Petition — Stricof v. Stricof

Supreme Court brief1980

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fg Supreme Court Ug

8 0 ss 3 3 g FILED

i; SEP2 1980

NO. i

DAK, JR., CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1980

NORMAN J. STRICOF,

Petitioner,

LORRAINE C. STRICOF,

Respondent. »

PETITION FOR A WRIT

OF CERTIORARI TO THE

MICHIGAN COURT OF APPEALS

Attorneys for Petitioner

BRUCE T. LEITMAN

1263 W. Square Lake Koad

Bloomfield Hills, Michigan 48013

Phone: 1-(313) 338-4501

GARY GOODFRIEND

17117 W. Nine Mile Rd., Suite 536

Southfield, Michigan 48075

Phone: 1-(313) 559-9797

Interstate Brief & Record Co., Wurlitzer Bldg., 1509 Broadway, Detroit, Mi 48226

962-8745 962-8746

QUESTIONS PRESENTED

WHETHER THE CHARACTERIZATION OF

PROPERTY DIVISION PAYMENTS AS “ALIMONY” IN

A MICHIGAN DIVORCE DECREE PROPERLY

QUALIFIES THOSE PAYMENTS AS ALIMONY

(WHICH IS DEDUCTIBLE FROM THE INCOME OF

THE HUSBAND AND INCLUDIBLE IN THE INCOME

OF THE WIFE) WITHIN THE MEANING OF 26 U.S.C.

§ 71(a) AND (c)?

II.

WHETHER A PROVISION IN THE PROPERTY

DIVISION OF A MICHIGAN DIVORCE COURT

DECREE STATING THAT THE RECIPIENT OF AN

INTEREST IN APPRECIATED PROPERTY INCURS A

FEDERAL INCOME TAX LIABILITY UPON THE

TRANSFER OF PROPERTY CONFLICTS WITH THIS

COURT’S INTERPRETATION OF 26 U.S.C. § 1001(a),

AS SET FORTH IN UNITED STATES V. DAVIS, 370 US

65 (1962)?

Il.

WHETHER THE ADVERSE TAX CONSEQUENCES

ADHERING TO THE ASSETS AWARDED TO

PETITIONER WERE SO “SPECULATIVE AND

IMAGINARY’ SO AS TO BE IGNORED BY THE

COURT WHEN IT DETERMINED THE APPROPRIATE

WORTH OF PETITIONER’S SHARE OF THE MARITAL

ESTATE?

iii

TABLE OF CONTENTS

Page

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tans tklea ie sg ious ccaness 2

a iiss whee cctv eecersctee 4

Reasons for Granting the Writ ................55. 9

INDEX TO AUTHORITIES

Cases

Bardwell v CIR, 318 F2d 786 (10th Cir 1963) ..... 16

CIR v Lester, 366 US299, 81 S Ct 1343, 66 L Ed 2d

ee pied joclee stcesceeensee 16

Crouser v Commissioner, 73 TC No. 89 (1980) .. 16

Estate of Bird v Commissiner, 534 F2d 1214 (6th

ET CitCe she iGo eb bevhs s'ds0cev eae ss 16

Gammill v Commissioner, 73 TC No 75 (1980)

een AWM MR hhe 066 0 e-vabid's 0:0 W050 00,00 14,16,17

Gerlach v Commissioner, 55 TC 156 (1970) ...... 14

Hornback v United States, 298 F Supp 977 (WD

EE eG Seda ly'e S55 anes dees teense 17

Jackson v Commissioner, 54 TC 125 (1970) ...... 14

Kraunz v Kraunz, 293 NY 152, 56 NE2d 90 (1944) 11

‘ PREVIOUS PAGE WAS BLANK |

Page

Lambros v Commissioner, 459 F2d 69 (6th Cir

SME PRs Hla ORES BH db ERE TRO EEG anaes 13

Matthews v United States, 425 F2d 738 (Ct Cl

BN 6 a5n's. kc Re ES ba Wein hh Oke se 18

McCombs v Commissioner, 397 F2d 4 (10th Cir

1 PDA RRC MiRy st eet raEInTE Fane war RA ete SY 13

Merchant's Loan & Trust Co v Smietanka, 255 US

509, 41 S Ct 386, 65 L Ed 751 (1921) .......... 9

Mills v CIR, 442 F2d 1149 (10th Cir 1971) ....... 14

Norfolk & Western R Co v Liepelt, —US—, 62 L

ee ee Oe, DO EID. eb eas ec hs osc ce 21

Pierce v Commissioner, 66 TC 840 (1967) ....... 13,14

Piel v CIR, 340 F2d 887 (2d Cir 1965) ........... 14

Porter v Commissioner, 388 F2d 670 (6th Cir

BOE SSF oi Ea ee LAE os See ees Ae aes 14

Pulliam v Commissioner, 329 F2d 97 (10th Cir

RE Eh Cr aE i a ev eae 4 eae ea es bee is es 18

Rice v Sioux City Memorial Park Cemetery, 349

US 70, 99 L Ed 897, 75 S Ct 614 (1955) ........ 12

Siragusa v Commissioner, 39 TCM 1196 (1980) .. 16

Taylor v Campbell, 335 F2d 841 (5th Cir 1964) ... 14

United States v Davis, 370 US 62 (1962) ..... 1,8,17,18

Wallace v United States, 439 F2d 757 (8th Cir

BOON ike se a'e-t once ce an A ad ae ee a we 18

Wetzel v Wetzel, 35 Wis 2d 103, 150 NW2d 482

CUE 5 cha ch ae naccay on panne te a cueeae se cl 20

Page

Statutes

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11,12,15

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PEED © Se bn dcdivilievciscave 3,4,10,12,13

Be Re EE kg es Sine b eo cen bin ceceneee 3 20

Re ee EINE Ch vnc b CRG eke tended beeeens 20

Ge TO” eer rere reer rere s 18

PE 8 Can aU ph eke bc beso bb Kaaba s aa 18

SEED. Pe ok sitar dece cet kcst aeynw nba t> 18

Ce | PA ee reer et eer eee ye 1,5,17

SP Re EE O's Sena then cob peewantce nes 2

S Rep No 1631, 77th Cong, 2d Sess 83 (1942) ... 13,16

Rules & Secondary Authority

EE crue Nw veh CM beh ene ie nenes 9,12

po EE ere rs ae re er 13

pi eS By |! | er 15

Anno — Consideration of Tax Impact, 51 ALR3d

MEROOUE Ve icaw ethos Gea eee vacaresiees 20

IN THE

Supreme Court of the United States

OCTOBER TERM, 1980

NORMAN Jj. STRICOF,

Petitioner,

LORRAINE C. STRICOF,

Respondent.

PETITION FOR A WRIT

OF CERTIORARI TO THE

MICHIGAN COURT OF APPEALS

OPINIONS BELOW

The March 12, 1976 Judgment of Divorce of the

Oakland County Circuit Court (Michigan) is reproduced

in the Appendix at 7a, infra. The March 12, 1976

Findings of the state trial judge are reproduced in the

Appendix at 18a, infra. The January 25, 1978 Opinion of

the Michigan Court of Appeals is unpublished. It is,

however, reproduced in the Appendix at 34a, infra. The

August 9, 1979 Post-Remand Findings and Conclusions

of the Trial Judge is unpublished, but is reproduced in

the Appendix at 42a, infra. The March 7, 1979 Opinion

of the Michigan Court of Appeals is unpublished, and

is reproduced in the Appendix at 5la, infra.

The April 4, 1980 Order of the Michigan Supreme Court

denying Petitioner Discretionary Leave to Appeal is

published at 408 Mich 886 (1980). For convenience, it is

reproduced in the Appendix at 57a, infra. The Order of

Mr. Justice Stewart, extending Petitioner’s time in

which to file this Petition for Certiorari to September 1,

1980, is reproduced at 59a of the Appendix, infra.

JURISDICTION

The order of the Michigan Supreme Court denying

discretionary leave to appeal was entered on April 4,

1980 (57a). The Honorable Potter Stewart, sitting as

circuit justice, entered an order on June 25, 1980,

extending Petitioner’s time for filing his Petition for

Certiorari an additional sixty (60) days (59a). The

petition for a writ of certiorari has been filed within the

allotted one hundred fifty (150) days. This Court’s

jurisdiction is invoked under 28 U.S.C. § 1257(3).

STATUTES INVOLVED

The three (3) statutes of the Internal Revenue Code

here involved are:

a 26 U.S.C. § 71(a)(1) — If a wife is divorced or

legally separated from her husband under a

decree of divorce or of separate maintenance, the

wife’s gross income includes periodic payments

(wiiether or not made at regular intervals)

received after such decree in discharge of (or

attributable to property transferred, in trust or

otherwise, in discharge of) a legal obligation

which, because of the marital or family

relationship, is imposed on or incurred by the

husband under the decree or under a written

instrument incident to such divorce or

separation. (Emphasis added.)

26 U.S.C. § 71(c)(1) and (2) — ‘(1) General rule.

For purposes of subsection (a), installment

payments discharging a part of an obligation the

principal sum of which is, either in terms of

money or property, specified in the decree,

instrument, or agreement shall not be treated as

periodic payments,” and ‘(2) Where period for

payment is more than 10 years. If, by the term of

the decree, instrument, or agreement, the

principal sum referred to in paragraph (1) is to

be paid or may be paid over a period ending

more than 10 years from the date of such decree,

instrument, or agreement, then (notwithstanding

paragraph (1)) the installment payments shall be

treated as periodic payments for purposes of

subsection (a), but (in the case of any one

taxable year of the wife) only to the extent of 10

percent of the principal sum. For purposes of the

preceding sentence, the part of any principal

sum which is allocable to a period after the

taxable year of the wife in which it is received

shall be treated as an installment payment for

the taxable year in which it is received.”

26 U.S.C. § 215(a) — In the case of a husband

described in section 71, there shall be allowed as

a deduction amounts includible under section 71

in the gross income of his wife, payment of

which is made within the husband’s taxable

year. No deduction shall be allowed under the

preceding sentence with respect to any payment

if, by reason of section 71(d) or 682, the amount

thereof is not includible in the husband’s gross

income.

3. 26 U.S.C. § 1001 — The gain from the sale or

other disposition of property shall be the excess of

the amount realized therefrom over the adjusted

basis provided in section 1011 for determining

gain, and the loss shall be the excess of the

adjusted basis provided in such section for

determining loss over the amount realized.

(Emphasis added.)

STATEMENT OF THE CASE

NORMAN J. STRICOF, the Petitioner herein,

instituted divorce proceedings in the Oakland County

(Michigan) Circuit Court against his (then) wife,

LORRAINE C. STRICOF, the Respondent herein. The

case was governed by Michigan’s so-called “no fault’’

divorce statute.' Trial focused upon the proper

evaluation of the marital estate, what constituted a

reasonable division of the parties’ assets, and whether

the Respondent would receive alimony.?

On March 12, 1976, the trial court entered judgment

granting an absolute divorce between the parties (7a).

Petitioner was ordered to pay Respondent alimony in

the amount of Three Thousand ($3,000) Dollars per

' Mich. Comp. Laws § 552.6; Mich. Stat. Ann. § 25.86.

2 Under Michigan divorce law, there is to be a “.. . just and

reasonable .. .’’ property settlement. Mich. Comp. Laws § 552.19;

Mich Stat. Ann. § 25.99

month (14a-15a). Respondent was further awarded

assets having a value in excess of one-half of One

Million Dollars. These transferred properties included,

inter alia, a marital residence, marketable stocks, bonds,

partnership interests, and proceeds from other

partnership and corporate investments (8a-11a).

Sub-paragraphs B, C, and G of Article III of the

Judgment of Divorce, entitled ‘“PROPERTY

SETTLEMENT,” stated, inter alia, as follows:

“B. IT IS FURTHER ORDERED AND

ADJUDGED that defendant wife shall receive as

her sole and separate property 50% of the

amounts paid to plaintiff husband from or on

account of plaintiff husband’s 27-1/2% interest in

Frenchtown Convalescent Center, Inc., a

Michigan corporation, and its related entity, FCC

Properties, a Michigan co-partnership.

“The intent of the foregoing language is to

award defendant wife fifty percent (50%) of the

amount received or benefited to plaintiff

husband from payments of principal, capital,

income or otherwise, including any amount

received by plaintiff husband upon a sale or

other diminution of his interest therein, with a

maximum limit of $135,000.00 to be paid to

defendant wife under this provision.

* + *

“The amounts so received by defendant wife

shall be alimony taxable to her and deductible

by plaintiff husband.

* * *

“C. IT IS FURTHER ORDERED AND

ADJUDGED that defendant wife shall receive as

her sole and separate property 50% of the

amounts paid to plaintiff husband, from or on

account of plaintiff husband’s 20% interest in

Van Buren Convalescent Center, Inc., and in Van

Buren properties (a co-partnership).

“The intent of the foregoing language is to

award defendant wife 50% of the amount

received or benefited to the plaintiff husband by

way of principal, capital, income or otherwise,

including any amounts received by plaintiff

husband upon a sale or other diminution of his

interest therein with a maximum of $170,000.00

to be paid to defendant wife under this

provision.

* * *

“The amounts so received by wife shall be

alimony and taxable to her and deductible by

plaintiff husband and shall not terminate as a

result of death or remarriage.”

“G. IT IS FURTHER ORDERED AND

ADJUDGED that each party hereto shall be

responsible for his and her own tax liability

incurred by reason of this property settlement on

the property received.” (11a)

When Judgment was entered, the trial judge stated:

‘It is the intention of the Court that both parties

who receive any of the property the Court has

indicated shall be responsible for any taxes due

and owing as a result of their ownership.”

March 12, 1976 transcript, pg. 8.

Petitioner appealed by right to the Michigan Court of

Appeals alleging, inter alia, that pursuant to the Internal

Revenue Code, these provisions were legally

insufficient to make the Respondent-transferee

responsible for tax liabilities on property which she

received, irrespective of the contrary intention

expressed in the state court judgment.

On January 25, 1978, the appellate court remanded

the case to the trial court to answer ten (10) specific

questions, including:

“Can the trial court properly term the property

settlement alimony?” (38a)

Pursuant to this remand, on August 2, 1978 the trial

court heard oral argument. In an August 9, 1978

opinion, the trial judge reaffirmed the original

Judgment of Divorce in its entirety (42a). The trial judge

termed the federal income tax liabilities “speculative,

imaginary tax consequences.” (44a)

On Appeal after remand, on March 7, 1979, the

Michigan Court of Appeals affirmed all aspects of the

Judgment of Divorce, except for a provision involving

payment of attorney fees (51a). Speaking to the trial

court’s treatment of tax incidences, the Michigan Court

of Appeals said:

“Finally, the trial court stated that the general

principle which had guided the trial court’s

division was that each party should be

responsible for his or her own tax liabilities on

property awarded in the settlement.

“‘We can find no fault with the above

findings. . .”” (52a)

Specifically addressing Petitioner’s allegations that the

trial court misread this Court’s decision in United States

v Davis, 370 US 65 (1962), the Michigan appellate

tribunal answered that the trial court “is not required to

consider speculative, imaginary tax consequences of

transfers which may never occur.” (52a)

On March 4, 1980, the Michigan Supreme Court

denied Petitioner’s application for discretionary review,

again with one exception. That Court remanded the

case to the trial judge for reconsideration of “the matter

in light of the plaintiff's clear tax liability that arises out

of the undisputed fact that the nursing home properties

had negative bases of $70,000 and $127,000 at the time

of trial.’’ (58a) This issue is not now before this Court.

At trial and at every level of appeal the Petitioner has

vigorously advanced his arguments regarding (1)

whether, pursuant to the applicable portions of the

Internal Revenue Code, Petitioner could deduct as

alimony the property division payments to his former

spouse, (2) which party bears the federal income tax

liability under United States v Davis, 370 US 65 (1962),

and (3) whether the adverse tax consequences adhering

to the assets awarded Petitioner were so “speculative

and imaginary” so as to be ignored by the Court when

it determined the appropriate worth of Petitioner's

share of the marital estate.

REASONS FOR GRANTING THE WRIT

Supreme Court Rule 17.1(a) provides, in pertinent

part:

“1. A review on writ of certiorari is not a matter

of right, but of sound judicial discretion, and

will be granted only where there are special and

important reasons therefor. The following, while

neither controlling nor fully measuring the

court’s discretion, indicate the character of

reasons which will be considered:

“(a) Where a state court has decided a federal

question of substance not theretofore determined

by this court, or has decided it in a way

probably not in accord with applicable decisions

of this court.”

Petitioner respectfully submits that here the Michigan

Courts, apparently like the courts of many other

jurisdictions, erroneously decided several questions

involving interpretations of provisions of the Internal

Revenue Code.

Petitioner’s research has found no decision from this

Court which fully addresses the supremacy of the

Internal Revenue Code as it impacts upon specific

Provisions found within state divorce decrees. &

Merchant's Loan & T. Co. v Smietanka, 255 US 509, 41

S.Ct. 386, 65 L.Ed. 751 (1921). As shown, infra, at 13-15,

the federal courts of appeals as well as the Tax Court

have consistently held that it is not the state trial

judge’s ruling that certain tax results will obtain that

determine whether the property awarded in that provision

is alimony. These courts have uniformly held that an

award is only “alimony” (and therefore taxable as income

to the wife and deductible to the husband) if it fully

satisfies the Congressional elements of 26 U.S.C. §§ 71 and

215.

However, in spite of this plethora of existing lower

federal court precedent, state trial judges, like the one in

this case, continue to believe that the expressed intention

of the state trial judge underlying a specific award

determines whether that award qualifies as alimony.

Petitioner believes that it is time for this Court to speak

forcefully on this question and to instruct state judges that,

for income tax purposes, the denominations used in state

divorce judgments, and the intention of the state trial

judge, do not determine whether an award properly

qualifies as alimony. In view of the ever increasing

number of divorces in Michigan and in this country?, a

definitive holding from this Court would be extremely

beneficial.

