Fox v. Fox

Decision Date04 May 2001
Docket NumberNo. 20000231.,20000231.
Citation2001 ND 88,626 N.W.2d 660
PartiesShirley J. FOX, Plaintiff and Appellee, v. Abe L. FOX, Defendant and Appellant.
CourtNorth Dakota Supreme Court

Patricia E. Garrity, Bair, Bair, Garrity & Kelsch, LLP, Mandan, for plaintiff and appellee.

Orell D. Schmitz, Schmitz, Moench & Schmidt, Bismarck, for defendant and appellant.

VANDE WALLE, Chief Justice.

[¶ 1] Abe L. Fox appealed the amended judgment on remand from Fox v. Fox, 1999 ND 68, 592 N.W.2d 541 ("Fox I"). In the current appeal, Abe Fox claims the district court erred when it established the value of an irrevocable life insurance trust and the award of spousal support. We affirm.

I

[¶ 2] The facts of this case are set forth in Fox I, 1999 ND 68, 592 N.W.2d 541. In the original divorce action, the trial court did not assign a value to an irrevocable life insurance trust, nor did it include the trust in the marital property, because the trial court claimed it did not have competent evidence to serve as a basis for a meaningful valuation of the trust. On appeal, this Court recognized there are various contingencies involved in Shirley Fox actually receiving income from the trust, but that some of the contingencies were in her control. Id. at ¶ 15. Also, there was evidence presented at the original divorce trial on the value of the trust. Id. at ¶ 13. Abe Fox originally argued the trust should be valued at the present cash value of the life insurance policies that made up the corpus of the trust, a value of $290,000. Id. It is uncontested the only corpus in the trust are the life insurance policies on Abe Fox's life. Shirley Fox contended no value should be placed on the trust, but in the alternative, if it were given value it should be based on her accountant's testimony valuing the trust at $50,000. Id. This Court reversed the original divorce action and remanded it to the trial court to place an appropriate value on Shirley Fox's interest in the trust for inclusion in the marital estate. Id. at ¶ 15.

[¶ 3] At the hearing after remand both Abe Fox and Shirley Fox presented expert testimony on the valuation of the irrevocable life insurance trust. Shirley Fox called Dr. A. Frank Thompson. Dr. Thompson holds masters degrees in actuarial science, quantitative analysis, and economic analysis and monetary theory. Dr. Thompson's doctoral degree is in economics and actuarial science.

[¶ 4] Dr. Thompson based his valuation on the value of Shirley's interest in the trust according to his interpretation of the trust language. According to Dr. Thompson, while Abe Fox is alive, the trust pays Shirley Fox only the income generated by the trust. After Abe Fox's death, Shirley Fox can withdraw a portion of the principal per year. This annual withdrawal is limited to $5,000 or five percent of the principal, whichever is greater.

[¶ 5] Currently, because the only corpus in the trust are the life insurance policies on Abe Fox's life, the trust generates no income. Dr. Thompson's valuation began with a proposed surrender of the life insurance policies for their present cash values of $303,830 to $331,190 to provide a corpus for the trust. Then, in compliance with the limitations of the trust, the trust would pay Shirley Fox only the income generated by the trust, assuming an interest rate of 6.75 percent, during Abe Fox's life. After Abe Fox's death, the trust would pay Shirley the trust income plus the greater of $5,000 or five percent of the principal per year. Adhering to limitations in the trust, Dr. Thompson generated a range of financial and actuarial analytical scenarios of the present value of the potential benefits Shirley Fox could obtain from the trust. The differing scenarios varied the time of Abe Fox's death from shortly after the surrender of the policies to eight years later. Each scenario calculated the actuarial present value of potential income to Shirley Fox to age ninety-five, with adjustments for survival possibilities based on the 1957 female life expectancy table. Dr. Thompson's six different present values of the trust based on these scenarios ranged from $253,986 to $291,614. [¶ 6] Abe Fox presented Mr. Vander-scoff, an actuary and reinsurance broker with masters degrees in business administration and financial services. Mr. Vanderscoff determined the cash value of the life insurance policies was $353,617 and the death benefit of the policies was $880,916. Mr. Vanderscoff based his valuation of the trust on assumed life expectancies of Abe Fox ranging from five years to ten years, inflation rates ranging from two percent to four percent, and a 3.19 percent annual increase in the death benefit of the policies. The result was a range of values of the trust based on the full death benefits, adjusted to present value of those amounts. Mr. Vanderscoff's values ranged from $814,662 to $989,256. Mr. Vanderscoff testified these were values of the trust, not values specifically as it relates to Shirley Fox as a beneficiary of the trust.

