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Hanson v. Hanson (12/09/2005) sp-5962
Hanson v. Hanson (12/09/2005) sp-5962
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
| MICHELLE M. HANSON,
| ) |
|
| ) Supreme Court No. S-
11294/11313 |
|
Appellant/Cross-Appellee,
| ) |
|
| ) Superior Court
No. |
|
v. | ) 3AN-02-6671
CI |
|
| ) |
|
HANS E. HANSON, | ) O P I N I
O N |
|
| ) |
|
Appellee/Cross-Appellant. | ) [No. 5962
- December 9, 2005] |
|
| ) |
|
|
|
|
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, William F. Morse, Judge.
Appearances: Vanessa White, Anchorage, for
Appellant/Cross-Appellee. Susan D. Mack,
Wilkerson, Hozubin & Burke, P.C., and Ryan R.
Roley, Anchorage, for Appellee/Cross-
Appellant.
Before: Bryner, Chief Justice, Matthews,
Eastaugh, Fabe, and Carpeneti, Justices.
CARPENETI, Justice.
I. INTRODUCTION
The divorce of Hans and Michelle Hanson required the
division and distribution of assets that included an ongoing
business, an investment account funded with business profits,
proceeds from the sale of a business vehicle, the businesss 2001
tax refund, and the couples residence. The superior court
determined that Hanss ninety-five percent share in the business
and the investment account were Hanss separate property, that the
2001 tax return was not a distinct asset but had been taken into
account in valuing the business, that the proceeds from the
vehicle sale were the property of the business, but that the
house was marital property. Michelle challenges the courts
failure to classify the business and related items as assets of
the marriage; Hans appeals the courts finding that the home was
marital property. The superior court also held that Michelle was
entitled to payment for her five percent share of the business,
but rejected the type of minority discounts proposed by the
parties experts. Hans challenges the courts departure from the
experts recommendations. Finally, the court offset Michelles
interim support and attorneys fees award against her share of the
marital estate, and Michelle appeals.
Because the trial court did not commit clear error in
finding that the house was marital property, did not err in
declining to apply a minority discount to Michelles share of the
business and in declining to make an award to Michelle in respect
of the vehicle, and acted within its discretion in offsetting
Michelles pre-trial awards against her final share of the marital
estate, we affirm on those issues. But we conclude that the
trial court erred in determining that Hanss share in the business
was Hanss separate property without applying an active
appreciation analysis. We hold instead that the increase in the
businesss value caused by Hanss marital efforts was marital
property, and remand for specific findings regarding the amount
of this appreciation. We also hold that the investment account
is marital property because it became marital income once
withdrawn from the business, while the tax refund should be
classified and distributed in the same manner as the rest of the
business.
II. FACTS AND PROCEEDINGS
A. Facts
Michelle and Hans Hanson married in November 1998 and
separated on May 1, 2002, when Hans filed for divorce. They have
no children.
During the marriage Michelle was employed by the Alaska
Department of Transportation, while Hans operated a business
known as Shaman, LLC (Shaman), which offers traffic control
services to construction companies. While the parties kept
various personal accounts during the marriage, they also shared a
joint account. Hans contributed to this account by making
regular monthly deposits and through substantial draws from
Shaman. Michelle deposited her paychecks, two Permanent Fund
Dividend checks, and a $10,000 gift into the joint account.
The key asset at issue in this appeal is Shaman. Hans
purchased Shaman in 1993, and the business grew steadily during
the marriage. The parties stipulated that Shaman was worth
$1,150,000 at the end of 2002, although they dispute the value of
each partys shares in the corporation. Hans initially ran Shaman
as a sole proprietorship, but he organized it into a limited
liability corporation in 1999. The organization papers allocated
a ninety-five percent interest to Hans and a five percent
interest to Michelle. Hans maintains that he never intended for
Michelles five percent share to transform Shaman from personal to
marital property, and that he only gave her a share because his
lawyer told him that an LLC needs at least two members.
