Opinion
No. A03-580.
Filed March 30, 2004.
Appeal from the District Court, Dakota County, File No. F8-01-16017.
Sharon K. Hills, Severson, Sheldon, Dougherty Molenda, P.A., (for respondent)
John R. Kempe, McCullough, Smith Kempe, P.A., (for appellant)
Considered and decided by Kalitowski, Presiding Judge; Shumaker, Judge; and Minge, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
In this marriage dissolution proceeding, appellant argues that the district court (1) abused its discretion by awarding respondent a disproportionately large share of the marital estate; (2) abused its discretion by setting his support obligation without considering the parties' stipulation on the subject and without considering application of the Hortis/Valento formula to the summer months when the parties share physical custody; and (3) abused its discretion in requiring him to pay one-half of the children's private-school tuition. Respondent argues that the district court abused its discretion in finding that appellant met his burden of proof in establishing a nonmarital interest in the parties' previous home or, in the alternative, that the district court clearly erred in its valuation of the nonmarital estate. We reverse and remand.
FACTS
Appellant James Michael Hessler and respondent Maryann E. Hessler were married on October 28, 1983. They separated in December 2001, and a stipulation and order for temporary relief was filed in Dakota County.
At the time of the dissolution trial, the parties' three minor children were 17, 14, and 11. The oldest child has since graduated from high school. Because the oldest child is not able to maintain a job, the parties agree that she has special financial needs, which include therapy and medications, as well as spending money. The children have attended private schools since preschool, and the parties stated that they would like the two youngest children to continue to do so. The record shows, however, that because of a lack of financial aid, and pending this appeal, they are currently attending public school.
The parties' principal asset is the marital homestead in Mendota Heights, which the parties constructed and purchased for $205,558 in 1992. The parties stipulated that the present fair market value of the home is $364,000, subject to a mortgage with a principal balance owing in the amount of $73,744. Thus, the total equity in the property is $290,256.
Prior to constructing the home in Mendota Heights, the parties sold a home in Inver Grove Heights for $179,500 and put the net proceeds of $109,901 toward the Mendota Heights home. Appellant purchased land for the Inver Grove Heights home in January 1981, before the parties married. Although the parties dispute the actual cost of construction of the Inver Grove Heights home, an appraisal prepared prior to the dissolution hearing shows that the Inver Grove Heights home had a fair market value of $101,000 in 1983, the year the parties married. The parties stipulated to a $60,000 mortgage on the property as of the date of the marriage. The district court subtracted the mortgage from the appraised value to find that appellant's nonmarital interest in the Inver Grove Heights property was $41,000.
The record shows that before respondent started working full time, she was a stay-at-home mother who made many improvements and repairs to both homes. Appellant worked two full-time jobs, averaging 80 to 100 hours a week. Currently, respondent earns a gross monthly income of $5,313 as a regional sales manager for Intuit, Inc. Appellant earns a gross monthly income of $5,332 as a dispatcher for Allina Health System. Appellant also receives a PERA retirement benefit from the St. Paul Fire Department in the amount of $3,079 a month. The parties stipulated that approximately 80% of the PERA benefit is marital and the remaining 20% is nonmarital property. The parties stipulated that respondent shall be awarded 33.553% of the PERA benefit. Accordingly, with the addition of the PERA benefit, respondent's gross monthly income is $6,346.25, with net income of $3,996; appellant's gross monthly income is $7,378.08, with a net monthly income of $4,514.
At the time of the dissolution trial, there was a pretrial order stating that appellant shall pay respondent $1,300 a month child support — $650 each month from wages appellant earned from his employment at Allina and $650 from the PERA pension benefits. The order states, however, that "[t]he parties agree and understand that further modification of [appellant's] child support obligation may be implemented upon negotiation and settlement by the parties, and Order of the Court, relative to the division and distribution of the marital estate, specifically [respondent's] receipt of a portion of [appellant's] retirement/pension benefits."
At the dissolution hearing, the parties stipulated to a custody schedule whereby respondent has sole physical custody of the minor children during the school year and the parties have joint physical custody during the summer months. The parties also stipulated to the value of all assets, except appellant's nonmarital interest in the parties' homestead property and the value assigned to respondent's stock options. Respondent's stock options are not at issue in this appeal.