The position in which this state court judgment placed

Petitioner should not escape this Court. Norman J. Stricof

is caught between two existing forces: One, the state

divorce judgment, tells Petitioner that he may deduct

certain payments and property divisions as “alimony”

because that was the express intention of the Michigan

courts; the other, §§ 71 and 215 of the Internal Revenue

Code, plainly mandates that Petitioner cannot deduct

these payments as alimony because an award

* One source notes, for example, that in 1970 the national

divorce rate was 3.5 per 10.6 marriages per 1000 persons, while in

1978 that number rose remarkably to 5.1 divorces per 10.3 marriages

per 1000 persons. See, U.S. Bureau of the Census, Statistical Abstract

of the United States: 1979, pg. 60 (100th ed) Washington, D.C. (1979).

only qualifies as alimony if it satisfies the requirements of

26 U.S.C. § 71. Petitioner’s argument that the language of

the Internal Revenue Code was controlling as to whether

an award qualifies as alimony was ignored by the

Michigan courts. The dilemma onfronting a taxpayer like

Petitioner is substantial.4

Moreover, the myriad lower federal court precedent

treating this question manifestly illustrates that the state

divorce courts do not recognize the opinion of the federal

circuit courts of appeals and the Tax Court as controlling. A

decision of this Court squarely holding that the provisions

of a state divorce judgment, and the concomitant intention

of the state trial judge, are not supreme in treating matters

of federal income tax would substantially reduce the flow

of federal cases continually re-litigating this point.

Lastly, it is to be realized that Michigan’s divorce laws

are equitable in nature. Formulating property divisions

and alimony awards by misapplication of governing

federal tax law is hardly supportive of the concept of

equity. See, Kraunz v Kraurz, 293 NY 152, 56 NE2d 90,

91-92 (1944). Erroneous state property divisions, such as

this one, which totally misperceive and misapply the

governing federal tax statutes result, in fact, in a grossly

disparate and inequitable property division.

The legal questions which this Petition presents are

substantial. Not only Mr. Stricof but all others who go

* Income tax return preparers in Michigan are immersed in a

similiar predicament. The Tax Reform Act of 1976 imposed

significant penalties upon preparers not only for any wilful

understatement of tax liability, but also for negligence. 26 U.S.C.

§ 6694. There are also criminal sanctions for aiding and abetting a

taxpayer in a misstating any material matter on a tax return. 2%

U.S.C. § 7206(2). Accordingly, this matter is of serious interest to the

accounting profession, the legal profession and the State of

Michigan commercial income tax return industry.

through divorce proceedings would benefit from a

decision of this Court which provides clear guidance on

the impact of the Internal Revenue Code on state divorce

judgments. This case presents “special and important

reasons” for review and plainly satisfies Rule 17.1(a). See,

Rice v Sioux City Memorial Park Cemetary, Inc, 349 US 70, 99

L Ed 897, 75 S Ct 614 (1955).

After awarding Respondent $3,000 per month as

alimony, which was obviously framed with 26 U.S.C.

§§ 71 and 215 in mind, the trial court then divided various

maz.tal assets between the parties under Article III of the

Judgment of Divorce entitled “PROPERTY

SETTLEMENT.” Sub-paragraph C of that settlement

awarded the wife certain interests in various partnership

and corporate investments owned by the husband, and

concluded that:

“The amount so received by the wife shall be

alimony taxable to her and deductible by the

plaintiff-husband and shall not terminate as a

result of death or remarriage.”

Further, sub-paragraph G of that Article stated:

“G. IT IS FURTHER ORDERED AND ADJUDGED

that each party hereto shall be responsible for his

and her own tax liability incurred by reason of this

property settlement on the property received.”

(14a)

In order for the alimony to be included in the taxable

income of the Respondent-wife, and deductible by the

Petitioner-husband, payments must be “... periodic

payments. . . because of the marital or family relationship

.. +.” See, Treas. Reg. § 1.71-1(b)(4), and S. Rep. No. 1631,

77th Cong., 2nd sess. 83 (1942), 1942-2 C. B. 504, 568, which

interpreted the predecessor of present § 71 of the Internal

Revenue Code of 1954— § 22(k) of the 1939 Internal

Revenue Code. The trial court limited itself to the question

of whether these payments met the time prescriptions of 26

U.S.C. § 71(c)(2). That is not the principal issue. The

question is, for Internal Revenue Code purposes, do these

payments represent a property division instead of an

alimony award.

The federal judiciary has uniformly held that even if

payments satisfy the periodic payments test, sometimes

referred to as the ten (10) year rule, they will not be treated

as alimony for purposes of 26 U.S.C. §§ 71 and 215 if they

are, in substance, a disguised property settlement.

For example, addressing the ten (10) year rule, the Court

of Appeals for the Sixth Circuit has observed that 26 U.S.C.

§ 71(a) “... merely mandates that definite amounts

payable over more than ten years be deemed periodic and

does not eliminate the requirement that the payment be in

the nature of support rather than a division of property. ”’

Lambros v Commissioner, 459 F2d 69, 71 (6th Cir 1972). See,

also, Pierce v Commissioner, 66 T.C. 840 (1976), Acq. 1978-1

C.B.2.; and McCombs v Commissioner, 397 F2d 4 (10th Cir

1968).

In Pierce, supra, as in this case, the divorce decree had

denominated the payments at issue as “alimony.” In

disregarding that state court label, the Tax Court noted

that:

“Our determination as to whether a particular

payment qualifies as section 71 a‘umony for

Federal tax purposes rests on the factual

circumstances of each case, and we are not at all

bound by the New Jersey court’s characterization of

the payment in questionas ‘alimony.’ ”’ 66 T.C. 840,

846.

See, also, Gammill v Commissioner, 73 T.C. No. 75 (1980);

Gerlach v Commissioner, 55 T.C. 156, 167 (1970); Porter v

Commissioner, 388 F2d 670 (6th Cir 1968); Taylor v Campbell,

335 F2d 841, 845 (5th Cir 1964); Mills v C.I.R, 442 F2d 1149,

1151 (10th Cir 1971); Wright v C.1.R., 543 F2d 593, 598 (7th

Cir 1976); Piel v C.I.R., 340 F2d 887 (2d Cir 1965). The

Gammill decision declared:

“Payments which are part of property settlement

are capital in nature and, therefore, not subject to

the provisions of § 71.” (citations omitted) CCH

Tax Court Regular Decisions, at pg. 2835.

As stated by the Gerlach court, the proper test to apply in

determining if payments represent alimony or a division

of property is to view ”. . . all the surrounding facts and

circumstances.” 55T.C. 156, 167. See, also, Gammill, supra;

Jackson v Commissioner, 54 T.C. 125, 130 (1970).

It is manifest that the payments under Article III of the

instant ‘PROPERTY SETTLEMENT” represent a property

division rather than an obligation arising out of “the

marital or family relationship,” i.e., alimony. First,

these payments were placed within the

“PROPERTY SETTLEMENT” portion of the Judgment.

* The trial judge was consistent. From the bench, he was explicit

in treating the bifurcation of these interests as part of the property

settlement in spite of his repeated declarations that these monies

were to be tax deductible to Petitioner. See, March 12, 1976

transcript, pp. 4, 6, 7, 8 and 10.

Second, in language that was obviously phrased with 26

U.S.C. § 71(a) in mind, the Judgment of Divorce elsewhere

specifically provides for alimony in the amount of $3,000

per month. Third, and most importantly, is the nature of

the payments themselves. Article III payments are not a

set amount for a defined period of time. Rather, they

constitute, up toa maximum dollar amount, one-half of the

proceeds the husband would receive from certain

partnership interests and corporate investments.

Applying the ‘facts and circumstances” test to this case, it

is beyond argument that the monies required to be paid by

the Petitioner under the “PROPERTY SETTLEMENT”

provisions of the Judgment of Divorce are not alimony

payments within the meaning of 26 U.S.C. § 71(a).

But assuming, arguendo, that the payments arose out of

the marital or family relationship, this provision still does

not qualify as deductible alimony because it does not meet

the statute’s “periodic payment” test.

“Alimony” must meet certain statutory criteria, one of

which is that it takes the form of payments for ‘more than

10 years.’’ 26U.S.C. § 71(c). Inthe alternative, an award for

less than ten (10) years qualifies as deductible alimony only

if ““(a) Such payments are subject to any one or more of the

contingencies of death of either spouse, remarriage of the

wife, or change in the economic status of either spouse,

and (b) Such payments are in the nature of alimony or an

allowance for support.” Treas. Reg. § 1.71-1(d)(3)(i)a)

and (b). None of these contingencies was included

within these provisions. Therefore, the only way in

which these payments can properly be considered as

alimony for federal income purposes is if they can be

deemed to be periodic payments for more than ten (10)

years.

But in this case, as the trial court so clearly stated:

“the period which the payments must be made is

indefinite; it is neither more than, nor less than, ten

years. Thus, the payments fit the statutory

definition and should be treated for tax purposes as

alimony.’” (Emphasis Supplied) (Tr August 11,

1978).

This portion of the Judgment of Divorce plaintly does

not provide for Respondent-wife to receive periodic

payments for more than ten (10) years. It is manifest,

therefore, that her federal income tax liabilities from

receipt of over one-half million dollars will not result in the

federal income tax consequences envisioned by the state

court.

These issues — (1) alimony versus property settlement,

and (2) periodic payment — are two of the most frequently

litigated questions in tax law. See, for recent example,

Gammill, supra; Crouser v Commissioner, 73 T.C. No. 89

(March 18, 1980); and Siragusa v Commissioner, 39 T.C.M.

1196 (March 10, 1980). Their consistent re-occurrence and

the plain congressional intention that there be uniformity

of tax treatment for situations arising in the several states,

C.I.R. v Lester, 366 US 299, 81S Ct 1343, 6 L Ed 2d 306 (1961);

Bardwell v C.1.R., 318 F2d 786, 789 (1963); S. Rep. No. 1631,

77th Cong, 2d sess. 83 (1942); H. R. Rep. No. 2333, 77th

Cong, 2d sess. 72 (1942), suggests that this is a most

appropriate case in which to grant certiorari.

In formulating the instant property division the trial

court made the following statement which was accepted,

sub silencio, on appeal.

“It is the intention of the Court that both parties

who receive any of the property the Court has

indicated shall be responsible for any taxes due

and owing as a result of their ownership.” (22a)

It is thus obvious that the Michigan Courts proceeded

upon the erroneous assumption that the federal income

tax liabilities fell upon the recipient of the transferred

property (Respondent), rather than on the transferor

spouse (Petitioner).

But the very clear construction of 26 U.S.C. § 1001(a)

set forth in this Court’s decision in United States v

Davis, 370 US 65 (1962), teaches that a divorce related

transfer, like the transfer of the Petitioner’s interest in

the $75,000 marital home to Respondent in this case, is

a“. . . sale or other disposition of property... .” As is

common in so many divorce cases, the transfer of

Petitioner’s interest in the marital home is a taxable

event. Since the transferor is viewed as the seller, he or

she incurs a federal income tax liability for any gain

while the recipient incurs no federal tax liability upon

the transfer. It is thus plain that the intention

underlying the state trial judge’s ruling, supra, directly

contradicts the federal tax law as enunciated by this

Court in Davis.

The position herein asserted by the Petitioner has

been consistently advanced by the Internal Revenue

Service, in Davis itself, and in every subsequently

published tax decision.

The scope of the Davis tax is also well established

throughout the federal judiciary. See, for example,

Stephens v Commissioner, 38 T.C. 345 (1962); Hornback v

United States, 298 F. Supp. 977 (W.D. Mo. 1969); Deyoe

v Commissioner, 66 T.C. 904 (1976); Gammill v

Commissioner, 73 T.C. No. 75 (1980); Matthews v United

States, 425 F2d 738 (Ct. Cl. 1970); Pulliam vy

Commissioner, 329 F2d 97 (10th Cir 1964); Estate of Bird v

Commissioner, 534 F2d 1214 (6th Cir 1976), and Wallace v

United States, 439 F2d 757 (8th Cir 1971). No federal

opinion subsequent to Davis has interpreted the divorce

Property division tax, pursuant to § 1001(a), as being

one properly imposed upon the transferee of property.

It is therefore obvious here, as it was in the first issue

of this Petition for Certiorari, that, irrespective of the

federal precedent to the contrary, many States still

disregard or misconstrue the rulings of the lower federal

courts on matters involving the Davis Tax.

State rulings such as this one place the party to a

divorce in a “Catch 22” situation. For state divorce

court purposes, the income tax liability is considered

the responsibility of the recipient of the transferred

property. But how does the transferor report it to the

Internal Revenue Service? If the transferor willfully

ignores the teachings of Davis and progeny, then he or

she risks exposure to tax evasion (26 U.S.C. § 7201), or

at the very least, has contravened the “false statement”

section of the Internal Revenue Code (26 U.S.C.

§ 7206(1)). The unfortunate taxpayer could also be liable

for the fifty percent (50%) civil fraud penalty (26 U.S.C.

§ 6653(b)). See, also the five percent (5%) negligence

penalty (26 U.S.C. § 6653(a)).°

® See n. 4, supra.

Ill

The state trual judge eschewed the validity of the tax

consequences in this case because he believed they

were “‘speculative’’ and “imaginary,’’ (44a). In

evaluating the worth of each asset, the trial judge

refused to deduct any tax from the gross value of the

asset; he declined to recognize these taxes as valid

liabilities. As with the other tax issues presented in this

Petition, the trial judge simply ignored the

ramifications and supremacy of the Internal Revenue

Code.

On March 7, 1979, the Michigan Court of Appeals

affirmed the trial judge’s refusal to consider

“speculative, imaginary tax consequences’ (52a).

Neither the trial court nor the appellate tribunal applied

the facts of this case to their terse legal conclusions that

these tax incidences were ‘‘speculative’’ and

“imaginary.”

The Michigan Supreme Court denied leave to appeal

on this issue on April 4, 1980.

Throughout the Michigan judicial system, Respondent

has successfully asserted the fiction that the various tax

liabilities already incurred by the Stricof estate were

illusory and should be discarded. Such a position is

erroneous in the extreme.

In approaching the proper manner by which to

evaluate the Stricof marital estate, the state trial judge

was presented with two alternatives in which to treat

the attendant tax liabilities. Initially, he had the option

of ignoring tax ramifications in their entirety because,

as here in part, he believed them to be “speculative”

and “imaginary.” Or, the trial judge could have

attempted, consistent with the evidence, to determine

that dollar value which fairly reflects the tax incidences

brought about by the division of the marital estate.

Since, ‘disregarding the effect of taxes may (as here)

result in an unrealistic and unjust result,” Wetzel v

Wetzel, 35 Wis 2d 103, 150 NW2d 482 (1967), it is

extermely difficult to comprehend any rule of law which

encourages state trial judges to ignore so critical an

element. See, generally, Anno — Consideration of Tax

Impact, 51 ALR 3d 461 (1973), and cases cited therein.

At trial, expert testimony illustrated that Petitioner

possessed assets which had substantial tax incidences.

For example, Mr. Stricof possessed a 15% interest in

Shelco Investment Company, an installment sale basis

land contract receivable. (106a-109a) The record

undisputably shows that as principal payments are

collected on the contract, Petitioner incurs $7,603.00 in

income taxes. See, 26 USC § 453(a)(1) and (b)(1)(A). In

addition, a $3,392.00 tax liability would be incurred by

Petitioner on the collection of the proceeds of

Greenfield North, another installment basis land

contract. (125a).

The existence of these taxes is not speculative. There

can be no doubt that either Mr. Stricof, or his estate in

the event of his death, will have to discharge these

encumbrances. That much is unarguable. What is not

Pristine is when these taxes must be paid and,

therefore, precisely how much they will be. But, as was

done in this case’, a careful lawyer can lay the

” Petitioner recognizes that the trial judge discarded this

testimony on the grounds that the witness who offered it — Orville

Lefko — was lacking in credibility. (43a-44a) However, implicit in

the Michigan Supreme Court's April 4, 1980 order of remand “in

light

(cont'd on following page)

necessary evidentiary foundation upon which to have

expert witnesses determine the dollar amount of income

tax as of the approximate date of the entry of the

divorce decree. Since tax liabilities can be determined

to a reasonable degree of certainty, their inclusion in a

state trial judge’s calculations is vastly superior to

disregarding them in their entirety.

Only last term in a state court personal injury action

brought under the Federal Employer's Liability Act, this

Court was confronted with a similar argument. There it

was urged that a lay jury was incapable of ascribing an

appropriate dollar amount to a decedent’s future

estimated after tax earnings. Forcefully rejecting that

contention in clear language that could have been

written with Respondent’s “too speculative’ objection

to determining these tax consequences in mind, the

Court, in Norfolk & Western R. Co. v Liepelt, — US —,

62 LEd 2d 689, 694; 100 S Ct — (1980), said:

“Admittedly there are many variables that may

affect the amount of wage earner’s futute income

tax liability. The law may change, his family

may increase or decrease in size, his spouse’s

earnings may affect his tax bracket, and extra

income or unforeseen deductions may become

available. But future employment itself, future

health, future personal expenditures, future

interest rates, and future inflation are also

(cont’d from preceding page)

of the plaintiff's clear tax liability that arises out of the undisputed

fact that the nursing home properties had negative bases of $70,000

and $127,000 at the time of trial’ (Emphasis Supplied) (58a) is the

resurrection of Mr. Lefko as a witness by Michigan's highest court.

This is so because only Mr. Lefko offered evidence of the nursing

home properties negative bases — evidence which the Michigan

Supreme Court had no trouble determining to be “clear” and

“undisputed.”

matters of estimate and prediction. Any one of

these issues might provide the basis for

protracted expert testimony and debate. But the

practical wisdom of the trial bar and the trial

bench has developed effective methods of

presenting the essential elements of an expert

calculation in a form that is understandable by

juries that are increasingly familiar with the

complexities of modern life. We therefore reject

the notion that the introduction of evidence

describing a decedent’s estimated after-tax

earnings is too speculative or complex for a

Lad

jury.