Various Shaman-related assets are also relevant to this
appeal. First, there is Hanss Capital Advisors investment
account; this account contained $15,000 before the marriage, Hans
placed $200,000 from Shaman into the account during the marriage,
and it contained $119,000 at the time of trial.1 Second, the
parties dispute the classification of the proceeds from the sale
of a Small Unit Support Vehicle (SUSV) that Hans purchased for
use by Shaman.2 In the spring of 2002, before the couple
separated, Hans sold the SUSV for $21,000 and withdrew the
proceeds from Shamans bank account. Third, there is a 2001 tax
refund of $65,000 for payments made by Shaman. As a Limited
Liability Company, Shaman does not directly pay taxes, but
instead passes on its liability to Michelle and Hans. The tax
refund was issued to Hans and, pursuant to the courts order, he
deposited it into the Shaman account pending resolution of
whether Michelle was entitled to a share of the refund.
Finally, there is the couples home, which Hans built
before the marriage. Hans initially paid for the construction
costs with a loan from his mother, but then took out a $250,000
mortgage to repay the loan; a balance of $35,000 was placed into
the couples joint account. Michelle was never placed on the deed
to the house and initial mortgage payments were made from the
Shaman account, but payments totaling $40,000 were made from the
couples joint account.
B. Proceedings
The superior court held that there is no question that
Hans intended to give Michelle [a] 5% interest in Shaman (and not
a penny more). The court rejected Michelles argument that the
five percent was a pro forma offering, and that she was actually
a member with an equal share in the business, and her argument
that her participation in Shaman was significant enough to
justify awarding her an equal interest in the business. The
court rejected her claims of active participation in the business
on the grounds that the labor she provided was too
inconsequential to have contributed to the success of the
business, and that her business advice was neither sought or used
by Hans. Thus, it held that neither the doctrines of
transmutation or active appreciation justify changing the
ownership or invading Hans separate interest [in Shaman].
Michelle does not appeal the superior courts conclusion that she
did not contribute to the business, but she contends that the
court erred in holding that this determination governed her
active appreciation claim.
Relying on its conclusion that Shaman was separate
property, and finding that the SUSV and the 2001 tax refund were
Shaman property, the court concluded that the SUSV sale proceeds
and the tax refund were not marital property. Instead, the court
noted that Michelles interest in the tax refund was reflected in
her five percent share of Shaman.3 The court also held that the
$200,000 Hans deposited into the Capital Advisors account was his
separate property because its source, Shaman, was separate
property. Michelle appeals all of these findings.
In valuing Michelles five percent interest in Shaman,
the court declined to apply a minority discount. Both parties
experts agreed that Michelles portion should be discounted for
its lack of marketability, which accounts for the lack of
liquidity and control associated with a minority interest,
although they disagreed about the size of the discount. However,
the superior court concluded that such a discount was
inappropriate in this case because the minority interest was
being acquired by the party that also controlled the rest of the
shares. It noted that:
[In this case] there will not be a sale to a
third party. Instead, the Court is being
asked to allow Hans to buy out Michelle. If
the Court simply requires Hans to pay
Michelle $22,000 for her 5% interest, then
Hans will achieve a windfall. He will end up
with 100% of Shaman. That is not the
assumption of the [experts] models. They
assume that the 5% will go to someone else,
thus maintaining the conditions that produce
lack of control and the lack of marketability
and thus necessitated discounting. If Hans is
allowed to buy Michelles 5% interest for the
discounted price of $22,000, then he
recaptures not only the discounted value of
Michelles interest, but also the discounted
value of his 95% interest. He ends up with a
business worth the full $1,150,000, whereas
before the sale his 95% interest was worth
only $865,000. For $22,000 paid he gets
$242,000 of recaptured value.
The court suggested that the parties engage in what
Hanss expert referred to as an investment analysis, which would
account for the fact that the purchasing party also owned the
other shares in the company. However, neither party offered
evidence about the investment value of Michelles interest, and
the court declined to apply any discount, pricing Michelles
interest at five percent of Shamans total value of $1,150,000, or
$57,000. Hans appeals this finding.
As to the house, the court held that the parties
intended for the house to be marital property, reasoning that
joint use, maintenance and improvement of the residence show that
the parties intended that it be a marital asset and allocated
Michelle a sum equal to half its equity. Hans appeals this
finding.
