Opinion
A21-1203
12-12-2022
In re the Marriage of: Linda Beth Krelitz, petitioner, Respondent, v. Michael James Krelitz, Appellant.
Hennepin County District Court File No. 27-FA-19-1111
Considered and decided by Bryan, Presiding Judge; Bjorkman, Judge; and Slieter, Judge.
ORDER OPINION
Jeffrey Bryan Judge
BASED ON THE FILE, RECORD, AND PROCEEDINGS, AND BECAUSE:
1. In this marriage dissolution action, appellant-husband raises the following four challenges to the dissolution judgment: (A) the district court erred in its division of five specific assets and debts; (B) the district court erred in requiring husband to be solely responsible for payment of tax penalties on certain unreported income; (C) the district court erred in denying husband's request for conduct-based attorney fees; and (D) the district court erred in calculating the amount of spousal maintenance awarded to wife. We remand the matter to the district court for additional findings in light of the applicable burden of proof, the statutory requirements for valuation of property and attorney fees awards, and the incomplete or inconsistent factual findings as specified below.
2. Appellant Michael James Krelitz (husband) and respondent Linda Beth Krelitz, n/k/a Linda Beth Leonard, (wife) married in 1995 and have two adult children. In February 2019, wife filed this dissolution action. The district court held a two-day trial in August 2020 on the issues of division of marital property, spousal maintenance, and attorney fees. The facts in this opinion are taken from the trial evidence concerning issues that are disputed on appeal.
3. Following trial, the district court issued its judgment and decree dissolving the marriage, determining marital and nonmarital property, allocating assets and debts, and awarding wife permanent spousal maintenance. In making these determinations, the district court utilized a valuation date of May 15, 2019. The district court also denied a request by husband for conduct-based attorney fees.
4. Both parties brought motions for amended findings raising numerous issues. The district court granted one of wife's requests-to apportion the parties' frequent flier miles-but otherwise denied the motions. With respect to husband's motion, the district court reasoned that his proposed amended findings "are, in reality, requests for the Court to reconsider its findings," and that "[t]he Court is comfortable with its findings and will not revisit them." Husband appeals. We address each of husband's challenges to the district court's judgment in turn.
A. Challenges to the Division of Marital Assets and Debts
5. Upon the dissolution of a marriage, the district court must divide the parties' marital property. Minn. Stat. § 518.58, subd. 1 (2020). "Debts, like assets, are apportionable" under Minnesota law. Chamberlain v. Chamberlain, 615 N.W.2d 405, 414 (Minn.App. 2000). "All property acquired by either spouse subsequent to the marriage and before the valuation date is presumed to be marital property," and the party asserting that an asset or debt is "nonmarital property" bears the burden of proving that the property in question is nonmarital. Minn. Stat. § 518.003, subd. 3(b) (2020). "Nonmarital property" includes property given or devised to one spouse but not to the other and property acquired before the marriage or after the valuation date. Id.
6. "Whether property is marital or nonmarital is a question of law that we review de novo." Gill v. Gill, 919 N.W.2d 297, 301 (Minn. 2018). However, we review the district court's findings of fact for clear error. Id. "Determining the specific value of an asset is a finding of fact." Maurer v. Maurer, 623 N.W.2d 604, 606 (Minn. 2001) (quotation omitted). "[C]lear-error review does not permit an appellate court to weigh the evidence as if trying the matter de novo," "to engage in fact-finding anew," or to "reconcile conflicting evidence." In re Civ. Commitment of Kenney, 963 N.W.2d 214, 221-22 (Minn. 2021). Instead, an appellate court must "consider[] all the evidence and . . . determine[] that the evidence reasonably supports the [district court's] decision." Id. at 222.
7. In this case, the district court divided numerous marital assets and debts between the parties, including several bank accounts, retirement accounts, and a number of credit card balances and other debts. The district court also determined that certain assets and debts were nonmarital. After dividing the marital debts and assets between husband and wife, the district court also ordered an equalizer payment of $33,635.69 from husband to wife. Husband challenges the district court's valuation and/or division of the following five items: (1) a purported $100,000 loan from husband's mother; (2) the cost of the parties' adult son's treatment program; (3) the parties' U.S. Bank Visa credit card debt; (4) the parties' Minnesota income tax debt; and (5) wife's IRA. Husband further argues than any error in the valuation or division of property would affect the equalizer payment.
