Wood v. Wood

• Decision Date: 25 June 1993
• Docket Number: No. 19747,19747
• Citation: 855 P.2d 473,124 Idaho 12
• Parties: Vera Paulette WOOD, Plaintiff-Appellant-Cross Respondent, v. Tommy Lee WOOD, Defendant-Respondent-Cross Appellant.
• Court: Idaho Court of Appeals

Page 473

855 P.2d 473

124 Idaho 12

Vera Paulette WOOD, Plaintiff-Appellant-Cross Respondent, v. Tommy Lee WOOD, Defendant-Respondent-Cross Appellant.

No. 19747.

Court of Appeals of Idaho.

June 25, 1993.

R. Brad Masingill, Weiser, for appellant.

Dale Smith, Fruitland, for respondent.

SWANSTROM, Judge.

This appeal involves questions of property distribution in a divorce action. Vera (known as "Polly") and Tommy Wood were married May 3, 1986. The parties separated on August 2, 1989, and were divorced on November 15, 1990. A trial was held before the magistrate who subsequently issued a memorandum decision. Polly first appealed to the district court which affirmed the magistrate's decision. Both parties appeal from the district court's order upholding the magistrate's decision. We affirm the magistrate's decision in part, vacate in part and remand the case for further proceedings.

Prior to their marriage, Tommy operated a sole proprietorship, Northwest Funeral Supply (NFS), selling supplies to funeral homes. It is undisputed that when the parties entered into marriage, this business was Tommy's separate property. Likewise, it is undisputed that after the parties married, the earnings and sales volume of NFS decreased. While the parties were married, Tommy worked in a restaurant for Polly's father and worked on rebuilding the couple's home which had burned in a fire; therefore, he spent very little time working in his business. After the parties separated, however, Tommy spent more of his time and efforts working for his business.

In his memorandum decision, the magistrate found that the value of NFS had not increased during the marriage, but rather, it had decreased. Both parties' experts testified to widely differing valuations of NFS. The magistrate did not make findings regarding specific values of NFS at relevant times because he concluded that the evidence was so contradictory and unclear, it was "impossible to place an accurate value on the business." However, the magistrate did find that the value of the business had gradually declined. The magistrate also found that although Tommy had attempted to revive it, the business was worth substantially less at the time of trial, and therefore at the time of the divorce as well, than it was at the commencement of the marriage.

Based upon the finding that the value of NFS had gradually declined, the magistrate ruled that there had been no enhancement in the value of the business during the marriage. Without an enhancement or increase in the value of NFS, the magistrate ruled that the community was not entitled to any reimbursement for community funds which may have been contributed to the business during the marriage. The magistrate cited Sherry v. Sherry, 108 Idaho 645, 701 P.2d 265 (Ct.App.1985), appeal after remand, Sherry v. Sherry, 111 Idaho 185, 722 P.2d 494 (Ct.App.1986), and Suter v. Suter, 97 Idaho 461, 546 P.2d 1169 (1976). The rule relied upon by the magistrate is:

[t]he measure of the reimbursement for community expenditures on separate property is the increase in value of the property attributable thereto, not the amount or value of the community contribution.

Suter, 97 Idaho at 465, 546 P.2d at 1173. The magistrate reasoned that because NFS was separate property at the time of marriage, and NFS had decreased in value, the community was not entitled to reimbursement.

Upon appeal, the district court affirmed the magistrate's conclusion that the community was not entitled to reimbursement from Tommy because the value of his separate property, NFS, had not been enhanced during the marriage, but rather, it had decreased. The issues Polly raises on appeal involve the magistrate's failure to characterize all or some of NFS as community property or to rule that the community is entitled to reimbursement for community contributions to the business. The first issue Polly presents is whether the magistrate erred by failing to make specific findings in order to properly characterize NFS. Polly also raises the issue of whether the magistrate erred in concluding that NFS is separate property. Tommy raises an issue on cross-appeal which we will discuss below.

