In re the Marriage of: Brent Burke Johnson, petitioner, Appellant, vs. Cynthia Ann Johnson, Respondent.

In re the Marriage of: Brent Burke Johnson, petitioner, Appellant, vs. Cynthia Ann Johnson, Respondent. A05-1673, Court of Appeals Unpublished, August 8, 2006.

This opinion will be unpublished and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

A05-1673

 

In re the Marriage of:

 

Brent Burke Johnson, petitioner,

Appellant,

 

vs.

 

Cynthia Ann Johnson,

Respondent.

 

Filed August 8, 2006

Affirmed in part, reversed in part, and remanded

Randall, Judge

 

Hennepin County District Court

File No. DW 271 608

 

 

Mark G. Ohnstad, Thomsen & Nybeck, P.A., 3300 Edinborough Way, Suite 600, Edina, MN  55435-5962 (for appellant)

 

Pamela L. Green, Green Law Office, P.A., 5801 Duluth Street, Suite 360, Golden Valley, MN  55422 (for respondent)

 

            Considered and decided by Randall, Presiding Judge; Willis, Judge; and Minge, Judge.

 

U N P U B L I S H E D   O P I N I O N

RANDALL, Judge

            On appeal from a dissolution judgment, appellant-husband argues that the district court (a) should not have imputed income to husband without first finding husband underemployed in bad faith; (b) awarded respondent-wife an excessive amount of maintenance; (c) awarded wife a disproportionately large share of the homestead proceeds; and (d) should not have required husband to secure his maintenance obligation with life insurance.  Respondent-wife filed a notice of review arguing that (a) the district court abused its discretion in failing to set maintenance at $3,500 per month; (b) the district court's award to appellant of a non-marital interest in the homestead was an abuse of discretion; (c) the district court abused its discretion in dividing the marital property; (d) the amount of investment income imputed to respondent is not supported by the record and the district court abused its discretion in declining to impute investment income to appellant; and (e) the district court abused its discretion in requiring respondent to seek court approval of her investment choices.  We affirm in part, reverse in part, and remand.

FACTS

            Appellant Brent Johnson and respondent Cynthia Johnson were married in December 1976.  Appellant filed a petition to dissolve the marriage in November 2001, and the parties' marriage was dissolved on November 8, 2004. 

 

            The district court found that appellant was the owner of Best Dent, Inc., a business specializing in automobile dent repair that was founded approximately five years prior to trial.  Because most of appellant's business arose from hailstorms, he traveled throughout the county setting up his business in areas where a storm had recently occurred.  The district court found that the business was worth $55,000, and based on the agreement of the parties, awarded the business to appellant.  The district court also found that because appellant's business was seasonal, he worked only seven months per year.  The district court further determined that outside of his dent repair business, appellant has often worked more than seven months of the year in the past.  Thus, the district court found that appellant was capable of earning a gross annual income of $72,000.  

            The parties agreed that respondent was not self-supporting and needed spousal maintenance.  Respondent was unemployed at the time of trial and had been a homemaker throughout the parties' marriage.  The district court found that respondent suffers from schizo-affective disorder, which has resulted in numerous hospitalizations over the last several years.  The district court also found that no employment income would be imputed to respondent for purposes of establishing spousal maintenance.  Based on respondent's need and appellant's ability to pay, the district court awarded respondent $2,600 in spousal maintenance per month.  The district court also ordered appellant to secure his spousal maintenance obligation with a $500,000 life insurance policy. 

 

            In light of respondent's disability and her inability to maintain gainful employment, the district court ordered an unequal division of the marital homestead.  The district court found the parties' marital homestead to be valued at $380,000 and that appellant had a nonmarital interest in the homestead of $80,000.  After subtracting the parties' $35,000 home equity loan and appellant's $80,000 nonmarital interest from the homestead, the district court awarded respondent proceeds from the sale of the homestead in the amount of $224,500.  Appellant was awarded the remaining proceeds from the sale of the homestead.