The trial court issued its Findings of Fact, Conclusions of Law, Order for Judgment, and Judgment and Decree on December 30, 2002. Both parties moved for amended findings. Respondent served her motion for amended findings on January 31, 2003. Appellant served his motion for amended findings on February 7, 2003.
The amended judgment and decree provides that, based on the Minnesota child support guidelines, appellant's child support obligation is $1,580. The district court did not use the Hortis/Valento formula to calculate appellant's child support obligation for the summer months when the parties have joint physical custody, but instead reduced the guideline amount by 66.6% for the summer months. The district court determined that with the payments spread out evenly over the course of the year, appellant's obligation is $1,317 per month. The district court did not require that the minor children attend private schools, but stated that if the parties, in their exercise of joint legal custody, elect to send the children to private schools, the parties are required to share equally in that cost.
The district court calculated that appellant's nonmarital interest in the Inver Grove Heights home was $41,000 or 40.59% of the home's total value at the time of the parties' marriage. The court calculated that the nonmarital interest increased to $67,314 (40.59% of the net sale proceeds after costs) when the parties sold the Inver Grove Heights home. The court found that appellant contributed the $67,314 nonmarital interest to the Mendota Heights home. This amounted to 32.75% of the home's total value. Thus, the district court concluded, "Presently, the Mendota Heights home has a stipulated appraised value of $364,000. Just as the Mendota Heights home has appreciated in value, so also has Respondent's non-marital interest. Accordingly, [appellant's] present non-marital interest in the Mendota Heights home amounts to 32.75% of the home's present value, or $119,210."
Appellant filed his notice of appeal on May 27, 2003. Respondent filed a notice of review on June 5, 2003.
DECISION I.
Respondent argues that because appellant did not establish a premarital contribution for the property on which the Inver Grove Heights home was constructed or for the construction of the home, the home is presumed to be marital. Property acquired before the marriage is nonmarital. Minn. Stat. § 518.54, subd. 5 (2002). District courts have broad discretion over the division of marital property, and appellate courts will not alter a district court's property division absent a clear abuse of discretion. Chamberlain v. Chamberlain, 615 N.W.2d 405, 412 (Minn. App. 2000), review denied (Minn. Oct. 25, 2000). Whether property is marital or nonmarital is a question of law, but this court must defer to the district court's underlying findings of fact. Olsen v. Olsen, 562 N.W.2d 797, 800 (Minn. 1997). However, if this court is left with the definite and firm conviction that a mistake has been made, this court may rule that the trial court's findings are clearly erroneous, notwithstanding the existence of evidence to support such findings. Id. (quotation omitted).
The party seeking to establish the nonmarital character of an asset must do so by a preponderance of the evidence. Wopata v. Wopata, 498 N.W.2d 478, 484 (Minn. App. 1993). This court has consistently held that the district court is in the best position to determine witness credibility. Fontaine v. Hoffman, 359 N.W.2d 692, 694 (Minn. App. 1984).
In Wopata, respondent sought to establish that certain funds he brought into the marriage were nonmarital property. Wopata, 498 N.W.2d at 484. Appellant claimed that respondent failed to satisfy his burden of proof with respect to one of the contracts for deed. Id. This court agreed, finding that the record was devoid of any evidence to explain what ultimately happened to the funds at issue. Id. This court remanded with instructions to reapportion the marital property award. Id.
Here, the district court considered an appraisal prepared for the hearing, which stated that the Inver Grove Heights home had a fair market value of $101,000 as of the parties' October 1983 marriage. The district court also relied on a real-estate closing statement that shows a mortgage for $60,000 existed at that time. The district court calculated the nonmarital interest by subtracting the amount of the mortgage from the appraised value. Unlike Wopata, this record is not "devoid of any evidence." Also, given our deference to the district court's credibility determinations, appellant showed by a preponderance of the evidence that he had a nonmarital interest in the Inver Grove Heights home.
II
Respondent argues, in the alternative, that the district court erred in calculating appellant's nonmarital interest in the parties' homestead by not considering the appreciation of the Inver Grove Heights home during the parties' marriage and that the mortgage was outstanding at the time of the marriage and was satisfied with marital funds.
