S.M.S. v. J.B.S.

• Decision Date: 30 July 2019
• Docket Number: No. ED 105760,ED 105760
• Citation: 588 S.W.3d 473
• Parties: S.M.S., Respondent/Cross-Appellant, v. J.B.S., Appellant/Cross-Respondent.
• Court: Missouri Court of Appeals

588 S.W.3d 473

S.M.S., Respondent/Cross-Appellant,

v.J.B.S., Appellant/Cross-Respondent.

No. ED 105760

Missouri Court of Appeals, Eastern District, DIVISION ONE.

Filed: July 30, 2019

Motion for Rehearing and/or Transfer to Supreme Court Denied September 16, 2019

FOR APPELLANT, William Ray Price, Jr., Jeffery T. McPherson, Paul L. Brusati, 7700 Forsyth Blvd., Ste. 1800, St. Louis, MO 63105, Michelle S. House-Connaghan, 8000 Maryland Avenue, Ste. 400, Clayton, MO 63105.

FOR RESPONDENT, James D. Ribaudo, 701 Market Street, Ste. 200, St. Louis, MO 63101.

ROBERT M. CLAYTON III, Judge

J.B.S. ("Husband") appeals portions of the trial court’s May 30, 2017 amended dissolution judgment pertaining to the classification of certain stock, retained earnings, and funds in a bank account as marital property. S.M.S. ("Wife") cross-appeals portions of the trial court’s May 30, 2017 amended dissolution judgment pertaining to, (1) the classification of an ownership interest in an LLC and certain stock as Husband’s separate property; and (2) the valuations of stock. We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.¹

I. BACKGROUND

A. Relevant Evidence Adduced at Trial and Disputed Issues on Appeal and Cross-Appeal

Wife filed her petition for dissolution of marriage on July 30, 2013. Husband answered and filed a cross-petition for dissolution on August 16, 2013. Husband then filed his amended cross-petition for dissolution of marriage on July 24, 2015. An eleven-day bench trial was held between December 7, 2015 and March 30, 2016, revealing the following facts.

Husband and Wife were married on September 18, 1993. Two children were born of the marriage and remained unemancipated at the time of trial.²

The parties enjoyed substantial financial resources throughout the marriage. In addition, there were multiple bank accounts opened during the marriage, including Business Bank Account x7520. Except for evidence related to a disputed issue in Husband’s appeal pertaining to the trial court’s classification of Business Bank Account x7520 as marital property that is discussed in detail below in Section III.C. of this opinion, the relevant evidence adduced at trial and disputed issues on appeal and cross-appeal all relate to Husband’s involvement in and/or ownership of three family businesses during the marriage: Provider Plus, Inc. ("PPI"), Specialized Insurance Assistance ("SIA"), and Phoenix Wing, LLC ("Phoenix Wing").³

1. PPI and SIA

a. PPI

PPI is a closely-held and Subchapter S corporation originally founded by Husband’s mother K.M.S. ("K.M.S." or "Mother") in the early 1990’s. PPI is a provider of medical equipment and supplies and has approximately 200 employees. Husband’s Mother, who passed away on November 1, 2012, was the sole shareholder of PPI through 2004.

During the parties' marriage and Husband’s Mother’s lifetime, Husband acquired a total of 235 shares of PPI stock and was employed by PPI. Husband first began working at PPI in the early 1990’s, and he worked full-time at PPI throughout the course of the parties' marriage. After Mother’s death on November 1, 2012, Husband became more involved in PPI, and his ownership of the company increased.

i. The 235 shares of PPI stock Husband received during his Mother’s lifetime

At the time of the trial, the 235 shares of PPI stock Husband acquired during the parties' marriage and Husband’s Mother’s lifetime represented a 23.5% ownership interest in PPI. At trial, both parties presented conflicting evidence as to the valuation of all outstanding shares of PPI stock and a valuation as to the 235 shares of PPI stock Husband acquired during the marriage. The trial court ultimately adopted Husband’s expert’s valuations of PPI stock, and whether the trial court erred in doing so is a disputed issue in Wife’s cross-appeal.

Husband acquired 100 of the 235 shares of PPI stock directly from his Mother, specifically receiving: (1) 15 shares of voting common stock from his Mother on January 31, 2005; (2) 50 shares of non-voting common stock from his Mother on December 31, 2006; and (3) 35 shares of voting common stock from his Mother on August 1, 2012. Husband later transferred the previously-mentioned shares to his living trust dated February 20, 2008.