            The district court stated that in addition to the spousal maintenance award, the unequal division of the marital property was intended to provide respondent with investment income to help meet her financial needs.  The district court determined that after an investment of the $224,500 respondent received from the sale of the homestead, respondent would yield an investment income of $1,600.  The district court then ordered respondent to seek the court's approval for her investment choices to ensure that the property awarded to her was invested in a manner securing the maximum net monthly income. 

            Both parties brought post-trial motions.  Appellant challenged the district court's findings regarding his income, the amount of spousal maintenance ordered, the unequal division of marital property, and the requirement that he obtain life insurance in the amount of $500,000.  Respondent challenged the amount of spousal maintenance ordered, the amount of investment income imputed to her, the failure to award her 100% of the homestead proceeds, and the requirement that she obtain court-approval of her investment choices.  Respondent also requested a new trial. 

            On May 4, 2005, the district court issued its order denying respondent's motion for a new trial and granting various amendments to the decree.  Appellant appealed and, shortly thereafter, respondent filed her notice of review. 

D E C I S I O N

            I.          Maintenance

            Both parties appealed the maintenance award arguing that the district court's maintenance award was an abuse of discretion because the award does not allow the parties to meet their monthly budgets.  Appellant argues that the maintenance award should be less than $2,600, while respondent argues that the district court should have awarded her $3,500 in spousal maintenance.

            This court reviews maintenance determinations under an abuse-of-discretion standard.  Dobrin v. Dobrin, 569 N.W.2d 199, 202 (Minn. 1997).  A district court abuses its discretion in maintenance determinations if its findings of fact are unsupported by the record or if it improperly applies the law.  Id. The determination of a party's income for purposes of maintenance is a factual finding and will not be disturbed unless it is clearly erroneous.  Peterka v. Peterka, 675 N.W.2d 353, 357 (Minn. App. 2004).

            In setting maintenance, the district court must consider (1) the financial resources and needs of the party seeking maintenance, (2) the probability that the party seeking maintenance will become self-supporting, (3) the standard of living during the marriage, (4) the duration of the marriage, (5) the employment opportunities foregone during the marriage by the party seeking maintenance, (6) the age and physical condition of the party seeking maintenance, (7) the financial ability of the spouse from whom maintenance is sought to meet his needs while paying maintenance, and (8) the contribution of each party to the marital property.  Minn. Stat. § 518.552, subd. 2 (2004).  Although the court must consider the statutory factors, the basic issue in setting maintenance is "the financial need of the spouse receiving maintenance, and the ability to meet that need, balanced against the financial condition of the spouse providing the maintenance."  Novick v. Novick, 366 N.W.2d 330, 334 (Minn. App. 1985).

            In setting the maintenance award, the district court found as follows:

            [Appellant's] income has varied over the past five years.  While acknowledging that dent repair is a seasonal business, the Court notes that during the marriage [appellant] often worked more than the seven months each year that he works now, and that sometimes this included non-dent repair employment such as working for his brother's construction firm.  The Court finds that [appellant] is capable of earning a minimum gross annual income, from dent repair or other employment, of $72,000. 

 

Appellant argues that the maintenance award was an abuse of discretion because the district court erred in calculating his employment income.  Appellant argues that his true net income is $3,907 per month.  The district court's maintenance award was an abuse of
discretion because it imputes annual income to appellant without first finding that he was underemployed in bad faith. 

            Minnesota law provides that if a district court finds that a maintenance obligor's income has decreased in bad faith, or as a result of voluntary underemployment, the district court may impute income and set the maintenance obligation based on the imputation.  See, e.g., Walker v. Walker, 553 N.W.2d 90, 95 n.1 (Minn. App. 1996); Bourassa v. Bourassa, 481 N.W.2d 113, 116 (Minn. App. 1992).  The lack of a specific finding of bad faith is not necessarily fatal to the district court's ability to impute income.  See Warwick v. Warwick, 438 N.W.2d 673, 678 (Minn. App. 1989).  Under Warwick, if a district court functionally imputes income to an obligor, an appellate court can infer a finding of bad faith, if the record clearly shows that the district court believed that the income was decreased in bad faith.  Id. at 677-78.

