You can
search the entire site.
or go to the recent opinions, or the chronological or subject indices.
Martin v. Martin (7/19/2002) sp-5598
Martin v. Martin (7/19/2002) sp-5598
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
DONALD H. MARTIN, )
) Supreme Court No. S-9837
Appellant, )
) Superior Court No. 3AN-99-3833
CI
v. )
) O P I N I O N
MELINDA K. MARTIN, )
) [No. 5598 - July 19, 2002]
Appellee. )
________________________________)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Karen L. Hunt, Judge.
Appearances: Peggy A. Roston, Law Office of
Peggy A. Roston, Anchorage, for Appellant.
Barbara A. Norris, Law Office of Barbara A.
Norris, Anchorage, for Appellee.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, Bryner, and Carpeneti, Justices.
EASTAUGH, Justice.
I. INTRODUCTION
I. A husband appealing the property division in a divorce
contends that the trial court erred in finding that the parties
intended to treat the husbands premarital business as marital
property. We affirm, because the husband used marital funds to
finance the business and because, at the husbands request, the
wife made substantial uncompensated contributions to the business
during the fifteen-year marriage. We also affirm the contested
property valuations, but reverse the award of the husbands
premarital camera to the wife.
II. FACTS AND PROCEEDINGS
Melinda and Donald Martin met in 1979, began living
together in 1980, and married in 1985. Don began managing his
sisters Anchorage health food store, Roys Health Foods (Roys), in
1971. Don purchased the store for $140,000 in 1980.1 Don has
been a full-time, salaried employee of Roys since purchase.
Melinda has worked full-time for the State of Alaska since 1978.
Melinda also worked at Roys on a part-time basis from 1980 to
1999. Melinda and Don separated in January 1999 and divorced in
October 2000.
In dividing the property during the divorce, the trial
court determined what property was available for distribution,
valued that property, and divided it 50/50" between the parties.
The court characterized Roys as marital property. Don argues on
appeal that Roys is his separate property, not subject to
equitable division by the court. Don also disputes the courts
valuation of the parties weekend cabin on the Kenai Peninsula,
undeveloped land in Arizona, and Alaska Airlines frequent flier
mileage accounts. Finally, Don argues that the court abused its
discretion by failing to award him a portion of Melindas state
employee retirement account and by awarding his Nikon camera to
Melinda.
III. STANDARD OF REVIEW
Equitable division of marital assets is a three-step
process: determining what property is available for distribution,
assessing the propertys value, and allocating the property
equitably.2 We review the trial courts characterization of
property as separate or marital for abuse of discretion.3
Whether the trial court applied the correct legal rule in
exercising its discretion, however, is a question of law that we
review de novo using our independent judgment.4 Whether the
court correctly valued the assets to be divided is a question of
fact that we review for clear error.5 Finally, we review the
courts ultimate distribution of the assets under an abuse of
discretion standard, and will only reverse if the distribution is
clearly unjust.6
IV. DISCUSSION
A. The Court Did Not Err in Holding that Roys Health
Foods Was Marital Property.
Because Don purchased Roys Health Foods prior to
marriage, Roys would ordinarily be considered his separate
property, not subject to equitable division.7 However, under the
doctrine of transmutation, separate property can become marital
property if the parties so intend.8 The trial court found that
[t]he words and acts of the parties before and during marriage
establish their intent that the health foods store was a family
business. (Emphasis added.) The court accordingly characterized
Roys as marital property.9 Don argues that despite the trial
courts express finding of intent, the court improperly relied on
a mixture of legal theories to reach its conclusion. Because the
evidence supports the courts express finding of intent, we affirm
the courts characterization of Roys as marital.
Don argues that many of the courts findings supporting
its conclusion are not relevant to the parties intent. Indeed,
the two findings immediately preceding the trial courts finding
that the parties intended to treat Roys as a family business
support an active appreciation theory rather than a transmutation
theory.10 The court noted that Don paid almost $117,000 of the
promissory note on Roys through his marital efforts and reasoned
that the resulting equity increase should be considered marital
property, just as it would be if Don had earned this money as
take-home pay:
18. Almost $117,000 out of $140,000
purchase price of the store was paid during
the marriage. This is money that [Don]
generated by spending time and energy on the
store. He spent his marital employment time
and energy creating financial gain which he
used to buy an asset. If he had not used his
employment time and energy to buy the store,
he would reasonably have been expected to use
that time and energy generating income that
would have been marital. [I].e., [Don] spent
his marital time and energy generating
resources to pay for approximately 80% of
what he claims is a non-marital asset.
