{ "id": 12022190, "name": "Pamela GRACE v. Theodore GRACE", "name_abbreviation": "Grace v. Grace", "decision_date": "1996-10-21", "docket_number": "95-831", "first_page": "312", "last_page": "317", "citations": [ { "type": "official", "cite": "326 Ark. 312" }, { "type": "parallel", "cite": "930 S.W.2d 362" } ], "court": { "name_abbreviation": "Ark.", "id": 8808, "name": "Arkansas Supreme Court" }, "jurisdiction": { "id": 34, "name_long": "Arkansas", "name": "Ark." }, "cites_to": [ { "cite": "33 Ark. App. 63", "category": "reporters:state", "reporter": "Ark. App.", "case_ids": [ 6650697 ], "weight": 2, "year": 1990, "opinion_index": 0, "case_paths": [ "/ark-app/33/0063-01" ] }, { "cite": "255 Ark. 243", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 8719413 ], "weight": 2, "year": 1973, "opinion_index": 0, "case_paths": [ "/ark/255/0243-01" ] }, { "cite": "278 Ark. 233", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 1748344 ], "weight": 2, "year": 1983, "opinion_index": 0, "case_paths": [ "/ark/278/0233-01" ] }, { "cite": "Ark. Code Ann. \u00a7 9-15-315", "category": "laws:leg_statute", "reporter": "Ark. Code Ann.", "year": 1993, "pin_cites": [ { "page": "(a)(l)(A)(vii)" } ], "opinion_index": 0 }, { "cite": "278 Ark. 82", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 1748107 ], "weight": 2, "year": 1982, "opinion_index": 0, "case_paths": [ "/ark/278/0082-01" ] }, { "cite": "Ark. Code Ann. \u00a7 16-56-105", "category": "laws:leg_statute", "reporter": "Ark. Code Ann.", "year": 1987, "pin_cites": [ { "page": "(1)" } ], "opinion_index": 0 }, { "cite": "544 N.E.2d 553", "category": "reporters:state_regional", "reporter": "N.E.2d", "case_ids": [ 10931763 ], "year": 1989, "opinion_index": 0, "case_paths": [ "/ne2d/544/0553-01" ] }, { "cite": "518 Pa. 137", "category": "reporters:state", "reporter": "Pa.", "case_ids": [ 1811627 ], "weight": 2, "year": 1988, "opinion_index": 0, "case_paths": [ "/pa/518/0137-01" ] }, { "cite": "432 A.2d 1293", "category": "reporters:state_regional", "reporter": "A.2d", "case_ids": [ 7989787 ], "year": 1981, "opinion_index": 0, "case_paths": [ "/a2d/432/1293-01" ] }, { "cite": "474 N.W.2d 63", "category": "reporters:state_regional", "reporter": "N.W.2d", "case_ids": [ 10596682 ], "year": 1991, "opinion_index": 0, "case_paths": [ "/nw2d/474/0063-01" ] }, { "cite": "9 ALR 5th 568", "category": "reporters:specialty", "reporter": "A.L.R. 5th", "year": 1993, "opinion_index": 0 }, { "cite": "796 S.W.2d 400", "category": "reporters:state_regional", "reporter": "S.W.2d", "case_ids": [ 11289877 ], "year": 1990, "opinion_index": 0, "case_paths": [ "/sw2d/796/0400-01" ] }, { "cite": "Ark. Code Ann. \u00a7 9-12-315", "category": "laws:leg_statute", "reporter": "Ark. Code Ann.", "year": 1993, "pin_cites": [ { "page": "(a)(l)(A)(ix)" } ], "opinion_index": 0 } ], "analysis": { "cardinality": 536, "char_count": 9505, "ocr_confidence": 0.813, "pagerank": { "raw": 1.755470618738064e-07, "percentile": 0.7091287947675714 }, "sha256": "7ce2991b919b26f0056f45db15bbe0c4fa1212ed96f531794e7c145a244f62f0", "simhash": "1:c2232e76240ba1ac", "word_count": 1645 }, "last_updated": "2023-07-14T22:12:03.555215+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "Pamela GRACE v. Theodore GRACE" ], "opinions": [ { "text": "DAVID Newbern, Justice.\nThis is a divorce case. The only issues on appeal concern division of the marital property. The property included major assets, such as the marital home, which was awarded to Pamela Grace, and an insurance \u201cbook of business,\u201d which was awarded to Theodore Grace. As we understand it, the \u201cbook of business\u201d of an insurance agent consists of his right to residual payments from insurance policies sold and from prospective renewals. The Chancellor also adjusted the division of property between the parties by assigning to Mr. Grace a debt the Chancellor termed \u201cunenforceable\u201d and yet \u201cowed\u201d by the parties to his parents in the amount of $5000. We hold the Chancellor erred in subtracting from the value of the \u201cbook of business\u201d the amount of federal tax that would have to be paid in the event the asset were sold. We hold it was not error for the Chancellor to consider the $5000 debt, assign it to Mr. Grace, and accordingly reduce the award to Mrs. Grace by half the amount of the debt.