Finally, the trial court offset Michelles share of the
marital estate by the full value of her interim support and
attorneys fees awards. The court reasoned that it had not been
aware of the full extent of Michelles assets when it made the
original award and that evidence at trial demonstrated that she
had not been in need of interim aid. Therefore, it credited Hans
for his interim support and attorneys fees payments by offsetting
them against her portion of the estate. Michelle appeals this
finding.
To summarize, Michelle appeals the findings that
Shaman, the Capital Advisors account, the SUSV sale proceeds, and
the 2001 tax return are Hanss separate property, and she also
challenges the trial courts deduction of the interim support and
attorneys fees awards from her portion of the marital estate.
Hans cross-appeals the trial courts refusal to discount Michelles
five percent share of Shaman and its determination that the house
was marital property.
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.4 We review the trial courts determination of what
property is available for distribution for abuse of discretion.5
Findings of fact are reviewed for clear error, but whether the
trial court applied the correct legal rule in exercising its
discretion is a question of law that we review de novo using our
independent judgment.6 Whether the trial court correctly valued
the assets to be divided is a question of fact that we review for
clear error.7
The trial courts finding that the parties intended to
transmute separate property into marital property is also
reviewed for clear error.8 A finding is not clearly erroneous if
it is supported by substantial evidence.9
Finally, awards of both interim spousal support and
attorneys fees are left to the sound discretion of the trial
court and will be reversed only if we find an abuse of
discretion.10
IV. DISCUSSION
A. Classification of Shaman
Michelles primary claim is that the superior court
erred in failing to apply the active appreciation doctrine. She
argues that, under this doctrine, the increase in Shamans value
that resulted from Hanss efforts during the marriage is marital
property.
We have previously summarized the doctrine of active
appreciation in this way:
Active appreciation occurs when marital funds
or marital efforts cause a spouses separate
property to increase in value during the
marriage. . . . [T]he time and energy of both
spouses during the marriage is to be
considered in dividing marital
property. . . . A spouse should not be able
to erase his or her contributions of time and
energy from the marital estate by rolling
them back into a business which he began
before the marriage.[11]
Under this theory, the assets value at the inception of
the marriage retains its separate character, but any subsequent
increase in value is treated as marital property to the extent
that it results from active marital conduct.12 A finding of
active appreciation requires application of a three-part test:
First, [the court] must find that the separate property in
question appreciated during the marriage. Second, it must find
that the parties made marital contributions to the property.
Finally, the court must find a causal connection between the
marital contributions and at least part of the appreciation.13
The spouse seeking to classify the appreciation as active has the
burden of proving the first two elements an increase in value
and marital contribution14 while the burden of showing the
absence of a causal link lies with the owning spouse.15
The trial court declined to apply an active
appreciation analysis based on its conclusion that the parties
intended an unequal ownership of Shaman. However, even if the
parties did intend the 95/5 distribution to be controlling as to
their separate ownership interests in Shaman, there is nothing
that indicates that they intended to answer the question of how
to treat the increase in value of the corporation that occurred
during the marriage.16 To do so, the trial court must apply the
active appreciation doctrine. We therefore conclude that the
trial court erred in failing to consider active appreciation
based solely on its finding that the parties intended to treat
Shaman as separate property according to the 95/5 distribution.
Turning to the specific elements of active
appreciation, we first look to whether the record shows that
Shaman gained value during the course of the marriage. As Hanss
expert noted in his report, Shaman saw improvements in key
economic indicators during the marriage: in 1998 Shaman posted
$663,000 in revenues, $109,000 in net income and had $228,000 in
balance sheet equity, while in 2001 Shamans revenues reached
$1,640,000, its income increased to $827,000, and it posted
$1,035,000 in equity. These figures suggest that Shaman
experienced significant growth during the marital period, but the
parties did not present evidence regarding Shamans value at the
beginning of the marriage, preventing calculation of the
appreciation in Shamans value over the course of the marriage.
Thus, on remand, the superior court must calculate the size of
the marital gains to Shaman by determining Shamans total value at
the beginning of the marriage and deducting this figure from its
stipulated value at separation of $1,150,000.17
As to the second element of active appreciation,
marital contribution, it is undisputed that Shaman was Hanss full-
time job and that he worked seventy to ninety hours per week when
Shaman had a contract. Hans was adamant that it was his efforts,
as opposed to Michelles, that led to the success of Shaman. In
light of this evidence, we conclude that Hans spent significant
marital time working on Shaman.
