This opinion will be unpublished and

may not be cited except as provided by

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







In re the Marriage of:


Janis Edwards Gottsacker, petitioner





Gregory Alan Gottsacker,



Filed November 26, 2002


Lansing, Judge


Hennepin County District Court

File No. DW248259



Susan C. Rhode, Moss & Barnett, 4800 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN  55402-4129 (for respondent)


Alan C. Eidsness, Timothy Mulrooney, Henson & Efron, P.A., Suite 1800, 220 South Sixth Street, Minneapolis, MN  55402-4503 (for appellant)


            Considered and decided by Harten, Presiding Judge, Lansing, Judge, and Randall, Judge.


U N P U B L I S H E D   O P I N I O N




            In this appeal from an amended marital-dissolution judgment, Gregory Gottsacker challenges the district court’s findings that Janis Edwards’s interest in a subchapter S corporation’s accumulated adjustment account is nonmarital property and that a lack-of-marketability discount applies to Edwards’s marital property interest in a limited partnership.  By notice of review, Edwards contests the district court’s determination that the limited-partnership interest is marital.  The record supports the district court’s application of a lack-of-marketability discount to the limited partnership and the determination that the limited-partnership interest is marital.  A case recently decided by this court, Robert v. Zygmunt, 652 N.W.2d 537 (Minn. App. 2002), governs the determination that the accumulated adjustment account is nonmarital.  We therefore affirm on all issues.



Janis Edwards and Gregory Gottsacker were married from 1991 until 2001.  In marriage dissolution proceedings, Edwards and Gottsacker stipulated to the division and value of various items of property but were unable to agree on the distribution of Edwards’s ownership interests in family-owned business entities and whether a lack-of-marketability discount applied to the valuation of her interest in a limited partnership.  These issues were submitted to a consensual special magistrate.

Janis Edwards’s family owns Edco, a closely-held subchapter S corporation that produces steel siding.  Edwards’s parents made individual gifts of Edco shares to her both before and during her marriage to Gottsacker.  They also made individual gifts of stock to Gottsacker.  Edwards and Gottsacker agree that these separate gifts of stock are the nonmarital property of each.

As an S corporation, Edco’s income is directly reported on its shareholders’ individual tax returns, whether the income is retained by Edco or distributed to the shareholders.  Edco uses an accumulated adjustment account (AAA) to determine a shareholder’s basis for taxed income that is retained by the corporation.

The income Edco allocated to the AAA was taxed as earned income and Edco distributed to Edwards each year a payment sufficient to cover her proportionate share of the taxes.  Edwards deposited these distributions into a personal checking account.  When Edwards and Gottsacker filed their joint tax return, Edwards would write a personal check to the taxing authority to cover her Edco tax liability.

In 1995, Edwards’s family formed Edcoat Limited Partnership to provide metal-painting services to Edco and other businesses.  Edcoat is a limited liability partnership consisting of a 1% general partner, which is an S corporation, and a 99% limited partnership.  A small portion (2%) of Edwards’s interest in Edcoat was acquired by gift from her parents and it is undisputed that this interest is nonmarital.  The remainder of Edwards’s ownership interest in Edcoat (16.33%) was acquired through contributions Edwards made to Edcoat during the marriage.  Edwards obtained the money she used to make the Edcoat contribution from distributions made by Edco.

The district court concluded that because Edwards’s stock in Edco was nonmarital, and because Edwards and Gottsacker had not expended efforts to enhance the value of the nonmarital stock, the Edco AAA was not a marital asset.  The court concluded that Edwards’s interest in Edcoat was 16.33% marital and 2% nonmarital.  The court reasoned that because Edwards’s 16.33% interest in Edcoat was acquired during the marriage from Edco funds that were deposited in Edwards’s and Gottsacker’s joint account and the contribution was paid out of the joint account, the acquisition of interest in Edcoat was marital.  Following posttrial motions the district court applied a lack-of-marketability discount to reduce the value of Edwards’s interest in Edcoat and denied Gottsacker’s request for compensation for his share of marital funds used to pay taxes on the AAA.

Gottsacker appeals the district court’s determinations on the nonmarital status of the AAA and the lack-of-marketability discount applied to Edwards’s interest in Edcoat.  He also appeals the denial of his posttrial motion for compensation for his share of the marital funds used to pay taxes on the AAA.  Edwards contests the district court’s finding that her Edcoat shares are marital property.



            In a marital dissolution action, the court must make a just and equitable division of the marital property.  Minn. Stat. § 518.58, subd. 1 (2000).  The district court has broad discretion in dividing property and will not be reversed absent an abuse of discretion.  Rutten v. Rutten, 347 N.W.2d 47, 51 (Minn. 1984).  A “clearly erroneous conclusion that is against logic and the facts on record” constitutes an abuse of discretion.  Id. at 50.  Even if the reviewing court would have taken a different approach to the division of property, the district court will not be reversed if there is an “acceptable basis in fact and principle” for the district court’s conclusions.  Servin v. Servin, 345 N.W.2d 754, 758 (Minn. 1984). 


