In re the Marriage of: Jeffrey Scott Hamelink, petitioner, Appellant,
Bonnie Jean Marie Hamelink, Respondent.
Scott County District Court File No. 70-FA-10-12284
Robert J. Hajek, Donald L. Beauclaire, Hajek & Beauclaire, L.L.C., Minnetonka, Minnesota (for appellant)
Vincent D. Louwagie, Steven C. Kerbaugh, Anthony Ostlund Baer & Louwagie P.A., Minneapolis, Minnesota (for respondent)
Considered and decided by Hudson, Presiding Judge; Stoneburner, Judge; and Kirk, Judge.
Husband challenges the district court's division of property in a marital dissolution, arguing that the district court failed to adequately explain why a hypothetical buyer's personal tax liability was not considered in valuing his business, erred in valuing his business without considering a hypothetical buyer's personal tax liability, and erred in awarding wife a share of his anticipated personal tax refund. We affirm in part, reverse in part, and remand for proper equitable distribution based on a correct allocation of the tax refund.
Appellant-husband Jeffrey Scott Hamelink and respondent-wife Bonnie Jean Marie Hamelink separated in March 2010. During the marriage dissolution proceeding, the parties argued over the allocation of property worth a total of over ten million dollars. After a four-day trial, the district court rendered its decision in September 2012. Both parties moved to amend the order, focusing on two items: the value of husband's business and the allocation of husband's anticipated personal tax refund.
Husband founded North Star Machine Co., d/b/a/ Stealth Manufacturing, in 1979. The company designs and manufactures custom metal gas-burner equipment for use in fireplaces, grills, furnaces, and commercial ovens. The company is organized under Subchapter S of Chapter 1 of the Internal Revenue Code, with husband as the sole owner. An S corporation such as North Star does not pay corporate taxes, but the owners of such corporation are liable for personal taxes on the corporate profits. The parties disagreed about the fair market value of the company as of the valuation date, and the district court heard expert witnesses from each side.
Husband's expert, Stephen Hosch, utilized the single-period capitalization method while "tax affecting" estimated future earnings to calculate a fair market value of $2, 285, 000. Tax affecting is the technique of valuing S corporations by considering the effect of a hypothetical buyer's personal tax liability on estimated earnings. This technique is implemented by calculating and applying a hypothetical tax rate, which effectively lowers estimated future earnings and the fair market value derived from such earnings. Wife's expert, Arthur Cobb, utilized the discounted-cash-flow method without tax affecting and valued the company at $6, 500, 000. The district court adopted Cobb's method but adjusted some of the component values not relevant to this appeal. With these adjustments, the district court valued North Star at $3, 666, 960.
During the dissolution proceeding, husband overpaid his 2011 federal taxes by $470, 130 and Minnesota state taxes by $156, 942. The district court made no findings as to any bad faith conduct by husband, but it found that the overpayment was "an asset of the business, " so it allocated the anticipated tax refund equally between the parties.
This appeal follows.
Husband first argues that the district court erred by failing to adequately explain its refusal to consider a hypothetical buyer's personal tax liability in valuing his business. Husband asserts that remand is necessary because the district court's findings "merely describe the evidence and testimony" and "did not explain the reason for its conclusion." We disagree.
Findings of fact should be adequate to "satisfy the litigants that their case was fairly resolved, and permit reasoned appellate review." Hesse v. Hesse, 778 N.W.2d 98, 104 (Minn.App. 2009). "Reciting the parties' claims may be helpful in understanding what the [district] court considered in making its findings; however, the findings themselves must be affirmatively stated as findings of the [district] court." Dean v. Pelton, 437 N.W.2d 762, 764 (Minn.App. 1989). The district court's valuation of property "should be supported by either clear documentary or testimonial evidence or by comprehensive findings issued by the court." Ronnkvist v. Ronnkvist, 331 N.W.2d 764, 766 (Minn. 1983) (emphasis added).
Here, the district court adopted Cobb's method of calculating fair market value without tax affecting. Cobb's valuation report included citations to cases that have opposed tax affecting, and he testified as to his decision not to tax affect. Accordingly, the district court's decision is supported by clear documentary and testimonial evidence. Although the district court did not expressly articulate its reason for adopting Cobb's position, "[w]hen evidence relevant to a factual issue consists of conflicting testimony, the district court's decision is necessarily based on a determination of witness credibility, which we accord great deference on appeal." Alam v. Chowdhury, 764 N.W.2d 86, 89 (Minn.App. ...