Kathy Sue Kussatz-Jakobson, petitioner, Appellant, vs. Jerome Tom Jakobson, Respondent.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

C5-03-143

 

Kathy Sue Kussatz-Jakobson,

petitioner,

Appellant,

 

vs.

 

Jerome Tom Jakobson,

Respondent.

 

Filed October 7, 2003

Affirmed in part, reversed in part, and remanded
Klaphake, Judge

 

Kandiyohi County District Court

File No. FX01891

 

Jeffrey P. Hicken, Hicken, Scott & Howard, P.A., 300 Anoka Office Center, 2150 Third Avenue, Anoka, MN  55303-2296 (for appellant)

 

Donald H. Walser, Kraft, Walser, Hettig & Honsey, PLLP, 131 South Main Street, P.O. Box 129, Hutchinson, MN  55350 (for respondent)

 

            Considered and decided by Klaphake, Presiding Judge, Lansing, Judge, and Halbrooks, Judge.

U N P U B L I S H E D   O P I N I O N

KLAPHAKE, Judge

            In this marital dissolution action, appellant Kathy Sue Kussatz-Jakobson asserts that the district court erred by (1) affirming the parties' antenuptial agreement; (2) determining that certain property is nonmarital; (3) placing greater reliance on respondent Jerome Jakobson's expert in valuing certain marital property; (4) refusing to award appellant a share of respondent's nonmarital property based on unfair hardship; and (5) limiting appellant's award of attorney fees.  Because the record provides sufficient evidence to support the district court's findings regarding the antenuptial agreement, the valuation of marital property, and the court's refusal to find unfair hardship, we affirm on those issues.  Because the district court failed to distinguish between the nonmarital nature of certain property and the interest income generated by that property during the marriage, we reverse and remand on this issue.  Finally, because the district court failed to make adequate findings to support its refusal to award additional attorney fees, we remand on this issue.

D E C I S I O N

            1.         Antenuptial Agreement

            Because antenuptial agreements are essentially contracts, the construction and effect of such an agreement are questions of law for this court.  Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn. 1979); Pollock-Halvarson v. McGuire, 576 N.W.2d 451, 455 (Minn. App. 1998), review denied (Minn. May 28, 1998).  An antenuptial agreement must be both procedurally and substantively fair.  McKee-Johnson v. Johnson, 444 N.W.2d 259, 265 (Minn. 1989).  An antenuptial agreement is procedurally fair where the parties have had an opportunity to consult with counsel and there has been a full and fair disclosure of the earnings and assets of each party.  Minn. Stat. § 519.11, subd. 1 (2002).  Substantive fairness involves an assessment of the reasonableness or conscionability of the terms of the agreement, both at the time the agreement is signed and the time at which it is enforced.  McKee-Johnson, 444 N.W.2d at 266-67. 

            In terms of procedural fairness, both parties here disclosed earnings and assets as required by Minn. Stat. § 519.11, subd. 1, and appellant was advised of her right to counsel but chose to waive that right.  See McKee-Johnson, 444 N.W.2d at 266 (finding that appellant waived right to consult with counsel, by failing to do so despite respondent's suggestion).           

            Substantive fairness involves a case-by-case assessment of the relationship between the parties and the potential for overreaching by one party.  In re Estate of Aspenson, 470 N.W.2d 692, 696 (Minn. App. 1991).  An assessment of substantive fairness includes an evaluation of circumstances at the signing of the agreement, as well as at the time of enforcement, to determine if the premises on which the agreement was based have changed so drastically as to render the agreement unfair.  Id. 

            Although signing the antenuptial agreement the day before the wedding suggests a certain amount of pressure on appellant to sign, that fact alone is not determinative.  See Pollock-Halvarson, 576 N.W.2d at 457 (concluding that appellant was not pressured into signing agreement, despite its last-minute nature).  The district court made specific findings that appellant was not intimidated into signing the agreement and noted that it was impressed with appellant's "character and assertiveness."  Appellant points to her lack of education and knowledge of financial affairs, but the district court noted that the parties discussed the need for the agreement at least six months before the wedding, appellant litigated property issues in her first divorce, and appellant was 43 years old and had "a great deal of worldly experience."

            The district court also found that appellant entered the marriage with few assets accumulated during her years as a waitress and that she would leave the marriage after slightly more than six years with more than $100,000 in marital assets.  The court concluded that the agreement was not unconscionable at the time of enforcement. 

            Based on this record, we conclude that the district court did not clearly err by finding the antenuptial agreement valid because it was both substantively and procedurally fair.

