Marriage of Duffey v. Duffey

CRIPPEN, Judge,

dissenting.

1. Marital property.

“All property” acquired after marriage is presumed to be marital property according to the Minnesota statutory formula. Minn. Stat. § 518.54, subd. 5 (1986). Nevertheless, the “increase” in its value is part of *834the spouse’s property acquired before marriage or otherwise defined as nonmarital property. Id.

Finally, in October 1987, there was general satisfaction the scope of “increase” in nonmarital property was definitively settled by the Minnesota Supreme Court. Nonmarital increase retains its nonmarital character, said the supreme court in Nardi-ni, if it is “attributable to inflation or to market forces or conditions.” Nardini v. Nardini, 414 N.W.2d 184, 192 (Minn.1987). Conversely, said the court, increases in value become marital property if they are attributable to application of marital funds or the efforts of one or both spouses during the marriage. Id.

Nardini was of great moment because it applied the newly announced definition of marital property to value increases in corporate stock attributable to “retained earnings” or retained “shareholder equity,” and not attributable to “market conditions.” Id. at 194, 195. These increases, the fruit of Ralph Nardini’s investment of effort after the couple married, were not to be considered nonmarital property based on the fact that corporate accountants looked upon them as equity rather than income. In the unequivocal language of the supreme court:

Whether the business be carried on as a family corporation or a partnership or a sole proprietorship, income earned during the marriage, whether distributed or undistributed and reinvested in the business, is marital property.

Id. at 195.

All of this is fine, we now hold, for the fruit of efforts which is hidden in corporate balance sheets of a corporation wholly owned by the couple. But, says this majority, no other income of a stockholder is affected — not even the retained income of a corporation controlled by the spouse and members of his family. Thus, respondent is given as nonmarital property over $3-million in corporate equity notwithstanding his inability to prove that this investment represented only gifts and the increase in their value due to inflation or market conditions. The record includes undisputed evidence that the book value of respondent’s corporate investments has increased substantially since it was acquired due to decisions to invest earnings as an alternative to payment of dividends.

What explains this disregard for the core precepts of Nardini? In the language of the majority opinion, Nardini is said to apply to earnings tied to marital efforts, but not to other earnings which are wholly unrelated to inflation or market factors. This distinction is unfounded.

Nardini strikes at hidden earned income, and its holding is equally compelling for any form of earnings. The Nardini holding on hidden earnings is clear and vital, and there is no merit to the proposition that it will govern only the example of hidden earnings presented by the facts identified in that case. At least for closely-held family corporations, there is no reason to honor the pretext that undistributed earnings are the appreciation of equity, the fruit of market conditions.

As noted in the majority opinion, the supreme court in Nardini discussed the consequences of reinvesting cash dividends, noting that these investments constitute marital property. Thus, it is suggested, there is no marital property unless earned dividends are declared, paid and reinvested. The discussion of cash dividends in Nardini has no bearing on the issue in the case on income hidden by withholding declaration and distribution of dividends. By conditioning a finding of marital property on the actual occurrence of cash dividends we discard, weeks after it is decided, the central holding of Nardini.

It is evident that the retention of earnings can be more surely dictated or manipulated by the spouse who has full control of a corporation. Does this make other family corporation investments distinguishable? No doubt, as to actual taking and enjoyment of income, this distinction is significant. The issue here, however, does not deal with corporate decisionmaking, but with the characterization of corporate investments in order to fairly and equitably divide property in a dissolution case. No matter who has retained earnings, they are *835retained, and the retention cannot be permitted to dissolve the reality that the resulting increase in equity is not due to inflation or market conditions. Equity so accumulated during marriage is marital property.

Moreover, we should not overstate the distinction between appellant’s family corporation investments and the corporate stock owned wholly by a couple. In both cases, retention of earnings may be for purely business reasons or may be for personal, even unfair purposes of diminishing reported income. As against an in-law, it is apparent that family owners of a corporation may be inclined to protect one another. On another occasion the courts will be compelled to decide if Nardini affects the marital character of nonfamily corporation stock, including shares in publicly held organizations. For today, however, we are not dealing with dividend decisions so distant from the shareholder, and cannot identify any rationale to withhold application of Nardini to appellant’s corporation equity.

2. Maintenance.

Where a spouse’s prospects for becoming self-supporting are uncertain, a permanent maintenance award is appropriate. Minn. Stat. § 518.552, subd. 3 (1986); Nardini, 414 N.W.2d at 198. In Nardini, the mandate for a permanent award was premised on the observation that it was “most unlikely” Marguerite Nardini could realize an appropriate annual income from investments and earnings. Here, the much larger property division for appellant makes her prospect for appropriate income much less unlikely.

In its decision for temporary maintenance, the trial court expressly considered appellant’s expected income from marital and nonmarital property now awarded to her. There is no indication that the trial court ignored the statutory mandate for a permanent maintenance award in eases where there is some uncertainty as to the need for such an award. Under the circumstances, the trial court did not abuse its discretion in awarding maintenance for a term of four years.

As to the decisions on both issues of the case, I respectfully dissent.