Posted by Nydia Streets of Streets Law in Florida Divorce
As part of equitable distribution in a Florida divorce, the court is usually required to consider tax consequences in the division of assets and debts. If attorney’s fees are awarded in a divorce, a court can order that interest be paid. What interest rate is used? These were issues in the case Bathke v. Costley, 5D20-2522 (Fla. 5th DCA December 30, 2021).
The trial court considered each party’s argument that tax consequences associated with a sale of the former husband’s business interests should be considered in determining equitable distribution. The former husband admitted he did not plan to sell the business anytime soon, but would do so eventually as part of retirement. He presented evidence to the trial court by way of expert testimony that he would incur capital gains tax on the sale of his business interests. The former wife argued it would be error to consider tax consequences of a sale that was not happening because this would be speculative. The trial court eventually sided with the former wife and declined to consider tax consequences. The court also awarded the former wife attorney’s fees and costs and ordered that an interest rate of 6.33% would attach. The former husband appealed on both counts.
As to the tax issue, the appellate court agreed with the former husband and held the former wife failed to show this was harmless error. The court held “In this case, the trial court took testimony regarding tax liability presented by both parties’ experts but ultimately concluded that, because there was no evidence that a sale of the properties was ‘imminent’ or that Husband was in negotiations to sell the businesses, the trial court could not account for such tax liabilities in its equitable distribution. This was error. A trial court is not forbidden from accounting for future tax consequences simply because there is no evidence a sale of that asset is imminent. If it were, courts would be required to treat assets with varying tax liabilities as equivalent, as the trial court in Miller did, when the tax basis presented by the assets creates value that is undoubtedly inequivalent.”
As to the interest on attorney’s fees, the court reversed, holding “Finally, we agree with Husband that the trial court erred in applying a 6.33% interest rate in its order awarding Wife attorneys’ fees, as this rate did not reflect the statutory interest rate found in section 55.03, Florida Statutes (2020). See also § 687.01, Fla. Stat. (2020) (‘In all cases where interest shall accrue without a special contract for the rate thereof, the rate is the rate provided for in s. 55.03.’). Accordingly, we also reverse the award of attorneys’ fees for entry of a corrected order and amortization schedule reflecting the correct statutory interest rate.”
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