\ni. The tax credit\nA chancellor may consider \u201cthe federal income tax consequences of the court\u2019s division of property\u201d when she finds it would be inequitable to divide the property half and half. Ark. Code Ann. \u00a7 9-12-315(a)(l)(A)(ix) (Repl. 1993). In this case, there is no demonstrable federal income tax consequence resulting from the division of the property. The Chancellor did not order the \u201cbook of business\u201d to be sold. Mr. Grace mentioned, at one point in the proceedings, that he might have to sell that asset in order to satisfy his obligation to Mrs. Grace, but the Chancellor said in her summation, \u201cI don\u2019t think there\u2019s any evidence that he\u2019s going to sell.\u201d\nMr. Grace argues the witnesses who testified about the value of the \u201cbook of business\u201d said a buyer would \u201cexpense\u201d the purchase. We presume that means a purchaser would be someone in a position to deduct from business profits the expense of purchasing the \u201cbook of business\u201d for tax purposes. That ostensibly would give the asset a higher value to the buyer, thus creating a higher market value or selling price and, therefore, a greater tax consequence to the seller. The argument obviously assumes certain facts about the hypothetical buyer being in a position to \u201cexpense\u201d the purchase. The contention is that the evidence of the value of the asset was thus based on an assumption that Mr. Grace would have to pay tax on the sale. Again, no sale has been ordered, and none seems to be in prospect.\nIn support of the Chancellor\u2019s decision on this point, Mr. Grace cites Hogan v. Hogan, 796 S.W.2d 400 (Mo.App. 1990), in which it was held that it was proper to consider the tax consequence of a sale of a building in the division of assets because \u201cThe concept of fair market value assumes the sale of the property to an interested buyer.\u201d The opinion does not show whether or not a sale was to occur.\nWe have not previously addressed the question whether tax consequences of the sale of an asset should be considered when the asset is not required to be sold by the divorce decree and when there is no indication that a sale will occur. Cases addressing this issue are collected in Annot., Tax Consequences of Distribution, 9 ALR 5th 568 (1993).\nThe majority view is exemplified by decisions such as Kaiser v. Kaiser, 474 N.W.2d 63 (N.D. 1991), and Crooker v. Crooker, 432 A.2d 1293 (Me. 1981). In the Kaiser case, for example, one of the marital assets was an oil-well service company. The Trial Court awarded it to the husband and, in evaluating it for purposes of achieving an equal division of all marital assets, subtracted an amount to be paid in federal taxes upon liquidation. The North Dakota Supreme Court held it was an error of law and a manifest abuse of discretion for the Trial Court to have reduced the value of the asset by tax consequences which were speculative. In doing so, the Court quoted the following from Hovis v. Hovis, 518 Pa. 137, 541 A.2d 1378 (1988):\n...In order to insure a \u201cfair and just determination and settlement of property rights\u201d we favor predictability over mere surmise in the valuation and distribution of marital property after divorce. Accordingly, we hold that potential tax liability may be considered in valuing marital assets only where a taxable event has occurred as a result of the divorce or equitable distribution of property or is certain to occur within a time frame such that the tax liability can be reasonably predicted.\nThe North Dakota Court continued as follows:\nWe agree with the foregoing decisions holding that a trial court in a divorce action should consider potential taxes in valuing marital assets only if (1) the recognition of a tax liability is required by the dissolution or will occur within a short time; (2) the court need not speculate about a party\u2019s future dealing with the asset; (3) the court need not speculate about possible future tax consequences; and (4) the tax liability can be reasonably predicted.\nIn this case Mr. Grace is asking not only that we speculate that he will sell the asset in question but that when and if he does so his tax liability will be the same as it would be today. Although the argument is based on an accountant\u2019s testimony about a prospective buyer of the \u201cbook of business,\u201d he also asks us to speculate that a prospective buyer would \u201cexpense\u201d the purchase and that the tax consequences to such a buyer would be the same as would occur today. As the North Dakota and Pennsylvania Supreme Courts, we prefer not to engage in such speculation.