Jason William Stephen v. Amy Jo Stephen , 2015 Wyo. LEXIS 124 ( 2015 )

IN THE SUPREME COURT, STATE OF WYOMING
2015 WY 109
APRIL TERM, A.D. 2015
August 18, 2015
JASON WILLIAM STEPHEN,
Appellant
(Defendant),
v. S-14-0292
AMY JO STEPHEN,
Appellee
(Plaintiff).
Appeal from the District Court of Laramie County
The Honorable Thomas T.C. Campbell, Judge
Representing Appellant:
Laura J. Jackson of Jackson & Ojeda, LLC, Cheyenne, Wyoming.
Representing Appellee:
Douglas W. Bailey of Bailey, Stock & Harmon, P.C., Cheyenne, Wyoming.
Before BURKE, C.J., and HILL, KITE*, DAVIS, and FOX, JJ.
* Justice Kite retired from judicial office effective August 3, 2015, and pursuant to Article 5,
§ 5 of the Wyoming Constitution and Wyo. Stat. Ann. § 5-1-106(f) (LexisNexis 2015), she was
reassigned to act on this matter on August 4, 2015.
NOTICE: This opinion is subject to formal revision before publication in Pacific Reporter Third.
Readers are requested to notify the Clerk of the Supreme Court, Supreme Court Building,
Cheyenne, Wyoming 82002, of typographical or other formal errors so correction may be made
before final publication in the permanent volume.
KITE, Justice.
[¶1] Jason William Stephen (Husband) appeals from the property division portion of a
divorce decree, claiming the district court abused its discretion in valuing his interest in
the family business and requiring him to make a lump sum payment to Amy Jo Stephen
(Wife). We affirm.
ISSUES
[¶2] Husband contends the district court abused its discretion by:
1. Requiring him to make a lump sum payment to Wife rather than devising a
plan for payment over time;
2. Using a capitalization of earnings method to value the family business
without first finding the business is likely to survive the lump sum payment; and
3. Failing to apply a minority discount after Wife’s expert witness testified the
discount was appropriate.
[¶3] Wife asserts the district court did not abuse its discretion because:
1. A lump sum payment was reasonable, given Husband’s income and the
success of the family business;
2. Although a finding of survivability is not required, the district court
nevertheless found the family business would continue to be successful when it ordered
the lump sum payment; and
3. Wife’s expert testified a minority discount was not appropriate because the
family business was not going to be sold.
FACTS
[¶4] Husband and Wife were married in 1997 in Laramie, Wyoming. They had two
children. During the marriage, Husband went into business with his father to form
Gateway Construction, Inc., a residential construction company. While Husband worked
long hours getting the business up and running, Wife was primarily a stay at home
mother, but occasionally did some work for the business without pay. In 2011, Wife filed
for divorce in Laramie County, Wyoming where they were living at the time. The parties
reached a settlement agreement as to child custody and visitation but were unable to
agree concerning child support and the division of property. Those matters were tried in
the district court.
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[¶5] At trial, the primary issues in dispute were Husband’s net income for purposes of
calculating child support and the value of the family business for purposes of dividing the
marital property. Testimony at trial revealed that Husband receives a guaranteed
payment of $2,000 per week ($104,000 per year) from the business. The business also
provides him with health insurance, a gym membership, a vehicle, gas (at least as
necessary for work), and a cell phone. Husband and Wife testified that Husband draws
funds to pay his income tax from the business’s capital account separate from the
guaranteed weekly payments.1 Husband also has routinely used funds from the capital
account to pay for various other expenses, including the $107,000 he incurred in legal
fees and costs in this matter prior to the appeal. The district court calculated Husband’s
net income for child support purposes at $11,186 per month and Husband does not
dispute that calculation on appeal. After separating from Husband, Wife went to work as
an elementary school teacher at a net salary of $3,231.00 per month. As part of the
property distribution in the divorce, Wife sought payment for a portion of the value of the
business to compensate her for the contributions she made to its success by staying home,
maintaining the household, raising the parties’ children and helping out with the business
from time to time.
