Opinion
No. C8-02-949.
Filed March 25, 2003.
Appeal from the Itasca County District Court, File No. F90163
Roger E. Meyer, Warchol, Berndt Hajek, P.A., (for respondent)
David T. Redburn, (for appellant)
Considered and decided by Peterson, Presiding Judge, Harten, Judge, and Halbrooks, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
Appellant argues that the district court erred in its application of Minn. Stat. § 518.58 (2002) in determining respondent's nonmarital interest in the appreciation of the parties' homestead. Because we conclude that the appreciation of the property's value resulted from the parties' joint efforts, we reverse.
FACTS
Appellant Charles Dean Mies and respondent Karen Nelson Mies married on May 23, 1998. The parties separated in May 2000 and entered into a stipulation addressing all issues in their marriage dissolution with the exception of the distribution of the equity in their home. Concluding that the record was insufficient to determine a fair and equitable division of the marital and nonmarital interests in the property, the district court ordered a separate hearing on that issue.
Before their marriage, appellant paid $5,000 on a contract for deed for 20 acres of undeveloped property. Just after their marriage, the parties began construction of a house on the property. It was undisputed that appellant contributed his labor to the construction of the house and that respondent paid for $40,000 of construction materials with nonmarital funds.
The parties stipulated that respondent contributed a total of $100,000 in nonmarital property to the homestead — $40,000 for construction materials and $60,000 in payments on the contract for deed. The parties also stipulated that the property had a value of $130,000 at the time they married. At the time of the dissolution, the property was valued at $292,000, with a $57,351 encumbrance remaining. Both parties testified that the construction of the house caused the increase in the property's value.
After the evidentiary hearing, the district court applied the analysis set forth in Schmitz v. Schmitz, 309 N.W.2d 748 (Minn. 1981), to respondent's $40,000 nonmarital contribution and awarded respondent $37,538 in appreciation. The court declined to apply Schmitz to respondent's $60,000 nonmarital payments on the contract for deed because the value of the property at the time of the payments and the dates of the payments were not properly proved. The remainder of the equity interest was found to be marital property that was equally divided. As a result, the district court ordered that appellant's total interest in the Washington County property was $53,401.50 and that respondent's total interest was $181,247.50. This appeal follows.
DECISION
Appellant contends that the district court erred in its property division because marital property must be equitably divided between the parties. See Minn. Stat. § 518.58, subd. 1 (2002) (stating that upon dissolution, the court shall make a just and equitable division of marital property). Specifically, appellant claims that the district court incorrectly characterized the appreciation of respondent's nonmarital property as nonmarital and abused its discretion by awarding respondent $37,538 as appreciation of her $40,000 nonmarital contribution to the parties' homestead.
It is a question of law whether property is marital or nonmarital, and we exercise independent judgment when reviewing the district court's classifications. Van de Loo v. Van de Loo, 346 N.W.2d 173, 175 (Minn.App. 1984). But a reviewing court must defer to the district court's findings on underlying facts, such as the resources used to acquire property. Rosenberg v. Rosenberg, 379 N.W.2d 580, 583 (Minn.App. 1985), review denied (Minn. Feb. 19, 1986). Moreover,
[d]istrict courts have broad discretion over the division of marital property, and we will not disturb the division on appeal absent a clear abuse of discretion.
Chamberlain v. Chamberlain, 615 N.W.2d 405, 412 (Minn.App. 2000) (citation omitted), review denied (Minn. Oct. 25, 2000).
Minn. Stat. § 518.54, subd. 5 (2002), provides that all property acquired during the existence of a marriage is presumed to be marital property. The presumption is overcome by a showing by a preponderance of the evidence that the property fits within the definition of nonmarital property. Id.; Fitzgerald v. Fitzgerald, 629 N.W.2d 115, 119 (Minn.App. 2001). The definition of nonmarital property includes
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)-(e).
1. Commingling of Nonmarital Property
Appellant bases part of his argument on his assertion that respondent's nonmarital contribution of $40,000 lost its nonmarital character when it was commingled with marital property. The "[c]ommingling of nonmarital and marital property is not fatal to a party's claim that property remained nonmarital." Carrick v. Carrick, 560 N.W.2d 407, 413 (Minn.App. 1997) (citing Swick v. Swick, 467 N.W.2d 328, 330 (Minn.App. 1991), review denied (Minn. May 16, 1991)). But upon the commingling of nonmarital and marital property, the nonmarital investment loses that character unless the asset can be readily traced to the nonmarital source. Kottke v. Kottke, 353 N.W.2d 633, 636 (Minn.App. 1984), review denied (Minn. Dec. 20, 1984). The court need not apply a strict tracing standard. Id. Instead, a party need only show by a preponderance of evidence that the asset was gained in exchange for nonmarital property. Doering v. Doering, 385 N.W.2d 387, 390 (Minn.App. 1986); see Minn. Stat. § 518.54, subd. 5 (nonmarital property includes property "acquired in exchange" for nonmarital property).