The Schmitz formula determines the appreciation of a nonmarital interest in an asset with marital and nonmarital components. Under the Schmitz formula, "[t]he present value of a nonmarital asset used in the acquisition of marital property is the proportion the net equity or contribution at the time of acquisition bore to the value of the property at the time of purchase multiplied by the value of the property at the time of separation." Brown v. Brown, 316 N.W.2d 552, 553 (Minn. 1982). "[T]he Schmitz formula applies only to the appreciation of property not attributable to improvements made by the parties." Dorweiler v. Dorweiler, 413 N.W.2d 572, 575-76 (Minn. App. 1987). Schmitz v. Schmitz, 309 N.W.2d 748, 750 (Minn. 1981).
Nonmarital property includes "the increase in value of property" acquired before the marriage. Minn. Stat. § 518.54, subd. 5(b), (c) (2002). The distinction between the two types of increase in the value of property is generally referred to as the active/passive distinction. Gottsacker v. Gottsacker, 664 N.W.2d 848, 853 (Minn. 2003).
[T]he increase in the value of nonmarital property attributable to the efforts of one or both spouses during their marriage, like the increase resulting from the application of marital funds, is marital property. Conversely, an increase in the value of nonmarital property attributable to inflation or to market forces or conditions, retains its nonmarital character.
Nardini v. Nardini, 414 N.W.2d 184, 192 (Minn. 1987). See also Swick v. Swick, 467 N.W.2d 328, 331 (Minn. App. 1991) (explaining that if a person brought a piece of property to the marriage, but during the marriage the couple improved the property, "the appreciation would be divisible as a marital asset upon dissolution"), review denied (Minn. May 16, 1991); Dorweiler, 413 N.W.2d 572 at 575-76 (stating that appreciation due to improvements made during marriage is marital property).
The record shows that respondent moved into the Inver Grove Heights home just as construction on the home was completed. She stained the woodwork, painted, laid carpet and tile, wallpapered, made and installed window treatments, replaced and fixed appliances. Respondent worked outside the home only 7 of the 19 years the parties were married. Appellant has worked two jobs (80 to 100 hours a week) to support respondent and their family. It is clear from the record that both parties contributed equally to the marital estate.
Neither the record nor the district court's order, however, accounts for any passive (i.e., inflationary or market-based) increase in the value of the Inver Grove Heights home during the marriage. If there was a passive increase in the value of the Inver Grove Heights home during the marriage, at least part of that increase was an increase in appellant's nonmarital interest in the home. That increased value would then have been transferred to the Mendota Heights home as appellant's nonmarital property and, to the extent there was passive appreciation of the Mendota Heights home during the marriage, at least part of that appreciation would also have been appellant's nonmarital property, as the increase in appellant's nonmarital property "rolled over" from the Inver Grove Heights home to the Mendota Heights home.
III
Appellant argues that the district court did not have a reasonable or acceptable basis in fact or law to award respondent a greater portion of the marital property. District courts have broad discretion over the division of marital property, and appellate courts will not alter a district court's property division absent a clear abuse of that discretion. Id. This court must affirm the district court's division of property if it had an acceptable basis in fact and principle, even though this court may have taken a different approach. Wilson v. Wilson, 348 N.W.2d 357, 359 (Minn. App. 1984).
As noted in the previous section, the district court abused its discretion in calculating the parties' marital equity in the Mendota Heights home by using the Schmitz formula while considering the parties' contributions to the appreciation of the estate. On remand, the district court should consider whether there is a basis in fact or law to award respondent a greater portion of the marital property in light of Gottsacker.
IV
Respondent argues that this court is precluded from addressing appellant's claims that the district court abused its discretion in not applying the Hortis/Valento cross-award formula to the child support calculation and requiring appellant to split the cost of private-school tuition with respondent, because (1) appellant's motion for amended findings and a new trial was not filed in a timely manner, and (2) appellant did not raise these issues in his motion for amended findings and a new trial.
"While permissive, motions for a new trial pursuant to Minn. R. Civ. P. 59.01 are not a prerequisite for appellate review of substantive questions of law when a genuine issue of law is properly raised and considered at the district court level." Alpha Real Estate Co. v. Delta Dental Plan, 664 N.W.2d 303, 311 (Minn. 2003). Here, both the issue of applying the Hortis/Valento formula to determine appellant's support obligation and the issue of private-school tuition were raised at the hearing. Because these are substantive issues, the parties did not need to raise these issues to preserve them for appeal. Thus, we are not precluded from addressing these issues on appeal.