Husband makes the same arguments regarding both items 3 and 4, and we group them together for the purposes of our analysis in this opinion.
8. Initially, husband challenges the district court's decision not to allocate the purported loan from his mother as a marital debt. Husband and husband's mother testified at trial concerning a purported loan of approximately $100,000 from husband's mother.The district court, observing that the purported loan was not documented, determined that husband "has not demonstrated that these funds were 'loaned' to him, or on what terms."
The district court made inconsistent findings on whether the purported to loan was to both parties or solely to husband. The district court found that husband's mother "provided approximately $90,000 to $100,000 to the parties," but also found that husband's mother "provided funds to [husband] to help him out." 12. Husband argues on appeal that the district court erred in not allocating the treatment program cost as a marital debt. We are unable to review this issue, however, because the district court did not make findings to support its decision not to include the treatment program cost as a marital debt. When dividing the parties' marital property, the district court must "make[] findings regarding the division of the property." Minn. Stat. § 518.58, subd. 1; see also Dick v. Dick, 438 N.W.2d 435, 437 (Minn.App. 1989) (noting that the statute requires "findings which indicate the rationale of the trial court in making its award"); Vinnes v. Vinnes, 384 N.W.2d 589, 592 (Minn.App. 1986) (noting that findings must be "sufficient to allow appellate review").
9. "To overcome the presumption of marital property, a spouse must prove, by the preponderance of the evidence, that the property is nonmarital property." Gill, 919 N.W.2d at 302 (quotations omitted). Here, there is no dispute as to when the purported loan occurred: both parties agree it was acquired during the marriage and, therefore, subject to the presumption set forth in section 518.003, subdivision 3(b). As the party seeking to overcome the presumption, wife had the burden of proving that the purported loan was nonmarital. The district court, however, required husband to prove that the purported loan was a marital debt. In doing so, the district court misapplied the statutory burden of proof. We therefore remand on this issue for the district court to apply the correct burden of proof and determine whether wife has established, by a preponderance of the evidence, that the purported loan was nonmarital.
10. Husband next argues that the district court erred by not including the cost of a treatment program for the parties' adult son as a marital debt. In July 2020, after the valuation date but before trial, the parties' son was enrolled in a mental health and chemical dependency treatment program at a cost of approximately $44,000. At trial, husband and wife offered conflicting testimony about whether they agreed to jointly pay this expense.
11. Husband initially included the cost of the program in his proposed monthly budget for purposes of determining spousal maintenance. The district court disagreed and excluded the program cost from husband's budget. In his motion for amended findings, husband instead argued that the debt was part of the marital estate. The district court denied the request, but it made no additional findings regarding the cost of the treatment program.
13. We remand this issue to the district court to make findings regarding the following two factual disputes: whether the parties agreed to include the treatment program cost as a marital debt; and if so, whether the parties agreed to equally divide this debt.
14. Husband next argues that the district court erred by failing to include two debts that he asserts are marital: the parties' U.S. Bank Visa credit card debt and Minnesota tax debt. As of the May 15, 2019 valuation date, the parties owed $25,532.26 in debt on the U.S. Bank Visa credit card. Also as of that date, the parties owed approximately $12,800 in tax debt to the Minnesota Department of Revenue. Husband testified at trial that he paid both debts in fall 2019.
15. The district court, however, did not make any findings regarding either debt and did not include them in the balance sheet dividing the marital estate. Wife asserts that by omitting these debts from its property division, the district court implicitly valued them at $0, which she argues was within the district court's discretion because of the significant change in their value after the valuation date. See Minn. Stat. § 518.58, subd. 1 ("If there is a substantial change in value of an asset between the date of valuation and the final distribution, the court may adjust the valuation of that asset as necessary to effect an equitable distribution."). We are unable to conclude that the district court intentionally omitted these two debts from the balance sheet.
16. The presumptive valuation date is the date "of the initially scheduled prehearing settlement conference," but a district court may use a different date for the valuation of an asset upon agreement of the parties or after making "specific findings that another date of valuation is fair and equitable" when the parties do not agree to use a different date. Minn. Stat. § 518.58, subd. 1. In this case, we cannot agree with wife because the district court did not make the requisite specific findings to support adjusting the value of these two debts or to support using a valuation date other than May 15, 2019, for these two debts. The district court may have adjusted the valuation of these debts or used a different valuation date to equitably distribute the marital estate, as wife suggests. However, the district court may have inadvertently failed to include one or both of these debts in the balance sheet. Because the district court's findings regarding the parties' U.S. Bank Visa debt and Minnesota tax debt are insufficient to enable appellate review, we remand for the district court to make additional findings regarding the allocation of these two debts.
