Farrell v. Farrell ( 2014 )

Cite as 2014 Ark. App. 601
ARKANSAS COURT OF APPEALS
DIVISION I
No. CV-13-990
Opinion Delivered November 5, 2014
CYNTHIA BUTLER FARRELL APPEAL FROM THE SEBASTIAN
APPELLANT COUNTY CIRCUIT COURT,
FORT SMITH DISTRICT
[NO. DR 09-580]
V.
HONORABLE JIM D. SPEARS,
JUDGE
HANFORD FRANCIS FARRELL
APPELLEE REVERSED AND REMANDED
ROBERT J. GLADWIN, Chief Judge
This divorce case returns after we reversed and remanded the previous appeal so that
the Sebastian County Circuit Court could value some of the marital assets and explain its
reasoning for an unequal distribution of those marital assets in its divorce decree. Farrell v.
Farrell, 2013 Ark. App. 23, 425 S.W.3d 824 (Farrell I). Cindy Farrell again appeals and argues
that the circuit court should have provided a more equal distribution of the marital assets and
that the court erred in its award of alimony to her. We reverse and remand.
This was a marriage lasting more than thirty years. The parties agreed that a substantial
amount of their property was marital property. Hank owns a minority interest in a
conglomerate of closely-held family businesses referred to by the circuit court and the parties
as the Farrell-Cooper Companies. He also owns an interest in what the parties called the
Texas entities or ventures. The circuit court valued the marital interest in the Farrell-Cooper
Cite as 2014 Ark. App. 601
Companies at $9.9 million after applying a discount, with the entire interest being awarded
to Hank. Cindy was awarded the remaining marital property, which included the proceeds
from the sale of the marital home, another house in Fort Smith, and the parties’ IRA and
401(k) accounts, values assigned by the circuit court of approximately $1.045 million. The
court awarded Cindy lifetime alimony of $10,000 per month to help equalize the property
division. In Farrell I, we said that it was not clear whether the circuit court had included
in its valuation of the Farrell-Cooper Companies the valuation of the Texas ventures. We
then remanded the case to the circuit court to make a valuation of Hank’s interest in the
Texas ventures. We also directed the circuit court to comply with the requirements of
Arkansas Code Annotated section 9-12-315 so that the court provide an explanation for such
unequal division in its divorce decree. We did not reach Cindy’s arguments concerning the
award of alimony; instead, we allowed the circuit court to reconsider the award of alimony
in light of the value it placed on the Texas ventures.
On remand, the circuit court asked for briefs on the remaining issues. Cindy argued
that the Texas entities should be valued at least $3.2 million, if not higher, and included in
the marital estate. She also sought at least half of the marital estate, arguing that the statutory
factors supported an unequal division of the marital property in her favor. She also argued
that Hank should immediately pay her for her interest in the marital estate.
Hank argued that the Texas entities had already been included in the marital estate.
He noted that his expert placed a negative valuation of approximately $535,000 on the Texas
2
Cite as 2014 Ark. App. 601
entities. He also asserted that Cindy’s alimony award was sufficient to satisfy her share of the
marital estate.
In a June 3, 2013 letter opinion, the court began by incorporating its original August
31, 2011 letter opinion into its new decision as well as the original divorce decree to the
extent it did not conflict with the June 3, 2013 letter opinion. The court valued the Texas
entities at $1.6 million, with each party’s share at $800,000. The court then applied a
thirty-five-percent minority discount to Cindy’s share, with her share calculated at
$670,148.58. This, according to the circuit court, brought Cindy’s share of the marital estate
to approximately $5.2 million. The Texas entities themselves were assigned, in their entirety,
to Hank. The court also increased Cindy’s alimony from $10,000 to $13,000 per month to
compensate for the unequal distribution of the marital estate. The circuit court required
Hank to provide a $3 million life-insurance policy with Cindy as the beneficiary to insure
the alimony obligation.
Although the circuit court had not yet entered its decree on remand, Hank filed his
motion seeking reconsideration, requesting that he be relieved of the requirement to provide
life insurance for Cindy’s benefit. Cindy argued that the insurance obligation should continue
because she was already receiving, according to her, less than one-third of the marital estate.
The court granted Hank’s motion and removed the requirement that he provide life
insurance for Cindy’s benefit, holding that Cindy had sufficient funds to insure Hank’s
alimony obligation.
3
Cite as 2014 Ark. App. 601
Cindy filed a motion seeking reconsideration on June 26, 2013, renewing her
argument that the “alimony” did not compensate her for the value of the marital estate. She
requested that she be awarded a lump-sum payment for her share of the estate or that the
alimony award be adjusted to reflect the value of fifty percent of the marital estate.
