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Consideration of Capital Gains Tax in Hypothetical Sale of Business
© 2004 National Legal Research Group, Inc.
MISSOURI: Elrod v. Elrod, 144 S.W.2d 373 (Mo. Ct. App. 2004).
The trial court erred in recognizing a debt equal to future capital gains taxes from the sale of the husband's business, where the husband had no present intention to sell his business in the immediate future. Where the record contained little evidence on what happened to funds present in various bank accounts on the date of separation, the court remanded for consideration of additional evidence.
The wife appealed that portion of the judgment of divorce that related to the distribution of marital property. The wife had been employed as a cashier during the marriage, while the husband was the sole owner of a trucking company. The husband was awarded approximately $511,000 in marital assets and $323,700 in marital debt. The wife received $191,219 in marital assets and $78,643 in debts. In order to equalize the distributions, the husband was ordered to make a lump-sum payment of $37,300 to the wife.
The wife argued that the court below had erred in awarding marital debt to the husband that included an unsecured award of $78,200 for future tax liability arising as a result of the sale of the husband's trucking business. The husband's expert testified that considering the value of the company's rolling stock, which included the trucks and trailers, a sale of the business would result in this tax liability. The wife asserted that this award was unsupported by the evidence in that the husband's expert testified that this tax consequence would arise only upon the sale of the business and that the trial court had not ordered liquidation of the company's assets and there was no other evidence that such a liquidation was likely to occur. The appellate court recognized that, while a tax consequence is a factor to consider in dividing marital property, the trial court is not permitted to make deductions to the marital estate for any estimated tax liability absent sufficient evidence to support its findings. Here, there was little evidence to support the proposition that the husband intended to liquidate his trucking company. The expert's testimony was in fact to the contrary, with his estimate of tax liability being contingent on an actual sale, a sale which the husband gave no indication of occurring in the immediate future. As a result, with no evidence to support the award of this debt to the husband, the division of property order must be reversed and remanded.
The wife also alleged error in the valuation of other assets, specifically several bank accounts. She maintained that the husband failed to present evidence as to the value of the accounts, except the savings account in her name, which the trial court valued as of the date of separation. Additionally, she asserted that she presented values for the accounts as of the date of the trial and that the husband did not refute her calculations. Therefore, she argued, the trial court had failed to value the accounts reasonably proximate in time to when the property division became effective. The husband's testimony as to value, without documentary evidence, was according to the wife insufficient as a matter of law to establish the value of the accounts. The court of appeals, however, noted that neither party offered any documentary evidence, such as bank statements, relating to the value of the bank accounts. The husband testified as to the value of the accounts as of the date of separation, which was three years before the matter came to trial. The wife testified as to the value upon the date of dissolution. It is true that the general rule is that the appropriate date for the valuation of marital property is the date of the trial. But, under this rule, if a marital asset does not exist at the time of the trial, the trial court cannot value it and include that asset in its division of property. The husband and the wife had at least an equal burden on the matter of evidence of value. Here, neither party carried that burden. There was simply no actual evidence as to the value of the bank accounts and, as noted, a trial court cannot consider an asset for distribution unless and until there is evidence that there is a marital asset subject to distribution. Here, actually, there was some evidence that at least a portion of the funds in the accounts was expended toward the wife's living expenses during the pendency of the divorce. Likewise, it could have been inferred that the wife may have squandered or secreted the bulk of the accounts in view of the fact that the husband testified he had paid for the wife's living expenses and mortgage payments during the course of their separation. This, however, does not meet the burden of proof. In such a situation, there is a lack of any record on the value of the bank accounts such that it does not allow for meaningful appellate review. Therefore, concluded the court, because it had already ordered a remand on the tax- consequence issue, it would reverse and remand on this point as well. The trial court must fully develop the record, which could allow for the taking of additional evidence, as to the value of the bank accounts as close to the effective date of the dissolution as possible. This would permit an inquiry into the question of whether the funds in the accounts were legitimately expended or whether they were secreted or squandered.
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