This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. ß 480A.08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A04-980

 

In re Andrew Thomas Otte, petitioner,
Respondent,

vs.

Kari Lynn Otte, n/k/a Kari Lynn Douglas,
Appellant.

 

Filed February 1, 2005

Affirmed in part; reversed in part; and remanded

Minge, Judge

 

Goodhue County District Court

File No. FX-03-000001

 

 

Gary M. Peterson, Gary M. Peterson, P.A., 310 First Avenue Northwest, P.O. Box 932, Faribault, MN 55021 (for respondent)

 

Steven C. Youngquist, Youngquist Law Office, 421 First Avenue Southwest, Suite 301W, Rochester, MN 55902 (for appellant)

 

††††††††††† Considered and decided by Toussaint, Chief Judge; Schumacher, Judge; and Minge, Judge.

U N P U B L I S H E D† O P I N I O N

MINGE, Judge

 

††††††††††† Appellant Kari Lynn Douglas challenges a marriage dissolution judgment requiring her to pay half of the debt secured by a second mortgage on respondent Andrew Thomas Otteís home in which the couple lived.† Because evidence in the record shows that the debt was incurred jointly and because the district court did not abuse its discretion in the allocation of this debt and credit for payments thereon, we affirm in part.† Because the district court did not give appellant credit for her portion of the appreciation of the marital equity in the home, we reverse in part and remand for consideration of that determination.† Because the district courtís decision does not otherwise appear irregular, we deny appellantís request that the entire matter be reversed and remanded.†

FACTS

The parties began living together in respondentís home in January 1998 and were married on July 3, 1999.† Before their marriage, they jointly and individually took out several loans for expenses of both parties, including paying off appellantís credit-card debt, to buy an engagement ring, and to purchase a vehicle for respondent.† These loans were refinanced by a $56,000 loan signed by respondent and secured by a January 1999 second mortgage on respondentís home.† During the time the parties were taking out these loans, respondent refinanced the first mortgage.†

††††††††††† At the time of the marriage, the house was valued at $238,900.† After deducting the then $145,866 balance on the first mortgage and disregarding the second mortgage, there was an equity value of $93,034 at the time of marriage.† Soon after the marriage, the $56,000 loan was refinanced and secured by a replacement second mortgage on the home which was signed by both parties.† This second mortgage was refinanced and replaced by subsequent mortgages used to secure various obligations with a final principal amount of $97,944 on May 24, 2002.† Although both parties benefited from most of the loans secured by these successive second mortgages, the district court determined that part of the proceeds were used solely by respondent to purchase a truck that respondent still owns.†

The parties separated on March 1, 2001.† On July 31, 2001, appellant purchased a separate residence.† At the time of separation, respondentís home was calculated to be worth $262,000.† This represented appreciation of $23,100 since the date of marriage.† After the parties separated, appellant continued to make payments on the indebtedness secured by the second mortgage on respondentís home.† The court found that these payments were for interest rather than principal on the indebtedness.†

††††††††††† Respondent filed a petition for dissolution of marriage in January 2003.† On September 3, 2003, the district court filed a pretrial order establishing the valuation date for the division of the partiesí property as March 1, 2001, the date the parties separated, and stating that appellant would be given full credit for her financial contributions toward the mortgages on respondentís home.† In February 2004, the district court held a trial.† The parties stipulated to most of the facts and the district court entered an initial order for judgment of dissolution of the marriage.†

The district court also entered a supplemental order regarding the contested issues surrounding the division of the $97,944 debt secured by the second mortgage on respondentís home.† After assigning responsibility for $20,000 of the debt to respondent for the money used to purchase his vehicle, $60,000 of the indebtedness was designated as joint premarital debt, and the remaining $17,944 was designated as joint marital debt.As a result, the district court divided the debt so that each party had $8,972 of marital debt and $30,000 of premarital debt and respondent an added $20,000 of vehicle debt.† The district court initially divided the $23,100 of appreciation on the house equally between the parties.

Appellant moved for amended findings and judgment or a new trial.† She contested her responsibility for the debt secured by the second mortgage and the inadequate credit for payments she had made on that debt after separation.† Respondent contested the credit to appellant for appreciation in the house, arguing that any marital equity in the house was offset by the increase in marital debt secured by the house.† On May 14, 2004, the district court filed an order denying appellantís motion and amending the original judgment to allocate to respondent all of the appreciation in his house.† This appeal follows.