19. There is no evidence that defendant
was employed other than in the business.
There is evidence that income from the
business was used to support the family unit.
To find that the business was non-marital
would . . . [be] contrary not only to a
preponderance of the evidence in the case,
but also contrary to the legal view of
marriage as an economic unit.
These findings do not directly bear on whether the parties
intended to treat Roys as marital property. Rather, they suggest
that the appreciation in Roys should be treated as marital
property because it derived from Dons marital efforts.
Don further asserts that the court expressly and
incorrectly disavowed any reliance on the parties intent in
reaching its conclusion. In the paragraph following its finding
of intent, the court qualified its conclusion by stating that the
parties intentions were not entitled to much weight:
21. The parties intention as an element
of determining whether a business purchased
before marriage became marital cannot
reasonably be given the same weight or
meaning as the parties intent in determining
whether a business transaction occurred
between non-marital partners because spouses
are not dealing with the business in an arms-
length transaction.
(Emphasis added.) Melinda responds that the court did not reject
the intent standard, but merely noted that the standard should be
applied more liberally in the context of a marital relationship.
Both Don and Melinda are partially correct; the court properly
distinguished the context of marriage from that of typical
business deals, but erroneously de-emphasized the significance of
the parties intent in applying the transmutation doctrine.
Don argues that these are the same errors that caused
us to reverse in Nicholson v. Wolfe.11 We noted in that case that
the trial court erroneously relied upon equitable considerations
in concluding that the husbands premarital business should be
considered marital property:
The trial court did not find that the
Northstar assets were marital because the
parties intended to treat them as such.
Instead, it found that it would be unfair to
treat the property as separate, since both
parties had contributed significant efforts
to the business during the marriage.[12]
We held that [w]ithout finding that the parties intended to
convert [the husbands premarital business] to marital property,
the trial court could not properly consider the business to be a
marital asset.13 Accordingly, we vacated the trial courts
decision and remanded with instructions to treat the husbands
premarital business as separate property unless it expressly
finds an act or acts that demonstrate the parties intent to treat
the property as marital.14
Melinda argues that the court satisfied Nicholson by
making an express finding of intent and by noting several
specific acts evincing this intent. The trial court found that
marital funds were used to finance the business and that Melinda
had worked at the store for many years without pay.
As noted above, the trial court runs together the
doctrine of transmutation, which is based on the parties intent,
with the doctrine of active appreciation, which is based on
equitable considerations.15 These theories are analytically
distinct, and should be treated as such.16 But it would be unduly
formalistic to reverse the trial court on this basis if the
record actually supports the courts express finding of intent.
Accordingly, we consider whether the court abused its discretion
in finding that the parties intended to treat Roys as a family
business.17
Don argues that the record does not support the trial
courts finding that the parties intended to treat Roys as marital
property. Don first argues that Melinda did not play a
substantial role in the business during the marriage. The court
found, however, that Melinda contributed effort and energy to the
business . . . during the marriage and worked at the store
without pay in the early and mid-1990s.
In Chotiner v. Chotiner we summarized the types of
conduct that might evince an intent to convert separate property.18
Of particular pertinence here, we noted that separate property
can become marital when the non-owner spouse lends her credit to
improve the property or otherwise devote[s] substantial efforts
to its management, maintenance, or improvement.19 Conversely, we
have repeatedly held that non-substantial efforts are
insufficient to demonstrate the requisite intent.20
Don argues that Melindas level of involvement in the
store dropped appreciably before the marriage in 1985.
Nonetheless, even by the most conservative estimate she logged
hundreds of hours at the store and at trade conventions over the
parties fifteen-year marriage.21 More importantly, she was only
paid for a fraction of that time. The court found that Melinda
only began receiving paychecks in 1997, after a hiatus of at
least seven years, so that she could obtain social security
benefits and participate in the corporations profit-sharing plan.22
The majority of Melindas work contributions, therefore, went
directly to the earned surplus of the corporation.
Melinda further testified that Don demanded that she
work at the store. She testified that she did so without pay
because she considered it her marital obligation to help out with
the family business. Although Melindas hours at the store
decreased once she moved to the day shift of her state job, she
testified that she still helped out when she could, or when Don
was short-staffed. Melinda testified that Don said a couple of
times, We have a goldmine here, we have to take care of it.
