Nace v. Nace

• Decision Date: 30 October 1967
• Docket Number: CA-CIV,No. 1,1
• Citation: 6 Ariz.App. 348,432 P.2d 896
• Parties: Marion E. NACE, Appellant, v. Harry L. NACE, Jr., Appellee. 449.
• Court: Arizona Court of Appeals

Page 896

432 P.2d 896

6 Ariz.App. 348

Marion E. NACE, Appellant, v. Harry L. NACE, Jr., Appellee.

No. 1 CA-CIV 449.

Court of Appeals of Arizona.

Oct. 30, 1967.

Rehearing Denied Dec. 19, 1967.

Review Granted Jan. 30, 1968.

Lewis Roca Beauchamp & Linton, by John J. Flynn, Robert A. Jensen, Roger W. Kaufman, Phoenix, for appellant.

Cavness, DeRose, Senner & Foster, by Jack C. Cavness and John W. Rood, Phoenix, for appellee.

MOLLOY, Judge.

This appeal and cross appeal question the property division made by the trial court in a divorce action. The questions presented are mixed ones of fact and law and pertain to business properties which the husband owned as separate property at the time of the marriage but which were operated by him during the marriage so that the properties increased considerably in value. The husband questions the holding of the trial court that the increase in value is community property and the wife complains that she was not given a proper share of this community property.

The parties were married on June 1, 1956. For some twenty years prior to that, the husband had been involved in the management of a chain of moving-picture theaters known as the 'Nace Circuit,' a business founded by his father. At the time of his father's death in 1953, the husband owned a substantial interest in the corporations and partnerships which controlled this circuit, and in 1958, during the marriage, the father's interest in this circuit was distributed from probate to the husband. In addition to the theater chain, there were two 'investment corporations' as to which the husband thus came into ownership, in addition to certain business and residential realty. There are findings of fact by the trial court that six months prior to this marriage the defendant had a personal net worth of $407,207, that he acquired from his father's estate property of a total value of $1,135,959, that out of this separate estate he made a gift to the community of a family residence of a value of $111,950.06, and that on December 31, 1962, the husband's 'net worth' was $2,703,834. ¹

The trial court found that the value of the defendant's separate property had increased in value '* * * partly due to the continued exercise of defendant's (husband's) unusual experience, business judgment and management, and party due to the inherent nature of the business or property itself.' The court further found that it was unable '* * * to determine what portion of this increase is attributable to the defendant's individual work and what portion is attributable to capital appreciation, and therefore the Court finds that all of said increase is the community property of the parties hereto.'

The court ordered the husband to pay permanent alimony to the wife of $1,500 per month, gave her the family residence, required the husband to pay the realty taxes on this home so long as it should be retained by her, awarded an appropriate amount for the support of the minor child of the parties, whose custody was awarded to the wife, granted the wife a divorce, and ordered the defendant to pay to her the sum of $60,000, payable in six annual installments of $10,000 each. All of the remaining community property of the parties was awarded to the husband.

The wife appeals from the judgment, contending that instead of an alimony award, the wife should have been given approximately one half of the community property. The husband cross appeals, contending that all of the accumulations of property were the separate estate of the husband, traceable to his estate at the time of marriage or the income from such estate.