            Here, the district court did not make a finding that appellant is underemployed in bad faith and we cannot infer a finding of bad faith from the record.  There is nothing in the record indicating that after the parties separated, appellant's income decreased or that appellant deliberately, and in bad faith, stopped working year-round.  Appellant worked some "seasonal" business before the parties were separated, but the record reflects except for one time in 2003 when he worked for his brother's out-of-state construction firm, appellant generally did not work about five months of the year. 

 

            The district court erred in imputing income to appellant.  We must decide whether the $2,600-maintenance award was appropriate.  This court has stated that earning capacity findings are commonly used when reviewing a self-employed individual's support obligations. Beede v. Law, 400 N.W.2d 831, 835 (Minn. App. 1987); LeTendre v. LeTendre, 388 N.W.2d 412, 416 (Minn. App. 1986); see also Ferguson v. Ferguson, 357 N.W.2d 104, 108 (Minn. App. 1984) (stating "opportunity for a self-employed person to support himself yet report a negligible net income is too well known to require exposition").  When it is impracticable to determine actual net income, a court's reasonable estimate is not an abuse of its discretion.  Fulmer v. Fulmer, 594 N.W.2d 210, 213 (Minn. App. 1999).

            The district court found appellant's annual income to be $72,000, but failed to explain how appellant's annual employment income was derived.  Although the district court may have estimated appellant's income based on the fact that he is self-employed, it is not clear from the district court's order that appellant's income was determined in that manner.  The evidence in the record supports appellant's assertion that his actual income is considerably less than $72,000.  There are no specific findings explaining how the district court reached a contrary decision.  We conclude that the spousal maintenance award was too high.  Accordingly, the district court abused its discretion in setting the maintenance award and we remand the issue of spousal maintenance for a proper calculation of appellant's maintenance obligation.

            II.        Non-marital homestead interest

            Respondent argues that the district court's award to appellant of a non-marital interest in the homestead was an abuse of discretion.  Whether property is marital or nonmarital is a question of law, but reviewing courts defer to the district court's findings of fact unless they are clearly erroneous.  Olsen v. Olsen,562 N.W.2d 797, 800 (Minn. 1997).  The party claiming a nonmarital interest in property must prove the necessary facts by a preponderance of the evidence.  Campion v. Campion, 385 N.W.2d 1, 5 (Minn. App. 1986).

            Here, the district court found that appellant had a nonmarital interest in the homestead in the amount of $80,000.  In reaching this amount, the district court found that:

[Appellant] received a $45,000 inheritance from his grandmother in 1995 that was put toward payment of the homestead, now worth $90,000.  Respondent also has a non-marital interest carried forward from the parties' original homestead, financed in part by a gift from her family in the amount of $5,000.  Neither party has documentation to support their claims, but the Court finds their testimony credible on this issue.  [Appellant's] non-marital interest in the homestead, offset by Respondent's non-marital interest, is now valued at $80,000.

 

            Respondent argues that the district court's award of a nonmarital interest in the homestead was an abuse of discretion because the testimony was not conclusive that appellant used the money from his grandmother's inheritance to pay down the mortgage and appellant failed to submit proof that the inheritance had ever been deposited or that the mortgage was paid in lump sum.  We disagree. The district court found the parties' testimony on the issue to be credible, and this court has held credible testimony sufficient to prove a nonmarital claim.  See Danielson v. Danielson,392 N.W.2d 570, 572 (Minn. App. 1986); see also Doering v. Doering,385 N.W.2d 387, 390-91 (Minn. App. 1986) (district court is in the best position to determine credibility).  The district court's award to appellant of a non-marital interest in the homestead was not an abuse of discretion. 

            III.       Division of 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 discretion or an erroneous application of the law."  Sirek v. Sirek, 693 N.W.2d 896, 898 (Minn. App. 2005).  When dividing marital property, the district court is required to "make a just and equitable division."  Minn. Stat. § 518.58, subd. 1 (2004).  A court must take into account various factors, such as the health of the parties, vocational skills, and employability.  Id.  But "the property division need not be mathematically equal to be just and equitable."  Justis v. Justis, 384 N.W.2d 885, 888 (Minn. App. 1986), review denied (Minn. May 29, 1986).