If the tax consequences are not too speculative for a

jury, the circuit judges of Michigan should not be held

to a lesser standard.

It is respectfully submitted that this Petition for

Certiorari should be granted in its entirety.

Respectfully submitted,

BRUCE T. LEITMAN (P16541)

1263 West Square Lake Road

Bloomfield Hille, Michigan 48013

(313) 338-4501

GARY M. GOODFRIEND (P22867)

17117 W. Nine Mile Road

Suite 536

Southfield, Michigan 48075

(313) 559-9797 __

Attorneys for Petitioner

DATED: August 28, 1980.

APPENDIX TABLE OF CONTENTS

Page

Docket Entries of the Circuit Court of Michigan ... 1a

Docket Entries of the Michigan Court of Appeals .. 5a

Docket Entries of the Michigan Supreme Court ... 6a

March 12, 1976 Judgment of Divorce ............. 7a

March 12, 1976 Statement of Trial Judge .......... 7a

January 25, 1978 Opinion of the Michigan Court of

ET REE Ce are eer ane et senate 34a

August 9, 1978 Circuit Court Post-Remand Findings

En ee ri G ae ay aia aac ee 42a

March 7, 1979 Opinion of the Michigan Court of

FN. x Ca Vn des Sil tes hos Rh Des 5la

April 4, 1980 Order of the Michigan Supreme Court 57a

June 25, 1980 Order of Mr. Justice Stewart Extending

Time to File Petition for Writ of Certiorari ...... 59a

Excerpts from Testimony of Orville B. Lefko

ne NI 0 a Oe en T 60a

ane on A te see 133a

a a ree 149a

SIE OEP CLE TE TEC RI LE 15la

DOCKET ENTRIES

(Oakland County Circuit Court)

1973

Jul. 30. Complaint for divorce filed.

Jul. 30. Summons issued.

Aug. 16. Proof of service on summons filed 8-3-73.

Aug. 16. Answer to complaint for divorce filed.

Aug. 21. Reply to answer to complaint for divorce filed

Sep. 19. Notice of Issue No. — NJ.

Nov. 14. Injunctive order filed.

Nov. 14. Consent injunction re: alienation.

1974

Jan. 30. Stip. and order for first adjournment filed.

Feb. 25. Interrogatories Series I filed.

Mar. 13. Answers to interrogatories filed.

Mar. 19. Answers to interrogatories filed.

Mar. 26. Order of adjournment filed. & stip.

Apr. 2. Supplemental interrogatories to Pitf. filed.

Apr. 10. Motion for hearing on objections to

supplemental interrogatories filed.

Apr. 15. Notice of Hearing file.

Apr. 15. Answer to pltf’s. motion in the nature of motion

to compel answers to interrogatories and

adjournment of trial date filed.

Apr. 17. Reply to answer to pltf’s. motion for hearing on

objections to supplemental interrogatories filed.

Apr. 24. Stip./order for second adjournment filed.

Aug. 15. Adjourned over term subpoena continued.

Sep. 11. Motion to withdraw as atty. for pltf. filed.

Sep. 26. Stip./order for third adjournment filed.

Oct. 2. Order withdrawing as counsel for Pltf. filed.

Oct. 4. Affid of mailing filed.

Oct. 10. Appearance filed.

Oct. 2. Withdrawal of Pltf’s atty allowed.

Oct. 23. Stip./order for fourth adjournment filed.

Oct. 29. Notice of taking deposition filed (Lorraine C.

Stricof). ‘

Oct. 29. Proof of service of notice of taking deposition

filed.

Nov. 27. Deposition of Lorraine C. Stricof filed. Letters

Sent.

Nov. 27. Interrogatories to Def filed.

Nov. 27. Proof of service filed.

Dec. 9. Interrogatory to pltf filed.

1975

Jan. 24. Def’s. answer to interrogatory filed.

Jan. 29. Notice of taking deposition filed. Abraham

Burnstein. |

Jan. 29. Affidavit filed.

Jan. 29. Proof of service on notice of taking deposition

filed. Jeptha W. Schureman.

Feb. 5. Pltf. answer to interrogatory filed.

Feb. 5. Proof of service filed 2-3-75,

Mar. 10. Stip. & Order for fifth adj. filed.

Mar. 24. Non jury trial begins 1/2 day trial time.

Mar. 25. Non jury trial continues — 1/2 day trial time.

Mar. 27. Non jury trial contines — one day.

Mar. 28. Non jury trial continues — 1/2 day trial time. adj.

to 6-9-75,

Jun. 12. Non jury trial continues — 1 day trial time.

Jun. 13. Non jury trial continues — one day trial time.

Jun. 19. Non jury trial continues — ¥2 day trial time.

Proposed findings of fact and conclusions of law due 5

pm Jul 11 replies Jul 25.

Jun. 16.

Jun. 17.

Oct. 10.

filed.

Oct. 10.

Non jury trial continues — one day trial time.

Pet for order for D to execute 1974 tax returns

Proof of service filed. 10-8-75.

1976

Mar. 5. Motion for more specific findings of fact filed.

Mar. 12. Judgment of divorce filed. (10).

Mar. 12. Statement on specific findings of fact — 1/2 day

trial time.

Mar. 30. Notice of filing of claim of appeal filed.

Mar. 30. Motion for fixing of bond and for stay of

proceedings filed.

Mar. 30. Claim of appeal filed. Letters sent. CS.

Apr. 9. Substitution of attorneys filed. Notice filed.

Bruce T. Leitman.

Apr. 13. Motion for the setting of an appeal bond and

stay of proceedings-filed.

Apr. 13. Proof of Service-filed.

Apr. 13. Notice of Hearing-filed.

Apr. 14. Order for temporary alimony and interim

counsel fees-filed.

Apr. 29. Stip for restraining order. Order filed.

May 14. Order fixing bond and staying proceedings

filed.

May 18. Bond on appeal filed.

Jul. 21. Order from the Court of Appeals filed.

Aug. 31. Transcript of trial vol. 1 filed.

Aug. 31. Transcript of trial vol. 2 filed.

Sep. 2 Notice to counsel & Affidavit of n.ailing.

Oct.1. Stenographer’s certificate & Notice of F iling filed.

Oct. 14. Transcript of March 27, 1976.

1977

Feb. 15. Letter from Court of Appeals filed, granted.

Feb. 18. Appearance filed, Zemke.

Apr. 19. Letter of transmittal from Court of Appeals filed.

Apr. 19. File sent to Court of Appeals, Lansing run CH.

1978

Feb. 8. Appearance-fiied.

Mar. 22. AOS 032278 AIO Hampton, hearing 4-25-78.

Mar. 22. Apr. date assigned for appearance for

780425 H.

Apr. 11. PIitf’s post remand Request for Finds of Fact

filed.

Apr. 27. Notice of Hearing filed.

Jun. 1. Proof of Service filed 6-1-78.

Jun.1. PSconsolidated post remand Request for Finding

Facts filed.

Jun. 14. Proof of Service filed.

Jun. 28. Proof of Service & Affdvt of mailing filed.

Jun. 28. Appearance filed.

Jun. 29. Plf’s Reply to dfdt’s post remand Regt for

Findings filed.

Jun. 29. Proof of Service filed.

Aug. 11. Post-remand Findings and Conclusions filed.

Sep. 7. Motion to Compel Signature /Med.

Sep. 7. Notice of Hearing filed.

Sep. 7. Proof of Service filed.

Sep. 14. Transcript of proceedings had on 8-1-78,

Sep. 25. Steno notice of filing of transcript filed.

Oct. 4 Motion heard under advisement.

Oct. 6. Letter of transmittal from Ct of Appeals filed.

Oct. & File sent to Court of Appeals filed, Lansing run

CO.

1979

Apr. 4. Order from Court of Appeals filed.

Apr. 4. File returned from Court of Appeals, letters sent

mem.

Jul. 31. Letter of transmittal from Supreme Court filed.

Jul. 31. File sent to Supreme Court Lansing, run KSL.

1980

Apr. 8. Order from Supreme Court filed.

Apr. 8. File returned from Supreme Court, letters sent

mem.

Jul. 16. Plf’s Motn to Disqualify Richard D. Kuhn, etc.,

Affid filed.

Jul. 17. Post judgment proceeding.

July 17. Motion to Disqualify Judge denied-accting held.

Jul. 24. Order Deny pltf’s Mot to Disqualify R D Kuhn

filed.

DOCKET ENTRIES

(Court of Appeals of the

State of Michigan)

1976

Mar. 31. CV-Claim of Appeal.

Mar. 12. Order appealed from: Oakland County Circuit,

Judge: Kuhn, Richard D, LCT 73100923 DO.

1978

Jan. 25. Opinion filed; PC-RET Jur Panel: Result:

Remnd. DEH,NJK, John E. McDonald; Find Fact Juris

retnd.

Oct. 13. Record filed, file; 1TR; Oakland.

Oct. 13. Record filed, file; TR; Oakland.

Oct. 14. Supplemental Brief, appt, by: PTY 01 PL-AT

P/S:101078, Atty: Leitman, Bruce T of: Bloomfield.

Nov. 6. Supplemental Brief, appe, by: PTY 02 DF-AE

P/S:110678, Atty: Schureman, Jepth of: Detroit. both

briefs sent to panel.

1979

Mar. 7. Opinion filed, PC panel: DEH NJK JC Result:

PAR on remand; JC Dissent.

Mar. 30. Remmittitur & record retrn, files-2; TR-5; Depo

returned to Oakland County.

Jun. 13. Appl for Leave to Sup Ct.

Jul.09. Transferred to Sup Crt. COA file sent to Sup Crt.

1980

Apr. 4. S/CT Ord Gr & Remand to CT/AGY.

DOCKET ENTRIES

(Supreme Court of the State of Michigan)

1979

Jun. 12. Delayed application for leave filed.

Jul. 10. Court of Appeals record filed.

Aug. 1. Circuit Court record filed.

Oct. 1. Answer in Opposition to application filed.

Oct. 1. Defendant's delayed application for cross-appeal

filed.

Oct. 9. Answer and brief to cross-appeal filed.

Oct. 10. Appellant’s response to defendant’s

counter-question three filed.

Oct. 15. Defendant’s reply brief filed.

1980

Apr. 4. In lieu of granting leave of appeal, Remanded to

trial court with instructions.

Apr. 4. Court of Appeals and Circuit Court records

returned.

JUDGMENT OF DIVORCE

(State of Michigan

In the Circuit Court — County of Oakland)

(Filed Mar. 12, 1976)

(Norman J. Stricof, Plaintiff, vs Lorraine C. Stricof,

Defendant. Leonard E. Bellinson (P10665) Attorney for

Plaintiff, Jeptha W. Schureman (P20109) Attorney for

Defendant. Judge Richard D. Kuhn (P16285). Civil Action

No. 73-100923)

At a session of said court held in the Courthouse Tower

in the City of Pontiac, Oakland County, and State of

Michigan, on March 12, 1976.

PRESENT: HONORABLE RICHARD D. KUHN, Circuit

Judge.

This cause having been brought on to be heard upon the

Complaint for Divorce filed herein by plaintiff, and the

answer of defendant, the court having heretofore taken

plaintiff's and defendant's proofs in open court, from all of

which it satisfactorily appears to this court that there has

been a breakdown of the marriage relationship of the

parties to the extent that the objects of matrimony have

been destroyed and that there remains no reasonable

likelihood that the marriage can be preserved.

On motion of Leonard E. Bellinson, attorney for

plaintiff,

DIVORCE

IT IS HEREBY ORDERED AND ADJUDGED, that the

marriage of the parties hereto be and the same is

hereby dissolved and a divorce from the bonds of

matrimony is adjudged effective as of the date hereof.

MINOR CHILDREN

There are no minor children of the marriage of parties.

: II

#@ PROPERTY SETTLEMENT

The Court finds as a fact, from all the evidence and

testimony presented herein that, notwithstanding the

ostensible title or ownershhip thereof being in one or the

other of the parties hereto, all of the items listed

hereinbelow for division are, in fact, the property of both

parties hereto, either jointly or in common, with the

exception of that property held in either a custodial or trust

account for the benefit of the children, and that this

division thereof serves only to partition the same, and is

not intended to constitute award of property of one party

or any interests therein, to the other, for any consideration.

A. IT IS ORDERED AND ADJUDGED that defendant

wife receive as her sole and separate property, the

following items:

1. The marital home at 28435 Brooks Lane,

Southfield, Michigan, (the note and mortgage on

which defendant wife assumes and agrees to pay

and from which defendant wife shall hold plaintiff

husband harmless), together with all furniture and

furnishings presently located therein (except those

items specifically awardcd to plaintiff husband

hereunder).

2. 1971 Ford car, or any car replacing it, and any

lien on such vehicle is to be assumed and paid by

wife and from which she shall hold plaintiff

husband harmless.

3. U.S. Government Series “E’”’ bonds owned by

either party or jointly as of November 6, 1975.

4. Marketable securities and municipal bonds

owned by either party or jointly as of November 6,

1975 including those listed on the attached Exhibit

“A”, and including all dividends, stock or cash,

interest, rights or other benefits that may have been

paid or accrued on account of such securities or

bonds.

5. A right to receive the first $33,040 paid to

plaintiff husband upon the 15% interest standing

in the name of plaintiff husband in “Shelco

Investment Co.,” a Michigan co-partnership,

secured by a lien thereon.

6. Reserve Fund Account (Chemical Bank) in the

amount of $85,000.00, plus interest paid or accrued

from November 6, 1975. In the event the present

face amount is less than $85,000.00, the plaintiff

husband shall pay forthwith to the defendant wife

cash in the amount of that deficiency.

7. All interest standing in name of plaintiff

husband in “Texas International Drilling Co.,” a

partnership.

8. This 1/6 interest in name of plaintiff husband in

“Paint Creek Golf & Country Club,” a Michigan

co-partnership.

10a

9. Life insurance policies on the life of plaintiff

which are owned by defendant including the

following:

(a) North American Life, Policy 649 368 S.

(b) Dominion Life, Policy 196,334.

B. IT IS FURTHER ORDERED AND ADJUDGED that

defendant wife shall receive as her sole and separate

property 50% of the amounts paid to plaintiff husband

from or on account of plaintiff husband's 27-1/2% interest

in Frenchtown Convalescent Center, Inc., a Michigan

corporation, and its related entity, FCC Properties, a

Michigan co-partnership.

The intent of the foregoing language is to award

defendant wife fifty percent (50%) of the amount received

or benefited to plaintiff husband from payments of

Principal, capital, income or otherwise, including any

amount received by plaintiff husband upon a sale or other

diminution of his interest therein, with a maximum limit

of $135,000.00 to be paid to defendant wife under this

provision.

The interest of plaintiff husband at date of judgment in

the aforesaid corporation and partnership is 27-1/2%.

The amounts so received by defendant wife shall be

alimony taxable to her and deductible by plaintiff

husband.

The payments to defendant wife shall be made to her by

plaintiff husband within 10 days after receipt by him of the

money or benefits. 50% of any such receipts by husband

from November 6, 1975 to date of this judgment shall be

paid to defendant wife within 30 days of this judgment.

lla

C. IT IS FURTHER ORDERED AND ADJUDGED that

defendant wife shall receive as her sole and separate

Property 50% of the amounts paid to plaintiff husband,

from or on account of plaintiff husband’s 20% interest in

Van Buren Convalescent Center, Inc., and in Van Buren

properties (a co-partnership).

The intent of the foregoing language is to award

defendant wife 50% of the amount received or benefited to

the plaintiff husband by way of principal, capital, income

or otherwise, including any amounts received by plaintiff

husband upon a sale or other diminution of his interest

therein with a maximum of $170,000.00 to be paid to

defendant wife under this provision.

The interest of plaintiff husband at date of judgment is

20%.

The amounts so received by wife shall be alimony,

taxable to her and deductible by plaintiff husband and

shall not terminate as a result of death or remarriage.

The payments to defendant wife shall be made to her by

plaintiff husband within 10 days after receipt by him of the

money or benefits. 50% of any such receipts by husband

from November 6, 1975 to date of this judgment shall be

paid to wife within 30 days of this judgment.

D. ITIS FURTHER ORDERED AND ADJUDGED that

plaintiff husband receive as his sole and separate property,

the following items:

1. Stricof and Polk partnerships and Stricof and

Polk, Professional Corporation shares standing in

the name of plaintiff.

12a

2. The projector, screen, camera, photographs,

slides and films, the blue couch from the office, the

living room chair, the Stricof and Polk filing

cabinet, including client wallets.

3. 1975 Oldsmobile or replacement car.

4. Stricof and Polk, P.C., retirement trust funds

attributable to plaintiff.

5. Alilife insurance policies on the life of plaintiff

husband excepting those owned by defendant wife

which have previously been awarded to her in this

judgment.

6. All interest of the parties in Greenfield North

co-partnership and land contract.

7. All interest of the parties in World Computer

Corp.

8. The 15% interest in Shelco Investment Co.,

co-partnership subject however, to the previously

awarded rights of defendant therein.

9. All bank accounts of the parties not solely titled

in name of defendant wife, except reserve fund

account (Chemical Bank) previously awarded to

wife and further excepting any accounts of a

custodial or trust nature in favor of any child of the

parties hereto as beneficiary.

10. All real estate held in partnership or

otherwise, not otherwise disposed of herein,

including interest in Big Rapids Building Co. and

in Regency Park Apartments.

11. The 27-1/2% interest in Frenchtown

Convalescent Center, Inc., and FCC Properties (a

13a

co-partnership) presently titled in plaintiff, and the

25% interest in Van Buren Convalescent Center,

Inc., and in Van Buren Properties (a

co-partnership) presently titled in plaintiff,

subject, however, to the previously described and

awarded interests of defendant wife in these

properties.

