Hoffman v. Hoffman,, 676 S.W.2d 817 (Mo.
edited for classroom use. .
Petitioner Sybil Hoffmann (wife) appeals the trial court's decree of
dissolution which set aside certain property to respondent Paul Hoffmann (husband)
on the determination it was separate, not marital property according to sec.
452.330, RSMo Cum. Supp. 1983.
The trial court's decree was entered from the adoption of findings of
fact and conclusions of law of a special master appointed upon application and
consent of the parties. A sharply divided division of the Eastern District
affirmed the trial court. Upon application of the wife, transfer to this Court
was granted. The case is thus decided as if on original appeal. Rule 83.09. The
judgment is affirmed.
The predominant issue on appeal pertains to the status of closely held
corporate stock in the husband's name. The wife contends that it is marital
property. The husband argues otherwise, viz, it is his separate property,
having been in his name prior to the marriage. In treating this aspect,
consideration is given to the so-called "inception of title" and
"source of funds" rules relating to the question of the status of
property rights.
Other points raised by the wife on appeal concern: 1) the trial
court's limitations on discovery of financial records of the husband and the
family corporation; 2) an alleged miscalculation of the gross maintenance
award; 3) failure of the trial court to give consideration to assets alleged to
have been squandered by the husband; 4) the determination of attorney's fees
and suit monies.
The parties were married in 1963; they separated in 1979. They
stipulated to a division of certain marital and separate personal property of a
tangible nature. The trial court also made determination and division of other
marital property and an award of periodic maintenance.
The major dispute centers on the trial court's award to the husband as
his separate property of 223 shares of stock in Lilie-Hoffmann Cooling Towers,
Inc. (Lilie-Hoffmann), a closely held corporation in which the husband had
worked since 1930. The trial court also assigned a value of $962,662 to the
stock.
Lilie-Hoffmann is a family owned corporation, founded by the husband's
father and another person who the father eventually bought out. Prior to his
marriage to the wife, the husband had acquired 256 shares of the company stock
representing 16.17 percent of the shares outstanding. After the marriage, in
1964, the corporation purchased and retired 858 shares owned by the husband's
father. [note
2] The decrease in the total number of outstanding
shares caused the husband's interest in the corporation to increase to 35.3
percent. In 1976, the husband gave 32 shares of the stock to his son. He also
had given one share of stock to a newly hired corporate officer in 1966. This
reduced the husband's stockholdings to 223 shares, leaving him with a 29.5
percent interest in the corporation.
The husband serves as chief executive officer, president and board director
of the corporation. His two brothers and another corporation officer are the
only other members of the board of directors.
After the husband's father retired, the corporation prospered due to
an increased demand for cooling towers brought about by the Clean Water Act of
1972, 33 U.S.C. sec. 1251. The husband's salary as a corporate officer
increased steadily between 1964 and 1980. The dividend rate and bonuses to all
corporate officers also increased during that period.
The wife worked sporadically after her marriage to respondent, mostly
in clerical positions, until 1975. She was a satisfactory homemaker and hostess
and traveled on occasion with the husband on business trips.
In dividing the marital and separate property, the trial court awarded
the wife the marital residence valued at $110,000 less encumbrances of $26,000
on the basis that the husband possessed a more favorable economic situation and
had been guilty of marital misconduct. The trial court also considered the
husband's separate property of corporate stock, valued at $926,662, which was
set aside to him. Other marital assets, including husband's IRA, two bank
accounts and two life insurance policies, were awarded to him as he was the
primary contributor.
The wife was awarded attorney's fees of $13,000, $7,024.64 in costs
and periodic maintenance of $4,250 per month, as she was found incapable of
supporting herself through appropriate employment.
Initially we indite the standard of review governing this appeal: we
must sustain the trial court's decree unless there is no substantial evidence
to support it, unless it is against the weight of evidence, unless it
erroneously declares the law or unless it erroneously applies the law. Sturgis
v. Sturgis, 663 S.W.2d 375, 379 (
I.
