This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2000).







In Re the Marriage of:

Wallace J. McCarthy,






Judith J. McCarthy,




Filed June 19, 2001

Affirmed in part and remanded in part
Foley, Judge


Dakota County District Court

File No. F99715663



Leo Dorfman, Dorfman & Dorfman, Ltd., 336 Parkdale Plaza Building, 1660 South Highway 100, St. Louis Park, MN  55416 (for respondent)


A. Larry Katz, Robert W. Due, Katz & Manka, Ltd., 4150 U.S. Bank Place, 601 Second Avenue South, Minneapolis, MN  55402 (for appellant)


            Considered and decided by Randall, Presiding Judge, Peterson, Judge, and Foley, Judge.

U N P U B L I S H E D   O P I N I O N

FOLEY, Judge

            This litigation involves the validity of a premarital agreement and the dissolution of a marriage.  Appellant alleges the district court (1) erred in granting summary judgment ruling the parties’ premarital agreement enforceable; (2) misvalued an officer loan account of one of respondent’s businesses; (3) undervalued the marital interests in respondent’s businesses; (4) erred in allowing respondent to trace nonmarital interests based on a document submitted after the record was closed; and (5) erroneously failed to include in the marital estate certain tax refunds.  We affirm in part and remand in part. 


            In 1990, respondent Wallace McCarthy and appellant Judith McCarthy signed a premarital agreement (PMA) before marrying.  It was appellant’s third marriage and respondent’s fourth.  In 1997, respondent petitioned to dissolve the marriage and sought a summary judgment ruling the PMA enforceable.  The district court suspended discovery until the enforceability of the PMA was resolved.  Appellant alleged factual issues existed regarding whether the PMA was properly executed and whether it was fair.  In April 1999, the district court granted summary judgment, ruling the PMA enforceable, that it applied to the parties’ nonmarital property, and allowing the parties to conduct discovery.  Trial occurred in August 1999, the record closed in late 1999, and respondent sent the district court an exhibit in March 2000.  In a May 2000 judgment, the district court valued and divided the parties’ assets and debts, ruling that (1) respondent traced nonmarital interests in certain securities in an amount equal to those alleged in his March 2000 exhibit and (2) respondent’s 1998 income tax refunds were not part of the marital estate.  After denial of most of her posttrial motion, Judith McCarthy appealed.



            On appeal from a summary judgment, we ask whether there are any genuine issues of material fact and whether the district court erred in its application of the law.  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).  We view the evidence in the light most favorable to the party against whom judgment was granted.  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).  To be enforceable, a PMA must have been procedurally and substantively fair when executed and must be substantively fair when enforced.  McKee-Johnson v. Johnson, 444 N.W.2d 259, 265-67 (Minn. 1989).  Also, PMAs must be executed in the presence of two witnesses before the day of the wedding.  Minn. Stat. § 519.11, subd. 2 (2000).  Because the parties’ PMA facially satisfies these requirements, appellant bears the burden of challenging it.  Minn. Stat. § 519.11, subd. 5 (2000). 

            Appellant alleges the existence of factual issues regarding whether the PMA was executed on the day of the wedding and whether the parties’ signatures were properly notarized.  The crux of her argument is the portion of her affidavit addressing what her mother and son remember about their witnessing of the execution of the PMA.  But, those allegations in appellant’s affidavit are hearsay and were not properly before the district court.  See Minn. R. Evid. 801(c) (defining “hearsay” as a statement “other than one made by the declarant at trial” offered “to prove the truth of the matter asserted”); 802 (addressing admissibility of hearsay); Minn. R. Civ. P. 56.05 (requiring that affidavits in summary judgment context be made on personal knowledge and show that affiant is competent to testify to matters asserted in affidavit).  Other portions of appellant’s affidavit say that respondent’s bookkeeper notarized the PMA, that appellant does not remember signing the PMA at respondent’s office, and that she believes it “highly unlikely” that respondent’s bookkeeper would have traveled to the parties’ home to notarize the agreement.  These allegations are not the allegations of “specific facts” required by rule 56.05 to avoid summary judgment. 