The district court sat as an appellate court in this case. Therefore we review the magistrate's findings independently of the district court's decision. Josephson v. Josephson, 115 Idaho 1142, 772 P.2d 1236 (Ct.App.1989). Further, both questions of law and fact arise when classifying property in a divorce case. Id. Therefore we examine the record for substantial, competent evidence to support the magistrate's findings of fact and determine whether the magistrate correctly applied the law. Id. A trial court must make findings of fact as required by I.R.C.P. 52(a). See Donndelinger v. Donndelinger, 107 Idaho 431, 690 P.2d 366 (Ct.App.1984). We may not disregard a trial court's failure to make findings unless the answers are obvious in light of a clear record. Id. (citing Pope v. Intermountain Gas Co., 103 Idaho 217, 646 P.2d 988 (1982)).

The rule relied upon by the magistrate is clearly the law in Idaho with regard to the types of separate property at issue in the cases cited. See Martsch v. Martsch, 103 Idaho 142, 645 P.2d 882 (1982) (real property); Suter v. Suter, supra (eighty acre farm); Hooker v. Hooker, 95 Idaho 518, 511 P.2d 800 (1972) (real property); Hiatt v. Hiatt, 94 Idaho 367, 487 P.2d 1121 (1971) (automobile dealership and related property); Tilton v. Tilton, 85 Idaho 245, 378 P.2d 191 (1963) (real property); Gapsch v. Gapsch, 76 Idaho 44, 277 P.2d 278 (1954) (automobile); Josephson v. Josephson, supra (real property); Sherry v. Sherry, supra (real property). In all of the above-cited cases the separate property at issue consisted in whole or in part of real or personal property assets which remained separate property during and after the marriage and did not change form. Another rule which bears upon the issue of the characterization of the business is that income derived from a husband's or wife's "efforts, labor and industry" during the marriage is community property. Hiatt v. Hiatt, 94 Idaho at 368, 487 P.2d at 1122. Furthermore the net income from a separate sole proprietorship is community property. I.C. § 32-906; Josephson v. Josephson, supra.

The separate property at issue in this case is a sole proprietorship which contained some inventory, cash and possibly other assets, at the commencement of the marriage. The evidence shows that none of the physical assets in existence at the commencement of the marriage remained at the time of the divorce, because they had either been sold, consumed or liquidated. Tommy testified that the inventory of goods and supplies for sale by NFS, which was on hand at the commencement of the marriage, was sold during the marriage and the proceeds, along with NFS cash, were used in part for community expenses, and may have been used to purchase new inventory. There were no findings by the magistrate based on the tracing of assets or proceeds from the commencement of the marriage to the time of divorce; the evidence was not sufficient to support such tracing.

Unlike the property involved in the cases cited above, the assets of NFS have not existed through the marriage, nor are the proceeds from any of those assets traceable through this period. All business assets remaining at the time of divorce, excluding any intangible items such as good will and the entrepreneurship attributable to Tommy, were acquired during the marriage after the original assets or their proceeds were commingled with community property, or consumed by the community.

Although the business and its assets were clearly Tommy's separate property to begin with, and he was entitled, initially, to a presumption that the business remained his separate property throughout the marriage, the bubble of this presumption was burst by the evidence showing that Tommy did not maintain the integrity of separateness. Neither did he demonstrate through tracing how the assets remaining at the time of divorce could be separate. ¹ Accordingly, it must be presumed that any remaining assets are community. Josephson v. Josephson, 115 Idaho at 1148, 772 P.2d at 1242 (citing Stahl v. Stahl, 91 Idaho 794, 430 P.2d 685 (1967)).

Tommy testified that he, the proprietor, was the only "asset" of NFS still in existence since the time of marriage, and that both parties had worked in the business. Because of that testimony and because of the rule that the fruit of the labors of both spouses is community in nature, we hold that the magistrate erred in applying the corollary rule quoted above from Suter to determine that the community had no right of reimbursement where the value of the business suffered a decline...