Motes v. Motes

• Decision Date: 16 November 1989
• Docket Number: No. 880015-CA,880015-CA
• Citation: 786 P.2d 232
• Parties: Barbara J. MOTES, Plaintiff, Appellant, and Cross-Respondent, v. Preston J. MOTES, Defendant, Respondent, and Cross-Appellant.
• Court: Utah Court of Appeals

Page 232

786 P.2d 232

Barbara J. MOTES, Plaintiff, Appellant, and Cross-Respondent, v. Preston J. MOTES, Defendant, Respondent, and Cross-Appellant.

No. 880015-CA.

Court of Appeals of Utah.

Nov. 16, 1989.

Rehearing Denied Jan. 29, 1990.

Kent M. Kasting (argued), Salt Lake City, for plaintiff, appellant, and cross-respondent.

David S. Dolowitz (argued), Julie A. Bryan, Cohne, Rappaport & Segal, Salt Lake City, for defendant, respondent, and cross-appellant.

Before BILLINGS, GREENWOOD and ORME, JJ.

OPINION

ORME, Judge:

Plaintiff Barbara Motes appeals from the the trial court's entry of a divorce decree, claiming the court erred in postponing the apportionment of defendant Preston Motes's military retirement fund. Plaintiff also challenges the court's power to order her to execute the forms necessary for defendant to claim the federal tax dependency exemption for one of their children whose custody was awarded to plaintiff. This issue is the primary focus of our opinion. Defendant's cross-appeal concerns the profits generated during the marriage through his investment and management of plaintiff's inheritance. We reverse in part, affirm in part, and remand for further proceedings.

FACTS

Plaintiff and defendant were married in 1967. At that time, defendant was three years into his career as a military officer and plaintiff was a nurse. During the marriage, defendant obtained a Masters of Business Administration degree from the University of Utah, and plaintiff secured a Bachelor of Science degree in nursing. At the time this action was filed, defendant had retired from the military and was working as a financial planner, and plaintiff was working as a nursing supervisor and attempting to obtain her Master's degree in nursing. Defendant claimed he suffered a net loss each month from his financial planning work. Plaintiff earned a monthly net income of approximately $1700.

At trial, the parties stipulated to the division of a large part of the marital property, leaving disputes primarily as to the division of defendant's military retirement benefits, which were generating payments of approximately $1500 per month; plaintiff's retirement fund, which held approximately $5100; and plaintiff's substantial inheritance and the additional funds generated through investment and growth of the inheritance proceeds.

Following trial, at which plaintiff represented herself, plaintiff was awarded custody of the children. The court awarded defendant the right to receive the full amount of his military retirement during the period in which he was to pay child support. The court reasoned that, absent this income, defendant would be unable to meet his child support obligations, which the court had set based on defendant receiving the full amount of his monthly retirement benefits. The court determined that the final disposition of both parties' retirement accounts would be settled when defendant's child support obligations ceased, some five years hence. Plaintiff was awarded the full amount of her inheritance and the full amount of the investment income derived therefrom, and defendant was awarded the federal tax dependency exemption for one of the children.

On appeal, plaintiff argues that the court erred in awarding defendant the full amount of his monthly military retirement benefits, even though for the well-intentioned purpose of enabling defendant to satisfy his child support obligations. Plaintiff also contends the court exceeded its authority in ordering her to execute the documents necessary for defendant to claim the dependency exemption for one of the children on his federal tax return. Defendant cross-appeals, seeking a portion of those funds he claims to have generated by prudently investing plaintiff's inheritance. ¹

