Appeal from the Circuit Court of the 10th Judicial Circuit, Peoria County, Illinois, No. 04-D-501 Honorable Stephen A. Kouri, Judge, Presiding.
The opinion of the court was delivered by: Presiding Justice Lytton
Plaintiff, Theresa Joynt, appeals the trial court's judgment dissolving her 12-year marriage to defendant, Michael Joynt. Theresa argues that the trial court erred in characterizing the retained earnings of a closely held corporation as non-marital property. Alternatively, she claims that the trial court's distribution of marital assets was inequitable. We affirm.
Theresa filed a petition for dissolution of marriage on August 20, 2004. At trial, the parties stipulated that Michael owned 41 shares of stock in Mississippi Value Stihl, Inc. (MVS), worth approximately $94,000 and that the stock was non-marital property.
James Carey, an accountant for MVS, testified that the company was closely held and designated as a subchapter S corporation. Michael served as the company's president and owned 33% of the corporate stock. Michael's sister owned 19.4% of the stock, and Michael's father owned 47.6%. Carey testified that Michael's gross pay from the company, approximately $240,000 to $250,000 per year, was fair compensation in the industry. In 2004, Michael's total net income from the corporation after the payment of taxes was $162,545.
Carey stated that based on the company's balance sheet, the retained earnings of the business in 2004 were $3,750,929. Those earnings were held by MVS for future operating expenses. The company did not pay dividends to its stockholders from the retained earnings account. However, if the company chose to do so, it could pay retained earnings dividends through liquidation of the business or declaration of the corporate board of directors. Michael would not be able to receive a retained earnings dividend individually unless an equal dividend were paid to and agreed upon by a majority of the shareholders. Michael's 33% ownership in the corporation entitled him to one-third of the retained earnings. The estimated value of Michael's retained earnings ownership at the time of the trial was $1,250,309.
Carey further testified that Michael had a buyout contract with his father. The contract provided that, upon his father's death, Michael would become the majority stockholder of the company by purchasing his father's stock. At that time, as the majority shareholder, Michael would be able to determine distribution payments from the retained earnings without approval from the remaining shareholder.
Carey further testified that the retained earnings are not reported as an asset. He explained that the corporation's stock would be an asset and "then the stock has to be valued." If you wanted to value the company's stock at book value, "in essence your [sic] valuing the retained earnings." Carey stated that a company's book value is the assets minus the debts, which equals the stockholders' equity.
The trial court concluded that the retained earnings of the closely held corporation should be classified as non-marital property. In so doing, the court emphasized "this is not to suggest that under no circumstances would retained earnings of a non-marital interest in a subchapter S corporation be classified as marital." The court noted that Michael was the president of the company and that the value of the retained earnings account had increased significantly in recent years. However, in reaching its determination in this case, the court placed "considerable weight on the significant amount of cash distributed by the company to its officers over the last three years versus the amount it has retained, along with the evidence in its entirety on the issue of control."
In addition to the division of property, the trial court ordered Michael to pay temporary maintenance and child support, and awarded Teresa approximately 60% of the marital estate.
On appeal, Theresa contends that the trial court erred in failing to classify Michael's interest in the retained earnings account of the closely held corporation as marital property.
Generally, we will not disturb a court's determination that an asset is non-marital unless that finding is against the manifest weight of the evidence. In re Marriage of Hegge, 285 Ill. App. 3d 138 (1996). However, that standard of review is based on the presumption that determining whether an asset is marital involves weighing the credibility of the witnesses. In re Marriage of Werries, 247 Ill. App. 3d 639 (1993). In this case, the parties have asked us to rule on the legal effect of certain facts. Those facts are not in dispute, ...