Finally, as to causation, Michelle argues that Shaman
grew because of Hanss efforts. Hans, who bears the burden of
proving a lack of causation, replies that Shamans success was
driven less by his active efforts during the marriage and more by
passive factors that either predated the marriage or were out of
his control. First, he argues that since many of Shamans
contracts grew out of pre-marital business ties and the business
loan used to purchase Shaman was paid off prior to the marriage,
the business growth was primarily due to pre-marital efforts.
Second, Hans notes that much of Shamans business stems from
government contracts, and asserts that business gains due to
fortuitous government action are passive and that his own
conduct, which involved submitting bids for subcontracting work,
was de minimis and insufficiently connected to the gains in
Shamans value. Third, Hans argues that Shamans success also
depended on his employees contributions, further minimizing the
impact of his personal efforts on Shamans growth.
We conclude, however, that the record contains ample
evidence that Hanss efforts were sufficiently related to Shamans
appreciation to satisfy the causation requirement. Although Hans
may have created the foundation necessary for Shamans growth
prior to the marriage, it was his later efforts including the
seventy- to ninety-hour work weeks he testified to that helped
effectuate its substantial growth. While the superior court may,
on remand, impute part of the growth to Hanss premarital efforts
or other factors, it would be unreasonable to conclude that
Shaman was able to thrive and expand without any effort or
guidance from Hans. In addition, while purely fortuitous changes
in government policy can result in passive growth, the treatise
Hans relies on for this point cites changes in environmental
regulations and currency exchange rates as examples; these sorts
of changes would allow appreciation without any significant
action by the business owner, and thus are truly passive.18 On
the other hand, an upswing in government outlays is simply a
market expansion, and a business owner must still undertake
significant efforts to benefit from such developments.19 Hanss
submission of bids and fulfillment of his contractual obligations
were thus necessary prerequisites for Shamans growth. Finally,
although some portion of Shamans success certainly depended on
the efforts of its employees, it is reasonable to infer that
their success was due to Hanss knowledge of the business and his
ability to hire and manage his staff.20 Thus, we conclude that
Hanss efforts during the marriage played a significant role in
Shamans success. On remand the superior court should determine
what portion of the increase in Shamans value was caused by Hanss
efforts during the marriage, distinguishing the effects of these
efforts from any appreciation stemming from passive factors.
In sum, we hold that some portion of the value that
Shaman gained during the marriage is marital property, and remand
for further proceedings regarding: (1) the exact amount of this
increase; and (2) the amount of growth due to Hanss efforts and
the amount due to other, passive, factors. The portion of
Shamans gains due to Hanss active efforts is marital property.21
In making these findings, the superior court retains the
discretion to take whatever evidence it deems appropriate.22
B. The Capital Advisors Account, the 2001 Tax Return, and
the SUSV
Michelle also appeals the superior courts decisions
concerning the Capital Advisors account, the 2001 tax refund, and
the SUSV.
Capital Advisors Account
Hans withdrew from Shaman the money for the Capital
Advisors account thus converting this money into income. This
income should fairly be regarded as earned income as it was taken
by Hans as a draw rather than as a distribution of LLC earnings
(since there is no indication that a like distribution was made
on account of Michelles five percent interest).23 Spousal income
from active efforts during marriage is marital property.24
Accordingly, we hold that the superior court erred in determining
that the Capital Advisors account was Hanss separate property.
Thus, on remand the superior court should distribute the account
and the sale proceeds as marital property.
2001 Tax Return
As for the 2001 tax return, Michelle offers two
arguments: (1) the refund is marital property since the couple
reported Shamans taxes on their joint tax return; and (2) the
expert valuation of Shaman did not include the 2001 return as
part of Shamans overall value.
