In re the Marriage of: Janis M. Nelson, petitioner, Respondent, vs. Roger J. Nelson, Appellant.

In re the Marriage of: Janis M. Nelson, petitioner, Respondent, vs. Roger J. Nelson, Appellant. A05-1027, Court of Appeals Unpublished, March 28, 2006.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A05-1027

 

In re the Marriage of: Janis M. Nelson, petitioner,
Respondent,
 
vs.
 
Roger J. Nelson,
Appellant.

 

Filed March 28, 2006

Affirm in part, reverse in part, and remand

Minge, Judge

 

Hennepin County District Court

File No. DC 168320

 

 

M. Sue Wilson, James T. Williamson, M. Sue Wilson Law Offices, P.A., Two Carlson Parkway, Suite 150, Minneapolis, MN 55447 (for respondent)

 

Gary A. Weissman, 701 Fourth Avenue South, Suite 300, Minneapolis, MN 55415 (for appellant)

 

            Considered and decided by Minge, Presiding Judge; Randall, Judge; and Collins, Judge.*

 

 

 

U N P U B L I S H E D  O P I N I O N

MINGE, Judge

            On appeal from the district court's denial of his motion to terminate spousal maintenance, appellant argues that the district court clearly erred in finding the income and reasonable needs of the parties and abused its discretion in awarding conduct-based attorney fees to respondent.  Because the district court clearly erred in certain of its calculations and abused its discretion in its award of attorney fees, we affirm in part, reverse in part, and remand. 

FACTS

            After 27 years of marriage, the marriage between appellant Roger Nelson and respondent Janis Nelson was dissolved in 1992.  Roger had been employed by WCCO-TV for 35 years.  Janis had been employed by the Richfield School system for 16 years and earlier had stayed at home with the parties' children.  Roger has paid spousal maintenance since the dissolution, and the amount of the maintenance has increased with increases in Roger's income.  Roger's monthly maintenance obligation at the time of the motion was $1,037.70.

            Roger turned 65 in June 2004 and retired in January 2005.  Janis is one year older than Roger.  Roger moved to terminate his spousal maintenance obligation because his retirement would substantially reduce his income.  The district court determined that Roger's retirement was a substantial change of circumstances.  The district court then found the parties' income and expenditures, concluded that the existing maintenance was reasonable and fair, and ordered Roger to continue to pay Janis maintenance and to pay her $1,000 in conduct-based attorney fees.  Roger appeals.  

D E C I S I O N

            Whether to modify maintenance is discretionary with the district court.  Youker v. Youker, 661 N.W.2d 266, 269 (Minn. App. 2003), review denied (Minn. Aug. 5, 2003).  A district court abuses its discretion regarding maintenance if its findings of fact are unsupported by the record or if it improperly applies the law.  Dobrin v. Dobrin, 569 N.W.2d 199, 202 (Minn. 1997). 

            Minn. Stat. § 518.64, subd. 2 (2004), provides that a district court can modify spousal maintenance

upon a showing of one or more of the following: (1) substantially increased or decreased earnings of a party; (2) substantially increased or decreased need of a party . . . ; (3) receipt of assistance. . . ; (4) a change in the cost of living for either party . . . , any of which makes the terms unreasonable and unfair.

 

Under this statute, a party requesting modification must "demonstrate that there has occurred a substantial change in one or more of the circumstances identified in the statute and, . . . show that the substantial change has the effect of rendering the original award unreasonable and unfair."  Hecker v. Hecker, 568 N.W.2d 705, 709 (Minn. 1997). 

I.

