husband is not proper (e.g., earnings from the assets may be sufficient in themselves to satisfy the decree, in which case the shares may never be sold, and no tax will ever be paid).Without this deduction, the Husband's assets total at least $1,654,826.

We also believe that one further adjustment is necessary to accurately reflect the division of the marital estate as of the date of entry of the decree.The Wife does not receive all of these cash payments at one time, but rather receives an annuity for a certain period.It is well established that the present value of an annuity is less than the total face amount of all payments that are eventually received by the Wife pursuant thereto.Under the decree of Husband is not required to liquidate a large amount of his stock in order to immediately pay over the total amount of the cash settlement, but rather he is permitted to retain the assets and use the return generated therefrom to satisfy the obligation over a longer period of time.The more proper way to determine the value of the assets transferred to the Wife is to consider the present value of the given annuity, not the total of all future payments.The Husband does not dispute the fact that the present value of these future payment, when using the Internal Revenue Service Tables for valuing annuities for Federal Estate Tax purposes (6% discount rate), is as follows:

                                        Total      Present
                                                      Payments:    Value
                                                      ----------  ---------
                Cash payments within six
                months after decree                       75,000     73,861
                Periodic payments of $2,100
                each for 119 months certain              250,000    189,347
                Support payments of $1,666 per
                month for 119 months or for
                Wife's life, whichever sooner
                expires                                  198,254    150,215
                Support payments, commencing 120
                months after the decree is entered
                in the amount of $4,625 per month
                for Wife's life (based on life
                expectancy of 12.29 years, or 147.48
                months from decree)                      131,720     66,435
                Fair market value of 10,000 shares
                of College/University Corp. stock
                on January 2nd of each five
                successive years commencing in
                1976 (at $8.50/share)                    425,000    358,054
                                                      ----------  ---------
                        Totals

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