Schuman v. Schuman

• Decision Date: 14 March 2003
• Docket Number: No. S-01-904.,S-01-904.
• Citation: 265 Neb. 459,658 N.W.2d 30
• Parties: Natalie K. SCHUMAN, Appellant and Cross-Appellee, v. Bradley W. SCHUMAN, Appellee and Cross-Appellant.
• Court: Nebraska Supreme Court

658 N.W.2d 30

265 Neb. 459

Natalie K. SCHUMAN, Appellant and Cross-Appellee, v. Bradley W. SCHUMAN, Appellee and Cross-Appellant.

No. S-01-904.

Supreme Court of Nebraska.

March 14, 2003.

Abbie J. Widger, Lincoln, and Stefanie J. Flodman, of Johnson, Flodman, Guenzel & Widger, for appellant.

Karin O'Connell, Lincoln, for appellee.

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

WRIGHT, J.

NATURE OF CASE

Natalie K. Schuman appeals from a decree entered by the district court for Lancaster County which dissolved her marriage to Bradley W. Schuman and divided the marital estate. Bradley cross-appeals. Both parties assert that the court erred in its valuation and division of the marital estate.

SCOPE OF REVIEW

The division of property is a matter entrusted to the discretion of the trial judge, which will be reviewed de novo on the record and will be affirmed in the absence of an abuse of discretion. Pawlusiak v. Pawlusiak, 264 Neb. 1, 645 N.W.2d 773 (2002).

In a review de novo on the record of an action for dissolution of marriage, an appellate court reappraises the evidence as presented by the record and reaches its own independent conclusions with respect to the matters at issue. See Bauerle v. Bauerle, 263 Neb. 881, 644 N.W.2d 128 (2002).

FACTS

Bradley and Natalie were married on September 14, 1984. Four children were born during the marriage, all of whom were minors at the time of the dissolution proceedings. During the marriage, Natalie home-schooled the children and was not employed outside the home. Since 1982, Bradley has owned Hruska-Schuman Company, Inc. (Hruska-Schuman), a business which sells and installs gutters, wood-burning stoves, and fireplace parts and accessories.

Natalie filed a petition for dissolution of the marriage, and the parties entered into a partial property settlement agreement. Custody of the children was to be awarded to Natalie subject to rights of "parenting time" for Bradley. The parties agreed to the valuation and division of various items of property. The present value of Hruska-Schuman and the real estate upon which it is located and the premarital value of the business were decided by the district court. The court also awarded Natalie possession of 30.57 acres of property in Saunders County.

Bradley purchased Hruska-Schuman for $150,000 on March 31, 1982. He made a $35,000 downpayment on the business with personal funds and a loan from his parents. He financed the balance of the purchase price with a small business loan. In 1994, Hruska-Schuman suffered a fire and was the victim of an embezzlement, which left the business with little to no value. Bradley built Hruska-Schuman back to its present value, and at the time of the dissolution proceedings, he managed the business and installed gutters and fireplaces.

The building in which the business is located has a total area of 6,800 square feet, including 1,020 for an office and reception area and 5,780 for a service and warehouse area. Wayne Kubert, Natalie's real estate appraiser, considered the building as containing retail space and a showroom. Kubert used three approaches in his appraisal: the cost approach, the income approach, and the sales comparison approach. Using these three approaches, Kubert valued the real estate at $225,000.

Gary Hassebrook, Bradley's real estate appraiser, used the same three basic approaches. However, Hassebrook evaluated the property as being used primarily as a warehouse rather than for retail. Hassebrook concluded that valuing the property as retail space would overstate the value. He valued the property at $160,000.

James Watts, a certified public accountant, testified to the value of Hruska-Schuman. Watts reviewed the corporate income tax returns, the workpapers of the accountant who prepared the returns, the accountant's analysis and income tax considerations, and the personal income tax returns of the parties. He utilized a historical analysis of the trends of Hruska-Schuman's income for the past 3 years, reviewed the real estate appraisal, examined the income tax returns, and determined the normalized earnings. In his valuation, Watts used the excess earnings method of valuation. Relying in part on the real estate appraisal of Kubert, Watts valued Hruska-Schuman at $308,000. He did not consider the income tax consequences of a future sale of Hruska-Schuman.