D E C I S I O N

I.†

††††††††††† The first issue is whether the district court abused its discretion by finding appellant liable for half of the debt secured by the second mortgage on respondentís property.† Appellant argues that this debt should be solely respondentís responsibility because respondent is keeping the house.†

††††††††††† In a marital dissolution, a district court has broad discretion in apportioning property and its decision will not be overturned except for an abuse of discretion.† Maranda v. Maranda, 449 N.W.2d 158, 164 (Minn. 1989).† Debts are treated as property upon dissolution of marriage and are allocated and divided like assets.† Korf v. Korf, 553 N.W.2d 706, 712 (Minn. App. 1996).† When distributing debts and assets, courts should be guided by equitable considerations.† OíDonnell v. OíDonnell, 412 N.W.2d 394, 396 (Minn. App. 1987).† An appellate court will defer to a district courtís findings of fact and they will not be set aside unless clearly erroneous.† Maurer v. Maurer, 623 N.W.2d 604, 606 (Minn. 2001).† Even if the appellate court would have done things differently, it will affirm the district courtís division of property if it has an acceptable basis in fact and principle.† Servin v. Servin, 345 N.W.2d 754, 758 (Minn. 1984).†

An appellate court defers to the district courtís underlying findings of fact, but whether property is marital or nonmarital is a question of law subject to de novo review.† Olsen v. Olsen, 562 N.W.2d 797, 800 (Minn. 1997).† All property acquired during marriage is presumed to be marital property.†† Minn. Stat. ß 518.54, subd. 5 (2002).† Nonmarital property is property acquired before the marriage, property that is acquired in exchange for property acquired before the marriage, or the increase in the value of property that was acquired before the marriage.† Id.† As previously stated, debt is included in the concept of property and may be nonmarital and marital debt.

Appellant contends that because the residence owned by respondent and kept by him after the dissolution secured the second mortgage, the second mortgage was respondentís debt.† The debt incurred during the marriage is presumed to be a marital obligation.† See Minn. Stat. ß 518.54, subd. 5.† Other than paying for respondentís truck, which was accounted for in the district courtís apportionment of responsibility for the marital debt, appellant does not contest the district courtís determination that the proceeds from debt incurred during the marriage were used for marital or joint purposes.† The fact that this debt was secured by respondentís home does not change the status of the debt.† The choice of security for a debt should not affect the nature of the debt or who is responsible.† Because the district court found that $17,944 of this debt is marital and joint, it did not abuse its discretion in dividing that portion of debt between the parties.† This conclusion is supported by Antone v. Antone, where the court stated that refinancing the homestead during the marriage created marital debt if there was no showing that the funds were used for nonmarital purposes.† 645 N.W.2d 96, 103 (Minn. 2002).†

The district court designated $60,000 of the second mortgage as premarital debt.† Soon after marrying, both parties signed a note for a $60,000 loan secured by a second mortgage on respondentís house.† Appellant claims that because this debt was really premarital and tied to the house, it was nonmarital and should be respondentís responsibility.† The district court found that this loan was used to pay off a premarital $56,000 debt that was the result of a combination of earlier loans; that when the parties were living together before the marriage, there was extensive commingling of funds; and that the parties jointly used the proceeds from these loans to pay their expenses and debts, including approximately $11,000 of appellantís credit-card debt.† Given that both parties benefited from $60,000 of the debt in uncertain amounts and that this debt was incurred in anticipation of marriage, the district court did not abuse its discretion in equally dividing this $56,000 loan that was a nonmarital debt of respondent.† It could properly be viewed as shared or joint premarital debt.† We affirm the district courtís determination of the debt allocation.

II.

With appellant responsible for half of the second mortgage debt, the next issue is whether she should also be credited for any marital equity resulting from the appreciation of the house.†

The courts have established a system for dealing with a situation where one party brings into the marriage premarital equity in a home that appreciates during the marriage.† Schmitz v. Schmitz, 309 N.W.2d 748, 750 (Minn. 1981).† The Schmitz formula allows for the party with premarital equity in a home to retain as nonmarital equity the portion of the appreciation determined by the ratio the premarital equity bears to the premarital value of the house.† 309 N.W.2d at 750; Stroh v. Stroh, 383 N.W.2d 402, 405-06 (Minn. App. 1986).

