Opinion
No. 4-083 / 03-1305
May 14, 2004.
Appeal from the Iowa District Court for Linn County, Thomas L. Koehler, Judge.
Robert Frett appeals several economic provisions of the parties' dissolution decree. AFFIRMED AS MODIFIED.
Karen Volz of Ackley, Kopecky Kingery, Cedar Rapids, for appellant.
Pamela Lewis, Cedar Rapids, for appellee.
Heard by Sackett, C.J., Miller, J., and Nelson, S.J.
Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2003).
I. Background Facts Proceedings
Lisa and Robert Frett were married in 1978. They have two children: Macy, born in 1986, and Raelyn, born in 1989. Lisa filed a petition for dissolution of the parties' marriage on June 21, 2002.
At the time of the dissolution hearing, Lisa was forty-one years old and in good health. She had a G.E.D. Lisa was employed by Hy-Vee Food Stores and had a gross annual income of approximately $29,120.
Robert was forty-three years old and in good health. He is a high school graduate with some additional technical training. Robert is the sole shareholder in TechniCom, Inc., a company which installs telephone equipment for businesses. The company is operated as a Subchapter S corporation. The company has three employees, a bookkeeper and two technicians, in addition to Robert. Until April of 2003, Robert paid himself a salary of $64,000 per year. In April of 2003, Robert's temporary child support obligation was increased based on an assumed salary of $100,000. Robert then increased his salary to $100,000 per year.
On August 8, 2003, the district court issued a decree dissolving the parties' marriage. The court awarded the parties joint legal custody of the children, and placed the children in the primary physical care of Lisa. The court imputed all of the profits of TechniCom as income to Robert and found his average income over the past five years was $332,604. The court ordered Robert to pay child support of $4417.09 per month.
At the dissolution hearing, both Lisa and Robert presented expert testimony as to the value of TechniCom. Lisa's expert gave the opinion the business was worth $1,030,000. Robert's expert took more discounts to recognize Robert's importance to the company and valued the business at $590,000. The district court determined the value of the business was $1,030,000. The court ordered Robert to pay Lisa $515,000 as her share of the business. The district court divided the parties' other assets equally, except the marital residence.
The district court did not award alimony in this case, but awarded Lisa the marital residence, valued at $200,000, "in lieu of spousal support because of the long-term marriage, the circumstances of [Lisa], her lack of marketable skills, and her lack of education." The court ordered Robert to pay $5000 toward Lisa's attorney fees and all of the expert witness fees.
Robert has appealed on the issues of child support, property division, alimony, and attorney and expert witness fees.
II. Standard of Review
Our scope of review in this equitable action is de novo. Iowa R. App. P. 6.4. In equity cases, especially when considering the credibility of witnesses, the court gives weight to the fact findings of the district court, but is not bound by them. Iowa R. App. P. 6.14(6)( g).
III. Child Support
Both parties have an obligation to support their children in proportion to their abilities and circumstances. In re Marriage of Byall, 353 N.W.2d 103, 108 (Iowa Ct.App. 1984). Robert contends the district court improperly calculated his income for purposes of applying the child support guidelines. Robert claims the court should not have imputed all of the profits of TechniCom as income to him. Robert asserts that his child support obligation should be calculated using his annual salary from the corporation, which is currently $100,000.
To ascertain a party's income for the purposes of determining child support, we must determine the parent's current monthly income from the most reliable evidence presented. In re Marriage of Powell, 474 N.W.2d 531, 534 (Iowa 1991). The income of a person employed by a family corporation, especially a Subchapter S corporation, may be difficult to ascertain. In re Marriage of Titterington, 488 N.W.2d 176, 178 (Iowa Ct.App. 1992).
Because TechniCom is a Subchapter S corporation, all of the company's profits are reflected in the parties' tax returns. This does not mean, however, that all of the company's profits were available for the parties to spend on personal expenses. In the past, most of the company's profits were put back into the company, and the value of TechniCom is based in large part on the company's retained earnings. On our de novo review, we determine Robert's actual salary better represents his income for child support purposes. If we use Robert's salary of $100,000, his child support obligation would be $1456 per month. In fact, Robert volunteered to pay $1500 per month and one-half of the children's tuition and fees for parochial school. We modify the parties' dissolution decree to make Robert responsible to pay $1500 per month in child support, plus one-half of the children's school tuition and fees for parochial school.