The wife first contends that the husband's increase in percentage
ownership and value of corporation stock is marital property and must be shared
with her. Her argument in this regard is threefold: a) redemption of the
father's stock transformed the husband's newly increased percentage interest
into marital property; b) marital funds and efforts were expended to redeem the
stock; c) the increase in value of the stock was due in part to her efforts.
a.
The trial court adopting the master's findings and conclusions of law
found that the husband's stock remained his separate property despite the
corporation's purchase and retirement of the father's shares. The guidepost of
@ 452.330.2 pertaining to this case does not direct otherwise.
It is undisputed that the husband held 256 shares of the corporation
stock prior to his marriage. That was his separate property. sec. 452.330.2;
Busby v. Busby , 669 S.W.2d 597, 599 (
452.330.3 and the preposition that all property acquired during the
marriage is presumed to be marital property. McDowell v. McDowell, 670 S.W.2d
518 (
We have not been provided any authority for the wife's postulation
that the increased percentage of ownership of a corporation by a stockholder
due to retirement of stock converts the stock from separate to marital
property. Instead, it is more logical to conclude that the increased equitable
interest of the husband would remain as a statutory exemption to marital
property. Section 452.330.2(2) provides that any property acquired during
marriage in exchange for property acquired prior to marriage is separate
property. The husband's new ownership interest at least may be viewed as such
an exchange for a former interest.
The exchange analogy is appropriate because the husband received no
additional value as a result of the retirement of certain stocks.
Although redemption of the corporate stock from Mr. Hoffmann, Sr.
decreased the number of outstanding shares from 1,583 to 725, thereby
increasing the husband's respective ownership in the corporation from 16 to 35
percent, the book value and number of shares in his possession did not deviate.
This is because the worth of the corporation was diminished by the amount paid
from the corporate treasury to repurchase the father's stock. Therefore, the 16
percent ownership interest acquired prior to the husband's marriage was merely
exchanged for a larger ownership percentage of a corporation that was worth
less.
A similar analogy regarding the absence of effect on separate property
status of stock is found in stock splits -- a circumstance somewhat akin to
that at hand. The additional shares acquired by a split constitute an exchange
under sec. 452.330.2(2); In re Marriage of Bruske, 656 S.W.2d 288, 295 (Mo.
App. 1983).
We therefore reject the wife's contention that the increase of
percentage of ownership of the corporation transformed a portion or all of the
husband's stock to marital property.
b.
The wife also lays claim to the increased equitable ownership of the
corporation as marital property, as she alleges that marital funds and efforts
were expended to redeem the stock.
Although a copy of the repurchase agreement was not produced for
evidence, the financial audit of the company for 1964 indicated that salary
restrictions on corporate officers as provided in the repurchase agreement were
followed. The wife alleges that during the year of repurchase, the corporation
operated at a loss and that funds used for the repurchase must have come from
what would have otherwise been paid as salary to her husband as a corporate
officer. She states that the money denied him as salary and used to repurchase
stock amounted to marital funds. She argues that a lien should have been
imposed on the husband's newly acquired 19 percent ownership in the corporation
to the extent marital funds were spent on its acquisition.
Although our appellate courts recognize liens in favor of the marital
unit against separate property when marital funds are expended to reduce a debt
or enhance the value of the asset in question, Busby v. Busby, 669 S.W.2d at
599; Bishop v. Bishop, 658 S.W.2d 512, 515 (Mo. App. 1983); Rickelman v.
Rickelman, 625 S.W.2d 901, 902 (Mo. App. 1981); Ravenscroft v. Ravenscroft, 585
S.W.2d 270, 272 (Mo. App. 1979), no evidence was presented that the funds used
to redeem the stock would otherwise have been paid by the corporation to the
husband in
the form of salary or dividends. Absent such evidence, we find no
merit in petitioner's contention that marital funds or efforts were expended to
redeem the stock, and we deny the imposition of a lien.
c.
The wife offers yet another argument that a portion of the increase in
the value of the stock in the corporation is attributable to marital funds and
efforts. She stresses that the increase in value of the stock in the
corporation was attributable, at least in part, to the husband's management
efforts as president, chief executive officer and director of the corporation.
She also cites that she contributed to the marital partnership as a
satisfactory homemaker and hostess and readily accompanied and sought to assist
the husband on business trips whenever he requested.
