Marriage of Clark, In re

• Decision Date: 26 April 1978
• Citation: 145 Cal.Rptr. 602,80 Cal.App.3d 417
• Court: California Court of Appeals Court of Appeals
• Parties: In re the MARRIAGE OF Maria Belkot and Perry Tudor CLARK. Maria Belkot CLARK, Petitioner and Appellant, v. Perry Tudor CLARK, Respondent. Civ. 49315.

Page 602

145 Cal.Rptr. 602

80 Cal.App.3d 417

In re the MARRIAGE OF Maria Belkot and Perry Tudor CLARK.

Maria Belkot CLARK, Petitioner and Appellant, v. Perry Tudor CLARK, Respondent.

Civ. 49315.

Court of Appeal, Second District, Division 5, California.

April 26, 1978.

Victor S. Amstadter, Santa Monica, for petitioner and appellant

Trope & Trope, Sorrell Trope, and Timothy S. Harris, Los Angeles, for respondent.

HASTINGS, Associate Justice.

Maria Belkot Clark (Maria) and Perry Tudor Clark (Perry) were married for 16 years and 2 months and had one child, Christopher Belkot Clark born May 23, 1960. The parties separated on December 5, 1974, and Maria filed an action to dissolve the marriage. The trial was in July of 1975. The parties stipulated as to the value of each of the items of community property, and that custody of Christopher should be awarded to Maria with reasonable visitation rights to Perry. At the time of trial, Maria was 50 years of age and had a muscular disability for which she had been under physical therapy treatments for 3 or 4 years. There was also testimony that she had heart problems. According to her financial declaration and testimony, she required $1,910 per month after taxes for her and Christopher's support. Maria had been raised in Germany and had had no particular job training. While living in Germany, she worked as a telephone operator and in the electronics field. Prior to her marriage she worked in the United States as a domestic.

Maria is challenging the court's order in several respects which we state and discuss as follows:

DIVISION OF STOCK IN A CLOSELY HELD CORPORATION

The court awarded all of the shares (5,250) of capital stock owned by the parties in Precision Forge Company (Precision) (value $400,000) to Perry. Maria claims this was error because she specifically wanted her community share of the stock distributed to her. Precision is a closely held corporation with Perry holding 50% Of the outstanding shares and a person by the name of Mark Perry (Mark) owning the other 50%. Perry is a certified public accountant and does the bookkeeping and a portion of the accounting for Precision. He described his position as "the accountant and a glorified executive secretary to Mark . . ." Perry's salary, as an employee, is $5,000 per month ($60,000 per year). In the year preceding the dissolution hearing, he received from corporate earnings an additional $75,000. He testified that it would be disastrous to allow Maria to own any shares in Precision Forge Company because approximately 60-70% Of the company's work is performed for a government agency that is "very conscious of everybody in the organization." Mark testified that he objected to any non-participating minority shareholders, and corroborated Perry's testimony that the customers of the business were very sensitive to any internal conflict in the business. He further stated that he would probably abandon the company if the court awarded Maria one-half of the community property stock.

Maria testified that it was her desire to retain her one-half community interest in the company, even though she realized that there was a possibility that all of the money made by the company might be paid out in salaries and that there would be no dividends. This was a chance she was willing to take. She also agreed to waive spousal support if she were awarded her share of the stock. Maria further agreed to give Perry a proxy to vote her shares.

In connection with this issue, the court made the following finding: "The court finds that respondent (Perry) has had, and should in the future have the sole responsibility Civil Code section 4800, subdivision (b)(1) states: "Where economic circumstances warrant, the court may award any asset to one party on such conditions as it deems proper to effect a substantially equal division of the property." Volume 4 of the Assembly Journal for the 1969 Regular Session, commenting upon section 4800, subdivision (b)(1) of the Civil Code, states at page 8061-8062: "The new act requires an equal division in all but two specific instances. . . . The first exception is that if the nature of the property is such that an equal division is not possible without impairment of a principal asset, then the court shall have discretion to establish conditions which will result in a substantially equal division. For example, if one major asset is a going business, it could well be destructive to award each spouse a half interest therein. Under the 'substantially equal' requirement, however, the court could award the entire business to the husband and grant the wife her one-half interest in cash or give her a greater share of other property or a greater support allowance. . . ." (Emphasis added.) ¹

with his business associate, for the operation of Precision Forge Co. in order to maintain same as a going business and as a source of support for the parties and the minor child."

