#28104-a-SLZ
2017 S.D. 70

                             IN THE SUPREME COURT
                                     OF THE
                            STATE OF SOUTH DAKOTA

                                    ****
ADAM DUANE RICHARZ,                          Plaintiff and Appellant,

      v.

DENA KAY RICHARZ,                            Defendant and Appellee.


                                    ****

                   APPEAL FROM THE CIRCUIT COURT OF
                      THE FIRST JUDICIAL CIRCUIT
                     MCCOOK COUNTY, SOUTH DAKOTA

                                    ****

                    THE HONORABLE PATRICK T. SMITH
                                Judge

                                    ****

PATRICK T. DOUGHERTY of
Dougherty & Dougherty, LLP
Sioux Falls, South Dakota                    Attorneys for plaintiff and
                                             appellant.


VICTORIA M. DUEHR of
Bangs, McCullen, Butler,
 Foye & Simmons, LLP
Sioux Falls, South Dakota                    Attorneys for defendant and
                                             appellee.

                                    ****


                                             CONSIDERED ON BRIEFS ON
                                             AUGUST 28, 2017
                                             OPINION FILED 11/08/17
#28104

ZINTER, Justice

[¶1.]        Adam and Dena Richarz were married in 2007 and obtained a divorce

in 2016. In dividing their property, the circuit court awarded Adam his interest in

an LLC, it required Adam to pay 25% of Dena’s student-loan debt, and it ordered

Adam to make a cash-equalization payment. Adam appeals. We affirm.

                         Facts and Procedural History

[¶2.]        Adam and Dena were childhood friends. They began dating in 2005

before Dena’s senior year of high school. They became engaged in 2006, shortly

after Dena began attending college. They were married in September 2007.

[¶3.]        Adam worked on his parents’ farm. He was paid a salary of $1,200 per

month by G&L, Inc., a corporation owned by his mother. Before the marriage,

Adam and his parents formed Richarz Properties, LLC. Adam contributed $50,000

and his parents contributed $45,000. The contributions were used to purchase an

8.51-acre parcel of land (the “Lauck land”) in McCook County. In 2008, the LLC

purchased a 143.47-acre parcel of land referred to as the “Farrell land.” Although

Adam initially had slightly more than a 50% interest in the LLC, he transferred

approximately 2% of that interest to his father in 2011—leaving Adam with a

48.63% interest. The transfer was in exchange for improvements made by Adam’s

parents to the Lauck land.

[¶4.]        Dena continued her college education after getting married. She

stayed with Adam during weekends, breaks, holidays, and summer vacations.

When at home with Adam, Dena worked on the farm and in the household. After

completing her undergraduate degree, Dena began applying to veterinary schools


                                         -1-
#28104

and was eventually accepted at a school in Scotland. She moved to Scotland in

August 2011 and graduated in July 2016. Adam stayed in South Dakota and

continued to work for his parents at the farm. Dena accumulated $397,822 in

student-loan debt during the marriage.1

[¶5.]         Adam filed for divorce in December 2014. The parties agreed to a

divorce on the grounds of irreconcilable differences. They proceeded to trial to

divide the property. The primary disputes involved the division of Adam’s interest

in the LLC and the responsibility for Dena’s student-loan debt.

[¶6.]         Adam and Dena retained experts to value the land and the LLC.

Adam retained Tom Souvignier, a licensed real estate broker and real estate

auctioneer, to value the land. Souvignier valued the Lauck land at $257,900 and

the Farrell land at $665,000. Adam retained Jay Fullerton to value the LLC. Using

Souvignier’s land values, Fullerton valued Adam’s interest in the LLC at $248,000,

which included discounts for lack of marketability and lack of control.

[¶7.]         Dena retained Merle Miller, a licensed real estate broker and certified

appraiser, to value the land. Miller valued the Lauck land at $210,0002 and the

Farrell land at $1,004,250. Dena retained Ericka Heiser to value Adam’s interest in

the LLC. Using Miller’s value of the Farrell land, Heiser valued Adam’s interest in

the LLC at $595,000. Although Heiser testified she would apply lower discounts



1.      This amount was only that incurred for Dena’s education during the
        marriage. Loans for premarital education were not classified as marital debt.
        Under the property division, Dena was solely responsible for premarital-
        education loans.

2.      The parties agreed to utilize Miller’s appraisal of the Lauck land when
        valuing the LLC.
                                           -2-
#28104

than Fullerton, she was of the opinion that Adam’s interest should not be

discounted at all.