As previously noted, the husband's 256 shares of stock acquired before
his marriage is his separate property. sec. 452.330.2; Busby v. Busby, supra.
By statutory exception, any increase in the value of property acquired prior to
the marriage also is separate property. sec. 452.330.2(5); Cain v. Cain, 536
S.W.2d 866, 870 (
The crux, then, is not whether the wife contributed to the value of
separate property. Rather, the key issue is whether the stock was wholly
"acquired" prior to the marriage. Krauskopf, Marital Property at
Marriage Dissolution, 43 Mo.L.Rev. 157, 180 (1978). The interpretation given to
the term "acquired" determines whether the marital unit receives any
portion of the appreciated value of the property which is due to general
economic conditions.
Two major theories have been employed by the courts in interpreting
this term: "inception of title" and "source of funds." Both
doctrines are premised upon community property concepts which have their roots
in Spanish law. Note, Marriage Dissolution: An Equitable Approach Toward
Property Distribution, 45 Mo.L.Rev. 538, 540 (1980); Note, Dissolution of
Marriage-Division of Property Which Has Increased in Value, 42 Mo.L.Rev. 479, 480-81
(1977).
The courts of appeal in
In applying the basic concepts of the inception of title theory,
however,
Because application of the inception of title theory deprives the
non-owning spouse of any appreciable return on his or her investment, it has
been the subject of substantial criticism. Harper v. Harper, 294
As commentators have noted, the traditional inception of title theory
was adopted by our appellate courts soon after the new Marriage and Dissolution
Act became law in 1974 as an aid in interpreting the unfamiliar concepts of
community property, upon which the Act was based. 45 Mo.L.Rev. at 546. But the
inception of title theory is losing favor to the "source of funds"
rule which is considered to be more equitable.
Under the source of funds rule, the character of the property is
determined by the source of funds financing the purchase. The property is
considered to be acquired as it is paid for so that a portion of the property's
ultimate value will be marital property. 43 Mo.L.Rev. at 180. This approach to
property distribution upon dissolution emphasizes a theory of marital
partnership. It has been adopted both by community property states and by
states which have equitable distribution schemes similar to Missouri, e.g.,
Harper v. Harper, 448 A.2d at 929; Tibbetts v. Tibbetts, 406 A.2d 70, 76 (Me.
1979); Moore v. Moore, 28 Cal.3d 366, 371-72, 618 P.2d 208, 210, 168 Cal.Rptr.
662, 664 (1980).
Of those states which have adopted the source of funds doctrine,
The Maine Supreme Court has noted that the marital community should be
entitled to share in the proportionate increase in value of the property
attributable to improvements made by marital funds and labor. Tibbetts v.
Tibbetts, 406 A.2d at 76-77. That court further recognizes that if the
marital unit was deprived of a proportionate share in the value of improvements
added with marital funds, an incentive exists for a sophisticated spouse to
divert marital funds for the improvement of separate property. Hall v. Hall,
462 A.2d 1179, 1182 (
In analyzing both approaches of classifying property for division in
marital dissolution, [note 4]
we find that the source of funds theory is the preferable method to apply in
Further, we follow other jurisdictions which have adopted the source of
funds approach with statutes similar to
By adopting this definition of "acquired" and the source of
funds theory, our statutes and their purpose of promoting the partnership
theory of marriage will be consistent in providing for the most equitable
distribution of property. Therefore, we reverse the trial court's application
of the inception of title rule and adopt the source of funds approach in
dividing property at dissolution. Past
In applying these newly adopted standards, however, we find that no
uncompensated marital efforts of funds are attributable to the increase in
value of the corporation's stock in the present case. The wife thus gains no
benefit from the application of source of funds concept in this instance.
The wife raises the point that the community property concept
contemplates that the community owns the earning potential of each spouse. For
example, when a spouse is employed in a business, a portion of the business
assets attributable to that spouse's skills and talents is community property.
In this case, the husband's management efforts and leadership of his
family corporation obviously had an impact on the increase in value of the
corporate stock. His position with company was no sinecure. But he also was
paid a salary and received bonuses and dividends for his services which
became marital property and in which the wife will share.
