Marriage of Johnston, In re, 85-637

• Decision Date: 09 October 1986
• Docket Number: No. 85-637,85-637
• Citation: 43 St.Rep. 1808,726 P.2d 322,223 Mont. 383
• Parties: In re the MARRIAGE OF Karen Raye JOHNSTON, Petitioner and Respondent, and Garold Dave Johnston, Respondent and Appellant.
• Court: Montana Supreme Court

Page 322

726 P.2d 322

223 Mont. 383

In re the MARRIAGE OF Karen Raye JOHNSTON, Petitioner and

Respondent,

and

Garold Dave Johnston, Respondent and Appellant.

No. 85-637.

Supreme Court of Montana.

Submitted on Briefs July 24, 1986.

Decided Oct. 9, 1986.

Torger S. Oaas, Lewistown, for respondent and appellant.

R.W. Heineman, Wibaux, for petitioner and respondent.

HUNT, Justice.

Appellant, Garold Dave Johnston, appeals from the property settlement and award of attorney fees granted to respondent, Karen Raye Johnston, by the Dawson County District Court in a marital dissolution proceeding.

We affirm.

Appellant does not contest the grant of custody of their three minor children to respondent or the child support award. The issues on appeal are:

1. Did the District Court improperly deny appellant an in-kind distribution of the marital estate's minority shares in a closely-held family corporation and improperly required the corporation to finance the distribution of these shares?

2. Did the District Court improperly determine the value of the minority interest in the corporate shares of stock?

3. Did the District Court improperly award attorney fees to respondent?

Karen and Garold Johnston were married in 1967. In 1977, when their net worth was $47,801, they joined with the husband's family in forming a family farm and ranch corporation. The family members exchanged their real and personal property for corporate shares. Karen and Garold Johnston initially received 1250 shares for their contribution of properties accumulated during the 10 years of their marriage. They later received 180 shares as gifts for a total of 1430 shares. Garold Johnston received $500 per month for his work with the corporation. Each shareholder's family, including Karen and Garold Johnston's family, was provided with living expenses such as a home, vehicles, utilities, health and vehicle insurance and groceries.

The parties' marriage was dissolved in 1983. The marital property consisted primarily of corporate assets and some personal property. The District Court found the corporation's net worth to be $1,732,789 or $217 per share. Consequently it valued the marital estate at $310,310. The court gave appellant a choice of two alternative methods whereby the value of the marital estate could be equitably distributed.

The first method provided that the 1430 shares be distributed to Garold Johnston and a 25% discount of the marital estate would be made. Garold would pay Karen Johnston $116,366 within 30 days of the judgment. Each party would pay their own attorney fees.

The second method grants Karen Johnston $155,155 from the marital estate plus costs and attorney fees. No discount is provided on the value of the shares. Payment would be made in ten equal annual installments with 10% interest per annum. Karen would have a first security interest in the 1430 shares assigned to Garold for the total sum of the judgment. If an annual installment is not paid, Garold would promptly offer to sell and assign to the corporation and the shareholders the number of shares necessary to raise the installment amount at the price the offerees would be willing to pay per share. If the corporation or the shareholders are unwilling to buy, Garold would assign to Karen the number of shares necessary to pay the installment payment. The price of the shares would be determined by what Karen can sell the shares for on the open market. Both parties must make reasonable efforts to find a buyer. If a buyer cannot be found within 30 days, Karen may then buy the shares at her price in place of receipt of the annual installment.

Appellant argues that the District Court improperly divided the marital assets. First appellant contends that the District Court should have made an in-kind distribution of the shares in place of awarding annual payments to respondent. The extensive findings of fact indicate that appellant received a $500 monthly wage and annual bonuses ranging from $1,000 to $2,500. The corporation provided each family with a home, food, vehicles, utilities and insurance. The District Court found these corporate benefits constituted a substantial income substitute to appellant--at least the equivalent of a $15,000 annual income when wages, bonuses, fringe benefits and tax advantages were taken into account.

Besides respondent, appellant and his parents and brothers are the only other shareholders and the sole actors in the corporation. They have a supportive and common interest in the preservation of their family enterprise. Testimony was presented which indicated appellant's father, the corporation's president, was opposed to purchasing any minority shares respondent might own.

Appellant continues to receive all of the above benefits from the corporation. Respondent has received nothing from the corporation since her separation from appellant in 1983.

This Court has previously held that simply because the option of making a distribution of stock in-kind was open to the court, this is no reason the District Court had to select it. Burleigh v. Burleigh (Mont.1982), 650 P.2d 753, 757, 39 St.Rep. 1538, 1543, followed in In re the Marriage of Wessel (Mont.1986), 715 P.2d 45, 43 St.Rep. 405.

The District Court found that dividing the stock evenly between the husband and wife would not produce an equitable result. It reasoned that while the corporate by-law restrictions reduce the actual value of the shares individually owned by the parties, they do not reduce the underlying value of the shares in the hands of the family corporation.

Even if half of the 1430 shares were retained by respondent, she would remain an outsider in this closely-held family corporation. She would not receive income or benefits from the corporation because she is no longer a part of the farming operation. She would not receive dividends as the corporation has never issued them.

An in-kind distribution of closely-held corporate shares is not required when this would not produce an equitable settlement between the parties. Sufficient evidence appears on the record to uphold the District Court's conclusion that an in-kind distribution of these shares would provide little benefit to respondent. The District Court was correct in presenting other methods of distribution for the estate.

Appellant contends that the District Court required the closely-held corporation, Johnston/Will, Inc., to finance the distribution of the marital estate's minority shares and that this was improper as such since the corporation was not a party to this suit. The record does not support this contention. Johnston/Will, Inc.'s corporate by-laws restrict the sale of stock by shareholders. The stock must...