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JAMES E. HOVIS v. MARY LOU HOVIS (05/20/88)

decided: May 20, 1988.

JAMES E. HOVIS, APPELLANT,
v.
MARY LOU HOVIS, APPELLEE



Appeal from the Order of the Superior Court of Pennsylvania Entered November 6, 1986 at No. 404 Pittsburgh, 1986 Affirming the Final Decree of the Allegheny County Court of Common Pleas, Family Division Entered: March 11, 1986 at No. FD-82-4314. 362 Pa. Super. 628, 520 A.2d 68 (1987)

COUNSEL

Stewart B. Barmen, Denise Wilsher Ford, Rothman, Gordon, Foreman & Groudine, Pittsburgh, for appellant.

Walter A. Koegler, Lynn MacBeth, Pittsburgh, for appellee.

Nix, C.j., and Larsen, Flaherty, McDermott, Zappala, Papadakos and Stout, JJ. Papadakos, J., filed a concurring opinion. Flaherty, J., filed a dissenting opinion in which Nix, C.j., joined.

Author: Larsen

[ 518 Pa. Page 139]

OPINION OF THE COURT

The issue before this Court is under what circumstances potential tax liability should be considered in the valuation of marital property for purposes of equitable distribution under the Pennsylvania Divorce Code, 23 Pa.S.A. ยง 401(d).

Appellant, James E. Hovis and Appellee, Mary Lou Hovis were married on October 22, 1954. During the marriage Mr. Hovis established a career with Bloom Engineering Company (Bloom), as the President of its international division and a member of its Board of Directors. Mrs. Hovis was a mother and homemaker.

The present action was commenced by Mr. Hovis filing a complaint in divorce in the Court of Common Pleas of Allegheny County, Pennsylvania. On February 16, 1986 the Court granted a decree in divorce. However, the parties' claims for equitable distribution, alimony, alimony pendente lite and counsel fees remained outstanding. Trial was held on October 2, 1985 in order to dispose of these issues.

Although the parties stipulated the value of most of the marital assets, they did not agree to the value of Mr. Hovis' Bloom Corporate stock and pension plan. At trial Mr. Hovis presented testimony that the book value of the Bloom corporate stock was $184.41 per share. Mr. Hovis owned 1,096 shares with a total book value of $202,113.36. Mr. Hovis explained that pursuant to a written shareholder's agreement, upon retirement, he is required to redeem his stock to the corporation at book value. At the time of trial he was sixty-three years of age and planned to retire in May of 1987 at the age of sixty-five.*fn1 Mr. Hovis stated that

[ 518 Pa. Page 140]

    as a result of the sale of the stock he would realize a substantial gain in income in 1987 which would be subject to the prevailing federal capital gains tax rate of 20%*fn2 and the Pennsylvania state income tax rate of 2.4%. Thus, he testified that the value of the stock should be reduced by 22.4%, representing his potential tax liability.

Similarly, Mr. Hovis offered testimony that the value of his pension plan should be reduced because of potential tax liability. In this regard, William Titus a financial consultant testified on behalf of Mr. Hovis as an expert witness. Mr. Titus explained that he reduced the pension plan to present value using the Troyan Method of present value discounting*fn3 and deducted 35% of that value for potential income tax liability.*fn4 He valued the pension after deducting taxes at $170,152.29. Mrs. Hovis presented the expert testimony of an ...


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