Bradley's accountant, Dennis Stara, used Watts' valuation to calculate the estimated income taxes that would result from a future sale of Hruska-Schuman. Relying in part on Kubert's real estate appraisal, Stara concluded that Hruska-Schuman had a value of $161,872 after taxes. Relying in part on Hassebrook's real estate appraisal, Stara concluded that the business had a value of $135,024 after taxes.

The district court determined the value of Hruska-Schuman to be $135,000. In determining the value of the business, the court assumed a future sale and the tax consequences of such sale. The court further reduced the value of the business by $35,000 to account for the funds Bradley put into the business prior to the marriage.

In 1994, the parties purchased 30.57 acres of land in Saunders County for $60,000. The acreage was held in joint tenancy by the parties. At trial, Natalie testified that she wanted the acreage so she and the children could eventually live there. Both parties testified that they spent time at the acreage with the children. Natalie said she raised bees and harvested hay on the property. Bradley stated that he spent time at the acreage fishing with the children. Bradley said he had made various improvements, including installing a gate, repairing a fence, removing stones, filling badger holes, and helping the children build a treehouse. The district court found that the acreage was part of the marital estate and awarded the acreage to Natalie. In order to equalize the division of marital assets and debts, the court ordered Natalie to pay Bradley $11,399.50.

ASSIGNMENTS OF ERROR

Natalie assigns, restated, that the district court erred in (1) considering the tax consequences of the sale of Hruska-Schuman, (2) reducing the value of the marital estate for taxes that may have to be paid at some date in the future, (3) not considering a certain loan due and owing to Bradley, (4) finding the value of Hruska-Schuman should be reduced by $35,000 as the amount Bradley contributed to the business prior to the marriage, (5) determining the real estate on which Hruska-Schuman is located has a value of $160,000, (6) finding the marital value of Hruska-Schuman to be $100,000, and (7) ordering Natalie to pay Bradley $11,399.50.

On cross-appeal, Bradley assigns, restated, that the district court erred in (1) failing to award the real property in Saunders County to him and (2) failing to set off $53,000 as separate property which Bradley paid to purchase the acreage and which was an inheritance from his mother.

ANALYSIS

We first consider (1) whether the district court erred in considering the tax consequences of the sale of the business, thereby reducing the value of the business by the amount of taxes that might have to be paid at some date in the future, and (2) whether the court erred in determining the value of the loan which it assigned as an asset to Bradley.

As a part of our analysis, we have concluded that the district court used the values contained in the "Joint Property Statement" which was marked and received as exhibit 7. Based on our review of exhibit 7, the partial property settlement agreement, and the decree of dissolution, we determine that the district court awarded and valued the property as follows:

PROPERTY NATALIE BRADLEY Duplex $123,500 Hruska-Schuman $100,442 Personal property 2,000 2,000 1995 Suburban 14,500 Horse, donkey, and 500 related items 1997 Charger boat 14,000 30.57 acres 60,000 Hruska-Schuman loan 7,259 Mortgage on duplex (54,000) _________ ________ TOTALS $146,500 $123,701

The court found that the difference in value of the property was $22,799. It divided this amount in half and ordered Natalie to pay $11,399.50 to Bradley in three equal annual installments.

Natalie claims that the district court erred by considering the tax consequences of the sale of Hruska-Schuman. She argues that it was inappropriate to consider such tax consequences when Bradley did not intend to sell the business, the court did not order the sale of the business, and the record did not indicate that the sale of the business would occur within a short period of time. She claims that any tax consequences from such sale are speculative and not reasonably predictable.

The district court found that the tax consequences of a future sale of the business should be taken into account when determining its present value. The court reasoned it would not be equitable to allow Natalie to derive only the benefits of the growth of the business and not assume her share of the risks involved in the growth of the business throughout the marriage.

The district court relied on Buche v. Buche, 228 Neb. 624, 423 N.W.2d 488 (1988), to support its decision to reduce the marital estate for taxes that would eventually have to be paid as a result of the sale of the business. Buche involved the valuation of an IRA in the division of marital property. We concluded that income tax would eventually have to be paid on the IRA and that, therefore, it was proper to consider the future tax consequences in determining the present value of the IRA.

Natalie argues that Buche is distinguishable because we also determined it was improper to consider a penalty which would have had to be paid if the respondent withdrew the IRA. We concluded that since the IRA was not going to be withdrawn, the penalty was to be disregarded. However, since it was certain that income tax would eventually have to be paid on the IRA, we considered the future tax consequences in our valuation. Natalie...