#27943-a-LSW
2017 S.D. 11
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
ANGELA K. CHARLSON, Plaintiff and Appellee,
v.
DONALD M. CHARLSON, Defendant and Appellant.
****
APPEAL FROM THE CIRCUIT COURT OF
THE FOURTH JUDICIAL CIRCUIT
BUTTE COUNTY, SOUTH DAKOTA
****
THE HONORABLE MICHAEL W. DAY
Judge
****
LINDA LEA M. VIKEN of
Viken & Riggins Law Firm
Rapid City, South Dakota
and
SHELLY D. ROHR of
Wolf, Rohr, Gemberling
& Allen, PA
St. Paul, Minnesota Attorneys for plaintiff
and appellee.
MICHAEL K. SABERS of
Clayborne, Loos & Sabers, LLP
Rapid City, South Dakota Attorneys for defendant
and appellant.
****
ARGUED FEBRUARY 15, 2017
OPINION FILED 03/29/17
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WILBUR, Justice
[¶1.] In this declaratory judgment action, the circuit court held that
husband and wife’s premarital agreement was valid and enforceable. In a
subsequent decision, the court interpreted the agreement as it relates to the parties’
debts and assets. Husband appeals. We affirm.
Background
[¶2.] Angela Smoot and Donald Charlson married in Deadwood, South
Dakota in 1993. Prior to the marriage, the parties entered into a Pre-Marriage
Agreement (PMA). Both Angela and Donald had been married before, and Angela
wanted to protect her assets prior to marrying Donald. The parties listed their
assets and liabilities in separate attachments to the PMA. Angela identified an
ownership interest in three Taco John’s restaurants, a home, an investment
account, and two vehicles. Donald was working as a financial advisor for Edward
Jones at the time. He listed “0 assets” in his financial statement attached to the
PMA.
[¶3.] For the first few years of their marriage, Angela lived in South Dakota,
and Donald lived in Minnesota. In 1996, Angela relocated to Rochester, Minnesota
to live with Donald. The parties continued to live together in Minnesota until 2011.
During a trip to Mexico in January 2011, Angela learned that Donald was having
an affair. Donald moved out of their home, but the two attempted to work on their
marriage. Ultimately, in January 2012, Donald sued Angela for divorce in
Minnesota. The Minnesota court bifurcated the case. It granted the parties a
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divorce in 2014, but left to be determined the issues of spousal maintenance,
division of property and debts, attorney’s fees, and other financial matters.
[¶4.] Donald filed a motion with the Minnesota court to establish venue in
Olmsted County for the interpretation of the PMA. Angela responded that Butte
County, South Dakota was the proper venue. After a hearing, the Minnesota court
held “[t]hat Butte County, South Dakota, is the proper venue to determine any
issues regarding the validity and enforceability of the parties’ Pre-Marriage
Agreement.”
[¶5.] In January 2014, Angela filed a declaratory judgment action against
Donald in Butte County, South Dakota under SDCL 21-24-3. Angela requested a
judgment declaring the PMA valid and enforceable and asked the court to construe
the rights and interests of the parties under the PMA. Donald moved to dismiss or
stay Angela’s South Dakota action so that the Minnesota court could resolve certain
pending matters. Donald abandoned his motion to dismiss, and the circuit court
scheduled a hearing to determine the validity of the PMA. After a hearing in July
2014, the circuit court issued findings and conclusions declaring the PMA valid and
enforceable. The court scheduled a court trial to interpret the PMA “as it relates to
the debts and assets of the parties, which decision will be forwarded to the
Minnesota Court for use in its distribution of debts and assets in the divorce action
between the parties.”
[¶6.] The court trial occurred from April 20-24, 2015, and from August 24-
27, 2015. Donald and Angela disputed how the management of their finances
impacted the parties’ separate and marital property as defined by the PMA. During
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the twenty-plus years of their marriage, Angela comingled her separate assets with
the parties’ marital assets. At trial, Angela asserted that, regardless of any
comingling, the PMA mandated that her separate property interests remain
separate, thereby significantly reducing the value of the marital estate. Donald, on
the other hand, alleged that the language of the PMA required that once either
party placed separate funds in the parties’ joint marital accounts, the once-separate
funds became marital and any purchases with funds from the joint accounts became
marital property. According to Donald, the marital estate approximated $6 million
dollars.