IV. Property Division
Robert claims the division of property was inequitable to him because the district court did not properly value certain assets and because the court counted some assets twice. Iowa Code section 598.21(1) (2001) establishes the criteria to be followed in property division. A percentage division is not mandated. In re Marriage of Wiedemann, 402 N.W.2d 744, 747 (Iowa 1987). The court is not bound to achieve a precisely equal division. In re Marriage of Anderson, 243 N.W.2d 562, 564 (Iowa 1976). The parties to a marriage are "entitled to a just and equitable share of property accumulated through their joint efforts." In re Marriage of Havran, 406 N.W.2d 450, 452 (Iowa Ct.App. 1987). The distribution of the property of the parties should be that which is equitable under the circumstances after consideration of the criteria in Iowa Code section 598.21(1). In re Marriage of Estlund, 344 N.W.2d 276, 280 (Iowa Ct.App. 1983).
The district court divided the parties' property equally, except for the marital residence, which will be separately discussed. Robert does not dispute that the property should be divided equally. We find the parties both made contributions to the marriage. Robert started TechniCom and increased the value of that business. Lisa was the children's primary caregiver, she worked at TechniCom for a period of time, and then worked outside the home. We agree that the parties' assets should be equally divided, including TechniCom, but differ from the district court on the issues of the extent and value of the parties' assets.
A. TechniCom
Robert's primary contention is that the district court overvalued TechniCom. He points out that Lisa's expert, Wayne Brown, valued the business assuming Robert's salary was $64,000 instead of $100,000 per year. Also, Robert claims Brown did not sufficiently discount the value of the company to take into account Robert's unique contributions. Robert notes that his expert, Dennis Redmond, was also the CPA for the company and was more familiar with the operation of the business.
The purpose of determining the value of assets is to assist the court in making equitable property awards. In re Marriage of Steele, 502 N.W.2d 18, 21 (Iowa Ct.App. 1993). Assets should be valued at fair market value, if this can be reasonably ascertained. See In re Marriage of Dennis, 467 N.W.2d 806, 808 (Iowa Ct.App. 1991). The valuation of a closely-held corporation is very difficult. Id. Generally, when the trial court's valuation is well within the permissible range of the evidence, we are not inclined to disturb it. In re Marriage of Hoak, 364 N.W.2d 185, 192-93 (Iowa 1985).
TechniCom has business assets worth about $100,000 and retained earnings worth about $500,000 to $550,000. Both experts used the income valuation method, which "derives a value indication for income-producing property by converting anticipated benefits into property value." In re Marriage of Dieger, 584 N.W.2d 567, 569 (Iowa Ct.App. 1998). The experts looked at the company's ability to generate income in an attempt to determine its fair market value.
The district court found Lisa's expert, Brown, to be more credible, and we accept the court's credibility finding. We note, however, that in looking at the company's profits, Brown considered Robert's income to be $64,000, instead of $100,000. Lisa's expert admitted Robert's salary is an expense to the company, which lessens the company's income, and subsequently reduces the value of the business. The evidence indicates that if Brown had used Robert's actual salary of $100,000 instead of $64,000, his valuation would have been reduced by approximately $175,000, making the value of TechniCom $855,000.
A party's interest in a corporation may be discounted for lack of marketability. See In re Marriage of Muelhaupt, 439 N.W.2d 656, 660 (Iowa 1989); Hoak, 364 N.W.2d at 193; Steele, 502 N.W.2d at 21. Brown discounted the value of the business by ten percent for marketability to recognize that a closely-held business may be hard to sell. Redmond took a fifteen-percent marketability discount. Redmond also took an additional twenty-percent key person discount, to show as a percentage discount the risk of potential loss of a key person to the company.
We agree with the district court that the reductions recommended by Redmond are excessive under the facts of this case.
We modify the dissolution decree to determine the value of the corporation is $855,000, and Lisa is entitled to one-half the value of the company, $427,500. Robert should be required to pay $177,500 within sixty days of procendo in this case, $125,000 one year from that date, and $125,000 two years from that date. The amount of interest should remain as specified in the dissolution decree.
