In re Marriage of Mohrlang, 02CA0360.

• Decision Date: 31 July 2003
• Docket Number: No. 02CA0360.,02CA0360.
• Citation: 85 P.3d 561
• Parties: In re the MARRIAGE OF Rebecca K. MOHRLANG, Appellee, and Bruce A. Mohrlang, Appellant.
• Court: Colorado Court of Appeals

85 P.3d 561

In re the MARRIAGE OF Rebecca K. MOHRLANG, Appellee, and

Bruce A. Mohrlang, Appellant.

No. 02CA0360.

Colorado Court of Appeals, Div. IV.

July 31, 2003.

Rehearing Denied September 18, 2003.

Certiorari Denied March 8, 2004.

Kaplan Law, L.L.C., Marc J. Kaplan, Denver, Colorado, for Appellee.

Hunnicutt & Appelman, P.C., Robert E. Lanham, Denver, Colorado, for Appellant.

Opinion by Judge GRAHAM.

In this dissolution of marriage action between Bruce A. Mohrlang (husband) and Rebecca K. Mohrlang (wife), husband appeals from that portion of permanent orders valuing his interest as a beneficiary in a trust. We reverse and remand for reconsideration.

The principal issue in this case was valuation of two companies and the stock that the parties owned in them. Husband individually owned 250 shares of Mohrlang Manufacturing, Inc. (MMI) stock and was the beneficiary of 3850 shares of MMI stock held in the Bruce Mohrlang Trust. Wife was the beneficiary of 200 shares of MMI stock in a similar trust.

The trial court found that the trust established in husband's name was irrevocable and not modifiable, and the settlor, husband's father, retained no interest in the income, principal, or remainder of the trust. The beneficiary received mandatory net income distributions, at least quarterly, and principal distributions within the discretion of the trustee. The beneficiary's interest would terminate if husband predeceased his parents, and his share would be divided in a designated proportion among his children, if living, and the descendants of any deceased child.

Husband does not contest the court's determination that his interest in the trust constituted property, according to the analysis established by In re Marriage of Balanson, 25 P.3d 28 (Colo.2001). Nor does he challenge the determination that, because the trust was acquired by gift during the marriage, the increase in value of the stock in trust constituted marital property.

At issue in this appeal is the trial court's conclusion that the value of husband's remainder interest in the trust should not be discounted in calculating its present value even though he could not receive payment of the corpus until after his parents died.

Husband's expert valued the stock by using an income approach and urged the court to apply a discount rate of four percent for inflation plus a thirty-three percent capitalization rate to that value. However, the trial court credited the opinion of wife's expert and determined the MMI stock should be valued based on the current value of the corporation's net assets. It rejected use of the income approach because, in recent years, the company had suffered losses and, historically, the income generated was sufficient to provide only the salaries of the directors and officers of the corporation. The court further relied on the fact that two pieces of real estate constituted one-third of the company's assets. The court criticized husband's expert valuation as being result-driven.

Instead, the trial court found that the parties had presently vested rights to income because those distributions were mandatory, as reflected in the tax returns. Additionally, it found that husband had an enforceable right to have the trustee exercise its discretion to invade the corpus of the trust for husband's support, maintenance, health, and education.

The court also considered the mortality tables, which it determined were the only evidence presented concerning the likelihood that the remainder would vest, and concluded that vesting was "more probable than not." The court found that, even if for "some unforeseen circumstances the parties might be divested of their remainder interest, that interest is going to pass at least in part to their children." The court concluded that the beneficial enjoyment of the trust corpus would be realized and that it was not "likely to be siphoned off and consumed by someone else in the family." Thus, the court determined that the particulars of the trust did not warrant a discount for a present value calculation.

I.

Husband first contends that the trial court erred as a matter of law when it failed to discount the present value of his interest in the trust. We agree.

Admittedly, it is difficult to determine the present value of a vested interest in a trust that is subject to divestment based on a condition subsequent. In re Marriage of Gorman, 36 P.3d 211 (Colo.App.2001). However, valuation of such an interest should be accomplished by using an approach similar to that taken when valuing pensions. See In re Marriage of Balanson, supra.

To determine the net present value of a vested interest that is subject to the contingency of survival to a future date, the court may consider a variety of circumstances, including actuarial information concerning the life expectancy of the settlor or current beneficiaries. See In re Marriage of Grubb, 745 P.2d 661 (Colo.1987)(noting application of seven percent discount factor to account for risk of forfeiture in valuation of vested but unmatured pension, but remanding for consideration of alternative distributions).

Three methods of valuation are applicable to pensions, but of those three only net present value contemplates an immediate distribution to the spouse. In re Marriage of Hunt, 909 P.2d 525 (Colo.1995). Of course, an immediate distribution is precisely what the trial court must contemplate in an equitable distribution of marital property.

If an interest is inaccessible before a distant date and terminable upon the beneficiary's death, the risk...