Klein v. Klein, 86-274

Citation150 Vt. 466,555 A.2d 382
Decision Date21 October 1988
Docket NumberNo. 86-274,86-274
CourtUnited States State Supreme Court of Vermont
PartiesStephen L. KLEIN v. Susanne T. KLEIN.

Mary Billings Munger, Law Offices of Stephen L. Klein, Rutland, for plaintiff-appellee.

Susan M. Murray of Langrock Sperry Parker & Wool, Middlebury, for defendant-appellant.

Before PECK and DOOLEY, JJ., BARNEY, C.J. (Ret.), KEYSER, J. (Ret.) and SPRINGER, District Judge (Ret.), Specially Assigned.

DOOLEY, Justice.

Plaintiff and defendant were divorced in July, 1986 by the Rutland Superior Court following an eighteen-year marriage. At the time of the divorce, plaintiff was about to reach 47 years of age and defendant was about to reach 40 years of age. Custody of the parties' two children was awarded to defendant and the property of the parties was divided between the parties. The court refused, however, to award maintenance or child support to defendant. Defendant appeals to this Court from the failure to award support or maintenance and further contests the property division. We reverse and remand for proceedings consistent with this opinion.

The parties were married in 1967 following plaintiff's graduation from law school. Defendant had completed high school and had briefly pursued a college education. At the time of the marriage, she was working for an insurance company. Two children were born of the marriage--Joshua, born in 1968, and Jennifer, born in 1969. In 1970, the parties moved to Vermont where plaintiff was first a prosecutor and then began a private law practice.

Except for a short period in 1974 when she managed an art store, defendant did not work outside the home until approximately 1981. At that point, she started freelance writing and formed a corporation to publish a newspaper listing county events for vacationers. These activities were part-time and earned about $2,000 per year. In addition, defendant has taken writing courses at a college near her home and has applied for a real estate license.

Plaintiff's law practice became quite successful. By the time of the divorce hearing, the practice was grossing between $150,000 per year and $175,000 per year. According to plaintiff's 1985 tax return, he grossed about $171,000 and netted $79,000 with about $16,000 of the difference accounted for by depreciation.

In 1983, the parties separated and never reconciled. During most of the period between the separation and the divorce hearing, plaintiff supported defendant through a checking account with a $2,000 per month line of credit and by paying the bills incurred by defendant on plaintiff's credit card. In addition, plaintiff paid directly for many of the living expenses of the children although they resided with defendant.

Following a one-day hearing at which the main witnesses were the plaintiff and defendant, the trial court made findings of fact orally and on the record, along with a decision. A written order was issued thereafter. On remand from this Court, the order was amended to specify that certain payments ordered therein were part of the property settlement and were not maintenance. In this posture, the case is now before us. Defendant contests all the financial aspects of the final order: the disposition of the property of the parties, the failure to award defendant spousal maintenance, and the failure to award defendant support payments for the children. We take the issues in this order.

Defendant states three major objections to the property order as follows: (1) the court failed to consider all the statutory factors in fashioning its property award; (2) the court erroneously assessed the value of the office building in which plaintiff conducts his law practice; and (3) the court failed to value plaintiff's law practice. In order to understand these contentions we begin by setting out in greater detail the property disposition made by the trial court.

The trial court found that the parties owned approximately $373,000 in assets to be distributed. Of that amount, approximately $250,000 worth of property was distributed to plaintiff consisting of his office building ($76,000), land in Middletown Springs ($20,000), an IRA ($19,000), Keogh plan funds ($48,000), a time share condominium ($13,000), stock and a money management account ($11,000), and a cash inheritance from plaintiff's father ($62,500). Approximately $123,000 in property was distributed to defendant, consisting of the parties' house ($85,000), an IRA ($13,000) and cash savings ($25,000). In order to make the disposition more even, plaintiff was ordered to pay to defendant $500 per week for three years. While the exact percentage of the property going to each party depends on the present worth of the periodic payment, the disposition is relatively close to an even split of the property that the court valued. 1 In addition to the property that was valued by the court, the court distributed property contained in the house of the parties. It also distributed plaintiff's law practice to him after making a finding that it could not place a fair market value on the practice.