B. Other Assets Debts.
In June of 2002, when Lisa filed for divorce, the parties equally divided a bank account. At the time of the dissolution hearing, Lisa had spent her portion of the account. The district court rejected Robert's suggestion to value this account as of the time it was divided, not the time of trial. We note that it is the net worth of the parties at the time of trial which is relevant to adjusting their property rights, and affirm on this issue. See Muelhaupt, 439 N.W.2d at 661.
While the parties were separated, Robert purchased a lot for $3500. He later changed his mind and received a refund of $3100, which he placed in his bank account. The district court ordered that the lot refund should be equally divided between the parties, although the court also considered the bank account as an asset. We determine the lot refund was improperly counted twice, and eliminate the provision that Robert should pay Lisa one-half the amount of the refund.
When the parties split the bank account in June 2002, Robert placed his funds in a money market account at Guaranty Bank. At trial, Lisa presented a bank statement for an account with a different account number at Guaranty Bank and claimed Robert had a second account worth $19,573. Robert claims these are actually the same account, but with different numbers. We find there is only one Guaranty Bank account to be divided.
Finally, Robert contends the district court improperly considered his vehicle, a 2001 Yukon, as an asset of the parties and as an asset of TechniCom. The district court awarded Lisa's vehicle to her and ordered, "the remaining vehicles are awarded to [Robert]." The value of Robert's vehicle, however, had already been considered in the valuation of TechniCom. We conclude it should not be separately considered as an asset of the parties.
The district court ordered Robert to pay debts of $9862 and Lisa to pay debts of $4185. After the parties divided their household goods, Lisa went to Ethan Allen and purchased furniture of $2845 to replace the items Robert had taken. We determine Lisa should be required to pay the Ethan Allen bill of $2845.20, which makes Robert responsible for debts of $7017.10, and Lisa responsible for debts of $7030.20.
V. Alimony
The district court specifically did not award alimony in this case, but provided, "the residence of the parties should be awarded to [Lisa] in lieu of spousal support because of the long-term marriage, the circumstances of [Lisa], her lack of marketable skills, and her lack of education." The court valued the residence at $200,000. There is no mortgage on the residence.
Robert claims Lisa is not entitled to alimony and should not have been awarded the residence in lieu of alimony. He also disputes the value of the home. He contends the home should have been valued at $215,000 and the value should have been divided equally between the parties.
In making an award of alimony, a court considers the factors set out in Iowa Code section 598.21(3) which include the length of the marriage, the age and health of the parties, the parties' earning capacities, the levels of education, and the likelihood the party seeking alimony will be self-supporting at a standard of living comparable to the one enjoyed during the marriage. In re Marriage of Clinton, 579 N.W.2d 835, 839 (Iowa Ct.App. 1998). A party may be awarded additional assets in lieu of alimony. In re Marriage of Goodwin, 606 N.W.2d 315, 323 (Iowa 2000).
We determine Lisa would have been entitled to alimony under the facts of this case. The marriage was of relatively long duration, twenty-five years. Although the parties' ages, health, and levels of education are similar, Lisa's earning capacity will likely never reach that of Robert. We find Lisa was properly awarded the marital residence in lieu of alimony. We also find the value placed upon the residence by the district court was well within the permissible range of the evidence, and we will not disturb it on appeal. See Steele, 502 N.W.2d at 21.
VI. Attorney Expert Witness Fees
Robert asserts the district court abused its discretion by ordering him to pay $5000 toward Lisa's trial attorney fees. He was also ordered to pay the expert witness fees for both parties.
The decision to award attorney fees rests within the sound discretion of the court, and we will not disturb its decision absent a finding of abuse of discretion. In re Marriage of Maher, 596 N.W.2d 561, 568 (Iowa 1999). An award may include expert witness fees. See In re Marriage of Rosenfeld, 668 N.W.2d 840, 843 (Iowa 2003). We find no abuse of discretion under the facts of this case.
We have modified the provisions concerning child support and the property division, but affirm in all other respects. Costs of this appeal are assessed one-half to each party. We award no appellate attorney fees.