Marriage of Engle, Matter of
| Decision Date | 16 July 1981 |
| Docket Number | No. D79-0274,D79-0274 |
| Citation | 629 P.2d 397,52 Or.App. 561 |
| Parties | In the Matter of the MARRIAGE OF Fred H. ENGLE, Appellant-Cross-Respondent, and Virginia M. Engle, Respondent-Cross-Appellant. ; CA 18436. |
| Court | Oregon Court of Appeals |
Thomas Garrison, Roseburg, argued the cause for respondent-cross-appellant. With him on the brief was Garrison & Garrison, Roseburg.
Before GILLETTE, P.J., and ROBERTS and YOUNG, JJ.
The husband appeals from that portion of the decree of dissolution dividing the property of the parties. On cross-appeal, the wife also challenges the property division and argues the trial court should have awarded her spousal support and a greater sum in payment of her litigation expenses.
The parties were married in 1953 and separated in 1977. At the time of the dissolution, husband was 62 years old and wife was 60. Husband has been successfully engaged in ranching and logging for many years. He plans to retire at age 65 if he can. Wife has not been gainfully employed during the last 25 years. Her primary role during the marriage was that of a homemaker. The trial judge specifically found that she is entitled to the presumption of equal contribution to the acquisition of marital assets provided by ORS 107.105(1)(e). 1
The fair market value of the marital assets is roughly two million dollars. The husband's logging and ranching business is conducted through Morgan & Engle, Inc., an Oregon corporation formed in 1957. Husband owns one half of the outstanding corporate stock; his half-brother owns the other half. Husband also has a one-half interest in a trust as co-trustee and as income beneficiary and remainderman. The trust property consists of 1,422 acres of ranch and timber land. The timber on the trust property, however, is owned separately The trial court valued and ordered distribution of the property as follows:
from the land. Husband has a one-fourth interest in the timber. Additionally, the husband has a one-half interest in the "Dysert property" and a one-third interest in the "Jones property," both of which are tracts of ranch and timber lands adjoining the trust lands. Finally, the husband's separate property includes a one-fourth interest in industrial property located in Oakland, Oregon. The wife owns a rental home in Roseburg. The parties hold title to their residence and accompanying acreage as tenants by the entireties. There are various items of personal property.
TO THE HUSBAND: VALUE
One half of husband's stock in Morgan
& Engle, Inc. $450,000
1/4 interest in timber on trust lands 472,000
1/2 interest in trust (land) 200,000
1/2 interest in Dysert property 25,000
1/3 interest in Jones property 15,000
1/4 interest in Oakland property, less
loan for purchase 48,250
Personal bank account 3,000
IRA account 7,500
First Far West stock 400
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TOTAL $1,221,650
TO THE WIFE
One half of husband's stock in Morgan
& Engle, Inc. $450,000
Home and nine acres 90,000
Rental house in Roseburg 25,000
Misc. household items 10,000
1979 Chevrolet 5,200
Personal bank account 500
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TOTAL $580,700
The trial court additionally awarded the wife a judgment against the husband for $180,000, payable over three years, together with 10 percent interest on the unpaid balance until paid.
The husband's primary concern is with the tax consequences of the trial court's distribution. The court may consider tax consequences when determining a proper division of property. ORS 107.105(2). The husband's principal problem is that he potentially must satisfy three substantial cash obligations. First, it appears that the trial court awarded him his interest in the timber on the trust property in light of a sale of that asset contemplated by the owners. There was testimony that the sale would result in an immediate tax obligation to husband in the amount of $156,000. 2 Second, husband is required under the decree to pay $180,000 to wife within three years. Third, husband argues that the forced transfer of his Morgan & Engle stock to his wife will, under United States v. Davis, 370 U.S. 65, 82 S.Ct. 1190, 8 L.Ed.2d 335 (1962), constitute a taxable event, creating another liability of approximately $142,000 in state and federal capital gains tax. He contends this state of affairs will force him to liquidate his holdings quickly, causing him to have to recognize more capital gains on the appreciated value of the assets and reducing the value of the distribution to him, making it less than that made to the wife. 3 To avoid this problem, the husband would have us award the wife The wife argues that the stock transfer is not a taxable event. Relying on a line of cases decided by the courts of the United States Tenth Circuit, she asserts that the transfer, under Oregon law, is more like a division of jointly owned property, which under Davis is not a taxable event. She argues that she is the one who will receive the short end of the distribution if we affirm the trial court's decree.
a judgment of $500,000, payable over 15 years in lieu of the stock transfer and the present lump sum award.
Both parties agree that the key issue affecting the property division is whether the Oregon law on marital ownership brings the transfer of husband's corporate stock within the rule of United States v. Davis, supra. We turn to that question.
In Davis the taxpayer and his wife entered into a property settlement and separation agreement which provided for support payments to the wife and child and for the transfer of personal property to the wife. The property transferred was separately owned by the taxpayer, subject to the wife's marital rights under Delaware law. The taxpayer agreed to transfer to his wife, among other things, corporate stock which had appreciated in value. The wife agreed to accept the stock in satisfaction of any and all claims and rights against the husband, including dower and descent. Their agreement was incorporated into the divorce decree. The issue presented to the Supreme Court was whether the husband realized taxable gain on the difference between his basis in the stock and its fair market value at the time of transfer.
Prior to Davis, it was fairly well established that a property settlement in common law states was a taxable transaction; the major issue was whether the amount of gain realized could be ascertained. 4 In Davis, however, the taxpayer argued that the stock transfer pursuant to the property settlement was not even a taxable event. The court noted that the controlling statutory language, calling for recognition of gains from dealings in property upon "sale or The parties in Davis argued their respective cases by way of analogy. The taxpayer asserted his disposition of the stock was comparable to "a non-taxable division of property between two co-owners." The United States contended the transfer more closely resembled "a taxable transfer of property in exchange for the release of an independent legal obligation." 370 U.S. at 69, 82 S.Ct. at 1192, 8 L.Ed.2d at 340-41. The Supreme Court construed the transaction in the light of Delaware law and, in one breath, rejected the taxpayer's analogy and accepted the government's:
other disposition," 5 is too general to determine conclusively whether a taxable event occurs.
" * * * (T)he inchoate rights granted a wife in her husband's property by the Delaware law do not even remotely reach the dignity of co-ownership. The wife has no interest passive or active over the management or disposition of her husband's personal property. Her rights are not descendable (sic) and she must survive him to share in his intestate estate. Upon dissolution of the marriage she shares in the property only to such extent as the court deems 'reasonable.' What is 'reasonable' might be ascertained independently of the extent of the husband's property by such criteria as the wife's financial condition, her needs in relation to her accustomed station in life, her age and health, the number of children and their ages, and the earning capacity of the husband.
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