This opinion will be unpublished and may
not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1998).


In Re the Marriage of:
Kathleen R. Worms, petitioner,


Timothy J. Worms,

Filed November 16, 1999
Affirmed in part, reversed in part and remanded;
motion granted in part, motion denied.
Lansing, Judge

Ramsey County District Court
File No. F3962870

Charlotte A. Jensen, 6200 Shingle Creek Parkway, Suite 155, Brooklyn Center, MN 55430 (for appellant)

Douglas G. Sauter, Jason P. Rietz, 199 Coon Rapids Boulevard, Suite 108, Coon Rapids, MN 55433 (for respondent)

Considered and decided by Amundson, Presiding Judge, Lansing, Judge, and Peterson, Judge.

U N P U B L I S H E D   O P I N I O N


This is an appeal from judgment in a marital dissolution action raising multiple issues relating to child support, spousal maintenance, property division, and attorneys' fees. We reverse the calculation of Timothy Worms's nonmarital interest in the homestead and remand for the court to correct the calculation and distribution of that interest. We affirm all other findings and conclusions. We grant in part Timothy Worms's motion to strike portions of Kathleen Worms's brief and appendix and deny his motion for attorneys' fees on appeal.


The district court dissolved Kathleen and Timothy Worms's 15-year marriage in November 1998. The dissolution judgment provided for joint legal custody of their three minor children and placed physical custody with Kathleen Worms. The district court set child support at $1,165.50 per month, set spousal maintenance at $300 each month until December 1999, valued and divided a $120,007.65 net marital estate, and denied Kathleen Worms's request for attorneys' fees.

On appeal, Kathleen Worms challenges (1) the findings and conclusions on the value of Timothy Worms's shares in a Subchapter S corporation and interest in a family limited partnership; (2) the amount and duration of spousal maintenance; (3) the calculation and distribution of the marital estate; and (4) the district court's refusal to award her attorneys' fees. Timothy Worms seeks attorneys' fees associated with the appeal and also moves to strike portions of Kathleen Worms's brief and appendix.



The district court set Timothy Worms's child support obligation at $1,165.50 per month, based on a net monthly income of $3,330.01. Kathleen Worms contends that the monthly income calculation incorrectly omits distributions Timothy Worms receives annually from Cool Air, Inc., a Subchapter S corporation formed by his parents. She also maintains that Timothy Worms's interest in a family limited partnership, the Worms Family Partnership (WFP), which derives from his Cool Air shares, is marital property.

Timothy Worms's parents gifted 111 shares in their subchapter S corporation, Cool Air, to each of their seven children in 1984. The purpose of the gift, according to the parents' accountant, was to provide education funds for their children and grandchildren, but primarily for their grandchildren. The parents also decided to distribute annually an amount equal to the highest tax owed by any shareholder on the Cool Air income. The annual distribution started in 1986.

In 1987, Timothy Worms's parents established the WFP as a vehicle to protect Cool Air's excess funds from creditors in the event of business losses or product liability. Funds not required to finance Cool Air's operations or to pay shareholders' income taxes were transferred to the WFP, controlled by Timothy Worms's father as general partner. The parents' intended purpose for these funds in the WFP was also their grandchildren's education expenses, and the only money distributed from the WFP since its inception has been for education expenses.

The district court found that Timothy Worms's shares in Cool Air have no fair market value, his interest in the WFP has no fair market value, he has not received any net cash from Cool Air other than the small amount attributable to the income tax differential, and that Cool Air distributions are not income for purposes of calculating child support or spousal maintenance.

Testimony at trial supported Timothy Worms's assertion that neither his Cool Air stock nor his interest in the WFP has any fair market value. Timothy Worms's father owns the technology behind the product sold by Cool Air, and his accountant testified that if he decided to terminate Cool Air's right to use the technology, Cool Air would have nothing to sell. The accountant also testified that a family limited partnership, such as the WFP, is a recognized form of estate planning by which the grantor limits the size of his estate while retaining control over the assets transferred to the partnership. Kathleen Worms's own financial expert admitted that there is no market for family limited partnership interests. This evidence supports the district court's determination that neither Timothy Worms's Cool Air shares nor his interest in the WFP has any fair market value.

Kathleen Worms argues that because Timothy Worms's interest in the WFP can be liquidated and is available to creditors, a value can be determined. But this valuation argument was not presented to the district court and cannot be raised for the first time on appeal. See Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988) (appellate courts must generally consider only issues presented to and considered by the district court).

