Jost v. Jost, 76-400

• Decision Date: 30 May 1979
• Docket Number: No. 76-400,76-400
• Citation: 89 Wis.2d 533,279 N.W.2d 202
• Parties: LeRoy F. JOST, Plaintiff-Appellant, v. Anita P. JOST, Defendant-Respondent.
• Court: Wisconsin Supreme Court

Page 202

279 N.W.2d 202

89 Wis.2d 533

LeRoy F. JOST, Plaintiff-Appellant, v. Anita P. JOST, Defendant-Respondent.

No. 76-400.

Supreme Court of Wisconsin.

Argued March 28, 1979.

Decided May 30, 1979.

William Fitzhugh Fox, Milwaukee (argued), for plaintiff-appellant; Roland J. Steinle, Jr., Cedarburg, on briefs.

Eugene A. Kershek, Milwaukee, for defendant-respondent.

DAY, Justice.

This is an appeal from an order entered December 3, 1974 by the county court of Waukesha County, the Honorable Robert T. McGraw, County Judge, presiding, reopening a judgment of divorce on the ground that LeRoy Jost (plaintiff in the divorce) had fraudulently failed to disclose ownership of an asset in the form of corporate stock at the time of the divorce hearing, and from an order entered October 8, 1976 by the county court of Waukesha County, Judge McGraw again presiding, modifying the original divorce judgment.

The questions on appeal are:

1. Was the finding by the trial court that the stock was worth seven dollars per share at the time of the divorce trial against the great weight and clear preponderance of the evidence?

2. Did the trial court fail to take into consideration the tax ramifications of the property division?

3. Did the trial court abuse its discretion in failing to make the property division "in kind?"

Other issues raised by Mr. Jost will be discussed in the balance of this opinion.

LeRoy and Anita Jost were divorced on February 9, 1973 in the county court of Waukesha County. The husband was the plaintiff in the action, but the divorce was awarded to the defendant wife following a trial held November 29 and 30, 1972. An amended judgment of divorce, providing for custody, alimony, child support, and division of property was entered May 29, 1973.

In a petition dated September 15, 1973, Mrs. Jost asked the trial court to re-evaluate the husband's assets at the time of the divorce trial, alleging that Mr. Jost had fraudulently concealed ownership of 100,000 shares of stock in Tolley International Corporation. Judge McGraw signed an order September 18, 1973 ordering Mr. Jost to show cause why testimony should not be taken to ascertain his total assets at the time of the divorce trial, and why the judgment should not be reopened.

Based on the testimony of Mr. Jost at the original divorce trial and the record made at the hearing on the petition to reopen the divorce judgment the trial court found that Mr. Jost "had fraudulently failed to disclose those assets at the time of the divorce hearing." ¹

The circumstances under which Mr. Jost acquired 100,000 shares of Tolley International stock were as follows.

Mr. Jost was a vice president and board member of the Tolley International Corporation, a consulting firm that provides actuarial and administrative services to trustees of employee fringe benefits plans. At the time he joined the firm, it was doing business as Russell M. Tolley & Associates, and in 1967 it merged with Levin-Townsend Service Corporation, as a subsidiary of Rockwood Computer Corporation. Mr. Jost had shares in the original company and as a result of the merger, he acquired 1,873 shares in Levin-Townsend. These shares were owned jointly with Mrs. Jost.

On March 31, 1971, Russell M. Tolley, Chairman and President of Tolley International repurchased the company from Rockwood, and his key employees were given an opportunity to buy stock in Tolley International.

The record shows that Mr. Jost signed a "Stock Purchase Agreement," dated April 1, 1971, agreeing to buy 100,000 shares of Tolley International. Mr. Jost testified that he actually signed the agreement at the end of June, 1971. At this time, the stock was pledged as collateral by Mr. Tolley to secure the loan he had obtained from Indiana National Bank to repurchase the company from Levin-Townsend. The Stock Purchase Agreement characterized the transaction as a "conveyance." Mr. Jost paid a $15,000 down payment for the stock, and paid interest on the note to Indiana National Bank, based on his share of the stock pro-rated. His 1972 tax return indicated that he paid interest that year to Indiana National Bank of $13,397.65.

At the hearing on the order to show cause, Mr. Jost called Gerald T. Slevin, a New York attorney specializing in corporate and securities work, who drafted the Stock Purchase Agreement. Mr. Slevin testified that he had spoken to Mr. Jost in a telephone conversation in November 1972. He said that he advised Mr. Jost that the Stock Purchase Agreement amounted to a "fancy option" to acquire Tolley International stock upon the satisfaction of a number of conditions, the most important of which was the payment of about $143,000 (his share of the Indiana National Bank note). The stock was also subject to restrictions of the federal securities laws, limiting transferrability. Mr. Slevin said that he informed Mr. Jost that he could get value for his rights when the stock was offered in a secondary public offering, and that he could not definitely say the public offering would take place. He also said that if Mr. Jost had not performed under the Stock Purchase Agreement, he could have "walked away" from the transaction without further liability.

