Vohland v. Vohland

• Decision Date: 30 October 2014
• Docket Number: No. 2 CA-CV 2014-0076,2 CA-CV 2014-0076
• Parties: IN RE THE MARRIAGE OF: MICHAEL S. VOHLAND, Petitioner/Appellant, and SANDRA VOHLAND, Respondent/Appellee.
• Court: Arizona Court of Appeals

IN RE THE MARRIAGE OF:

MICHAEL S. VOHLAND, Petitioner/Appellant,

and

SANDRA VOHLAND, Respondent/Appellee.

No. 2 CA-CV 2014-0076

ARIZONA COURT OF APPEALS DIVISION TWO

October 30, 2014

THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES.

NOT FOR PUBLICATION

See Ariz. R. Sup. Ct. 111(c); Ariz. R. Civ. App. P. 28(c).

Appeal from the Superior Court in Pima County

No. D20123858

The Honorable Dean Christoffel, Judge Pro Tempore

AFFIRMED

COUNSEL

Law Office of Sandra Tedlock, Tucson

By Sandra Tedlock

Counsel for Petitioner/Appellant

Waterfall, Economidis, Caldwell, Hanshaw & Villamana, P.C., Tucson

By Corey B. Larson

Counsel for Respondent/Appellee

MEMORANDUM DECISION

Judge Vásquez authored the decision of the Court, in which Presiding Judge Kelly and Judge Howard concurred.

VÁSQUEZ, Judge:

¶1 In this domestic-relations case, Michael Vohland appeals from the trial court's decree dissolving his marriage to Sandra Vohland. He argues the court erred by awarding Sandra a portion of the increased value of his separate property business. He also argues the court erred by awarding Sandra spousal maintenance and attorney fees. For the reasons that follow, we affirm.

Factual and Procedural Background

¶2 We view the evidence in the light most favorable to sustaining the trial court's rulings. See In re Marriage of Thorn, 235 Ariz. 216, ¶ 2, 330 P.3d 973, 974 (App. 2014). Michael and Sandra married in 2003. At that time, Michael owned a sixty-five percent interest in Veggies, Inc., a company specializing in the distribution of agricultural produce.

¶3 During the marriage, Veggies expanded operations to include production packaging, private labeling, and value-added merchandise, as well as cross-docking services for other distributors. In turn, the gross revenue of Veggies rose from approximately $3.6 million in 2003 to $9.2 million in 2012. Michael received over $1.3 million in compensation during this time. And, as a reward and to encourage retention, he gave a fourteen-percent interest in the company to two of his employees.¹

¶4 In October 2012, Michael filed a petition for dissolution. Michael's attorney characterized the "major issue" at trial as "the evaluation of the community interest, if any," in the increased value of Veggies. Michael's expert witness, Marc Fleischman, calculated the company's increased value by using an income-based approach, which estimated what an investor might pay for the company after considering the venture's risk and its potential for future earnings. In his analysis, Fleischman "normalized" the company's earnings by adjusting for unusual expenses, such as Michael's salary, which Fleischman estimated was twice as high as a reasonable compensation for an officer in Michael's position. After calculating the company's worth in 2003 and 2012, Fleischman concluded Michael's interest in the company—now only fifty-one percent—had increased in value by $244,000.

¶5 Sandra's expert, Kevin Yeanoplos, used a similar methodology to calculate the value of Michael's interest in Veggies. However, Yeanoplos normalized the company's earnings by using a higher salary replacement, concluding Michael had been overcompensated by just over $150,000. Yeanoplos also testified that the stock Michael had given to his employees held little economic value. Therefore, he rejected Fleischman's approach of calculating Michael's interest as fifty-one percent of the company's increased value in 2012.

¶6 In its under-advisement ruling, the trial court first considered whether the community received its share of the company's profits during the marriage. It found that the experts had failed to provide "certainty in calculating reasonable compensation or [Michael's] excess earnings." Nevertheless, the court agreed that the company had overcompensated Michael and that "the community [wa]s not entitled to any additional share of the profits."

¶7 The trial court then evaluated whether the community had any interest in the company's value. It adopted Fleischman's conclusion that the total value of Veggies had increased by $750,600. However, the court agreed with Yeanoplos that the transferred stock had little value and, accordingly, attributed sixty-five percent of the total increase, or $487,890, to Michael. The court also found the community's labor accounted for sixty percent of that increase, worth $292,734. In turn, "[f]or her one-half interest" in the value owed to the community, Sandra was entitled "to a payment from Michael of $146,367."