            In dividing the parties' marital assets, the district court found that:

            Given that Respondent has not been able to achieve long-term stabilization of her illness, it is unlikely that she will ever be able to return to the workforce.  Her medical needs and the extra expenses that she requires increase her budget substantially on a monthly basis and will continue to do so.  The parties lack the resources and assets to provide a monthly income at the level required to support both parties in the long term.

 

Thus, the district court specifically awarded a highly unequal property settlement in the matter.  The disproportionate property division was based primarily upon the district court's division of the marital homestead proceeds.  Both parties appealed the issue.

            Appellant argues that the district court's division of the marital homestead resulted in respondent receiving 87% of the martial homestead proceeds and appellant receiving just 13% of the marital homestead proceeds.  Appellant further asserts that the overall marital property division was 28% to appellant and 72% to respondent.  Although appellant acknowledges that the law does not require a mathematically equal property division, appellant argues that the property division here is "simply too inequitable." 

            Respondent asserts that as a result of the district court's division of the martial property, she received 54% of the marital assets while appellant received 46% of the marital assets, plus non-marital assets.  Respondent further argues that because the district court's order fails to accomplish its goal to award more property to respondent from which she could draw for her own support, in lieu of additional spousal maintenance, the district court should have awarded her all of the marital homestead proceeds.

            The district court's amended order itemizes the division of assets.  The itemization concludes that appellant's total estate is $201,868.29 and respondent's total estate is $247,933.09.  It appears that respondent used these figures to support her assertion that she received 54% of the martial assets while appellant received 46% of the martial assets.  But included in the $201,868.29 figure is $106,285 in non-marital property.[1]  After subtracting $106,285 from $201,868.29, the record shows that appellant was awarded $95,583.29 in martial property.  By off-setting this amount with the $247,933.09 awarded to respondent, we agree that appellant is correct.  He was awarded approximately 28% of the martial assets and respondent was awarded 72% of the martial assets.

            In Ziemer v. Ziemer, 401 N.W.2d 432, 433 (Minn. App. 1987), review denied (Minn. April 29, 1987), this court held that a property award of 75%-25% was an abuse of discretion.  Here, we cannot conclude that an award of 28% of the marital assets to appellant and 72% of the marital assets to respondent was equitable.  Although the district court specifically divided the marital property in an unequal fashion based on the circumstances of the case, the disparity in the division of property is simply too inequitable.  Thus, we reverse the district court's division of the marital property and remand for an equitable division of the property.

            IV.       Life insurance policy

            The district court "has discretion to determine whether the circumstances justifying an award of maintenance also justify securing it with life insurance."  Laumann v. Laumann, 400 N.W.2d 355, 360 (Minn. App. 1987), review denied (Minn. Nov. 24, 1987).  The court may secure spousal maintenance awards that would otherwise terminate upon the obligor's death with life insurance "in exceptional cases where the [obligee] needs some security that her maintenance payments will not suddenly cease because of an event beyond her control."  Frederiksen v. Frederiksen, 368 N.W.2d 769, 777 (Minn. App. 1985); see also Arundel v. Arundel, 281 N.W.2d 663, 667 (Minn. 1979) (recognizing that requiring security for spousal maintenance is generally limited to exceptional cases where justified by long duration of marriage and dependent spouse's age and lack of marketable skills).