[¶8.]        The circuit court classified three items of property as marital: an

investment worth $211, a bank account worth $502, and Adam’s interest in the

LLC. The court then adopted Miller’s valuation of the land and Heiser’s valuation

of Adam’s interest in the LLC. The court valued Adam’s interest in the LLC at

$595,000, but it subtracted the $50,000 that Adam had invested before the

marriage. Adam was then awarded his interest in the LLC and the $211

investment, for a total value of $545,211. Because the court determined that Dena

should be awarded one-half the value of the marital assets, it awarded her the $502

bank account, and it ordered Adam to make a cash-equalizing payment of

$272,354.50. Finally, the court ordered that Dena would be responsible for paying

her student loans but that Adam was allocated 25% of the responsibility

($99,455.50) in addition to the cash-equalization payment. Thus, Dena was to

receive cash in the amount of $371,810 ($272,354.50 plus $99,455.50). However,

because Dena testified she would be satisfied with $303,000, the court reduced the

equalization payment to that amount.

[¶9.]        Adam appeals, arguing the circuit court erred in valuing the Farrell

land, valuing his interest in the LLC, awarding Dena one-half the value of the

marital assets, and requiring him to pay 25% of Dena’s student-loan debt. Dena

requests appellate attorney fees.




                                         -3-
#28104

                                       Decision

Valuation of Adam’s LLC Interest

[¶10.]       Adam argues the circuit court erred in valuing his interest in the LLC,

which was primarily based on the value of real estate. “The valuation of property

involved in a divorce proceeding will not be overturned unless it is clearly

erroneous.” Hill v. Hill, 2009 S.D. 18, ¶ 14, 763 N.W.2d 818, 823. We will not

disturb the circuit court’s valuation so long as it falls “within the range of evidence

presented to the court.” Christians v. Christians, 2001 S.D. 142, ¶ 12, 637 N.W.2d

377, 380.

[¶11.]       Adam contends the circuit court erroneously adopted Miller’s valuation

of the Farrell land. Miller used a comparable sales approach involving three similar

properties, including one sale he conducted. The similar properties sold from $6,625

to $7,055 per acre. Based on the sale he conducted personally, which was located

three and a half miles from the Farrell land, Miller testified that he believed he

could have found a buyer who would have paid $7,100 per acre. Based on

comparable sales, Miller valued the Farrell land at $7,000 per acre, for a total value

of $1,004,250.

[¶12.]       Adam contends Miller’s belief that he could have sold the Farrell land

for $7,100 per acre was speculative. Adam also contends Miller’s valuation failed to

consider a decrease in commodity prices. However, the circuit court considered

conflicting evidence from two qualified experts indicating that the land was worth

between $665,000 and $1,004,250. The court found that Miller’s higher valuation

was more persuasive not only because of Miller’s personal experience, but also


                                           -4-
#28104

because his “report was more specific, his comparables closer in time and close in

distance, and the most reliable comparable was within 4 miles, sold in 2016, and

went for $7,100 per acre.” The court did not clearly err in adopting Miller’s

valuation.

[¶13.]       With respect to the ultimate valuation of the LLC, Adam contends the

court erred by failing to apply lack-of-control and lack-of-marketability discounts.

Adam contends the court should have applied a lack-of-control discount because he

did not have a majority interest. In his view, the court should have been bound by

the literal language of the LLC’s operating agreement, which provided that

managers were to act collectively and that their votes were dependent on units of

ownership. However, the valuation process is not limited by such rigid rules.

Instead, “the determination of whether to apply a minority discount depends upon

the evidence presented in each case,” and the issue “must be dealt with by trial

courts on a case-by-case basis.” Priebe v. Priebe, 1996 S.D. 136, ¶ 17, 556 N.W.2d

78, 82.

[¶14.]       Here, the circuit court did not discount Adam’s interest for lack of

control because it found that Adam was a manager who would likely be exercising

full authority. The court was heavily persuaded by “the reality of the situation”:

i.e., the LLC was a family LLC that Adam had always managed, and the court could

not envision a scenario where Adam would not be the manager. The court also

considered the fact that Adam had transferred enough of his interest to reduce his

ownership interest to less than 50% with no legal obligation to do so. Based on all




                                          -5-
#28104

the evidence in the record, the court did not clearly err in refusing to apply a

minority discount.

[¶15.]         With respect to a lack-of-marketability discount, the court ruled that

no discount would be applied because it would not be fair to discount the parties’

only significant asset that would likely never be sold. “Whether or not it is fair or

appropriate to apply a discount in a divorce case where no immediate sale is

contemplated is for the trial court to determine based upon the evidence of the

case.” Fausch v. Fausch, 2005 S.D. 63, ¶ 10, 697 N.W.2d 748, 752-53.