[¶6] Both parties presented expert testimony concerning the value of the business in
which, at the time of trial, Husband owned a 60% interest and his father owned a 40%
interest. Wife’s expert used several methods to value the company, including a
capitalization of earnings approach, which resulted in a value of $639,000. Husband’s
expert also used several methods to value the company, including a capitalization of
earnings approach with a marketability discount, which resulted in a value of $61,000.
[¶7] In its decision letter, the district court accepted Wife’s expert witness’s valuation of
the company and calculated Husband’s 60% interest of that amount at $383,400. The
court ordered Husband to pay one-half that amount, $191,700, to Wife. Combined with
amounts the district court ordered him to pay for medical expenses and attorney fees
Wife had incurred, which are not disputed on appeal, Husband was to pay Wife a total of
$224,822.08.
[¶8] Addressing the method or schedule of payments, the district court said:
In this case the parties could not agree on [the] value
of the principal asset and thus never had an opportunity to
negotiate the circumstances of payment to the wife of
amounts set over to her. Leaving such a question open at the
1
This testimony was disputed. Husband’s father testified that the operating income from the business is
distributed to the owners and the owners pay the taxes. The question of how the taxes are paid does not
affect our resolution of the issues on appeal.
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end of a divorce may be inadvisable but it occurs to this Court
that the parties should have an opportunity to discuss this
element to best suit their situation. The range, from
immediate payment of all debts and amounts owed, to
monthly or yearly payments, to the transfer of ownership
interests makes it a difficult proposition based on the limited
evidence in this regard.
Difficult or not the Court is prepared to rule in this
regard, but with the passage of time, and the clearing up of
uncertainties, it seems reasonable to give the parties this
opportunity. The amounts and divisions are as ordered, but
the Court will not set a repayment schedule unless the parties
notify the court of their inability to agree. The Court will
expect both agreement and presentation of the order or notice
of no agreement within twenty (20) days. If notice is given of
an inability to agree the Court will enter its own decision on
the payment structure immediately, without hearing, and
direct preparation of the final orders.
[¶9] Fifty-one days later, Wife notified the district court the parties were unable to agree
on a payment schedule. The notice was somehow overlooked and five months later the
district court issued a ruling characterizing as “ill-advised” its decision to give the parties
an opportunity to negotiate a payment schedule and ordering payment of all amounts due
to Wife within ninety days of entry of the decree. Pursuant to the district court’s rulings,
counsel for Wife prepared a proposed decree and sent it to Husband’s counsel for
approval as to form. Husband objected to the proposed decree. The district court entered
the proposed decree over Husband’s objections and Husband appealed.
STANDARD OF REVIEW
[¶10] Husband challenges the district court’s valuation of the business and its order
directing him to make a lump sum payment to wife.
“We will not disturb a property division in a divorce
case, except on clear grounds, as the trial court is usually in a
better position than the appellate court to judge the parties’
needs and the merits of their positions.” Metz v. Metz, 2003
WY 3, ¶ 6, 61 P.3d 383, 385 (Wyo.2003), citing Paul v. Paul,
616 P.2d 707, 712 (Wyo.1980); Warren v. Warren, 361 P.2d
525, 526 (Wyo.1961). If our review requires an evaluation of
the sufficiency of the evidence to support the district court’s
decision, “we afford to the prevailing party every favorable
inference while omitting any consideration of evidence
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presented by the unsuccessful party.” Reavis v. Reavis, 955
P.2d 428, 431 (Wyo.1998) (citations omitted). When
interpretation of statutory language is required to resolve an
issue, our standard of review is de novo. Egan v. Egan, 2010
WY 164, ¶ 7, 244 P.3d 1045, 1048 (Wyo.2010); Dorr v.
Smith, Keller & Assoc., 2010 WY 120, ¶ 11, 238 P.3d 549,
552 (Wyo.2010).
Bagley v. Bagley, 2013 WY 126, ¶ 7, 311 P.3d 141, 143 (Wyo. 2013).
