Stephens v. Stephens
| Decision Date | 14 July 2017 |
| Docket Number | No. S-16-431.,S-16-431. |
| Parties | Robert L. STEPHENS, appellee, v. Janet E. STEPHENS, appellant. |
| Court | Nebraska Supreme Court |
Stefanie Flodman and Steven J. Flodman, of Johnson, Flodman, Guenzel & Widger, Lincoln, for appellant.
David P. Kyker, Lincoln, for appellee.
In this dissolution action, the husband is the cofounder and president of a C corporation and owns 34 percent of its stock. He asserts that only the appreciation, during the marriage, of a business interest that is due to the active efforts of the nonowning spouse is part of the marital estate. He claims, therefore, that none of the almost $5 million in appreciation of his stock interest during the parties' 25-year marriage was subject to equitable division.
Janet E. Stephens and Robert L. Stephens were married on September 8, 1991. Twin boys were born of the marriage in 1996. Robert filed for dissolution in 2014.
For approximately 15 years of the marriage, Janet worked as a real estate agent. But during the last 10 years of the marriage, Janet suffered from a mental illness that required periodic hospitalization and left her unable to work. She receives approximately $1,500 per month in Social Security disability income. Robert testified that he did not expect Janet would recover and become employable in the future.
A guardian ad litem (GAL) was appointed to protect Janet's interests at trial. The GAL is also Janet's guardian and conservator. Janet refused to participate in the dissolution proceedings but was represented by counsel.
Both before and during the marriage, Robert worked full time as president of Stephens & Smith Construction Co., Inc. (Stephens & Smith), and his current annual salary is approximately $265,000 per year. Robert received additional income from bonuses and from his other business interests. In 2014, Robert's total taxable income was $503,414. When Janet's mental health allowed, she shared equally with Robert the tasks relating to the care of their children.
The principal issue at trial was what assets should be considered marital and subject to equitable division. The approximate total value of the assets under the court's consideration in the dissolution action was $9 million. There were 166 exhibits entered into evidence without objection, and Robert was the only witness.
Stephens & Smith is a construction company specializing in concrete work. At all relevant times before and during the marriage, Robert owned stock totaling 34 percent of the stock of Stephens & Smith. Robert cofounded Stephens & Smith in 1971 as a partnership with Michael Smith. Stephens & Smith was incorporated as a C corporation in 1974. According to the exhibits in the record, Robert's stock in Stephens & Smith was worth $298,459 in 1991 before the parties married. Robert's stock in Stephens & Smith at the time of dissolution was worth $5,044,934.16.
Robert worked a "normal eight-hour day," 5 days a week, in his capacity as president. At other times during the marriage, he worked more. He was also on the 12-member board of directors. Robert admitted that he sets his own salary and has a significant role in determining bonuses.
Robert testified that the leadership personnel of Stephens & Smith has not changed since the marriage. He described Stephens & Smith as consisting of six moneymaking departments, each with its own department head. Robert was involved in selecting and training the leadership within Stephens & Smith. At all times during the marriage, Stephens & Smith had approximately 200 employees. Robert considered at least 20 of those employees "integral," though he believed every employee was important.
Robert described his role as president as "constantly changing." He made financial and investment decisions for Stephens & Smith and performed "some management real estate oversight." As part of obtaining lending to fund Stephens & Smith's projects, Robert also personally guaranteed millions of dollars in loans for Stephens & Smith's operations.
Robert attended human resources, rental management, shareholder, and board meetings. He occasionally consulted with and advised the department heads for the company. Robert conceded that he was an integral part of the success of Stephens & Smith. But Robert suggested that, based on his latest bonus of 6 percent, "maybe I provide 6 percent of the leadership."
R.I.P., Inc., is a wholly owned subsidiary of Stephens & Smith. It holds Stephens & Smith's real estate investments and represents approximately two-thirds of Stephens & Smith's value. R.I.P. was created before the marriage with capital from Stephens & Smith, and continued thereafter to be funded by the profits of Stephens & Smith. R.I.P. owns a percentage of The Mystic Pines Apartments, L.L.C.; Eagles Landing Apartments, LLC; Aardvark Antique Mall, LLC; and Village Square Apartments, LLC. Although there was no testimony specifically on this point, Robert's estimated interest in Stephens & Smith of $5,044,934.16 apparently includes any interests held through R.I.P.