[¶7.] To resolve the dispute, Donald and Angela presented separate,
detailed, and extensive expert testimony and evidence. Over Donald’s objection, the
circuit court allowed the admission of Angela’s expert’s 310-page report. In this
report, Value Consulting Group (VCG) used a “tracing” method to track the
movement of Angela’s separate property interests when Angela placed her separate
funds or property interests within the parties’ marital accounts. VCG explained
that it used a “direct tracing” approach when Angela moved monies from one asset
to another asset on the same day or very close in time. VCG used a “pro rata”
approach to determine what percentage of an account was marital and what
percentage was separate. VCG would then apply this percentage against certain
transactions to determine the respective account’s separate versus marital property
interests at a given time. When VCG could not trace a specific transaction, it would
designate Angela’s separate interest as a marital interest to benefit the marital
estate.
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[¶8.] VCG also utilized the concept of “marital loans” to track when Angela
used marital funds from the parties’ joint accounts for her separate property
interests or transferred marital funds from the parties’ joint accounts to her
separate accounts, and Angela did not have sufficient funds designated as
“separate” within the joint accounts. Because Angela did not have sufficient funds
designated as “separate” within the joint accounts at the time of the transfer, VCG
created “marital loans” in favor of the marital estate. For example, on January 15,
2003, Angela transferred $1,000 from the parties’ joint account into one of her
separate accounts. According to VCG, on that date, Angela did not have sufficient
separate funds in the parties’ joint account; thus, the $1,000 Angela transferred to
her separate account became a marital loan Angela owed to the marital estate.
VCG would keep track of these loans and reduce or eliminate the loans when
Angela transferred her separate funds into the parties’ joint account at a later date.
[¶9.] VCG utilized the tracing and marital loan methodologies for all
transactions between 1993 and 2013. Although the parties had multiple investment
and bank accounts, in this appeal, the parties primarily refer to transactions to and
from Angela’s separate investment account—“7191”—and to and from the parties’
joint investment account—“7183.” Edward Jones held both investment accounts,
and Donald was the financial advisor. Angela did not have check-writing privileges
on her separate account (7191), but the parties’ joint account (7183) had check-
writing capabilities.
[¶10.] Donald’s experts disputed VCG’s tracing and marital loan
methodologies. Donald’s experts from Baker Tilly opined that, under the terms of
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the PMA, any use by either party of funds from the parties’ joint accounts to acquire
property and investment or business interests rendered the acquired assets marital
property. Donald and his experts relied on the language in the PMA denoting that
the purpose of the joint marital account was to acquire marital property and pay
ordinary living expenses from and after the date of the marriage. In Donald’s view,
any money placed in the joint accounts by Angela became marital and, therefore,
any property interests obtained with money that was part of a joint account became
marital property. In objecting to VCG’s expert opinion on the marital loan concept,
Donald argued that VCG’s report lacked foundation because Angela testified that
neither she nor Donald intended to create loans when one or the other transferred
money from joint accounts and deposited the money in his or her personal accounts.
[¶11.] After the lengthy trial, the parties submitted proposed findings and
conclusions and objections. On April 8, 2016, the court issued 622 findings of fact
and 56 conclusions of law comprising 188 typewritten pages. The court began by
detailing the history of the parties’ marriage, the procedural history of the case, the
qualifications and foundation for each expert’s testimony, and the language of the
PMA. The court then identified the pre-marital assets and their values. The court
also listed the assets and business interests identified in VCG’s report. The court
explained its interpretation of the PMA and concluded that the PMA permitted the
use of tracing and marital loans.