In excluding from Timothy Worms's income the annual distribution of the amount equal to the highest tax liability, the district court relied on testimony from Timothy Worms and two of his brothers that they used the money to pay income taxes or signed it over to the WFP. The two brothers testified that the practice stems from an agreement among the shareholders that has been uniformly followed. The checks are written to the shareholders, rather than directly to the WFP, to avoid IRS characterization as loans. The parents' accountant substantiated that the only money Timothy Worms receives is the difference between the income tax he owes and the tax owed by the shareholder with the highest marginal tax rate and that he has no right to pull money out of Cool Air or the WFP.

Whether a source of funds is income for purposes of determining a person's child support obligation is a question of law. Sherburne County Soc. Servs. v. Riedle, 481 N.W.2d 111, 112 (Minn. App. 1992). Although cash distributions from Cool Air are reported on Timothy Worms's income tax returns as unearned income, that designation is not determinative in calculating income for child support. See Marx v. Marx, 409 N.W.2d 526, 528-29 (Minn. App. 1987) (substantial losses reported on tax returns were due to large deductions, and cash flow was more reliable indicator of income). Timothy Worms's receipt of cash distributions from Cool Air to cover his increased income tax liability is consistent with the `pass-thru' nature of a Subchapter S corporation. See Denise Roy, Taxation of Corporations and Their Shareholders at 23, in Business Law 101 (Minn. CLE 1999) ("Sub S income is taxed only once at the shareholder's applicable marginal rate. Income is taxed to the shareholders regardless of whether they receive any distributions from the corporation."). On this record, the district court did not err in excluding the Cool Air distributions from the calculation of Timothy Worms's income or in declining to categorize Timothy Worms's interest in the WFP as marital property.


Kathleen Worms challenges both the amount and duration of the spousal maintenance award. Absent an abuse of the district court's "wide discretion" in awarding maintenance, "the trial court's determination is final." Erlandson v. Erlandson, 318 N.W.2d 36, 38 (Minn. 1982). The district court made detailed findings on the factors listed in Minn. Stat. § 518.552, subds. 1, 2 (1998).

The court found that, after retraining as a commercial artist, Kathleen Worms will increase her $1,175.48 monthly net income to $1,842.00 (based on a $25,000 annual gross salary). The court further found that Kathleen Worms would need until May 1999 to complete retraining. The court calculated her reasonable monthly expenses to be $2,768 and set spousal maintenance at $300 per month until December 31, 1999.

The court based its findings in part on information Kathleen Worms obtained from the College of Visual Arts. A ten-segment course of study beginning in the fall of 1997 and ending in the spring of 1999 would enable Kathleen Worms to re-enter the graphic-design market at a salary in the low-to-mid $20,000's range. Kathleen Worms contends that it is unrealistic to expect her to complete the necessary ten courses to re-enter the graphic-design market by May 1999 and that the maintenance award should continue until she actually is earning $25,000.

Despite some uncertainty on when Kathleen Worms will be qualified to earn the projected $25,000 salary, the district court did not abuse its discretion in providing maintenance until December 31, 1999, because the award provides a six-month buffer after the projected May 1999 retraining date. If she justifiably fails to complete retraining by December 31, 1999, she may move to modify the decree. See Maeder v. Maeder, 480 N.W.2d 677, 679 (Minn. App. 1992) (justified inability to complete retraining may provide a basis for post-decree modification under Minn. Stat. § 518.64), review denied (Minn. Mar. 19, 1992).

Kathleen Worms also contends that the amount of the maintenance is insufficient to meet her reasonable needs. The district court found that Kathleen Worms has reasonable monthly expenses (including the children's expenses) of $2,768. That amount represents the monthly expenses estimated by Kathleen Worms's accountant. In a prehearing statement, Kathleen Worms projected her monthly expenses at $4,120 and Timothy Worms calculated her actual monthly expenses to be $2,028 based on her checkbook register. The budget adopted by the district court may not capture all of Kathleen Worms's expenses, but it falls within the range of the three proposed budgets and takes into account Timothy Worms's own limited monthly budget. See Erlandson, 318 N.W.2d at 39-40 (recipient's needs must be balanced against obligor's financial condition). The district court did not abuse its discretion in determining the amount and duration of spousal maintenance.


