In re the Marriage of: Mary Patricia Henderson, petitioner, Respondent, vs. Michael John Henderson, Appellant.

In re the Marriage of: Mary Patricia Henderson, petitioner, Respondent, vs. Michael John Henderson, Appellant. A06-694, Court of Appeals Unpublished, April 10, 2007.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2006).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A06-694

 

In re the Marriage of:
Mary Patricia Henderson, petitioner,
Respondent,
 
vs.
 
Michael John Henderson,
Appellant.

 

Filed April 10, 2007

Reversed and remanded

Stoneburner, Judge

 

Carver County District Court

File No. 10FA04253

 

William L. H. Lubov, Alex Brusilovsky, Lubov & Associates, L.L.C., Suite 210, 820 North Lilac Drive, Golden Valley, MN 55422 (for respondents)

 

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

 

            Considered and decided by Minge, Presiding Judge; Stoneburner, Judge; and Dietzen, Judge.

U N P U B L I S H E D  O P I N I O N

 

STONEBURNER, Judge

 

            Appellant husband challenges the property division and maintenance award to respondent wife in this dissolution action.  Because the district court's findings are inadequate to support the division of marital assets and because the evidence does not support the district court's determination of wife's income for purposes of the maintenance award, we reverse the division of marital assets, the calculation of wife's income, and the maintenance award and remand for additional findings consistent with this opinion.

FACTS

 

            Appellant Michael John Henderson (husband) and respondent Mary Patricia Henderson (wife) were married in 1983 and separated in 2004.  The marriage was dissolved by judgment and decree in May 2005, based on a stipulated partial agreement of the parties.  The agreement reserved for the district court's determination of the issues of valuation of a business owned by the parties, division of assets and personal property, division of debts, maintenance, child support, health insurance coverage, and attorney fees.

            The parties owned two businesses: Quiltsmart, LLC, which was operated by wife as president and sole shareholder, and Michael J. Henderson, LLC, in which husband was self-employed as a computer consultant.  Initially, the parties retained Wayne Brown of Virchow Krause & Company, LLP as a neutral expert to value Quiltsmart.  At trial, however, Brown testified only as wife's expert. 

            Based on Brown's testimony, the district court valued Quiltsmart at $150,000 and awarded the business to wife.  The district court ordered wife to pay husband 4% of the proceeds derived from patterns or designs that he developed for Quiltsmart.[1]  The district court found that wife's gross yearly income from Quiltsmart was $26,000,[2] and her net monthly income was $2,006.00.  The district court awarded husband's business to him and found that his net monthly income from the business was $4,842.  The district court ordered husband to pay guideline child support for the parties' two children in the amount of $1,453.  The district court found that each party had monthly expenses, excluding expenses for the children, in the amount of $3,000.  Based on a finding of wife's need and husband's ability to pay, the district court awarded wife $700 per month in permanent maintenance, to be reviewed in three years.  The district court did not award attorney fees to either party.

            Husband moved for an amended judgment or a new trial with respect to the property distribution and award of maintenance.  The district court denied husband's motion, and this appeal followed.

D E C I S I O N

 

I.          Property division

            The district court has broad discretion in dividing property in a dissolution matter, and even if the reviewing court might have taken a somewhat different approach, it will not reverse the district court's decision absent a clear abuse of that discretion.  Miller v. Miller, 352 N.W.2d 738, 741-2 (Minn. 1984).  Minn. Stat. § 518.58, subd. 1 (2006), provides in relevant part:

Upon a dissolution of a marriage . . . the court shall make a just and equitable division of the marital property of the parties without regard to marital misconduct, after making findings regarding the division of the property.  The court shall base its findings on all relevant factors including 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, opportunity for future acquisition of capital assets, and income of each party. The court shall also consider the contribution of each in the acquisition, preservation, depreciation or appreciation in the amount or value of the marital property, as well as the contribution of a spouse as a homemaker.

 

"[T]he overriding requirement of the statute governing the division of marital property is that the division be equitable."  Oberle v. Oberle, 355 N.W.2d 210, 212 (Minn. App. 1984).  "Equity does not require an equal division."  Olness v. Olness, 364 N.W.2d 912, 915 (Minn. App. 1985).  But "equal division of the wealth accumulated through the joint efforts of the parties is appropriate on dissolution of a long term marriage."  Miller, 352 N.W.2d at 742.

