ERIC MULLINS v. LARA MULLINS
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RENDERED: February 27, 1998; 10:00 a.m.
NOT TO BE PUBLISHED
MODIFIED: May 29, 1998; 2:00 p.m.
NO. 96-CA-3102-MR
ERIC MULLINS
APPELLANT
APPEAL FROM PIKE CIRCUIT COURT
HONORABLE EDDY COLEMAN, JUDGE
ACTION NO. 92-CI-0590
v.
LARA MULLINS
APPELLEE
OPINION
AFFIRMING IN PART,
REVERSING IN PART,
AND REMANDING
* * *
BEFORE:
GUDGEL, CHIEF JUDGE, GUIDUGLI, AND SCHRODER, JUDGES.
SCHRODER, JUDGE:
This is an appeal by Eric Mullins alleging that
the Pike Circuit Court erred in valuing his family-owned business
without taking into account the liabilities of the corporation,
and in not considering the actual incomes of the parties when
establishing child support.
Upon reviewing appellant's argument
and the applicable authorities, we affirm in part, reverse in
part, and remand.
Eric Mullins and Lara Mullins were married on
December 21, 1984.
The marriage produced three children.
The
parties separated in April 1992, and a decree of dissolution was
entered on July 1, 1992.
The decree reserved, inter alia,
property and child support issues.
Hearings were conducted
before the Domestic Relations Commissioner on March 1, 1994,
September 21, 1994, and March 20, 1995.
The Commissioner
rendered his report and recommendations on October 30, 1995.
Eric filed objections to this report, which were overruled.
On
July 11, 1996, the trial court issued its supplemental findings
of fact, conclusions of law and decree which adopted the
Commissioner's report in all material respects.
Appellant timely
filed a motion to alter, amend, or vacate the supplemental
decree.
1996.
This motion was overruled in its entirety on October 16,
This appeal followed.
Appellant first assigns three allegations of error
regarding the trial court's valuation of Mullins Enterprises,
Inc.
Mullins Enterprises is a closely held corporation which
hauls coal and owns coal trucks for this purpose.
At the time of
the parties' marriage, the company was a partnership, but it was
incorporated in 1989.
One-third of the thirty total shares of
stock were issued equally to Eric, Eric's mother, and Eric's
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father.
In late 1993, while the trial court proceedings were
underway, Eric sought to sell the stock, ostensibly because he
was financially strapped and needed the cash.
On November 19,
1993, by offer of judgment pursuant to CR 63, Eric offered to
transfer one-half of the shares to Lara, or, alternatively, to
sell all his shares to her for $10,000.
Lara rejected this, and
Eric subsequently sold his shares back to the corporation for
$10,000.
At trial, Michael Litafik, CPA, testified that the net
worth of the company was negative $12,245.00.
Lara's expert,
Nora Ferrell, testified that the value of the company was
$421,051.00, including $111,540.00 in goodwill.
The Commissioner
and trial court declined to include goodwill in the value of the
company, and held the value of the company to be $309,511.00,
with Eric’s one-third interest being $103,170.33.
The value of
Lara's fifty percent share of Eric's one-third share was
therefore determined to be $51,585.17.
Appellant first argues that the trial court's reliance
on the testimony of Lara's expert, Nora Ferrell, was clearly
erroneous, given her complete disregard of the corporation's
liabilities.
The trial court accepted $309,511.00 as the value
of the company.
This corresponds to the fair market value of the
company's assets as determined by Ferrell.
Fair market value
represents the price that a willing seller will take and a
willing buyer will pay for property, neither being under any
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compulsion to sell or buy.
Central Kentucky Drying Company, Inc.
v. Commonwealth, Department of Housing, Buildings, and
Construction, Ky., 858 S.W.2d 165, 167 (1993).
Eric argues that
the company has significant debt and that Ferrell failed to take
this debt into consideration in valuing the company.
Ferrell
states that the amount of debt is irrelevant, apparently because
she assumes that the seller will take responsibility for any
debts owing on the property.
Ferrell states, "If I buy a
business from you why should I care what you owe on it.
If I buy
a house from you why should I care what you owe on it?"
Clearly Ferrell's assumption is that the seller will
pay off any debt associated with the property.
Eric argues that
debt should be considered because the relevant consideration is
the value of the equity in the assets.
We agree with Eric.
The
valuation method used by the trial court was based upon the
appraised value of the assets of the company as of the date of
the parties’ separation.
The trial court used this as a
surrogate for the value of the actual marital asset, the stock in
the corporation.
However, this methodology ignores what is in
effect the marital debt corresponding to the marital asset.
Assuming the stock were sold for $309,511.00, and, pursuant to
Ferrell's assumption, the Mullinses remained responsible for the
debt, it is fair to presume that the debt would be paid out of
the proceeds.
Then, only $309,511.00 minus the debt would remain
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in the hands of the sellers, the Mullinses.
this amount that is Lara's marital share.
It is one-sixth of
It was clearly
erroneous for the trial court to accept Ferrell's method, which
confers upon appellee the full value of the assets, without
consideration of the corresponding debt.
Eric next argues that the testimony of Ferrell included
the hearsay use of the appraisal evidence of another expert whose
qualifications were not shown and who was not subject to crossexamination.
We disagree.
KRE 703(a) provides that if
information is "of a type reasonably relied upon by experts in
the particular field in forming opinions or inferences upon the
subject, the facts or data need not be admissible in evidence."