It is clear from the record that the unusual growth and prosperity of
the company was directly attributable to the unforeseen but salutary (for the
corporation) consequences of federal and state legislative enactments vis-a-vis
sole efforts of the husband.
There was also evidence relating to the salaries, bonuses and
dividends to all corporate officers. This was considered by the trial court in
reaching its decision. None of this evidence would justify a finding that the
husband was inadequately compensated for his working efforts during the
corporation's growth. Hence, the trial court's judgment that marital property
was not used
to increase the corporation's value was properly supported by credible
evidence. We will not substitute our judgment to reach a different result. In
re Marriage of Bruske, 656 S.W.2d at 295. [note
7]
The wife's contention that her services and efforts as a homemaker,
traveling companion and entertainer were contributions made to the enhancement
of the stock's value has no merit, as she made no substantial financial
contributions to the business nor were her personal contributions sufficiently
extensive to warrant additional compensation by sharing in the husband's
separate property. Sturgis v. Sturgis, 663 S.W.2d at 381. Further, the trial
court gave recognition to her efforts as evidenced by the substantial
maintenance award to her.
II.
The wife asserts that the trial court erred in accepting the husband's
expert's opinion as the valuation of the stock of the corporation. Both parties
presented expert witness testimony with regard to the value of the stock. The
wife's expert evaluated the husband's stock holdings in the corporation as
$2,723,000. The husband's expert countered with $962,662. Both experts
capitalized the earnings of the corporation, but the husband's expert
discounted the value by 45 percent due to a lack of public market for the
stock, the husband's minority interest and the fact that the corporation
manufactured only one product.
It is, of course, difficult to evaluate the stock of a closely held
corporation. But deference is given to the trial court's coign of vantage to
judge credibility of witnesses. Busby v. Busby, 669 S.W.2d at 599; Oldfield v.
Oldfield, 666 S.W.2d 17, 19 (
III.
The wife next argues that the trial court erred in holding that the
retained earnings of the corporation did not constitute marital property and
were not excessive. She contends that if the board of directors had voted to
distribute the corporate profits to the stockholders and officers, rather than
retain them within the corporation, the income to the husband would have been
marital property.
Generally, the wife could not claim the retained earnings as marital
property, because the earnings and profits of a corporation remain
its property until severed from other corporate assets and distributed
as dividends.
Missouri courts have not addressed the issue of whether retained
earnings in a closely held corporation constitute marital property. Norman v.
Norman, 604 S.W.2d at 683. Other jurisdictions which have considered
the issue cite the critical distinguishing factors as being a controlling
interest in the corporation by the owner spouse and substantial control over
decisions to distribute corporate earnings. J.D.P. v. F.J.H., 399 A.2d 207
(Del. 1979); Mifflin v. Mifflin, 97 Idaho 895, 556 P.2d 854 (1976); Simplot v.
Simplot, 96 Idaho 239, 526 P.2d 844 (1974); Speer v. Quinlan, 96 Idaho 119, 525
P.2d 314 (1973).
But the husband only owned 29.5 percent of the outstanding corporate
stock and was not a controlling shareholder. Further, as only one of four board
members, he could not unilaterally declare or withhold dividends. Declaration
of dividends is a matter within the discretion of the board of directors. @
351.220, RSMo 1978; see St. Louis Southwestern Ry. v. Meyer, 364 Mo. 1057, 272
S.W.2d 249, 256 (1954), appeal dismissed, 349 U.S. 942, 99 L. Ed. 1269, 75 S.
Ct. 871 (1955), reh. denied, 350 U.S. 856, 76 S. Ct. 38, 100 L. Ed. 761 (1955);
Long v. Norwood Hills Corp., 380 S.W.2d 451, 477-78 (Mo. App. 1964). With the
absence of evidence of collusion with other board members to defraud petitioner
of marital property by minimizing dividends, the trial court's finding will not
be disturbed, as it is supported by substantial evidence.
The wife's additional contention that retained earnings were in excess
of the reasonably anticipated needs of the business is not considered. This
Court is without jurisdiction to determine the issue, as "[judgments] can
only be taken for or against a party to the action . . ." 49 C.J.S.