Mr. Slevin, who also drafted the preliminary prospectus of Tolley International, said that the document set forth Mr. Jost as one of the "beneficial owners" of the stock as of August 12, 1972. In his opinion, "beneficial ownership" meant "the ownership of shares that a person would have the benefit of . . . at the time this offering was effective."

The record shows that Moody's Banks & Finance said that a stock registration had been filed with the Securities and Exchange Commission August 17, 1972 for a public offering of 400,000 shares. The public offering took place December 20, 1972, less than a month after the divorce trial, and Mr. Jost realized net proceeds of $103,873.49 for the sale of 42,323 shares. The note to Indiana National Bank was paid off from the gross proceeds of the sale. Upon the completion of the offering, he owned 57,677 shares of the stock.

Mr. Slevin testified that the reason the Stock Purchase Agreement was not characterized as an option was to constitute the transaction as a sale for tax purposes. Mr. Jost took a long term capital gain on his 1972 tax return, which states that he held the shares in Tolley International Corporation from March 1, 1971 to December 20, 1972.

The trial court found that Mr. Jost had a "concrete" interest in the stock at the time of the divorce trial November 29 and 30, 1972 and modified the property division to award Mrs. Jost the additional sum of $228,425.72. This represented forty-five percent ² of the net value of the 100,000 shares of Tolley International as found by the court as of the date of trial. ³

1. WAS THE FINDING BY THE TRIAL COURT THAT THE STOCK WAS WORTH SEVEN DOLLARS PER SHARE AT THE TIME OF THE DIVORCE TRIAL AGAINST THE GREAT WEIGHT AND CLEAR PREPONDERANCE OF THE EVIDENCE?

Marital assets are to be valued as of the time of the granting of the divorce. Sholund v. Sholund, 34 Wis.2d 122, 132, 148 N.W.2d 726 (1967); Dean v. Dean, 87 Wis.2d 854, 275 N.W.2d 902 (1979).

The trial court based its finding on the fact that Tolley International was traded over the counter on November 29, 1972 for seven dollars "bid" and seven dollars and fifty cents "ask."

Mr. Jost's argument is that the value of the stock should have been discounted to take account of "blockage," federal securities laws, and restrictive covenants. Mr. Jost offered no evidence as to value to contradict the expert testimony presented by Mrs. Jost. At the oral argument, his attorney conceded that Mr. Jost had made no record at trial.

Mr. Paul S. Connelly, a vice president of Robert W. Baird and Company, a brokerage firm, was called as an expert witness for Mrs. Jost. He testified that he had been a stockbroker since 1956 and during the past ten years had personally been involved in 25,000 sales or purchase transactions of stock. He estimated that he had been involved in a thousand stock appraisals during the same period. He stated that the Wall Street Journal, "is recognized as the bible of the investment community for what the price was on the previous day." He said he was familiar with Tolley International stock and that Baird's research man in Indianapolis, as well as their research man in Milwaukee, had visited the Tolley Company in 1973 to ascertain the desirability of its stock for recommendation to customers. He testified that he personally researched what Tolley International was selling for on March 31, 1971. He said the national stock summary showed three New York brokers with a bid of 5 3/8; 5 3/4; and 5 1/2; that it showed two Cleveland brokers with 5 1/4 and 5 3/8. He then explained the difference between "bid" and "ask" with reference to stock quotations. He testified that on June 30, 1971, the Wall Street Journal showed a price of 7 1/4 bid and 7 3/4 ask. On November 29, 1972, one of the dates of the divorce hearing, it was shown at 7 bid and 7 1/2 ask. The day before his testimony was offered, May 27, 1975, Tolley was shown with a bid price of 8 1/2 and an ask price of 9 1/4. Using Standard and Poor's as his source of information he testified that in 1974 Tolley stock had a high bid of 18 1/8 and a low bid of 5. In 1975, up through April, it had a high bid of 16 1/2 and a low bid of 7 1/2. He testified that previous to 1974, the highest the stock had gotten was 13 1/2. He was then asked if he was familiar with the Tolley International secondary offering on December 20, 1972 and explained that a secondary offering means that the company is not selling the stock but that currently the outstanding shares held by shareholders are being sold. He was familiar with the legend that had been placed on the stock that Mr. Jost had owned restricting its availability for sale price prior to such registration. ⁴ He was familiar with...