            The first issue is whether the district court clearly erred in finding Roger's income by failing to consider the amount of income taxes he pays.  Income for maintenance purposes is a finding of fact, reviewed for clear error.  Peterka v. Peterka, 675 N.W.2d 353, 357 (Minn. App. 2004).  The district court considered only whether Roger would have to pay income taxes on the portion of his income that was considered for maintenance purposes, disregarding income taxes on other income.  It apparently concluded that since maintenance payments themselves are a deductible expense, they so reduced his taxable income that he would have no tax liability on that maintenance-related income.  It is not clear whether this analysis also applied other standard deductions and exemptions to reduce tax liability on such maintenance-related income.  Janis concedes that Roger may have to pay income taxes on his income as a whole.  We conclude that the district court clearly erred by assuming that any income taxes Roger may be obligated to pay should be paid out of the portion of Roger's income that was excluded for calculation of maintenance.  On remand, the district court shall consider the full amount of income taxes Roger will pay and so allocate that amount that an equitable portion is an expense for Roger in determining his ability to continue to pay maintenance.[1] 

II.

            The second issue is whether the district court clearly erred in finding Roger's income from his pension for purposes of calculating maintenance.  There are five parts of this issue.

A.  Pension Income

            Roger first argues that the district court abused its discretion by imputing to him the income from an annuity that he was offered by his former employer, rather than calculating his income based on the lump sum settlement that he actually elected to take.  Whether to impute income to a maintenance obligor is discretionary with the district court.  Walker v. Walker, 553 N.W.2d 90, 97 (Minn. App. 1996).  Roger argues that Johnson v. Johnson, 627 N.W.2d 359 (Minn. App. 2001), review denied (Minn. Aug. 15, 2001), applies instead.  But Johnson is inapplicable because it involved property distribution rather than maintenance.  Id. at 364. 

            In this case, Roger had several options available to him in structuring his retirement income.  In making his choice, he may not undermine his maintenance obligation, and the district court must have flexibility to determine reasonable income.  We conclude that the district court did not abuse its discretion by imputing to Roger the income he had available to him in the form of an annuity. 

B.  Excluded Portion of Pension

            Roger next challenges the methods the district court used to find that portion of his pension that was awarded to him as property in the judgment and therefore disregarded in setting maintenance.  When a pension is awarded to a party as property in a dissolution, payments from that portion of the pension cannot also be included in the party's income when determining the party's ability to pay spousal maintenance.  Walker, 553 N.W.2d at 94.  Roger argues that the district court should have applied the formula described in Janssen v. Janssen, 331 N.W.2d 752 (Minn. 1983), to determine the part of the pension that can be considered for maintenance purposes.  In Janssen, the supreme court considered an unvested, nonmatured pension.  Id. at 756.  The supreme court held that when it is difficult to determine the present value of retirement benefits, the district court may wait until the pension benefits are paid and then find the marital interest portion by dividing the pension based on the percentage of time the pension was accumulating during the marriage compared to the time it accumulated outside of the marriage.  Id. 

            Here, the parties stipulated to a value for the pension at the time of the dissolution and the issue before the district court in the current proceeding was the extent to which the current annuity imputed to Roger represented that excluded portion of the pension and its appreciation.  Roger argues that the district court should have disregarded this stipulated value and instead should have followed the Janssen formula.  Janssen does not mandate an approach; it recognized the district court's discretion.  Id.  The district court did not clearly err in its finding of the portion of Roger's pension that was attributable to his property award in the dissolution judgment, declining to apply the Janssen formula, and instead using other methods of calculation.   

C.  Appreciation in Pension Value

            Roger next argues that, even if the district court chose not to use the Janssen formula, it should not have attributed to Roger the burden of proving that the value of the pension awarded to him at the time of the dissolution had appreciated.  In 1992, the total value was $36,105.  In general, the party moving to modify spousal maintenance has the burden of proving that the requirements for modification are met.  Kielley v. Kielley, 674 N.W.2d 770, 779 (Minn. App. 2004).  Roger presented no evidence of appreciation on the $36,105.  Roger essentially asserts that the district court abused its discretion by not taking judicial notice of appreciation and selecting an appreciation factor.  Although we agree that there has been dramatic appreciation in many invested retirement funds, we also observe that there have been spectacular collapses.  Roger had the burden of establishing what growth occurred in that portion of his retirement plan that was excluded.  In the absence of such proof, the district court did not clearly err in its finding of Roger's income by assuming that there was no appreciation. 