In calculating the parties' net marital estate, the district court found that Timothy Worms's nonmarital interest in the homestead is $30,525, consisting of (1) his nonmarital share of a townhouse he bought before the marriage and invested in the homestead, and (2) a cash gift from his parents used to refinance the homestead.

The court traced Timothy Worms's nonmarital interest in the homestead as follows: Before the parties married, Timothy Worms purchased a townhouse for $57,000, of which his downpayment of $11,065 represents 19.4 percent. The parties sold the townhouse in 1987 for $71,000, and Timothy Worms's nonmarital share of the proceeds is $13,774, or 19.4 percent of the gross sales price. These proceeds were used, in part, to buy the parties' house. Timothy Worms's nonmarital share of $13,774 represents 11 percent of the purchase price of $125,000. The current market value of the house is agreed by the parties to be $165,000. The nonmarital portion of the homestead attributable to the house is $18,150, which is 11 percent of $165,000. Additionally, the parties refinanced the house in 1991, using a $10,000 nonmarital gift to Timothy Worms from his parents. The house was appraised at $133,000 at the time of refinancing, and the $10,000 gift is 7.5 percent of $133,000. The current value of the house ($165,000) times 7.5 percent is $12,375. This sum represents Timothy Worms's nonmarital claim to the house resulting from the $10,000 gift from his parents. Adding together Timothy Worms's nonmarital claims of $18,150 and $12,375 results in a total nonmarital interest of $30,525.

Kathleen Worms correctly argues that the costs of sale and costs of improvements should be subtracted from the gross proceeds of the sale of the townhouse to find the sale value for computing the nonmarital interest. Stroh v. Stroh, 383 N.W.2d 402, 406 (Minn. App. 1986). Cost of repairs and improvements must also be subtracted from the current value of the house to determine appreciation. Dorweiler v. Dorweiler, 413 N.W.2d 572, 576 (Minn. App. 1987).

The district court found that the parties made improvements to the townhouse costing $3,981 (overlooking $380 in costs documented by Timothy Worms), but did not subtract these costs from the sale price when calculating Timothy Worms's nonmarital interest. The record shows that the sale costs were $4,771. Subtracting these total costs of $9,132 ($4,361 plus $4,771) from the townhouse's sale price of $71,000 results in an adjusted sale value of $61,868. Multiplying $61,868 by Timothy Worms's 19.4 percent interest results in $12,002, which is Timothy Worms's nonmarital share of the proceeds from selling the townhouse.

Timothy Worms's nonmarital share of $12,002 represents 9.6 percent of the homestead's $125,000 purchase price. The nonmarital portion of the homestead attributable to the townhouse should be 9.6 percent of the homestead's current value of $165,000 minus the cost of any improvements. See Dorweiler, 413 N.W.2d at 576 (in calculating nonmarital interest in homestead, court must divide nonmarital contribution to downpayment by purchase price, subtract cost of repairs and improvements from current value of house to determine increase in value due solely to appreciation, and multiply the net appreciated value of the house by the ratio of nonmarital net equity to purchase price). Timothy Worms testified that the parties spent $18,000 on improvements to the house, funded by a home-improvement loan. Kathleen Worms claimed a greater amount, including improvements funded by $13,000 of her nonmarital inheritance, but did not produce evidence to support this claim. See Van de Loo v. Van de Loo, 346 N.W.2d 173, 177 (Minn. App. 1984) (party seeking nonmarital classification must produce demonstrable proof that property obtained during marriage is actually nonmarital property). Thus, $18,000 in improvements must be subtracted from the current value of $165,000. The current value of the house attributable to appreciation is $147,000 ($165,000 minus $18,000); consequently, Timothy Worms's nonmarital interest is $14,112 (9.6 percent of $147,000). The adjusted value of the house ($147,000) times 7.5 percent is $11,025.

Based on the revised calculations, Timothy Worms's total nonmarital interest in the homestead is $25,137 ($14,112 traced from the townhouse plus $11,025 traced from the $10,000 nonmarital gift), as opposed to $30,525 as found by the district court. We remand for the district court to correct the calculation and distribution. See generally Nardini v. Nardini, 414 N.W.2d 184, 192-93 (Minn. 1987) (discussing apportionment of marital and nonmarital interests in the same property).


Kathleen Worms argues that the district court erred by (1) omitting various assets from the marital estate; (2) charging the marital estate for two debts owed to Timothy Worms's father and brother; and (3) unfairly distributing the marital estate.