            Gottsacker challenges the district court’s finding that Edwards’s basis in the Edco AAA is nonmarital property, arguing that the AAA is divisible marital property because it represents earned income taxed to the marital estate or, in the alternative, because it represents active appreciation.  Whether property is marital or nonmarital is a question of law on which we exercise independent review, but we defer to the district court’s underlying findings of fact.  Olsen v. Olsen, 562 N.W.2d 797, 800 (Minn. 1997).

            This court recently decided the issue of whether a subchapter S corporation’s earnings retained in an AAA constitute marital property in Robert v. Zygmunt, 652 N.W.2d 537 (Minn. App. 2002).  In that case, Robert owned nonmarital stock in a subchapter S corporation.  The district court, in the underlying marital dissolution proceedings, concluded that Robert’s interest in the S corporation’s AAA was nonmarital property.  Zygmunt appealed this conclusion and we held that Robert’s interest in the AAA was nonmarital property because the retained earnings in the AAA did not constitute income under the plain meaning of Minn. Stat. § 518.54, subd. 6 (2000), Robert did not have a distributive right or substantial control over the AAA, and the earnings retained in the AAA were not attributable to Robert’s entrepreneurial efforts during the marriage.

            The rationale of Zygmunt applies to the facts in this case and is dispositive.  As in Zygmunt, Edwards’s shares in the S corporation are nonmarital property.  And, consistent with Zygmunt, Edco’s AAA is not “income” under the plain meaning of Minn. Stat. § 518.54, subd. 6, which defines “income” as “any form of periodic payment to an individual.”  Although the Internal Revenue Code treats AAA earnings as income attributable to individual shareholders for federal tax purposes, the AAA funds were not distributed to Edwards and therefore did not become her income as defined by section 518.54.

The special magistrate analogized the AAA to retained earnings of a regular corporation.  Retained earnings and profits of a corporation are corporate assets and remain the corporation’s property until severed from other corporate assets and distributed as dividends.  See, e.g., Hoffmann v. Hoffman, 676 S.W.2d 817, 827 (Mo. 1984) (holding that the retained earnings of a closely held corporation do not constitute marital property in part because such earnings remain corporate property until severed from other corporate assets and distributed as dividends).  Edwards did not have a distributive right, or substantial control over, the AAA.  There is no assurance that her interest in the AAA will ever be distributed.  Cf. Metz v. Keener, 573 N.W.2d 865, 867 (Wisc. Ct. App. 1977) (S corporation’s AAA classified as marital property when spouse was sole shareholder and manager of the corporation with full access and distributive rights to AAA’s retained earnings).

Gottsacker contends that if the retained earnings are not income, they are active, rather than passive, appreciation.  Upon dissolution, passive appreciation of a nonmarital asset is considered nonmarital property.  Swick v. Swick, 467 N.W.2d 328, 331 (Minn. App 1991) review denied (Minn. May 16, 1991).  Passive appreciation occurs when the increase in the value of nonmarital property is attributable to inflation or market forces or conditions.  Nardini v. Nardini, 414 N.W.2d 184, 192 & n.6 (Minn. 1987) (noting that the active/passive distinction comes from foreign authority and commentators, and expressing a preference for adhering closely to the statutory language).  If a nonmarital asset actively appreciates in value, however, the appreciation is marital property.  Id.  Active appreciation occurs when the nonmarital property’s increased value is attributable to the efforts of one or both spouses during the marriage.  Id.

The district court found that Edwards and Gottsacker did not significantly contribute to the value of Edco during their marriage and that any increase in the value of Edwards’s stock resulting from the retained earnings in the AAA arose from the efforts of Edco officers and employees, not through any marital efforts.  These findings are supported by the record.  As in Zygmunt, Edwards was a minority shareholder in the S corporation with little or no role in its daily management.  The retained earnings in the AAA are not attributable to the efforts of Edwards or Gottsacker during the marriage, and the Zygmunt analysis applies; the district court did not err in characterizing the AAA as Edwards’s nonmarital property.


In posttrial motions, Gottsacker argued that if the AAA was determined to be a nonmarital asset, he was entitled to compensation for his share of marital funds used to pay taxes on Edco’s earnings.  The special magistrate, who otherwise provided detailed findings, rejected Gottsacker’s request without explanation.  Although reasoned appellate review relies on adequate explanation of a factfinder’s decision, we reluctantly conclude that a remand would not significantly aid the determination.  See Liebsch v. Abbott, 265 Minn. 447, 457, 122 N.W.2d 578, 585 (1963) (appellate court obligated to uphold district court’s decision on an adequate alternative ground); N. States Power v. City of Granite Falls, 463 N.W.2d 541, 543 (Minn. App. 1990) (same), review denied (Minn. Jan. 14, 1991).

The district court, within its discretion, could have rejected Gottsacker’s motion on procedural grounds.  Gottsacker did not request reimbursement for his share of the Edco AAA tax liability until several months after the district court issued its findings of fact and conclusions of law.  In Gottsacker’s posttrial memorandum he requested a rebalancing of the property division, but did not request reimbursement for taxes paid.  See Antonson v. Ekvall, 289 Minn. 536, 538-39, 186 N.W.2d 187, 189 (1971) (rejecting subsidiary theory as too late when raised for the first time in posttrial motion); Minn. Mut. Fire & Cas. Co. v. Retrum, 456 N.W.2d 719, 723 (Minn. App. 1990) (district court does not abuse its discretion in denying posttrial motions relying on theory of recovery not previously raised).