DISCUSSION
[¶11] Husband argues first that the district court abused its discretion when it ordered
him to pay the $224,822.08 in a lump sum within ninety days of entry of the divorce
decree rather than devising a plan for him to pay the amount over time. He asserts the
district court abused its discretion in not first determining he has the financial ability to
make a lump sum payment. He also contends that rather than making a just and equitable
disposition of the property as it was required to do, the district court effectively gave
Wife control over the method of payment when it ordered the parties to reach an
agreement on a payment schedule and, when they failed to agree, ordered him to pay in a
lump sum. He argues the district court should have set a hearing to determine a just and
equitable payment method. He contends the lump sum payment method is inequitable
given Wife’s expert, upon whom the district court relied, valued the business on the basis
of its anticipated income stream, which necessarily assumes it will continue to operate
profitably. He contends the business cannot continue to operate if he is required to make
a lump sum payment. He asks this Court to adopt a rule requiring district courts to make
a finding that a business will survive before ordering a lump sum payment. Husband also
points out that Wife testified at trial she was not asking for a lump sum payment; rather,
she proposed yearly payments over a ten year period.
[¶12] Wife responds that the district court did not abuse its discretion in ordering
Husband to make a lump sum payment. She asserts an evidentiary hearing has never
been required before a payment method is established; rather, the only question is
whether the method is fair. She argues the lump sum payment ordered here is fair given
Husband’s income, the profitability of his business, and his access to business accounts,
sources from which to borrow money, and few living expenses. She also contends
Husband had ample opportunity to present a payment plan, failed to do so and should not
be heard to complain at this juncture.
[¶13] In Bailey v. Bailey, 954 P.2d 962 (Wyo. 1998), this Court considered the propriety
of an order requiring the husband to pay wife a lump sum of $323,081.50 in order to
balance the division of property between the parties. There, husband owned controlling
interests in two closely held family businesses and was a stock holder in two more
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closely held family businesses. Id. at 964. The district court accepted husband’s
accountant’s valuation of his ownership interests, divided the valuation equally between
the parties, and ordered husband to make a lump sum cash payment to wife within 180
days from the date of judgment. Id. at 965. Husband challenged the lump sum payment
on appeal and this Court concluded it appeared “sufficiently unfair” that it constituted an
abuse of discretion. Id. at 966. We said:
The assets available to the husband and his income are
directly tied into the family businesses, and they can only be
sold under binding restrictive sales agreements. We
acknowledge the possibility that he could raise the cash by
borrowing money, but there seems to be little point in
imposing that demand upon him and creating an interest drain
to an outside entity when a fair payment schedule would
provide for that interest to be paid to the wife.
Id. On that basis, we reversed and remanded the case to the district court for a hearing to
determine an appropriate and reasonable payment schedule.
[¶14] Two years later, in McLoughlin v. McLoughlin, 996 P.2d 5 (Wyo. 2000), we re-
visited our holding in Bailey when husband challenged a district court order requiring
him to make a lump sum payment of $83,000 to wife for her interest in the family ranch.
Husband argued it was not possible for him to make the payment and still keep the ranch
because it was heavily mortgaged. Id. at 7. We said:
[Bailey] does not mandate a hearing in every case where a
property award is made in the form of cash. It does recognize
that there may be circumstances that do necessitate such a
hearing. In Bailey, we remanded for a hearing because the
record demonstrated a possibility that a cash payment might
be “sufficiently unfair” and work a significant hardship on
Mr. Bailey. The purpose of the hearing was to determine if
that was the circumstance faced by Mr. Bailey and, if so, for
the trial court to fashion an appropriate and reasonable
payment schedule that afforded Mrs. Bailey interest on the
lump sum award, as well as the lump sum itself in
installments. We see few, if any, parallels between the Bailey
case and this one. Husband’s obligations to pay the
mortgages on the ranch appear to be optional. He owns
personal property that can be sold to raise funds to pay at
least a significant portion of the $83,000. The record is clear
that he has at least some ability to work and has few, if any
living expenses. It is also evident from the record that he has
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at least two sources (Mother and girlfriend) from whom he
has in the past, and likely could in the future, borrow funds to
pay off Wife’s interest in the ranch.