In a marriage dissolution, the court shall make a "just and equitable division of the marital property." Minn. Stat. § 518.58, subd. 1 (1998). The goal is to place both parties in the optimum position. Nardini, 414 N.W.2d at 188. When a trial court's division of marital assets has an acceptable basis in fact and principle, we will not disturb it even though we might have made a different disposition of the property. Rohling v. Rohling, 379 N.W.2d 519, 522 (Minn. 1986).

Kathleen Worms contends that 3M stock worth $2,450 (35 shares at $70 per share) and frequent-flier miles worth $3,000 (150,000 miles at $.02 per mile) should have been included in the marital estate. Timothy Worms testified that he sold the 3M stock in early 1997 to pay attorneys' fees, and the district court awarded the frequent-flier miles to him. The combined value of these two assets is $5,450, which is not entirely minimal in the context of a $120,007 net marital estate. But a court's division of marital property need not be mathematically equal. Johns v. Johns, 354 N.W.2d 564, 566 (Minn. App. 1984). In the context of the district court's overall distribution of the marital estate, by which Kathleen Worms received $67,154 and Timothy Worms received $52,863, the distribution of the two assets is equitable.

Kathleen Worms argues that the court erred by charging the marital estate with two marital debts: a $4,500 loan from Timothy Worms's brother and a $15,000 loan from Timothy Worms's parents. Apportionment of marital debts is within the district court's discretion. O'Donnell v. O'Donnell, 412 N.W.2d 394, 396 (Minn. App. 1987). This discretion extends to deciding whether intrafamily transactions were gifts or loans. See Novick v. Novick. 366 N.W.2d 330, 332 (Minn. App. 1985) (holding record supported trial court's characterization of undocumented, unsecured, and interest-free "loans" from wife's parents as gifts). Although the record shows that Timothy Worms's parents had given cash gifts to the parties in the past, the testimony supports the district court's conclusion that these transfers from Timothy Worms's family were loans.

Finally, Kathleen Worms argues that the district court's property distribution is unfair because the court calculated and distributed it as Timothy Worms requested, and because the December 1999 maturity date for the lien on the homestead is unrealistic. The property distribution may not be as Kathleen Worms wished, but it is within the district court's broad discretion. See Rutten v. Rutten, 347 N.W.2d 47, 50 (Minn. 1984) (property division is an abuse of discretion only when it is against logic and the facts on record).


The district court declined to award attorneys' fees to Kathleen Worms. An award of attorneys' fees rests almost entirely within the district court's discretion. Solon v. Solon, 255 N.W.2d 395, 397 (Minn. 1997). The court shall award attorney fees if (1) the fees are necessary for a good-faith assertion of the party's rights in the proceeding, (2) the party from whom fees are sought can afford to pay them, and (3) the party who seeks an award of fees cannot afford to pay them. Minn. Stat. § 518.14 (1998). The district court specifically addressed the first two requirements of section 518.14, finding that Kathleen Worms's actions in connection with her claims against the WFP and Cool Air contributed to the length and expense of the proceedings and that Timothy Worms lacks the means to pay for her attorneys' fees. These two findings support the district court's refusal to award attorneys' fees to Kathleen Worms.


Timothy Worms moves to strike pages A-78 through A-111 from Kathleen Worms's brief, the arguments drawn from this material, and the argument at page nine of her brief that Timothy Worms's interest in the WFP can be liquidated and is available to creditors.

The record on appeal consists of "[t]he papers filed in the trial court, the exhibits, and the transcript of the proceedings." Minn. R. Civ. App. P. 110.01. The appendix to appellant's brief shall contain, inter alia, "the relevant written motions and orders." Minn. R. Civ. App. P. 130.01(b). We grant the motion to strike pages A-78 to A-111 because the pages contain copies of motion papers relating to personal property distribution and dependent health care that are not relevant to the issues on appeal. We need not strike the argument on whether the family partnership is subject to creditors' claims because we determined in part I that this argument was waived.


Timothy Worms moves for an award of his attorneys' fee in connection with the appeal. Fees may be awarded for bad-faith appeal of a dissolution judgment. Kitchar v. Kitchar, 553 N.W.2d 97, 104 (Minn. App. 1996), review denied (Minn. Oct. 29, 1996). Colorable arguments on difficult issues are not bad-faith arguments. Id. We reject the request for bad-faith attorneys' fees because Kathleen Worms has prevailed on one appellate issue and has made good-faith arguments on the others.

Affirmed in part, reversed in part and remanded; motion granted in part, motion denied.