Both of these arguments fail. (1) Shamans estimated
taxes were paid out of Shaman funds but reported on the parties
joint return in order to reap certain tax benefits to Shaman and
the parties. Such commingling of business and personal tax
liabilities is not alone sufficient to convert the Shaman tax
refund to marital property.25 (2) The superior court determined
that the expert valuation of Shaman took the 2001 tax refund into
account, although the 2001 refund check was not received from the
IRS until after the expert completed the valuation report. This
finding is supported by the experts report, which states: [O]ur
analysis focused primarily on the 1994-2001 income statement data
presented in the tax returns. Therefore, the superior court did
not err in finding that the 2001 tax refund is part of Shamans
total value.
Accordingly, valuation and distribution of the 2001 tax
refund will depend on the superior courts overall conclusion
about Shamans active appreciation. As the tax refund is part of
Shamans value, it is marital to the same extent and in the same
proportions as the rest of Shaman. Thus, on remand when the
superior court determines the value and proportion of the marital
property in Shaman, it should also apportion the tax refund
between the parties according to the same ratio.
SUSV Sale Proceeds
The evidence suggests that in spring 2002, before the
parties separated, Hans deposited the SUSV sale proceeds into a
Shaman account and immediately withdrew them. Neither party has
offered evidence on the fate of these proceeds after Hans
withdrew them from the Shaman account. Thus, in contrast to
funds in the Capital Advisors account, the SUSV sale proceeds are
indistinguishable from any other draws Hans may have taken from
Shaman before separation. Since only property existing as of the
date of trial is subject to division unless there is a basis for
recapture,26 and Michelle has not argued that there is a basis for
recapture, we decline to disturb the superior courts treatment of
the SUSV proceeds.
C. Classification of the Marital Home
On cross-appeal, Hans argues that the superior court
erred in determining that the house was marital property under
the doctrine of transmutation. This doctrine recognizes the
movement of separate property into the marital sphere, and the
central issue in determining transmutation is the intent of the
owner of the separate property, as demonstrated through . . .
words and actions.27 Upon a finding of intent, the separate
property is transformed into marital property.28 Factors relevant
in determining the parties intent regarding real property
include: (1) the use of property as the parties personal
residence; (2) the ongoing maintenance and management of the
property by both parties; (3) placing title in joint ownership;
and (4) using the credit of the non-titled owner to improve the
property.29
In this case, the parties used the house as a residence
and there is evidence that Michelle was actively involved in its
maintenance and improvement. She testified that she managed the
design and construction of a garage and attached loft; selected
carpet for installation in the house; landscaped portions of the
property; and oversaw the initial construction of a greenhouse
and then completed it herself when it was not built to her
satisfaction. Also, Michelle contributed $10,000 towards
construction of the garage, the couple made $40,000 in payments
on Hanss mortgage and paid for additional construction work with
money from their joint account, and Michelle managed the finances
and wrote the checks for these payments.30 These factors all
support the superior courts finding that the house transmuted
into marital property.
Hans points to countervailing factors, noting that
Michelle was not added to the deed and was not liable for the
mortgage or the construction contracts. In addition, he
testified that he always intended for the house to be his
separate property. However, these contrary factors are
insufficient in this case. Use of the home as a residence and
mutual management and improvement satisfied two of the four
criteria that show that the parties intended to treat the
property as marital, and thus provided substantial evidence for
the trial courts decision even though Michelle was not listed on
the deed or liable for the construction contracts. Further,
Hanss testimony that he always intended the house to remain
separate property is insufficient to reverse the trial courts
finding of intent because such testimony is accorded less weight
than other, more objective factors.31 We conclude that the
superior courts finding that the parties intended to treat the
property as marital was not clearly erroneous.
D. Valuation of Michelles Five Percent Interest in Shaman
Hans argues that the superior court erred in failing to
apply discounts for lack of control and lack of marketability to
Michelles five percent stake in Shaman, and cites to Hayes v.
Hayes32 for the proposition that such discounts are required in
the context of a divorce. In Hayes the trial court rejected a
minority discount, and instead valued the business based on the
size of the life insurance policies taken out by the parties to
allow the surviving spouse to purchase the interest of the
deceased stockholder.33 We reversed, finding the evidentiary
basis for this valuation inadequate.34 In addition, in Hayes we
explicitly rejected the contention that minority discounts are
inappropriate in divorce cases, noting that [t]he concept of
value is keyed to the price that a prospective buyer would pay.35
Hans relies on this language, arguing that the superior court was
required to calculate the fair market value of Michelles share by
applying a minority discount.