D.  Offset

            Roger also argues that he should not have to pay any spousal maintenance to Janis out of his pension until he has received the full $36,105 value he was awarded in the dissolution judgment.  Roger cites language from Kruschel v. Kruschel, 419 N.W.2d 119, 123 (Minn. App. 1988), indicating that maintenance cannot be ordered to be paid out of the party's pension benefits awarded as property in the judgment until the party "has received from the pension an amount equivalent to its value as determined in the original property distribution."  Despite the fact that the district court imputed an annuity to Roger, in reality he received a lump sum for his pension, so he has already received the $36,105 he was awarded in the dissolution judgment.  Further, the district court explicitly concluded that the portion of Roger's pension benefit representing his property award from the judgment would not be available for maintenance.  The district court's decision was not an abuse of discretion. 

E.  Neutral Expert

            Roger finally cites Pekarek v. Pekarek, 362 N.W.2d 394 (Minn. App. 1985), and argues that the district court should have appointed a neutral expert to assist the district court in determining Roger's income for maintenance purposes.  In Pekarek, this court held that the district court should have appointed a neutral expert to determine a methodology for evaluating certain tax shelters.  Id. at 397.  That case is distinguishable because the experts there apparently used the wrong method altogether, whereas here the experts suggested two different methods, and the district court chose between them.  Id.  The district court's failure to appoint a neutral expert was not an abuse of discretion.   

III.

            The third issue is whether the district court clearly erred in its finding of the portion of Roger's 401(k) plan that represents his property award from the dissolution judgment and the portion that can be considered income for maintenance purposes.  Roger first argues that his expert's determination should have been used instead of the estimate made by the expert retained by Janis.  After reviewing the record and the different calculation methodologies, we conclude the district court did not clearly err in using Janis's expert's estimate of Roger's postdecree income from his 401(k).

            Roger next argues that the district court should have considered only half of the postdecree income from the 401(k) plan as Roger's income because half belongs to his new wife.  In support of this proposition, Roger cites Minn. Stat. § 518.58, subd. 1 (2004), the provision authorizing the district court to divide marital property.  Nothing in this provision indicates that a new spouse has an interest in property that must be considered when determining the obligor's income for purposes of maintenance for the former spouse.  See id.  Also, as Janis notes, Roger's interest in his new spouse's 401(k) plan was not considered, as it should be under his theory.  The district court's failure to consider Roger's current spouse's interest in his 401(k) was not clear error. 

            Roger finally argues that the district court should not have amortized the withdrawals based on a total distribution of principal, a 5% rate of return, and the age of 100 as a date of death and of final payment.  Instead, Roger argues that the district court should have considered only a flat 5% return as income each year.  In Zagar v. Zagar, this court held that an obligor should not be required to sell his home in order to pay maintenance.  396 N.W.2d 98, 101 (Minn. App. 1986) (superseded by statute on other grounds).  But it is illogical to apply the general prohibition against liquidating assets in determining maintenance payments based on a retirement account.  Most retirees recognize that their retirement income will be based on principal along with income.  Annuities commonly use this approach.  Because it is not improper to consider the distribution of the principal of a retirement account in an obligor's income and because here the district court applied this same formula to both parties' nonmarital retirement assets, the district court did not clearly err in its finding of the income Roger will receive from his 401(k) plan. 

IV.

            The fourth issue is whether the district court clearly erred in its finding of Janis's income by considering Janis's income as if she were retired, although she was not retired at the time.  Minn. Stat. § 518.64, subd. 2(c), directs the district court to consider relevant factors "that exist at the time of the motion."  This rule is fundamental in evaluating fair and reasonable maintenance.  In Carrick v. Carrick, this court held that the district court erred by considering the maintenance payor's future income rather than his income at the time of the motion.  560 N.W.2d 407, 412 (Minn. App. 1997); see also Schreck v. Schreck, 445 N.W.2d 861, 863 (Minn. App. 1989) (noting that speculation as to future events is inappropriate in the context of maintenance), review denied (Minn. Nov. 15, 1989). 