Judgments sec. 28 (1944). Petitioner also lacks standing to challenge corporate
board decisions.
IV.
The wife complains that the trial court erred in limiting discovery of
certain documents. She had requested the financial statements and tax returns
of the corporation and the personal banking records of the husband from the
time of their marriage in 1963 until the time of trial, urging only that they
were generally "relevant".
Upon objection by the husband, the trial court limited discovery to
records of the corporation from 1975-1980 and to his records from 1974 to the
time of the trial. The trial court found the original discovery request unduly
broad and burdensome. On appeal the wife pursues a new theory and makes the
more specific contention that the records she was denied would have proven that
a portion of the money expended by the corporation on the stock redemption
would have been paid to the husband as salary and was therefore marital
property.
The trial court's determination of the relevancy of a discovery
request is subject to reversal only upon a showing of abuse of discretion.
State ex rel. Norfolk & Western Ry v. Dowd, 448 S.W.2d 1, 4 (Mo. banc
1969). Further, the wife bears the burden of demonstrating the relevancy and
materiality of documents sought to be discovered and that they are reasonably
calculated to lead to the discovery of admissible evidence. State ex rel. Bush
v. Elliott, 363 S.W.2d 631, 633 (Mo. banc 1963); State ex rel. Kuehl v. Baker,
663 S.W.2d 410, 411 (Mo. App. 1983); Rules 56.01(b).
In the present case, the wife made no record of her arguments in
support of her discovery motion. She may not assert some new theory on appeal.
McDowell v. McDowell, 670 S.W.2d at 521; Blair v. Blair, 600 S.W.2d 143, 145
(Mo. App. 1980).
The record is destitute of any contention she seeks to make on appeal;
she has failed to demonstrate on the record the relevancy of the documents to
the trial court. Thus, there was no abuse of discretion in the court's order
permitting only limited discovery of the financial records.
V.
The wife alleges the trial court erred in the award of maintenance by
misapplying the tax tables.
The court awarded the wife annual periodic maintenance of $51,000, and
included within the award $12,240 per year for estimated income taxes. The wife
complains that her tax liability will be approximately $24,000 per year, thus,
reducing her net income.
There is no allegation that the maintenance award is insufficient to
meet her needs. Indeed, it is scarcely penurious. Nor does the record establish
that the court ignored the factors set forth in sec. 452.335, RSMo 1978 in
determining the maintenance award. The record on the motion to amend the decree
on the basis of miscalculation indicates that the award was not an error in
calculation.
The provision in the award for $12,240 to cover income taxes was
merely an estimate. Because of other variables, it is impossible to accurately
assess the wife's future tax liability. The trial judge has substantial
discretion in awarding maintenance, Mills v. Mills, 663 S.W.2d 369, 374 (Mo.
App. 1983), and is not required to meet all the needs of the spouse receiving
the award. Raines v. Raines, 583 S.W.2d 564, 567 (Mo. App. 1979). No abuse of
discretion on the part of the trial court appears on this point.
VI.
The wife contends that the husband dissipated certain marital assets.
During the marriage the husband converted a joint savings account of
$3,700 to his name and withdrew $3,000. He also cashed life insurance policies
and certificates of deposit. There is no evidence that the husband has secreted
or has squandered the marital property in anticipation of divorce. Therefore,
it would not be appropriate to order reimbursement of funds to the wife. Calia
v. Calia, 624 S.W.2d 870, 872 (Mo. App. 1981). We defer to the trial court's
findings in this regard.
VII.
The wife's final point is that the trial court erred in failing to
award her the full amount of attorney's fees and expenses requested.
The husband was ordered to pay $13,000 of the $34,328 remaining
balance of legal fees and $7,024 of the $9,024 remaining balance of expenses.
The award was based on findings of fact indicating that the legal research was
tardy and pursued meritless issues, depositions were unnecessarily detailed and
witness fees were excessive.
The trial court is vested with broad discretion in awarding attorney
fees, sec. 452.355, RSMo 1978, and abuse of discretion is a prerequisite to an
overturn of such awards. McDowell v. McDowell, 670 S.W.2d at 524; Dallas v.