However, as Michelle points out, Hayes merely affirms
that minority discounts can be used in proper settings, not that
they must be applied in all instances. Indeed, there is
authority for the trial courts position that where the party
buying the shares would gain control of the business, minority
discounts ought not be applied. As Turner notes in his treatise
on equitable distribution, [i]n determining whether to apply a
minority discount or control bonus, the court should look at the
amount of stock owned by the parties together, not the amount of
stock titled in the name of each spouse separately.36 The
rationale for such a rule is reflected in the concerns of the
superior court: Rote application of minority discounts in such
situations undervalues minority shares because the key assumption
underlying minority discounts that the hypothetical buyer will
also be a minority shareholder and would thus demand a discount
simply does not apply.37
Hanss expert noted that a separate kind of analysis
known as an investment analysis would account for the value of
Michelles share in light of the fact that the buyer owned the
rest of the corporation, and the court invited the parties to
undertake this analysis while making it clear that the already-
presented minority discounts were inapplicable in this case.
However, the parties chose not to submit an investment analysis.
Because we agree that a minority discount was not
appropriate given that Hans would own all of the shares of Shaman
after the sale and given that the parties did not offer evidence
about a discount that could account for the facts of this case,
we affirm the superior courts decision to value Michelles share
as five percent of the total value of Shaman.38
E. Offset of Michelles Interim Support and Attorneys Fees
Awards Against Her Portion of the Marital Estate
Under AS 25.24.140(a), during the pendency of a divorce
proceeding, the trial court, in appropriate circumstances, may
award a spouse attorneys fees and costs that reasonably
approximate the actual fees and costs required to prosecute or
defend the action and reasonable spousal maintenance. The
primary factors to be considered when awarding interim spousal
support and attorneys fees are the parties relative economic
circumstances, earning capacities, and ability to pay.39 Support
awards and attorneys fees help to ensure that neither party is
disadvantaged in presenting their claims,40 but where the parties
economic situations and earning capacities are comparable, each
party should bear his or her own costs.41
Michelle argues that the superior court erred in
offsetting her interim support and pre-trial attorneys fees award
against her share of marital property. Michelle maintains that
allowing offset of pre-trial awards unfairly burdens the more
vulnerable spouse since spousal support is only awarded to
financially disadvantaged parties. However, her argument assumes
that the spouse against whom an offset is granted is actually
disadvantaged. Where it becomes evident that the spouse granted
interim fees was, in fact, able to bear these costs, then an
offset for these payments is an appropriate exercise of the trial
courts broad discretion in matters involving interim support and
attorneys fees.
Michelle cites Lewis v. Lewis42 for the proposition that
spousal support is distinct from the distribution of marital
property, and notes that in Lewis we reversed the trial courts
offset of interim support and attorneys fees. Michelle suggests
that Lewis supports reversal because the superior court
improperly treated interim support as a species of marital
property. However, in this case the superior court did not
consider the interim support award as marital property. Instead,
it concluded that interim support was unjustified because
Michelle had not been actually disadvantaged. Thus, the proper
question is whether the court made factual findings sufficient to
uphold its conclusion.
In this case, the court made various factual findings.
Specifically, it observed that Michelle had long been employed
and retained significant earning capacity, that she had
substantial assets, and that both parties had sufficient economic
means to prosecute their claims. In contrast, Michelle makes no
mention of assets anywhere in her discussion of this issue.
Further, as Hans notes, there was evidence before the court that
she had substantial assets that allowed her to purchase and
furnish a home three months after receiving notice of her divorce
and to take numerous trips while ostensibly in need of spousal
support. Thus, in light of the courts specific findings and the
other evidence in the record, we conclude that the superior court
did not abuse its discretion in offsetting Michelles interim
support award against her share of the marital estate.