I. RETIREMENT INCOME AND INVESTMENT PROCEEDS FROM INHERITANCE

The interest in a retirement plan accrued during marriage is considered a marital asset subject to equitable distribution upon divorce. See, e.g., Gardner v. Gardner, 748 P.2d 1076, 1078-79 (Utah 1988); Woodward v. Woodward, 656 P.2d 431, 432 (Utah 1982); Dogu v. Dogu, 652 P.2d 1308, 1310 (Utah 1982); Greene v. Greene, 751 P.2d 827, 830-31 (Utah Ct.App.1988); Maxwell v. Maxwell, 754 P.2d 84, 86 (Utah Ct.App.1988); Bailey v. Bailey, 745 P.2d 830, 831 (Utah Ct.App.1987); Marchant v. Marchant, 743 P.2d 199, 204-05 (Utah Ct.App.1987). The best method for distributing or allocating retirement benefits or their value depends on the particular circumstances, see Gardner, 748 P.2d at 1079, but where possible the purpose to advance is that of "end[ing] marriage and allow[ing] the parties to make as much of a clean break from each other as is reasonably possible." Id. Obviously, postponing even a decision on ultimate distribution of both retirement plans for some five years is inimical to that goal. But see Rayburn v. Rayburn, 738 P.2d 238, 241-42 (Utah Ct.App.1987) (cash-out of one spouse's interest in retirement fund over five-year period was acceptable where total value of retirement was substantial and installment cash-out approach was only alternative to longer entanglement). ² Thus, as between decreeing a more immediate adjustment or simply deferring the other spouse's participation until payments are eventually received, our Supreme Court has stated that the latter "alternative should be employed only in rare instances." Gardner, 748 P.2d at 1079. Such instances include cases "where other assets for equitable distribution are inadequate or lacking altogether, or where no present value can be established...." Id. (quoting Kikkert v. Kikkert, 177 N.J.Super. 471, 478, 427 A.2d 76, 79-80 (1981)).

However, unlike all but one of the cases cited in the preceding paragraph, the instant case does not involve the difficult questions presented by retirement programs held by those still working, which will--or may--only eventually result in income. In the instant case, like in Greene, one spouse had already retired and his retirement benefits had ripened into monthly payments, see 751 P.2d at 828, the present value of which could be readily ascertained. Treatment of such benefits is less problematic than in the usual case. The present value of plaintiff's share of the now-fixed stream of income, which the benefits have become, can be readily calculated and compensated for with distribution of other assets having an equivalent value or cashed out over a comparatively short time. That failing, provision can simply be made for plaintiff to receive her share monthly, the approach taken in Greene. See 751 P.2d at 827.

Instead, the trial court in this case postponed the distribution of defendant's retirement benefits for the purpose of funding higher child support payments to plaintiff than would otherwise have been appropriate. But the net effect of such an approach is to fund defendant's support obligations through what amounts to an appropriation of plaintiff's property. It is no answer that the appropriation may be rescinded or ameliorated in five years. The retirement plans of both parties should have been treated as marital assets and definitively dealt with in the decree as part of an equitable property distribution between the parties. Accordingly, we reverse the court's treatment of both parties' retirement funds and remand for distribution in accordance with the foregoing.

The collateral effect of our reversing the trial court's handling of the parties' retirement plans is that we must also remand for reconsideration the child support award and the disposition of proceeds generated through the investment of plaintiff's inheritance. From all that appears, the court's disposition of these items was inextricably linked with its decision to deprive plaintiff of participation in defendant's retirement fund for at least five years. ³

II. FEDERAL TAX DEPENDENCY EXEMPTION

The most significant question this case presents is whether a divorce court has the authority to award a tax exemption to the noncustodial parent by ordering the custodial parent to execute the necessary federal tax form. Two prior decisions of this court, Fullmer v. Fullmer, 761 P.2d 942 (Utah Ct.App.1988), and Martinez v. Martinez, 754 P.2d 69 (Utah Ct.App.), cert. granted, 765 P.2d 1277 (Utah 1988), dealt generally with the question of dependent tax exemptions in the divorce context. However, neither involved an actual order that the forms be executed. See Fullmer, 761 P.2d at 949-50; Martinez, 754 P.2d at 72. Thus, the precise issue is presented to us for the first time in this case.

A. SECTION 152

Prior to the 1985 tax year, section 152 of the Internal Revenue Code provided that a noncustodial parent was entitled to claim a dependency exemption in any tax year where that parent paid more than $1200 toward the child's support, and the custodial parent "did not clearly establish that [the custodial parent] provided more support of such child ... than the parent not having custody." This rule apparently created recurring headaches for the Internal Revenue Service. The usual scenario began with a noncustodial parent who had paid more than $1200 toward the child's support, thus meeting the minimal threshold requirement under section 152. However, the parents were often in disagreement as to which of them had actually paid the majority of the child's support. It was apparently not uncommon for the dispute to be "resolved" by both parents claiming an exemption for the child on their respective tax returns. When this "double-dipping" was detected, the IRS was forced to audit both parents' returns and otherwise investigate to determine which one actually had paid the majority of the child's support and was therefore entitled to the dependency exemption. If nothing else, the situation amounted in an inefficient expenditure of effort by the IRS.

In 1984, Congress accordingly amended section 152 to provide that the custodial parent is automatically entitled to the available...