Ford v. Ford

• Citation: 105 Nev. 672,782 P.2d 1304
• Decision Date: 27 November 1989
• Docket Number: No. 18941,18941
• Parties: Tomie Sue FORD, Appellant/Cross-Respondent, v. William R. FORD, Jr., M.D., Respondent/Cross-Appellant.
• Court: Supreme Court of Nevada

Page 1304

782 P.2d 1304

105 Nev. 672

Tomie Sue FORD, Appellant/Cross-Respondent, v. William R. FORD, Jr., M.D., Respondent/Cross-Appellant.

No. 18941.

Supreme Court of Nevada.

Nov. 27, 1989.

Cooke, Roberts & Reese, Reno, for appellant/cross-respondent.

Jack Sullivan Grellman and Beasley & Holden, Reno, for respondent/cross-appellant.

OPINION

PER CURIAM:

Dr. William Ford and Tomie Sue Ford were married in March 1971. Besides his private orthopedic surgery practice, Dr. Ford is a clinical professor of medicine at the University of Nevada-Reno, chief of orthopedic surgery at the Veterans Administration Hospital, and responds to emergency room calls from Washoe Medical Center and Sparks Family Hospital.

At the time of their divorce trial in 1986, the total net worth of the community estate was $2,070,717, including a note receivable (the Scanlin note) which, at maturity in 1988, would pay $874,750. After trial, the district court awarded assets worth $1,236,417 to Dr. Ford, and assets worth $834,300 to Tomie Sue. However, in order to effectuate a 50/50 split of the community property, the court ordered Dr. Ford to give an equalizing promissory note worth $201,058 to Tomie Sue. Consequently, both parties received property worth $1,035,358. The trial court valued Dr. Ford's medical practice at $181,926, including $97,598 in goodwill. The court also awarded the Scanlin note to Dr. Ford, without consideration for the tax consequences that would accrue when the note came due in January 1988. Finally, the court ordered Dr. Ford to pay $2,500 per month to Tomie Sue for six years as rehabilitative alimony.

At the time of the trial in October and November 1986, Dr. Ford and Tomie Sue owned, as community property, 200 shares of stock in Sierra Management Services, Inc. (Sierra Management). During trial, the parties stipulated that the stock was worth $400,000 or $2,000 per share. At the conclusion of the trial, in order to avoid federal income tax liability for Dr. Ford, the district court awarded the stock to Tomie Sue.

However, in December 1986, prior to the entry of judgment, the Washoe Medical Center purchased ninety percent of Sierra Management, including the stock held by Tomie Sue, for $3,000 per share. Thus, before entry of the January 1987 divorce decree and judgment, Tomie Sue sold her interest in the corporation for $600,000, $200,000 more than its stipulated value. On December 23, 1986, Dr. Ford filed a motion requesting the district court to reopen the divorce proceedings for the purpose of hearing additional testimony concerning the valuation of the Sierra Management stock and the award of alimony.

Without ruling on Dr. Ford's motion to reopen, the district court entered its divorce decree and judgment in January 1987. The district court confirmed its order to Dr. Ford to pay Tomie Sue rehabilitative alimony in the amount of $2,500 per month. The trial court also ordered Dr. Ford to pay $25,000 in attorneys' fees to Tomie Sue.

Eventually, on April 21, 1987, the district court granted Dr. Ford's limited motion to reopen. After a hearing, the court found that Tomie Sue will receive $18,000 in interest each year on the $200,000 received in excess of the stipulated value of the stock. Accordingly, the district court held that alimony was no longer necessary. Finally, the court rescinded its award of attorneys' fees to Tomie Sue. Tomie Sue appeals from the district court's decision, and because she makes a meritorious challenge to the trial court's rescission of her alimony and attorneys' fees, we reverse and remand.

In his cross-appeal, Dr. Ford argues that the district court erred by finding that his medical practice contained goodwill worth $97,598. We believe that the better case authority supports the district court's decision. Dr. Ford also contends that the district court erred by not taking into account the tax consequences of the upcoming maturation of the Scanlin promissory note awarded to him. This contention has merit, and therefore, we also reverse and remand on the cross-appeal. ¹

Tomie Sue's Appeal

Tomie Sue argues that the district court erred when it granted Dr. Ford's Motion to Reopen Trial for the limited purpose of hearing additional testimony concerning the valuation of the Sierra Management stock and the award of rehabilitative alimony. Specifically, she contends that the value of the stock was a matter of stipulation and agreement between the parties, and that the district court based its order to reopen the proceedings upon facts which occurred subsequent to trial rather than "newly discovered evidence." ²

However, the decision to reopen a case for the introduction of additional evidence is within the sound discretion of the trial court. Andolino v. State of Nevada, 99 Nev. 346, 351, 662 P.2d 631, 634 (1983). In order that justice be done, district courts should freely grant leave to amend and reopen. Id. When an essential element of a party's case can be easily and readily established by reopening the case, refusal to reopen will most often constitute an abuse of discretion. Id.