Dons failure to record her time or compensate her for her time
and Melindas willingness to fill in whenever she could without
pay strongly suggest that both parties intended to treat the
store as a joint enterprise.
Don alternatively argues that Melindas contributions
were not substantial because she did not play a management role
at Roys. He asserts that her tasks were mostly clerical and
janitorial. Melinda, on the other hand, argues that she trained
employees, often represented the store at trade conventions, and
acted as decision-maker while Don was away on vacation.23 It is
not necessary to resolve this dispute, however, because we have
never held that the non-owner spouse must have equal decision-
making authority to demonstrate an intent to hold property
jointly. In Lundquist v. Lundquist we affirmed the trial courts
finding that the parties intended to treat the husbands fishing
boat as a joint asset where the wife testified that she worked on
the boat as a deck hand, shopped and cooked for the crew, and
tended to the business while her husband was out fishing.24 Like
the wife in Lundquist, Melinda contributed substantial efforts
that helped maintain the business and contribute to its growth.25
Whether these efforts were primarily oriented towards non-
managerial tasks is irrelevant the salient fact is that they
substantially contributed to the business.
This case also resembles Lundquist in that marital
funds were used to finance the business.26 Melinda documented
checks totaling $31,000 written from marital accounts to Roys in
the 1990s. Don admitted to writing the checks. Accordingly, the
court found that marital funds were used in the business. Don
disputes this finding, arguing that the checks were probably just
loans to Roys from the profit-sharing plan in which both Don and
Melinda participated and that the marital bank accounts were just
conduits for the loans.
Don explains that participants in the profit-sharing
plan were allowed to borrow up to fifty percent of their vested
balance. Because the corporation was not allowed to borrow from
the plan directly, Don would borrow from the plan and loan the
borrowed funds to the corporation by writing a check from a
personal account. The corporation would pay him back, and he
would in turn reimburse the profit-sharing plan. In Dons
accountants words, the transactions were a wash.
But the fact that a loan is repaid does not change the
nature of the transaction. Calling a repaid loan a wash belies
the element of risk associated with every loan.27 Dons vested
balance in the profit-sharing account was a product of his
marital efforts, and therefore marital property.28 Accordingly,
Melindas equitable share of Dons marital efforts was placed at
risk by this lending arrangement. Furthermore, Dons accountant
admitted that at least one of the loans had not been repaid as of
the last accounting before trial. The courts finding that
marital funds were used in the business is not clearly erroneous.
We have never reversed a trial courts finding of intent
to transmute when the non-owner spouse made uncompensated
contributions to the premarital owners enterprise of the
magnitude present in this case. Don disputes Melindas
characterization of her contributions, but we will not reverse
the courts implicit decision to credit Melindas testimony over
his.29 The record adequately supports the main thrust of Melindas
argument that she assumed that she was working for the family
business and that Don either shared that belief or
opportunistically allowed her to persist in that belief.
Accordingly, the court did not abuse its discretion by finding
that Don and Melinda intended to treat Roys as joint property.
B. The Courts Disputed Valuations Are Not Clearly
Erroneous.
1. The Kenai cabin
The trial court valued the parties Kenai cabin at
$108,500. This was the value attributed in a brokers estimate
Don requested in anticipation of litigation. The court noted
that the parties purchased the cabin for $85,000 in 1995 and
spent just over $27,000 on improvements. In rejecting Dons
experts appraisal obtained after Don rejected the brokers
estimate, the court found:
It is unreasonable and therefore, not
creditable that after the parties spent
$27,000 improving a home on the Kenai, it
decreased in resale value to less than the
purchase price. [Melindas] contention that
$108,500 is FMV for the Kenai house and guest
cabin is more credible than Defendants self-
serving appraisal obtained at his behest
after rejecting a broker letter re: resale
value.
Don argues that the courts finding is clearly erroneous
because the brokers estimated value was just a starting place to
list the property for sale and not the present value of the
property. Don also notes that his expert appraised the property
at $91,000, a value greater than the original purchase price.
Melinda argues that Don simply shopped for a lower value after he
was dissatisfied with the brokers conclusion because he knew that
he would end up owning the cabin, and therefore stood to gain by
obtaining the lowest possible valuation. The trial court weighed
the credibility of the witnesses and clearly agreed with Melinda.