            Husband asserts that the award of 100% of the parties' interest in Quiltsmart to wife is inequitable because it resulted in an award of 78% of the marital assets to wife and 22% of the marital assets to husband.  Wife disputes husband's calculation of the percentage of marital assets awarded to her, arguing that husband ignored the value of husband's business and the value of royalties awarded to him.  But husband's calculation of the percentages of assets awarded to each party appears to be correct because the value of husband's business, which consists entirely of the value of equipment owned, was considered, and it is wife's position that the royalty award has no value.

            Husband acknowledges that a 78% -22% division of assets may be considered equitable under certain circumstances if supported by appropriate findings, but he argues that the district court's findings are insufficient in this case to establish that such an award is equitable.  We agree.

            The district court is required to make "findings regarding the division of the property." Minn. Stat. § 518.58 subd. 1.  "Findings are necessary to support a judgment and to aid the appellate court by providing a clear understanding of the basis and grounds for the decision."  Putbrese v. Putbrese, 386 N.W.2d 849, 850 (Minn. App. 1986) (quotation omitted).  Property division cases do not require the same level of detail as child support and custody cases, provided they are sufficient to allow appellate review.  Vinnes v. Vinnes, 384 N.W.2d 589, 592 (Minn. App. 1986). 

            In this case, the district court made findings regarding the value of Quiltsmart; the income of each party, including wife's anticipated future income from Quiltsmart; and husband's contribution to Quiltsmart by performing functions in graphic design and bookkeeping.  The district court found that wife derives all of her income from the business, that it is not appropriate for husband to continue participating in the business, and that husband is entitled to a reasonable percentage of any income from any designs and patterns he developed for the business.  Although these findings touch on several of the statutory factors to be considered in dividing marital property and may explain why the business was awarded to wife, they fail to explain why the value of this asset was not divided equally as were all of the other marital assets or why the unequal division of this asset is equitable in this case.  The findings do not permit review of whether this award constitutes an abuse of discretion.  We therefore reverse the district court's division of marital assets and remand, with directions to the district court to either divide the assets in a more equal manner or provide findings to explain why the unequal division is equitable in this case.

II.        Maintenance

            "The standard of review on appeal from a trial court's determination of a maintenance award is whether the trial court abused the wide discretion accorded to it."  Erlandson v. Erlandson, 318 N.W.2d 36, 38 (Minn. 1982).  In determining maintenance, a district court is to consider whether the spouse seeking maintenance

(a)   lacks sufficient property, including marital property apportioned to the spouse, to provide for reasonable needs of the spouse considering the standard of living established during the marriage, especially, but not limited to, a period of training or education, or

 

(b)  is unable to provide adequate self-support, after considering the standard of living established during the marriage and all relevant circumstances, through appropriate employment, or is the custodian of a child whose condition or circumstances make it appropriate that the custodian not be required to seek employment outside the home.

 

Minn. Stat. § 518.552, subd. 1 (2006).  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 & n.3 (Minn. 1997).  "Findings of fact concerning spousal maintenance must be upheld unless they are clearly erroneous."  Gessner v. Gessner, 487 N.W.2d 921, 923 (Minn. App. 1992). 

            In this case, the district court found that

[wife] lacks sufficient property to presently provide for her own reasonable needs, considering the standard of living established during the marriage, and she is unable to provide adequate self-support at this time.  [Wife] is appropriately applying her education and training in an effort to become partially or fully self-supporting.  [Husband] has the ability to provide spousal maintenance to [wife], while generally meeting his own reasonable needs.  It is appropriate that [wife] be awarded spousal maintenance . . . in the amount of $700.00 per month[.] 

 

Husband challenges the finding that wife is unable to provide adequate support for herself, arguing that the district court improperly calculated wife's income by (1) not including an approximately $15,000 draw wife took from Quiltsmart; (2) failing to add back to wife's income accelerated depreciation deductions taken in 2004; and (3) failing to include in wife's income a business account for accrual of tax liability. 

