                                                                                                  09/12/2017


                                           DA 16-0600
                                                                                              Case Number: DA 16-0600

               IN THE SUPREME COURT OF THE STATE OF MONTANA
                                           2017 MT 223



IN RE THE MARRIAGE OF:

SANDRA J. BROESDER,

                Petitioner and Appellee,

         and

DONALD W. BROESDER,

                Respondent and Appellant.


APPEAL FROM:            District Court of the Eighth Judicial District,
                        In and For the County of Cascade, Cause No. ADR 12-138
                        Honorable Gregory G. Pinski, Presiding Judge


COUNSEL OF RECORD:

                 For Appellant:

                        Jason T. Holden, Katie R. Ranta, Faure Holden Attorneys at Law, P.C.,
                        Great Falls, Montana

                        Jeffrey S. Ferguson, Attorney at Law, Great Falls, Montana

                 For Appellee:

                        Antonia P. Marra, Marra, Evenson & Bell, P.C., Great Falls, Montana



                                                     Submitted on Briefs: August 16, 2017

                                                                Decided: September 12, 2017


Filed:

                        __________________________________________
                                          Clerk
Justice Jim Rice delivered the Opinion of the Court.

¶1     Donald W. Broesder appeals the Order issued by the Eighth Judicial District Court,

Cascade County, affirming and adopting the Standing Master’s April 13, 2016 Findings of

Fact, Conclusions of Law, and Decree of Dissolution, which dissolved the marriage

between Donald and Sandra Broesder. We reverse and remand, addressing the following

restated issue:

       Did the District Court err by failing to consider the tax consequences of the
       distribution of the marital estate, resulting in an inequitable distribution?

                  FACTUAL AND PROCEDURAL BACKGROUND

¶2     Since 1951, Donald has lived and worked on the Broesder family ranch, which was

homesteaded by Donald’s grandfather in 1911, and then owned by his parents. Donald and

Sandra were married in 1976, and for approximately 35 years they lived and worked on the

ranch. Together with their sons, Seth Broesder and Shane Broesder, and daughter-in-law,

Sarah Broesder, Donald and Sandra own the ranch in a small corporation with restrictions

upon the sale of stock.

¶3     During the marriage, Donald worked exclusively on the ranch, while Sandra worked

both on the ranch and elsewhere, including serving as a Pondera County Commissioner.

Sandra’s non-ranch income was used for personal expenses, as well as for ranch and family

expenses. Seth, Sarah, and Shane have also worked on the ranch. Ranch shares were given

to Donald and Sandra to compensate them for their work on the ranch, and for property

and assets, which they transferred to the ranch corporation when it was originally

incorporated. Shares of the ranch corporation are held as follows:
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 Owner                          Shares Owned                    Ownership Percentage
 Donald                         9909                            39.65%
 Sandra                         9908                            39.64%
 Seth                           4087                            16.35%
 Sarah                          600                             2.40%
 Shane                          496                             1.96%
 Total                          25,000                          100%

¶4     The parties agree the ranch is the significant marital asset, and the land is the

significant ranch asset. The total value of the ranch is approximately $3.1 million, with the

land valued at approximately $2.3 million. Donald and Sandra both have minimal personal

assets. As counsel for Sandra stated, at the hearing before the District Court, the land is

“really the majority asset of the corporation. And, in fact, that was the reason the other

shareholders sought to intervene.”

¶5     Seth and Sarah moved to intervene in the matter, arguing that intervention was

necessary to protect their interests in the ranch. The Standing Master denied the motion

for intervention, reasoning “[t]he notion that an equitable division in this matter cannot be

achieved without compelling the sale of assets is speculative.”

¶6     During the proceedings, Donald suggested Sandra keep her ranch shares as her

portion of the marital estate, but Sandra offered it would be necessary, in that event, for her

to be given “some sort of control” over ranch decisions, as well as receiving reimbursement

for living costs the ranch had provided during the marriage. Regarding possible sale

between them, Donald suggested using the book value of $10.25 per share set, in 2003, by

the shareholders pursuant to their stock agreement as the value of Sandra’s interest.

However, the resulting value of $101,557 was unrepresentative of the fair market value of

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Sandra’s shares, and the Standing Master concluded such a price would constitute a

windfall for Donald, who was unwilling to sell his shares for that price. Sandra thought

the ranch assets should be valued at $4 million, but regarding a buyout of the shares, Sandra

testified:

       Q. If the Court values the marital portion of the corporation, and values the
       corporation at $4 million, could either you or Don realistically get a loan to
       purchase the other’s interest at this point?

       A. Probably not. I don’t see how the ranch cash flow could service that
       amount of debt.

¶7     The Standing Master determined Donald’s interest in the ranch to be $1,159,541

and Sandra’s interest to be $1,159,424. Following this determination, the Standing Master

ordered Donald to pay Sandra the sum of $1,159,4831 for her interest in the ranch, with

$50,000 to be paid within 60 days and the remainder within 24 months. The Standing

Master ordered Sandra would not unreasonably withhold her consent to actions taken by

Donald in furtherance of the judgment, including “liquidation of the corporate property.”

However, no consideration was given to the tax implications of liquidating ranch property

and assets to satisfy the judgment.