            For a PMA to be procedurally fair at its execution, each party must make a full financial disclosure and have access to independent counsel.  Minn. Stat. § 519.11, subd. 1 (2000); McKee-Johnson, 444 N.W.2d at 266.  Here, despite the fact that the PMA states appellant entered the PMA freely and with full knowledge, sought “advice of counsel of her choosing,” and identified the attorney appellant consulted, we will assume the existence of a genuine fact question regarding whether appellant actually consulted with counsel.  Under case law, however, the issue is not whether appellant consulted with counsel, but whether she had the opportunity to do so.  See Pollock-Halverson v. McGuire, 576 N.W.2d 451, 457 (Minn. App. 1998) (refusing to rule PMA invalid for failure to consult with counsel where PMA stated party consulted with counsel, party’s friend was attorney, party may not have known of right to elective share of spouse’s property but knew spouse wanted to give his property to his children, and party did not show she was “pressured” into signing PMA, precluded from seeking counsel, or that spouse concealed party’s rights), review denied (Minn.  May 28, 1998).  Appellant’s affidavit states she does not remember when she was presented “with either the first draft or the final draft of the [PMA.]”  It also states that she may have been presented with the PMA in late December 1989 or the day of the January 20, 1990 wedding.  Attached to the PMA is a four-page exhibit detailing appellant’s $3.5 million net worth.  Because she was aware of multiple drafts of the PMA, may have known about it three weeks before its execution, and definitely knew about it in sufficient time to prepare a detailed summary of her substantial net worth, we conclude that appellant had an adequate opportunity to consult with counsel.

            Appellant argues a fact question exists about whether respondent made an adequate financial disclosure because, while his financial disclosure included asset valuations generated by the expert he used in the dissolution of his third marriage, the disclosure did not mention that those values were significantly less than the valuations proposed by respondent’s third wife.  It is unclear, however, how appellant could be prejudiced by the omission of such information.  Generally, an increase in the value of a nonmarital asset attributable to efforts of one or both parties during a marriage is marital property.  Nardini v. Nardini, 414 N.W.2d 189, 192 (Minn. 1987).  Therefore, understating the values of respondent’s nonmarital assets in his financial disclosure would have made it easier for appellant to show that there was a marital interest in those assets (i.e., that those assets increased in value during the marriage).  See Minn. R. Civ. P. 61 (harmless error to be ignored).  Moreover, based on information received from respondent’s accountants, the neutrals appointed by the district court in this proceeding stated that the expert respondent used in his third dissolution was “optimistic” in valuing the assets and reduced the values of the assets and debts in respondent’s financial disclosure.  Therefore, a similar analysis addresses appellant’s assertion that the neutrals’ adjustment of the asset values lacked foundation. 

            Appellant alleges summary judgment on the enforceability of the PMA was improper because the increase in the value of respondent’s net worth since the marriage, combined with the decrease in appellant’s net worth since the marriage, created fact questions about whether the PMA was substantively fair at enforcement.  Because appellant admits she has no claim to respondent’s nonmarital property, and because the fairness of the division of the parties’ marital property was litigable in the dissolution, these challenges to the PMA’s substantive fairness are irrelevant to its enforceability regarding property.  Similarly, because the PMA states appellant waives maintenance, and because a party waiving maintenance must be assumed to know she will have to support herself, the decrease in appellant’s net worth attributable to her self support cannot be a basis for finding the PMA substantively unfair.  See McKee-Johnson, 444 N.W.2d at 267 (stating PMA substantively unfair at execution if premises upon which PMA was based “have so drastically changed that enforcement would not comport with the reasonable expectations of the parties at the inception to such an extent that to validate them at the time of enforcement would be unconscionable”). 

            Appellant also alleges that fact questions exist about the substantive fairness of the PMA because, less than a year before the parties’ separation, respondent gifted “millions of dollars of assets” to third parties.  If the gifted assets were respondent’s nonmarital property, the gifts are irrelevant to the dissolution.  If the gifted assets were marital property, the propriety of those gifts was litigable in the dissolution.  Minn. Stat. § 518.58, subd. 1a (2000).  Because appellant has not raised a genuinely disputed issue of material fact regarding the PMA’s enforceability, we affirm the summary judgment.[1] 


            Appellant challenges the district court’s valuation of the officer loan accounts and of the parties’ business interests.  An asset valuation is a finding of fact and we will affirm it if it is within the limits of a credible estimate made by competent “witnesses even if it does not coincide exactly with the estimate of any one of them.”  Hertz v. Hertz, 304 Minn. 144, 145, 229 N.W.2d 42, 44 (1975). 