[¶ 7] Mr. Vanderscoff also provided the trial court with a scenario based on the assumption Shirley Fox could borrow $60,000 a year from the cash value of the life insurance policies for ten years. Mr. Vanderscoff also assumed if Shirley Fox would not start to borrow from the policies until Abe Fox is 66 years old, she could borrow $60,000 a year, and at the end of ten years, there would still be a death benefit remaining in the policies. Therefore, if Abe died in ten years, the death benefit would be available to the trust to repay the amount loaned from the life insurance policies plus an additional amount to remain in the trust. According to Mr. Vanderscoff's interpretation, the trust gives the trustee broad discretionary powers both before and after Abe Fox's death, which includes the discretion to loan $60,000 per year to Shirley Fox. Mr. Vanderscoff admits $60,000 is an arbitrary amount. Mr. Vanderscoff interprets the trust to give the trustee a broad discretionary power as a general power not a specific power.

[¶ 8] The trial court found both experts were qualified by education and experience to render an opinion as to the value of the trust. Concerning Dr. Thompson's use of the 1957 life expectancy tables, the trial court recognized Dr. Thompson gave a reason for using that table, stating that was the table used when the insurance policies funding the trust were purchased. However, the trial court concluded "[i]t would seem that current mortality tables should have been used." Abe Fox submitted purported current mortality tables with his post-hearing brief. Since they were not presented as evidence at trial, the trial court refused to consider the tables in its decision.

[¶ 9] The trial court found Abe Fox's expert, Mr. Vanderscoff, based his valuation at least in part on Article 5 of the trust, which applies only after the death of Abe Fox, while Article 6 governs during Abe Fox's life. Also, the trial court found Mr. Vanderscoff's interpretation of the trust allowing Shirley Fox to borrow from the life insurance policies did not appear to be an accurate interpretation of the trust. Article 7, titled "Administrative Powers of the Trustee," grants general powers "except as elsewhere herein specifically restricted." Article 7(a) covers the trustee's powers, duties and discretions with respect to investments and Article 7(b) covers trustee's powers, duties and discretions with respect to the life insurance policies in the trust. The trial court found Article 7(b) has no provision for the trustee to borrow from the life insurance policies in the trust.

[¶ 10] The trial court found Dr. Thompson's analysis was based on reasonable assumptions and was consistent with the terms of the trust. Acknowledging there is no way to know how long Abe Fox will live, the trial court adopted the midrange valuation of $279,500. The property distribution was adjusted using this valuation for the trust, resulting in a distribution of $1,574,169 of assets to Shirley Fox and $1,548,654 to Abe Fox. The original decree distributed $2,032,093 to Abe Fox and $1,823,747 to Shirley Fox. The original property did not include a value for the trust, but did erroneously include the future value of Abe Fox's disability payments of $1,032,000. The trial court noted Shirley Fox now received more assets than Abe Fox; however, it explained in order to fully realize this amount of assets Shirley Fox would have to "cash in" the insurance policies in the trust.

[¶ 11] In the original divorce action the trial court also did not award Shirley Fox spousal support, finding she was adequately provided for by her share of the property. This Court in Fox I, concluded Shirley Fox clearly qualifies as a disadvantaged spouse and, in consideration of her needs and Abe Fox's needs and ability to pay, is a candidate for spousal support. Fox I, 1999 ND 68, ¶ 23, 592 N.W.2d 541. Because a disadvantaged spouse is not required to deplete her property distribution in order to live, the Court reversed and remanded, directing the trial court to reconsider Shirley Fox's request for cash spousal support. Id. at ¶ 24.

[¶ 12] At the hearing after remand, Shirley Fox presented evidence of monthly expenses of $4,700. Considering her actual expenses, the tax liability of twenty-four to twenty-eight percent for spousal support, and Abe Fox's monthly disability income of $17,200, Shirley Fox requested a monthly spousal support amount of $7,200. In his post-hearing brief, Abe Fox contended $5,000 per month was a reasonable amount for spousal support.

[¶ 13] The trial court ordered Abe Fox to pay $6,000 spousal support per month to Shirley Fox, until Abe Fox reaches age sixty-five. The trial court retained jurisdiction to consider what, if any, spousal support Abe Fox should pay upon reaching sixty-five years of age.

II

[¶ 14] A trial court's findings of fact will not be set aside unless clearly erroneous. N.D.R.Civ.P....

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