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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Walker v. Walker (01/26/2007) sp-6095
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
| JOHN WALKER, | ) |
| ) Supreme Court No. S- 11526 | |
| Appellant, | ) |
| ) Superior Court No. 2KB-02-105 CI | |
| v. | ) |
| ) O P I N I O N | |
| SUSAN WALKER, | ) |
| ) No. 6095 - January 26, 2007 | |
| Appellee. | ) |
| ) | |
Appeal from the
Superior Court of the State of Alaska, Second
Judicial District, Kotzebue, Richard H.
Erlich, Judge.
Appearances: Dan OPhelan, Hilo, Hawaii, and
Robert D. Lewis, Lewis & Thomas, P.C., Nome,
for Appellant. Jamy Patterson and Russell A.
LaVigne, Jr., Alaska Legal Services Corp.,
Kotzebue, for Appellee.
Before: Bryner, Chief Justice, Matthews,
Eastaugh, Fabe, and Carpeneti, Justices.
BRYNER, Chief Justice.
I. INTRODUCTION
John Walker filed for divorce from Susan Walker in
2002. The superior court issued an order dividing their marital
property in March 2004. John appeals on several grounds. First,
he argues that the court undervalued a family business, Inuit
Travel, and determined its value based on the trial judges
personal experience with travel agencies in Kotzebue. Second,
John argues that the court erred in rejecting late-filed evidence
concerning two tax debts. Last, he challenges the courts
decision to award almost sixty percent of the marital estate to
Susan without making specific findings to justify the unequal
division.1 We see no clear error in valuing Inuit Travel and no
abuse of discretion in rejecting Johns late filings. But since
an unequal property division must be supported by findings, we
remand for further consideration of the order dividing the
marital estate.
II. FACTS AND PROCEEDINGS
John and Susan Walker separated in February 2002 after
over twelve years of marriage. John filed for divorce in April
2002. They own two businesses in Kotzebue with similar names:
Inuit Travel and Inuit Air.
The superior court held a trial on the property issues
on September 16-17, 2003. It issued a proposed property division
on November 18, 2003, along with an order directing the parties
to submit any proposed changes by November 26. John responded on
November 30 with his Notice to Court on Proposed Property
Schedules and Miscellaneous Items. In this filing, John gave no
reason for his late submission and did not even acknowledge that
his filing was late. In addition to suggesting adjustments to
the courts proposed property division table, Johns Notice
informed the court that the table would need to include payroll
taxes for Inuit Air, stating that John was waiting for
documentation of these taxes from his accountant.
On January 7, 2004, John moved to include his own tax
debt of $19,213 from 2001 in the marital estate.2 John claimed
to have learned of this debt via mail over the holidays. The
superior court denied Johns motion in early February, explaining
that Johns request was untimely because he filed it after the
November 26 deadline even though he apparently had known of the
debt before the September trial: as Susan pointed out in her
opposition to Johns motion, the date imprinted by the fax machine
on the papers John sent to his attorney was May 25, 2003.
John filed a Motion to Clarify Tax Debt; Notice of
Payroll Tax Debt, and Request for Hearing in late January, in
which he again stated his request that the court include his
$19,213 personal tax debt in the property division and sought to
include the Inuit Air tax debt he had first identified in his
late-filed response to the courts proposed property division.
The superior court eventually denied Johns motion to include the
Inuit Air payroll taxes. It reiterated its stance from the order
denying Johns untimely motion to include his personal tax debt
that Johns failure to comply with the courts timeline barred him
from offering evidence of various tax liabilities. The court
granted Johns request for a status hearing.
At the March 24, 2004, status hearing, the superior
court divided the Walkers property by an oral judgment on the
record. John moved for reconsideration on May 3, but the
superior court did not rule on the motion, so it was deemed
denied after thirty days according to Alaska Civil Rule 77(k)(4).
John appealed.