[¶12.] The court did not make a specific fact finding on each event of tracing
or marital loan occurring between 1993 and 2013. It instead explained that it
provided “a sampling of tracing” that occurred. As an example, the court noted that
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the parties had stipulated that the value of a particular business interest was
$1,220,000. Through the use of VCG’s testimony on tracing and the marital loan
concept, the court found that the parties used a portion of Angela’s separate
property interest to make capital contributions toward the acquisition of the
business interest because Angela’s separate funds were placed into the joint account
close in time to the parties’ acquisition of this asset. The court traced all
transactions related to that particular business asset, and because the parties used
a portion of Angela’s separate property to acquire it, the court concluded that of the
$1,220,000 value, $1,023,967 was Angela’s separate property interest and $196,033
was marital.
[¶13.] On appeal, Donald does not challenge the court’s factual findings in
particular. Nor does he dispute the court’s list of assets to be valued and the values
placed on those assets by the court. Donald also does not dispute the details of
VCG’s tracing report in relation to particular assets. Rather, Donald contends that
the circuit court erred when it interpreted the PMA to permit—in any respect—
tracing and marital loans through and to the joint marital account. We, therefore,
limit the remaining discussion of the circuit court’s findings and conclusions to
Donald’s issues on appeal.
[¶14.] In regard to the PMA, the court held that the tracing and marital loan
methodologies used by VCG “are appropriate” and are “in accordance with the
contract terms set forth in the PMA.” The court also recognized that South Dakota
law allows for the use of tracing. “‘Tracing’ is an equitable principle which allows a
party with the right to property to trace that property through any number of
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transactions in order to reach the final proceeds or result.” Temple v. Temple, 365
N.W.2d 561, 567 (S.D. 1985). The court noted that Angela’s and Donald’s experts
“agree that when a PMA is involved in tracing, the methodology is tailored to the
terms of the contract, thereby departing from the standard methodologies because
of the contract terms.” The court rejected Donald’s argument that under the PMA
all property purchased with funds from the parties’ joint account became marital
property. In the court’s view, Donald “isolate[d] one sentence in Paragraph 7 of the
PMA to support his claim” and ignored the contract language that the comingling of
separate property shall not change separate property to marital property. The
court also relied on PMA language that the comingling of separate property with
the other party’s property or with marital property shall not be construed as
evidence of an intent to change the character of the separate property.
[¶15.] Donald appeals, asserting the following issues for our review:
1. The circuit court erred when it interpreted the PMA to allow
tracing of earnings or property through the joint marital
account and applied the marital loan concept.
2. The circuit court erred when it adopted Angela’s expert’s
report.
3. If tracing and the marital loan concept are allowed, mutual
consent did not exist.
Angela moves this Court for an award of appellate attorney’s fees.
Standard of Review
[¶16.] Our standard of review for contract interpretation is well-settled:
“‘Contract interpretation is a question of law’ reviewed de novo.”
Detmers v. Costner, 2012 S.D. 35, ¶ 20, 814 N.W.2d 146, 151
(quoting Clarkson & Co. v. Cont’l Res., Inc., 2011 S.D. 72, ¶ 10,
806 N.W.2d 615, 618). “When interpreting a contract, this Court
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looks to the language that the parties used in the contract to
determine their intention.” Id. (quoting Clarkson & Co., 2011
S.D. 72, ¶ 15, 806 N.W.2d at 619). “In order to ascertain the
terms and conditions of a contract, we examine the contract as a
whole and give words their plain and ordinary meaning.”
Nygaard v. Sioux Valley Hosps. & Health Sys., 2007 S.D. 34, ¶
13, 731 N.W.2d 184, 191 (quoting Canyon Lake Park, L.L.C. v.
Loftus Dental, P.C., 2005 S.D. 82, ¶ 17, 700 N.W.2d 729, 734).
Poeppel v. Lester, 2013 S.D. 17, ¶ 16, 827 N.W.2d 580, 584.
Analysis
[¶17.] The language of the PMA controls the resolution of this case. The
PMA contains a “Purpose and Intent” section and identifies four specific purposes.
First, the PMA is intended “to specifically identify the separate assets and liabilities
of each party accumulated prior to the marriage and existing as of the date of this
Agreement[.]” Second, it is intended “to relinquish the right of each party that may
or will arise solely by virtue of the marriage relationship as against the separate
property of the other[.]” Third, the PMA intended “to define the rights of each party
to the property acquired during the course of the marriage[.]” Fourth, the parties
intended the PMA “to recognize the rights of each party to dispose of separate
property during their lifetime and upon death.”