A.         Loans

            Before and during the marriage, respondent borrowed money from a wholly owned business.  The district court found that because the business lost value during the marriage, it lacked a marital component.  Appellant alleges it is inconsistent to treat the amount borrowed from the business as a marital liability while characterizing the business’s resulting receivable as a nonmarital asset.  She is incorrect.  Whether the debt created by borrowing the money is marital or nonmarital depends on who borrowed the funds and whether the borrowed funds were used for marital or nonmarital purposes.  Cf. Minn. Stat. § 518.54, subd. 5 (2000) (defining nonmarital property).  Because the business is nonmarital, however, its assets, including its receivables, are nonmarital.

            The district court found that (1) $6.61 million was owed to respondent’s business on the valuation date; (2) during the marriage, the funds respondent borrowed from the business included $4.5 million to pay the property distribution he owed his third wife, $5.395 million to pay income taxes, $2.693 million as interest on the funds borrowed, and $1.291 million for contributions to closely held businesses; (3) during the marriage, the repayments to the business included $4.152 million received by respondent as distributions from his closely held businesses and $2.82 million received from the sale of a car dealership; (4) of the $2.82 million received for the dealership, about $2.466 million was for respondent’s nonmarital interest therein; (5) applying $2.466 million of the dealership proceeds to the $4.5 million portion of the total debt generated to pay respondent’s third wife, respondent still had a nonmarital debt of about $2.034 million; and therefore (6) the remainder of the debt (about $4.576 million) was a marital debt to be offset against the marital estate. 

            Appellant alleges that the district court’s treatment of the loans omits $1.7 million in additional borrowings and $1.3 million in additional payments.  Respondent’s expert prepared Exhibit 140, which summarizes the activity occurring between January 1, 1990, and June 30, 1999, in the accounts showing the debt to the business.  The exhibit shows that the total amount borrowed, including $882,000 used to pay “alimony,” was $15.635 million and that the total amount repaid was $9.025 million, leaving an outstanding balance as of July 1, 1999, of $6.61 million.  Comparing the entries on respondent’s exhibit with the findings of the district court, it appears that the district court’s findings omit discussion of certain amounts borrowed[2] and certain payments. 

            Appellant also alleges that the district court’s determination that respondent’s nonmarital debt includes only the $4.5 million borrowed to pay the property settlement to respondent’s third wife is incorrect because other amounts borrowed were used for nonmarital purposes.  By way of example, we note that the district court treated all of the interest accrued on the amounts borrowed as a marital debt, even though one of the largest amounts borrowed was to pay respondent’s property settlement to his third wife.  The district court did not explain why the interest on such amounts should be marital debts.  Therefore, we remand for the district court to revisit the issues surrounding the loans from the business.  On remand, the district court shall specifically address (1) the various amounts borrowed from the business; (2) whether the amounts borrowed were used for marital or nonmarital purposes; (3) the extent to which the debt generated by the borrowing was marital or nonmarital; (4) the payments made on the amounts borrowed; (5) whether the payments were from marital or nonmarital sources; and (6) the extent to which the payments reduced the marital and nonmarital debts created by the loans.  In light of its determinations regarding the amounts respondent borrowed and repaid, the district court shall then readdress the proper extent to which respondent’s award of marital debt requires him to be compensated with an award of marital property in order to achieve the equitable distribution of marital property required by Minn. Stat. § 518.58, subd. 1 (2000).