¶8 The trial court also granted Sandra an award of spousal maintenance for four years in the amount of $1,350 per month, or $3,150 per month once she no longer lived at the marital residence. And, the court awarded Sandra $27,500 in attorney fees, in addition to the $5,000 Michael had paid at the start of the proceedings.

¶9 The trial court issued its decree of dissolution in February 2014, and this appeal followed. We have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1), 12-2101(A)(1).

Community Property Division

¶10 Michael argues the trial court erred by awarding Sandra an interest in the increased value of the company. We generally review a trial court's division of community property for an abuse of discretion. Danielson v. Evans, 201 Ariz. 401, ¶ 13, 36 P.3d 749, 754 (App. 2001). Although the characterization of property as separate or community is an issue of law, which we review de novo, In re Marriage of Pownall, 197 Ariz. 577, ¶ 15, 5 P.3d 911, 915 (App. 2000),"'[t]he valuation of assets is a factual determination that must be based on the facts and circumstances of each case,'" Walsh v. Walsh, 230 Ariz. 486, ¶ 9, 286 P.3d 1095, 1099 (App. 2012), quoting Kelsey v. Kelsey, 186 Ariz. 49, 51, 918 P.2d 1067, 1069 (App. 1996). We will not disturb those factual findings unless they are clearly erroneous. In re Marriage of Yuro, 192 Ariz. 568, ¶ 3, 968 P.2d 1053, 1055 (App. 1998).

¶11 Section 25-213(A), A.R.S., provides: "A spouse's real and personal property that is owned by that spouse before marriage . . . , and the increase, rents, issues and profits of that property, [are] the separate property of that spouse." But, if the property's value grew during the marriage, the spouse who maintains "that the increase is also separate property" has the burden "to prove that the increase is the result of the inherent value of the property itself and is not the product of the work effort of the community." Cockrill v. Cockrill, 124 Ariz. 50, 52, 601 P.2d 1334, 1336 (App. 1979); see also A.R.S. § 25-211(A) (property acquired during marriage is community property). The trial court may find the increase is a "hybrid" of both, in which case, it must divide only that portion of the increase attributable to the community. Cockrill, 124 Ariz. at 53-54, 601 P.2d at 1337-38 (rejecting "all or none" rule). "[T]he purpose of apportioning the profits or increase [i]s to achieve 'substantial justice between the parties.'" Rueschenberg v. Rueschenberg, 219 Ariz. 249, ¶ 14, 196 P.3d 852, 856 (App. 2008), quoting Cockrill, 124 Ariz. at 54, 601 P.2d at 1338.

¶12 Michael argues the trial court erred when it (1) attributed sixty-five percent of the company's value in 2012 to him; (2) found that the community's interest of that increased value was sixty percent and that the remaining forty percent represented a reasonable rate of return on Michael's separate property; and (3) declined to reduce the community's interest in the increased value by the amount Michael was overcompensated by the company during the marriage. We address each issue in turn.

Michael's Ownership Interest

¶13 Michael argues the trial court erred by attributing sixty-five percent of the company's value to him, despite the fact that heowned fifty-one percent of the company's stock after the transfer of stock to his two employees.

¶14 According to the shareholder's agreement between Michael, his original partner, and the two employees, the stock transferred to the employees was non-transferable and did not expressly include a right to distributed profits. The agreement further provided that the "shares, due to their minority nature, and illiquidity, are of little to no value and are gifted in consideration of past performance for the [company]." According to the agreement, the employees were entitled to compensation for their shares in two instances: If the employees died or left the company, Michael would buy back the stock at book value.² Sandra's expert described this arrangement as a "severe penalty for anybody leaving the company."

¶15 The trial court found that, "[b]ecause of the restrictions on the transfer of stock," the employees' interest had "significantly less value" than Michael's. And, the court concluded it could not calculate that value because "[n]either party presented any evidence of the value of the shares of stock." Thus, the court implicitly adopted Yeanoplos's opinion that using a fifty-one-percent ownership interest would "provide[] a very misleading number."

¶16 On appeal, Michael argues the trial court erred when it did not assign a value to the stock because he "has the right to re-purchase their shares . . . at book value" and, if the company was ever sold, "they had a right to be paid for their percentage of the sale amount."³ There is evidence in the record to estimate what theemployees might have received if they had left the company, or the company had been sold, on the day Michael filed his petition for dissolution. And, we acknowledge that applying a "straight percentage" to calculate the stock values, as if they had been sold, was possible because Fleischman estimated the company's sale price to a potential investor. But, as the court implicitly found, employing such a calculation fails to account for other factors.

¶17 It was Michael's burden to establish the actual value of his separate property. See Cockrill, 124 Ariz. at 52, 601 P.2d at 1336. And, his expert testified that in forming his...