Dallas, 670 S.W.2d 535, 541 (Mo. App. 1984). No abuse is shown here, and the
point is denied.
The judgment is affirmed.
Higgins, Billings, and Donnelly, JJ., concur.
Rendlen, C.J., concurs in result.
Welliver, J., concurs in result in separate opinion filed.
Blackmar, J., concurs in part and dissents in part in separate opinion
filed.
Concurrance:
I concur in result. I do not believe adoption of the "source of
the funds" test is necessary to the disposition of this case. Abandonment
of the "inception of title" test and adoption of the
"source of the funds" test only serves to saddle an already
overburdened judiciary with a tedious task of tracing that generally will be as
undeterminative of the case as the discussion was herein.
Judge WELLIVER
Dissent in part:
(footnotes omitted)
I wholly agree in the principal opinion's rejection of the
"inception of title" rule as exemplified by several court of appeals
opinions but never adopted by this Court, and in the espousal of the
"source of funds" rule. The rule adopted accords with the purpose of
the marriage dissolution statutes and gives trial judges the authority to
approach the problems of holdings in close corporations realistically.
The "close corporation" is a significant concept in modern
jurisprudence. A close corporation has many similarities to a partnership. An
increase in value of shares in a close corporation is often the result of the
personal services of major stockholders who are also officers or employees. The
source
of funds approach allows the trial court, given adequate proof, to
treat a portion of the increased value of shares of stock as marital property,
even though the shares were acquired prior to marriage. Any other approach
would exalt substance over form and would greatly magnify the importance of the
choice of business association.
I am not satisfied, however, that the appellant wife had full
opportunity to present her theory to a trial court properly instructed in the
doctrine which this Court now applies. The case below was tried before a
master, who applied the "inception of title" rule as controlling law.
The trial judge apparently adopted the master's findings, conclusions and
recommendations as rendered. It is highly unlikely that the result below would
have been affected by any evidence the wife might have adduced on the effect of
her husband's labors on the value of his shares in the corporation. The trial
court also appears to have limited discovery substantially. The principal
opinion holds that the points relied on in the appeal were not fully presented
to the trial court. In court-tried cases it is often difficult to determine
what was presented. I would opt for clarification.
The principal opinion argues that redemption of the husband's father's
stock in 1964 was a neutral transaction because the redemption was at
"book value." Book value, however, is not a reliable guide to the
true value of corporate stock. It rather is an accounting concept, based on the
historic cost of acquisition of assets. There is the distinct possibility that
the respondent might have derived a very substantial economic advantage through
the use of corporate earnings for redeeming his father's stock. If the analysis
relied on by the respondent's expert in valuing his shares is sound, furthermore,
his shares would derive increased value through an increase in the percentage
of ownership. The appellant should have the chance to develop the redemption
issue further, with opportunity for appropriate discovery.
Nor is it a sufficient analysis of the problem to suggest that the
husband may have been adequately compensated for his efforts by salary, during
the
years of the marriage, so that no additional marital property would be
created through increase in value of his shares. The persons in control of a
closely held corporation have broad discretion in determining how much they
want to take out of the corporation in salary and dividends and how much of the
earnings they want to retain in the corporate treasury. Management often elects
to plow back earnings in the hope of realizing future values, or because
payouts would be subject to federal income tax. A decision which is entirely
sound from the standpoint of corporate policy, still might operate to the
disadvantage of a shareholder's spouse so as to deprive the spouse of a share
of the fruits of the shareholder's labor. The spouse should not be required to
demonstrate fraud or bad faith. It should be sufficient to show that the
increase resulted from personal effort.
The partnership analogy is helpful. The income of a partnership must
necessarily be reflected in the individual returns of each of the partners, and
the income derived from the partnership by a married partner would be marital
property. The difference should not be too great simply because the business is
operated in corporate form.
The circumstance that the husband did not have majority voting control
of the corporation is not significant. His associates have chosen him as chief
executive officer, and he necessarily was in a position to exercise
substantial influence over corporate decisions, including those
affecting salaries and retention of earnings. Respondent was in the position of
senior partner. The absence of absolute control should not operate to defeat
his wife's legitimate interests.
