In re MARRIAGE OF RAYMOND J. TRAPP, JR., Petitioner-Appellee, and FELICIA E. TRAPP, Respondent-Appellant.
Appeal No. 3-21-0291
APPELLATE COURT OF ILLINOIS THIRD DISTRICT
November 21, 2022
2022 IL App (3d) 210291-U
Honorable Lisa Y. Wilson, Judge, Presiding.
NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1). Circuit No. 18-D-258. Tazewell County, Illinois.
Justices Holdridge and Hettel concurred in the judgment.
ORDER
Held: Trial court‘s distribution of marital property, after a trial on disputed financial issues, was not an abuse of discretion where the husband presented competent evidence of the value of both of his businesses. The distribution of the businesses to the husband, with a cash payment to the wife, as modified to reflect increased equity, resulted in an equitable distribution of the marital assets. The trial court‘s child support order was reversed and remanded for recalculation of the husband‘s income.
¶ 2 The respondent wife appealed from a trial court‘s judgment of dissolution of marriage from petitioner husband, challenging a number of disputed financial issues.
¶ 4 The petitioner husband, Raymond J. Trapp, Jr., and the respondent wife, Felicia E. Trapp, were married on June 23, 2001. Two children were born of the marriage, Z.T., born on October 14, 2001, and R.T., born on October 18, 2003. On July 19, 2018, the husband filed a petition for dissolution of that marriage. A trial on disputed financial issues was held on August 4, 2020.
¶ 5 Neil Gerber, a certified public accountant and certified business appraiser, who had been doing business valuations for 30 years, was hired by the husband to conduct a business valuation for both of the husband‘s businesses: Ray Trapp Electric, Inc., and Trapp Properties, Inc. Both valuations were as of August 31, 2019, and both reports were dated October 31, 2019. Gerber testified that in valuing Ray Trapp Electric, Inc., he applied the asset method whereby he subtracted the liabilities and debts from the fair market value of the assets and came up with an equity value of $320,000. He valued the intangible assets of goodwill and a non-compete agreement as assets of the husband at about $90,000. When asked if that value would have substantially changed since the valuation date of August 31, 2019, especially with the COVID-19 pandemic, Gerber stated that he was not asked to update his valuation. But, Gerber testified that service work had not generally been impacted and if the husband were to testify that his income has not changed, then it was reasonable to say the value of Ray Trapp Electric, Inc., had not changed either.
¶ 6 As for Trapp Properties, Inc., Gerber testified that he was asked to value the husband‘s equity in that real estate entity as of August 31, 2019. Two buildings were the major assets of that entity. Gerber derived the fair market value of the original building from a July 30, 2018, Broker Opinion of Value (hereinafter market analysis) by Justin Ferrill, which Gerber obtained from the husband. The new building was just constructed in 2019, so Gerber used the cost of construction, which he obtained from the corporation‘s tax returns and depreciation schedules, to determine the
¶ 7 Gerber also valued the wife‘s Teacher‘s Retirement System fund as of November 15, 2019. Gerber determined the present marital value of the wife‘s pension to be $288,000, if she retired at age 55, and $275,000, if she retired at age 60.
¶ 8 The husband testified that he was a self-employed electrician. During the marriage, he started Ray Trapp Electric, Inc., in 2002 and Trapp Properties, Inc., in approximately 2015. The husband was the only shareholder owner in Ray Trapp Electric, Inc. He was responsible for bidding jobs and he had employees who went to the work sites. He paid himself a salary, which was about $42,000 in 2019. In addition to his salary, the husband paid some personal bills directly from Ray Trapp Electric, Inc., totaling about $1900 a month. The husband testified that the increase in cash on hand for Ray Trapp Electric, Inc., from around $28,000 at the time the business
¶ 9 The husband testified that, with respect to the two buildings owned by Trapp Properties, Inc., $390,000 was owed on the original building and $434,000 was owed on the new building. Although his financial affidavit also listed $000 a month in rental income, the costs of the mortgages, insurance, and maintenance on the buildings exceeded that amount. The husband testified that he started Trapp Properties, Inc., as basically his retirement plan; he intended to pay the buildings off over time and collect rental income when he retires. He acquired the mortgage to construct the new building after he filed for divorce. The market analysis was completed by Ferrill, who was the husband‘s friend and real estate broker, for the bank for the purpose of obtaining a loan for the new building. The original building had five spaces for rent; two and a half were occupied by Ray Trapp Electric, Inc., and two others were rented to tenants. The new building had four tenants. On his financial affidavit, the husband valued the original building at $426,000 and the new building at $480,000. The husband testified that he had two life insurance policies with cash values, for which Ray Trapp Electric, Inc., paid the premiums.