            Draw from Quiltsmart

The district court found that wife "has gross yearly income of $26,000," based on her $26,000 salary from Quiltsmart, and concluded that the business does not have the financial ability to pay wife a greater salary at the present time.  These findings are supported by Brown's testimony.  The district court also found that "[t]he additional amounts that [wife] took as draws from Quiltsmart in 2004 were funded by loans from banks."  Husband correctly argues that this finding is not supported by the record because the record establishes that a $14,831 draw was funded by business profits, not loans.  Brown testified that approximately $15,000 of the draws taken by wife from Quiltsmart in 2004 was "true compensation" for which wife had no liability to Quiltsmart.[3]  The district court failed to add this "true compensation" to wife's salary when it determined her gross annual income from Quiltsmart.  With the addition of this draw, wife's gross income from Quiltsmart in 2004 was $41,000, not $26,000, making the district court's finding clearly erroneous.

            Accelerated Depreciation

Husband also asserts that the accelerated depreciation reflected on wife's 2004 tax returns should be added to her income for 2004.  To support his assertion, husband cites Minn. Stat. § 518.551, subd. 5b(f) (2004), which provides that, for purposes of determining child support, income from self-employment or operation of a business shall not include depreciation deductions that are not "ordinary and necessary."  The statute specifically excludes "amounts allowed by the [IRS] for accelerated depreciation expenses."  Id.  Husband acknowledges that the statute relates to income for purposes of calculating child support, but argues that the same principle should apply to income for purposes of determining maintenance awards.  Although there is no direct authority stating that accelerated depreciation should be excluded from income for purposes of determining spousal maintenance, we accept the logic of this argument.  Indeed, to rule otherwise would, in some cases, allow for the possibility of disparate findings of income for purposes of maintenance and support.

This court has addressed the issue of depreciation in the context of child support numerous times.  See e.g. Freking v. Freking, 479 N.W.2d 736, 740 (Minn. App. 1992) (holding the district court did not abuse its discretion by disallowing the accelerated portion of depreciation deduction taken on farming equipment for purposes of determining obligor's income for child support purposes); Beltz v. Beltz, 466 N.W.2d 765, 767 (Minn. App. 1991), review denied (Minn. April 29, May 23, 1991) (stating that in deciding obligor's motion to decrease child support, the district court must evaluate obligor's claimed depreciation of rental property to determine whether it was true depreciation or depreciation for tax purposes only). 

Brown testified that in valuing Quiltsmart, he made adjustments to Quiltsmart's 2004 financial statements because certain assets were not properly depreciated in previous years.  Wife's 2004 tax returns reflect that she claimed $16,065 of total depreciation, of which $14,861 was accelerated depreciation.  Husband argues that the accelerated depreciation was an accounting adjustment for prior years that did not impact Quiltsmart's 2004 cash flow.

            We conclude that the district court abused its discretion by failing to evaluate whether wife's claimed depreciation deductions constituted accelerated depreciation that affected the determination of Quiltsmart's cash flow and income available to wife.

            Tax account

Husband also argues that the district court should have adjusted wife's income for a claimed business deduction of $19,635 set aside to pay her personal income taxes for 2004.  Although Brown testified that Quiltsmart's financial statement was adjusted to reflect accrual of tax payments in this amount, there is no testimony or other evidence that this account was disbursed to wife as additional income.  On this record, we cannot conclude that the district court's omission of this account from its calculation of wife's income was clearly erroneous. 

            Need for maintenance

            Because the district court's calculation of wife's income and determination of her need for maintenance are based on clearly erroneous findings, we reverse the maintenance award and remand for a recalculation of wife's income and a determination of what maintenance, if any, should be awarded to wife.  The district court may exercise its discretion to reopen the record.

            Reversed and remanded.

[1] In post-trial motions, wife asserts that husband did not develop any designs or patterns for Quiltsmart, and is therefore not entitled to any compensation under this provision.  Husband has not yet proved the contrary, although the district court has left open the possibility of a future evidentiary hearing on this issue.

[2] The district court also found that based on the expert's testimony of Quiltsmart's upward-income growth curve, wife should be receiving net yearly income (net cash flow) of approximately $68,000 by 2008.

[3] Brown also testified that $78,600 was added as an account receivable to Quiltsmart's financial statement in the valuation process to reflect that wife had withdrawn that amount in 2003-2004 in excess of Quiltsmart's cash flow, and owed that amount to the business.