17. For his final argument regarding property division, husband argues that the district court allowed wife to use a marital asset to pay her attorney fees. On the May 15, 2019 valuation date, wife had an IRA that contained $42,762.95. The parties agree that this IRA is marital property. Wife testified that she used funds from the IRA to pay a portion of her attorney fees. She submitted an updated balance sheet showing that, on May 8, 2020, nearly one year after the valuation date, the value of the IRA was just $858.26. Wife asked the district court to value the IRA as of May 2020 and husband requested that the district court value it as of May 2019. The district court determined that the value of the IRA was $858.00, reasoning that "[i]t is equitable to have the account reflect the actual balance in the account-Wife's attorneys' fees needed to come from some source, and this was the account Wife chose." The district court also noted that husband "has the potential to earn significantly more income" than wife, and the district court therefore "recognize[d] this basic reality of the parties' financial situations in agreeing to reduce Wife's account balance in this manner."
18. Husband argues that the district court "failed to protect Husband's interest in [this] marital asset" by allowing the district court to reduce the value of the IRA after wife paid attorney fees from it. A party generally may not use marital assets to pay attorney fees. See Baker v. Baker, 753 N.W.2d 644, 653 (Minn. 2008). Wife responds that the district court's decision was within its discretion to "adjust the valuation of [an] asset as necessary to effect an equitable distribution." Minn. Stat. § 518.58, subd. 1. We conclude that the district court's findings regarding this asset are insufficient for us to review. The district court articulated an impermissible reason for adjusting the value of an asset under section 518.58 by allowing wife to invade the marital estate to pay her attorney fees. It also noted other factors, such as the parties' income and financial situations, that were relevant to its decision. Without more findings, we are unable to determine whether the district court would have adjusted the valuation of the IRA for those reasons alone. We therefore remand for the district court to determine the value of the IRA without regard to the attorney fees incurred by wife during the litigation.
The district court denied a request by wife for $120,781.16 in need-based attorney fees. We note that the stated reasoning for valuing wife's IRA as of May 2020 is, in this regard, inconsistent with the reasoning for denying wife's need-based request for attorney fees. Nothing in this order is intended to prevent wife from renewing a request for an award of need-based attorney fees.
B. Challenge to the Decision Ordering Husband to Pay Tax Penalties
19. In addition to his arguments regarding the district court's property division, husband challenges the district court's decision to assign him responsibility for certain costs related to the parties' 2017 tax return. Husband and wife filed a joint tax return in 2017. The accountant who prepared this joint return testified that both husband and wife had income that was not reported on their 2017 return. Husband testified that his unreported income was about $2,000 that he earned driving for Lyft and that it was offset by expenses for gas and vehicle maintenance. The parties' accountant testified that wife's unreported gross income was approximately $35,000 from an unincorporated business.
20. The district court found that "[t]he parties have unreported income for 2017, based on income that Husband earned outside his [primary] employment, but did not report." The district court ordered the parties to retain an accountant and amend the return and ordered that husband would be responsible "for the cost of retaining the professional, and all the fees, interest, and penalties related to the unreported income." However, the district court ordered that the parties would "equally share the increased tax liability (exclusive of fees, penalties, and interest) because they each benefited from (and spent) the income during marriage."
21. Husband argues that the district court's decision to assign him responsibility for the costs, fees, interest, and penalties was based on a clearly erroneous factual finding- that the unreported income was "based on income that Husband earned." Husband is correct that this finding is not supported by record, which shows that both parties had unreported income in 2017 and that wife had substantially more unreported income than husband, as noted above. However, the district court also characterized husband's conduct as "largely uncooperative" in amending the parties' 2017 taxes. The district court did not assign weight or otherwise separately analyze the two reasons given for its decision and we are unable to determine the effect, if any, of the erroneous finding regarding wife's unreported income. Therefore, we also remand this issue to the district court for further findings.