¶ 10 With respect to the husband‘s bank accounts, the husband‘s financial affidavit indicated that the husband had a checking (#9621) and a savings (#9962) account at CEFCU. The balance in the savings account was the husband‘s share from the sale of the marital home. He also had a
¶ 11 The wife‘s attorney questioned the husband regarding July 2020 mortgage documents from the bank. The loan documents regarding the new building showed a loan balance of $458,124, with a collateral value of $1,850,000, and a monthly payment of $3305. The documents indicated that the loan on the original building had a principal balance of $376,041, a collateral value of $600,000, and a monthly payment of $2741. The husband testified that he did not know where the bank arrived at those collateral values. The husband was also questioned regarding a September 2018 appraisal report completed for the bank in anticipation of the new building, which valued the entire property (assuming construction of the new building) at $1,250,000. No one from the bank testified.
¶ 12 The wife testified that she was a teacher for the Peoria public schools. She testified that her gross income was $63,184 in 2019, with a net income of $57,572. The wife testified that she did not pay into social security. She had credit card debt of $13,000-$14,000, but she did not provide any bills or statements to the court. About $8000 of that debt was for attorney fees; she testified
¶ 13 The parties stipulated as to attorney fees. The husband had incurred around $20,000 in fees, of which he had paid approximately $14,600. The wife had incurred fees and costs of $22,355 and had paid $11,376. The wife still had an outstanding balance of $10,980.
¶ 14 The trial court entered a written order resolving all remaining financial issues on January 19, 2021. The trial court found that the husband‘s annual gross income in 2019 from Ray Trapp Electric, Inc., was $64,452. The wife‘s 2019 annual gross income was $72,708. Based on the respective incomes, the trial court found that maintenance was not appropriate and the wife‘s request for such was denied. The wife was ordered to pay child support in the amount of $60 a month for the remaining minor child. The marital residence had been sold and the parties equally divided the net proceeds. Each party was awarded their respective bank accounts, except the husband‘s CEFCU checking account (#9621), which was to be split equally between the parties. The parties were awarded their respective vehicles along with their respective debts. The trial court concluded that the fair market value of Ray Trapp Electric, Inc., was $320,000. It declined to include the non-compete agreement and personal goodwill of $90,000 in the valuation. It found that the fair market value of Trapp Property, Inc., using the net asset value method, was $20,000. The husband was to retain both businesses; the court declined to partition or make the parties partners in the businesses. The husband was ordered to pay the wife $170,000 as her share of the businesses, plus half the additional cash on hand at Ray Trapp Electric, Inc., which amounted to
¶ 15 The wife filed a motion to reconsider, arguing that the trial court erred in its valuation and distribution of the parties’ assets and debts and erred in calculating the parties’ respective incomes for maintenance and child support purposes. The trial court denied the motion to reconsider and entered the judgment of dissolution of marriage. The wife appealed.
ANALYSIS
¶ 17 The wife challenges a number of the trial court‘s findings. She argues that the trial court‘s valuation of Trapp Properties, Inc., at $20,000, was against the manifest weight of the evidence. She also argues that the trial court abused its discretion in its distribution of the marital assets and debts. The wife also argues that the trial court‘s determination of the parties’ respective gross incomes for the purposes of calculating maintenance and child support was against the manifest weight of the evidence.
¶ 18 Section 503(d) of the Illinois Marriage and Dissolution of Marriage Act (the Act) provides for the division of marital property in “just proportions” and lists 12 factors for consideration.
A. Valuation of Trapp Properties, Inc.
¶ 21 There must be competent evidence of value in order for a court to assign a value to an item of marital property. In re Marriage of Abu-Hashim, 2014 IL App (1st) 122997, ¶ 29. Although the value of real estate is generally proven through the testimony of experts who have conducted appraisals of the subject property, there is no rule of law that dictates what type of evidence constitutes “competent evidence.” In re Marriage of Hamilton, 2019 IL App (5th) 170295, ¶ 36. That evidence must be supported by a proper foundation, based on a detailed “market analysis or inspection of the home.” Id. at ¶ 39. The burden of presenting the court with sufficient evidence to equitable value and divide marital property falls on both parties. Blackstone v. Blackstone, 288 Ill. App. 3d 905, 910 (1997). Valuing a business is “an art, not a science,” and there is not an exact formula. In re Marriage of Gunn, 233 Ill. App. 3d 165, 183 (1992).