Child Support
A district court's decision on child support issues is discretionary, and, on appeal, this court's review is conducted on an abuse-of-discretion standard. Rogers v. Rogers, 622 N.W.2d 813, 822 (Minn. 2001). The district court must resolve the matter in a manner "that is against logic and the facts on record before this court will find that the trial court abused its discretion." Rutten v. Rutten, 347 N.W.2d 47, 50 (Minn. 1984).
Appellant's first challenge to his support obligation is that it was not based on the pretrial order. Child support agreements relate to "the nonbargainable interests of the children and [are] less subject to restraint by stipulation than other dissolution matters." Swanson v. Swanson, 372 N.W.2d 420, 423 (Minn. App. 1985). Regardless of any agreement between the parties, the district court retains the discretionary power to set child support. Id. Even if the case involves a stipulation, when calculating the child support award, the court should be guided by the best interests of the child. Tammen v. Tammen, 289 Minn. 28, 30, 182 N.W.2d 840, 842 (1970).
Here, the pretrial order required appellant to pay $1,300 a month. The amended pretrial judgment requires him to pay $1,317. Appellant argues that the support obligation in the pretrial order was based on him receiving 100% of his PERA benefits and that because he now only receives 66.447% of his PERA benefits, the stipulated child support amount should be reduced as required by the stipulation. Because there is nothing in the record to show that the stipulation applied the statutory guidelines, and because appellant has failed to show how reducing the stipulated amount would better serve the children's best interests, we find that the district court did not abuse its discretion by not following the stipulated order.
Appellant next challenges the district court's refusal to apply the Hortis/Valento formula. The Hortis/Valento formula may be applied to instances of joint physical custody so that each parent pays child support only for the months during which the other parent exercises custody of the children. Valento v. Valento, 385 N.W.2d 860, 862 (Minn. App. 1986) , review denied (Minn. June 30, 1986); Hortis v. Hortis, 367 N.W.2d 633, 636 (Minn. App. 1985). Under the Hortis-Valento method, each parent is required to pay support as indicated by the child support guidelines, reduced by the percentage of time that the parent has physical custody of the child. Rogers, 622 N.W.2d at 816. Application of the Hortis/Valento formula to cases of joint physical custody is an application of the statutory guidelines. See Valento, 385 N.W.2d at 862 (holding "[t]he method for applying the guidelines to joint physical custody situations was set out in Hortis v. Hortis, 367 N.W.2d 633 (Minn. App. 1985)").
Guideline support amount is presumed to be the correct support amount, but that presumption is rebuttable, and deviations from the guideline amount may be made with appropriate findings. See Minn. Stat. § 518.551, subd. 5(i) (2002) (identifying certain findings required for deviation, and stating deviation requires additional findings on factors listed in Minn. Stat. § 518.551, subd. 5(c)). Thus, the presumptively correct guideline child support amount for parents with joint physical custody is the amount calculated under Minn. Stat. § 518.551, subd. 5(b) (2002), for each parent, less the amount offset by the Hortis/Valento formula. Any deviation from that amount requires the statutory findings on "all earnings, income, and resources of the parents, including real and personal property * * * [and] the financial needs and resources, physical and emotional condition, and educational needs of the child or children to be supported." Strandberg v. Strandberg, 664 N.W.2d 887, 890 (Minn. App. 2003) (emphasis added) (quotation omitted).
Because the parties have joint physical custody for three months, for purposes of calculation, respondent pays appellant $1,399 for one and a half months or $2,098. Thus, appellant's yearly obligation is $1,580 for 10 ½ months, or $16,590; this can be reduced by respondent's payments to him of $2,098. This brings the yearly total to $14,492. When this is divided by 12 to equalize the payments, appellant's monthly payments are $1,207. The district court calculated that appellant's support obligation would be $1,317 per month. On remand, the district court should either apply the Hortis/Valento formula or make findings on the deviation from the guidelines.
Private-School Tuition
Appellant argues that the district court abused its discretion by omitting findings concerning the financial ability of the parties to share the possible expense of private education for the minor children. The district court did not require the parties to send the children to private school. Instead, it ruled that if the parties were to send their children to private school, they should equally split the cost of doing so. Thus, the cost of private school is both currently speculative and not included in the appellant's existing support obligation.