FORD VS. FORD (DIVORCE PROPERTY & ALIMONY)

Key holdings

Practitioner summary

Per Curiam. The decision to reopen a case for additional evidence is within the district court's sound discretion, Andolino v. State, 99 Nev. 346, 662 P.2d 631 (1983); reopening was proper here given the post-trial sale of stock for $200,000 above its stipulated value. But the district court erred by refusing to consider the wife's approximately $133,000 capital-gains tax liability from that sale: courts may consider potential tax liability in valuing marital assets when a taxable event has occurred as a result of the divorce or equitable distribution, or is certain to occur within a predictable time, Hovis v. Hovis, 541 A.2d 1378 (Pa. 1988); In re Marriage of Clark, 145 Cal. Rptr. 602 (Ct. App. 1978). Alimony is subject to limits on discretion, Forrest v. Forrest, 99 Nev. 602, 668 P.2d 275 (1983); Buchanan v. Buchanan, 90 Nev. 209, 523 P.2d 1 (1974); and courts must form judgments as to what is just and equitable, Heim v. Heim, 104 Nev. 605, 763 P.2d 678 (1988). Cancelling alimony and rescinding the $25,000 attorney's-fee award based on the 'windfall,' without considering the tax consequences and the installment (ten-year) nature of the payout, was an abuse of discretion; both were reinstated. On the cross-appeal, the Court adopted the modern rule that a professional practice's goodwill (including a solo medical practice) is part of the community estate subject to division at divorce, and that goodwill exists whether or not the practice is saleable, Dugan v. Dugan, 457 A.2d 1 (N.J. 1983); In re Marriage of Fleege, 588 P.2d 1136 (Wash. 1979); Hurley v. Hurley, 615 P.2d 256 (N.M. 1980); the Court declined to follow the restrictive rule of Hanson v. Hanson, 738 S.W.2d 429 (Mo. 1987). Any legitimate valuation method that accounts for past earnings is acceptable, and the three-months'-gross-receipts valuation of $97,598 was affirmed. Finally, the Court held the district court erred by refusing to consider the certain future tax liability on the Scanlin promissory note awarded to Dr. Ford, and directed that he be credited for it.

In plain language

Dr. William Ford, an orthopedic surgeon, and Tomie Sue Ford divorced after a marriage that produced a large community estate. At the 1986 trial, the couple stipulated that their shares in a company (Sierra Management) were worth $400,000, and the court awarded that stock to Tomie Sue to avoid tax problems, plus rehabilitative alimony of $2,500 a month for six years and $25,000 in attorney's fees. But before the judgment was even entered, the stock was bought out at a higher price and Tomie Sue received $600,000 - $200,000 more than the stipulated value. The trial court reopened the case and, treating that $200,000 as a 'windfall,' cancelled her alimony and attorney's fees. The Nevada Supreme Court held that reopening the case was proper, but that the trial court erred by ignoring the roughly $133,000 in capital-gains taxes Tomie Sue owed on the sale. Courts must consider tax consequences when a taxable event has occurred or is certain to occur within a predictable time. Cancelling her alimony and fees based on a 'windfall' without accounting for the taxes and the installment nature of the payout was an abuse of discretion, so the Court reinstated both. On Dr. Ford's cross-appeal, the Court adopted the modern rule that the goodwill of a professional practice (like a solo medical practice) is community property subject to division, even if it cannot easily be sold, and upheld the trial court's valuation. It also held the court should have credited Dr. Ford for the future tax liability on a large promissory note awarded to him.