            Appellant argues that the district court abused its discretion by requiring him to secure his spousal maintenance obligation with a $500,000 life insurance policy.  Although appellant concedes that the district court can require him to obtain life insurance to secure his maintenance obligation, appellant argues that the amount is too high because there is no proof that he can afford to obtain $500,000 of life insurance.  Appellant further argues that the required life insurance should merely be sufficient to pay the present discounted value of his outstanding future maintenance obligations at any given time.  There is nothing in the record showing that appellant would be able to obtain a $500,000 life insurance policy, nor is there any evidence indicating what type of life insurance policy would be appropriate.  We reverse and remand the district court's requirement that appellant maintain a $500,000 life insurance policy as security for his spousal maintenance obligation.  On remand, we direct appellant and his attorney to provide evidence to the court of insurability.  If appellant is uninsurable, the issue is moot.  If appellant is insurable, the court should be provided with evidence of the cost of both "term insurance and whole life insurance," depending on whether just one or both are available to appellant.  The district court should then make a determination as to what is a reasonable cost.  The district court should fix an end date to the obligation to carry life insurance.  For instance, age 62 or age 65, or the death of respondent are natural end lines typically found in dissolutions.  We note that term insurance, if available to an older person, becomes totally impractical and costs an exorbitant amount, as a purchaser gets past 65 and towards the 70's.  Whole life insurance, on the other hand, has a fixed premium, even in old age, but its initial cost is much higher than term.  The district court cannot saddle appellant with a life insurance clause that would be impractical and punitive to fulfill.  In addition, if life insurance is required, the premium cost has to be credited to appellant as a reasonable living expense. 

            V.        Imputation of investment income

            After awarding respondent proceeds from the sale of the homestead in the amount of $224,500, the district court ordered that the proceeds be invested by respondent in a manner that provides a minimum income of $1,600 per month.  Respondent argues that the district court's imputation of investment income to her in the amount of $1,600 was an abuse of discretion because it requires an investment return of 8.5%.  Respondent contends that because the district court's calculation assumes a withdrawal over time of the principal portion of her property award, an investment return of 5% conforms to the evidence submitted. 

            In Schreifels v. Schreifels, 450 N.W.2d 372, 373 (Minn. App. 1990), this court held that a finding that appellant-wife would have a net monthly income of $150 derived from anticipated investment earnings generated from the $20,000 cash received as part of the marital property was not clearly erroneous.  The $150 net monthly income indicates a rate of return on the investment of 9%.  Here, the rate of return on the investment is 8.5% ($1,600/mo. times 12 mo./yr. divided by $224,500).  There is nothing to show that the district court abused its discretion in imputing $1,600 in investment income to respondent.  See Johnson v. Johnson, 277 N.W.2d 208, 211 (Minn. 1979) (there is no abuse of discretion when the net income determination is within a "reasonable range of figures.").

            Respondent also contends that the district court abused its discretion by failing to impute investment income to appellant because an investment of the $113,000 appellant received from the division of marital property could be used to assist him in contributing to respondent's needs.  We disagree.  The district court is not required to impute investment income to an obligor from marital property apportioned to him for the sole purpose of paying even more maintenance.  The district court did not abuse its discretion in declining to impute investment income to appellant. 

            VI.       Court approval of investment choices

            The district court's order provides that:

            The Court hereby reserves the issue of how the Respondent's share of the homestead proceeds are to be invested to provide her with income.  However, the Court notes that its intention has been to see the funds invested in a manner, whether that be annuity for some form of trust, that provides a minimum income of $1,600.00 per month.

 

Respondent argues that the district court abused its discretion in requiring her to seek court approval of her investment choices.  She argues the district court is not a financial planner, and, therefore, requiring her to seek court-approval over her investment choices was beyond the court's authority.  It is apparent from the district court's order that the court was cognizant of the parties' financial circumstances.  In light of respondent's inability to work, the manner in which respondent handles her investments substantially affects her monthly income.  The district court handled the matter in a logical fashion consistent with the facts on the record.  A district court judge does not have to be a certified (or an uncertified) financial planner to make as part of the final dissolution decree findings and orders that will help fulfill the purpose of the dissolution decree.  See Rutten v. Rutten, 347 N.W.2d 47, 50 (Minn. 1984) (stating that there is no abuse of discretion where the district court handled the matter in a logical fashion consistent with the facts on the record).

            Affirmed in part, reversed in part, and remanded.

[1] The $106,285 figure is derived from appellant's $80,000 nonmarital interest in the homestead and another piece of nonmarital real estate valued at $26,285.