¶ 22 In this case, Gerber was not a real estate appraiser, but he was a certified business appraiser, who was hired to appraise both businesses. Since Trapp Properties, Inc., was essentially the two buildings, Gerber needed to assign values to those buildings. Gerber relied on a market analysis on the original building, which was completed by Ferrill in 2018 for the purpose of securing financing for the construction of the new building. Ferrill‘s analysis was not completed for the purposes of the dissolution proceedings. Since the new building was just constructed in August 2019, Gerber testified that he relied on the cost of construction, which he believed was the best
¶ 23 Also, although Gerber‘s valuation was completed a year before trial, it was not error for the trial court to rely on his valuation, when it was the only expert valuation before the court. First, the trial was delayed for reasons outside of the husband‘s control—the wife filed a motion to continue on August 30, 2019, because she needed to substitute attorneys when her original attorney became a judge and then, the matter was set for trial on March 20, 2020, but the courthouse closed for the pandemic. Moreover, the wife had a competing valuation of Ray Trapp Electric, Inc., completed, which she testified was valued at less than Gerber‘s valuation. It is reasonable to believe that she made a strategic choice to not get a competing valuation of Trapp Properties, Inc. See Abu-Hashim, 2014 IL App (1st) 122997, ¶ 29 (“where a party does not offer evidence of an asset‘s value, the party cannot complain as to the disposition of that asset by the court“). Since there was no testimony explaining the basis for the collateral values on the bank statements offered by the wife, the statements were not competent evidence of value. Notably, the statements conflict with the 2018 appraisal to the bank, which estimated that the proposed market value of the whole property, after construction of the new building, would be $1,250,000. See Hamilton, 2019 IL App (5th) 170295, ¶ 39 (homeowner‘s testimony as to value of property and tax assessor fair market value were not competent evidence as to value). While a more current valuation would have been
¶ 24 Since there was competent evidence of the value of Trapp Properties, Inc., the trial court‘s distribution of the business to the husband, with a cash payment to the wife, was not an abuse of discretion. However, absent an agreement or court order to the contrary, valuation is determined as of the date of trial.
B. Other Financial Items
¶ 26 The wife argues that the trial court‘s distribution of the other assets and debts was an abuse of discretion. The husband contends that the trial court equitably distributed the parties’ marital assets and debts, and there was no abuse of discretion.
¶ 27 The wife argues that the trial court abused its discretion in its distribution of the parties’ bank accounts. The husband contends there was no abuse of discretion. We find that the parties’ personal accounts were nominally different. The husband testified that two of the challenged bank accounts were actually his father‘s bank accounts and did not belong to the husband. The Morton
¶ 28 The trial court ordered the husband to cash in his two life insurance policies with cash values and pay the proceeds to the wife as part payment of the money owed by the husband to the wife for the value of the businesses. The wife argues that one-half of the policies should have been her marital property. The husband argues that the trial court did not abuse its discretion. The life insurance policies had been funded by the businesses. The husband testified that he could not secure a loan for the money that he owed the wife for the total value of her share of the value of the businesses.
¶ 29 A review of the record does not indicate that the life insurance policies were included in the value of Ray Trapp Electric, Inc. Since they were marital property, the trial court‘s order to cash them both in and pay the proceeds to the wife was not in error, but the wife also should have been credited with half of the proceeds. Thus, only $42,029 counts toward the total payment that the trial court ordered the husband to pay to the wife.
¶ 31 The trial court found that the wife had incurred credit card debt in her own name in the amount of $14,217.87, and the wife had an outstanding balance for her attorney fees in the amount of $10,979.86. The husband had no personal credit card debts, but he did owe some attorney fees to his own attorney. The trial court ordered the husband to contribute $5000 toward the wife‘s remaining attorney fees and pay any balance that he owed to his own attorney. The wife acknowledges the $5000 but argues that the husband should have owed an additional $7598.87 to equalize the debts.
