Opinion
No. C5-01-1319.
Filed May 28, 2002.
Appeal from the District Court, Blue Earth County, File No. F40076.
Julia Ketcham Corbett, (for respondent)
Thomas J. Kraus, (for appellant)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
On appeal from an order distributing property and setting child support obligations after the dissolution of his marriage, Shawn Clow argues that (1) the district court understated his nonmarital interest in the family home, (2) awarded Lisa Bratsch-Clow an inequitable proportion of the marital property, (3) overstated his net monthly income for purpose of setting his child support obligation and share of child care expenses, and (4) abused its discretion in awarding Bratsch-Clow conduct-based attorney fees. By notice of review, Bratsch-Clow argues that (1) Clow failed to adequately establish his nonmarital interest in the family home and (2) the district court erroneously failed (a) to attach a judgment lien and (b) to establish automatic income withholding from Clow's earnings. We affirm in part, reverse in part, and remand.
FACTS
Shawn Clow and Lisa Bratsch-Clow were married on June 6, 1996, and subsequently had two children. Bratsch-Clow filed a petition for dissolution in 1999, and the district court issued an order in 2001 distributing the parties' marital property and setting Clow's child support obligation.
In the order distributing the marital property, the district court awarded Bratsch-Clow the parties' marital home in Mankato, Minnesota, which was valued at $253,000. The district court found that Clow had contributed $52,209 as part of the down payment for the parties' Mankato home. These funds were from the proceeds of a home Clow had owned prior to the marriage. The court, however, set his non-marital interest in the Mankato home at $18,949. The district court awarded Bratsch-Clow a substantial portion of the parties' personal property located in the Mankato home and the vehicle that she regularly used. Clow was awarded four vehicles, four motorcycles, and a few items of personal property.
For purposes of calculating Clow's child support obligation, the district court found that Clow had income from two self-employment sources. One of these is a courier business, which Clow owns and operates and which consists of delivering newspapers and magazines in residential areas and transporting newspapers and magazines to retail outlets for sale. At trial, Clow testified that he had recently lost the Wall Street Journal account and that the loss had decreased his monthly revenue by $1129. The other source of income was a motorcycle-sale business, which Clow had been operating until late 1999. He ceased operating this business because the Minnesota Departments of Commerce and Revenue informed him that he was not a franchised dealer and should not be operating a motorcycle-sale business. The Department of Revenue also investigated and audited Clow's motorcycle business in an effort to estimate taxes that he had allegedly failed to pay on income he earned from the sale of the motorcycles.
The district court admitted into evidence an audit report prepared by the Minnesota Department of Revenue as part of the investigation and audit of Clow's businesses. In calculating Clow's child support obligation, the district court relied on 1998 net income figures from the state's audit report, 1999 net income figures from Clow's tax return, and Clow's representations of his average yearly net profit for the courier business before the loss of the account. The district court expected that Clow would continue to realize at least the same net profit or more from the courier business, notwithstanding the loss of the Wall Street Journal account. The court noted that the time and effort Clow spent on the motorcycle business could be spent on some other income-producing endeavor. The court pointed out, in its post-trial order, that to the extent Clow fails in either of these endeavors, the failure to do so would constitute voluntary underemployment. The district court set Clow's monthly obligation at $893, which was based on a net monthly income derived from the profits of the courier business and the imputed profits from the replacement income-producing activities.
The district court also awarded Bratsch-Clow $5,500 in attorney fees and costs because it found that Clow had initially refused to concede that he had been served, failed to attend the initial hearing, and caused Bratsch-Clow to expend attorney fees and costs in proving that Clow had been served.
On August 3, 2001, Clow filed a notice of appeal, arguing that the district court abused its discretion by understating his nonmarital interest in the marital home, awarding an unfair proportion of the marital property to Bratsch-Clow, overstating his net monthly income for purposes of determining his child support obligation, allocating child care expenses based on this overstatement, and awarding Bratsch-Clow attorney fees. Bratsch-Clow filed a notice of review, arguing that the district court erred by finding that Clow had adequately established his nonmarital interest in the parties' home, failing to attach a judgment lien, and failing to establish automatic withholding from Clow's earnings pursuant to Minn. Stat. § 518.6111, subd. 3 (2000).
DECISION I.
