MALLORIE AND MALLORIE

• Decision Date: 15 June 2005
• Citation: 113 P.3d 924,200 Or. App. 204
• Parties: Susan Janine MALLORIE, Appellant-Cross-Respondent, and Richard Willis MALLORIE, Respondent-Cross-Appellant.
• Court: Oregon Court of Appeals

113 P.3d 924

200 Or. App. 204

Susan Janine MALLORIE, Appellant-Cross-Respondent,

and

Richard Willis MALLORIE, Respondent-Cross-Appellant.

01C-31171; A120473.

Court of Appeals of Oregon.

Argued and Submitted December 2, 2004.

Decided June 15, 2005.

Mark Johnson, Portland, argued the cause for appellant-cross-respondent. With him on the briefs was Johnson Renshaw & Lechman-Su PC.

Craig Wymetalek, Portland, argued the cause for respondent-cross-appellant. With him on the brief was Stahancyk, Gearing, Rackner & Kent, P.C.

Before HASELTON, Presiding Judge, and LINDER and WOLLHEIM, Judges.

HASELTON, P.J.

Wife appeals and husband cross-appeals from a judgment of dissolution of marriage. Wife asserts that the trial court erred in making its award of spousal support, in treating a large number of cows leased to the family's dairy as husband's premarital assets, in treating wife's wedding ring as a marital asset, and in taking into consideration certain alleged tax ramifications of a business arrangement with the family's dairy in setting wife's spousal support and in valuing husband's cows. On cross-appeal, husband takes issue with the trial court's determination that a pickup truck was a marital asset, its treatment of a $10,000 loan to wife by her sister as a marital debt, and the court's award of attorney fees to wife.

Our review is de novo. ORS 19.415(3) (2001). As explained below, with respect to the appeal, we modify the property division of the judgment to reflect that 362 cows that the trial court treated as husband's premarital assets are marital assets and that wife's wedding ring is not a marital asset. With respect to the property division issues on cross-appeal, we conclude that husband's pickup is a marital asset but that wife's debt to her sister is not a marital debt. In light of our conclusions about the disputed assets and debts, we modify the distribution of both assets and debts in accordance with the attached summary and increase the equalizing judgment in favor of wife from $52,656 to $136,836. Further, on the appeal, we modify the trial court's award of spousal support of $2,500 per month to wife, which was to terminate after eight years under the original judgment, to an indefinite award of spousal support in the amount of $2,500 per month. Finally, we reject without discussion husband's arguments concerning attorney fees.

The material facts are as follows. Husband and wife were married for 20 years. Husband is the president of Mallorie's Dairy, a family dairy operation that was started by his parents. Husband has a high school education and has worked for the family's dairy throughout his adult life. At the time of trial, husband's salary was $5,083 per month, and he received an additional $3,856 per month as income from his lease of cows to the dairy, described more fully below. Husband's salary is well below what most people in similar positions make, but husband also receives numerous benefits from his employment at the family dairy, including use of telephones and vehicles, vehicle maintenance and lawn care, use of recreational facilities, and free meat and dairy products.¹

Wife also has a high school education and took several college courses before her marriage to husband in the early 1980s. Early in the marriage, wife assisted in repairing and cleaning properties owned by the dairy or other related family-owned companies. At the time of trial, wife was working for a school district, providing assistance to special education students, and earned $1,032 per month. Wife has scoliosis and has suffered several injuries to her back.

The couple has two children, aged 19 and 17 at the time of trial. Wife became a full-time homemaker after the children were born. The older child, a son, has Asperger's Syndrome, an autism spectrum disorder, and attends a special high school completion program at a community college. The younger child, a daughter, attends high school.