¶8     Donald filed objections to the Standing Master’s Order, and the District Court

conducted a hearing. Donald urged consideration of the tax implications of a sale, which

the District Court acknowledged:




1
 There is a $59 discrepancy between Sandra’s interest in the Ranch and the amount Donald was
ordered to pay her for her interest. There is no explanation in the record for this discrepancy.
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       Mr. Ferguson: [T]here’s absolutely no tax consequences figured into this,
       either. You and I both know that if this ranch is liquidated, the tax
       consequences are going to be enormous.

       The Court:        True, because of the low basis and the high sale value.

       Mr. Ferguson:     Absolutely.

       The Court:        There’s no doubt about that.

¶9     The District Court affirmed and adopted the Standing Master’s Order, reasoning the

Standing Master had “considered the totality of circumstances, limited marital assets, and

equitably structured a way for Donald to satisfy the marital property division.” The court

did not address the tax consequences in its written order. Donald appeals.

                               STANDARD OF REVIEW

¶10    Two standards of review are relevant in cases involving both a standing master and

the district court: the standard the district court applies to the master’s report and the

standard we apply to the district court’s decision. In re Marriage of Davis, 2016 MT

52, ¶ 4, 382 Mont. 378, 367 P.3d 400 (citing In re Marriage of Kostelnik, 2015 MT

283, ¶ 15, 381 Mont. 182, 357 P.3d 912). We review a district court’s decisions de novo

to determine whether it applied the correct standard of review to a standing master’s

findings of fact and conclusions of law. Kostelnik, ¶ 15 (citing In re Marriage of Patton,

2015 MT 7, ¶ 17, 378 Mont. 22, 340 P.3d 1242). A district court reviews a standing

master’s findings of fact for clear error, Patton, ¶ 24, and its conclusions of law to

determine if they are correct, Patton, ¶ 43.




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                                       DISCUSSION

¶11 Did the District Court err by failing to consider the tax consequences of the
distribution of the marital estate, resulting in an inequitable distribution?

¶12    Donald argues the Standing Master and District Court failed to consider the tax

consequences of the practical conclusion of the District Court’s order, a “forced liquidation

of Broesder Ranch, Inc.,” resulting in an “inequitable and unconscionable” distribution of

the martial estate. Sandra argues Donald failed to present evidence of tax consequences,

merely raising the issue in legal arguments to the District Court, and that the distribution

of the marital estate was nonetheless fair and equitable.

¶13    “In a proceeding for dissolution of a marriage, . . . the court . . . shall, . . . finally

equitably apportion between the parties the property and assets belonging to either or

both. . . .” Section 40-4-202(1), MCA. This statute and public policy demand an equitable

distribution of the marital estate, including tax liability. We have previously held “where

a property distribution ordered by a court includes a taxable event precipitating a concrete

and immediate tax liability, such tax liability should be considered by the court before

entering its final judgment.” In re Marriage of Clark, 2015 MT 263, ¶ 16, 381 Mont. 50,

357 P.3d 314 (citing In re Marriage of Beck, 193 Mont. 166, 172, 631 P.2d 282, 285

(1981)). We have also held determining the existence of a “concrete and immediate” tax

event caused by a distribution order “requires examining the context around the distribution

order.” Clark, ¶ 18. “To find that a taxable event is concrete and immediate, we have not

demanded that the distribution order specifically direct the very event that triggers

taxation.” Clark, ¶ 18. However, “we have demanded that the distribution order at least
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reasonably appear to trigger a taxable event” in the context of the surrounding

circumstances. Clark, ¶ 18.

¶14    The decree here does not expressly mandate liquidation of the ranch. However, it

orders Donald to pay $1.1 million to Sandra for her share of the martial estate, and the

record fails to establish that there are available assets in the marital estate for such a

payment or that financing a purchase of Sandra’s shares at fair market value is feasible.

Thus, the “liquidation of corporate property” referenced by the Standing Master would

appear to be a necessity to satisfy the judgment—the ranch would have to be sold, which

would “reasonably appear to trigger a taxable event.” Clark, ¶ 18. Notwithstanding this

eventuality, the tax consequences were not “considered by the court before entering its

final judgment.” Clark, ¶ 16.

¶15    Theorizing on the application of federal and state corporate and capital gains taxes,

Donald argues on appeal that sale of the ranch property would trigger over $1 million in

taxes, which, after distribution to the other shareholders, would leave Donald with almost

enough funds to satisfy the decreed payment to Sandra, and nothing for himself. Such a

scenario would obviously be inequitable.       Whether Donald’s scenario is accurate is

unknown, as there is no record evidence of the tax consequences of liquidation, but

nonetheless serves to illustrate the need to follow Clark in this instance and assess the tax

implications, even if Donald only generally raised the issue before the District Court.

While we have adopted no firm rule, we have cautioned about ordering the sale of a

spouse’s business assets “in order to satisfy the judgment, thereby losing the bulk of the

                                          7
marital estate distributed to him and undermining his future ability to earn an income.”

Schwartz v. Harris, 2013 MT 145, ¶ 35, 370 Mont. 294, 308 P.3d 949.

¶16    The Standing Master erred as a matter of law by failing to consider the tax

consequences of the likely result that the ranch would be sold to satisfy the judgment, and

the District Court erred in adopting this conclusion. We reverse and remand this matter for

a new trial or, in the discretion of the District Court, such further proceedings as would be

necessary to implement this opinion.



                                                  /S/ JIM RICE


We concur:

/S/ MIKE McGRATH
/S/ BETH BAKER
/S/ MICHAEL E WHEAT
/S/ JAMES JEREMIAH SHEA




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