¶ 32 The wife also argues that the husband should have been ordered to pay one-half of the deficiency owed on the wife‘s vehicle. The wife contends that she was paying her share of the debt of the husband‘s vehicle, since that vehicle was included in the valuation of Ray Trapp Electric, Inc. At trial, the wife sought to retain her 2015 Chevrolet Equinox, which had a fair market value of $10,935. The trial court awarded her that vehicle, including the responsibility for the loan of $24,042.74. The wife contends that the husband is receiving an extra $6553.87 in equity by not paying one-half of the deficiency. Since the wife requested at trial that the trial court order that she keep her vehicle and the debt owed on it, we only consider whether it affects the equitable distribution of the parties’ marital debt as a whole.
¶ 33 Like marital property, marital debts should be divided equitably.
C. Gross Income Calculation for Child Support and/or Maintenance
¶ 35 The wife argues that the trial court‘s calculation of the husband‘s and the wife‘s gross incomes, and resulting maintenance and child support calculations, were against the manifest weight of the evidence. Specifically, the wife argues that the husband‘s annual gross income should have included annual depreciation in the amount of $64,338 from Ray Trapp Electric, Inc., and $15,929 from Trapp Properties, Inc., in addition to personal expenses that were run through the business. The wife also argues that her mandatory retirement contributions should have been deducted from her gross annual income. The husband argues that his annual gross income, from salary, rents collected, and personal expenses paid by the business, less ordinary and necessary business expenses of mortgage payments and maintenance, left him with a gross income of approximately $64,000 per year. He also argues that the current statutory scheme did not allow for the deduction of retirement savings or contribution.
¶ 36 Pursuant to section 505(a)(3)(A) of the Act, gross income includes the total of all income from all sources, not including such things as public assistance programs and child support.
¶ 37 Section 505(a)(3.1) of the Act provides:
“Business income. For purposes of calculating child support, net business income from the operation of a business means gross receipts minus ordinary and necessary expenses required to carry on the trade or business. ***
*** The accelerated component of depreciation and any business expenses determined either judicially or administratively to be inappropriate or excessive shall be excluded from the total of ordinary and necessary business expenses to be deducted in the determination of net business income from gross business income.”
750 ILCS 5/505(a)(3.1)(A) (West 2018).
¶ 38 Thus, nonaccelerated depreciation can be deducted in the calculation of net business income as long as it is an appropriate and necessary expense to carry in the business. Hochstatter, 2020 IL App (3d) 190132, ¶ 24.
¶ 39 As directed in section 505(a)(1.5) of the Act, the computation of each parent‘s child support obligation requires a determination of each parent‘s monthly net income. Net income is calculated by taking the parent‘s gross income, “minus either the standardized tax amount calculated pursuant to subparagraph (C) of this paragraph (3) or the individualized tax amount calculated pursuant to subparagraph (D) of this paragraph (3), and minus any adjustments pursuant to subparagraph (F) of this paragraph (3).”
¶ 40 In determining child support and maintenance, the trial court relied on the husband‘s child support calculation worksheet. The husband‘s gross income included his salary from Ray Trapp Electric, Inc., plus the personal expenses paid by Ray Trapp Electric, Inc., resulting in an annual gross income of $64,452. As noted above, nonaccelerated depreciation may be excluded from the husband‘s gross income. There was no testimony at trial regarding whether any of the depreciation was appropriate and necessary to carry on the businesses, and it appears that much of the
¶ 41 The husband‘s chart lists the wife‘s gross income as $72,708, which is derived from the wife‘s January 2020 financial affidavit. The wife‘s chart lists her gross income as $63,184, which is derived from her 2019 W-2. The difference is primarily from the fact that the wife does not pay Social Security taxes; rather, she has a mandatory teacher‘s retirement deduction. The wife argues that this deduction should have been deducted from her gross income. Section 505(a)(3)(A) of the Act makes it clear that gross income includes the total of all income from all sources, with some exceptions that do not include a mandatory retirement deduction. However, under section 505(a)(3)(B) of the Act, an individualized tax amount can be calculated, rather than a standardized tax amount, to determine net income in certain situations.
¶ 43 The judgment of the circuit court of Tazewell County is affirmed in part, as modified to reflect the additional cash payments due from the husband to the wife, resulting from the increased business equity and the wife‘s marital interest in the life insurance policies. The child support portion of the order is reversed and the matter is remanded for a recalculation of the husband‘s income for the purpose of calculating any child support or maintenance obligation.
¶ 44 Affirmed in part, as modified and reversed in part.
¶ 45 Cause remanded with directions.