\nWith respect to \u00a7 9-12-315, we need only point out that we have not been made aware of any federal income tax consequence which will result from \u201cthe court\u2019s division of property.\u201d In considering a similar statute, an Indiana appellate court stated:\nThe thrust of the Statute is to recognize that there may be in the plan of division of marital property certain tax consequences which should be taken into account. The clear ... [implication] is that only tax consequences necessarily arising from the plan of distribution are to be taken into account, not speculative possibilities. The Statute limits the trial court to consider only the tax consequences of \u201cof the property disposition.\u201d [Emphases in the original.]\nHarlan v. Harlan, 544 N.E.2d 553 (Ind. App. 1989). We hold it was error to consider the tax consequences of a prospective sale of the \u201cbook of business\u201d because the decree did not require such a sale and there was no evidence that a sale was imminent.\n2. The \u201cdebt\u201d\nTheodore and Pamela Grace received $5,000 from his parents. The money was intended to finance landscaping of their new home. While there is some doubt as to the exact time the money was received, it was no later than 1989. Mr. Grace\u2019s mother testified it was intended that the money be repaid. It had not been repaid at the time of the divorce in 1995. Pamela Grace testified she could not remember any discussion about repayment, apparently contesting any obligation to pay the money back.\nThe Chancellor remarked that the debt was \u201cunenforceable\u201d but that it was \u201cowed\u201d by the parties. She apparently considered it unenforceable due to Ark. Code Ann. \u00a7 16-56-105(1) (1987), which places a three-year limitation on \u201cany contract, obligation, or liability not under seal and not in writing ...\u201d As we pointed out in Hackett v. Hackett, 278 Ark. 82, 643 S.W.2d 560 (1982), a chancellor has no authority to determine the validity of an obligation to a third party who is not a party to the divorce. Our statute on division of marital property provides, however, that a chancellor is to \u201ctake into consideration ... [the] [e]state, liabilities, and needs of each party ...\u201d Ark. Code Ann. \u00a7 9-15-315(a)(l)(A)(vii) (Repl. 1993). We have entertained questions about marital debts and whether they should be \u201cconsidered\u201d in assigning marital property as questions of fact, and we decline to reverse decisions about them unless they are clearly erroneous. Ark. R. Civ. P. 52(a); Pinkston v. Pinkston, 278 Ark. 233, 644 S.W.2d 930 (1983); McEndree v. McEndree, 255 Ark. 243, 499 S.W.2d 596 (1973). See also Warren v. Warren, 33 Ark. App. 63, 800 S.W.2d 730 (1990).\nWhile we disregard the Chancellor\u2019s conclusions about whether the debt in this case was \u201cenforceable\u201d or \u201cowed,\u201d we have no reason to say her factual conclusions about the transfer of the money are in error, or that she erred in considering the $5,000 as a \u201cliability\u201d of the parties.\nWe could perhaps modify the decree and give Pamela Grace an additional share of the marital property in the amount of $42,370, or half of the $84,740 tax liability for which Theodore Grace was given credit in the original decree. We note, however, that the decree provides for a final adjustment figure owed to Mrs. Grace in the amount of $22,100 to be paid by Mr. Grace at the rate of $500.00 per month with interest at the rate of 8.25% per annum. In view of the fact the entry of a decree consistent with this opinion may make it advisable to consider other payment arrangements, we choose to remand the case to the Chancellor for further orders.\nAffirmed in part, reversed in part, and remanded.", "type": "majority", "author": "DAVID Newbern, Justice." } ], "attorneys": [ "Kaplan, Brewer, &Maxey, BA., by: Philip E. Kaplan and Regina Haralson, for appellant.", "Dover & Dixon, P.A., by: Philip E. Dixon and W. Michael Reif, for appellee." ], "corrections": "", "head_matter": "Pamela GRACE v. Theodore GRACE\n95-831\n930 S.W.2d 362\nSupreme Court of Arkansas\nOpinion delivered October 21, 1996\n[Petition for rehearing denied November 25, 1996.]\nKaplan, Brewer, &Maxey, BA., by: Philip E. Kaplan and Regina Haralson, for appellant.\nDover & Dixon, P.A., by: Philip E. Dixon and W. Michael Reif, for appellee." }, "file_name": "0312-01", "first_page_order": 346, "last_page_order": 351 }