On appeal, we independently review the record to determine whether property is marital or nonmarital. Swick v. Swick, 467 N.W.2d 328, 330 (Minn.App. 1991), review denied (Minn. May 16, 1991). While performing the independent review, this court defers to the district court's findings of underlying facts, including whose resources were used to acquire the parties' assets. Id. These findings of fact will not be set aside unless they are clearly erroneous. Id.
Establishment of nonmarital interest in family home
Minn. Stat. § 518.54 presumes that all property acquired by the spouses after the marriage is marital property, but a party can overcome this presumption by demonstrating that the property is nonmarital. Minn. Stat. § 518.54, subd. 5 (2000). Minnesota Statutes define "nonmarital property" as
property real or personal, acquired by either spouse before, during, or after the existence of their marriage, which (a) is acquired as a gift, bequest, devise or inheritance made by a third party to one but not to the other spouse; (b) is acquired before the marriage; (c) is acquired in exchange for or is the increase in value of property which is described in clauses (a), (b), (d), and (e); (d) is acquired by a spouse after the valuation date; or (e) is excluded by a valid antenuptial contract.
Minn. Stat. § 518.54, subd. 5. A party attempting to establish a non-marital interest in property under section (c) does not need to strictly trace the origin of the property, but "need only show by a preponderance of the evidence that the asset was acquired in exchange for nonmarital property." Carrick v. Carrick, 560 N.W.2d 407, 413 (Minn.App. 1997).
By notice of review, Bratsch-Clow argues that the district court erred by finding that Clow had adequately traced his nonmarital interest in their Mankato family home. At trial, Clow testified that he sold his previous home in spring 1997 and used the proceeds as part of the down payment for the family's Mankato home. Clow introduced a loan statement that corroborated that the down payment for the Mankato home was $69,265, but he admitted in a post-dissolution motion that the proceeds from the sale of the previous home accounted for only $52,209 of the down payment. The district court found insufficient evidence to support the contention that the remaining $17,056 of the down payment originated from Clow's nonmarital property and held that only $52,209 of the down payment originated from nonmarital property.
During the trial, Bratsch-Clow testified that she had no knowledge about how Clow obtained the money for the down payment for the Mankato home, but she did not dispute that Clow owned a home prior to their marriage and sold it prior to the purchase of the Mankato home.
In light of this testimony, Clow is entitled to a credit for the non-marital interest in the homestead from the proceeds of the sale of his previous home. See Carrick, 560 N.W.2d at 413. Clow, through his unrebutted testimony, showed by a preponderance of the evidence that he used the proceeds from the sale as a down payment on the parties' Mankato home. The district court did not abuse its discretion in setting the value of the nonmarital contribution at $52,209 because Clow admitted that this was the value of the proceeds and Bratsch-Clow offered no testimony and no evidence to controvert this value. We affirm the district court's finding that Clow adequately traced his nonmarital interest in the Mankato home.
Calculation of nonmarital interest in family home
The Minnesota Supreme Court has set guidelines for calculating the present value of the nonmarital portion of a homestead that was originally acquired at least partially with nonmarital funds or assets. Nardini v. Nardini, 414 N.W.2d 184, 193-94 (Minn. 1987). Upon dissolution, a spouse should receive the original nonmarital value plus any "increase in value attributable to inflation and general economic and market conditions." Nardini, 414 N.W.2d at 192. But any increase in value attributable to the efforts of the parties and/or the contribution of marital funds is marital property to be allocated at dissolution. Id.
On appeal, Clow challenges the district court's calculation of the present value of his nonmarital interest in the Mankato home, arguing that the district court improperly awarded Bratsch-Clow his nonmarital interest. The district court calculated Clow's current nonmarital value in the Mankato home to be $18,949. Neither the record nor the order demonstrate or support the district court's derivation of this figure. Moreover, in light of the finding that Clow had a $52,209 nonmarital investment in the home, the district court erroneously diluted this value and neglected to credit Clow with any increase in the home's value that is attributable to inflation and general economic and market conditions. We reverse and remand for recalculation of Clow's nonmarital interest in the Mankato home consistent with the guidelines set out in Nardini.
We note that the Minnesota Supreme Court has accepted review and heard oral arguments in a case in which the issue of the application of the Nardini guidelines may be addressed. See Antone v. Antone, C8-01-679, 2001 WL 1356377 (Minn.App. 2001), review granted (Minn. Jan. 15, 2002), oral arguments held (Minn. May 2, 2002). In the event that the supreme court clarifies the Nardini formula and changes the law governing the calculation of the value of the nonmarital portion of an asset, then the district court is no longer bound by the scope of our instructions for remand and should take into account the supreme court's clarifications and changes. See McClelland v. McClelland, 393 N.W.2d 224, 226-27 (Minn.App. 1986), review denied (Minn. Nov. 17, 1986).