The courts insignificant error regarding the appraisal
notwithstanding, its conclusion was based on professional
analysis (the brokers estimate) and its evaluation of Dons
motives in obtaining a second opinion. This finding is clearly
within the trial courts wide latitude in finding facts, and is
not clearly erroneous.
2. The Mojave property
The trial court accepted Melindas submission of a 1993
appraisal valuing one of the parties undeveloped Arizona parcels
at $1,900. Don argues that the value of this property is
actually $1,166, a figure he determined by writing to the Mojave
Land Owners Association. He did not submit any documentary
evidence of this correspondence. The trial courts decision to
rely on the appraisal obtained during the marriage rather than
Dons unsupported assertion at trial is not clearly erroneous.
3. The Alaska Airlines mileage accounts
The trial court accepted Melindas accountants testimony
that the parties Alaska Airlines mileage was worth two cents per
mile. Don argues that because the parties cannot actually sell
their mileage, it has no fair market value. Melinda correctly
responds that market transferability is not a prerequisite to
determining value for property division purposes. Fair market
value is defined as the price a willing buyer would pay to
purchase the asset on the open market from a willing seller.30
Melindas expert testified that a buyer could purchase Alaska
Airlines mileage for two cents per mile. The fact that Don or
Melinda cannot sell their mileage does not preclude the court
from determining what price a buyer would pay for their mileage.
Put another way, an asset need not be marketable if the court can
objectively determine that it has value to its owner. Thus, the
courts finding is not clearly erroneous.
C. The Court Did Not Err in Awarding All of Melindas
State Retirement Account to Melinda.
The trial court awarded Melinda her entire state
retirement account. Don argues that the court abused its
discretion by not awarding him a nominal amount of this account
so that he would be eligible to purchase major medical benefits
under AS 39.35.535(d).31 Assuming that Don is correct that a
nominal award from Melindas state retirement account would make
him eligible for coverage, we hold that the court did not abuse
its broad discretion in denying him any portion of the account.
Don offered no evidence at trial that he had no other means of
obtaining health insurance, nor does he offer any argument to
this effect on appeal. Don essentially argues that he would
substantially benefit from such an award at no cost to Melinda.
But we will only reverse the trial courts disposition of the
marital estate if the court has abused its discretion and
produced a clearly unjust result.32 Because there is no evidence
of such abuse or injustice here, we affirm the courts award.
D. It Was Error To Award the Nikon Camera to Melinda.
Finally, Don argues that the court abused its
discretion by awarding Melinda the Nikon camera he owned before
the marriage. Melinda argues that the court must have found that
the parties intended the camera to become joint property.
Melinda testified that she used the camera extensively throughout
the marriage, that Don consented to this use, and that he rarely
used it. But consent to use, without more, is not enough to
evince an intent to transmute separate premarital property.
Accordingly, it was error to characterize the camera as marital
property, and an abuse of discretion to award it to Melinda.
V. CONCLUSION
For these reasons, we VACATE the award of the Nikon
camera to Melinda and REMAND so that the camera can be
reclassified as non-marital property. We otherwise AFFIRM the
findings and decree on all points.
_______________________________
1 Don formed a closely-held corporation to make the
purchase. Don also paid his sister $30,000 to execute a non-
competition agreement.
2 Lundquist v. Lundquist, 923 P.2d 42, 46-47 (Alaska
1996); Wanberg v. Wanberg, 664 P.2d 568, 570 (Alaska 1983).
3 Lundquist, 923 P.2d at 47.
4 Brown v. Brown, 947 P.2d 307, 308 (Alaska 1997).
5 Alaska R. Civ. P. 52(a); Doyle v. Doyle, 815 P.2d 366,
368-69 (Alaska 1991).
6 Brotherton v. Brotherton, 941 P.2d 1241, 1244 (Alaska
1997).
7 AS 25.24.160(a)(4) permits courts to divide property
acquired only during marriage.
8 Nicholson v. Wolfe, 974 P.2d 417, 423 (Alaska 1999)
(citations omitted). Intent is demonstrated through the words
and actions of the parties during marriage. Sampson v. Sampson,
14 P.3d 272, 277 (Alaska 2000).
9 The parties stipulated that the equity in Roys at the
valuation date was $125,000. The parties also stipulated that
the balance on the promissory note used to purchase Roys was
almost $117,000 at the time of marriage, and that the note was
completely paid by 1994.