            2.         Nonmarital Property:  P & H of Willmar

             The question of whether property is marital or nonmarital in nature is a legal one which this court reviews de novo; however, the district court's findings of fact concerning the marital or nonmarital quality of property will be set aside only if clearly erroneous.  White v. White, 521 N.W.2d 874, 877 (Minn. App. 1994). 

            "Nonmarital property" includes property acquired by one spouse prior to marriage or the increase in value of such property.  Minn. Stat. § 518.54, subd. 5(b), (c) (2002).  Although the statutory definition states that the increase in value of nonmarital property is also nonmarital, this includes passive appreciation only.  Swick v. Swick, 467 N.W.2d 328, 331 (Minn. App. 1991), review denied (Minn. May 16, 1991).  Active appreciation is considered marital in nature and occurs when the parties contribute time, effort, or money or actively participate in the maintenance, management, or improvement of the nonmarital assets during the marriage.  Id.  Likewise, interest income is marital property if accrued during the marriage because it is a product of the asset.  Id.  Further, any assets acquired with such income are also marital property.  Id. at 331.  This is particularly true where the income is a liquid asset readily available to the parties.  Id. at 332. 

            Here, prior to the parties' marriage, respondent was the sole owner of P & H of Willmar, a plumbing business.  Shortly before the marriage, respondent began negotiations to sell the business to a current employee and a former employee.  In September 1995, two months after the parties' marriage, respondent signed an irrevocable contract of sale, setting the sale price of the corporation at $500,000.  The two buyers agreed to purchase 50% of the corporation, at $125,000 each, and to make quarterly payments for five years of $4,569.47, which included interest at eight percent on the principal balance.  At the end of five years, the balance was rolled over into a new obligation of $125,000 each for the purchase of the remaining 50% of the corporation.  The buyers would make monthly payments of $7,300.82, including interest at eight percent, with the entire balance due on October 1, 2010.   The buyers received the first 50% of the stock in October 2000 and would receive the second 50% when the contract was fully paid.  The purchase price was and is in no way dependent on fluctuations in value of the corporation. 

            Therefore, by September 1995, the value of P & H was fixed by contract and would not appreciate, even with respondent's active participation in the business.  There is no evidence in the record that the value of P & H increased between the marriage in July 1995 and the sale in September 1995.  At the valuation date, the outstanding balance due from the buyers was $182,510 each, or a total of $365,020. 

            Appellant claims this receivable is marital property.  Insofar as this receivable represents the negotiated price for the sale of P & H, it remains nonmarital in nature.  The conversion of a business that is clearly nonmarital into a cash obligation does not change the character of the property.  Minn. Stat. § 518.54, subd. 5(c).  However, any realized interest received during the marriage from this receivable is income and should thus be characterized as marital.  See White, 521 N.W.2d at 878.  The parties' tax returns from 1996 to 2000 reflect interest income from the two buyers of $15,000 to $19,000 per year.

            Because the district court failed to distinguish between the fixed proceeds of the sale of P & H, a nonmarital asset, and the interest paid on the sale price, which is marital income, we reverse and remand this issue to the district court to determine whether a portion of the P & H receivable represents interest received during the marriage.

            3.         Nonmarital Property:  Investment Accounts

            Appellant also challenges the district court's conclusion that two investment accounts, one at Farmers State Bank and the other a PrimeVest certificate of deposit, both dating from before the marriage and consisting of retained earnings from P & H, are nonmarital in nature.  Both of these investment accounts are described as annuities.  Respondent did not actively engage in the management of these annuities, although in each case he signed one document to change the investments from fixed annuities to variable annuities.  Both accounts were kept separate from marital funds and no interest income from these investments was reported on the parties' tax returns.  The district court found that the increase in value in both accounts was the result of passive investment activity.  See Ranik v. Ranik, 383 N.W.2d 431, 435 (Minn. App. 1986) (holding that where party has kept nonmarital funds in a separate untouched account, interest earned is nonmarital), review denied (Minn. May 22, 1986).  Because there is nothing in the record that contradicts this finding, the district court's finding that the two investments are nonmarital property is not clearly erroneous.  We therefore affirm the court's decision as to these two accounts. 

            4.         Valuation

            "Determining the specific value of [a marital] asset is a finding of fact . . . [that] shall not be set aside unless clearly erroneous on the record as a whole."  Maurer v. Maurer, 623 N.W.2d 604, 606 (Minn. 2001) (citation and quotation omitted).  Valuation is "necessarily an approximation in many cases . . . [that] need only fall within a reasonable range of figures."  Id. (quotation omitted).  What is important is that the district court had "a reasonable and supportable basis for making an informed judgment."  Id. at 609 (quotation omitted).