C. Challenge to the Decision Denying Husband's Request for Attorney Fees
22. Husband also asserts that the district court erred by denying his request for conduct-based attorney fees. Minnesota Statutes section 518.14, subdivision 1, allows a district court to "award[], in its discretion, additional fees, costs, and disbursements against a party who unreasonably contributes to the length or expense of the proceeding." Conduct-based fees "are discretionary with the district court." Szarzynski v. Szarzynski, 732 N.W.2d 285, 295 (Minn.App. 2007). "A party moving for conduct-based attorney fees . . . has the burden to show that the conduct of the other party unreasonably contributed to the length or expense of the proceeding." Baertsch v. Baertsch, 886 N.W.2d 235, 238 (Minn.App. 2016) (distinguishing between a claim for conduct-based attorney fees under section 518.14 and a request for attorney fees as a sanction pursuant to Minnesota Statutes Section 549.211 (2014) and Minnesota Rule of Civil Procedure 11.03).
23. In his request for conduct-based attorney fees under section 518.14, husband asserted that "the bulk of [wife's attorney] fees did not need to be incurred but were instead caused by [wife's] pursuit of frivolous and meritless positions and motions." Husband specifically alleged that wife filed "two separate motions to appoint a guardian ad litem so she could avoid being deposed, a discovery motion that provided no benefit to [wife], and two temporary spousal maintenance motions in which [wife] failed to offer evidence to meet her burden of proof." Husband also asserted that wife's positions on spousal maintenance "are not well-founded and lack merit," and that wife's "insistence on pursuing a trial in this matter, in addition to her conduct over the past year, have unnecessarily increased the cost and length of this matter." The district court found that both husband and wife had, "at times, engaged in sharp litigation tactics and unnecessary motion practice that have raised the cost of this litigation, to some degree." The district court, however, "decline[d] to exercise its discretion to award conduct-based attorneys' fees and costs against or in favor of either party."
24. Separately, the district court also found in its judgment that wife may be entitled to need-based attorney fees and ordered wife to submit affidavits addressing the quantity of fees that should be awarded. The district court issued an order in June 2021 declining to award any further need-based attorney fees, reasoning that "at least $73,944.00 of Wife's accrued attorneys' fees were not necessary for the good faith assertion of her rights in this proceeding and did contribute to the length and expense of the proceedings."
The district court had previously ordered husband to pay wife $37,700 in need-based attorney fees, of which husband had only paid $10,000 at the time of trial; the district court entered a money judgment for the remaining amount.
25. Husband argues that the district court's findings that wife accrued fees that "were not necessary for the good faith assertion of her rights" and that "did contribute to the length and expense of the proceeding" conflict with and undermine its previous decision denying husband's request for conduct-based attorney fees. We agree that the district court's findings are difficult to reconcile without further explanation. We therefore remand for the district court to address this conflict in its findings and, if necessary, revisit its decision not to award conduct-based attorney fees.
D. Challenge to the Permanent Spousal Maintenance Award
26. Finally, husband raises various challenges to the district court's spousal maintenance award, asserting errors in the calculation of wife's income, husband's income, and the parties' expenses in light of the district court's conclusion that the parties' marital standard of living exceeded their actual income. In determining the amount and duration of spousal maintenance, a district court must consider "all relevant factors," including "the financial resources of the party seeking maintenance" and "the ability of the spouse from whom maintenance is sought" to pay. Minn. Stat. § 518.552, subd. 2 (2020). Because the district court must necessarily determine the division of marital property in order to determine what, if any, spousal maintenance to award, we are unable to address husband's challenge to the decision to award spousal maintenance in light of our remand regarding property division.
Without deciding the issues, we note our concern with two aspects of the district court's spousal maintenance determination: (1) its calculation of wife's reasonable monthly expenses, including its analysis of the marital standard of living and potential inclusion of business expenses as wife's personal expenses; and (2) its calculation of wife's income, including its reduction of the parties' incomes for purposes of savings and inconsistent findings on wife's annual income ($50,000) and monthly income ($5,000). On remand, the district court shall have discretion to revisit its spousal maintenance decision in light of these concerns and any changes to the division of the marital estate.
IT IS HEREBY ORDERED:
1. The district court's judgment is remanded. The district court has discretion to reopen the record for additional evidence as it deems necessary.
2. Pursuant to Minn. R. Civ. App. P. 136.01, subd. 1(c), this order opinion is nonprecedential, except as law of the case, res judicata, or collateral estoppel.