Macdonald v. Macdonald

• Decision Date: 02 November 1987
• Citation: 532 A.2d 1046
• Parties: Ann Austin MACDONALD v. James Roger MACDONALD.
• Court: Maine Supreme Court

Page 1046

532 A.2d 1046

Ann Austin MACDONALD v.James Roger MACDONALD.

Supreme Judicial Court of Maine.

Argued Sept. 16, 1987.

Decided Nov. 2, 1987.

Ellyn C. Ballou(orally), South Freeport, and David P. Silk, Murray, Plumb & Murray, Portland, for plaintiff.

Charles E. Trainor(orally), Robert A. Laskoff, P.A., Lewiston, for defendant.

Before McKUSICK, C.J., and NICHOLS, WATHEN, GLASSMAN and SCOLNIK, JJ.

SCOLNIK, Justice.

The defendant, James R. Macdonald, appeals from a judgment entered by the Superior Court, Cumberland County, in the divorce action brought by his wife, Ann A. Macdonald, plaintiff, who cross-appeals.The defendant contends that the Superior Court erred in its award of alimony and in finding that the defendant's ownership interest in a business and certain real estate constituted marital property.In her cross-appeal, the plaintiff claims that the Superior Court erred in its division of marital property and in its treatment of the entire present value of certain business and real estate interests as separate, non-marital property of the defendant.We vacate the judgment.

I.

Ann A. Macdonald and James R. Macdonald first married in 1957.They were divorced in 1969, but were subsequently remarried in 1971.The parties lived together for all but six months of the period between their divorce and remarriage and after their remarriage, the property that had been divided in the first decree became part of the second marital estate.During the marriage the plaintiff primarily served as homemaker and primary caretaker of the parties' children.She was employed for two brief periods during their 29-year relationship and occasionally helped her husband with errands involving his automobile dealership business.During high school years the defendant began working at Macdonald Motors, his father's automobile business, located in Bridgton.He started as a mechanic but soon advanced to service manager and then to partner and part owner.In 1964, defendant, and his brother, Robert, began taking over the management responsibilities of the business from their father.In 1973, the father retired from active participation in the business and conveyed to defendant and Robert equally, the real estate on which Macdonald Motors is situated.In 1975, the father conveyed to the defendant and his brother equal shares of the ongoing business of Macdonald Motors.The transfers of the business and underlying real estate from the father to his sons were by gift.

By 1975, the defendant and his brother, Robert, were equal partners of Macdonald Motors.Instead of disbursing the profits to the partners, the partnership allowed them to accumulate for the purpose of acquiring other interests.This was accomplished by "parking" funds with the institution that provided Macdonald Motors with its "floor planning" loans.In 1976, using accumulated profits from the partnership, defendant and his brother purchased four lots known as Sandy Shore Cottages located adjacent to Woods Pond in Bridgton.In 1983, a fifth lot in the same location was also purchased with accumulated partnership profits.In 1983-1984 additional accumulated profits from the partnership were used by defendant and his brother to establish an automobile dealership in East Conway, New Hampshire, with a third brother, Daniel.Each brother contributed $41,667 for one share of stock, with defendant's and Robert's monies coming from partnership profits.

By judgment entered on December 9, 1986, the court granted a divorce based on irreconcilable marital differences.The court found as non-marital property the husband's partnership interest in Macdonald Motors, Bridgton, and his interest in the land on which it is situated.The court found as marital property the husband's interest in Macdonald Motors, Inc. in New Hampshire, the land underlying the New Hampshire automobile business, and the five Shady Shore cottages located at Woods Pond.The court's judgment divided other marital and separate property, allocated the marital property between the parties, and ordered the defendant to pay alimony to the plaintiff.The defendant subsequently filed a motion for findings of fact and conclusions of law, which the trial justice issued on January 12, 1987.

II.

The defendant contends that the Superior Court erred in finding as marital property the defendant's ownership interest in Macdonald Motors, Inc. in East Conway, New Hampshire, the real estate underlying the East Conway automobile business, and the five camp lots at Woods Pond.Under 19 M.R.S.A. § 722-A(1981), property acquired during a marriage is presumed to be marital property.Cushman v. Cushman, 495 A.2d 330, 334(Me.1985).In claiming that the above property is non-marital or separate property, the defendant bears the burden of overcoming the statutory presumption.Id.(citingMoulton v. Moulton, 485 A.2d 976, 978(Me.1984))."The showing required to overcome the presumption is one of fact; thus, the decision of the divorce court whether the burden was successfully carried is reviewable only for clear error."Moulton, 485 A.2d at 978.

