Maria K. Pastoor, 332 Minnesota Street, Suite E-1434, St. Paul, MN 55101, Mary Antonia Wilmes, 324 Degree of Honor Building, 325 Cedar Street, St. Paul, MN 55101 (for appellant)

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

Husband challenges the district court's property distribution in a marriage dissolution case. He argues that (1) the district court improperly determined that his premarital and inherited funds could not be traced; (2) the district court erred in determining that he had no nonmarital interest in a condominium; and (3) the district court abused its discretion in its division of property. Husband challenges the district court's property distribution in a marriage dissolution case. He argues that (1) the district court improperly determined that his premarital and inherited funds could not be traced; (2) the district court erred in determining that he had no nonmarital interest in a condominium; and (3) the district court abused its discretion in its division of property.

In 1997, the district court dissolved the marriage and divided the parties' property. The district court determined that any nonmarital funds had become marital through the intent of the parties, commingling, and the nature of expenditure. Husband appeals.

Husband argues that the district court erred by determining that his nonmarital funds, particularly in terms of the couple's money market account, could not be traced because of commingling. Husband asserts that the district court erroneously used a strict tracing standard. While this court reviews de novo legal questions regarding whether property is marital or nonmarital, this court defers to the district court's factual findings regarding such issues unless clearly erroneous. Freking v. Freking, 479 N.W.2d 736, 739 (Minn. App. 1992).

All property obtained by either spouse during the marriage is presumed to be marital property, regardless of the form of ownership. Minn. Stat. § 518.54, subd. 5 (1996). Husband, as the party claiming that property is nonmarital, "must prove the necessary underlying facts by a preponderance of the evidence." See Johnson v. Johnson, 388 N.W.2d 47, 49 (Minn. App. 1986). The definition of nonmarital property includes property acquired by either spouse, including gifts or inheritances made by a third party to one but not both spouses. Minn. Stat. § 518.54, subd. 5(a).

For nonmarital property to maintain its nonmarital status, it must either be kept separate from marital property or, if commingled with marital property, be readily traceable.

Olsen v. Olsen, 562 N.W.2d 797, 800 (Minn. 1997). Husband argues that the district court adopted a "strict tracing" standard (as opposed to the "readily traceable" standard), in which any commingling of marital and nonmarital funds renders the funds marital, even where the source of the nonmarital funds is proven.

The district court, however, did not apply a strict tracing standard. It wrote: "Tracing cannot be done in this case because of the extent of commingling and because the transactions cannot be characterized as marital versus nonmarital." The district court's main reasons for this conclusion included that there was no attempt to separate marital and nonmarital funds, there were numerous (85) transactions made involving the parties' money market account, and the claimed nonmarital funds were frequently used to pay for ordinary family expenses. Two experts testified before the district court regarding the feasibility of tracing. Husband's expert, paralegal Karen Zack, provided documentation to support her opinion that husband's nonmarital assets could be traced. The district court rejected her conclusions, partially because her calculations were based on Zack's inaccurate understanding of Minnesota law regarding interest from nonmarital assets. The district court also simply disagreed with her conclusion that the funds were readily traceable based on the volume of transactions and the obvious disregard by the parties to keep such funds separate. Instead, the district court concurred with the conclusion of wife's expert, accountant Charles DeNet, who opined that husband's nonmarital funds were not readily traceable.

The district court applied the proper legal standard for determining the feasibility of tracing, and the facts underlying that determination were not clearly erroneous.

Husband argues that the district court improperly disregarded his nonmarital contribution to the parties' interest in their Telemark condominium. He argues that even under a strict tracing standard, his contribution of $4,626.06 to the condominium, made within the time period in which he received his inheritance, shows his nonmarital interest (which he calculates as 64%) in the condominium. We agree. While we find that the district court properly found that husband's nonmarital assets generally had become marital, in the case of the Telemark condominium, husband's nonmarital assets are readily traceable. After husband and wife made a down payment of $2,150 and six monthly payments of $82.45 with marital funds, husband deposited $17,000 from his first inheritance distribution into the couple's money market account, which at the time had a $665 balance. Less than one month later, the couple paid the $4,625.06 of the balance for their interest in the condominium with a check from the money market account.

We reverse the district court's determination regarding the traceability of husband's nonmarital interest in the Telemark condominium. We hold that his interest is readily traceable and remand to the district court for recalculation of the division of property in accordance with this holding.

The "separate funds" list was merely an alternative rationale for the equal distribution of property; it is clear that the division was based on the district court's determination that all nonmarital property had become marital. With the exception of the Telemark condominium matter, the district court did not abuse its discretion in the division of property.

Affirmed in part, reversed in part, and remanded.