Michelle also argues that allowing offsets amounts to
unfair surprise. She asserts that because parties take their
interim awards into consideration when budgeting, the court
misl[eads] the recipient into overspending her income. However,
in its original interim support order, the superior court noted
that both parties had significant assets and cautioned that [i]t
is very likely that each party will ultimately bear their
respective attorneys fees and costs. And, at a subsequent pre-
trial hearing Michelles counsel prevented cancellation of the
interim support by reminding the court of its earlier warning:
[I]f at trial the court were to determine
that the spousal support was inappropriate or
something like that, theres certainly money
there for Mr. Hanson to recover his interest.
The spousal support can always be dealt with
at trial retroactively, which is what Your
Honor ruled back when the initial motion was
filed in July.
In response, the trial court allowed the spousal
support to continue, but again warned that [Michelle] needs to
simply understand that theres some possibility that once I see
the entire picture I decide I should never have given [interim
support] to her or should be held against her somehow. . . . The
trial court thus gave her full notice that her award could be
offset against a later judgment and she cannot now claim that she
was unprepared to deal with the superior courts offset.
V. CONCLUSION
Because the superior court erred in failing to consider
the active appreciation doctrine in valuing Shaman, we REVERSE
the courts decision that Shaman was separate property and REMAND
for calculation and distribution of the marital gains in Shaman.
In addition, we also REVERSE the superior courts conclusion that
the Capital Advisors account was Hanss separate property. We
instead conclude that the Capital Advisors account is marital
property because it was funded from marital income, and that the
marital classification of the tax refund should mirror the
marital classification of Shaman.
Because the superior court did not err in finding that
the marital home had been transmuted into marital property, we
AFFIRM that determination. We also AFFIRM the superior courts
decision not to apply a minority discount to Michelles share in
Shaman and not to make an award in respect to the SUSV sale
proceeds. Finally, because the superior court did not abuse its
discretion in offsetting Michelles interim support award and
attorneys fees against her share of the marital estate, we AFFIRM
that decision.
_______________________________
1 The account lost value due to a decline in the stock
market.
2 An SUSV is a kind of tracked, all-terrain transport.
3 The parties stipulated to an appraisal of Shamans value
which took into account the expected 2001 tax return.
4 Schmitz v. Schmitz, 88 P.3d 1116, 1122 (Alaska 2004).
5 Green v. Green, 29 P.3d 854, 857 (Alaska 2001) (citing
Cox v. Cox, 882 P.2d 909, 913 (Alaska 1994)).
6 Schmitz, 88 P.3d at 1122.
7 Id.
8 Green, 29 P.3d at 857.
9 Inman v. Inman, 67 P.3d 655, 658 (Alaska 2003).
10 Beal v. Beal, 88 P.3d 104, 110-11 (Alaska 2004).
11 Schmitz, 88 P.3d at 1125 (internal quotations and
citations omitted).
12 Harrower v. Harrower, 71 P.3d 854, 858 (Alaska 2003).
13 Id. (quoting Brett R. Turner, Equitable Distribution of
Property 5.22, at 236 (2d ed. 1994)).
14 Id. at 859 (citing Turner, supra note 13).
15 Id. (citations omitted).
16 Id. at 858 n.5 (under active appreciation doctrine
efforts of either spouse can lead to gains which are marital
property).
17 See id. at 859-61 (determination of amount of marital
appreciation remanded where record supported reasonable inference
that item increased in value during course of marriage).
18 Turner, supra note 13, 5.22 at 255.
19 See id. at 248:
The mere presence of favorable economic
conditions, however, does not guarantee a
finding that the appreciation is passive. . .
. Where the business was small on the date
of marriage and grew dramatically before
divorce, or where the owners individual
expertise was a major factor in the success
of the business, the appreciation can be at
least partly active despite a thriving
economy.
20 See id. at 252 ([T]here is considerable value in
selection and supervision, and the prudent management of
personnel resources often marks the difference between successful
and unsuccessful businesses.).
21 This holding applies to both Hanss ninety-five percent
share and Michelles five percent share.
22 If the superior courts reexamination of this issue
leads to an increase in the value of the marital estate, the
court may revisit the larger question of how best to equitably
divide the estate, and may consider whether invasion of separate
property is necessary to ensure a fair and equitable
distribution. See Harrower v. Harrower, 71 P.3d 854, 860 n.17
(Alaska 2003) (citing Merrill v. Merrill, 368 P.2d 546, 547 n.4
(Alaska 1962)).