The voluminous record in this action indicates that the husband's affairs were conducted largely through corporations and partnerships. During the nine years of the marriage, there were no less than forty such corporations and partnerships in which the husband had substantial interests. The theater circuit was operated by a 'management team' headed by the husband, under whom served a general manager, a district manager, a 'booker,' various bookkeepers and secretaries. In this office, at the time of trial, there were nineteen sets of bookkeeping records being maintained as to Nace corporations or partnerships. These corporations and partnerships were interrelated both in functioning and financing. In the system of control used by the husband, one corporation or partnership might operate the 'concessions' in a theater, the physical assets of which might be owned by a second corporation or partnership, with a third company actually operating the theater. There were numerous advances and loans between the various corporations and partnerships, and between the husband as an individual and the various corporations and partnerships. Properties were brought and sold between organizations at cost. Management fees were paid by corporations to a control corporation, these fees being determined in part by what the operated corporations were able to pay. In addition to the theater chain, the defendant controlled and managed two investment corporations. At various times during this marriage, he was involved as a partner or a joint venturer in cotton farming, oil drilling, subdividing of real property, and operating a trailer court. Additionally, as a sole proprietor, the husband had dealings in the purchase and sale of marketable securities and in the sale, trade and purchase of real property. Of the sixteen corporations most active at the time of the divorce trial, twelve had been formed prior to the marriage and four after. Those formed after, however, had a better record of growth in earnings. There was testimony that the twelve old corporations had incurred a total detriment in value of goodwill during the marriage of approximately half a million dollars and the corporations formed after had enjoyed a net increment in value of goodwill of approximately the same amount.

Some of the corporations paid to the defendant a 'salary' which averaged, during the years of the marriage, $48,500 annually. These salaries were paid, according to the husband, from the corporations that could afford to pay a salary, and the salaries had no relation to the value of his services. Likewise, he testified that the total salaries received from all of the corporations had 'no relation' to the value of his services. Two witnesses familar with the theater circuit operation testified that a competent manager could be hired for the Nace theater circuit for between $25,000 to $40,000 per year. However, neither of these witnesses demonstrated that they were aware of the extent and intricate nature of the operations conducted by the husband.

Some dividends were paid by the various corporations to the husband, but at the end of 1963, there were accumulated undistributed earnings in the corporations in excess of those which had been distributed. In the corporations formed prior to marriage, these undistributed earnings totaled $238,803, and in the corporations formed after marriage they totaled $222,085. Several of the Nace corporations which were making good profits paid neither salaries nor dividends to the husband, but accumulated their earnings for the purpose of future expansion.

Substantially all of the financial transactions occurring were represented by checks on various banks and all of the transactions had been entered upon the books for the various corporations and partnerships. In addition, the husband kept two sets of personal books. The one he called his 'regular' account and he contended that this represented all of his separate property transactions. The other set of books was set up shortly after his marriage in 1956, and was called the 'special' account. It was the husband's contention that these books represented all community property transactions. If this were so, there would be no community property acquired during the marriage through the husband's full-time efforts in behalf of his business interests. There is no showing that the wife had any knowledge that records were being kept of 'community' versus 'separate' transactions.

Into the 'special' account, the husband placed all of the 'salaries' taken from the various corporations and in addition he transferred during the marriage into the 'special' account from the 'regular' account approximately $23,000. In addition to the personal living expenses of the husband, wife and child, during the marriage, the husband paid out of the 'special' account alimony payments to his former wife of $800 per month. In addition, he made gifts, out of this special account, of mortgage payments for his former wife, income tax payments for his former wife, mortgage payments for his mother, support payments for his mother, and gifts and support payments for his two adult daughters, all of which, including the alimony, totaled something in excess of $125,000. In addition, the husband paid out of this account substantial sums of money for business and pleasure trips for himself, which were not reimbursed to the 'special' account. During the three calendar years of 1962--64 alone, there were approximately $34,000 so disbursed from the 'special' account.

Life insurance policies carried by the husband as to which either his former wife, his mother, or his children by his former marriage were the beneficiaries were paid out of the 'special' account, the premiums upon which totaled in excess of $3,000 per year. During the marriage, the husband received a commission on the sale of real estate, totaling $22,653, which was placed into the 'regular' (allegedly separate) account. All drawings taken by him from partnerships were placed in the 'regular' account. During the marriage, these totaled $101,076 through calendar year 1962. ²

The husband received promissory notes in part payment of 'salary' from two of the corporations during calendar years 1965--58 inclusive, and when these notes were paid subsequently the receipts were...