Infinity S Development Co. (Infinity) is a partnership between Robert, Smith, and one other partner. Infinity is predominantly involved in the self-storage business, and at the time of trial, it owned approximately 900 storage units. At one point, Robert testified that no capital has been added to Infinity since the marriage. Its expansion has been paid for with the partnership's profits. Robert also indicated, however, that as with Stephens & Smith, he had personally guaranteed bank loans to Infinity.
The day-to-day operation of Infinity is run by a hired manager. But Robert and the two other partners make the larger decisions, such as what to build. Robert participates in monthly meetings to analyze occupancy rates and financial statements. Robert owns one-fourth of Infinity. According to the exhibits in evidence, at the time of trial, Robert's equity interest in Infinity was $1,243,232. In contrast, when the parties married, Robert's interest in Infinity was worth $270,553.
Heritage Square Partners (Heritage) was formed as an off-shoot of Infinity just prior to the marriage. The partnership consists of Robert; Smith; and, originally, three other persons. It owns one building that was capitalized with funds from Infinity and with loans. No other funds have been funneled into Heritage since the marriage. The building provides rental income and is managed by a person employed by the partnership. Robert is not involved in the day-to-day operation of Heritage. At the time of trial, Robert's equity interest in Heritage was $403,884. It was unclear what the value of Robert's interest in Heritage was at the time the parties married.
Smith and Stephens Real Estate was created by Robert and Smith before the marriage and owns a single piece of property that was purchased before the marriage. The value of Robert's interest in Smith and Stephens Real Estate when the parties married was $88,830, and it was $140,000 at the time of trial.
Aardvark Partners, LLC, was formed after the marriage. It was formed by the five partners of Infinity and with R.I.P. as the sixth partner. R.I.P. owns 50 percent of Aardvark Partners. The $500,000 purchase of the real estate held by Aardvark Partners was capitalized with $50,000 from each of five individual investor partners from Infinity and $250,000 from R.I.P. Each individual obtained the $50,000 contribution through a distribution of $55,000 from Infinity.
Aardvark Partners owns a property that consists of a cluster of buildings and parking lots. Robert is not involved in the day-to-day operation of Aardvark Partners, which is run by a hired manager. At the time of trial, Robert's interest in Aardvark Partners was valued at $306,429.
Robert conceded at trial that his ownership interests in Aardvark Antique Mall, The Mystic Pines Apartments, and Eagles Landing Apartments were marital property. At the time of trial, Aardvark Antique Mall was valued at $66,474, The Mystic Pines Apartments were valued at $923,687, and Eagles Landing Apartments were valued at $381,385. Robert's combined interest in the three properties produced approximately $60,000 per year in owner draws, and he proposed that it would be most beneficial for all parties to transfer to Janet the ownership interest in these properties.
Janet's attorney and GAL questioned the practicality of making Janet part-owner of the properties. Janet's counsel also pointed out that transfer of ownership would require the cooperation of the other partners, since at least two of the entities required owner approval before allowing new members. Robert assured the court that the partners having an interest in these properties would cooperate.
The court awarded to Robert the marital home, valued at $542,000, and the mortgage debt therein, in the amount of $337,078. Also awarded to Robert, subject to liens or encumbrances, were a "60-foot Gen[i]e Manlift" valued at $20,000, a jet ski valued at $1,740, a 1998 motorcycle valued at $7,625, a 2003 automobile valued at $16,904, and a 2005 recreation vehicle valued at $60,250. The only debt associated with these items appears to be an automobile loan in the amount of $19,893.
Robert was awarded $31,965 in household goods and artwork. Robert was awarded a credit union checking account with a balance of $553.50 and a bank checking account with a balance of $100. Robert was awarded Stephens & Smith retirement plans valued at $326,104.79. The retirement plans were formed after the marriage, and Robert had conceded they...
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