23 The parties agree that a fair salary for Hans for his
work at Shaman would have been $130,000, whereas he actually drew
$4,000 per month or $48,000 annually. He was thus substantially
underdrawn in terms of earned income.
24 Schmitz v. Schmitz, 88 P.3d 1116, 1124 (Alaska 2004)
(salary earned during marriage is marital asset) (citing Turner,
supra note 13, 5.23 at 263).
25 See Abood v. Abood, 119 P.3d 980 (Alaska 2005)
(Commingling separate property with marital property does not
automatically lead to a finding of transmutation.); Carlson v.
Carlson, 722 P.2d 222, 224 (Alaska 1986) ([T]he act of
commingling, in itself, does not automatically establish intent
to jointly hold property, and a court always should consider the
propertys source when determining what assets are available for
distribution.).
26 See Abood, 119 P.3d at 990 (holding that if spouse has
dissipated or wasted marital property between separation and
trial, recapture may be appropriate); Ogden v. Ogden, 39 P.3d
513, 521 (Alaska 2001) (same).
27 Green v. Green, 29 P.3d 854, 857 (Alaska 2001).
28 Id. at 858; Turner, supra note 13, 5.24 at 277-78.
29 Green, 29 P.3d at 858.
30 Hans argues that this last factor is not persuasive,
explaining that Michelle demanded that she, and not Hanss
bookkeeper, make the payments. However, he testified that even
if the bookkeeper had made the payments, the funds would still
have come from the marital account. Thus, the inference of joint
payment and use remains unchanged; although this particular
arrangement may have been adopted at Michelles urging, Hanss
acquiescence to this system supports a finding of intent to treat
the property as marital.
31 See Leis v. Hustad, 22 P.3d 885, 888 (Alaska 2001)
([S]elf-serving testimony at trial is entitled to little weight
because the parties actions during the marriage are better
indicators of the parties intent during the marriage.) (citations
omitted); Turner, supra note 13, 5.24 at 278-79 (testimony from
owning spouse that he intended to gift property to marital estate
more credible than testimony that no gift was intended). Indeed,
if Hans truly intended to keep the property separate, a
prenuptial agreement or a clear, written statement of intent
would have provided better evidence of the parties wishes. See
Compton v. Compton, 902 P.2d 805, 809 (Alaska 1995) (prenuptial
agreement provides probative evidence of parties intent to keep
premarital property separate).
32 756 P.2d 298 (Alaska 1988).
33 Id. at 299.
34 Id.
35 Id. at 300 (citing Moffitt v. Moffitt, 749 P.2d 343,
347 (Alaska 1988)).
36 Turner, supra note 13, 7.08, at 545 (citing Eyler v.
Eyler, 492 N.E.2d 1071 (Ind. 1986) (error to apply minority
discount to wifes portion of shares where couples shares totaled
ninety percent of corporate stock)). Hans also cites to Money v.
Money, 852 P.2d 1158 (Alaska 1993), but that case is
distinguishable. In Money neither party disputed whether a
minority discount should be applied, and instead argued about the
proper discount rate. Id. at 1162. Nowhere in Money did we
require application of minority discounts in all instances.
Instead, we simply acknowledged that such discounts could be
utilized and resolved a dispute about the size of a particular
discount.
37 In Hayes the husband and wife did not own all of the
shares of the relevant property; their shares equaled only fifty
percent of the total shares, thus arguably justifying a minority
discount because ownership of the shares did not provide control.
756 P.2d at 299.
38 As a consequence of our conclusion in Part IV.A.,
supra, when valuing Michelles five percent separate property
share, the superior court should not include within her share
that portion of the business that appreciated during the years of
marriage; gains from marital active appreciation are properly
categorized as marital property.
39 Schmitz v. Schmitz, 88 P.3d 1116, 1130 (Alaska 2004)
(discussing requirements for interim attorneys fees awards);
Johnson v. Johnson, 836 P.2d 930, 934 (Alaska 1992) (discussing
requirements for interim support orders).
40 Johnson, 836 P.2d at 934.
41 Schmitz, 88 P.3d at 1130.
42 785 P.2d 550 (Alaska 1990).
