Charlson v. Charlson
2017 S.D. 11
S.D.2017Background
- Angela Smoot and Donald Charlson executed a premarital agreement (PMA) before their 1993 marriage; Angela disclosed significant separate assets (restaurants, home, investment account), Donald listed no assets.
- The couple later divorced in Minnesota (divorce granted 2014) but Minnesota court sent issues about the PMA’s validity/interpretation to Butte County, South Dakota. Angela filed a declaratory-judgment action in South Dakota; the circuit court found the PMA valid and enforceable.
- Parties disputed whether Angela’s separate assets, after being commingled into a joint account, remained separate or became marital; extensive expert tracing evidence was admitted (Value Consulting Group used "tracing" and a "marital loan" concept to allocate separate vs. marital interests).
- Donald argued the PMA made any asset acquired with joint-account funds marital and that marital loans/tracing were improper; Angela relied on PMA provisions protecting separate property and allowing characterization by tracing and loans.
- The circuit court adopted VCG’s methodologies, issued detailed factual findings allocating values (e.g., tracing $1,023,967 of a $1,220,000 business interest as Angela’s separate property), and applied the PMA’s ‘‘loan’’ language to transfers from joint to separate accounts.
- On appeal Donald challenged (1) allowance of tracing and marital-loan concepts, (2) admission of VCG’s report, and (3) mutual consent as to those doctrines. The South Dakota Supreme Court affirmed the trial court and denied Angela’s request for appellate attorney’s fees.
Issues
| Issue | Plaintiff's Argument (Angela) | Defendant's Argument (Donald) | Held |
|---|---|---|---|
| Whether PMA permits tracing of separate property through the joint account | PMA protects separate property and contemplates commingling; tracing tailored to PMA preserves separate character | Money deposited in joint account used to acquire marital property becomes marital; tracing invites speculation and post-hoc recharacterization | Court: PMA language protecting separate property and prohibiting construing commingling as intent to change character permits tracing |
| Whether PMA supports "marital loans" when marital funds transferred to a spouse's separate account | Transfers of marital funds to separate property can be treated as loans under PMA loan provision | Marital-loan concept is a fiction; treating transfers as indebtedness would require written consent per PMA | Court: PMA expressly deems contributions of marital property toward separate property/debt as loans; marital loans are against the transferring spouse (no mutual indebtedness to bind other spouse) |
| Admissibility/value of VCG expert report applying tracing and marital loans | VCG relied on PMA terms and appropriate tracing methods tailored to contract; proper foundation | VCG lacked foundation because Angela testified she did not intend tracing or loans; report should be rejected | Court: VCG had adequate foundation based on PMA language and expert methods; admission and reliance were proper |
| Whether parties mutually consented to tracing/marital-loan regime | PMA was valid and parties consented to its terms (including those permitting tracing/loans) | Neither party understood/tracked tracing or loans in practice, so mutual consent to those consequences is lacking | Court: Consent to the PMA was resolved earlier; mutual consent to the contract exists and dispute is about interpretation, not existence of consent |
Key Cases Cited
- Temple v. Temple, 366 N.W.2d 661 (S.D. 1985) (defines tracing as an equitable principle for following property through transactions)
- Poeppel v. Lester, 827 N.W.2d 580 (S.D. 2013) (contract interpretation is a question of law reviewed de novo)
- Detmers v. Costner, 814 N.W.2d 146 (S.D. 2012) (principles for interpreting contracts and parties’ intent)
- Toft v. Toft, 723 N.W.2d 546 (S.D. 2006) (discussing when attorney fees are awardable in the context of divorce proceedings)
- Johnson v. Albertson's, 610 N.W.2d 449 (S.D. 2000) (expert opinion value depends on adequate factual foundation)