10 Under the doctrine of active appreciation, any increase
in value of separate property owing to marital efforts is
considered marital property subject to equitable division. See
Lowdermilk v. Lowdermilk, 825 P.2d 874, 877-78 (Alaska 1992)
(holding that increase in value of husbands premarital business
owing to husbands contributions of time and energy during
marriage was marital property); Brett R. Turner, Equitable
Distribution of Property 5.22 (2d ed. 1994) (explaining doctrine
and collecting cases).
11 974 P.2d 417 (Alaska 1999).
12 Id. at 423.
13 Id. (citation omitted).
14 Id. at 424.
15 See Sampson, 14 P.3d at 277 (noting that trial courts
analysis runs together the doctrines of transmutation of separate
property into marital property and invasion of separate
property); Turner, Equitable Distribution 5.22 (explaining
equitable basis of active appreciation doctrine).
16 Sampson, 14 P.3d at 277 (noting that equitable
considerations have no direct bearing on whether parties intended
to treat property as part of marital estate).
17 Green v. Green, 29 P.3d 854, 857 (Alaska 2001)
(citation omitted).
18 829 P.2d 829, 832-33 (Alaska 1992).
19 Id.
20 E.g., Nicholson, 974 P.2d at 424 (holding wifes limited
help with bookkeeping and answering phone insufficient to support
implicit finding of intent to hold husbands premarital business
jointly); Brooks v. Brooks, 733 P.2d 1044, 1054 (Alaska 1987)
(holding wifes limited maintenance and management tasks relating
to apartment complex did not rise to the level of active interest
in the ongoing maintenance, management and control of the
property necessary to demonstrate an intent to hold the apartment
complex jointly); Wanberg, 664 P.2d at 573 & n.19 (holding wifes
minor efforts at remodeling rental property and collecting rent
insufficient to demonstrate intent to transmute property); see
also McDaniel v. McDaniel, 829 P.2d 303, 306 (Alaska 1992)
(Participation by both spouses in the management and maintenance
of the property will not automatically transform pre-marital into
marital property. Rather, the participation must be significant
and evidence an intent to operate jointly.).
21 From 1980 to 1983 Melinda worked at Roys approximately
fifteen to twenty hours per week. Her hours dropped to
approximately four hours per week after she switched to the day-
shift in 1983, and dropped further after the parties purchased a
weekend cabin on the Kenai Peninsula in 1995.
22 Melinda supports this finding by noting that Don did
not keep track of Melindas hours, so that the paychecks could not
have been tied to the amount of labor she performed.
23 While Melindas own evidence and testimony suggest that
her tasks were generally non-managerial, several employees
testified that she was second in command to Don at the store.
24 923 P.2d 42, 47 (Alaska 1996).
25 Id. Don argues that Lundquist is distinguishable
because the wife in that case quit other employment to work on
her husbands fishing boat. Assuming this to be correct, we did
not consider this fact significant enough to mention in our
opinion in Lundquist, and we did not rely on it in reaching our
conclusion.
26 See id. (noting wifes claim that marital funds were
used to make improvements to boat as well as to pay off loan on
boat).
27 In this regard, the case at bar is distinguishable from
Money v. Money, in which we held that premium payments on a
separate life insurance policy made from a marital account were
exactly offset by policy dividends, and that therefore the wife
could not claim to have contributed any funds toward maintaining
the policy. 852 P.2d 1158, 1162-63 (Alaska 1993).
28 Plan participants are required to make contributions
based upon a percentage of their compensation. Therefore, Dons
plan balance is simply another form of income, no different for
purposes of equitable division from Melindas state retirement
account.
29 See Lundquist, 923 P.2d at 47 (noting that trial court
properly chose to believe wifes version of events).
30 Turner, Equitable Distribution 7.03, at 505.
31 AS 39.35.535(d) provides:
[A] members former spouse who receives a
monthly benefit under a qualified domestic
relations order is entitled to receive major
medical insurance coverage if the former
spouse
(1) elects the coverage within 60 days
after the first monthly benefit paid under
the order is mailed . . . ; and
(2) pays the premium established by the
administrator for the coverage.
32 Brotherton v. Brotherton, 941 P.2d 1241, 1244 (Alaska
1997).