The Minnesota Supreme Court further addressed this equity and appreciation problem in Antone where one party had premarital equity in the home; during the marriage the home was used as the security for additional debt, and there was no showing that the indebtedness was incurred for nonmarital purposes.† 645 N.W.2d at 98-99.† The Antone court held that the party who had nonmarital equity in the house did not lose that equity by refinancing and increasing the debt secured by the house.† Id. at 103.† The court also held that the increased mortgage balances during the marriage did not extinguish the marital equity in the house.† Id.[1]†††

In the case before us, the district court initially gave appellant credit for half of the appreciation in respondentís home.† Respondent then argued that there was no marital equity because the refinancing of the second mortgage resulted in a $97,944 encumbrance that consumed the equity.† The court accepted this argument and eliminated the credit to appellant for appreciation on respondentís home in an amended order.† However, because this second mortgage is joint debt that is being paid off as a result of the dissolution judgment, this encumbrance no longer exists, and the marital estate should get credit for the marital appreciation.† This is logical.† Just as allocation of the debt between the parties should not depend on what is used as collateral for the debt, marital equity in that collateral resulting from its appreciation should be calculated without regard to that debt.† In this case, the marital equity in the home should be used to adjust the partiesí responsibility for the joint debt secured by the second mortgage.† Since respondent is retaining the homestead and receiving the benefit of the equity in the home, appellantís share of the marital appreciation should be subtracted from the amount that appellant owes.† The district court erred in not making this allocation of appreciation.

††††††††††† The Schmitz formula should be used in the present case to determine respondentís premarital proportion of the appreciation.† The remainder of the appreciation would be the shared marital equity.† Appellant should receive credit for her half of this marital equity.† Using the Schmitz formula, nonmarital appreciation would be calculated as follows: the total appreciation multiplied by the percentage resulting from the division of nonmarital (premarital) equity at the time of marriage by the value of the house at the time of marriage.† Based on the findings of the district court, the figures would be $23,100 [total appreciation] x $93,034 [premarital equity]/$238,900 [premarital value] = $8,996.[2]† Respondentís nonmarital appreciation of $8,996 would be subtracted from the total appreciation of $23,100 to leave $14,104 of marital appreciation, and appellantís half would be $7,052.† This is each partyís marital share of appreciation.

We conclude that as a matter of law the district court should have given appellant credit for her one-half of the marital appreciation in the homestead against the debt payment for which she is liable.† Respondentís liability should be increased by one-half of the marital appreciation he receives by keeping the homestead.† Using the district courtís numbers and the Schmitz formula, we conclude that appellant is liable for $31,920 of the debt ($30,000 pre-marital debt, plus $8,972 of marital debt, less $7,052 of marital appreciation in the homestead, which she relinquished) and respondent is liable for $66,024 ($30,000 premarital debt, plus $20,000 of vehicle debt, plus $8,972 of marital debt, plus $7,052 of appellantís marital appreciation, which he received).† This issue is remanded to the district court to award marital appreciation in conformity with the foregoing discussion, subject to the right of the district court to adjust the award as necessary to assure accurate calculations and in the interests of justice.††

III.

††††††††††† The third issue is whether appellant should be reimbursed for any payments she made toward the second mortgage after March 1, 2001, the date of valuation.[3]† Appellant argues she is entitled to reimbursement on two grounds.† First, she claims that she is not responsible for any of the second mortgage debt.† Second, appellant relies on the district courtís statement in its September 3, 2003 order that ď[t]he respondent shall be given full credit for her financial contributions towards the mortgage(s) on the [respondentís] homestead.Ē†

††††††††††† As discussed earlier, the second mortgage on respondentís house is simply collateral for a shared debt.† According to appellant, she contributed $12,973.06 toward the second mortgage debt since the date of separation.† The district court found that portions of these payments were from a joint account to which respondent continued to add funds, that the payments by appellant from her personal funds were $5,547, that appellantís share of the joint debt was 40%, that she should be responsible for 40% of the interest payments, and that her payments after the valuation date were less than her share of interest on that debt.† In addition, the district court found that respondent paid $8,729.62 in interest on the second loan and that respondentís payments exceeded 60% of the total interest payments.† The district court properly dismissed appellantís claim for reimbursement of the payments she had made toward the debt secured by the second mortgage.††

††††††††††† Appellant also claims that because the valuation date was set at March 1, 2001, at respondentís request, he should not receive credit for any subsequent deposits made to a joint account or for his share of any joint accounts existing after the valuation date.† Appellant bases this contention on the respondentís statement that as of the March 1, 2001, valuation date the parties did not have joint accounts and were not commingling funds.† However, we conclude that the district court did not abuse its discretion in tracing funds or in determining that regardless of the valuation date, appellant should not receive credit for payments made from respondentís nonmarital funds.††

IV.