[¶18.] The next section discusses the parties’ disclosure of assets. Following
that is a section titled, “Separate Property.” This section contains six subsections:
A. Each party acknowledges and agrees that all property
acquired and owned by the other as of the date of this
Agreement shall be and remain the sole and separate property of
that party. Each party, for himself or herself, and his or her
heirs, executors, administrators, successors and assigns
specifically relinquishes and disclaims any and all right, title,
interest and claim of every kind or nature, regardless of the
nature or source of that right, which will or may otherwise arise
by virtue of the marriage.
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B. During lifetime, each party shall retain the sole and separate
ownership and control of his or her separate property, and shall
be free to manage, sell, control or otherwise dispose of such
separate property.
C. Separate property as used in this Agreement shall include not
only the assets described on attached Exhibits “A” and “B” but
shall also include gains, income, income, [(sic)] interests,
dividends, profits, and any other increases in value or decreases
in debt, and issues therefrom.
D. Each party shall be free to replace assets owned by him or
her at the time of this Agreement, and to sell or otherwise
receive proceeds attributable to separate property of each. The
replacement and proceeds of separate property shall be and
remain separate property, and shall not lose their character as
separate property solely by change of the form or nature of the
asset.
E. Property received by either party through gift or inheritance
shall remain the sole and separate property of the party so
receiving or inheriting.
F. Employment benefits including, but not limited to, pension,
profit-sharing or any other employee benefit programs or plans
shall remain the sole and separate property of the party so
employed, and such benefit plan shall remain separate property,
even following the marriage of the parties. Each party
relinquishes any claim, right, interest or title to the employee
benefit plans of the other, and such plans shall not be subject to
division in the event of death, separation, or dissolution of the
marriage.
(Emphasis added.)
[¶19.] The PMA also contains a section titled, “Marital Property.” It begins
with a qualification: “Except as specifically provided above[.]” It then provides that
“property acquired by the parties from and after the date of their marriage, and
continuing throughout the marriage, shall be deemed marital property.” It further
provides, “No waiver, release or relinquishment of any right, title, claim or interest
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in and to the separate property of the other shall be construed as a relinquishment
of any right or interest in marital property.” And “[p]roperty acquired from and
after the date of the marriage, and continuing through the course of the marriage,
shall remain marital property regardless of designation of title or ownership of such
assets.”
[¶20.] The PMA accounts for commingling of assets in a section titled,
“Commingling.” The PMA directs that the “[p]arties shall use their best efforts to
prevent any commingling of separate property.” But “[t]he commingling of separate
property, or the failure to segregate separate property, shall not be construed as to
change the character of separate property or otherwise result in a change of separate
property to marital property.” (Emphasis added.) Further, under the “Oral
Statements” section, the PMA provides that “[n]o statement or act by either party,
from and after the date of this Agreement, shall have the effect of amendment, of
modifying this Agreement.” The section continues: “[U]nder no circumstances shall
the following events, either individually or collectively, be construed as evidence of
any intention, express or implied, or of any agreement, actual or implied, to change
the character of separate property[.]” Relevant here are subsections C and F.
Under subsection C: “[t]he commingling of either spouse of his or her separate funds
with the separate or separate funds of the other party or with any marital
property[.]” And subsection F provides: “In the event that marital property or
separate property of either party is contributed toward separate property or debt of
the other, such contribution shall be deemed a loan, payable on demand, without
interest, unless the parties agree otherwise, in writing.” (Emphasis added.)
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[¶21.] The PMA provides for the payment of ordinary living expenses through
a joint bank account. It says, “The parties agree to create, upon marriage, a jointly
owned bank account, and each agrees to deposit into such account, earnings or
separate property, at an amount necessary to pay ordinary and necessary living
expenses of the parties, and any acquisition of marital property.” In regard to
debts, the PMA contains five subsections. Relevant here is subsection C. Under
subsection C: “The parties shall be mutually liable only for debts incurred in the
name of both parties, and with the specific knowledge, consent and written
undertaking of any such obligation. Neither party shall bind, or attempt to bind, the
other to any indebtedness except on written consent.” (Emphasis added.)