12. That*part of the 1974 Federal income tax

refund not expressly reserved in this judgment by a

subsequent provision for payment of attorney and

accountant fees of wife.

E. IT IS FURTHER ORDERED AND ADJUDGED that

the plaintiff husband shall pay to defendant wife's

attorney, Jeptha W. Schureman, an attorney fee in the

amount of Twenty Two Thousand ($22,000.00) Dollars and

to defendant wife’s C.P.A., David Desow, the amount of

Five Thousand ($5,000.00) Dollars. These funds are to be

secured by a lien on the income tax refund pursuant to a

1974 Federal income tax return which the plaintiff husband

has represented to the Court that he has filed jointly with

the defendant wife, and on which there is due a refund to

the parties in the amount of $33,971.19.

The plaintiff husband shall notify the defendant wife

and counsel of record immediately upon receipt of the

refund from this return.

F. IT IS FURTHER ORDERED AND ADJUDGED that

plaintiff husband shall be liable for all marital obligations

up to date of judgment including but not by way of

limitation, mortgage payments, taxes, insurance,

maintenance and utilities on marital residence; further,

defendant (sic) husband shall be responsible for all

deficiencies, penalties, interest or other obligations and

14a

amounts due from all tax returns filed by the parties

jointly, and shall indemnify and hold harmless the

defendant wife therefrom.

G. ITIS FURTHER ORDERED AND ADJUDGED that

each party hereto shall be responsible for his and her own

tax liability incurred by reason of this property settlement.

Each party shall execute all documents reasonably

necessary to effectuate the Property settlement provisions

set forth herein, including the plaintiff husband making

available to the defendant wife at reasonable time and

intervals the books and records pertaining to the

Frenchtown and Van Buren Nursing Home Enterprises.

ALIMONY

A. Plaintiff husband shall pay to defendant wife,

through the office of the Friend of the Court, Oakland

County, alimony of $3,000.00 per month, commencing on

the date of entry hereof, and continuing until death or

remarriage of defendant wife or until further order of the

Court.

B. The award of alimony is based upon the income of

plaintiff husband being between Seventy-Five and One

Hundred Thousand Dollars per year. Either party may, as

Provided by law, petition the Court for modification of the

alimony, based upon a substantial change of

circumstances.

C. So long as plaintiff husband has any obiigation to

Pay alimony to defendant wife hereunder, he shall

maintain in effect insurance on his life (term or permanent,

at his option) as security for payment

15a

thereof in the event of his death, in the amount of

$200,000.00 with defendant wife as beneficiary thereof,

and shall present to defendant wife proof of his continuing

execution of this provision.

DOWER

IT IS FURTHER ORDERED AND ADJUDGED that the

plaintiff shall pay defendant herein One Dollar in lieu of

her dower in his lands and that he shall hereafter hold his

remaining lands free, clear and discharged from any such

dower right or claim of defendant.

INSURANCE

IT IS FURTHER ORDERED AND ADJUDGED that

except as otherwise specifically provided hereinabove, all

rights of either party in and to the proceeds of any policy or

contract of life insurance, endowment, or annuity upon the

life of the other in which he or she was named or

designated as beneficiary, or to which he or she became

entitled by assignment or change of beneficiary during the

marriage or in anticipation thereof, whether such contract

or policy was heretofore or shall hereafter be written or

become effective, is hereby extinguished and at an end.

VII

CHILDREN’S PROPERTY

IT IS FURTHER ORDERED AND ADJUDGED that

neither of the parties shall be awarded any beneficial

interest in the property, real or personal, of the children of

the parties and shall hold such properties as shall

l6a

have been in the name of either of the parties as of the time

of trial of this cause for the use and benefit of such children.

. Vill

RETENTION OF JURISDICTION

IT IS FURTHER ORDERED AND ADJUDGED that the

Court retains jurisdiction to make such other and further

orders as it shall deem necessary, upon application of

either party, to give effect to the provisions herein.

IMPLEMENTATION OF JUDGMENT

IT IS FURTHER ORDERED AND ADJUDGED that each

of the parties hereto shall, at any time, and from time to

time hereafter, take any and all steps and execute,

acknowledge and deliver to the other party any and all

further instruments and assurances that the other party

may reasonably require for the purpose of giving full force

and effect to the provisions of this Judgment of Divorce,

and

Further, in the event of default by either of the parties

hereto in delivering to the other any documents or

instruments necessary to implement the provisions of this

judgment, a certified copy of this Judgment of Divorce

shall stand in its place and stead.

/s) RICHARD D. KUHN

Circuit Judge

1,100

1,000

100

198

178

100

200

240

120

100

Municipal Bonds

$10,000

10,000

17a

EXHIBIT A

Company

Allied Supermarkets, Inc.

Bio-Dynamics, Inc.

First S & L Shares

Johnson Controls

Security Pacific Corp.

N.Y. Times-Class A

1st Golden Bancorp

Travelers Corp

Putnam Growth Fund

Keystone S4 Fund

Sanites Service

Citizens Mtg. Inv. Trust

Source Capital Inc.

Source Capital Inc. Pfd.

Windsor Raceway — A & B

Coldwater S/D 4 1/8% due 5/1/91

Birmingham G/O 4% due 10/1/97

Total Value of Marketable Securities

18a

MOTION

(State of Michigan

In the Sixth Judicial Circuit Court,

County of Oakland)

(NORMAN J. STRICOF, Plaintiff vs LORRAINE C.

STRICOF, Defendant. File No. 73-100923

Proceedings had in the above-entitled matter before the

HONORABLE RICHARD D. KUHN, Judge of the Sixth

Judicial Circuit Court, County of Oakland, Michigan on

March 12th, 1976.

APPEARANCES: MR. LEONARD BELLINSON,

Attorney-at-Law, Appearing on behalf of the Plaintiff;

MR. JEPTHA SCHUREMAN, Attorney-at-Law,

Appearing on behalf of the Defendant. MR. EDWARD

SIMON, Attorney-of-Counsel.

Lynn E. Erickson, Official Court Reporter

(2) 6th Judicial Circuit Court

County of Oakland, Michigan

Friday, March 12th 1976,

+ + *

The Clerk: Case number 73-100923, Norman J. Stricof vs.

Lorainne C. Stricof.

The Court: Gentlemen, there has been a motion filed

for —

Mr. Bellinson: (Interposing) Additional findings of

fact.

The Court: Additional findings of fact. The Court

wants to make the following statement:

In this case the parties have been married nearly

twenty-seven years and have had three children, all

19a

now the age of maturity, and this Court feels this is a classic

case of the young chap who starts from scratch, the wife

working to assist the husband in the completion of his

education and thereby after helping in his office and in his

client relationship at the social level, aiding in the

development of his career.

While the husband has admittedly worked hard, is an

increasingly successful business and professional man.

The wife has raised their children (3) to adulthood and toa

measure of independence. While the husband’s success is

more easily noticeable, the wife can take pride in the

achievements of the children, as well as the husband

should take pride in the achievements of his children,

Approaching middle age the husband decides he was

bored and adopted a new life-style for himself and filed for

divorce. Her children gone, rejected by her husband and

without any particular skills to re-establish her life, the

husband having confirmed in open court that he has been

unfaithful to his wife, that he has bought gifts and taken

trips with another woman, clearly the wife has been totally

faithful to the Plaintiff throughout the marriage and since

the separation —

Mr. Bellinson: (Interposing): Your Honor —

The Court: (Continuing): Based on these findings of

fact —

Excuse me, Counsel, the Court will entertain your

motion when he is through.

Based on these specific findings of fact from this trial

which lasted many, many days, the Court believes, in

fairness to the wife of nearly twenty-seven years, that she

should receive something in the percentage of

sixty-five percent of their total assets to his thirty-(4)

five percent of the total assets. And, if the Counsel

20a

would like the Court to precisely come up with that figure,

the Court would do so, but this is a very difficult case as to

values and as to division of properties.

Several properties are in such a condition that the Court

has been informed by Counsel that there is no way this

Court can distribute to the wife this property, because

there are restrictions that do not permit it, i.e.: VanBuren

Nursing Home, Frenchtown Nursing Home, the Shelco

property and partnerships.

Therefore, the Court had to do the best it could, and

when recalculating the figures as of yesterday, March 11th,

1976, the Court honestly feels it is giving the husband

$280,000 in assets and the wife only $275,00 in assets. The

values the Court is placing on the properties are as follows:

Marital home: $50,000: Household contents, $2,500: 1971

Ford LTD, $1,000: U.S. E bonds, $600: Marketable

Securities, $46,000: Shelco partnership, $33,000:

Municipal bonds, $15,000: Certificate of deposit Reserve

Fund Chemical Bank, $124,000.

(5) That is what the Court thought originally it was

going to give the Defendant wife. The Court has been

informed, subsequently, even though both counsel in

their proposed judgment indicated that was the figure as

indicated by Exhibit A, that the figure has now been

dropped to $80,000 rather than $124,000.

Texas International Drilling, $1,100; Paint Creek Golf

Club, which is a one-sixth interest is a zero value as

testified to by the Plaintiff and a debt.

For trial to her Counsel (sic) a $1,000, you take these

figures and add $27,000 for attorney fees and CPA’s and the

Court comes up with the grand total figure that the wife

is receiving $257,000.

21a

Now, as to the husband’s assets, the Court has used the

figures as follows:

$2,500 for the apartment: $6,000 for the automobile: — or

I should say probably if they are plural, also the

Oldsmobile, ’75: a retirement fund, $14,600: Cash value on

life insurance, $5,000: $44,000 for Greenfield Northland

accounts receivable, which was less the mortgage payable:

World Computer unsecured, $15,000: The accounting

practice, the figure of $173,000, although the Court is of the

opinion it is worth more than that, (6) this Court would say

it was probably worth $200,000, and the Plaintiff husband

for payment to his Counsel $13,896.

Now, using these figures comes to $274,166, but the

Court is cognizant that there was a refund in the amount of

$33,000, and the Court gave all the balance of that money

after the $27,000 which the Court directed that the

defendant's attorney and CPA be paid, that goes to the

husband, and therefore, that would be assuming the figure

is $33,000, there would be an additional $6,000 which

would be $280,000.

The Court is cognizant that the nursing homes which are

both worth in this Court’s opinion in excess of — I am

speaking of total value — in excess of $2,000,000.

Frenchtown being worth approximately $2,300,000 and

VanBuren being worth approximately $2,250,000. The

Court understands that the interest of the Plaintiff in this

matter is twenty-seven and a half percent in Frenchtown

and twenty percent in VanBuren. —

Mr. Bellinson: (Interposing): It’s approximately

twenty-five percent.

Mr. Schureman: More?

The Court: I believe it is twenty percent.

Mr. Bellinson: He just acquired an (7) addition to

twenty-five.

22a

Mr. Schureman: More?

The Court: The Court understands from the testimony

that these cannot be given to the wife. The Court being

very concerned about the two assets which are not

included in the figure that I gave earlier in the amount of

$280,000 for the husband and $257,000 for the wife,

feels that she should get something from them since the

husband’s own testimony was that he put between 150,

$200,00 cash into these investments.

The Court has indicated that she should get certain

dollar figures of $170,000. She should get $170,000 from

VanBuren and $135,000 from Frenchtown; but the Court

made it very clear that she should only receive one half of

any amount paid to the husband from either of the

partnerships by return of principal of capital or income or

otherwise, such amount be contributal (sic) to the wife

and deductible by the husband.

And, in addition, that the husband pay to the wife one

half of any amounts to be received by him upon a sale or

alleviation (sic) of his interest therein. Obviously, it is

conceivable that the husband may not receive any moneys

from these two investments, which in (8) turn quite clearly

would mean the wife would receive nothing either.

It is the intention of the Court that both parties who

receive any of the property the Court has indicated shall be

responsible for any taxes due and Owing as the result of

their ownership. Anything further?

Mr. Bellinson: Yes, I have some questions, Your

Honor. You have suggested there was unfaithfulness, that

the husband was unfaithful before he left home or after he

left home?

The Court: The Court found there was unfaithful-

ness during the i arriage and the Court is not

making a determination when. this unfaithfulness

23a

started, but there was an unfaithfulness during the

marriage and while they were lawfully and legally married,

which caused the destruction of this marriage and family.

Mr. Bellinson: Is — ifI understand you right, you said

that the parties shall pay the taxes due on the property they

receive?

The Court: Right.

Mr. “ellinson: You didn’t delineate in my request for

specific findings what you thought these taxes (9) would

be; could you do that?

The Court: No, Icould not. Iam nota tax man, this man

has never done that and doesn’t feel it can.

Mr. Bellinson: Would you indicate whether it took into

consideration the taxes in this matter in determining the

values of the property?

The Court: The answer is no, I took into consideration

what this Court found to be the values of each piece of

property at the time of the judgment.

Mr. Bellinson: Without —

The Court: (Interposing): Any tax consequences,

right.

Mr. Bellinson: Allright. AmI correct, you said that you

felt the split should be based on the test of

sixty-five/thirty-five; is that correct?

The Court: That is correct, but yet, my figure indicates

that the husband received some 23,000 more than the wife.

My hands are tied because of the nature of the assets and

the way they are limited. -

Mr. Bellinson: Could you possibly, Your Honor, give

us your formulas? A great deal of testimony has been

presented for our purposes in future motions (10) and so

forth in this matter; can Your Honor give us the values

that you felt this test was as to the nursing homes; can

you tell us?

24a

The Court: Yes, I thought I gave values of the nursing

homes.

I did put a value on the record.

Mr. Bellinson: I think I missed it.

The Court: You missed it. I put a value on the record. I

puta value of two million, approximately two million three

hundred on Frenchtown and a total value of two million

two-hundred fifty, I believe on Van Buren.

Mr. Bellinson: Did you factor in the mortgage?

The Court: No, these are gross values, I understand

there are mortgages and it was my understanding there

was a mortgage on VanBuren of one million three-hundred

two dollars and a mortgage on Frenchtown of one million

six thousand one hundred seventy-eight.

Mr. Bellinson: You determined this from the expert

testimony?

The Court: No one discussed the mortgages except Mr.

Bellinson, who brought these figures in and handed me

the mortgage. I don’t believe there is any testimony as to

the mortgage.

(11) Mr. Bellinson: You are vague —

The Court: (Interposing): Based on the expert

textimony this Court relied strongly on Mr. Bernstein’s

testimony.

Mr. Bellinson: Even though he said he was not an

expert?

The Court: That's correct, he indicated he was a CPA,

attended many closings of nursing homes and attended

one within the last ten days prior to the time of his

testimony, and I really took his low value rather than high

— high value. The Court thought from this Court’s

experience in real estate and matters of this

25a

kind, which is extensive, that this Court feels these values

were justified.

Mr. Bellinson: One other point, lastly here, you

awarded him his insurance and Counsel raised the point

that though she was the beneficiary of these insurances,

the fact is these insurances were purchased by my client for

his father and his children, even though she is the

beneficiary: We didn’t initiate that at the hearing because

she was the beneficiary; you switched at the time of your

discussion.

The Court: I didn’t switch anything because (12) of the

beneficiary, if there is ownership in a policy I would not

switch because of beneficiaries. If someone would like to

address themselves to whether we are speaking of

ownership of policies.

Mr.Schureman: Your Honor, our intention was to ask

that Mrs. Stricof have the protection of life insurance

during the life of the husband without regard to ownership

that he maintains and is in force and effect.

The Court: Excuse me, Counsel, we have agreed to

that, and I agreed $200,000.

Mr. Bellinson: That’s in addition?

The Court: That isn’t what we wanted to talk about, we

wanted to talk about these policies. Now, we have agreed

to that whether it be term or regular life insurance and Mr.

Bellinson asked could it be term. The Court indicated yes,

it had no interest as long as they had $200,000 until his

payments and alimony is not any longer required to be

paid to his former wife.

Mr. Schureman: The fact is that Mrs. Stricof is the

owner of the policy, the ownership was transferred to her

and she has, herself, paid the premiums.

The Court: Based on ownership this Court ruled that

the ownership, whoever owned them would get

26a

(13) these policies. The Court did not change it because of

beneficiaries, that would not be a reason for changing

thern; but, if in fact she is the owner as was indicated to

this Court, the Court made that determination.

Mr. Bellinson: Is the Court —in my request for specific

findings, did the Court find that supplying the wife with

the liquid assets, of course, leaving the defendant with the

taxes to pay that from alimony and from returns on the

capital that the wife will be receiving from $50,552 and the

husband $35,000 from the — the way these assets are and

the alimony distribution is set right now?

The Court: The Court didn’t make that determination,

no, it did not make a determination as to value. The Court

indicated the way it may be valued.

Mr. Bellinson: In talking about income from his

practice and from the assets divided —

The Court: (Interposing): The Court found

obviously, that he made approximately $100,000 for five

years prior to the time of this divorce and the Court granted

alimony in the amount of $3,000 a month based on an

income of 75 to $100,000.

Mr. Bellinson: Did the Court disregard (14) the

testimony of his last year’s return of fifty odd thousand

dollars?

The Court: The Court was not aware of the last year’s

testimony, the Court realized that he indicated that the

income was going to be reduced greatly and I believe he

was ona draw, $3,000 a month, but the Court also took note

with regard to the testimony that when things were tight

for him that he took a draw in the amount of $30,000.

Mr. Bellinson: My brother counsel —

Mr. Stricof: My —

27a

The Court: (Interposing): I think he had better speak

through you.

Mr. Bellinson: To keep the Court straight, it’s

inconsistent with some of the items awarded today.

How about taxes not paid on these items and the values

will be reduced by the fact that he has to pay these taxes?

The Court: No, that was not brought to the Court's

attention at any time, and therefore, the Court obviously

could not take that into consideration because it is not on

the record, and no one brought it out. It is a fact the —

(15) Mr. Bellinson: (Interposing): Does the Court

feel that if this was disclosed that these facts were brought

to the attention of the Court, then the Court feels it would

change it’s opinion?