B.        Asset Valuations

            Each party used experts to value respondent’s business interests and to estimate the increase in the value of those interests occurring during the marriage.  Many of the interests at issue are in car dealerships.  Respondent’s expert admitted that he earns about $100,000 annually from work done for respondent’s businesses.  The district court found respondent’s expert was “more knowledgeable in the day-to-day operations of [respondent’s] businesses, and that his testimony was more credible regarding the realistic values of those entities [than appellant’s expert].”  We defer to this determination and decline appellant’s invitations to re-balance the information presented to the district court and find her expert’s valuations entitled to more weight than respondent’s.  See Alstores Realty, Inc. v. State, 286 Minn. 343, 354, 176 N.W.2d 112, 118 (1970) (appellate courts defer to district court determinations on weight and credibility of evidence presented by experts).  Similarly, because appellant candidly admits that the district court disregarded the lack-of-control discounts used when valuing respondent’s interests in certain dealerships, we conclude respondent’s proposing of those discounts did not prejudice appellant.  See Midway Ctr. Assocs., Inc. v. Midway Ctr., Inc., 306 Minn. 352, 356, 237 N.W.2d 76, 78 (1975) (appellant must show both error and prejudice); Minn. R. Civ. P. 61 (harmless error ignored). 

            Generally, in determining the existence and extent of marital interests in respondent’s businesses, the district court compared the valuations in the PMA (as adjusted by the neutrals) with the values proposed by respondent’s expert at trial.  Appellant argues that the district court erred in doing so because the neutral-adjusted PMA valuations were produced by a different method than the method used by respondent’s expert in this proceeding.  How assets are valued is not relevant as long as the method used reasonably reflects the value of the asset in question.  See Schack v. Schack, 354 N.W.2d 871, 874 (Minn. App. 1984) (noting method of appraisal “went to weight and not the admissibility of appraiser’s testimony”); cf. DeSutter v. Township of Helena, 489 N.W.2d 236, 238 (Minn. App. 1992) (noting in assessment proceeding that “as long as a valuation method fairly approximates the increase in a parcel’s market value, it may be used”), review denied (Minn. Sept. 30, 1992).  Here, any defects in the PMA’s valuations of respondent’s assets were corrected by the neutrals and those corrections made it easier for appellant to show a marital interest in the assets.  Additionally, altering asset valuations in a PMA while holding parties to the terms of the PMA could undermine use of PMAs and would be inconsistent with their favored status.  See McKee-Johnson, 444 N.W.2d at 265, 267 (noting Minnesota’s history of favoring PMAs); Pollock-Halvarson, 576 N.W.2d at 455 (Minn. App. 1998) (a PMA “is a type of contract recognized and favored at common law” (citing Hill v. Hill, 356 N.W.2d 49, 53 (Minn. App. 1984), review denied (Minn. Feb. 19 1985)). 

            In valuing a partnership in which respondent owns a 73% interest and the primary asset of which is real estate, the district court noted that neither party provided the court with a current appraisal of the real estate.  It then ruled that the marital interest in the partnership was 73% of the reduction in the principals of the mortgages on the partnership’s real estate ($2.490 million).  Appellant alleges that the district court ignored her expert’s valuation indicating that the value of respondent’s interest in the partnership increased by $3.838 million during the marriage.  This figure, however, is based on appellant’s expert treating the partnership as if it were a real estate investment trust.  Because the partnership is not a real estate investment trust, it is unclear how the district court could have erred by not adopting a valuation based on that assumption.  To the extent appellant alleges that she lacked time to conduct adequate discovery, we note that she had three to four months for discovery and that the district court has discretion regarding the setting of a discovery schedule and whether to continue a trial to accommodate discovery. 

            Appellant alleges the district court’s property distribution fails to account for respondent’s transfers.  If, during or in contemplation of a dissolution, a party, without consent of their spouse, transfers, encumbers, conceals or disposes of assets other than in the usual course of business or for the necessities of life, the district court “shall” compensate the spouse.  Minn. Stat. § 518.58, subd. 1a.  Here, rather than citing the statute and alleging the transfers were made in contemplation of the dissolution, appellant simply alleges that “it is curious” that respondent’s estate planning started “just months” before the parties’ separation.  Because appellant has not alleged the existence of the statute’s threshold requirements, she has not shown a valid basis for reversal on this point.


