Standage v. Standage
| Decision Date | 11 June 1985 |
| Docket Number | CA-CIV,No. 1,1 |
| Citation | 711 P.2d 612,147 Ariz. 473 |
| Parties | In re the Marriage of Cheryl L. STANDAGE, Petitioner-Appellee, v. Keith F. STANDAGE, Respondent-Appellant. 7931. |
| Court | Arizona Court of Appeals |
This is an appeal from an amended decree of dissolution of marriage entered on May 30, 1984. We hold that the trial court erred only in its award of attorney fees, and reverse the decree solely on that issue.
On April 26, 1982, Cheryl Standage filed a petition for dissolution of marriage. The petitioner and her husband, Keith, the respondent, had six children, four of whom were living at home at the time.
The case went to trial in a bifurcated hearing. The property and support portions of the petition were heard in May 1983, and the custody issues went before the trial judge in September of that year. A decree of dissolution was filed on December 16, 1983, after which the husband filed a motion for new trial. Following argument on the motion, and certain additional post-trial issues, an amended decree of dissolution, with amended findings of fact, was filed on May 30, 1984. The husband timely appealed.
Eight separate issues are presented for our determination:
1) Did the court err in piercing the corporate veil of the Stansen Corporation?
2) Did the court err in awarding to appellee half of the "McKellips property," a major asset of the Stansen Corporation?
3) Was the trial court's award of attorney's fees and costs contrary to the Arizona statutory mandate (A.R.S. § 25-324)?
4) Was the trial court's award of spousal maintenance contrary to law?
5) Did the court err in its characterization of certain cash transfers to and from a business associate of the husband?
6) Was the court's finding that certain stock was the sole and separate property of the wife erroneous?
7) Did the court abuse its discretion in the award of child support?
8) Was the court biased against the respondent-husband?
We address the Stansen Corporation issues together, and then address the remaining questions in turn.
In the amended decree of dissolution, the trial court found that "it is necessary and appropriate for the court in law and equity to pierce the corporate veil of the Stanson Corporation in order to fully and completely protect the interests of Wife therein." The husband concedes that the trial court could properly evaluate the assets of the corporation; however, he contends that the court erred in taking the further step of disposing of these corporate assets without formal dissolution of the corporation. Specifically, he argues that the evidence did not support a finding that the corporation was the "alter ego" of the husband individually, and that justice did not require piercing the corporate veil in order to dispose of the assets. We disagree.
The Stansen Corporation was a real estate development company owned, at the time of the dissolution proceedings, by the husband and wife. Its assets consisted of proceeds received from earlier unrelated litigation, and certain rental property located at 2401 East McKellips Road in Phoenix.
The court also found an additional $95,000 to be an asset of the corporation. 1 In the amended decree, the court awarded one-half of the litigation receipts, plus $68,425 to the wife, and apparently also awarded the McKellips property jointly to each party. The $68,425 consisted of one-half of the $95,000 fund ($47,500), one-half of the proceeds remaining from a July 5, 1983, removal by the husband of a portion of the litigation assets ($12,125), $5,000 as an award to the wife of attorney's fees, and $3,800 to represent the wife's one-half interest in a California condominium.
A basic axiom of corporate law is that a corporation will be treated as a separate entity unless sufficient reason appears to disregard the corporate form e.g. Dietel v. Day, 16 Ariz.App. 206, 492 P.2d 455 (1972). As a separate entity, the personal assets of an individual stockholder may not normally be reached to satisfy corporate debts. Honeywell, Inc. v. Arnold Construction Co., Inc., 134 Ariz. 153, 654 P.2d 301 (App.1982). An obvious corollary to that proposition is that assets of a validly formed corporation should be distinct and protected from the debts of individual shareholders. However, where the corporation is shown to be the alter ego or business conduit of a person, and where observing the corporate form would work an injustice, a court may properly "pierce the corporate veil." Dietel, supra, 16 Ariz.App. at 208, 492 P.2d 455. This "alter ego" status exists where there is "such unity of interest and ownership that the separate personalities of the corporation and owners cease to exist." Dietel, supra, at 208, 492 P.2d 455. For purposes of appellate review, the decision of the trial court will be upheld if there is substantial evidence in support of the judgment. Chapman v. Field, 124 Ariz. 100, 602 P.2d 481 (1979).