1. Did the circuit court err when it interpreted the PMA to
allow tracing of earnings or property through the joint
marital account and applied the marital loan concept?
a. Tracing of earnings or property
[¶22.] Donald agrees that the PMA provides for the parties to maintain
separate assets and for the proceeds from those separate assets to remain separate
property. But he claims that Angela’s act of transferring separate funds to the
parties’ joint account relinquished Angela’s rights in her separate funds. Donald
emphasizes that the PMA states only two purposes for the joint account and neither
purpose is to allow either spouse to maintain a separate interest in the funds of the
joint account. To conclude otherwise, according to Donald, requires litigating what
funds each party wants to be marital, which “interpretation invites post hoc
revisionist history.” As proof, Donald directs this Court to Angela’s testimony
where she said she “had no idea of her intent” when she transferred money from her
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separate accounts to the parties’ joint accounts. In Donald’s view, “[t]he plain
language of the PMA [does] not require such speculation, guesswork, or conjecture
about the joint marital account. . . . Once a party made a decision to deposit
separate earnings or property into the joint marital bank account the decision, or
‘intent’ was clear.”
[¶23.] As the circuit court found, Donald’s interpretation of the PMA focuses
on one provision—the language governing the creation and use of a joint marital
bank account. But we construe contracts “in their entirety giving contextual
meaning to each term.” Spiska Eng’g, Inc. v. SPM Thermo-Shield, Inc., 2007 S.D.
31, ¶ 21, 730 N.W.2d 638, 646 (quoting Bunkers v. Jacobson, 2002 S.D. 135, ¶ 15,
653 N.W.2d 732, 738). Even so, the provision Donald relies on does not support
Donald’s interpretation. Yes, the parties agreed to create a joint account and to
fund the account “at an amount necessary to pay ordinary and necessary living
expenses of the parties, and any acquisition of marital property.” Beyond the
creating and funding of the joint account for those purposes, there is no language
indicating that the parties also agreed to, without qualification, relinquish their
separate property interests in the funds of that joint account solely because that
party commingled separate funds with funds in the joint account.
[¶24.] On the contrary, the terms of the PMA specifically speak to the parties’
intent to protect separate property regardless of any act by either spouse. Under
the PMA, “all property acquired and owned by the other as of the date of this
Agreement shall be and remain the sole and separate property of that party.” This
includes gains, income, interests, dividends, profits, any other increases in value or
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decreases in debt, and the “proceeds attributable to separate property[,]” which
“shall be and remain separate property, and shall not lose their character as
separate property solely by change of the form or nature of the asset.” Donald does
not dispute that Angela’s funds placed in the parties’ joint account were her
separate property and/or the proceeds of her separate property. Moreover, the PMA
contemplates that the parties might commingle and provides that one party’s
commingling of separate property “shall not be construed as to change the character
of separate property or otherwise result in a change of separate property to marital
property.” This includes when either party “fail[s] to segregate separate property[.]”
In fact, the PMA provides that “under no circumstances shall” the commingling of
separate funds by either spouse with marital property “be construed as evidence of
any intention, express or implied, or of any agreement, actual or implied, to change
the character of separate property[.]”
[¶25.] However, Donald directs this Court to the provision in the PMA
defining “Marital Property.” He highlights the phrases: “shall remain marital
property” and “shall remain marital property regardless of designation of title or
ownership of such assets.” According to Donald, because money in the joint account
funds the acquisition of marital property, property acquired with funds from the
joint account shall remain martial property. He also contends that the provision
defining marital property contemplates that the parties can relinquish their
interests in separate property.