Wife has always been the primary caretaker of the children. Wife testified that son has serious difficulties due to his special needs. He requires a significant amount of supervision, as well as assistance from wife in getting up and ready for school, and in grooming and personal hygiene. Son and husband have historically had an extremely volatile and violent relationship, and husband has no contact at all with son. While wife expects son to complete his high school education at the special program he attends, she also expects to have an ongoing obligation to provide care and supervision for son throughout his life.² The parties agreed that they would have joint custody of daughter, who would reside with wife and who could see husband as she wished.³

The parties own a large house on 44 acres of land close to the dairy. The parties agreed in the present proceeding that the property is worth about three quarters of a million dollars and needs to be sold. The trial court's judgment provided that the proceeds from the sale will be divided equally and that aspect of the judgment is not at issue on appeal. After the parties separated, wife moved into a rental unit with the children that costs $850 per month. Husband and his girlfriend moved into a residence purchased for his use by the dairy for approximately three quarters of a million dollars and rented to husband for $650 per month.

Most of the assets at issue on appeal are dairy-related—that is, they involve the dairy and a related family-owned business, Cow Hop, that rents land to the dairy.⁴ Before the marriage, husband owned 362 cows, which he leased to the dairy, and approximately 16 percent of the stock in Cow Hop. During the marriage, husband acquired an additional 120 cows, and wife acquired 11 cows. Those cows also were leased to the dairy. Because the particulars of the cow lease arrangement are so significant to our analysis of certain property division issues, we recount the terms and operation of that arrangement in detail.

The lease agreements pertaining to all of the cows are identical.⁵ The dairy pays the cows' owners $8 per cow per month. In return, the dairy is entitled to all milk products and calves produced by the cows. If a cow dies, is sold, or is otherwise disposed of by the dairy, the dairy provides a replacement cow with a value of $900. Either party may terminate the lease at any time by providing written notice, and the dairy has the option of purchasing the cows at any time at the price of $900 per cow.

Evidence at trial established that, throughout the parties' marriage, the dairy replaced each leased cow on a cycle or rotation of approximately every three years, which corresponded to the cow's period of optimum milk productivity. Thus, as each cow's period of peak productivity ended, she would be sold off or butchered and replaced with a younger, higher producing cow. In sum, the original 362 cows that husband owned at the time of the marriage were replaced at the dairy's expense pursuant to the lease and their replacements were then repeatedly replaced over the course of the marriage.

At trial, husband produced expert testimony by an accountant, Ranweiler, that each time a cow was replaced by the dairy pursuant to the lease, it should have been treated as an income-producing taxable event by the cow's owner. Husband and wife, on their joint tax returns, had not treated the replacement of the cows pursuant to the lease as generating taxable income. Ranweiler explained that, in light of several tax cases that have been decided concerning similar lease arrangements, the parties could face significant tax liability and penalties for the three tax years that were still "open" at the time of trial, should their tax returns be audited.⁶ He further opined that, if husband (who was awarded all of the cows in the present proceeding) voluntarily changed his accounting method, he could probably reach an agreement with the Internal Revenue Service whereby he could avoid penalties and spread the payment of the three years of back taxes owed over the next four years.

Ranweiler's accounting firm estimated that the under-reported income plus penalties from the three "open" years could be more than $200,000 but that penalties could be avoided if the parties voluntarily changed accounting methods and, if that occurred, past tax liability could be spread equally over the tax years 2002 through 2005. Ranweiler explained that, if the accounting method were changed, husband could begin depreciating the cows and ultimately the depreciation of the cows would significantly reduce the tax liability in future years. In his estimate, the total federal and state tax liability on cows for the years 1999, 2000, and 2001 would be around $132,000.

On cross-examination, Ranweiler admitted that his predictions of the tax consequences were speculative but constituted his "best estimate." He also acknowledged that his estimates did not take into account the fact that the older cows are sold by the dairy when they are replaced with younger cows: his estimates appear to assign no value to the cows sold or butchered by the dairy, whereas evidence at trial indicated that at least some cows culled from the herd were sold for more than $500. Husband testified at trial that he felt that the tax situation "needs to be dealt with" and that he would like to follow the accountant's advice and change accounting methods.

As pertinent to the issue raised on appeal, the trial court's dissolution judgment treated 362 cows as husband's premarital assets and 131 cows as marital assets, awarding all cows to husband. The court valued each cow at $900, for a total value of $325,800 on the cows that the court treated as husband's premarital assets, and a total value of $117,900 for the cows that the court treated as marital assets. The court also, however, offset those values by estimated tax liabilities for the replacement cows, setting tax liability for the marital-asset cows at...