            The logic of this rule is clear: if parties are permitted to speculate as to future changes to their current conditions, the maintenance award would leave open the possibility that a party will receive maintenance on the basis of conditions that never come into existence.  Here, if Janis is treated as if she were already retired, she could draw maintenance payments from Roger in an amount that would adequately supplement her income as if she were retired, while continuing to work and enjoy income from her employment.  Such a result is inequitable.  Actual income (and expenses) is the touchstone for determining fair and reasonable maintenance.  Unless the current time period is an aberration and does not fairly reflect earnings or expenses, it cannot be disregarded.  Although we recognize the awkwardness of one party working when the other retires, all income is relevant.  Thus, the district court clearly erred by failing to find Janis's income as it was at the time of the motion, as instructed by Minn. Stat. § 518.64, subd. 2(c).  On remand, the district court should consider Janis's income and circumstances as they actually are, not as they will be upon Janis's future retirement.  This income is highly relevant to Roger's maintenance obligation.

V.

            The fifth issue is whether the district court abused its discretion in imputing to Janis the tax she would pay if she withdraws money from her IRA.  When a district court has a reasonable basis for considering the future tax liability of an asset, it is not an abuse of discretion for the district court to consider such liability.  Maurer v. Maurer, 623 N.W.2d 604, 608 (Minn. 2001). 

            Here, the district court explained that if Janis is forced to move the IRA funds into an income-producing account, she will have to pay taxes on the withdrawal, and the district court adopted her consultant's estimate of the amount of those taxes.  Under Maurer, this was not an abuse of discretion.  See id.  Roger contends that the district court erred by not also considering the tax consequences of Roger's receiving distributions from his 401(k).  We agree that consistent treatment is appropriate.  However, the district court must be furnished with adequate information to make determinations.  Because the record of this proceeding does not have evidence of the tax consequences to Roger of withdrawing money from his 401(k), the district court did not abuse its discretion by not considering such tax consequences. 

VI.

            The sixth issue is whether the district court clearly erred in finding the parties' reasonable monthly expenses.  The district court adopted Janis's recommendations that Roger's budget be reduced in several areas, noting that "[a] comparison of the parties' respective budgets shows that Respondent has overstated his budget in areas such as entertainment, dining out and vacations.  The parties should be held to comparable standards of living upon retirement."  Roger does not specifically challenge any of these determinations, but instead argues that the district court ascribed to Janis a budget of almost $300 more than it ascribed to Roger.  But because each of the reductions made by the district court appears to be reasonable, Roger has not shown that the district court's determination of the parties' budgets was clearly erroneous. 

VII.

            The seventh issue is whether the district court improperly awarded Janis conduct-based attorney fees.  "An award of attorney fees rests almost entirely within the discretion of the trial court and will not be disturbed absent a clear abuse of discretion."  Crosby v. Crosby, 587 N.W.2d 292, 298 (Minn. App. 1998) (quotation omitted), review denied (Minn. Feb. 18, 1999).  Under Minn. Stat. § 518.14, subd. 1 (2004), the district court has the discretion to award attorney fees against a party "who unreasonably contributes to the length or expense of the proceeding."  See Geske v. Marcolina, 624 N.W.2d 813, 818 (Minn. App. 2001).  Because we reverse the decision of the district court on the basis of some of the arguments made by Roger in his posthearing submissions, we cannot say that it was unreasonable to continue to advance these arguments to the district court.  We conclude that the district court abused its discretion in awarding attorney fees to Janis and reverse that award. 

SUMMARY

            Because we hold that the district court clearly erred in its finding of Janis's income and Roger's income taxes, we reverse and remand on those matters.  Because the district court abused its discretion in its award of conduct-based attorney fees to Janis, we reverse that award.  We affirm on all other matters. 

            Affirmed in part, reversed in part, and remanded.

* Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.

[1] As long as a fair allocation is made, we leave the exact method of allocating Roger's income taxes to the district court.  We also note that the parties have the burden of providing the court with accurate information, that the district court is not expected to be an expert tax preparer, and that at some point the impact of the calculations on the maintenance obligation may be de minimis.