††††††††††† The final issue raised by appellant is whether the district courtís alleged virtual verbatim adoption of respondentís proposed findings and conclusions and reliance on respondentís memorandum of law for its memorandum, together with other alleged circumstances surrounding the supplemental order, so taint the district courtís decision as to require that we set it aside.†

This court has stated that although the practice of a district court adopting one partyís proposed findings and conclusions is not reversible error per se, it does raise a question of whether the district court independently evaluated each partyís testimony and evidence.† Bliss v. Bliss, 493 N.W.2d 583, 590 (Minn. App. 1992), review denied (Minn. Feb. 12, 1993).† However, this court still applies the clearly erroneous standard.† Sigurdson v. Isanti County, 408 N.W.2d 654, 657 (Minn. App. 1987), review denied (Minn. Aug. 19, 1987).† We have also concluded that a district courtís verbatim adoption of a partyís conclusions and findings is not improper if the record supports the findings and shows the court conscientiously considered all the issues.† Bersie v. Zycad Corp., 417 N.W.2d 288, 292 (Minn. App. 1987), review denied (Minn. May 5, 1988).

††††††††††† As appellant recognizes, it is nearly impossible to assess the thought process of the district court.† However, appellantís counsel submitted an affidavit that recites facts that indicate confusion about the district courtís issuance of its supplemental order.† The affidavit asserts that the district courtís law clerk stated in a phone conversation that the initial order (representing the issues the parties agreed on) had not been signed when the date on the order indicates that it was filed the day before that conversation.† The affidavit also states that in a phone call to the district courtís chambers one week later regarding the initial order, no mention was made of the supplemental order, which bears the same date as the initial order.† Appellant contends that the fact that the supplemental order was not mentioned in these phone calls shows that it had not been prepared, was quickly drafted, and back dated.† Appellantís counsel claims that this confusion, coupled with reliance on respondentís written submissions, indicates a lack of court consideration of this case.†

The assertions of appellantís counsel are not sufficient to show that the district courtís decision is defective.† The assumption that the district court judgeís law clerk was fully conversant with all aspects of the preparation of the orders and would have mentioned the supplemental order if it was near completion is speculative.† Even if that assumption is correct, these facts are not sufficient to meet the clearly erroneous standard of review.† Absent a showing of error in the order itself or some substantial evidence of actual impropriety, we will not engage in speculation about the circumstances of the district courtís decision.†††

Appellant argues that the district courtís refusal to correct what appellant deems clerical errors shows the district courtís lack of consideration of the case.† Appellant states that the district court mistakenly confuses in its supplemental order the figures of $8,729.62 and 40% in the findings of fact with $8,972.62 and 50% in the conclusions of law.† However, these two paragraphs are referring to different calculations.† The figures in the conclusions of law are referring to the amount of marital debt from the second mortgage on respondentís home, while the figures in the findings of fact are referring to

the payments made to the second mortgage after the date of separation.† Therefore, these were not errors and do not show a lack of consideration by the district court.

Affirmed in part; reversed in part, and remanded.



[1] A month before Antone, this court in Senske v. Senske held that all nonmarital equity in a home, which was refinanced during marriage to its full value, had been extinguished and any subsequent equity in the home was marital.† 644 N.W.2d 838, 841-42 (Minn. App. 2002).† To the extent they may be inconsistent, this court follows the Minnesota Supreme Courtís later decision in Antone, which held that nonmarital equity is not extinguished by the increase of marital debt secured by the home.† 645 N.W.2d at 103.

[2] $93,034 is obtained by subtracting $145,886 (value of first mortgage at time of marriage) from $238,900 (the value of the house at the time of marriage).† Because the second mortgage was essentially joint marital debt, for which both parties were responsible, and is not treated as an encumbrance on the house at the time of dissolution, it is not treated as an encumbrance on respondentís house at the time of marriage.† The formula is a version of the Schmitz formula focusing on appreciation.† A * NMO/VO = NMA where A = appreciation during the marriage; NMO = nonmarital equity originally; VO = value of the house originally; and NMA = nonmarital share of the appreciation.† See Stroh, 383 N.W.2d at 405 n.1.

[3] Appellant does not claim that she made payments toward the first mortgage.