The Court: No, for the reason as I stated, we have two

major assets here which this Court feels at this time, that

the Plaintiff has a net value in excess of 5 to 600,000 in

Frenchtown and VanBuren at this very moment, and there

is no way this Court can touch it. The Court would not be

in any way inclined to change its judgment. The Court

feels this is an extremely fair settlement based on the facts

and as the Court indicated if it could be precise in dollar

amount give sixty-five to the wife and thirty-five percent

to the husband. The Court has failed to do that only

because its hands are tied.

Mr. Bellinson: Your Honor, since the Court has

stated on the record the taxes should be paid by these

— either of the party who received the assets, I am

suggesting to the Court that it does not enter the

property judgment because I don’t believe the property

judgment presented by the defendant is consistent with

28a

our statements and I ask at least a few days to review it

again and show you (16) how it does not.

The Court: Mr. Schureman.

Mr. Schureman: I am extremely opposed, I think as a

matter of law whatever taxes befall the parties is the

consequence of the division of property of this marital

estate. The Court has made the ruling that they will bear

these taxes, the Court has spoken in a paragraph any

benefit the Piaintiff might receive from either the

nursing home in the future clearly set forth they are to

be considered as taxable income and deductible by the

husband. Otherwise, your Honor it’s getting into a great

degree of difficulty. Whatever taxes there may be each of

the parties, by operation of law, is going to be

responsible for his or her own taxes on the basis of the

award of the property, Court awarded; that’s the way I

feel about it.

The Court: The Court feels this judgment basically

inadequately covers what the Court’s pronouncement is

and the Court wants to sign it this morning. The Court

feels there is no need to carry this on any further, but

the Court would hand this judgment back to Counsel

and that one statment that I have indicated that each

party would be responsible for their taxes may be

written in here so it is clear-cut, and the Court is not

going any further (17) than that.

The Court does feel it is bound.

Mr. Bellinson: Can we ask that he write that in

before judgment?

The Court: Yes, definitely. The Court is going to be

in recess.

29a

Mr. Bellinson: One other question. Did the Court

take into consideration the testimony that stated there

would be a tax of $48,000 on the valueless — two

valueless apartment buildings?

The Court: Well, the Court took into consideration all

the testimony, and the Court realizes that some taxes are

due and owing and the Court also realizes there has been

excessive write-offs but the Court can’t guess, surmise,

and the Court also understands some foreclosures are

pending, whether or not they will become actual or real,

this Court cannot guess. The Court has seen many things

in foreclosures and people come back payoffs and save

them. They do different things for different reasons.

Mr. Bellinson: We are talking about Big Rapids and

Regency Park, $48,000 and the testimony was that there

would be a $48,000 loss. I am wondering in (18) the

evaluations whether the Court accepts that loss or not?

The Court: The Court did not in the evaluations placed

on the record, but if the Court were to do that it still comes

nowhere near, nowhere near the value where it should be.

Going through, the Court would also indicate as an

alternative, Mr. Bellinson’s figure, and using Mr.

Bellinson’s figures exactly as a value for every asset except

the CPA practice, the figures would be as follows:

Wife; $243,000. Husband; $215,876. That is using Mr.

Bellinson’s and Mr. Lefko’s evaluation of each and every

piece of property and assets except — except the CPA,

which the Court increased it by 75,000, but if I used what

Mr. Lefko and Mr. Bellinson came in with it would be

121,000 for the husband, but you must add the $75,000

which this Court has added to the value of the practice,

30a

196,000. You must add that to the added fee paid and

charge the Defendant with it, which would come to

199,876, and you must add the tax return in the amount of

6,000 which would come to 205,876 for the husband, and

the wife would receive 243,000 after you

put the 28,000 on for her — for her attorney and CPA that I

(19) have indicated that the husband should Pay.

Mr. Bellinson: Your Honor, could we have a request

that the wife sign the 1975 tax that she has been supported

during that period, we have another —

Mr. Schureman: (Interposing): I don’t know what it

Says, as a matter of fact, I will wait until you are through, I

think we ought to see it, if it makes sense I will recommend

he (sic) sign it.

Mr. Bellinson: Can we keep that open?

The Court: You may keep that open.

Mr. Bellinson: One other question, I guess. Did the

Court take into consideration in the evaluation of the

accounting practice that all the appraisers indicated that

purchase of it was based on the receivables, on the

realization of these Mr. Stricof will have to pay taxes?

The Court: No, the Court did not consider receivables

as a practice, that is not true. The Court does know that as

to the accounting practices, I believe I went from a low of 60

to 90 to a high of 278,000 by the so-called witnesses.

Mr. Bellinson: The Court did notinclude receivables in

the evaluation?

The Court: It did not, because the Court (20) would not

know the receivables as a value.

Mr. Bellinson: Your Honor, its the Court ruling that if

there is this $48,000 tax lia bility on Big Rapids and other tax

liabilities that the wife share in half of these — these taxes

that sheltered the assets?

3la

The Court: No, the Court does not indicate the wife

should share in any of the taxes due and owing on any

property that she did not receive. Mr. Shureman.

Mr. Schureman: I have one inquiry, Your Honor. I

extended some concern about the treatment of the 1974

Federal Income Tax Return, and I would like

confirmation from Mr. Stricof he has received the check

from the Internal Revenue for $33,971 and 19 cents; have

you received that?

Mr. Stricof: Yes, I have.

The Court: Was that not payable to both of you?

Mr. Stricof: The check was deposited to the account of

Norman and Lorraine Stricof.

Mr. Schureman: And, that is —

Mr. Stricof: (Interposing): And the money is held

undisturbed in the amount of $27,000 income plus (21)

with the lien that had been stated by the Court.

Mr. Schureman: Did you endorse her name on that

check?

Mr. Stricof: Deposited to the payor/payee bank

account.

The Court: She did not endorse it?

Mr. Stricof: No, she did not have to.

The Court: You have, however, taken some of that

money already, the $33,971 and 19 cents; you withdrew

some of that?

Mr. Stricof: The excess over 27,000 has been

withdrawn.

Mr. Schureman: But, you have taken for yourself the

amount that you anticipate the Court would award when it

signed this judgment, but you haven’t distributed that

amount that was supposed to be distributed for the

payment of Mrs. Stricof’s legal expenses?

32a

Mr. Stricof: That is not true, the money was for her

maintenance and support co-mingled with the other.

Mr. Schureman: You are entitled to it? Would you

please identify the bank that this is deposited in?

(22) Mr. Stricof: The money was deposited to the

account that was put into the record during the trial,

named as Norman and Lorraine Stricof, joint account, I

believe it would be identified to that Michigan National

Bank account, I believe.

The Court: Is that checking or savings?

Mr. Sricof: Checking account.

The Court: Gentleman, the Court is going to be in

recess.

Mr. Bellinson: Your Honor, one other point, I don’t

think that Mr. Schureman’s professional services

distribution, he is an accountant and that is not in there.

The Court: Excuse me, what is the last statement.

Mr. Bellinson: In your judgment you indicated that the

division of property from the nursing home that in his

professional services supplied are excluded, that is part of

his professional fees, coming as the accountant and so

forth?

Mr. Schureman: That's unnecessary. We specified

what he is to participate in.

The Court: Obviously, the Court did not (23) entertain

the question of legitimate fees, but I think if there is going

to bea problem maybe the Court should review it whether

it is a legitimate fee or someone trying to get around the

Court. The Court did not have any intention of going into

the question of legitimate fee, that should not — anything

that should go to the defendant wife, no question about it.

The Court will be in recess.

33a

Mr. Bellinson: One other question, this is a very

difficult matter, and we would ask Your Honor from time

to time to preserve their interests in the nursing home

monies would have to be advanced, any money advanced

from this date would the Plaintiff get credit for against the

distribution?

The Court: That’s exactly why the Court made the rule

that it has, any money advanced by the Plaintiff or

any further cash appropriations of these assets the

Defendant does not share in it, it is strictly the Plaintiff.

Mr. Schureman: That’s why you put the ceiling on it?

The Court: The Court will be in recess.

(Whereupon the matter was concluded.)

+ + *

34a

OPINION

(State of Michigan Court of Appeals)

(Filed January 25, 1978)

Norman J. Stricof, Plaintiff-Appellant, v Lorraine C.

Stricof, Defendant-Appellee.

BEFORE: D. E. Holbrook, P.J. and N. J. Kaufman and J. E.

McDonald, JJ.

PER CURIAM

Plaintiff and defendant were married in December,

1948. The three children born of the Marriage are now all

adults. The couple separated in August, 1973, after the

plaintiff filed his complaint on July 30, 1973. A judgment of

absolute divorce was entered on March 12, 1976. Plaintiff

appeals as of right.

This appeal is fundamentally centered around the

permanent alimony and property settlement provisions of

the judgment and that portion of the judgment which

awards defendant $22,000 in attc rneys’ fees, and $5,000 in

accountant’s fees.

It should be noted at the outset that the record does not

show that plaintiff was unfaithful to defendant prior to the

separation, nor is there evidence showing that plaintiff's

unfaithfulness, at any time, was the cause of the divorce.1

' The testimony concerning plaintiff's extramarital affairs after

the filing of divorce was admitted on the theory of Kretzschmar v

Kretzschmar, 48 Mich App 279; 210 NW2d 352 (1973), the trial court

ruling the evidence admissible as to the determination of alimony

and the property settlement.

35a

This Court’s powers of review in divorce cases are ably

set forth in Schilleman v Schilleman, 61 Mich App 446, 449;

232 NW2d 737 (1975), lv den 395 Mich 769 (1975):

“A trial court has wide discretion in dividing the

property of the marital estate and awarding

alimony. Pinney v Pinney, 47 Mich App 290; 209

NW2d 467 (1973). While this Court hears appeals in

divorce cases de novo, we will not revise or modify

alimony awards and property settlements in

divorce cases unless convinced that we would have

reached a different result had we occupied the

position of the trial court.” (Citations omitted.)

This Court explained:

“We follow these rules because in a divorce

action, an award of property to each party depends

upon a number of equitable factors, including the

source of the property, each party’s contribution

toward acquisition of the property, length of the

marriage, needs of the parties, their earning

ability and the needs of the children

involved. Irish v Irish, 59 Mich App 635; 229

NW2d 874 (1975), Hostetler, supra. Since trial courts

are in a much better position to determine the

relative weight to be accorded each of these factors,

we give great weight to their analysis. ***.”” 61 Mich

App at 450.

36a

Of necessity, that standard requires this Court to be

sufficiently apprised of the underlying facts so as to be able

to carry out our duties in this area. Typically, there are

several questions in a divorce action on which some

decision must be made. Therefore, this Court must insist

that trial courts abide by GCR 1963, 517.1, which provides

for specific findings of fact.

In this case, the trial was conducted Over a period of nine

days and consumed 900 pages of transcript. We realize that

the trial court was faced witha very difficult task in order to

come to a just and equitable conclusion. Nevertheless, our

examination of the record leaves us with numerous

unanswerable questions, without resolution of which we

cannot perform our designated function.

As noted earlier, part of plaintiff’s appeal is centered on

the property settlement Provisions of the judgment. In

Socha v Socha, 5 Mich App 404, 409; 146 NW2d 839 (1966),

this Court held that “[t]he [reviewing] court also

reviews on the issue of whether the trial court erred in

the disposition of property.” However, because of the

paucity of factual findings, we find ourselves unable to

answer necessary questions such as:

(1) Did the trial court consider all of the tax

consequences toward the parties in reaching its

conclusion, particularly with regard to accounts receivable

and goodwill?

(2) What portion of Stricof & Polk, C.P.A., P.C.,

belonged to plaintiff?

37a

(3) What was the value of the corporation, excluding

accounts receivable?

(4) Can good will of a professional corporation be

considered an asset? See Nail v Nail, 486 SW2d 761 (Tex,

1972).

(5) Why did the trial court add $75,000 to the valuation

of good will? Did it go by the testimony of plaintiff or did it

go by its own experience and thereby take judicial notice?2

(6) Why is there no termination date on the interest in

the two nursing homes?

Plaintiff also contends that the trial court’s treatment of

the alimony issue represented a serious abuse of judicial

discretion. This Court has noted that:

“The right to alimony arises out of the husband’s

duty to support the wife under the marriage

contract. Johnson v. Johnson (1956), 346 Mich 419.

Although the court’s power to grant alimony is not

inherent but statutory, Ritzer v Ritzer (1928), 243

Mich 406, the statute rests discretion in the court.

“CL 1948, § 552.23, as amended by PA 1964, No

11 (Stat Ann 1965 Cum Supp § 25.103) provides:

“ “Upon every divorce from the bond of

matrimony for any cause except that of adultery

2 The latter alternative has been frowned upon by this Court. See

e.g., Lepofsky v Lincoln Park, 48 Mich App 347, 354 n. 3; 210 NW2d

517 (1973).

38a

committed by the wife, and also upon every

divorce from bed and board for any cause, if the

estate and effects awarded to the wife shall be

insufficient for the suitable support and

maintenance of herself and such children of the

marriage as shall be committed to her care and

custody, the court may further decree to her such

Part of the personal estate of the husband and such

alimony out of his estate real and personal, to be

paid to her in gross or otherwise as it shall deem

just and reasonable, having regard to the ability of

the husband and the character and situation of the

Parties, and all the other circumstances of the case.’

“Thus, there does not appear to be an absolute

duty to support the wife. In the most recent case,

Stathas v. Stathas (1965), 1 Mich App 410, the short

duration of the marriage and the youth of the

parties was held sufficient to sustain a decree

awarding no alimony. In Sickrey v. Sickrey (1950),

329 Mich 41, the Court sustained a decree awarding

the wife only $3,000, the husband being awarded

real estate valued at about $6,500, subject to a lien of

$3,000 in favor of the wife to secure the judgment,

and a 1939 Chevrolet.” Socha v Socha, supra, at

412-413.

It is evident that a full factual explication of such a

complicated area of divorce litigation is a prerequisite to

proper appellate adjudication. Here again, however, there

are insufficient facts to answer the following questions:

(7) Can the trial court properly term the property

settlement alimony? See judgment at 4.

39a

(8) Was the award of alimony based on MCLA 552.133

or also used as punishment to plaintiff (as indicated by the

trial court in its March 12, 1976 statement)? See Schaffer v

Schaffer, 37 Mich App 711; 195 NW2d 326 (1972) and Gove v

Gove, 71 Mich App 431; 248 NW2d 573 (1976).

Plaintiff also complains of that portion of the judgment

which provides defendant with attorneys’ and

accountant’s fees. In Socha v Socha, supra at 414, Judge

Holbrook succinctly pointed out:

“Plaintiff claims she should have been awarded

$300 as attorney fees. Attorney fees have also been

referred to as being in the discretion of the trial

court Maynard v. Maynard (1951), 329 Mich 247

(sustaining award of $175); Wood v. Wood (1939),

288 Mich 14 (counsel fees refused). Factors to be

considered are needs of the wife, the ability of the

husband to pay, and the difficulty of the case. 1

Michigan Practice, Moore and Moore (2d ed. 1965),

§ 1364.”

> “(1) In every action brought either for a divorce or for a

separation, the court * * * may require either party to pay alimony

for the suitable maintenance of the adverse party, to pay such sums

as shall be deemed proper and necessary to conserve any real or

personal property owned by the parties or either of them, and to

pay any sums necessary to enable the adverse party to carry on or

defend the action, during its pendency. It may award costs against

either party and award execution for the same, or it may direct such

costs to be paid out of any property sequestered, or in the power of

the court, or in the hands of a receiver.

(2) An award of alimony may be terminated by the court as of

the date the party receiving alimony remarries unless a contrary

agreement is specifically stated in the judgment of divorce.

Termination of an award under this subsection shall not affect

alimony payments which have accrued prior to that termination.”

40a

See also Gove v Gove, supra, Reed v Reed, 53 Mich App 625;

22 NW2d 199 (1974), Clemens v Clemens, 39 Mich App 626;

197 NW2d 844 (1972).

In this case, there is not sufficient factual development of

this issue to permit the answering of these pertinent

inquiries:

(9) Were the attorneys’ fees based on MCLA 552.13;

GCR 1963, 726.124

(10) Who is paying the fees? It is the plaintiff or are

both parties Paying it out of the joint rebate from the

Internal Revenue Service?

Thus, it is clear that, overall, further development of the

factual posture of this case is necessary, and this can be

done best by the trial court. We acknowledge

that Zawisa v Zawica, 61 Mich App 1, 5; 232 NW2d

275 (1975), notes that where there is a “* * * failure to

* “Attorney Fees and Expenses.

“(1) In an action for divorce, separate maintenance,

annulment, or affirmation of marriage, and in subsequent petitions

to modify the judgment, either party may request that the court

order the other spouse to Pay an attorney the sum specified as

necessary to enable that party to carry on or defend the suit.

“(2) The moving party shall allege facts showing that he or she

is unable to bear the expense of the action without this aid. The trial

judge may require the disclosure of what attorney fees have been

paid,

(3) The court may order, in the judgment or in a separate

order, that whatever sum it finds necessary and reasonable be paid

to the wife’s attorney, either by the husband or out of the assets of

the husband over which the court has jurisdiction.

(4) The final judgment in the case shall by its entry vacate all

interlocutory orders not yet complied with unless provision is

otherwise made in the final judgment.”

4la

make specific findings of fact as required by GCR 1963,

517.1, [a ] case must be reversed.” We do not agree. We

hold that a remand to the trial court to make the findings of

fact enumerated above is a sufficient remedy. The trial

court is also directed to reopen the case to take testimony

where it deems it necessary.

We further acknowledge that the judicial circuit in

which the trial court sits is very busy. Therefore, we will

not set a date by which time this matter must be heard. We

realize that some of the inquiries the trial court is directed

to pursue will necessitate briefs from both sides. We know

that the trial court is aware that a case of this type demands

expeditious handling.