In the instant case, after the close of testimony but before the entry of judgment, Tomie Sue sold the Sierra Management stock for $600,000, $200,000 more than the value given to that community property at trial. Since the purpose of the trial was to devise an equitable distribution of the marital property and fair provisions for spousal and child support, the trial court served the interests of justice by reopening the case. Id.

In its order granting Dr. Ford's motion to reopen the case, the district court agreed to consider only whether, in light of the sale of the Sierra Management stock, an award of alimony or attorneys' fees to Tomie Sue was still appropriate. The district court refused to hear evidence regarding the impact of the stock sale on Tomie Sue's financial status, specifically, the $133,000 tax liability which she incurred as a result of the sale. ³ Tomie Sue contends that the court's refusal to hear this evidence was error. We believe that her contention has merit.

In the instant case, Tomie Sue presented evidence of the $133,000 capital gains tax bill which she incurred as a result of the stock sale. Courts can consider potential tax liability when valuing marital assets when a taxable event has occurred as a result of the divorce or equitable distribution of property, or is certain to occur within a time frame so that the trial court may reasonably predict the tax liability. Hovis v. Hovis, 518 Pa. 137, 541 A.2d 1378, 1380-1381 (1988). When dividing community property, trial courts must consider tax consequences when, as in the case at hand, there is proof of an immediate and specific tax liability. In re Marriage of Clark, 80 Cal.App.3d 417, 145 Cal.Rptr. 602, 606 (1978). Accordingly, in this case, we hold that the district court erred by refusing to consider the tax consequences when it reopened the trial to hear testimony concerning the sale of the stock. Id.

The district court assumed that Tomie Sue would earn $18,000 in interest annually on the $200,000 received in excess of the stipulated value of the Sierra Management stock. Because of this increased cash flow to Tomie Sue, the court held that any further award of alimony was unnecessary. Tomie Sue argues that the district court erred when it terminated her remaining monthly alimony payments of $2,500. We agree.

There are limits to the district court's discretion in awarding or refusing to award alimony. Forrest v. Forrest, 99 Nev. 602, 606, 668 P.2d 275, 278 (1983). In Buchanan v. Buchanan, 90 Nev. 209, 215, 523 P.2d 1, 5 (1974), this court provided an inexhaustive list of factors, such as the financial condition of the parties, which the district court should consider when making its alimony determination. Moreover, when making decisions involving alimony and property distribution, trial courts must form judgments as to what is just and equitable, giving regard to the respective merits of the parties and to the condition in which they will be left by divorce. Heim v. Heim, 104 Nev. 605, 609-610, 763 P.2d 678, 680-681 (1988).

In the case at hand, the district court made its decision to terminate the alimony based on the $200,000 "windfall" which Tomie Sue received from the sale of the Sierra Management stock. The court apparently did not consider (1) that interest income on the proceeds would be reduced because of capital gains taxes owed as a result of the sale, and (2) that payment for the stock would be by installments extending over a period of ten years. Nevertheless, the district court expected this income to make up for Tomie Sue's lost alimony. Thus, the court failed to look at the overall justice and equity of its decision and abused its discretion by cancelling the alimony without considering the tax implications of the stock sale.

Because of the stock sale, the district court also rescinded its original award of $25,000 in attorneys' fees to Tomie Sue. We agree with Tomie Sue's argument that the rescission of attorneys' fees was error. The decision whether to award attorneys' fees to either party in a divorce action lies within the sound discretion of the district court. Hybarger v. Hybarger, 103 Nev. 255, 259, 737 P.2d 889, 892 (1987). However, as discussed above, without considering the tax consequences of the stock sale, the district court used Tomie Sue's $200,000 "windfall" to justify its decision to rescind Tomie Sue's award of $25,000 in attorneys' fees. Accordingly, the district court also abused its discretion when it abrogated the award of attorneys' fees. Heim, 104 Nev. at 609-610, 763 P.2d at 680-681.

Dr. Ford's Cross-Appeal

After trial, the district court held that Dr. Ford's medical practice was community property and had a value of $181,926, including goodwill worth $97,598. Dr. Ford argues that his medical practice contains no goodwill, and therefore, the district court's...