III. DISCUSSION
A. Standard of Review
In property division cases, we review the trial courts
judgment for abuse of discretion.3
The division of property by the trial court
is a three-step process: Step one
determining what property is available for
distribution is reviewed under the abuse of
discretion standard, although it may involve
legal determinations to which this court
applies its independent judgment. The second
step placing a value on the property is a
factual determination that will be upset only
if there is clear error. Step three
allocating the property equitably is
reviewed purely under the abuse of discretion
standard and will not be disturbed unless it
is clearly unjust.[4]
A finding is clearly erroneous if it leaves us with a
definite and firm conviction on the entire record that a mistake
has been made.5 We review the trial courts procedural decisions
for abuse of discretion.6
B. Valuation of Inuit Travel
The superior court valued Inuit Travel by summing its
various assets and liabilities without accounting for business
goodwill, assigning the business a value of $34,141.78. John
objects to this valuation and argues that Inuit Travel is
actually worth $374,204. John argues that the court erred in
three ways: first, by failing to account for Susans dissipation
of the value of the business; second, by relying on its own
knowledge of the Kotzebue travel market to find there to be no
marketable goodwill in the business; and third, by subtracting
from the value of the business a $25,000 line of credit based on
Susans testimony. We review the superior courts valuation of
this marital asset for clear error.7
1. Dissipation of Inuit Travels value
John argues that the superior court should have valued
Inuit Travel at the time the parties separated, rather than at
the time of trial. He maintains that Susan dissipated the assets
of Inuit Travel during the course of the litigation. In support
of this argument, John cites Susans testimony that she was
earning approximately $1,300 per month in September 2003 and that
she had earned approximately $3,000 per month in 2001.
The date on which the trial court values marital
property generally should be as close as practicable to the date
of trial, but in special situations the court may value property
as of the date the parties separated.8 In those special
situations, the court must make specific findings as to why the
date of separation is the more appropriate choice for valuation.9
John implies that Susan was responsible for the drop in her
income between 2001 and 2003 but does not explain why the drop
should be attributed to Susans conduct, rather than to a general
slowdown in business or other neutral factors. John argues that
the trial court failed to make the requisite findings regarding
. . . dissipation but does not point to evidence that would
support such findings. Valuation at the time of trial is the
norm; the trial court is only required to make specific findings
when it decides that the date of separation is more appropriate
for valuation than the date of trial.10 The trial court did not
err in following the standard procedure of valuing Inuit Travel
at the time of trial.
2. Goodwill calculation
John argues that the superior court improperly took
judicial notice of information available only to the trial court
regarding Inuit Travels goodwill value. In support of this
argument, John refers to this observation by the court at trial:
THE COURT: Hold on folks. Look, what I
heard so far is that the [Airlines Reporting
Corporation (ARC) accreditation] certificate
is the asset. And thats the value of the
business. I mean thats [what] let[]s [them]
do business. So the question . . . .
MR. OPHELAN: And the contract, Your
Honor, a contract thats very, very lucrative.
Its $300,000 a year.
THE COURT: The contract is very, very
lucrative, weve heard testimony that maybe in
the next two months they might quit it or
they might not. I understand the contract
stuff. Theres a whole bunch and let me
explain, that I used to be the attorney for
the competing travel agency when it first
started. So maybe the issues might be
understanding something about the ARC
certificate. Because thats really the thing
that gets you to the contract. So . . . .
John appears to challenge the courts observation that
the Airlines Reporting Corporation (ARC) accreditation
certificate is central to the value of the travel agency. But
just before the court made this observation, Susan had testified
that her ARC certificate was the most important attribute of her
business. Susan explained that an ARC certificate requires
training and that if someone were to take over the business who
was not qualified to operate the certificate, the certificate
would be worthless because the person would not be able to get
any contracts for reservation systems or to procure tickets.
Susan also testified that the travel market in Kotzebue was
small. Susan was a full-time nursing student at the time of
trial and planned to leave the travel business. Furthermore, a
contract with Maniilaq made up almost all of Inuit Travels
business, and that contract was at-will so it could not support
the value John gave to the business. Susans testimony was
uncontroverted; John did not offer a business appraisal or other
evidence to contest this point at trial. The court therefore
could rely on Susans testimony in finding that Inuit Travel had
no marketable goodwill value.
John fails to describe any evidence in the record that
supports his theory that the business had a marketable goodwill
value. Indeed, the record indicates that John had offered to buy
the business from Susan for only $20,000 a mere fraction of its
supposed goodwill value. Accordingly, John has failed to meet
his burden of showing prejudice: any reference by Judge Richard
Erlich to his own experience with the Kotzebue travel industry
would seem harmless in light of the substantial and largely
undisputed evidence supporting the courts determination of Inuit
Travels value.