Appellant's argument lacks merit for two reasons. First, the parties stipulated that respondent had sufficiently met her burden of proof of tracing her nonmarital contribution therein by a preponderance of the evidence. Second, respondent testified concerning specific payments from her nonmarital funds for labor and materials such as flooring, windows, and roofing. The district court concluded that respondent credibly testified that she contributed $40,000 of her nonmarital income to build the parties' home. See Sefkow v. Sefkow, 427 N.W.2d 203, 210 (Minn. 1988) (stating appellate courts must defer to district court's credibility determinations). The record supports the district court's conclusion that respondent's purchases totaling $40,000 were traceable to a nonmarital source.
2. Efforts of Marital Partnership
Appellant also asserts that the appreciation of the property that he owned before their marriage is attributable to the parties' joint efforts that must be properly categorized as marital property. The supreme court has held that
the 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.
Nardini v. Nardini, 414 N.W.2d 184, 192 (Minn. 1987); see also Swick, 467 N.W.2d at 331 (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"); Dorweiler v. Dorweiler, 413 N.W.2d 572, 575-76 (Minn.App. 1987) (stating that appreciation due to improvements made during marriage is marital property). In contrast, any increase in value to a nonmarital asset "attributable to inflation or to market forces or conditions" retains its nonmarital character. Nardini, 414 N.W.2d at 192; see also Swick, 467 N.W.2d at 331 (stating that "[u]pon dissolution, a spouse may receive the original nonmarital asset plus any passive appreciation in value." (citation omitted)).
The court noted that "[b]oth parties agreed during testimony that construction of the home caused the appreciation." The record also reflects that appellant contributed his labor to the construction of the homestead by installing and using the materials bought by respondent. No other basis for the property's appreciation in value was proven. Because the increased value of the property was attributable to improvements made as a result of the joint effort of respondent's funds and appellant's labor, and not to market forces or conditions, we disagree with the district court's characterization of part of the appreciation as respondent's nonmarital property.
3. Application of the Schmitz Formula
"[T]he Schmitz formula applies only to the appreciation of property not attributable to improvements made by the parties." Dorweiler, 413 N.W.2d at 575; see generally Schmitz v. Schmitz, 309 N.W.2d 748, 750 (Minn. 1981). Because we conclude that the increase in the property value stems from the parties' joint efforts, Schmitz does not apply here. Instead, the appreciation in the value of the property is considered marital property divisible upon dissolution. See Swick, 467 N.W.2d at 331 (noting that if the couple improves and contributes to the value of a nonmarital asset, then the increase in value becomes a marital asset).
As summarized, the Schmitz formula states that
[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).
Minn. Stat. § 518.58, subd. 1, states that "the court shall make a just and equitable division of the marital property of the parties." Each party must receive their original nonmarital investment in the property and any appreciation attributable to inflation and market forces. Nardini, 414 N.W.2d at 193. Limiting our analysis to the parties' fact stipulation and the district court's findings of fact, we have sufficient information upon which to make an equitable division of marital property and any appreciation.
The record reflects that no further evidence would be available on remand and that the parties provided this evidence as a complete record after a request for additional information from the district court.
The parties stipulated that, on the date of their marriage and before the house was built, the property was valued at $130,000. The property, including the house, is currently valued at $292,000. The parties agree that the construction of the house caused the increase in value. Therefore, the increase of $162,000 attributable to the construction of the house must be considered marital property. The parties stipulated that $234,649 of equity remains in the home after paying off the contract for deed. After subtracting each parties' nonmarital share, $129,649 of marital equity remains ($234,649 minus $105,000 — a total of appellant's $5,000 nonmarital contribution and respondent's $100,000 nonmarital contribution). It is fair and equitable to award each party one-half of the marital equity, or $64,824.50, plus their nonmarital contribution to the property. Therefore, appellant's total interest in the homestead is $69,824.50, and respondent's total interest in the homestead is $164,824.50.
The parties gave the district court no further information regarding the separate values of the property or the house.