[¶16.]         Dena’s expert testified that discounting Adam’s interest was not

appropriate because it was unlikely a sale would ever occur. Therefore, discounting

the value in the divorce division would mean that Dena would receive a discounted

interest while Adam would retain the full benefit of an undiscounted interest.3 The

circuit court also noted that had the parties remained married, both would have

shared the benefit of the LLC’s income.4 Ultimately, the court reasoned that

discounting the value would not impact Adam, who would always have the full

value of his interest, but would “unfairly undervalue Dena’s share of the marital

estate.” The court did not clearly err in valuing Adam’s interest without a lack-of-

marketability discount.



3.       Adam’s expert stated that he used a “cash in three days” standard to
         determine whether a marketability discount should be applied to an illiquid
         asset. The circuit court rejected this standard as “unrealistic” when valuing a
         business asset in a divorce with a primary value in real estate as opposed to
         stocks and bonds.

4.       The evidence indicated that the LLC was close to paying off all its debt, after
         which point it would be generating a profit.

                                            -6-
#28104

Division of Property

[¶17.]         Adam argues the circuit court abused its discretion in awarding Dena

one-half the value of the marital assets, which was primarily composed of his

interest in the LLC.5 Based on the bankruptcy code’s definition of a “farm

operation,” Adam claims the court erred in finding that Dena significantly

contributed to the parties’ “farm operation” because he did not run a “farm

operation” under that definition. However, the label used by the court in describing

the LLC’s business is not determinative in dividing the marital estate. Moreover,

Adam has not appealed the court’s decision to include his interest in the LLC as

marital property.

[¶18.]         When making an equitable division of property, the circuit court “is not

bound by any mathematical formula but shall make such award from the material

factors before it, having due regard for equity and the circumstances of the parties.”

Priebe, 1996 S.D. 136, ¶ 11, 556 N.W.2d at 81. In deciding to award Dena one-half

the value of the marital assets, the court noted that part of the reason Dena

pursued a veterinarian degree was to benefit the family farm by taking care of their

livestock operation. The court also noted that Dena helped on the farm whenever

she returned home. Ultimately, the court gave due regard to the parties’ individual

circumstances. It found that both Adam and Dena had similar earning capacities

but that Adam’s interest in the LLC was “a significant asset to fall back on if he

becomes incapacitated or is otherwise rendered unable to meet his financial




5.       We review the circuit court’s division of property for an abuse of discretion.
         Johnson v. Johnson, 2007 S.D. 56, ¶ 16, 734 N.W.2d 801, 806.
                                             -7-
#28104

obligations.” Dena had no similar asset other than her veterinarian degree. The

court properly considered the circumstances of the parties, and we cannot say that

the court abused its discretion in awarding Dena the value of one half of the marital

assets.

Student Loans

[¶19.]       Adam argues the circuit court abused its discretion in making Adam

responsible for 25% of Dena’s student-loan debt. He contends he should not be

responsible for any of the loans because none of the proceeds were used for “family

purposes.” He also points out that he will not share in Dena’s future income from

being a veterinarian.

[¶20.]       Although an educational degree is not property subject to division,

Wehrkamp v. Wehrkamp, 357 N.W.2d 264, 266 (S.D. 1984), student-loan debt may

be included in, and allocated as, a part of the marital estate. See Hill, 2009 S.D. 18,

¶¶ 16-17, 763 N.W.2d at 824. Here, the circuit court acknowledged that Dena will

be the only one to ever benefit from the proceeds of her degree. Therefore, it

ordered that Dena would be responsible for most of the debt. The court made Adam

responsible for a small portion of the debt because Adam and Dena entered into the

marriage—and Dena attended school each year—with the understanding that they

would incur this debt and that Dena’s degree would be used to benefit the farm. We

also note that Adam’s ultimate responsibility became much less than the 25%

initially assigned by the court. The court initially ordered Adam to make a cash-

equalizing payment of $272,354.50. If Adam had been required to pay the full 25%

of Dena’s loans—$99,450—he would have been required to pay Dena a cash-


                                          -8-
#28104

equalization payment of $371,804.50 ($272,354.50 plus $99,450). However, Dena

agreed to a payment of $303,000. Therefore, Adam was actually ordered to pay only

$30,645.50 ($303,000 minus $272,354.50)—or 7.7%—of Dena’s student loans. The

circuit court did not abuse its discretion in assigning Adam a small part of Dena’s

student loans.

[¶21.]       We affirm the circuit court’s judgment, and we deny Dena’s request for

appellate attorney fees.

[¶22.]       GILBERTSON, Chief Justice, and SEVERSON and KERN, Justices,

and WILBUR, Retired Justice, concur.

[¶23.]       JENSEN, Justice, not having been a member of the Court at the time

this action was submitted to the Court, did not participate.




                                         -9-