[¶26.] But Donald’s interpretation of the PMA does not “give[] a reasonable
and effective meaning to all the terms[.]” See Nelson v. Schellpfeffer, 2003 S.D. 7, ¶
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14, 656 N.W.2d 740, 744. His interpretation of the provision defining marital
property ignores the opening clause qualifying the definition of “Marital Property”
with the six subsections defining “Separate Property[.]” The definition of separate
property provides that separate property and the proceeds of separate property are
“not [to] lose their character as separate property solely by change of the form or
nature of the asset.” Donald also misconstrues the sentence describing that “[n]o
waiver, release or relinquishment of any right, title, claim or interest in and to the
separate property of the other shall be construed as a relinquishment of any right or
interest in marital property.” That sentence does not say that one party’s use of
separate funds to acquire a marital asset means the person relinquished his or her
separate property interest in that asset. Again, the PMA provides that “the failure
to segregate separate property, shall not be construed as to change the character of
separate property or otherwise result in a change of separate property to marital
property.”
[¶27.] Nonetheless, Donald emphasizes that Angela had separate accounts
available to her throughout the marriage to preserve her separate assets. He
further notes that Angela admitted that VCG’s tracing methodology was not based
on her interpretation of the PMA and that she did not contemplate tracing her
separate property interests when she deposited her separate funds in the joint
account during the marriage. But, under the clear terms of the PMA, Angela’s act
of commingling her separate funds with the parties’ marital property during the
marriage could not under any circumstances “be construed as evidence of any
intention, express or implied, . . . to change the character of separate property[.]”
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The PMA is unambiguous, and we interpret the parties’ intent from the language of
the contract. The PMA accounts for commingling, and the circuit court did not err
when it interpreted the PMA to allow for tracing.
b. Marital loans in the joint marital account
[¶28.] Donald argues that the concept of “marital loans” is a fiction created by
Angela’s expert and not supported by the PMA. He cites to Angela’s testimony that
neither she nor Donald borrowed money from the parties’ joint account and that
when she transferred marital funds from the parties’ joint account into her separate
account, she did not mean for it to be a loan that she would owe to the marital
estate. He also argues that if the PMA permits marital loans, the loans are
“indebtedness” under the PMA, which could only occur with written consent of the
parties.
[¶29.] Yes, the PMA provides that the parties must consent in writing before
binding the other party to any “indebtedness.” Specifically, it provides that “[t]he
parties shall be mutually liable only for debts incurred in the name of both parties,
and with the specific knowledge, consent and written undertaking of any such
obligation.” But VCG’s use of the marital loan concept did not cause Angela to bind
Donald to any indebtedness. The marital loans were debts against Angela in favor
of the marital estate. And the PMA provides that “[d]ebts incurred by either party
after the marriage, relating to the separate property of each party, shall be and
remain the sole obligation of the party which incurred the debt.”
[¶30.] VCG’s use of the marital loan concept is supported by the PMA. The
PMA provides: “In the event that marital property or separate property of either
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party is contributed toward separate property or debt of the other, such contribution
shall be deemed a loan, payable on demand, without interest, unless the parties
agree otherwise, in writing.” Here, Angela transferred marital funds from the
parties’ joint account to her separate account. Under the PMA, the transfer of these
marital funds created a “loan” and Donald did not present evidence that the parties
specifically agreed that Angela’s transfers (at the time of her transfers) were not to
be deemed loans.
2. Did the circuit court err when it adopted Angela’s
expert’s report?
[¶31.] Donald claims that the circuit court erred when it did not grant his
request to reject VCG’s report. At trial, Donald moved the court to reject VCG’s
report after Angela testified that she did not intend to trace her separate funds to
and from the parties’ joint account and did not intend to create marital loans.
According to Donald, the basis of VCG’s expert opinion is no better than the facts
upon which it was based and, in Donald’s view, cannot rise above Angela’s
testimony that she did not contemplate tracing and marital loans.
[¶32.] On the contrary, VCG’s report was not based on Angela’s opinions and
views on the concepts of tracing and marital loans. VCS’s report was based on the
unambiguous language of the PMA, which the circuit court properly interpreted to
permit VCG’s use of the tracing and marital loan methodologies. So while “[t]he
value of the opinion of an expert witness is no better than the facts upon which it is
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based[,]” VCG’s expert opinions rest on adequate foundation. See Johnson v.
Albertson’s, 2000 S.D. 47, ¶ 25, 610 N.W.2d 449 (quoting Bridge v. Karl’s, Inc., 538
N.W.2d 521, 525 (S.D. 1995)). The circuit court did not err when it admitted VCG’s
report.