The circuit court’s amended decree was entered on July 2, 2013. As noted in the June
3, 2013 letter opinion, both the 2011 and 2013 letter opinions were incorporated by
reference into the amended decree. The amended decree also contained a provision disposing
of Hank’s motion to be relieved of the obligation to insure the award and of Cindy’s first
motion for reconsideration.
Cindy filed a second motion for reconsideration on July 15, 2013. In her motion,
Cindy maintained her objections to the award of alimony as insufficient and inequitable to
compensate her for her share of the marital estate. In addition to a fifty-percent share of the
marital estate, she argued that she should be entitled to a separate award of traditional alimony
based on her need and Hank’s ability to pay.
The circuit court issued a letter opinion denying the second motion for
reconsideration on July 18, 2013. An order memorializing the ruling was entered on July 22,
2013. Cindy now appeals.
In Farrell I, we set forth our standard of review as follows:
On appeal, we review divorce cases de novo. We give due deference to the
circuit court’s superior position to determine the credibility of witnesses and the
weight to be given their testimony. With respect to the division of property in a
divorce case, we review the circuit court’s findings of fact and affirm unless those
findings are clearly erroneous. The obligations imposed upon a trial court by our
property-division statute are quite exacting. Arkansas Code Annotated section
4
Cite as 2014 Ark. App. 601
9-12-315(a) (Repl. 2009) provides that “[a]ll marital property shall be distributed
one-half to each party unless the court finds such a division to be inequitable.” The
court may make some other division that it deems equitable; however, when it
decides not to divide the property equally between the parties, it must recite its basis
and reasons for the unequal division in its order.
Farrell I, at 6, 425 S.W.3d at 829 (alteration in original) (citations omitted). We continued,
noting that
The circuit court has broad powers to distribute property in order to achieve
a distribution that is fair and equitable under the circumstances; it need not do so with
mathematical precision. The critical inquiry is how the total assets are divided. We
will not substitute our judgment on appeal as to the exact interest each party should
have but will decide only whether the order is clearly wrong.
Farrell I, 2013 Ark. App. 23, at 7, 425 S.W.3d at 830 (citations omitted).
Although Cindy argues three points for reversal, we conclude that we must again
reverse because the circuit court did not comply with the requirements of Arkansas Code
Annotated section 9-12-315 (Repl. 2009).
We begin by expressing some uncertainty as to whether the circuit court’s order
requiring Hank to pay Cindy $13,000 per month was payment for her share of marital
property or, instead, payment of alimony to equalize an unequal distribution of the marital
estate. We have indicated that the characterization of installment payments made pursuant
to an award in a divorce decree depends on the circumstances surrounding the award. Snyder
v. Snyder, 13 Ark. App. 311, 313, 683 S.W.2d 630, 631 (1985) (citing Stout v. Stout, 4 Ark.
App. 266, 630 S.W.2d 53 (1982)).
In its 2011 letter opinion, the circuit court had stated that each party was to receive
an equal share of the marital property. After assigning all of the marital interest in
5
Cite as 2014 Ark. App. 601
Farrell-Cooper to Hank, the court noted that “[t]his is an extremely uneven division of assets
in favor of Mr. Farrell. It remains for him to make arrangements to pay the additional monies
to Mrs. Farrell so as to make the division equal.” This appears to indicate that the payments
are for Cindy’s one-half of the marital estate. This appearance was seemingly confirmed in
the court’s 2013 letter opinion describing Cindy as receiving a one-half share of Hank’s
interest in the Texas entities. Another indication that the circuit court may have considered
the payments, although called “alimony,” to be installment payments for Cindy’s share is that
the court did not provide that the payments would cease upon the death of either party or
in the event Cindy remarried or cohabitated. On the other hand, the court also discussed the
factors normally to be considered in setting “traditional” or need-based alimony. Because of
this uncertainty, the circuit court should clarify what it intended in its division of marital
property and award of alimony. There are other areas that require an explanation.
In its 2013 amended decree, the court valued Cindy’s total interest in the marital
estate at $5,212,856.98. The court had awarded her $1.045 million in liquid assets as part of
the original decree. However, neither the 2011 decree or the amended 2013 decree actually
awarded Cindy $4.167 million for her remaining share of the estate. This left Hank with
approximately 90% of the marital estate and Cindy with approximately 10%. Such an unequal
division requires an explanation. Ark. Code Ann. § 9-12-315(a)(1)(B).