In establishing the value of business goodwill, if the
trial court determines either that no [goodwill] exists, or that
the [goodwill] is unmarketable, then no value for [goodwill]
should be considered in dividing the marital assets. Conversely,
the [goodwill] should be considered if the evidence suggests that
it has value and is marketable.11 When it valued Inuit Travel at
the post-trial status hearing, the court addressed Johns
arguments for assigning a high value to Inuit Travel and found
Johns valuation to be speculative. Based on the evidence and
testimony presented at the trial, the court found that Inuit
Travel was closing up. It also cited Johns offer to purchase
Inuit Travel for $20,000 as an indication that the near-$400,000
figure was inaccurate. The court found that the testimony
demonstrates, given the history of that kind of business in
Kotzebue, the nature of the market, that really as a going
concern it really doesnt have it has a negligible value. The
court did not clearly err in valuing Inuit Travel with no
goodwill.
3. Inuit Travels $25,000 line of credit
The superior court calculated Inuit Travels value by
subtracting a $25,000 debt on a line of credit without requiring
Susan to document the credit lines existing status. John argues
that this was clear error. Susan provided no documentation
concerning the credit line at trial but testified that the
building that houses Inuit Travel was collateral for this $25,000
debt. The trial court had discretion to assess Susans
credibility and accept her testimony without documentation that
this $25,000 credit line existed. John points out that Susan
described the $25,000 as available credit but never indicated at
trial how much was actually owed on this line of credit. But in
her affidavit supporting her opposition to Johns January 7 motion
to include his $19,213 tax debt, Susan indicated that the balance
on the line of credit to Inuit Travel was $25,000. This evidence
clarifies any ambiguity in Susans testimony. The trial court did
not clearly err in subtracting $25,000 from the value of Inuit
Travel based on Susans testimony and affidavit.
C. Refusal of Late Filings from John
After the September 2003 trial, the superior court set
a deadline of November 26, 2003, for the parties to file any
corrections or additions to the property schedules it proposed to
use to value and divide the marital estate. John argues that the
court should have relaxed that deadline and accepted his untimely
motions regarding his $19,213 tax debt and Inuit Airs payroll tax
debt of almost $30,000. We review the superior courts procedural
decisions for abuse of discretion.12
1. Inuit Air payroll tax
The superior court issued a proposed property division
order on November 18, 2003, and directed the parties to submit
any proposed changes to the court by November 26. John responded
on November 30 and notified the court that he wished to include
Inuit Airs payroll tax debt in the marital estate but was still
waiting to receive documentation of this debt from his
accountant. John gave no explanation for responding after the
November 26 deadline. Two months later, John filed a Notice of
Payroll Tax Debt in which he stated that his accountant had
informed him that Inuit Air had as much as $30,000 in payroll tax
debt, but that he still had no concrete figures or documentation.
The superior court denied Johns motion to include the Inuit Air
payroll tax debt in the property division, ruling that the motion
was late because John had first notified the court of the debt
after the November 26 deadline.
The record fails to establish that the superior court
abused its discretion in refusing Johns late request to include
the Inuit Air tax debt in its calculations. Milton Johnson,
Johns accountant, had testified at the September trial about
Inuit Airs tax situation and never mentioned any potential debt
that the court might need to consider in valuing Inuit Air.
Johns November 30 submission mentioned the potential debt and
stated that his accountant would provide further documentation.
But in his January motion, John still offered nothing more than
an estimate of the size of the debt and no evidence to support
his claim other than his own affidavit stating that he also may
be liable for as much as $30,000 in payroll taxes for Inuit Air.
In sum, John did not meet the courts initial deadline and failed
to show good cause for the late filing; offered no concrete
evidence to support his claim that the debt existed; and did not
specify when he would actually receive the information. Given
these circumstances, the superior court did not err in refusing
to factor this payroll tax into its valuation of Inuit Air.
2. Johns $19,213 tax debt
In January 2004 John moved to include a tax debt of
$19,213 in the property settlement. John claimed to have learned
of this debt over the holidays. The superior court denied Johns
motion, noting that John evidently had been aware of the tax debt
in May 2003, but had failed to present evidence before or during
trial. The court emphasized that it had ordered the parties to
submit their proposed valuations and distributions of any assets
not already in the courts proposed distribution table by November
26, 2003.
Although the superior courts finding that John knew of
his tax debt in May 2003 might be debatable, evidence in the
record supports the conclusion that John was aware of the debt
before November 26, and well before January 7.13 The IRS form
John offered as evidence of his tax debt is dated August 11,
2003. And the letter from the IRS that John submitted to the
court is dated November 10, still before the November 26
deadline. The alleged debt was over one year old at the time of
trial. John cursorily argued that he did not actually receive
notice of it until December of 2003. But he offered no evidence
to support this claim. John failed to show either that he was
actually unaware of the debt before trial or that he could not
have discovered it through reasonable pretrial inquiry. Absent
an affirmative showing of good cause, it was not an abuse of the
superior courts discretion to deny Johns late-filed motion to
include his tax debt in the division of the marital estate.
