Hanscam v. Hanscam

• Citation: 268 P.3d 715,247 Or.App. 207
• Decision Date: 14 December 2011
• Docket Number: 070754; A142420.
• Parties: In the Matter of the MARRIAGE OF Adele Janice HANSCAM, Petitioner–Appellant,andCasey Hanscam, Third–Party Plaintiff,andSteve Eugene Hanscam, Respondent–Respondent.
• Court: Court of Appeals of Oregon

247 Or.App. 207

268 P.3d 715

In the Matter of the MARRIAGE OF Adele Janice HANSCAM, Petitioner–Appellant,andCasey Hanscam, Third–Party Plaintiff,andSteve Eugene Hanscam, Respondent–Respondent.

070754; A142420.

Court of Appeals of Oregon.

Argued and Submitted Jan. 11, 2011.Decided Dec. 14, 2011.

Edward L. Daniels, Albany, argued the cause for appellant. With him on the briefs was Law Office of Daniels & Ivers.

Gilbert B. Feibleman, Salem, argued the cause for respondent. With him on the brief was Feibleman & Case, P.C.

Before HASELTON, Presiding Judge, and ARMSTRONG, Judge, and DUNCAN, Judge.

DUNCAN, J.

Wife appeals from a general judgment dissolving the parties' marriage. She challenges the trial court's division of the parties' property, in particular, a rental house (the Cedar Street property); husband's accounting practice (the CPA practice); husband's interest in a family partnership, Hanscam Properties Limited Partnership (HPLP); and a 1972 Porsche car. She argues that the court erred in (1) awarding husband his premarital interest in the Cedar Street property as his separate property; (2) calculating the value of the CPA practice and awarding husband his premarital interest in that asset as his separate property; (3) awarding husband his interest in HPLP as his separate property; and (4) awarding husband the total value of the Porsche. For the reasons explained below, 247 Or.App. at 219, 268 P.3d at 722, we exercise our discretion to review this case de novo. ¹ On de novo review, we conclude that the trial court erred in its division of the Cedar Street property, the CPA practice, and the Porsche. We modify the judgment accordingly and otherwise affirm.

The parties met in 1984, began living together later that year, and were married in April 1989. They separated in 2007, and a judgment of dissolution was entered in June 2009, after 20 years of marriage. At the time, wife was 42 years old, husband was 54, and the parties' two children were ages 19 and 16.

When the parties met, wife had just graduated from high school and was working as a waitress. Husband had been working as an accountant in his father's practice for several years. He owned a home—the Cedar Street property—which he had purchased in 1980 for $36,500. Wife moved into the Cedar Street property in September 1984, and, with the exception of a nine-month period when wife lived in Portland to attend school, the parties lived there together until they were married in April 1989. Around the time the parties began living together, husband became a certified public accountant (CPA) and was gifted a 25 percent interest in his father's CPA practice. In 1986, wife began attending community college. She first attended Linn–Benton Community College; later she went to Portland Community College. She completed her studies and received her license as a radiology technician in 1991.

Sometime before the parties were married in 1989, husband purchased the Coulter Lane property, an approximately 15–acre farm, which became the parties' marital residence.² The Cedar Street property, meanwhile, became a rental, and it remained a rental throughout the parties' marriage. Husband continued to hold title to the Cedar Street property in his name alone, but rental payments from the property were deposited into an account held jointly by husband and wife. The parties used the money from that account for maintenance and improvements to the property and to purchase other rental properties.³

Husband worked as a CPA throughout the marriage and was the primary income earner for the family.⁴ Most of the year husband worked approximately 40 hours per week; during tax season, from approximately January 1 through April 15, he worked an average of 60 to 65 hours per week. In 1989, shortly before the parties married, husband's father retired and husband agreed to purchase the remaining 75 percent interest in the CPA practice; that interest was paid for over the course of the parties' marriage. Husband testified that he had no intention to discontinue working as a CPA.