3. If tracing and the marital loan concept are allowed, was
there mutual consent?
[¶33.] According to Donald, if we conclude that, under the PMA, “tracing is
appropriate, and that a separate interest was maintained in the joint marital
account, neither party understood that.” He emphasizes that both parties testified
that there were no marital loans and that Angela did not contemplate tracing her
funds when she transferred them from her separate account to the parties’ joint
account. He argues that mutual consent cannot exist when neither party believed
that their actions involved tracing or the creation of marital loans.
[¶34.] Although consent is an essential element of a contract, Donald did not
appeal the circuit court’s order declaring the PMA valid and enforceable. By finding
the PMA valid and enforceable, the circuit court necessarily concluded that all
essential elements to a contract existed. Under SDCL 53-1-2, those elements
include: “(1) Parties capable of contracting; (2) Their consent; (3) A lawful object;
and (4) Sufficient cause or consideration.” Donald’s dispute at this point is with the
interpretation of the language of the PMA permitting tracing and marital loans
(which issues we addressed above), not whether he mutually consented to the terms
of the PMA.
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4. Appellate Attorney’s Fees
[¶35.] Angela moves this Court for an award of appellate attorney’s fees
under SDCL 15-26A-87.3. She asserts that an award of fees is allowable under
SDCL 15-17-38. Donald responds that an award of fees is unwarranted under
SDCL 15-17-38 because the matter on appeal challenges a circuit court’s ruling in a
civil action and the PMA does not contain a provision allowing an award of
attorney’s fees.
[¶36.] Appellate attorney’s fees may be granted under SDCL 15-26A-87.3
“where such fees may be allowable[.]” We have said this means that we may grant
appellate attorney’s fees “only where such fees are permissible at the trial level.”
Lord v. Hy-Vee Food Stores, 2006 S.D. 70, ¶ 35, 720 N.W.2d 443, 455 (quoting
Grynberg Exp. Corp. v. Puckett, 2004 S.D. 77, ¶ 33, 682 N.W.2d 317, 324). Here,
attorney’s fees would not have been permissible at the trial level and, therefore, are
not permissible on appeal. Angela instituted this civil action in a South Dakota
court for a declaratory judgment to interpret a contract. Under SDCL 15-17-38, an
award of fees is permitted in a civil action when there is an “agreement, express or
implied, of the parties.” Angela directs us to no language in the PMA permitting an
award of attorney’s fees.
[¶37.] Angela, however, relies on SDCL 15-17-38 in general. Similarly, the
dissent contends that SDCL 15-17-38 allows for an award of fees because “this
declaratory action is a necessary part of the parties’ divorce.” Dissent ¶ 42. But
that statute does not say that fees are allowable in a separate civil action for
declaratory relief so long as the civil case relates to a separate divorce case. Instead,
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a court may award attorney’s fees “in all cases of divorce, annulment of marriage,
determination of paternity, custody, visitation, separate maintenance, support, or
alimony.” (Emphasis added.) This appeal concerns none of the types of cases
listed—it is an appeal from a civil action interpreting a contract as it relates to
ownership of property.
[¶38.] In Toft v. Toft, we upheld an award of attorney’s fees in litigation that
“occurred in the context of the divorce because ‘[i]t is well settled in this state that a
divorce court has continuing jurisdiction over its decrees,’ and ‘[a]n application for
modification or enforcement of such decree is a supplementary proceeding
incidental to the original suit. It is not an independent proceeding or the
commencement of a new action.’” 2006 S.D. 91, ¶ 21, 723 N.W.2d 546, 553 (quoting
Weekley v. Weekley, 1999 S.D. 162, ¶ 25, 604 N.W.2d 19, 25). Here, in contrast,
Angela’s declaratory action is not a supplemental action incidental to the original
suit for divorce in Minnesota, and the South Dakota circuit court’s jurisdiction over
Angela’s action did not arise out of the parties’ divorce proceedings. On the
contrary, Angela commenced an independent proceeding over which the Minnesota
divorce court has no jurisdiction. Moreover, even though the Minnesota court will
apply the South Dakota court’s interpretation of the PMA, the resolution of the
validity and enforcement of the parties’ PMA in South Dakota is not a “case[] of
divorce” under SDCL 15-17-38. Because this appeal arises from a declaratory
judgment action to interpret a premarital agreement and did not concern the
categories permitting an award of fees under SDCL 15-17-38, we deny Angela’s
request for appellate attorney’s fees.
