Medlock v. Medlock

• Decision Date: 12 April 2002
• Docket Number: No. S-00-1083.,S-00-1083.
• Citation: 642 N.W.2d 113,263 Neb. 666
• Parties: Linda Marie MEDLOCK, Appellant, v. Melvin Eugene MEDLOCK, Appellee.
• Court: Nebraska Supreme Court

642 N.W.2d 113

263 Neb. 666

Linda Marie MEDLOCK, Appellant, v. Melvin Eugene MEDLOCK, Appellee.

No. S-00-1083.

Supreme Court of Nebraska.

April 12, 2002.

Gregory Garland, of Garland Law, P.C., and Kathy Pate Knickrehm, Omaha, for appellant.

Amy S. Geren, of Nolan, Olson, Hansen, Fieber, Lautenbaugh & Geren, and, on brief, Brent M. Kuhn, of Harris, Feldman Law Offices, Omaha, for appellee.

HENDRY, C.J., WRIGHT, CONNOLLY, GERRARD, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ.

GERRARD, J.

NATURE OF CASE

This is an appeal from the decree dissolving the marriage of Linda Marie Medlock and Melvin "Buddy" Eugene Medlock. The issue presented in this appeal is whether Linda was entitled to a share of the assets of Union Oaks, Inc., a nonprofit religious corporation operated by Buddy.

FACTUAL BACKGROUND

Buddy and Linda were married in 1972 and have five children, three of whom were under the age of 19 at the time of trial. Child custody is not at issue in this appeal.

Buddy was ordained as a minister in 1971 by the Christian Brotherhood, an organization of which Buddy was one of the founders. Union Oaks was founded in 1978; the parties dispute whether Union Oaks was founded by Buddy and Linda, or solely by Buddy. Union Oaks is a tax-exempt organization under the Internal Revenue Code. See I.R.C. § 501(c)(3) (2000). Buddy is the president of Union Oaks.

The seed funding for Union Oaks was provided by the proceeds of real estate sold by Buddy and Linda. Essentially, Buddy and Linda sold their property and transferred their marital property and income to Union Oaks. Buddy and Linda have not owned any personal property since 1978. Instead, Union Oaks has provided Buddy with a parsonage, the use of various vehicles, and a salary that appears to vary from year to year. Joint tax returns, filed between 1991 and 1998, show total annual income for the Medlocks ranging from $25,181 in 1998 to $7,779 in 1993.

Union Oaks, at the time of trial, owned assets, primarily in real estate, that the district court found to have a total value of approximately $1.3 million. George Tesar, Jr., a certified real estate appraiser retained by Linda to value the property owned by Union Oaks, valued the parsonage at $275,000, an unimproved lot adjacent to the parsonage at $43,000, and a former restaurant used as a banquet hall at $525,000. Union Oaks also owned a $12,000 motorcycle and three other vehicles and had sold six other vehicles since Linda had filed her petition for legal separation. At the time of trial, Union Oaks had cash assets of $134,381.73 and held debts owed to Union Oaks in the amount of roughly $90,000. The only debt admittedly owed by Union Oaks to anyone else was a note owed from Union Oaks to Buddy and Linda in the amount of approximately $50,000. There was conflicting evidence presented regarding the continued existence of certificates of deposit valued at approximately $207,000.

The assets of Union Oaks were accrued from the initial funding provided by Buddy and Linda through a series of real estate transactions, primarily involving "like-kind" exchanges of real property. The details of many of these transactions are rather murky. Generally speaking, Buddy's answers to cross-examination regarding his financial dealings can be characterized as evasive, as Buddy repeatedly denied knowledge or recollection of even the most basic aspects of Union Oaks' financial transactions. It is undisputed, however, that Union Oaks has received very few donations and that most corporate revenue comes from the gains on the purchase and sale of real estate by Buddy.

The debt owed from Union Oaks to Buddy and Linda was the subject of considerable dispute at trial. Buddy and Linda had acquired and jointly held several parcels of real estate prior to the formation of Union Oaks, which were transferred to Union Oaks between 1978 and 1987 in exchange for promissory notes totaling $177,094.49 at the time of execution. The balance on those notes was, or would have been, $269,811 at the time of trial. Buddy testified, however, that the transfers were meant as gifts to Union Oaks and that the notes were executed because his accountant told him to do it that way. Buddy testified that all of the notes, except the $50,000 note previously mentioned, were "forgiven" by 1991, when Linda filed a previous petition for legal separation that had been voluntarily dismissed. Buddy was otherwise unclear on the circumstances surrounding the forgiving of the notes.

