Correctly Cammenga v. Cammenga, 2024
This case was returned to the Court of Appeals in order for the court “to make necessary factual findings related to the value of a tax loss carryforward, to alleged violations of a status quo order, and to the court’s decision to award attorney fees to [the wife].” The court affirmed in part, reversed in part, and remanded in part.
The parties were married in 1992 and have two adult children. Michael (the husband) was the primary breadwinner and worked in the paper industry, and at times the parties lived apart. Stacey (the wife) was responsible for the home and child rearing. In 2018, the husband started a business in partnership with other entities in which he had an interest. The business was a papermill. In March 2020, the wife filed for divorce. The trial court ultimately sanctioned the husband by prohibiting documents that he failed to provide to the wife.
After a three-day bench trial, the trial court placed its findings on the record. In the prior appeal, this appellate court found that the trial court correctly found that a $2,255,757 tax loss carryforward (TLC) is a marital asset but that the trial court erred in assigning no value to the TLC. The appellate court, therefore, remanded with directions for the trial court to, “on the existing record, determine the value of the carryforward and readjust the property division to compensate Stacey accordingly.” This court also remanded the issue of the amount of attorney fees that should be awarded to the wife.
On remand, the trial court decided that it would decide the value of the TLC based on the existing record. This appeal follows the issuance of the trial court’s amended order after remand.
Tax loss carryforward.
Stipulation to reopen the proofs. The husband argued that the trial court erred in not reopening the proofs, setting aside the parties’ stipulation to do so. The appellate court disagreed. “It is the duty of the lower court or tribunal, on remand, to comply strictly with the mandate of the appellate court.” (K & K Constr, Inc v. Dep’t of Environmental Quality) Therefore, the trial court did not err in following the instructions of the appellate court in determining the value of the TLC based on the existing record.
Expansion of the record on appeal. The husband wanted to expand the evidence on appeal but had not moved for leave to do so, and the appellate court denied expansion.
Valuation methods argued at hearing on remand. The husband argued that the parties struggled with the remand directions “because the existing record was insufficient to place an accurate value on the tax carryforward loss.”
The appellate court disagreed and found that the existing record allowed various methods to calculate the value of the TLC. The wife provided testimony from a CPA who testified the TLC value could be determined by calculating from his returns each year how much he saved, calculating the tax he would have paid had he not had the TLC. The value of the TLC then was the sum of the annual benefits until the TLC was exhausted. “The only question remaining for the trial court was how to calculate that tax benefit in a fashion that would allow for it to be distributed as part of the property settlement.” The appellate court in its prior opinion suggested that “a portion of the tax loss carryforward’s value could be allocated to Stacey by ordering Michael to annually pay Stacey an amount equal to 60% of his tax savings attributable to the carryforward.”
However, both parties had objections or concerns to this methodology, so the trial court did not use it. However, this method remained valid for determining the value of a tax loss carryforward. There was no prohibition for the trial court entering an order for future disclosures by the parties. (Hodge v. Parks) The husband argued that using future tax returns would allow the wife to benefit from the husband’s future income, citing Skelly v. Skelly as support. In that case, the court did not allow the wife to receive a portion of the husband’s future bonuses because they were not earned during the marriage. Here, however, the TLC was incurred during the marriage. “The fact that the value of this marital asset cannot be calculated without considering—in some form—Michael’s future earnings does not transform the tax loss carryforward into a post-marital asset.” Accordingly, the trial court would not have erred by using this method.
The husband then argued that the trial court can order the parties to file joint tax returns subsequent to the divorce under certain circumstances. The appellate court questioned whether this was a good idea based on the acrimony in the case. Thus, it would be better for the husband to produce his tax return each year to the wife in order to calculate the annual TLC benefit to be apportioned to the parties.
Valuation method the trial court selected. The trial court did not use either of the above methods to distribute the value of the TLC to the parties. The trial court attempted to determine the annual value of the TLC for the next 18.5 years until he attained age 70. “To do so, the court looked to Michael’s tax records and determined that he was in the 24 percent tax bracket. The court then calculated that 24% of the tax loss carryforward was $541,321. From there, the court determined that Stacey’s 60% share of the $541,321 would be $324,829. Because Michael would not realize the full benefit of the tax loss carryforward in a single year, the court ordered Michael to pay Stacey either annually or monthly until he turned 70 years of age.” The appellate court determined that this method was not appropriate and will not result in an appropriate value of the TLC instead of applying it to the husband’s actual annual income.
This issue was, therefore, remanded for a second time. On remand, the trial court must determine a value of the TLC based on the existing adequate record and distribute 60% of it to the wife. The trial court was not precluded from ordering the asset to be valued annually by the husband producing his actual return for each year until the TLC was exhausted, nor was the trial court precluded from filing an annual joint return since the husband had been proven to be dishonest. “Finally, the court may also value the tax loss carryforward by using Michael’s tax returns that have been included in the lower court record to estimate the amount of money that he will not have to pay as a result of the tax loss carryforward until he attains the age of 70.” While only an estimate, that method is sufficient for a fair and adequate division of marital property (Pelton v. Pelton), or, if the trial court determined that additional testimony regarding the value of the TLC was needed, it may appoint its own disinterested expert to determine the value.
Other issues on appeal.
The other issues decided on the appeal are “violation of the status quo order,” “tax consequences,” and “attorney fees.” The discussion of these can be found in the opinion.
Conclusion.
The case was remanded as indicated above, primarily as to the value and distribution of the TLC benefit.