The distribution of property in a divorce is governed by 15 V.S.A. § 751, which requires the court to "equitably divide and assign the property" and sets forth twelve factors that the court may consider. The trial court has broad discretion in considering these factors. Unless the court fails to exercise its discretion or exercises it for clearly untenable reasons or to an untenable extent, its decision will be upheld. See Burr v. Burr, 148 Vt. 207, 209, 531 A.2d 915, 917 (1987). Further, property division is not an exact science that is subject to mathematical formulas. Plante v. Plante, 148 Vt. 234, 237, 531 A.2d 926, 928 (1987).

Defendant's attack on the court's distribution of the property it valued emphasizes the factors suggesting a larger share for defendant--for example, the disparity in the earning power of the parties and defendant's contribution to plaintiff's professional development. It ignores the factors that might suggest a larger share for plaintiff--for example, that a substantial share of the assets came from plaintiff's inheritance from his father. See Daitchman v. Daitchman, 145 Vt. 145, 150-52, 483 A.2d 270, 274 (1984). Assuming all assets are included and properly valued, the distribution fell within the range of the trial court's discretion. No abuse is shown.

Defendant does assert that one asset, the building containing plaintiff's office, was valued erroneously. The trial court found that the fair market value of the building was "at least" $150,000 and its value net of encumbrances was $76,123. There was no dispute about the encumbrances so that the value reached by the court represents a fair market value of $150,000.

The testimony on the value of the property was in some conflict. Plaintiff testified that he paid $150,000 for the building three years earlier and did some work on it. However, he believed he paid too much for the building so that he valued it at $150,000 at the time of trial. Defendant offered the testimony of an appraiser to the effect that based on a "cursory appraisal" (also called an "estimate"), the building was valued between $175,000 and $200,000. It is the failure of the trial court to place the value in this range that prompts the objection to this Court.

Where there is a dispute in the testimony, it is up to the trial court, which can better judge the credibility of the witnesses, to resolve the dispute. As an owner of the property, plaintiff was a competent witness to value it. 12 V.S.A. § 1604. The trial court could choose the valuation provided by the plaintiff. Wood v. Wood, 143 Vt. 113, 119, 465 A.2d 250, 253 (1983). Since the finding is not clearly erroneous, it must be upheld. Sutton v. Sutton, 147 Vt. 639, 640, 523 A.2d 1249, 1250 (1987).

Defendant's third objection presents a more serious issue. While the trial court recognized the plaintiff's law practice as property of the parties and awarded it to plaintiff, it failed to put any value on the practice. Defendant asserts that this failure was error.

There is no question that the law practice has considerable value depending on the extent to which this Court will recognize the components of its value. We have not had occasion in the past to address the issue of valuation of a professional practice.

As an on-going business, much of the value of the law practice to plaintiff lies in goodwill--that is, the willingness of persons in need of legal assistance to seek plaintiff's services in the future. 2 In addition, in any law practice there is a considerable amount of work in progress for which the lawyer will be paid at least in part. In this case, the testimony was that the practice had only a small amount owed, less than one thousand dollars, but that there were pending between twenty and thirty contingent-fee cases. There was no further evidence of work in progress. There may also, of course, be pending liabilities although there was no evidence of these in this case. Finally, the practice has some tangible personal property including, normally, office equipment and law books.

There seems to be little argument that the tangible personal property used in the law practice is property subject to distribution, or consideration in distribution, in a divorce. See, e.g., Hendrick v. Hendrick, 142 Vt. 357, 359-60, 454 A.2d 1251, 1252-53 (1982) (plumbing business); see also Bard v. Bard, 380 N.W.2d 342, 344 (N.D.1986) (law office property). Based on the decisions from other jurisdictions, however, there is great disagreement whether we can or should consider other aspects of value of the law practice as property to be distributed to the parties or bearing on the distribution of the other property. See generally L. Golden, Equitable Distribution of Property § 6.21 (1983). Some courts have held that the work in progress and/or the goodwill of a professional practice is property subject to equitable...

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