Linda testified, on the other hand, that during the course of the marriage, Buddy repeatedly told her that Union Oaks owed them the money that would have been due from the notes that were later forgiven. The figure set forth above regarding the present value of the notes is taken from an amortization schedule that Linda testified was shown to her by Buddy when Linda asked about the couple's financial situation. Linda testified that only after the couple's separation was she informed that the notes had been forgiven. In addition, Paul Curry, the former president of NP Dodge Management Company, Inc., and a friend of Buddy and Linda, testified that, in 1995 or 1996, while he was counseling Buddy regarding his separation from Linda, Buddy mentioned a note from Union Oaks to Buddy and Linda in the amount of $250,000.

There is substantial evidence in the record establishing Buddy's habit of using Union Oaks funds to pay for what can reasonably be characterized as personal expenses. Buddy testified that when he used corporate funds to pay for personal expenses, he later had those expenses charged against the balance on the remaining note that Union Oaks owed to Buddy and Linda. Charge card statements contained in the record show corporate funds to have been expended on restaurants, groceries, and travel, among other things. Buddy testified that the family's trips to Mazatlan, Mexico, were spent studying and writing, but Linda characterized them as family vacations. Buddy did specifically defend the use of corporate funds, and the Union Oaks tax-exempt identification number, to pay for visits to tanning salons. William Stevens, a certified public accountant employed by Buddy and Union Oaks, testified that Buddy claimed personal expenses paid for by Union Oaks as personal income for tax purposes, but that Stevens did not review the expenses and relied on Buddy to determine which expenses were personal in nature.

The record also contains a substantial amount of testimony regarding the board of directors of Union Oaks and the amount of actual control that the three members of the board, in addition to Buddy, have exercised over Union Oaks. According to the Union Oaks corporate charter contained in the record, a majority of the board could remove Buddy from office and take control of the assets of Union Oaks.

Three members of Union Oaks' board of directors, in addition to Buddy, testified at trial. The first director, a member of the board since 1994 or 1995, testified that any meetings of the board were called by Buddy. Buddy testified that the board met once a year. This director testified that he never signed checks for Union Oaks, met with lawyers, or discussed any of Union Oaks' real estate transactions. In addition, this director testified that he did not review Union Oaks' books and did not recall ever disapproving any expense or proposal suggested by Buddy. This director also testified that he had not been aware that Buddy had charged personal items to the organization. Similarly, another witness, a Union Oaks director since 1994, testified that he had not been aware of Union Oaks' ownership of a motorcycle or cars and that he had not been involved in Union Oaks' real estate transactions. This director did not know the cash balance of Union Oaks or about any notes payable to Buddy and Linda. The director did testify, however, that he did not consider himself a puppet of Buddy. A third board member also testified that he did not consider himself to be a puppet of Buddy. He testified, however, that he was not involved in Union Oaks' real estate transactions, except for "[d]uring the board meetings," and was not aware of Union Oaks' ownership of cars, holdings of cash, or certificates of deposit. A former member of the board of directors testified that he resigned from the board when he was unable to get Buddy to resolve concerns over Union Oaks' business practices.

There was relatively little evidence presented regarding the religious ministry of Union Oaks. Buddy testified that he did missionary work as part of his trips to, among other destinations, Mexico, Costa Rica, Panama, Nicaragua, and Taiwan. Buddy also claimed to have conducted weddings and funerals, taught Bible studies, and started "several churches." No independent evidence was presented to corroborate Buddy's claims. When one of the members of Union Oaks' board of directors was asked about Union Oaks' religious activities, the only thing he could identify that Union Oaks had done for the community in the year prior to trial was to donate some money to the ministry of a local pastor. The same director later testified that in the past, Union Oaks had conducted Bible studies, used the former restaurant property for some religious purposes, held fundraisers for charity, and "been out promoting the word of God." No evidence was presented regarding any other religious activities conducted by Union Oaks.

Linda testified, generally, that she had no involvement in any personal or corporate financial transactions and that she just did what Buddy and Stevens told her to do. While she signed documents, she testified that she was not "in that loop" with regard to financial decisions, even when she served on the board. Linda testified that Buddy informed her only of financial decisions that he made himself and that Buddy expected her to be obedient.

Stevens testified that the Internal Revenue Service (IRS) had audited Buddy and Linda...