D. Lack of Findings To Support Unequal Property Division
The superior court divided the marital property by
giving Susans business (Inuit Travel) and the couples house to
Susan, Johns business (Inuit Air) and a vacant lot to John, and
allowing the parties to divide the personal property between
themselves. The court initially believed that this approach
resulted in an approximately equal division of the marital
estate.14 But during the status hearing, the superior court
discovered that it had erred in valuing Inuit Air by counting a
$23,198.41 debt as a credit. The court corrected its mistake by
subtracting the $23,198.41 credit and adding the $23,198.41 debt
to the value of Inuit Air; this reduced the value of Inuit Air by
$46,396.82 from $104,937.91 to $58,541.09. The court recognized
that the error resulted in an unequal property division. But in
spite of its original intent to divide the property equally, the
court did not alter its distribution to correct the inequality or
make findings to support an unequal division. John argues that
the superior court erred in awarding more than fifty percent of
the marital estate to Susan without making findings to support
that award. We review the courts overall property division for
abuse of discretion and will not disturb it unless it is clearly
unjust.15
When dividing marital property, the trial court must
consider the Merrill factors codified in AS 25.24.160.16 In the
absence of findings to warrant an unequal division, an equal
division of the marital estate is presumptively the most
equitable.17 Here, the superior court did not make Merrill
findings, but awarded approximately sixty percent of the marital
estate to Susan.18 Having discovered during the course of the
status hearing that the division it intended to be equal actually
tilted in Susans favor, the court should have made findings to
justify the inequality or reallocated the property equally. In
the absence of findings, the uneven division amounted to an abuse
of discretion. We therefore vacate the courts overall property
division and remand for findings or adjustments to correct or
justify the inequality.
IV. CONCLUSION
We AFFIRM the superior courts valuation of Inuit Travel
and its refusal to consider Johns late-filed tax debt
information. We VACATE the overall property division and REMAND
to the superior court to reconsider the overall equitable
distribution of the marital estate and enter express findings
consistent with the Merrill factors codified in AS 25.24.160.
_______________________________
1 John originally raised a number of other points but
withdrew them in his reply brief.
2 John characterizes this as a corporate tax debt for
Inuit Air. But the IRS made the changes that resulted in the debt
to Johns personal tax return, rather than the corporate return.
We treat the $19,213 debt as Johns individual debt, albeit a
marital one, because that is how the IRS characterized it.
3 Moffitt v. Moffitt, 749 P.2d 343, 346 (Alaska 1988).
4 Id. (citations omitted).
5 Hallam v. Alaska Airlines, Inc., 91 P.3d 279, 283
(Alaska 2004) (quotation omitted).
6 Dougan v. Aurora Elec. Inc., 50 P.3d 789, 793 (Alaska
2002).
7 See Moffitt, 749 P.2d at 347.
8 Doyle v. Doyle, 815 P.2d 366, 369 (Alaska 1991).
9 Id.
10 Id.
11 Moffitt, 749 P.2d at 347.
12 Dougan, 50 P.3d at 793.
13 The court relied on the May 25, 2003 date stamp at the
top of the faxed copy of the IRS statement John submitted to find
that John had notice of the debt since May 2003, rather than, as
John claimed, December 2003. But the May 2003 date stamp was
incorrect. A clean copy of the document submitted by John with
his January 29 motion to clarify the tax debt issue shows that
the form is dated August 11, 2003; this date was covered by the
fax machine date stamp on the copy of the document John submitted
to Susan and the court with his initial January 7 motion to
include the tax debt.
14 The courts initial calculations resulted in each party
receiving approximately $140,000 plus the personal property they
divided between themselves. Susan received the house, worth
$108,051.94, and Inuit Travel, worth $34,141.78, for a total of
$142,193.72. John received the vacant lot, worth $35,000, and
Inuit Air, originally thought by the court to be worth
$104,937.91, for a total of $139,937.91.
15 Moffitt, 749 P.2d at 346.
16 Tybus v. Holland, 989 P.2d 1281, 1286 (Alaska 1999).
The Merrill factors include the financial condition of the
parties and the circumstances and necessities of each party.
Veselsky v. Veselsky, 113 P.3d 629, 637 (Alaska 2005) (citing
AS 25.24.160(a)(4)).
17 See Veselsky, 113 P.3d at 637.
18 The courts recalculations resulted in an award of
$142,193.72 to Susan but only $93,541.09 to John.
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