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[¶39.] Affirmed.
[¶40.] GILBERTSON, Chief Justice, and SEVERSON, Justice, concur.
[¶41.] ZINTER, and KERN, Justices, concurring in part and dissenting in
part.
ZINTER, Justice (concurring in part and dissenting in part).
[¶42.] I concur on all issues concerning interpretation of the premarital
agreement (PMA). I dissent only on the majority’s conclusion that attorney’s fees
are not awardable under SDCL 15-17-38. In my view, this declaratory action is a
necessary part of the parties’ divorce. Therefore, the recovery of attorney fees is
authorized by the statute.
[¶43.] SDCL 15-17-38 permits an award of attorney fees “in all cases of
divorce.” We have interpreted the “in all cases of” phrase to mean that fees are
recoverable in all cases “involving” divorce, see Schieffer v. Schieffer, 2013 S.D. 11,
¶ 55, 826 N.W.2d 627, 644, as well as cases “in the context of” divorce, Toft v. Toft,
2006 S.D. 91, ¶ 21, 723 N.W.2d 546, 553. We have also interpreted the “in all cases
of” phrase broadly for other types of cases not specifically itemized in SDCL 15-17-
38. See Brosnan v. Brosnan, 2013 S.D. 81, ¶ 38, 840 N.W.2d 240, 252 (concluding
that attorney’s fees in a relocation action were awardable because cases “involving
relocation of a child are necessarily disputes regarding” custody and visitation,
which are cases mentioned by the statute); Osgood v. Osgood, 2004 S.D. 22, ¶¶ 18-
22, 676 N.W.2d 145, 151-52 (upholding award of fees for grandparent visitation
under prior version of statute that did not include cases of visitation).
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[¶44.] This declaratory judgment action not only involved divorce, it was a
necessary part of the Charlsons’ Minnesota divorce. The Minnesota court granted
the parties a divorce; but it could not determine the issues of spousal maintenance,
property division, and other financial matters because the PMA had a Butte
County, South Dakota venue provision. Consequently, the Minnesota divorce court
ruled that South Dakota was the proper venue to determine the PMA’s validity and
enforceability; and the South Dakota Court ruled that its decision on the PMA’s
validity and enforceability would “be forwarded to the Minnesota Court for use in its
distribution of debts and assets in the divorce action between the parties.” Supra
¶ 5 (emphasis added). Thus, although the parties requested declaratory relief in
this case, it was not an independent, run-of-the-mill declaratory judgment action
involving the interpretation of a contract. The South Dakota proceeding was a
necessary part of the Minnesota divorce: it was brought at the direction of the
Minnesota divorce court to adjudicate the usual and customary divorce issues
arising in the parties’ divorce action.
[¶45.] Interpretation of premarital agreements by South Dakota courts is a
divorce matter entitling the litigants to recover attorney fees under SDCL 15-17-38.
See Smetana v. Smetana, 2007 S.D. 5, ¶ 22, 726 N.W.2d 887, 895 (awarding
appellate attorney’s fees in divorce action interpreting an antenuptial agreement).
Further, this was a case “involving” divorce, see Schieffer, 2013 S.D. 11, ¶ 55,
826 N.W.2d at 644, it was a case brought “in the context of” divorce, see Toft,
2006 S.D. 91, ¶ 21, 723 N.W.2d at 553, and it was a case “necessarily regarding”
divorce, see Brosnan, 2013 S.D. 81, ¶ 38, 840 N.W.2d at 252. Indeed, it was a
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necessary part of a divorce. Therefore, I would hold that recovery of attorney fees is
authorized by SDCL 15-17-38.
[¶46.] KERN, Justice, joins this special writing.
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