The trial court is directed to transmit to this Court

transcripts of new testimony taken, and copies of any

additional exhibits as well as its required factual findings

under GCR 1963, 517.1.

We retain jurisdiction.

42a

POST-REMAND FINDINGS AND CONCLUSIONS

(State of Michigan

In the Circuit Court — County of Oakland)

(Filed August 9, 1978)

Norman J. Stricof, Plaintiff v Lorraine C. Stricof,

Defendant, Circuit Court No. 73-100923 DO, Court of

Appeals No. 28132.

Ata session of said Court held in the Courthouse in the

City of Pontiac, County of Oakland, State of Michigan, on

this 9th day of August A.D. 1978,

PRESENT: THE HONORABLE RICHARD D. KUHN,

CIRCUIT JUDGE

This case is before the Court on remand from the Court

of Appeals, Division One. That Court, in a per curiam

opinion of January 25, 1978, posed ten questions for this

Court to answer to facilitate appellate review of this

Court’s judgment. The Court has heard oral arguments,

has received and considered proposed findings and

responses, has reviewed its own notes, and jas read the

transcript of certain parts of the proceedings in this Court.

No new testimony has been taken. Being fully advised in

the premises, the Court makes the following

determinations.

“Did the trial Court consider all of the tax consequences

toward the parties in reaching its conclusion, particularly

with regard to accounts receivable and good will?’

43a

This Court did not consider all of the tax consequences to

the parties in reaching its division of property. To the

extent that expert testimony incorporated tax

consequences, this Court did consider that factor. In the

evaluation of Stricof & Polk, C.P.A, P.C., this Court did

not evaluate accounts receivable. Since receivables might

never be paid, they are mere expectancies that could not be

known as a value. This Court said as much on March 12,

1976. (Transcript of 3-12-76, p. 19-20) Good will was

considered as part of the value of the C.P.A. firm.

This Court expressly ordered in its judgment that ‘“each

party hereto shall be responsible for his and her own tax

liability incurred by reason of this property settlement on

the property each received.” (Judgment, III.G., p. 7.)

Therefore, this Court accounted for and distributed the tax

liabilities that were part of the marital estate.

As to the tax liabilities about which plaintiff’s expert

Lefkos testified, this Court has discounted those

purported tax liabilities for two reasons. First, those

purported tax liabilities were calculated based on transfers

of those properties in 1974, none of which were ordered

and none of which have yet occurred. Further, those tax

calculations were not supported by adequate foundation

as to rates, deductions, or other details necessary to the

calculations. (Transcript of March 27, 1975, p. 33-34, 36.)

Secondly, and more importantly, in this Court’s eyes,

witness Lefkos lacked credibility. His testimony that

plaintiff's likely future earnings would not exceed $40,000

per year, in the face of plaintiff's own testimony that he

had averaged $100,000 per year over the

44a

previous five years, was completely incredible and

patently contrived. In light of Lefkos’ obvious falsehood as

to plaintif“s income, this Court chose to disbelieve and

ignore Mr. Lefkos’ testimony on all points.

Therefore, there was no other testimony upon which

this Court could have considered these speculative,

imaginary tax consequences.

“What portion of Stricof & Polk, C. P.A., P.C., belonged

to plaintiff?”

Plaintiff owned 75% of the C.P.A. firm, as this Court

acknowledged on March 12, 1976. (Transcript p. 19.) In

evaluating plaintiff's interest, the Court was presented

with testimony evaluating plaintiff's interest in the firm in

a range extending from $99,241 up to $278,000. The Court

arrived at the figure of $173,000 by weighing the evidence

and assessing the credibility and reliability of the

witnesses and testimony this Court heard. The plaintiff

himself admitted to defendant's witness Desow that the

C.P.A. firm was worth $282,000. The Court did consider

good will, but did not consider receivables in evaluating

plaintiff's interest.

ITI

“What was the value of the corporation, excluding

accounts receivable?’’

The $173,000 value put on plaintiff’s 75% interest in

the firm took into consideration good will, but did not

consider accounts. receivable. See the transcript of

March 12, 1976, p. 19 and 20.

45a

“Can good will of a professional corporation be

considered as an asset? See Nail v Nail, 486 SW2d 761 (Tex.

1972).”

Nail v Nail notwithstanding, this Court is of the opinion

that good will is an appropriate asset when evaluating

professional corporations. See In re Marriage of Lopez, 38

Cal App 3d 93, 113 Cal Rptr 58 (1974). There, the

community property law required an assumption that a

spouse has contributed to and acquired an interest in the

good will of a professional firm. Here, the Court has made

an express finding to that effect. (Tr. 3-12-76, p.2)

Therefore, as inLopez,“’. . . good will may thus be separate

Property, community property, or varying degrees of both

depending upon the particular circumstances.” 113 Cal

Rptr 58, 67. The good will of Stricof & Polk, C.P.A., P.C. is

an asset of the marriage.

See also Moss v Moss, 80 Mich App 693 (1978), in which

the Court of Appeals affirmed an award of alimony which

represented the wife’s contribution to the acquisition of

the husband’s medical degree.

“Why did the trial Court add $75,000 to the valuation of

good will? Did it go by the testimony of plaintiff or did it go

by its own experience and thereby take judicial notice?’’

As to how this Court derived the value of Stricof &

Polk, C.P.A., P.C., see this Court’s answer to question

2 (part II, supra). This Court did not take judicial notice

of anything, but rather weighed and balanced the

46a

testimony in light of its own knowledge and experience so

far as that knowledge and experience reflected on the

credibility and reliability of the evidence.

The Court did not add $75,000 to the valuation of good

will of Stricof & Polk, P.C. Nor did the Court arrive at its

valuation of $173,000 by virtue of its own experience and

thereby take judicial notice. What the Court did was

attempt to strike a balance between the plaintiff's appraisal

of $99,241, and the defendant’s appraisal of $282,000. In

doing so, the Court added approximately $75,000 to the

plaintiff's evaluation, inan attempt to be fair to both sides.

The question could as easily be asked, ‘Why did the

Court subtract $109,000 from the defendant’ s evaluation?”

This rather less argumentative form of the question would

result in the same answer, i.e., to achieve fairness to both

sides. As noted above from the record of hearing on March

12, 1976, the Court concluded, and still holds, that the

accounting practice is worth more than $173,000, probably

$200,000. (3/12/76 5-6)

“Why is there no termination date on the interest in the

two nursing homes?”

There is no termination date on the nursing home

interest because none was intended. What was intended

was a maximum dollar termination point, and the division

of the nursing home interest is such that if the nursing

home yield no profits or other form of return, neither party

benefits from those interests.

Although not asked for by the Court of Appeals, this

Court will address its evaluation of the nursing home

47a

interests. As shown by the transcript of March 12, 1976

proceedings, this Court did fix a value to the nursing home

interests. (March 12, 1976 TR. p. 6, p.10.) In reaching those

values, this Court relied largely on the testimony of Mr.

Bernstein, who actually visited the properties and had just

recently participated in the closing of a nursing home

transaction. This Court found Mr. Bernstein’s testimony

reasonable, based on recent observation, and based on his

personal experience. The value placed on Mr. Stricof’s

interests in the nursing homes was not included in the total

valuation of the property division.

VII

“Can the trial Court properly term the property

settlement alimony? See judgment at 4.”

In response to this question the Court points out that the

term “alimony” under Judgment III.B. and III.C. was

inserted not by this Court, but during a recess of court by

the mutual agreement of the parties. This Court acquiesced

in the use of that terminology, but did not order it and did

not give its express approval of that specific language.

It is standard practice to try to frame divorce decrees and

property divisions in a manner that will afford the parties

some tax benefit. The Internal Revenue Code provisions

regarding alimony provide that periodic payments which

last over a period of ten years, or which are not installments

on a fixed sum in gross, shall be treated as alimony.

These payments are not tied to any sum in gross (except

that there are maximum dollar amounts specified)

and the period during which the payments must be

made is indefinite; i* is neither more than, nor

48a

less than, ten years. Thus, the payments fit the statutory

definition and should be treated for tax purposes as

alimony.

VIII

“Was the award of alimony based on MCLA 552.13 or also

used as punishment to plaintiff (as indicated by the trial

Court in its March 12, 1976 statement)? See Schaffer v

Schaffer, 37 Mich App 711; 195 NW2d 326 (1972) and Gove v

Gove, 71 Mich App 431, 248 NW2d 573 (1976).”’

Initially, this Court is at a loss to find any statement in

the March 12, 1976 transcript that would indicate that this

Court is punishing Mr. Stricof through the award of

alimony. The reference to Gove is equally mystifying since

that case primarily deals with attorney’s fees, not alimony.

The statutory reference to MCLA 552. 13; MSA 25.93 is also

confusing since that statute deals with temporary alimony

pending a final decree. The order of alimony here is part of

the final decree and is properly reviewed in light of MCLA

952.23; MSA 25.103, the permanent alimony statute.

Reviewing the award of alimony in light of the statute

and the circumstances of the Parties reveals the following.

Plaintiff had maintained his wife and household in a

comfortable fashion, giving her $1800 per month during

the marriage for basic household expenses and after the

separation giving her over $22,000. She also expended

other funds for her own maintenance. The award of $3,000

per month alimony is specifically tied to an income for

plaintiff of $75,000 to $100,000 per year. The decree

provides that he may petition for a modification if there isa

substantial change of circumstances. The plaintiff

established defendant's standard of living and maintained

49a

it throughout the separation. The defendant must now

treat the alimony as taxable income, and must meet

expenses brought about by the divorce. An award of

$3,000 per month is not unduly burdensome to a person

earning $75,000 to $100,000 per year, and is appropriate

to maintain defendant in a reasonable life style.

As to plaintiff's fault in causing the breakdown of this

marriage, this Court finds in reviewing its notes taken at

the time of the trial, that plaintiff admitted that the

defendant had been a loyal and faithful wife. He further

admitted, on June 12, 1975, that he had not been faithful to

his wife. Certainly these matter can be taken into account

as this Court exercises its discretion.

“Were the attorneys’ fees based on MCLA 552.13; GCR

1963, 726.1?”

Because of the :ature of many of the assets of this

marriage, defendant had restricted uccess to sufficient

funds to pay professionals for their assistance in this

matter. This was a complex and unusual nine day trial over

the division of the marital estate. Plaintiff paid substantial

sums to attorneys and accountants on his own behalf out of

marital assets. The payment of defendant’s fees was

reasonably necessary, in light of the substantial amount

(though not unreasonable or inflated) and defendant's

limited access to liquid assets during the proceedings, and

thus was within the statute.

Who is paying the fees? Is it the plaintiff or are both

parties paying it out of the joint rebate from the Internal

Revenue Service?”

50a

The Court specifically provided that the attorney fees to

defendant's counsel of $22,000 and the expert witness fee

to defendant’s Mr. Desow of $5,000, were to be paid from

the joint Federal Income Tax refund of the parties for 1974

totaling over $33,000, with the net thereafter to be retained

by plaintiff. The intent of the Court, especially in view of

plaintiff's paying of costs of litigation from the joint

account of the parties, was in substance to impose these

awards upon the marital estate of the parties. This is clear

from the transcript of hearing on March 12, 1976, wherein

the Court noted that it was awarding defendant total assets

of $275,000, and awarding the plaintiff total assets of

$280,000. The computation of this amount to the plaintiff

was arrived at by including in the total to him only the net

sum of $6,000 from the income tax refund after deducting

the award of attorney’s fees and costs. (3/12/76 4,6)

This Court feels compelled to render some additional

comments on this case. As previously noted, plaintiff's

chief expert witness, Mr. Lefkos, was totally lacking in

credibility (part I, supra). This is also the case with the

plaintiff's own testimony. At one point he testified that the

most he could draw from his C.P.A. firm was $3,000 per

month. He later testified that during one month when

things were financially tight, he drew $30,000 from the

firm. He also testified that, after averaging $100,000 a year

over a five year period, he was sure he would never make

over $45,000 in any future year. Such glaring discrepancies

expose Norman Stricof, at the very least, as an unreliable

witness.

This Court remains unshaken in its conviction that the

property division and alimony award are extremely fair to

both parties. This was a most difficult case

5la

considering the nature and extent of the property

involved, the length of the marriage, and the intricate

maneuvering and manipulation by plaintiff. This Court is

satisfied that it has reached the right result.

ls) RICHARD D. KUHN

Circuit Judge

OPINION

(State of Michigan Court of Appeals)’

(Filed March 7, 1979)

Norman J. Stricof, Plaintiff-Appellant, v Lorraine E.

Stricof, Defendant-Appellee. Docket #28132.

Before D. E. Holbrook, P. J., N. J. Kaufman and Ee,

McDonald, JJ.

PER CURIAM.

This case is before us for evaluation of the trial court's

post-remand findings of fact, as ordered in Stricof v Strico f

(Docket #28132, unpublished per curiam opinion,

released 1/25/78). Appellant does not contest the granting

of the divorce itself. His challenges are to the property

settlement, alimony, and attorney fee provisions of the

March 12, 1976 judgment of divorce. No further testimony

has been presented, or requested, although our earlier

opinion suggested that such testimony might be helpful to

this court and the trial court.

The first question which we directed the trial court to

answer dealt with the court’s consideration of tax

consequences. In its opinion on remand, the court stated

that tax consequences had been considered, to the extent

incorporated by the expert testimony; however, plaintiff's

expert lacked credibility because he had testified

untruthfully. In addition, this witness had not specified

the foundational facts for his calculations, and had made

his calculations based on transfers of property which had

not yet occurred and had not been ordered. Finally, the

court stated that the general principle which had guided

the court’s division was that each party should be

responsible for his or her own tax liabilities on property

awarded in the settlement.

We can find no fault with the above findings. The trial

court has wide discretion in dividing the property of the

marital estate, and in deciding which witnesses are worthy

of belief. Irish v Irish, 59 Mich App 635, 636; 229 NW2d 874

(1975). The court must consider tax consequences in

general, but is not required to consider speculative,

imaginary tax consequences of transfers which may never

occur. See Wahl v Wahl, 39 Wis 2d 510; 159 NW2d 151

(1968). The situation here is analagous to that where an

employee’s interest in a pension fund is a mere

expectancy: such an interest is not distributable pursuant

to a divorce judgment. Miller v Miller, 83 Mich App 672;__

NW2d __ (1978). United States v Davis, 370 US 65; 8 L Ed 2d

335; 82 S Ct 1190 (1962), relied on by the plaintiff, is not on

point because in that case the transfers had already taken

place. In the case at bar, all our opinion asked was whether

the court had taken the tax consequences into consid-

eration, and we are now satisfied that this was done.

53a

The second through fifth questions concerned the

valuation of plaintiff's accounting firm, Stricof and Polk,

P.C. In its post-remand findings of fact the trial court

stated that (1) plaintiff's interest in the firm was 75 percent,

(2) this 75 percent interest was valued at $173,000,

including goodwill but excluding accounts receivable, and

(3) the $173,000 figure was arrived at by weighing the

evidence and credibility of witnesses, and attempting to

strike a fair and equitable balance between the valuations

of $99,241 and $282,000 given by plaintiff's and

defendant's witnesses respectively.

Again, we cannot find that we would have reached a

different conclusion had we been in the position of the trial

court. It was proper for the court to fix a value between the

extreme estimates. Greenough v Greenough, 354 Mich 508,

518; 93NW2d 391 (1958), Mitchell v Mitchell, 333 Mich 441,

445; 53 NW2d 325 (1952). As to the inclusion of goodwill,

we find no abuse of discretion since there was testimony

from both sides that this particular firm did have valuable

goodwill. SeeIn re Marriage of Lopez, 38 Cal App 93; 113 Cal

Rptr 58 (1974). The sixth and seventh questions dealt

with two nursing homes in which plaintiff held

partnership interests. The judgment of divorce had

awarded defendant wife 50 percent of the benefits received

by plaintiff on account of plaintiff's interests in these

nursing homes “by way of principal, capital, income or

otherwise.” The ceiling on the amount defendant could

receive was $135,000 for Frenchtown and $170,000 for Van

Buren. These sums were to be “alimony,” and were not to

terminate “as a result of death or remarriage.”’

On remand, this Court asked, first, whether the trial

court could term the property settlement ‘alimony.’

54a

The trial court responded that the word “alimony” was

added by mutual agreement of the parties. Plaintiff has not

disputed this statement in his brief. The law favors

compromises and settlements, and the court is ordinarily

powerless to disturb the terms of a stipulation entered into

by the parties as to the division of property. See Shahan v

Shahan, 74 Mich App 621; 254 NW2d 596 (1977), Dillard v

Dillard, 356 Mich 394; 96 NW2d 801 (1959). We find no

error.

Our previous opinion also asked why there was no

termination date on the nursing home interests. The trial

court responded that none was intended; what was

intended was a maximum dollar termination point.

Plaintiff has presented no authority indicating that this

was an abuse of discretion. Indeed, plaintiff's arguments

are essentially directed at the court’s valuation of the

nursing homes. ' We have examined the transcript and find

that we would not have reached a different result. The

testimony of Burnstein (defendant's expert), an accountant

who had had previous experience with at least 20 nursing

homes, and who had visited Frenchtown and Van Buren

and found them to be beautiful, well-run facilities, was

certainly no less believable than that of Lefko (plaintiff's

expert). Lefko had appraised two nursing homes in his

career — Frenchtown and Van Buren — and had not even

visited these properties in person.

Our eighth question concerned the trial court’s possible

use of alimony as punishment of plaintiff for having a

relationship with another woman nearly two years after

his separation from defendant. We do not

' We note that the trial court did not consider plaintiff's interest in

these nursing homes in its total evaluation of property.

55a

approve of the use of alimony as punishment for actions

occurring so long after the separation. Nevertheless, we

are convinced from our review of the trial court’s

statements taken in light of the testimony as a whole that

the alimony award was basically intended to maintain

defendant in the lifestyle to which she had contributed and

become accustomed to during the marriage. We thus find

no abuse of discretion. MCL 552.23; MSA 25.102; Abadi v

Abadi, 78 Mich App 73; 259 NW2d 244 (1977). If there is a

change in circumstances, plaintiff may of course petition

the court fora reduction in alimony. Esslinger v Esslinger, 9

Mich App 11; 155 NW2d 702 (1967).