At trial, Husband claimed the 100 shares of PPI stock he received from his Mother were acquired by gift. Husband testified he provided no services, money, or property in exchange for the shares, and he took absolute ownership of the shares when they were transferred to him. In the instant case, it is undisputed that the trial court properly classified the 15 shares of voting common stock Husband received from his Mother on January 31, 2005 and the 50 shares of non-voting common stock Husband received from his Mother on December 31, 2006 as Husband’s separate property because those shares were acquired by gift. However, one issue raised in Wife’s cross-appeal is whether the trial court erred in classifying the 35 shares of voting common stock Husband received from his Mother on August 1, 2012 as Husband’s separate property on the basis the shares were acquired by gift.

The remaining 135 shares of PPI stock Husband acquired during the parties' marriage and Husband’s Mother’s lifetime were received by Husband on December 15, 2006, as a result of PPI issuing a document on that date titled "Unanimous Written Consent of the Sole Director [K.M.S.] of [PPI] in Lieu of a Special Meeting" ("PPI Consent"). The PPI Consent provides in pertinent part:

... a dividend in the form of shares of [PPI’s] non-voting common stock should be declared on the issued and outstanding shares of [PPI’s] common stock.

... [PPI] shall issue to the shareholders Nine (9) shares of its non-voting common stock, no par value, for each one (1) share of voting common stock, $1 par value ....

Before the PPI Consent was issued, Husband owned the 15 shares of voting common stock in PPI that he undisputedly acquired as a result of a gift from his Mother on January 31, 2005. After the PPI Consent was issued, Husband was the owner of 15 shares of voting common stock and 135 shares of non-voting common stock. Wife’s expert, Frank Wisehart, testified the PPI Consent had the effect of "recapitalizing the shares" in PPI and resulted in Husband owning a total of 150 shares, which did not change Husband’s percentage of ownership in PPI. One issue raised in Husband’s appeal is whether the trial court properly classified the 135 shares as marital property on the basis the shares were acquired as a result of a stock dividend.

ii. Husband’s involvement in and ownership of PPI following his Mother’s death

Following Husband’s Mother’s death, Husband remained employed by PPI and he became the President, Secretary, and a member of the Board of Directors of PPI. In addition, Husband’s trust became the owner of 50% of PPI stock, and Husband’s brother’s ("Brother") trust became the owner of the other 50% of PPI stock. Husband is the trustee of his trust and his Brother’s trust.

Husband receives a salary and shareholder income from PPI. PPI did not distribute all of Husband’s shareholder income for several years, including from 2013-2015 (the timeframe between when Wife filed her petition for dissolution of marriage and when the bench trial began, i.e., the pendency of the dissolution proceedings). As a result, PPI had a significant amount of retained earnings during those years. The testimony of Wayne Bircher, the certified public accountant ("CPA") for PPI, demonstrates that Husband, in his role as President of PPI, had the sole authority to order the company’s retained earnings to be distributed to the shareholders of PPI during the pendency of the dissolution proceedings.

b. SIA

SIA is also a closely-held corporation originally founded by Husband’s Mother in the early 1990’s. SIA is a medical claims billing company that has one customer (PPI) and zero employees. Because PPI is SIA’s only customer, all of SIA’s revenue comes from PPI.

During Mother’s lifetime, 100% of SIA stock was owned by Mother or her trust. After Husband’s Mother’s death, her trust created a trust for Husband and a trust for Husband’s Brother, and subsequently, Husband’s trust and his Brother’s trust each owned 50% of the shares of SIA. Husband is the trustee of his trust and his Brother’s trust.

Following his Mother’s death, Husband became the President, Secretary, and a member of the Board of Directors of SIA. Although Husband does not receive a salary from SIA, he does receive shareholder income from the company. SIA did not distribute all of Husband’s shareholder income for several years, including during the pendency of the dissolution proceedings (from 2013-2015). Accordingly, SIA had a significant amount of retained earnings during those years. The testimony of Wayne Bircher, the CPA for SIA, demonstrates that Husband, in his role as President of SIA, had the sole authority to order the company’s retained earnings to be distributed to the shareholders of SIA during the pendency of the dissolution proceedings.

c. Relevant Parts of the Trial Court’s Amended Dissolution Judgment Relating to Portions of Retained Earnings of PPI and SIA

In determining Husband’s annual income for purposes of his monthly child support and maintenance obligations, the trial court considered, inter alia , portions of retained earnings from both PPI and SIA. The trial court ultimately found Husband’s annual income was $1,509,120, i.e., $125,760 per month. In the instant case, neither party challenges the trial court’s determination of Husband’s annual income, the court’s consideration of portions of Husband’s retained earnings from PPI and SIA in determining his annual income, or the court’s orders relating to child support and maintenance.

The trial court also considered portions of retained earnings of PPI and SIA in connection with the division of property, finding portions of retained earnings from both companies during the...