II.
District courts have broad discretion in dividing personal property, and a reviewing court examines the division under an abuse of discretion standard. Rutten v. Rutten, 347 N.W.2d 47, 50 (Minn. 1984). "[I]f the division is equitable, there is no requirement that it be equal." Dorweiler v. Dorweiler, 413 N.W.2d 572, 576 (Minn.App. 1987).
On appeal, Clow argues that the district court inequitably awarded Bratsch-Clow a disproportionate percentage of the total marital property by requiring Clow to subsume a great deal of credit card debt.
But, the district court found the credit card debt to be nonmarital because Clow incurred it during the course of the litigation. Debts are nonmarital if they are incurred after the valuation date, which is the date of the initially scheduled prehearing settlement conference. Minn. Stat. §§ 518.54, subd. 5(d) (defining nonmarital property as property acquired after the valuation date); .58, subd 1 (2000) (setting the valuation date as the date of the initially scheduled prehearing settlement conference). Although the record does not clearly identify the valuation date, the district court nonetheless found that the debt was incurred after the litigation had begun. Because the date of the initially scheduled prehearing settlement conference would have occurred early in the course of the litigation, we cannot say that the district court erred in allocating to Clow the credit card debt incurred during the litigation. Further, Clow does not directly challenge the finding that he is responsible for the credit card debt by arguing that it was incurred before the valuation date. We are will not address this argument sua sponte. The district court did not abuse its discretion.
III.
District courts have broad discretion with regard to child support orders. Rutten, 347 N.W.2d at 50. An appellate court will not reverse a district court's child support order unless the appellate court is convinced that the district court abused its discretion by making "a clearly erroneous conclusion that is against logic and the facts on record." Id.
Imputation of Income
Minn. Stat. § 518.551, subd. 5b(d), allows district courts to impute income to a parent "[i]f the court finds that a parent is voluntarily unemployed or underemployed or was voluntarily unemployed or underemployed during the period for which past support is being sought." Minn. Stat. § 518.551, subd. 5b(d) (2000). The statute defines imputed income as the estimated earning ability of a parent based on the parent's prior earnings history, education, and job skills, and on availability of jobs within the community for an individual with the parent's qualifications.
Id. In order to impute income, the district court needs to make findings to support its conclusion that a parent is voluntarily underemployed or unemployed. Murphy v. Murphy, 574 N.W.2d 77, 82 (Minn.App. 1998).
In addition to imputing income to parents who are voluntarily underemployed, district courts may also impute income to parents whose income is difficult to determine because they are self-employed. See Fulmer v. Fulmer, 594 N.W.2d 210, 213 (Minn.App. 1999). Because of the "opportunity for a self-employed person to support himself yet report a negligible net income," earning capacity estimates are often used to determine a self-employed person's child support obligation. Id. (quoting Ferguson v. Ferguson, 357 N.W.2d 104, 108 (Minn.App. 1984)); see also Resch v. Resch, 381 N.W.2d 460, 462 (Minn.App. 1986) (noting that it is "proper to look beyond an obligor's earnings to his earning capacity, and to disregard any [voluntary] inability to pay").
On appeal, Clow argues that the district court erroneously imputed income to him and calculated his child support arrearages and child-care expenses based on this erroneous calculation.
The district court made specific findings in support of its decision to impute to Clow a net yearly income of $35,723, which, under the statutory guidelines, requires a monthly child support payment of $893.06. The district court noted that Clow was a self-employed person with income from his courier business and the now-abandoned motorcycle-sales business. Relying on the 1998 tax returns and Clow's estimate of his average yearly net profit, the district court found that Clow had a net income from the courier business of $28,275. Although Clow had lost one of his large accounts, the district court found it would be expected that he would replace this account and declined to make a deduction in his net income to account for the loss.
The district court also noted that even though Clow was no longer engaged in the business of motorcycle sales, the time and effort spent on Clow's motorcycle business could be spent on some other income-producing endeavor. The court found that because Clow could replace this business with other income, Clow's failure to do so would render him voluntarily underemployed. The district court relied on the testimony of a Minnesota Department of Revenue Tax Specialist to estimate the income that Clow received from the motorcycle business to be $15,000, reduced this figure to account for federal and state taxes, and imputed to Clow a yearly net income from the motorcycle business of $7,448.