            The district court found the extent of respondent’s nonmarital interest in securities as of July 1999.  This amount is significantly more than the amount discussed in respondent’s Exhibit 138, in which he addresses his nonmarital interests as of December 1997, and is identical to the amount respondent allegedly traced in the exhibit submitted by letter in March 2000.  Appellant alleges the finding is based on the March 2000 exhibit and challenges the finding, noting both that the district court, in November and in December 1999, stated the record was closed, and that there was no ruling on her request that the March 2000 exhibit be rejected.  Respondent alleges the March exhibit is a summary of evidence already before the district court.  While the district court contains appellant’s letter opposing consideration of the exhibit, it lacks respondent’s March 2000 letter and exhibit.  See Minn. R. Civ. App. P. 110.01 (defining record on appeal as papers filed in district court); Thiele v. Stich, 425 N.W.2d 580, 583 (Minn. 1988) (precluding appellate courts from considering evidence not filed in district court).  Absent a copy of the exhibit, a ruling on whether the exhibit was only cumulative, or a ruling that it was proper to reopen the record and receive the exhibit without allowing appellant an opportunity to respond to it, we cannot review respondent’s nonmarital interest in the securities.  We remand for the district court to explicitly address the necessity and propriety of considering the exhibit and, in light of its decision, to make any adjustment to the property distribution necessary to achieve an equitable distribution of marital property. 


            Rather than including respondent’s 1998 personal income tax refunds in the marital estate, the district court allowed them to be applied to respondent’s 1999 income taxes, stating that the marital assets were valued as of “the mid-point of 1999” and that the refunds were less than half of respondent’s 1999 income tax liability.  Without citing the record, appellant challenges this ruling, alleging the marital estate does not include the income earned by respondent in the first half of 1999.  See Minn. R. Civ. App. P. 128.02, subd. 1(c), 128.03 (requiring factual assertions to be supported by cites to record); Hecker v. Hecker, 543 N.W.2d 678, 681-2 n. 2 (Minn. App. 1996) (same), aff'd 568 N.W.2d 705 (Minn. 1997).  The record seems to indicate that the amounts borrowed from the business for 1999 tax purposes, plus respondent’s 1998 income tax refunds, could significantly exceed his 1999 personal tax liability.  If so, and if the borrowing allowing an overpayment of the 1998 and 1999 taxes was treated as a marital debt, respondent could receive, in his own name, a future tax refund created by the generation of a marital debt.  Because the tax question is inextricably intertwined with the question of the business loans, we remand the tax question for clarification and reevaluation in light of the district court’s resolution of the loan question. 


            We note the magnitude of this record, as well as the number and complexity of the financial transactions involved in this case, and we applaud the district court’s efforts thus far.  We express no opinion on how to resolve the remanded issues and, on remand, whether to reopen the record shall be discretionary with the district court. 

            Affirmed in part and remanded in part.


* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.

[1] Appellant also alleges that summary judgment was premature because she had not completed discovery.  Summary judgment is inappropriate when the party opposing it has failed to complete relevant discovery through no fault of her own.  Rice v. Perl, 320 N.W.2d 407, 412-13 (Minn. 1982); see Minn. R. Civ. P. 56.06 (allowing court to deny summary judgment or continue the hearing until discovery is complete).  Here, however, (1) appellant failed to obtain affidavits from her mother and son regarding the PMA’s execution; (2) the record indicates appellant may have seen the PMA three weeks before it was executed and that she had an opportunity to consult with counsel; (3) the information she alleges was missing from respondent’s disclosure would have been unfavorable to her; and (4) it cannot be argued that appellant’s liquidation of her assets was an unforeseen consequence of the PMA.  Therefore, appellant has not shown that the summary judgment was premature.  See McCormick v. Custom Pools, Inc., 376 N.W.2d 471, 477 (Minn. App. 1985) (holding summary judgment granted before completion of discovery not premature where additional discovery would have neither aided in determining whether material fact issues existed nor changed the result of summary judgment motion), review denied (Minn.  Dec. 30, 1985). 

[2] Appellant’s allegation of $1.7 million in unaddressed borrowings apparently includes the funds borrowed to pay maintenance.  The district court refused to exclude the amounts used to pay maintenance from the marital debt, stating “maintenance payments normally are paid out of marital income.”  Appellant alleges this improperly makes her responsible for half the maintenance owed to respondent’s third wife.  On this record, we cannot say this aspect of the district court’s ruling was an abuse of discretion.  See Minn. Stat. § 518.54, subd. 3 (2000) (defining maintenance as payment from obligor’s income or earnings, not property settlement of obligor’s spouse).