If the circuit court intended to give each party an equal share of the marital estate, the
problem is that the circuit court assigned all of the income-producing assets to Hank,
allowing him to immediately enjoy the full value of those assets. Meanwhile, Cindy is forced
6
Cite as 2014 Ark. App. 601
to rely on a series of periodic payments, requiring her to wait years if not decades before she
receives the full value of her share of the marital property. This appears to be contrary to the
intent of our marital-property statute that all property be divided and distributed at the time
the divorce decree is entered. See Ark. Code Ann. § 9-12-315(a) (“At the time a divorce
decree is entered: . . .”). By allowing Hank to pay Cindy for her share over an extended
period of time, they will necessarily be forced to maintain a continuing connection. The
precise period is left to the discretion of the circuit court. In general, the duration should be
the shortest term that the payor can afford without undue financial hardship. Recently, in
Russell v. Russell, 2013 Ark. 372, 430 S.W.3d 15, originally decided by the same circuit court
as the present case, our supreme court approved a short-term award of alimony for
twenty-four months as a method of allocating to one party an interest in the other party’s
property to balance some inequity in the division of marital property.
If the circuit court intended for each party to receive an equal share of the marital
property, albeit paid in installments, there are other problems with its approach. The most
important is that the court failed to consider the time value of money. At $13,000 per
month, it would take over twenty-six years to pay Cindy $4.167 million for her marital
interest. It is axiomatic that the present value of a series of payments in the future is lower
than the sum of the payments that will eventually be received, because the payee does not
yet have the use of the unpaid money. The longer the payment period, the greater the
discrepancy between the present value of the monetary award and the sum of the stream of
payments. See generally Harper v. Harper, 586 So. 2d 1147 (Fla. Dist. Ct. App. 1991). To
7
Cite as 2014 Ark. App. 601
account for the time value of money, one of two approaches can be used. One is to provide
for a reasonable rate of interest on the unpaid distributive award. The other approach is to
work backward from a payment schedule considered desirable by the parties, and consider
the present value of the proposed future payments when structuring the overall distribution.
To avoid unfairness to the recipient, it is necessary to use one approach or the other. Sateren
v. Sateren, 488 N.W.2d 631 (N.D. 1992). If periodic cash payments are awarded without
interest but not discounted to present value, the distribution plan may be based upon an
erroneously high concept of the monetary award’s value. Therefore, when interest is not
imposed, it is necessary to discount the installment payments to present value to arrive at an
equitable property division. Id. However, it does not appear that the circuit court did either.
In addition to potentially deferring a multimillion-dollar award over an undetermined
period of years, the circuit court also awarded Cindy no security on the award. At the time
of trial in 2011, Cindy was 55 years old. According to the actuarial tables found at Ark. Code
Ann. § 18-2-105, Cindy had an average remaining life expectancy of approximately
twenty-six years. It would take over twenty-six years for Hank to pay Cindy over $4 million
at the rate of $13,000 per month. Thus, it is unclear whether she or Hank would live long
enough for Cindy to receive all of her share of the marital property. If the circuit court was
attempting to have Hank pay Cindy for her share of the marital property, it should have
stood by its order to have Hank to provide some form of security such as a life insurance
policy, with Cindy as the beneficiary or a bond. See Rudder v. Hurst, 2009 Ark. App. 577,
337 S.W.3d 565.
8
Cite as 2014 Ark. App. 601
Finally, the circuit court should have considered the federal income-tax consequences
of the court’s division of property, as required by Arkansas Code Annotated section
9-12-315(a)(1)(A)(ix). By calling the monetary payments to Cindy “alimony,” the court
potentially saddled her with additional tax liabilities because, for federal taxation purposes,
alimony is income to the recipient and constitutes a deduction to the payor. See 26 U.S.C.
§ 215(a)–(b) (2012). Equitable distribution is merely a division of the marital property of each
spouse and does not constitute “income” to either party.
We therefore reverse the circuit court’s decree and remand so that the circuit court
can comply with the requirements of section 9-12-315 by explaining whether the “alimony”
awarded was traditional alimony or, instead, an equitable reimbursement designed to allow
Hank to make installment payments to Cindy to satisfy his equitable-distribution debt to
Cindy. If the court intends for the payments to be for Cindy’s share of the marital property,
it should also explain why Hank should not be required to borrow the funds to pay her. The
court can also reconsider whether Cindy should receive “traditional,” need-based alimony.
Reversed and remanded.
PITTMAN and WYNNE, JJ., agree.
Clark Law Firm PLLC, by: Suzanne G. Clark, for appellant.
Ralph C. Williams, for appellee.
9