The defendant contends the following finding of fact by the trial justice was clearly erroneous:

In 1973 husband's father made a gift of [his automobile dealership] to husband and his brother, at which time the father essentially retired from the business.During the period from 1976 to 1983, husband and his brother used the accumulated income from the automobile business to acquire the parcels of rental real estate known as Shady Shores and to commence the additional automobile business known as MacDonald Motors, Inc. in East Conway, New Hampshire.This Court finds that the funds used by the husband and his brother to acquire the rental real estate and the New Hampshire automobile business, although undistributed, were earnings taxable to the parties and over which they had discretionary control.Accordingly, the properties acquired with these earnings were part of the marital estate.¹

The defendant disputes the finding essentially on two related grounds: (1) that the proceeds from the Bridgton automobile business and the property purchased with those proceeds are not marital since the proceeds were never distributed by the partnership as income to the defendant, and never co-mingled with the personal funds of the defendant and/or plaintiff; and (2) that the Bridgton proceeds, and the property acquired with these funds, are excluded from the marital estate as income from a separate gift to the husband during marriage.

The defendant's first argument is without merit.The profits of a partnership are income to the partners, not the partnership, and they are taxed accordingly.26 U.S.C.A. § 701(West 1982).Partnership profits are personal income to the partners whether they are distributed or received.26 C.F.R. § 1.702-1(a)(1986).SeeBell v. Commissioner, 219 F.2d 442(5th Cir.1955).This record clearly shows that the profits in question were indeed taxed to the defendant and his brother as income.Instead of distributing the taxable earnings, the partnership "parked" the profits in an account and allowed them to accumulate for purchases such as the camps and the New Hampshire dealership.The trial court did not err in finding that the partnership profits were income to the husband.

We next address the defendant's second point, whether the properties acquired with those partnership earnings of the defendant should be excluded from the marital estate since the earnings were income from separate, non-marital property.The trial court found the Bridgton business and its underlying real estate wholly separate on the ground they were gifts from the defendant's father to defendant and his brother, Robert.²Section 722-A(2) defines non-marital property as follows:

A.Property acquired by gift, bequest, devise or descent;

B.Property acquired in exchange for property acquired prior to the marriage or in exchange for property acquired by gift, bequest, devise or descent;

C. Property acquired by a spouse after a decree of legal separation;

D.Property excluded by valid agreement of the parties; and

E.The increase in value of property acquired prior to the marriage.

Id.Although subpart (A) is clear that property acquired by gift, such as the Bridgton dealership, is non-marital, it is silent as to whether income from that property is also non-marital.We have previously considered the issue whether appreciation of mixed marital/separate property is part of the marital estate.SeeHall v. Hall, 462 A.2d 1179(Me.1983);Tibbetts v. Tibbetts, 406 A.2d 70(Me.1979).However, we have not before addressed the question whether income from separate or mixed marital/separate property is also part of the marital estate.

In determining how income from a gift of separate property should be treated under § 722-A, we are guided by the Commissioner's Comments to the 1970 version of § 307 of the Uniform Marriage and Divorce Act on which § 722-A was modeled.³SeeTibbetts, 406 A.2d at 73 n. 3, 75 n. 6.The Comment states The phrase "increase in value" used in subsection (b)(5) is not intended to cover the income from property acquired prior to the marriage.Such income is marital property.Similarly, income from other non-marital property acquired after the marriage is marital property.(emphasis added).

Handbook of the National Conference of Commissioners on Uniform State Laws, § 307, at 204(1970).We also note that a majority of states follow this view and treat income during the marriage from separate property as part of the marital estate.Matthew Bender & Co., Family Law and Practice, § 37.08[c], at 37-134(1987).See e.g., Speer v. Speer, 18 Ark.App. 186, 712 S.W.2d 659(1986);In re Marriage of Reed, 100 Ill.App.3d 873, 56 Ill.Dec. 202, 427 N.E.2d 282(1981);Brunson v. Brunson, 569 S.W.2d 173(Ky.App.1978);In re Marriage of Williams, 639 S.W.2d 236(Mo.App.1982);Cain v. Cain...