Finally, our earlier opinion requested clarification

regarding attorney fees. The trial court’s response

indicated that defendant’s attorney fee of $22,000 and

expert witness fee of $5,000 were to be paid from the

parties’ joint 1974 federal income tax refund. The court saw

these sums as ‘reasonably necessary, in light of the

substantial amount (though not unreasonable or inflated)

and defendant's limited access to liquid assets during the

proceedings.”

We must reverse the above award. Attorney fees in

divorce actions are proper only if necessary to enable a

party to carry on or defend the litigation. MCL 552.13; MSA

25.93; GCR 1963, 726.1; Gove v Gove, 71 Mich App 431; 248

NW2d 573 (1976), Radway v Radway, 81 Mich App 32053

NW2d 202 (1978). This was not the case here. A person

awarded $275,000 in a divorce judgment does not need any

help to pay an attorney and an accountant.

Plaintiff and defendant are each entitled to one-half of

the joint 1974 federal income tax refund.

Affirmed in part; reversed in part. No costs.

56a

DISSENTING OPINION

(State of Michigan Court of Appeals)

Norman J. Stricof, Plaintiff-Appellant, v Lorraine C.

Stricof, Defendant, Appellee. Docket #28132.

Before D. E. Holbrook, P. J., N. J. Kaufman and ee

McDonald.

JJ. J. E. McDonald, J. (Dissenting)

I must respectfully dissent.

We are in total agreement with the opinion written in all

regards except concerning the denial of attorney fees.

The circuit judge pointed out in his response to the

questions asked by this Court on remand that he believed

that the attorney fees awarded for the defendant were

necessary and reasonable to enable the defendant to carry

on the litigation. The trial court also points out that the

defendant wife’s Separate estate was virtually

non-existent.

The trial court stated that during the pendency of this

suit, the plaintiff husband paid considerable moneys for

his cost of litigation from marital assets. This was done

without requesting or obtaining Court approval and with

no showing of necessity under MCL 552.13; MSA 25.93;

GCR 726.4. The husband was awarded over $280,000.00 by

the judgment. Both Gove and Radway involve situations

that occurred several years after a divorce had been granted

and the parties had received their separate amounts.

Attorney fees were awarded on motions to modify the

judgment.

We do not believe that the consideration of attorney fees

on a post-judgment motion involves as many

57a

factors as does the award of attorney fees as part of an

overall settlement between the two parties at the time of

the divorce when the monies under consideration are not

specifically those of one party or the other as definitely as

they are several years after the parties have gone their

separate ways with their own funds.

We recognize that the trial court in the instant case had to

deal with many aspects of a very complicated economic

situation. We are unable to say that he committed error in

exercising his judgment and we are unable to say that these

items should be considered separately.

Part of our reluctance to interfere with the disposition of

the trial court is our concern that in doing so we may create

a situation where the defendant wife not only is compelled

to pay her own cost of litigation but a portion of the cost of

litigation of the plaintiff husband.

We would affirm the action of the circuit judge.

ORDER

(State of Michigan Supreme Court)

(Filed April 4, 1980)

Norman J. Stricof, Plaintiff-Appellant, v Lorraine C.

Stricof, Defendant-Appellee.

At A Session Of The Supreme Court Of The State Of

Michigan, Held at the Supreme Court Room, in the City of

Lansing, on the 4th day of April in the year of our Lord one

thousand nine hundred and eighty.

58a

Present the Honorable Mary S. Coleman, Chief Justice,

Thomas Giles Kavanagh, G. Mennen Williams, Charles L.

Levin, John W. Fitzgerald, James L. Ryan, Blair Moody, Jr.,

Associate Justices.

On order of the Court, the delayed application for leave

to appeal by plaintiff-appe!lant and the delayed

application for leave to appeal as cross-appellant by

defendant-appellee are considered. Pursuant to GCR 1963,

853.2(4), in lieu of granting leave to appeal, we REMAND

to the Oakland Circuit Court to reconsider ‘the matter in

light of the plaintiff's clear tax liability that arises out of the

undisputed fact that the nursing home properties had

negative bases of $70,000 and $127,000 at the time of the

trial.’’

In all other respects the applications are DENIED.

We do not retain jurisdiction.

Certification

State of Michigan — ss.

I, Harold Hoag, Clerk of the Supreme Court of the State

of Michigan, do hereby certify that the foregoing is a true

and correct copy of an order entered in said court in said

cause; that I have compared the same with the original,

and that it is a true transcript therefrom, and the whole of

said original order.

IN TESTIMONY WHEREOF, I have hereunto set my

hand and affixed the seal of said Supreme Court at

Lansing, this 4th day of April in the year of our Lord one

thousand nine hundred and eighty.

/s/ Jacqueline B. Morse

Deputy Clerk

59a

ORDER EXTENDING TIME TO FILE

PETITION FOR WRIT OF CERTIORARI

(Supreme Court of the United States)

Norman J. Stricof, Petitioner, v Lorraine C. Stricof. No.

A-1141.

Upon Consideration of the application of counsel for

petitioner, It Is Ordered that the time for filing a petition

for writ of certiorari in the above-entitled cause be, and

the same is hereby, extended to and including

September 1, 1980.

/s/ Potter Stewart

Associate Justice of the Supreme

Court of the United States

Dated this 25th day of June, 1980.

60a

EXCERPTS OF PROCEEDINGS

MARCH 24, 1975

+ + *

(10) I would like to call my first witness.

ORVILLE B. LEFKO was thereupon called as a witness

herein, and after having been first duly sworn to tell the

truth, the whole truth, and nothing but the truth, was

examined and testified as follows:

Direct Examination

By Mr. Bellinson:

Q. What is your full name, sir?

A. Orville Bradford Lefko.

Q. What is your occupation?

A. IamaCPA, but my occupation is doing appraisals

of closely held businesses.

Q. And, you have appeared in Court on occasion?

A. Yes, I have, frequently.

Q. And, I have asked you to appear on one other

occasion; is that correct?

A. That's correct.

Q. Okay. Would you please give the Court your

educational background.

A. In economics.

Q. In economics?

A. I graduated with a bachelor’s degree in economics

from (11) the University of Michigan, and received my

master’s degree in marketing from the grad school of

business there.

During that time I was fortunate enough to be elected

Phi Beta Kappa and Beta Gamma Sigma, the honorary

business administration fraternity.

61a

Q. Have you received any honors in the area of

economics?

A. Yes, when I took the CPA exam I won the

Seidman Economic Award given to people in economics

and public finance, written in connection with the exam

that year.

Q. And, have you had experience in the community —

in the business community?

A. Yes, I have, I — during 1953 and 41 became a

manager of marketing and sales forecasting with respect to

my economic background in corporate law department of

General Electric Company.

I also helped organize the first University of Michigan

economic conference in 1954, and I have maintained an

active interest in economic matters ever since.

Q. Have you done any teaching in your field?

A. Yes, lam —I am very proud of the fact that I am a

member of the faculty of the American Institute of Banking

in the field of economics and I taught managerial (12)

economics at the Detroit Institute of Technology.

Q. Can you give us your accounting background?

A. InaccountingI received the bulk of my experience

with Rilley (sic) and Ross Brothers and Metro (sic), now

known as Cooper and Lybrand. I was practicing as a

CPA from 1968, either as an independent practitioner or

as senior partner of my own firm, and I also taught

accounting.

Q. Where would that be?

A. That was at the Applied Manufacturing and

Technology Center at Wayne State University.

Q. And, would you give the Court your background in

financial analysis, before you continue, and that is as you

did evaluations and appraisals for Mr. Stricof, are you

62a

prepared to say this background information was

necessary for this type of appraisal?

A. Yes, having knowledge in three fields is necessary

in order to do a professional appraisal of a closely held

business, and the third field would be financial analysis.

Q. Give me your background in that?

A. Financial analysis of the City of Detroit since 1954,

and I have been —I ama past director of that Society for the

‘71, ‘72 and ’73 years. I was a featured speaker at one of the

conventions of the National Association of Investments in

1966 on the subject of ‘The Economics of (13) Being a Better

Investor,’’ and in this last fall I was chairman of the

financial committee of the Financial Analysis Conference,

which was held in Detroit.

Q. And, give us your background in appraisals.

A. Before I do that, referring back to financial analysis,

I also have served as trustee on various personal and

business individual administrators.

At the moment! have resigned from all of these financial

functions and appraisals, I have done —I have the State of

Michigan real estate broker’s license and done real estate

appraisals, also prepared appraisals of closely held

businesses throughout my career, rarely, but beginning in

1971 I have devoted almost full-time to nothing but

appraisals of closely held businesses.

Q. And, do you feel that it is a particular specific area

with a certain type of perhaps expertise needed to evaluate

closely held businesses?

A. Ido. I think if you have expertise in only one of the

fields you are certainly lacking to do a complete appraisal.

Q. And there are other areas in the appraisal specialty

that you would like to tell the Court about?

63a

A. No, I could only say that I have appraised a large

number (14) of different kinds of businesses and —and for

various persons; certainly for estate taxes, gift taxes, sales

and buy and sell agreements, all these purposes are

involved.

Q. Okay. You were instructed by Mr. Stricof to prepare

certain financial reports; is that correct?

A. That's correct.

Q. And, would you tell the Court what these financial

reports are?

A. Well, the principal purpose of my engagement was

to appraise these assets of Mr. Stricof that represented

investments in closely held businesses, but having done

that I prepared a statement of net worth of Norman and

Lorraine Stricof as of December 31st, 1974,

Having completed that I then prepared a statement of

Mr. Stricof’s cash flow for the year i through 1976 and

the year 1984.

Q. And, in preparing this material, did you

communicate with Mr. Stricof’s former accountant, Mr.

Fullmore?

A. Yes, I did.

Q. And, to check your evaluations based on the report

made by him?

A. Iused — his report was one of the basic facts that I

used in preparing my own report.

(15) Q. And, you also used the material presented to

you by Mr. Stricof?

A. Yes, that’s true. And, I also went out and obtained

independent material that had a bearing on the appraisal

that I did. I didn’t — by the way, I must say I didn’t

communicate with Mr. Fullmore personally, but I did use

the material that he had prepared.

Mr. Bellinson: Your Honor, at this time I have

prepared a memorandum and material based on Mr.

64a

Lefko’s back-up, and lam Prepared to offer to the Court, to

have that presented at this time.

Mr. Schureman: May I, at this time, your Honor, I

assume that we are going from — now, the area of

qualifications of the expert to these opinions, and I would

like under the law of Perry v. Tassie to examine the witness

at this time.

The Court: Certainly you may voir dire him at this

time.

* + +

Direct Examination

(31) By Mr. Bellinson:

Q. At the request of Mr. Stricof, you did prepare a net

worth (32) statement as of December 31st, 1974 of Norman

and Lorraine Stricof; is that correct?

A. That's correct.

Q. And, would you please detail that statement to the

Court.

A. By detailed statement, would you like me to read

the material?

Q. I would like you to recite the assets to the Court.

Mr. Schureman: This is where I am going to object,

based on the fact a sufficient foundation has not been laid.

The Court: The objection is overruled, you may

continue.

The Witness: The first assets that I list cash in bank or

— would you like the dollar value?

Q. (By Mr. Bellinson, continue) Yes, I would.

A. One hundred thirty-three thousand five hundred

thirty-one dollars. The next is marketable securities, a

value of fifty-two thousand two hundred ninety-two

dollars.

65a

Q. And, Mr. Stricof has an accounting partnership,

P.C.?

A. Yes, Professional Corporation, and I value that at

ninety-nine thousand two hundred and forty-one dollars.

Q. Allright. There is other investments, would you tell

the Court the name of the investment and your evaluation?

(33) A. VanBuren Nursing Home, I should make it

clear that these values represent Mr. Stricof’s interests in

the various business entities that they are not the total

value of the entity.

Q. All right. Van Buren, how much?

A. Thirteen thousand six hundred twenty-seven

dollars. Frenchtown Nursing Home nineteen thousand

two twenty-three. I should stop at this point, also, and

mention that there are two business entities involved with

each of these nursing homes. I am lumping them for this

purpose, for the purpose of just listing them on the

statement of net worth.

Q. Would you tell the Court what they are.

A. There is an operating company and a real estate

company which holds the real estate.

Q. Shelco?

A. Twenty-three thousand and forty dollars.

Greenfield Equity, sixteen thousand nine hundred

twenty-six dollars. Paint Creek Golf and Country Club, no

value. Regency Park Apartments, no value. Big Rapids

Building Company no value. I might add that in some of

these cases of possible tax (34) consequences, in case of

foreclosures they may be negative value, it is not indicated

in the statement of net worth.

Texas International gdrilling Company, eleven hundred

dollars.

66a

Q. How doyou pick upa negative value in a net worth

statement?

A. Ididn’tdoit,asI say, in this case; but in the case, let

us say of Regency Park Apartments, in the body, in some

other detail that I have I could explain that. Mr. Stricof’s

basis (sic) — tax base is a negative one and this company is

subject to bankruptcy and foreclosure on some assets. If

they foreclose he may have to pay a tax on being relieved of

the liability.

Q. Is this what is called a recapture tax, the family has a

sheltered deduction and has recaptured.

A. It’s true, and it may be forced upon him.

Mr. Schureman: Excuse me, I have not objected on the

basis of leading questions sort of prior to this, I think we

are at the point now where I will object to two things, not

responsive to a question and, secondly, leading questions

by counsel.

Mr. Bellinson: Inresponse, I don’t think the questions

are leading, and! think Iam asking him questions to recite

about as he sees fit, and I think (35) the answers are

responsive.

The Court: Try not to lead him though, and witness try

to respond to the questions as asked by counsel.

The Witness: Yes, your Honor, I am —I think I was.

Q. (By Mr. Bellinson, continuing) I will ask you the

questions.

The Witness: I’m sorry.

The Court: Mr. Bellinson.

Q. (By Mr. Bellinson, continuing) Did you give us

your evaluation of Big Rapids Building Company?

A. That was zero evaluation.

Q. Negative?

67a

A. Eleven hundred dollars.

Q. Okay. And, World Computer Corporation?

A. Zero.

Mr. Bellinson: Your Honor, at this time counsel and I

have a stipulation to put on the record as to value of the

home,

Mr. Schureman: Yes, we have agreed, both parties

have had independent appraisals of the marital home, we

stipulate with counsel to a figure of sixty-nine thousand

dollars and it is subject to an (36) encumbrance.

Mr. Bellinson: An encumbrance of approximately

twenty-eight — there is a forty-one thousand equity.

The Court: Equity?

Mr. Schureman: I haven't seen the mortgage statement,

but assume that is the case, that is about right.

The Court: Thank you.

Q. (By Mr. Bellinson, continuing) You listed in the

statement of net worth the home with the residence and

furnishings; is that correct?

A. Yes, that’s correct, Mr. Bellinson, at fifty thousand

dollars. An automobile was listed at eighteen hundred

dollars.

Q. And, what about their interest in the retirement

trust?

A. Three thousand five hundred sixty-two dollars.

Q. You have a total assets before liability figures?

A. Yes, that figure is four hundred twenty-two

thousand eight hundred thirty-seven dollars.

Q. And, did you make an examination of Mr. Stricof’s

accounts payable?

A. Yes, I did, and they are listed at eighty thousand

dollars.

(37) Q. And deferred income taxes?

68a

A. Deferred income taxes are listed at one hundred

eighty-four thousand ninety-eight.

Q. Total liability of what?

A. Two hundred and sixty-four thousand nine

hundred and sixty-eight.

Q. And, you come up with a net worth of what?

A. Leaving a net worth of one hundred fifty-seven

thousand eight hundred sixty-nine.

Q. Okay. For my own information, his tax holdings

will be —

The Court: I Think we're going to quit at four thirty

and you will be on at nine fifteen in the morning, and for

your clarification and so you can plan, we'll go until noon

tomorrow at the regular usual morning recess. We'll go to

noon tomorrow, generally we pick it up at 1:30, but

tomorrow is my sentencing and arraignment day and they

are extremely long. Monday there is a Judges’ meeting. I

suggest, in fairness to you, we will only have a half day of

trial tomorrow and pick it up again on Thursday at 9:15,

you might check with me, I understand Judge Arthur

Moore has got some arraignments he wants me to handle

which shouldn’t take over a half hour, so you can return at

9:30 Thursday and (38) go the full day and the next day, if

necessary, and all day Friday, if necessary. Don’t count on

going past 4:30 and going past noon tomorrow.

Mr. Bellinson: Your Honor, I am going to ask some

questions at the present time concerning the valuations of

the company partnership and I think it would be a good

time to break, if it is, I have another matter I could put on

the record.

The Court: We'll pick up again at 9:15 in the morning.

(Whereupon the matter was adjourned to another date.)

* * ©

69a

EXCERPTS OF PROCEEDINGS

MARCH 25, 1975

(39) 6th Judicial Circuit Court

County of Oakland, Michigan

Tuesday, March 25, 1975

(Second day)

(Whereupon in the matter entitled Norman ]. Stricof

versus Lorraine C. Stricof, this trial being continued all

parties present same as before.)

The Clerk: Case number 73-100923, Norman J. Stricof

versus Lorraine C. Stricof.

Mr. Bellinson: Your Honor, a brief stipulation to a

piece of evidence which is the mortgage balance on the

marital home as of December 31st, should we mark it?

Mr. Schureman: I think we can just stipulate to it.

The Court: If you stipulate you don’t have to mark

it.

Mr. Bellinson: This is the paid up balance of

twenty-seven thousand six hundred nineteen (40)

dollars to December 31st, I assume there has been three

or four principal payments of about eighty-eight or

eighty-nine dollars for three or four months, which

would reduce the principal.