The district court had ample evidence upon which to base its calculations of Clow's net income from his self-employment activities. The court relied on Clow's income tax return and his own testimony, as well as something that is rare in dissolution cases: the report of an external auditor. None of the court's findings are erroneous. There was no abuse of discretion in setting Clow's child support obligation.
Because Clow's argument that the district court erroneously imputed income to him fails, Clow's argument that the district court erroneously calculated child support arrearages and his share of child-care expenses likewise fails.
Automatic Income Withholding
By notice of review, Bratsch-Clow also alleges that the district court erred by failing to establish automatic income withholding pursuant to Minn. Stat. § 518.6111, subd. 3. The district court established an income-withholding procedure pursuant to Minn. Stat. § 518.6111, subd 6., but Bratsch-Clow argues that this provision should only have been implemented in the event that the subdivision 3 withholding was unsuccessful.
The district court did not err by setting up the income-withholding mechanism through Minn. Stat. § 518.6111, subd. 6. Subdivision 6 applies "[i]f income withholding is ineffective due to the obligor's method of obtaining income." Minn. Stat. § 518.6111, subd. 6 (2000). Clow derived his income from self-employment in the courier business and the now-defunct motorcycle-sales business. The income withholding would likely be ineffective because Clow received his payments from many sources and had not yet replaced either the motorcycle business or the lost courier account. The district court did not err by implementing the subdivision 6 method of paying child support in lieu of establishing an income withholding method under subdivision 3.
IV.
A district court's decision to award attorney fees will not be disturbed on appeal absent an abuse of discretion. Korf v. Korf, 553 N.W.2d 706, 711 (Minn.App. 1996). Minn. Stat. § 518.14, subd. 1, gives district courts the discretion to impose attorney fees against a party "who unreasonably contributes to the length or expense of the proceeding." Minn. Stat. § 518.14, subd. 1 (2000). An award of conduct-based attorney fees may only be based upon conduct that occurs during the litigation process. Geske v. Marcolina, 624 N.W.2d 813, 819 (Minn.App. 2001) (noting that behavior that occurs outside the litigation process may not serve as the basis for awarding conduct-based fees under Minn. Stat. § 518.14, subd. 1).
The district court awarded Bratsch-Clow $5,500 in attorney fees because it found that that Clow had added to the expense of the proceedings by failing to attend the initial hearing and refusing to concede he had been served. Bratsch-Clow had to call a process server to establish that Clow had been served. Because the district court's findings are supported by the record and Clow's actions occurred during the litigation process, the district court did not abuse its discretion when it awarded Bratsch-Clow $5,500 in conduct-based attorney fees.
V.
Prior to appeal, Bratsch-Clow brought a motion for amended findings requesting that a lien be attached to Clow's vehicles and apartment building to secure payment of the child support award, child support arrearages, and attorney fees, but in its order, the district court only attached a lien to secure payment of the child support arrearages. By notice of review, Bratsch-Clow argues that the district court erred by failing to attach a judgment lien to the child support judgment and the attorney-fees award.
The district courts have broad discretion in determining whether to order a lien on a child support obligor's property to secure judgments. See Minn. Stat. § 518.57, subd. 1 (2000) (noting that district court may impose a judgment lien) (emphasis added); Cavegn v. Cavegn, 378 N.W.2d 636, 639 (Minn.App. 1985). Generally, district courts have imposed liens or trusts on an obligor's property when the obligor has repeatedly failed to make child support payments. See Ulrich v. Ulrich, 400 N.W.2d 213, 217-18 (Minn.App. 1987) (affirming district court's establishment of trust where obligor repeatedly failed to make child support payments); Cavegn, 378 N.W.2d at 639 (affirming use of net proceeds from husband's lien on wife's homestead to be used to pay off child support arrearages because husband had failed to prove any substantial support to child since husband and wife separated).
Although Clow had not paid the full amounts owed under the temporary order, which led to the arrearages calculations, he had been making child support payments regularly while the dissolution was pending. Clow had neither failed to provide substantial support nor repeatedly failed to make support payments. The district court did not abuse its discretion by not ordering a judgment lien to secure payment of the child support obligations and the attorney fees.