            Appellant challenges the district court's valuation of the T.H.E. Machine Corporation, a marital asset owned by the parties.  She argues that the district court relied too heavily on respondent's expert, who did not have a reasonable basis for his opinion.  The district court's valuation falls within the range of figures put forth by the two expert witnesses.  The biggest difference between the figure proposed by appellant's expert and that proposed by respondent's expert is the differing deductible for lack of marketability.  On this issue, the district court accepted respondent's testimony that he had no current intention to sell.  The district court's decision is supported by the record and within in its discretion.

            5.         Failure to Award Nonmarital Property for Unfair Hardship

            Minn. Stat. § 518.58, subd. 2 (2002) permits the district court to award up to one-half of a party's nonmarital property to the other party in cases of unfair hardship.  The district court enjoys broad discretion in making a decision as to unfair hardship.  Kottke v. Kottke, 353 N.W.2d 633, 636 (Minn. App. 1984), review denied (Minn. Dec. 20, 1984).

            "Unfair hardship" exists where a party's resources, including awards of marital property, are inadequate in the circumstances.  Minn. Stat. § 518.58, subd. 2.  When making an award of nonmarital property under this section, the district court must make specific findings of hardship based on factors such as "the length of the marriage, any prior marriage of a party, the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities, needs, and opportunity for future acquisition of capital assets and income of each party."  Id. 

            This court has stated that a "very severe disparity between the parties is required to sustain a finding of unfair hardship."  Reynolds v. Reynolds, 498 N.W.2d 266, 271 (Minn. App. 1993).  In discussing a number of cases involving requests for a share of nonmarital property, the Reynolds court concluded that unfair hardship generally involves findings of great disparity in earning capacity between the parties and additional factors, including health, lack of marketable skills, or emotional problems.  Id.

            The district court here found no unfair hardship and noted it was unwilling to increase appellant's marital share beyond an equal division stating, "[appellant] benefited from the marriage to greater extent than her job experience and skill would have provided in the absence of this marriage.  This was a second marriage for both parties and was of relatively short duration, 6-1/2 years."  The district court also refused to award maintenance based on the antenuptial agreement.  In ruling on the antenuptial agreement in December 2002, the district court found that "[appellant's] health had not significantly deteriorated.  She testified that she believes she can get a job." 

            The district court has discretion in deciding whether to award nonmarital property to a party.  Despite the disparity between each party's nonmarital assets and earning capacity, there is reasonable support in the record for the court's decision.  The antenuptial agreement, which the district court found to be valid, also supports the district court's decision not to award a share of respondent's nonmarital property to appellant.  Because adequate findings exist, the refusal to award appellant a share of respondent's nonmarital property was not an abuse of discretion.

            6.         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).

 [T]he court shall award attorney fees, costs and disbursements in an amount necessary to enable a party to carry on or contest the proceeding, providing it finds:

 

            (1)       that the fees are necessary for the good-faith assertion of the party's rights in the proceeding and will not contribute unnecessarily to the length and expense of the proceeding;

 

(2)       that the party from whom fees, costs, and disbursements are sought has the means to pay them; and

 

(3)       that the party to whom fees, costs, and disbursements are awarded does not have the means to pay them.

 

Minn. Stat. § 518.14, subd. 1 (2002). 

            Where a party has received a generous property award or substantial marital assets, the district court may properly conclude that an award of fees is not necessary.  See Burns v. Burns, 466 N.W.2d 421, 424 (Minn. App. 1991).  On the other hand, the court may decide that a party need not liquidate the "limited capital assets available . . . for . . . retirement" in order to pay fees.  See Beck v. Kaplan, 566 N.W.2d 723, 727 (Minn. 1997) (quotation omitted). 

            Although the district court stated that the amount of appellant's settlement enabled her to pay her own attorney fees, it failed to make specific findings regarding the parties' relative abilities to pay.  This is troubling given the great disparity between their present and future resources, and appellant's limited employment prospects.  Much of the district court's decision is based on the "inordinately high amount of [appellant's] attorney fees, due in large part to her choice of an attorney whose hourly fee exceeds the hourly fee generally considered to be reasonable among attorneys practicing in this community."  This is not a permissible basis for denial of attorney fees.  We therefore remand the question of attorney fees to the district court for further review and findings.

            Affirmed in part, reversed in part, and remanded.