The principal opinion observes that some of the increased value of the
shares was attributable to government policy which accentuated the demand for
the company's product. The trial court did not quantify the increase so
occasioned, and the principal opinion concedes that a substantial portion of
the increase was occasioned by respondent's efforts. The record is not
sufficient to permit us to reach a definitive conclusion.
Judge Gerald M. Smith, dissenting in the court of appeals, argued in
favor of recognizing the rights of the spouse of a shareholder, while
recognizing that there would be "substantial difficulties in evidence and
proof." I agree with his statement that these difficulties furnish no
warrant for treating the spouse inequitably, and reject any suggestion that our
courts are so overburdened that they do not have the time to do equity. I hope
that this Court's decision will point the way to trial courts and to attorneys
as to what must be shown in order that the spouse of a shareholder may present
the required proof. The present plaintiff, however, should have the opportunity
to present additional proofs so that a properly instructed trial court could
decide her rights based on the newly recognized principles in Judge Gunn's
opinion.
I concur in Parts II, V, VI and VII of the principal opinion, but
would remand for further hearing touching Parts I, III and IV.
Judge Blackmar
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Footnotes
note 2
The corporation paid the near book value price of $81,510 for the redemption of
the father's 858 shares of stock, paid with $1,510 in cash and a corporation
note of $80,000 payable in monthly installments of $832.70. The book value of
the husband's stock remained the same after the purchase of the father's stock
by the corporation. The value of the corporation was reduced by the amount of
the purchase price.
note 4
A third approach, followed by Illinois, holds that where there has been a
contribution of marital property to non-marital property, the entire property
is transmuted to marital property. In re Marriage of Lee, 87 Ill.2d 64, 430
N.E.2d 1030, 1032, 58 Ill. Dec. 779 (1981). We reject the application of the
Illinois transmutation of property theory because to permit nonmarital property
to be "transmuted" into marital property and therefore, to be subject
to equitable distribution deprives a spouse of nonmarital property and is,
therefore, contrary to our legislative intent.
note 5
Potthoff v. Potthoff, 128 Ariz. 557, 562-63, 627 P.2d 708, 713-14 (Ct. App.
1981); Fisher v. Fisher, 86 Idaho 131, 136, 383 P.2d 840, 842-43 (1963); Harris
v. Harris, 160 So.2d 359, 360-61 (La. Ct. App. 1964); Laughlin v. Laughlin, 49
N.M. 20, 37, 155 P.2d 1010, 1020-21 (1944); Dakan v. Dakan, 125 Tex. 305, 320,
83 S.W.2d 620, 628 (1935); Villarreal v. Villarreal, 618 S.W.2d 99, 100-01
(Tex. Civ. App. 1981).
note 6
Contra Cain v. Cain, supra, in which "acquire" was defined as
"to come into possession, control or power of disposal of," 536
S.W.2d at 872.
note 7
Under community property theory, increases in the value of property during
the marriage is not considered marital property if the spouse who owned the
stock prior to the marriage is neither a controlling stockholder nor an
employee of the corporation. The source of funds used to acquire the property
can be traced entirely to the spouse who owned the property before marriage.
On the other hand, where the corporation merely serves as the alter
ego of stockholder, and the corporation serves primarily as a means to divert
marital funds for the benefit of only the one spouse, the corporate veil has
been pierced to attribute a portion of the increase of the stock's value to the
marital unit. Dillingham v. Dillingham, 434 S.W.2d 459 (Tx. Ct. App. 1968). The
present case is distinguishable, however, because the husband did not hold a
controlling interest in the corporation, and his personal finance dealings were
shown to be in accordance with good faith business practices.
note 8
But see Brown v. Luce Mfg. Co., 231 Mo.App. 259, 96 S.W.2d 1098, 1102
(1936), in which directors of closely held corporation relinquished their
authority over declaration of dividends to the president.
note 9
We recognize that in a closely held corporation the shareholders may have a
superior opportunity for manipulation of corporate activities and control of
corporate and individual assets. 1 O'Neal, Close Corporations, sec. 1.09a (2d
1971).