The above comment confirms that the court has the discretion to award corporate stock in a closely held company where justified by economic circumstances. We are required to support a finding of the trial court if there is sufficient evidence to support it. Here, the court was apparently impressed with the testimony of Perry and Mark that the principal clients of the business might dislike a change in the stock ownership, and possibly transfer their business elsewhere, and that Mark was sincere in his statement that he would close the business if Maria was a minority stockholder. Threat or not, Mark, as a 50% Stockholder, could legally dissolve Precision, and the trial judge obviously did not want to take a chance that this valuable asset might be dissipated. This concern was clearly reflected in the court's finding (ante ), and we cannot say that it abused its discretion in this regard as a matter of law.

CONSIDERATION OF CAPITAL GAIN TAX IN DIVISION OF COMMUNITY PROPERTY

Maria next argues that, if it was proper for the court to award all of the stock to Perry, it erred because a capital gain tax on the transaction chargeable to her reduced her share of the community assets. This argument is meritorious. To offset the award to Perry of all the stock, and to divide the community property equally, the court ordered him to issue to Maria his secured promissory note for $114,798. ² A witness for Maria, who was an attorney and CPA, testified that if the stock was divided equally, there would be no tax. On the other hand, if Perry was awarded all of the stock and Maria received a promissory note from Perry for the value of her shares that would be paid for from his separate assets, there would be a taxable event costing Maria approximately $33,565 in capital gain tax. (Carrieres v. C.I.R., 9 Cir., 552 F.2d 1350, 1351, affg. 64 TC 959.) The court, as noted above, adopted the latter approach but did not take into consideration the capital gain tax to Maria that would substantially reduce her portion of the community property. Maria claims that to fully compensate her she should have received a promissory note for $114,798 plus one-half of the capital gain tax and one-half of the additional tax caused by the It is now decisional law that the trial court shall consider the tax consequences when dividing community property when there is proof of an immediate and specific tax liability. (Weinberg, supra, at page 567, 63 Cal.Rptr. 13, 432 P.2d 709, and Fonstein, supra, 17 Cal.3d at page 749, fn. 5, 131 Cal.Rptr. 873, 552 P.2d 1169.) Clearly, the known tax obligation against Maria's share of the community property reduces her distribution by approximately $33,000, ⁴ while Perry's community property remains the same. His argument that he might have a similar tax in the future if and when he sells his stock, therefore equalizing the tax burden on each party, is of no avail. In In re Marriage of Fonstein, supra, the husband asked the court to take into consideration the tax consequence of a sale of his interest in a law partnership sometime in the future. The court stated at pages 749-750, 131 Cal.Rptr. at pages 879-880, 552 P.2d at pages 1175-1176: "However as Weinberg makes clear, once having made such equal division, the court is not required to speculate about what either or both of the spouses may possibly do with his or her equal share and therefore to engraft on the division further adjustments reflecting situations based on theory rather than fact. The division, having been properly accomplished, is, as it were, functus officis; it is beside the point, to conjure up other results, had it been done differently. . . . (P) While the parties assumed that the partnership would be valued on the basis of a withdrawal value, the fact remains that Harold was not withdrawing and no tax liability was incurred during marriage. There is therefore no liability to be charged to Sarane or against her share of the community property. (See Rosenthal v. Rosenthal (1966) 240 Cal.App.2d 927, 931, 50 Cal.Rptr. 385.) Moreover, since there is no indication in the record that Harold is withdrawing, must withdraw, or intends to withdraw from his firm in order to obtain the cash with which to pay Sarane her share of the community property, there is no equitable reason for allocating to Sarane a portion of the tax liability which may be incurred if and when he does withdraw" In our present case, because of the sale, we know Maria's tax liability exists. It is analogous to a mortgage or a lien against the community property and is deducted in determining the net value for distribution (see Fonstein, supra, at p. 749, 131 Cal.Rptr. 873, 552 P.2d 1169.) Perry's future tax liability, if any, is speculative and not comparable to a lien.

                increase that this adjustment added to the purchase

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