Rose v. Rose

• Citation: 382 Mont. 88,364 P.3d 1244
• Decision Date: 12 January 2016
• Docket Number: No. DA 15–0353.,DA 15–0353.
• Parties: In re the Marriage of: Sherri Elaine ROSE, Petitioner and Appellant, v. Michael Thomas ROSE, Respondent and Appellee.
• Court: United States State Supreme Court of Montana

382 Mont. 88
364 P.3d 1244

In re the Marriage of: Sherri Elaine ROSE, Petitioner and Appellant,
v.
Michael Thomas ROSE, Respondent and Appellee.

No. DA 15–0353.

Supreme Court of Montana.

Submitted on Briefs Dec. 9, 2015.
Decided Jan. 12, 2016.

364 P.3d 1245

For Appellant: Kevin T. Sweeney, Attorney at Law, Billings, Montana.

For Appellee: J. Reuss, Guthals, Hunnes, & Reuss, P.C., Billings, Montana.

Justice BETH BAKER delivered the Opinion of the Court.

¶ 1 Sherri Elaine Rose appeals the findings of fact, conclusions of law, and decree of dissolution of the Thirteenth Judicial District Court, Yellowstone County, dissolving her marriage to Michael Thomas Rose. We restate the issue on appeal as follows:

Whether the District Court erred in allocating delinquent tax liability equally between the parties after taxing authorities had determined that Sherri was an "innocent spouse" for purposes of joint tax liability.

¶ 2 We affirm.

PROCEDURAL AND FACTUAL BACKGROUND

¶ 3 Sherri and Michael married in 1994 and have three children. They resided together in Billings, Montana, for the majority of their marriage before separating in late 2012. Sherri filed a petition for dissolution in March 2013 and, on April 24, 2014, the District Court held a bench trial.

¶ 4 During their marriage, Michael worked in medical equipment sales and Sherri was primarily a homemaker. Following their separation, Michael moved to Florida to take a job as a surgical supplies sales representative trainer. Sherri returned to work as a cosmetologist, a profession she had held prior to the marriage.

¶ 5 In 2005, Sherri and Michael bought a house at 2407 Teton Avenue, Billings. Sherri and Michael bought the Teton property as an investment; they planned to improve the house and "flip" it. Over the course of several years, they invested approximately one hundred thousand dollars into improving the Teton property. They were unable to sell it due to the downturn in the housing market following the 2008 financial crisis. Sherri and Michael also owned a recreational cabin in Red Lodge.

¶ 6 In 2006, Sherri and Michael began to accrue both federal and state income tax liability. By 2012, they had accumulated over $70,000 in delinquent tax liability to the Internal Revenue Service (IRS) and $20,000 in delinquent tax liability to the Montana Department of Revenue (Department). As a consequence, state and federal taxing authorities placed tax liens on both of the Roses' real properties.

¶ 7 At the dissolution proceeding, Michael testified that their tax liability accrued because he and Sherri decided to apply the income intended to pay their taxes to improving the Teton property. Their plan, he testified, was to pay the tax liability once the Teton property was sold. He further testified that income that should have been put toward the tax liability also was spent on "vacations and what have you." Michael proposed during the dissolution proceeding that the tax liability be considered marital debt and that both the Teton property and the Red Lodge property be sold to pay off the tax liability.

¶ 8 Sherri testified that she was aware that the tax liability was incurred during the marriage and acknowledged that she and the family benefitted from the income that created the tax liability. Prior to the dissolution proceeding, however, she sought and obtained a determination from both the IRS and the Department that she was an "innocent spouse." The IRS and the Department therefore concluded that Sherri was not liable to the agencies for any of the delinquent

364 P.3d 1246

tax liability. As a result of the innocent spouse relief, Sherri testified that she received refunds from the IRS and the Department totaling nearly $11,000. Sherri proposed during the dissolution proceeding that the tax liability not be considered marital debt due to her status as an "innocent spouse" and that she be awarded the Teton property.

¶ 9 At the conclusion of the proceeding, the District Court orally pronounced that it intended to order that both the Teton property and the Red Lodge property be sold, in part, to pay the tax liability:

It's my conclusion that the only reason the tax liability occurred is because [Sherri and Michael] put the money into either living expenses or into the Teton Avenue home and it's—even though it's—the IRS decided that they weren't going to go after Ms. Rose, I think it is a marital debt and should be paid for out of the proceeds.

In its written findings of fact, conclusions of law, and decree of dissolution, the court ordered that the Teton and Red Lodge properties be sold and that the proceeds be put towards paying off the tax liability. The court found, "Although the IRS has decided that were [sic] weren't going to pursue the tax liability against Sherri, the Court finds that the tax liabilities are joint marital obligations because the parties put the money into living expenses or the Teton Avenue home." Sherri appeals the court's finding and conclusion regarding the tax liability.

STANDARD OF REVIEW

¶ 10 We review a district court's findings of fact pertaining to marital property division to determine if they are clearly erroneous. In re Marriage of Crowley, 2014 MT 42, ¶ 24, 374 Mont. 48, 318 P.3d 1031. A finding is clearly erroneous if it is not supported by substantial evidence, if the court misapprehended the effect of the evidence, or if our review of the record convinces us that a mistake has been made. Crowley, ¶ 24. We review a district court's conclusions of law to determine if they are correct. In re Marriage of Bartsch, 2007 MT 136, ¶ 9, 337 Mont. 386, 162 P.3d 72 (hereafter Bartsch II ). Absent clearly erroneous findings, we will affirm a district court's property division unless we identify an abuse of discretion. Bartsch II, ¶ 9.

DISCUSSION

¶ 11 Whether the District Court erred in allocating delinquent tax liability equally between the parties after taxing authorities had determined that Sherri was an "innocent spouse" for purposes of joint tax liability.

¶ 12 On appeal, Sherri contends that because the District Court did not adequately consider the IRS's and the Department's innocent spouse determinations, it erred in apportioning the delinquent tax liability equally between the parties. She asserts that the District Court "wholly misunderstood or misapplied" the administrative rulings that she was an "innocent spouse" and not responsible for the tax liability. She argues that in order to obtain innocent spouse status, she had to prove that she did not know and had no reason to know of the non-payment and that it would be inequitable to hold her liable for the debt. Sherri maintains that, because she could not have been found to be an "innocent spouse" unless she did not receive a material benefit from the understatement of tax, the District Court improperly disregarded the taxing authorities' rulings in reaching a contrary finding.

¶ 13 In response, Michael argues that the administrative rulings have no preclusive effect in the dissolution proceeding and that the District Court did not err in concluding that the tax liability should be treated as marital debt based on substantial evidence that the parties put the money into joint living expenses or into the Teton property.

¶ 14 Sherri's reply, on one hand, appears to acknowledge that the administrative determinations do not have preclusive effect. On the other hand, she maintains that she could not have been granted innocent spouse status unless she did not materially benefit from the untaxed income. Michael, she points out, did not appeal from the administrative determinations. For the District Court to reach a contrary conclusion, it would have to point to specific evidence in

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