Furthermore, in light of the district court’s wide discretion in marital-dissolution property division, we cannot say that the court erred or abused its discretion in declining to provide tax reimbursement to Gottsacker.  See Ruzic v. Ruzic, 281 N.W.2d 502, 505 (Minn. 1979) (property division need not be equal to be equitable).  That the record might support findings or a decision other than that made by the district court does not result in reversible error.  Vangsness v. Vangsness, 607 N.W.2d 468, 472 (Minn. App. 2000).  The court could reasonably have considered that Edwards received distributions each year for the specific purpose of paying taxes on the S corporation income attributable to Edwards.  She retained the distribution in a private account and wrote a personal check for the tax obligation.  Under these circumstances we cannot say that rejecting Gottsacker’s motion for reimbursement was either an error of law or abuse of discretion.  Cf. McKneely v. McKneely, 764 So.2d 1157, 1160 n.1 (La. Ct. App. 2000) (recognizing in a footnote that the district court properly awarded a reimbursement to the wife for her share of community funds used to pay taxes on her husband’s share of AAA funds).


Edwards, by notice of review, disputes the district court’s finding that her shares in Edcoat, the Edwards family’s limited partnership, are marital property.  The shares were purchased with distributions from Edwards’s nonmarital Edco stock during the course of the marriage.

In Nardini v. Nardini, the supreme court considered whether shares purchased with cash dividends derived from nonmarital stock during the course of a marriage were marital property.  414 N.W.2d at 193-94.  The court reasoned that cash dividends constitute income and are, therefore, marital property.  Id. at 194.  Consequently, stock purchased with dividends from nonmarital stock is marital property.  Id.  The district court properly applied the principles of Nardini to find that Edwards’s Edcoat shares were marital property. 


The final issue raised in this appeal is the propriety of applying a lack-of-marketability discount to Edwards’s shares in Edcoat.  Issues of valuation are generally considered factual questions which are reviewed for clear error.  Hertz v. Hertz, 304 Minn. 144, 145, 229 N.W.2d 42, 44 (1975).  We accord broad deference to findings on valuation because it is frequently, by necessity, an approximation.  Id.  Accordingly, the district court’s valuation need only fall “within a reasonable range of figures.”  Id.  Courts in other jurisdictions consider lack-of-marketability discounts as factual issues reviewed under a clear-error standard.  See, e.g., Estate of Ford v. Comm’r of Internal Revenue, 53 F.3d 924, 926 (8th Cir. 1995) (issues of valuation and applicability of a lack-of-marketability discount are factual questions); Ahmanson Found. v. United States, 674 F.2d 761, 770 (9th Cir. 1981) (applying clear-error standard to application of control premium).  But issues of law requiring de novo review may be imbedded within the factual determinations.  See Advanced Communication Design, Inc. v. Follett, 615 N.W.2d 285, 289 (Minn. 2000) (applying de novo standard of review to determination of whether a lack-of-marketability discount should apply to valuation of shares in court-ordered buy-out).

A lack-of-marketability discount adjusts for lack of liquidity in one’s interest in an entity.  Id. at 291.  The rationale for a lack-of-marketability discount is that an interest in a closely held business entity cannot be sold as readily as shares in a company with securities traded over an exchange or in an established market and therefore investors tend to pay less for such shares.  Id.

Gottsacker cites Redding v. Redding for the proposition that a lack-of-marketability discount is unnecessary when a family collectively owns a majority interest in a business because, as a result of their ability to work together, the minority owners enjoy the benefits of a majority ownership in the business, which includes marketability.  372 N.W.2d 31, 34-35 (Minn. App. 1985), review denied (Minn. Oct. 18, 1985).  But the Redding case addresses minority ownership and lack of control, not lack-of-marketability discounts.  Edcoat is a closely held limited partnership, and nothing in the record indicates that there is a readily available market for Edwards to sell her Edcoat shares.  The district court, therefore, did not err in applying a lack-of-marketability discount to Edwards’s Edcoat shares.

Gottsacker alternatively argues that the district court’s valuation of Edcoat after a lack-of-marketability discount is unsupported by the evidence.  Gottsacker’s expert, however, concluded that the value of Edwards’s interest in Edcoat ranges from $1,105,000, with no discounts, to $598,500 with the application of both a lack-of-control and lack-of-marketability discount.  The expert stated that an appropriate lack-of-marketability discount, if applied, should be about 35% of Edcoat’s value.  The district court concluded that Edwards’s interest in Edcoat is worth $705,394 after applying a lack-of-marketability discount.  This computes to a lack-of-marketability discount of 28.93%.  Thus, the value arrived at by the district court does not exceed a reasonable range established by expert testimony.  Because the district court did not misapply the law or make findings unsupported by the record, we affirm.