The Court: All right.

Mr. Schureman, do you stipulate that this is a

reflection of what the mortgage balance is due and

owing at the end of January?

Mr. Schureman: I haven’t seen it until this morning,

your Honor but I think that I will agree that this does

fairly represent the balance owing on the marital home.

The Court: All right.

70a

Mr. Schureman: I don’t know what the escrow

balance is at this time; presumably it is slightly larger.

Mr. Bellinson: So stipulated.

The Court: All right, it has been stipulated.

ORVILLE B. LEFKO Having been previously sworn to

tell the truth, the whole truth, and nothing but the

truth, was examined and testified further as follows:

Direct Examination

(Continuing)

(41) By Mr. Bellinson:

Q. Mr. Lefko, as an expert in closely held

corporations, would you please tell us your techniques

in determining values of closely held corporations?

A. Yes, my approach to any evaluation problem

connected with a closely held corporation business

revenue ruling 59-60, which I consider to be the prime

— oh, the prime source, let us say, of a procedure to be

used in evaluating a corporation — closely held

corporation.

Q. Please outline for the Court what your

understanding of that regulation is?

A. Yes, the regulation, the revenue rule 59-60 states

that a sound evaluation will be based upon all the

relevant facts, about the elements of common sense and

form judgment and reasonableness must enter into the

process of weighing these facts and determining their

aggregate significance. The factor that the revenue

ruling and some regulations that pertain also to this

problem and estate and gift tax regulation, the factors

that are listed and are generally considered to be

important are the company’s net worth, its general finan-

cial condition, its perspective (sic) earning power and

7la

demonstrated earning (42) capacity, its dividend paying

capacity, the good-will of the business, and the

personal economic outlook which is very important and

the economic outlook in the particular interest of the

operation of that company that is being valued, arid one

other thing; if you can find comparable securities to be

liquidated, these are also a factor to be considered.

Q. Would these elements be essential questions to

our partnership?

A. Oh, yes, they certainly would.

Q. If some of the assets are joint ventures, would it

be the same?

A. Same sort of factors would be important. Now,

most of these — all of these factors, in fact, taken

together, properly used will allow an appraiser to

determine a normal net income or earning capacity of a

business, and to that normal net income or capacity

must be applied a capitalization rate.

Q. You feel — you feel that in your opinion the

interest seeking of all of these elements you mentioned

are important in arriving at a cogent evaluation?

A. Yes, indeed. (43) And, in further determining the

capitalization rate, there are several factors that must be

considered such as the risk involved, the liquidated

equity of the investment. You see, you get into the

aspect of what is a comparable, not a comparable, and

alternative vested opportunity of value to a prudent

investor.

That prudent investor would be looking at whether

there was a certain return, whether it is a regular, in

the case of closely held businesses where you have a

majority interest, particularly ownership, private rights

a right to have a company car, the right to belong to a

golf club, all enter into the proper appraisal of a closely

held business.

72a

Q. Mr. Lefko, there will be some dosely held

businesses here that their real estate would be a factor;

do you have an opinion how significant a real estate

factor is, say the marital home interest or business

interest?

A. Yes, I do. I feel that the real estate owned by the

nursing home, in which Mr. Stricof has an interest, is a

little significant in value, his interest is in the nursing

home.

Q. Why is that?

A. I say that because to begin with, the evaluation

of the real estate in these homes would lead to, let us

say, an (44) adjusted book value determination being

with the value represented by the balance sheet of these

enterprises and appraisers would want to adjust that

value to represent so that the underlying value of any

assets whose value may have changed since they have

been entered on the balance sheet may be properly

depicted.

Having done that and having arrived at an adjusted

book value it will be our question to ask does this have

any significance in this case. I have numerous

quotations that perhaps I would like to read.

Q. You want to recite these to make up your

opinion?

A. With regard to value and significant —

Mr. Schureman: Your Honor, I will at this time,

object to any sort of narrative responses. I think this

ought to be done question and answer.

Mr. Bellinson: He’s an expert and he is responding.

Mr. S@hureman: Expert he may be, but this is

direct.

Mr. Bellinson: He’s my witness, he’s responding to

my questions.

73a

The Court: You may continue.

Q. (By Mr. Bellinson, continuing) Could you quote

without (45) reading your citation that you are relying

on them for the opinion?

A. Yes, I would like to open my case and just get

the books themselves, a book called “Valuing a

Company,” by McCarthy and Healing (sic), who is

active with Price-Waterhouse. The other, “A Retired

Gentleman” who has a significant — several significant

quotations with regard to what book value means in

appraisals — you don’t want me to read them?

Q. You have these citations and relied on these?

A. I have a book which is, you might say, the bible

of securities and lists all ‘Security Analysis” by G. M.

Dodd and Kottol (sic).

Q. And, you rely upon that as an authority for your

position?

A. Yes, and I have several court opinions which

have been involved in the estate tax cases, primarily

which are contained in a book called ‘Corporate

Security Value as Determined by the Tax Court.” These

are assembled by standard and closed corporations.

The Court: What is that citation?

The Witness: The various court citations?

The Court: Yes.

The Witness: The Estate of Sidney J. Katz, (46) the

Judge was Judge Petersen (sic). I have a Prentice Hall

reference, Prentice Hall 681-71. ‘The Taxpayer,’’ was

Solomon. I and Beatrice Kaplan, Judge Simpson,

Prentice Hall 740-29.

Q. I think that’s adequate.

A. There are several more.

Q. All right. Have you made an evaluation of the

Stricof Polk P.C.?

A. Yes, I did.

74a

Q. Please tell the Court what you evaluate that

business at and how you arrived at that evaluation.

A. I evaluate the Stricof and Polk P.C. at

ninety-nine thousand two hundred forty-one dollars.

Q. How did you arrive at that figure?

A. It is a professional corporation im which there are

ten thousand shares of capital stock, which Mr. Stricef

owns seventy-five hundred shares.

However, Mr. Stricof has the right at any time to buy

the other twenty-five hundred shares for twenty-five

percent of the equity indicated on the corporation

balance sheet, which is prepared on a cash basis. Thus,

I would say that logically before (47) he would sell his

practice he would purchas the twenty-five hundred

shares at —- according to the agreement of twenty-five

percent of the equity represented by the balance sheet.

So, that in considering a sale of the practice, I said that

Mr. Stricof would purchase these twenty-five shares, he

would then own the entire practice. The amount that he

would have had, he would have had to pay based on

the May 31st ‘74 balance sheet which was the last that I

had available to me at the time, would have been three

thousand six hundred and fifty-six, and, therefore, I

deducted that from the appraised value of th« practice,

arriived at as described, starting with the balance sheet,

stockholders’ equity as shown thereon.

I am referring always to the May 31st statement of six

thousand twenty-four dollars of which ten thousand

nine hundred sixty-eight would be Mr. Stricof’s share if

book value could be realized; but, furniture and

equipment which cost twenty-four thousand seven

hundred forty-five is on this statement at a net value of

twenty thousand, that’s after depreciation and it is

generally known, even regardless of the condition of

office furniture and equipment, you can’t realize

75a

perhaps much more than a quarter of its costs on a sale

of such equipment on the market.

(48) Carpeting, of course, it would have no value

unless you picked it up, rolled it up. I re-evaluated the

furnishings and equipment at six thousand and that left

no equity at all in the balance sheet.

Now, as of December 31st of ‘74, which again, were

the latest figures then available to me, there were

important assets of the company that were not

contained on the balance sheet. Since it is prepared on

a cash basis, and these included unbilled work of

eighteen thousand eight hundred sixty-three dollars,

that is work that has been done, but not billed.

Q. Not picked up in the billings?

A. Right.

Q. You did include that?

A. I certainly did, and also accounts receivable of

ninety-two thousand one hundred five dollars. Now,

that is a total of a hundred ten thousand nine hundred

and sixty-eight dollars, a discount of fifteen percent for

uncollectables and adjustments of bills is justified on

such receivables and particularly in the case of Mr. —

practices like Mr. Stricof, where billings are prepared

automatically by multiplying staff member’s hours by

their given rates and then very often these bills have to

be renegotiated with clients after (49) they are rendered.

I was familiar with that practice when I worked with

Labler-Montgomery, we went through the same thing.

A bill that specified rates of the senior, junior was

submitted by the senior and then sitting down with the

client and renegotiating the whole thing. This is

common and is done by merely applying the fifteen

percent dicount for these adjustments and collectables.

This figure was then reduced to ninety-four thousand

three hundred twenty-three dollars but this is still not

76a

cash in hand, so if the pahment for the receivables

would be forthcoming as the receivables would be

closed and it is reasonable to assume that complete

liquidation would consume eighteen months. Without

judging whether the eighteen month figure is correct, a

hundred ten thousand dollar figure represents over five

months billing at current rates of billing.

Q. At his current billing rate?

A. At his current billing rate.

Q. What is his gross billing rate now per year?

A. It seems! am using a figure of two hundred sixty

thousand dollars.

Q. Gross bills?

A. Annual gross bills, that is normal, regular gross

bills (50) returned to the receivables. I — I calculated

the present value of these receivables nine months

hence, which I though that was fair, since I felt it

would take eighteen months to fully collect the entire

amount. I used nine months in the future, and using

regular financial tables they would be worth

ninety-three and a half cents per dollar and, therefore,

the ninety-four thousand three hundred twenty-three

would be worth only eighty-eight thousand one

hundred ninety-two right now, as of December 31st,

‘74.

Furthermore, these are subject to income taxes — I’m

sorry, do you want me to go into that?

Q. This is how you are arriving at your evaluation?

A. All right, even if the ninety-four thousand that I

calculated could be realized, it would be subject to

corporation income taxes because it is a professional

corporation, and I used the effective rate of the state

income tax at 7.8 percent, plus federal tax at forty-eight

percent, which recognizes a state tax as a deduction.

77a

By the way — well, that total on these two rates

adjusted 52.05 percent, that is forty-nine thousand

ninety-five dollars in taxes would be paid and

deducting this from the eighty-one ninety-two leaves

thirty-nine thousand (51) eight hundred ninety-seven of

net value to the professional corporation.

I then proceeded to deduct two thousand dollars as a

fair ctatement of trade accounts payable that would be

present in any going operation at the end of any given

month, actually I was probably quite conservative in

that statement because the expenses represented by Mr.

Stricof’s payables are running at least four thousand per

month.

Q. Why did you only select two thousand?

A. I understood from him that it was his practice, as

in so far as possible, to pay bills as they came in

instead of waiting.

Q. So, you picked out —

A. (Interposing) So, I arbitrarily took out half of his

normal operation expenses, they would be unpaid at

the end of any given month, two thousand dollars, I

did not obtain a detailed list of, you know, representing

two thousand dollars thus the value of the agsets, net

liabilities to the corporation — of the corporation that

year end of ’74 would be thirty-seven thousand eight

hundred ninety-seven dollars, but to this figure should

be added an appraised figure of what is the worth of

the accounting practice per se. .

(52) Q. Are you telling us that the accounting

practice, without any assets or any standing by itself

has an actual value?

A. Yes, that’s true.

Q. Okay.

A. Practices — professional practices are bought and

Q. Accounting practices?

78a

A. Accounting practices, correct. Now, the starting

point in that has to be what its actual amount of annual

bills are.

Q. Are there specific accounting practices

differentiated from another type of business?

A. Yes, there are, basically.

Q. Would you teli us what they are.

A. Yes, basically any professional practice not

owned, any accounting practice, I am talking about

accounting practices, basically, an accounting practice

— practice’s value largely is determined by its amount,

its annual amount of regular bills. The nature of these

bills, the type of work, this would be the two

principles.

Q. What about the procedure of holding?

A. Oh, well, when you get into that that is a key

factor in a professional practice evaluation.

Q. Whether you hold the business?

A. That's right.

(53) Q. Buy it you are going to hold it?

A. It is for that reason that if anyone were to offer to

buy a practice and pay cash for it at this moment he

would probably pay less than forty percent for any

professional practice, cash I am talking about, based on

all other ways of appraising practices. Once he arrived

at his figure he would get no more than forty. There

would be a transition of the client.

Q. Do you want to give us your evaluation at this

time?

A. Yes, Mr. Stricof has a type of practice which is,

while it renders excelient services to his client, that in

itself the way that this is achieved, this good service, is

a weakness in valuing the practice. The reason I say

79a

that is all of his several men, I believe, except one, are

CPAs.

Q. Before you go into that, would you give us a

background of his accounts and type of accounts they

are, we are talking about selling these accounts?

A. That's right, exactly. |

Q. The word practice, the people, the accountants,

the business, they’re going to get, break it down for us,

please, what they are?

A. All right. Approximately twenty-thousand dollars

of the total, total two hundred and sixty.

(54) Q. Okay.

A. Of the total of two hundred and sixty

approximately twenty thousand dollars is attributed to

the VanBuren and Frenchtown nursing homes, and this

pointed up one of Mr. Stricof’s methods apparently of

building a practice. He invested in his clients and in

that way they do have a tie to this accounting practice,

perhaps greater than some other accounting practice.

Q. His economic investment in the business ties

him in both realistically and professionally to the client

rather than being an impersonal, a non-owner

accountant?

A. Exactly so.

Q. What happens to the saleability of that type of

business when this occurs?

A. Well, in this occasion selling the business, selling

that an interest — his interest in these businesses not

only involves the sale of these interests but would

involve the loss, probably involve the loss of accounting

fees.

Q. How much of — how much of his accounting

fees, percentage-wise, or dollar-wise is related to his

ownership in other businesses; if you know?

80a

A. I don’t think I ever totaled that figure completely.

Q. All right.

A. But, I can continue with a breakdown of the type

of client (55) Mr. Stricof has, and perhaps that would

partially answer the question.

If we start with the two hundred sixty and deduct

twenty thousand in fees for the two nursing homes,

roughly, we would have two hundred forty thousand,

— of the two hundred forty thousand dollars

remaining.

Twelve clients, accounting for about a hundred

twenty-four thousand of these fees, and of these seven

clients whose fees total about seventy-four thousand are

the type and size of clients that would probably engage

a larger firm, even a big eight accounting firm for their

work if Mr. Stricof were out of the picture, and this was

an important consideration for anyone buying a

practice.

Q. What is your evaluation as to why they would

switch to a big eight firm now?

A. Why wouldn’t they? Right now Mr. Stricof

provides excellent service, fine representation.

Q. Why wouldn't someone buy with a similar

representation and not be able to keep these clients?

A. It’s been my experience in looking at accounting

practices that there is a very personal relationship

between a client and the owner or the manager of the

firm.

Q. Is there also a change in the accounting industry

going on now that would occasion this?

(56) A. Yes, indeed.

Q. With the — the new government regulations that

pertain to such fields as pensions, the new Pension

Reform Act of ‘74 for the individual accountant.

Previously all kinds of regulations concerning what we

8la

thought were tax shelters, more use of computers,

sophisticated tax planning by firms that do have their

own computers, like Price-Waterhouse, et cetera, their

own computer to individual practices to offer anything

like what might stay with Mr. Stricof, historically, but

given the opportunity to leave they probably would

hightail it to the first big eight firm that would take

their account.

Q. In fact, Mr. Stricof —

Mr. Schureman: That’s reading, your Honor, I am

going to object.

Q. (By Mr. Bellinson, continuing) Did —

The Court: You may rephrase it.

Q. (@®y Mr. Bellinson, continuing) Did Mr. Stricof

do anything to deal with this change in the industry?

A. Yes, indeed, I get into that in quite detail.

Q. Tell us generally right now.

A. Pardon?

Q. Tell us generally what he did?

A. He did sell his practice, ez trying to seek the

right word, (57) it was merged with J.K. Lasser Firm,

by a national firm. At one time this proved, and it was

for these very reasons that he could better compete with

the larger firms, offer better services to his clients and

to provide some security for the future, because Mr.

Stricof recognized the very tendencies that I have tried

to discuss in brief right now, that the individual

practitioner had a very hard row to hoe for the future.

Q. All right. Now, let’s get back to the situation of

these accounts and how you arrived at the evaluation of

the business, the practice.

A. Going further into the discussion of the

practice —

Mr. Schureman: (Interposing) There is no

question, you said going back to, to what?

; %

82a

Q. (By Mr. Bellinson, continuing) I asked him to

continue how he evaluated the price of this practice?

A. Yes, I then went further into the nature of the

practice, and I found it was highly management

consultation oriented. By that I mean each of these

highly paid staff members really served as controllers

on the staff of their client, they worked right with the

client.

Q. You are talking about the six CPAs?

A. Six CPAs and a seventh staff man. It’s a very

personal relationship, much more personal (58) between

them and the client than between Mr. Stricof and the

client.

Q. What would this mean in —

A. (Interposing) Many, many clients would choose

to remain with their staff men. Let us say their staff

men were to leave, rather than to go and remain with

Mr. Stricof, and this of course weakens the sale of the

practice too.

Q. I see. You have an opinion as to how much

dollar value could be kept in the event of a sale?

A. Yes, I — to avoid all the details, I finally did

come down to this figure that a potential purchaser

would, in effect, have to base his offer on one hundred

thirty-six of bills out of that two hundred sixty, which

could reasonably be expected to remain with him.

Q. This is how you came up with your figure?

A. Yes, indeed.

Q. Are there any other aspects that you used in

arriving at your evaluation?

A. Well, having arrived at the hundred thirty-six

thousand dollar figure I said that and again, I guess I

was being quite liberal. I stated that right at that — at

any given moment a potential purchaser would pay

thirty-five thousand dollars for these accounts, and that

83a

is forty-eight percent of the hundred thirty-six

thousand, that’s why I (59) say I was probably —

Q. (Interposing) That’s about eighty per cent more

than the rule of thumb?

A. Of course the rule of thumb does apply to the

total, I think it would be easily determined by a

potential purchaser. Two hundred sixty would not

remain with them.

Q. Of this two hundred sixty, this gross figure,

what i

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