Ferrell testified that she has in the past relied upon estimates
provided by others in performing her appraisals.
Further, the
Commissioner commented that he would weigh the source of the
appraisal in his deliberations regarding Ferrell's testimony.
While we were less than impressed by the foundation for the
admission of this evidence, we may not overturn a decision by the
trial court unless the decision was clearly erroneous or unless
in reaching it the court abused its discretion.
Ky. App., 547 S.W.2d 786 (1977).
Boggs v. Burton,
The trial court did not abuse
its discretion in permitting Ferrell, an expert, to testify
regarding hearsay appraisals provided to her by a non-testifying
source.
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Eric next argues that the value of his interest in
Mullins Enterprises must be limited to $10,000 in light of the
fact that he offered to sell the shares to Lara for this price.
We disagree.
The offer was made in late 1993 pursuant to CR 68.
Lara did not accept the offer.
An offer not accepted shall be
deemed withdrawn and evidence thereof is not admissible except in
a proceeding to determine costs.
CR 68.
The proper application
and utilization of the Civil Rules should be left largely to the
supervision of the trial judge and we must respect his exercise
of sound judicial discretion in their enforcement.
Dairyland
Insurance Co. v. Clark, Ky., 476 S.W.2d 202, 203 (1972).
Eric
seeks to use his offer for a purpose other than to determine
costs.
CR 68(3) specifically proscribes the use of the offer of
judgment in this manner.
Further, there may be sound, non-
financial reasons for Lara to not want to become a minority
stockholder in a business controlled by the family of her exhusband.
Appellant next assigns two allegations of error
relating to the trial court's computation of his child support
payments.
Appellant first argues that the trial court
impermissibly imputed income to him for purposes of child
support.
In 1992 and 1993, the trial court issued temporary
child support orders which recognized Eric's financial benefits
derived from his ownership in Mullins Enterprises.
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These orders
recognized a monthly income for Eric of approximately $5,000.00
per month.
Appellant alleges that since he sold his stock in
1994, he no longer receives any monetary benefit from ownership
in the company, his wages decreased significantly, and his
documented gross income for 1994 was only $1,740.00 per month.
In its supplemental findings of fact, the trial court
stated that:
the Court . . . finds now that the
[appellant's] true income, all factors being
considered including his use of company
vehicles as an economic benefit, is
approximately $5,000 per month. Following
his purported transfer of his interest in the
company subsequent to the Commissioner's
evidence, [appellant] claimed that his income
was only $1,740.00 per month. . . . Since
the alleged sale, [appellant's] lifestyle and
duties with the company have essentially
remained about the same and the Court finds
that said sale was not an arms length
transaction, was not a bona fide sale and may
not have occurred at all.
The trial court, through its Commissioner, had the
opportunity to consider and weigh the credibility of the
witnesses.
Its findings cannot be set aside unless they are
clearly erroneous.
CR 52.01;
Lawson v. Loid, Ky., 896 S.W.2d 1,
3 (1995); Reichle v. Reichle, Ky., 719 S.W.2d 442, 444 (1986).
Further, Eric has failed to reconcile why he would sell his stock
for ten $1,000-installments when, as a consequence, he incurred
substantial permanent losses of monetary benefits associated with
being a stockholder.
The trial court did not abuse its
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discretion in imputing additional income to appellant for
purposes of calculating child support.
The appellant next argues that the trial court erred in
that it did not calculate child support based upon Lara's actual
income.
At some point, appellee had been employed as a
substitute teacher making approximately $60.00 per day; however,
appellee acknowledges that by the time of the decree she had
obtained full-time employment making $26,638.00 annually
($2,219.83 per month).
In the supplemental decree, the trial
court stated that appellee had "received full-time employment,
but that employment has not been renewed and she will apparently
go back to being a substitute teacher."
Appellant alleges in his
brief that Lara, in fact, remained employed on a full-time basis.
Lara did not address this issue in her brief.
At the May 8, 1996
hearing, appellee testified that she had received notice from the
Superintendent of the Pikeville Independent School System that
her contract would not be renewed for the 1996-1997 school year.
However, she testified that she was "not sure" whether her
contract would be renewed and that her principal told her "not to
be too upset" about the letter.
On cross-examination, appellee
agreed that the school system was required to send the letter to
all non-tenured teachers and that the letter does not mean
appellee will not be rehired.
KRS 403.212(2)(a) must be read as
creating a presumption that future income will be on a par with
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the worker's most recent experience, and the party who wants the
trial court to use a different income level in applying the child
support guidelines should bear the burden of presenting evidence
to support the requested finding.
Keplinger v. Keplinger, Ky.
App., 839 S.W.2d 566, 569 (1992).
The uncertain nature of a
spouse's work is not a factor justifying a deviation from the
statutory child support guidelines.
Keplinger, supra.
Appellee's ambivalent testimony regarding her future employment
is insufficient to satisfy the presumption guidelines under
Keplinger.
On remand, the trial court should establish child
support on the basis of appellee’s full-time income unless she
meets her burden of establishing a decrease in her future income
pursuant to Keplinger, supra.
The order of the trial court is affirmed in part,
reversed in part, and remanded for further proceedings consistent
with this opinion.
ALL CONCUR
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Elizabeth S. Hughes
Lexington, Kentucky
Lawrence R. Webster
Pikeville, Kentucky
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