In the present case, the trial court found that the husband was the member of the community responsible for management and operation of the corporation. The court further found that the husband had failed to file corporate income tax returns for 1977 through the time of trial, 2 that he had failed to file the proper Arizona Corporation Commission reports for several years, that he had failed to maintain appropriate books and records, that he had failed to observe corporate formalities, and that he had failed to advise the wife as an equal shareholder of the business decisions and affairs of the corporation.
In our opinion, the evidence sufficiently supported the findings of the trial court. Clearly, there was a unity of interest such that the corporation became the alter ego of the husband as an individual. Further, since the husband and wife were the sole shareholders of the corporation, and since the corporation's assets constituted a substantial portion of the community property, it is apparent that allowing no disbursement would work an injustice to the wife. The husband argued at trial that he should be awarded all assets of the corporation. Conceivably, the trial court could have awarded the husband all the corporate assets, and equalized the property division by awarding other community property to the wife. However, a trial court is accorded great discretion in the apportionment of community assets. Neal v. Neal, 116 Ariz. 590, 570 P.2d 758 (1977). Where, as in this case, the evidence indicates that the wife was not a party to the business decisions, and that the husband was either uncertain or evasive regarding the valuation of the corporate assets, it does not appear to be abuse of discretion to split the assets of the corporation.
Although it is a question of first impression in Arizona, it is not unusual for a domestic relations court to pierce the corporate veil in a dissolution proceeding. See, e.g., Vallone v. Vallone, 644 S.W.2d 455 (Tex.1982) (); State ex rel. Grabhorn v. Grabhorn, 28 Or.App. 357, 559 P.2d 923 (1977) (); Lyons v. Lyons, 340 So.2d 450 (Ala.Civ.App.1976) (). Granted, the present case is distinguishable from other decisions in that the corporation was, for all intents and purposes, dissolved by the decree. Potentially, such an action could prevent creditors of the corporation from being paid. We note here, however, that the husband testified that the Internal Revenue Service was the only creditor of the corporation. We further observe that the trial court made specific provisions for corporate liabilities; regarding not only tax deficiencies, maintenance costs, and expenses that may arise regarding the McKellips property, but any unknown liabilities that might arise.
The possibility of defrauding creditors of the corporation should disincline a trial court to award corporate assets to individual parties in a dissolution proceeding. However, where the evidence indicates that all creditors are provided for, and that an injustice will otherwise result, the action is not erroneous. We therefore affirm the conclusion of the trial court in this regard.
As indicated above, the court awarded $5,000 of the corporate assets to the wife for attorney's fees and costs. The court found:
[A]lthough Wife has sufficient property to be able to pay her own attorney's fees and costs, the Husband has specifically prolonged this proceeding and greatly increased its legal cost as a result of the evasive, unresponsive and obstructive manner in which he has conducted himself in testimony at depositions and at trial. The Respondent's testimony at times exceeded evasion and amounted in this Court's view to misrepresentation.
The husband contends that the award was erroneous inasmuch as it was based "solely on grounds evidencing malice," and that, in any event, the award was improper under Arizona statutes.
Arizona Revised Statutes, § 25-324 states, in part:
The court from time to time, after considering the financial resources of both parties, may order a party to pay a reasonable amount to the other party for costs and expenses of maintaining or defending any proceeding under this chapter. For the purposes of this section costs and expenses may include attorney's fees, deposition costs and such other reasonable expenses as the court finds necessary to the full and proper presentation of the action, including any appeal.
A.R.S. § 25-324. While...
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