Id.
[¶15] In light of this precedent, the issue for our determination is whether Husband
demonstrated that a lump sum payment of $224,822.08 might be sufficiently unfair and
work a significant hardship on him such that it is appropriate to remand the issue for a
hearing. We conclude that Husband failed to make the required showing. From the
evidence presented, the district court found that Husband’s net income for child support
purposes was $11,186.00 per month. The district court further found that over the years
Husband had “regular access” to the business’s capital account, had “routinely” and
“without limitation” relied on the account to “fund aspects of his life” and over the years
had taken as little as $7,000 and as much as $105,000 from the account. The district
court found no evidence to support the assertion by Husband and his father that
Husband’s draws from the account had ever been treated as loans.
[¶16] The district court also found the business had been successful even in lean years,
had substantial projects underway and had “a future plan to build capital to avoid
husband’s father from being a regular source of loans or guarantees.” Additionally, the
district court found
The husband’s income … will leave him in a strong
financial condition, and the ruling of the Court as to the
distribution of some of the value of [the business] will not
cause his income to decline dramatically or permanently.
Both partners, father and son, have a long standing
commitment to this business and will have no reason to alter
that successful course. Husband’s future holds more of the
same success after recovery from divorce based on the growth
of a business that occurred during the marriage.
Thus, contrary to Husband’s assertion, the district court in fact found he had the financial
ability to pay the amount owed to Wife without adversely affecting him or the business in
the future. These findings are fully supported by the evidence presented.
[¶17] In addition, the evidence showed that Husband has at least two sources from which
to borrow money (the business and his father) and as an owner of the business can, with
his father’s agreement, dispose of non-income producing property, liquidate assets or
borrow against equity in the business or business property. Husband also has the ability
to borrow against personal property, including perhaps the $280,000 home that he
testified he would be moving into a month after the trial.
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[¶18] Given all of the evidence presented in this case, we conclude the district court did
not abuse its discretion in ordering Husband to pay the amount owed to wife in a lump
sum. We note that this proceeding began in September 2011. It is now almost four years
later and the parties have incurred the expense of two attorneys, three expert witnesses,2 a
guardian ad litem, two mediations, a two-day trial and an appeal. Sending this case back
to the district court for yet another hearing is not in the best interests of the parties, justice
or judicial economy. The district court fully and fairly considered the issues Husband
presents on appeal. In the exercise of its discretion, it found Husband has the ability to
pay; found payment of the amount ordered would not adversely affect him or the business
in the future; and, while indicating it was prepared to enter an order, gave the parties the
opportunity to work out a payment schedule. When they could not, the district court
properly exercised its discretion and, based on the evidence presented and its assessment
of the witness’s credibility, ordered Husband to pay the amount owed in a lump sum.
Under the circumstances presented, we decline to further prolong this divorce action by
remanding for another hearing. We also decline to impose our own payment schedule
and thereby place Wife in the position of an unsecured creditor of Husband’s business.
[¶19] Addressing Husband’s second issue, in light of the district court’s express finding
that neither Husband or the business would be adversely affected by requiring him to pay
the $224,822.08, we find no abuse of discretion in the district court’s acceptance of the
capitalization of earnings method for valuing the business. It was the job of the district
court, not this Court, to consider the experts’ testimony, weigh their credibility in light of
the other evidence presented and determine which approach best fit the circumstances.
We also reject Husband’s final claim. Contrary to his assertion, Wife’s expert testified at
trial that he did not apply a minority discount because it had no application in this
situation where there was no suggestion the business was going to be sold.
[¶20] Affirmed.
2
In addition to the two expert witnesses who appeared on behalf of the parties at trial, the parties hired
another expert witness to value the business for purposes of mediation.
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