Wife was primarily responsible for taking care of the Coulter Lane house and property and, after the parties' children were born, taking care of them. At times, the parties raised cattle or used part of their property as a tree farm, and wife helped in those endeavors. In addition, from 1991 until 1998, wife worked approximately 20 hours per week as a radiology technician. In 1998, the parties agreed that wife would quit working altogether in order to take over management of their property rental business and help run the CPA office, in addition to her responsibilities for caring for the Coulter Lane home and property and the children.⁵

Wife's involvement in running the CPA office was minimal. She cleaned the office on the weekends and purchased office supplies. She also, at least on one occasion, painted the inside of the office. As the parties' children got older, cleaning the office became their job; wife supervised them and also cleaned and maintained the parking lot. She was paid by the CPA practice for those tasks.⁶

Wife's responsibility for managing the parties' rental property, including the Cedar Street property, was more significant. Wife kept the Cedar Street property rented and performed regular maintenance work. She also made improvements to the property, such as new windows, new heaters, a garage door, and some electrical work. She hired out “a couple jobs” but did most of the work herself. The Cedar Street property always maintained a positive cash flow—that is, the cost of maintenance and improvements were never more than the rental income. Wife testified that the parties kept their rental properties for investment purposes and planned to use them as financial resources for their retirement.

When the parties first met, husband held a 16 percent interest in a family partnership that had been formed by husband's parents in the 1970s to hold real property for purposes of their retirement. In 1999, that partnership was converted to HPLP for tax and estate-planning purposes. Husband received an additional five percent interest in HPLP in 1999 and again in 2000 as gifts from his parents so that, at the time of dissolution, husband owned a 26.38 percent interest in HPLP. Husband's father testified that the gifts were intended to benefit husband only and that it was not his or his wife's intent to transfer any interest in HPLP to any of their children's spouses.

HPLP owns several rental properties and parking lots. The other partners are husband's father, his mother's estate, and his two sisters. Husband's father is the controlling general partner, and he receives all of HPLP's after-tax income as his salary. Husband and wife have never received any income from HPLP except as reimbursement for their payment of taxes associated with the partnership's profits. As to the parties' involvement in HPLP, from 2000 to 2006, wife acted as a rental manager for one of HPLP's properties, a beach cottage in Yachats. She did so without compensation at first but, after a brief period of time, was given a percentage of the rental income from the property as payment for that work. Wife also performed some maintenance and repair work on one of HPLP's other properties; she was paid for that work as well. In addition, husband's CPA office was located on a property held by HPLP. As noted, wife was responsible for cleaning that office and maintaining its parking lot (and was paid by the CPA office for doing so). Other than those efforts, the record does not disclose any further involvement by either party in HPLP.

When the parties met, husband also owned a 1972 Porsche car, which he had purchased for $7,250. During the marriage, husband used $4,500 in marital funds to make improvements to the car, and it was valued at $14,000 at the time of dissolution. Wife testified that she drove the 1972 Porsche once during the marriage.

At trial, wife requested that all of the parties' property be divided equally. Husband requested that his premarital equity in the Cedar Street property, his premarital 25 percent interest in the CPA practice, his interest in HPLP, and the full value of the 1972 Porsche be awarded to him as his separate property.

Each party presented expert testimony as to the value of the CPA practice using various standard methodologies. Wife's expert, Mason, provided valuations under the income ($409,000), market ($439,000; $442,000), and adjusted net asset ($154,000) approaches but, ultimately, relying primarily on the market approach and adding in his personal “real world” experience, arrived at a fair market value for the practice of $439,000. Mason's appraisal process did not include an on-site assessment of the premises. Mason opined that the market approach is generally the most objective but acknowledged that it had “significant drawbacks” in calculating the value of the CPA practice because there was no “history of the comparable businesses prior to the year of sale” and little or no information about “the individual market area, services provided, market or clientele niche, client mix, or any other specific company risk factors.”

One of the issues both experts confronted was the valuation of the goodwill associated with the practice. Mason's valuation did not distinguish between personal and enterprise goodwill, although Mason testified that personal goodwill was “factored out” in his ultimate market-based valuation. He acknowledged, however, that that valuation was premised on husband executing a noncompetition covenant.

Husband's expert, Allen, likewise offered income ($313,000) and net asset ($202,000) valuations. Allen's appraisal included a visual tour of the facility, which, he testified, was a “very standard practice.” He stated that he was unable to calculate a value based on a market analysis because the transaction databases for sales of CPA practices provided insufficient...