*1 Rosemary Ann Marriage In re the
MAURER, Respondent, MAURER,
Michael Patrick
Petitioner, Appellant.
No. C7-99-1319.
Supreme Court of Minnesota.
March
1997. Maurer was 49 years old and Galvin years old when their marriage was dis- time, solved. At the Maurer owned the following retirement assets: State Minnesota Deferred Comp. 6,377.88 Plan $ Comp. Supp. MSRS Deferred $22,074.13 Investment Fund Comp. Minn. Life Deferred $21,841.71 Account Cloud, Zupanc, plaintiffs. Thomas St. Payment MSRS Termination Cloud, Kay Snyder, R. St. for defen- $48,112.00 Plan dants. $98,406.001 TOTAL Maurer, seeking to have the trial court distribute in plans the four value, based on their after-tax offered the OPINION testimony public accountant, of a certified PAGE, Justice. Hinnenkamp, David to establish that value. The trial court presented testimony The in allowed this over sole issue this mar- objection Galvin’s riage speculative. dissolution case is whether the trial Hinnenkamp court abused testified that he regularly its discretion when it consid- in performing values assets ered future tax in business valua- valuing (“Maurer”) personal tions and appellant preparing Michael financial Maurer’s re- statements. He further tirement assets. The trial court testified that both awarded (“Galvin”) personal business respondent valuations and Rosemary Galvin financial Maurer) statements take into account (formerly Rosemary anticipat- known as $77,846 paid ed tax to be property valued at asset when it and Maurer $77,840. converted property According to cash. valued at The Hinnen- award to kamp, professional general- Maurer included standards and funds he held three ly accepted plans accounting principles require deferred and one re- plan. tirement The trial that current court used the income tax rates be used to assets, plans after-tax value of the four in calculat- calculate the tax on op- these as parties’ posed the value of prop- making assumptions marital about what erty. plans pre-tax might The four had a the rates when value be the asset is con- $98,406 and an after-tax value of verted cash. $63,964. appeals The court of held Hinnenkamp also testified that he was because there was no evidence that a tax- familiar with Maurer’s retirement assets required by able event was the dissolution governing and the laws the taxation of thereafter, shortly or certain to occur Hinnenkamp, those assets. According engaged speculation compensa- funds from Maurer’s deferred plans used the after-tax value of the can in only be withdrawn four Maurer v. property. the marital retirement, disability, circumstances: Maurer, (Minn. 183-84 death, or an emergency. unforeseeable App.2000). appeals The court of reversed Hinnenkamp further testified that court and remanded for reconsid- funds withdrawn from Maurer’s retire- eration distribution be- subject ment assets taxation Id. at 184. We re- parties. tween the income, ordinary and that verse. combined federal and state ap-
Maurer and Galvin were married on rate for such withdrawals would be 9, 1971, July proximately Hinnenkamp separated March of 35%. testified dollar, figure appears 1. This to reflect nearest rounding court’s of the total value to motion for it denied Galvin’s ap- findings, penalty would that an additional findings change trial and did Maur- new made from any withdrawal ply to Maurer’s de- to the value of respect Plan be- Payment Termination er’s MSRS plans. compensation and retirement ferred of 59 age Maurer reached fore 1/2. rate, Hinnen- marginal tax the 35% Using appeals court of appeal, On *3 value of the the after-tax kamp calculated con- versed, the trial court’s holding that $63,964. establishing the In to be tax rate marginal of the 35% sideration rate, Hinnenkamp used marginal there was evi- speculative because was pro- and a taxable income Maurer’s 1997 taxable that a presented at dence income, in addi- jection of Maurer’s or by the dissolution required event in- that Maurer’s assuming tion Maur- shortly thereafter. certain to occur and that his not fluctuate come would er, The court of at 183-84. would income and deductions other with instructions remanded appeals Hin- testimony, In his main consistent. property settle- court “revisit the the deferred acknowledged that nenkamp of the tax the consideration ment because divided be- plans could be division of rendered the consequences the dissolu- parties part tween the inequitable.” Id. property tax conse- without immediate tion laws party; that the tax to either quences I. the effec- change; and
periodically
discretion
A trial court has broad
depend on the dollar
tax rate would
tive
of a
property upon dissolution
dividing
plans.
any withdrawal from
amount of
Rutten, 347
E.g., Rutten v.
marriage.
(Minn.1984).
Determining
trial,
that he was N.W.2d
At
Maurer testified
finding
a
specific value of an asset is
Termi-
cashing in his MSRS
“considering”
144, 145,
Minn.
Plan,
fact. Hertz v.
he did not
but that
Payment
nation
curiam).
(1975)
(per
that, al- 229 N.W.2d
if
would. He indicated
know he
fact,
made without
findings of
when
plans, he was
“Such
he had no definite
though
clearly
aside unless
jury,
a
shall not be set
terminating his em-
“thinking about”
also
record as a whole.” Id.
erroneous on the
allow him to with-
ployment, which would
be
appropriate
deference is
compensa- Such broad
his deferred
draw funds from
necessarily
approxi
“valuation is
cause
plans.
Accordingly,
Id.
many
mation in
cases.”
court found that the
The trial
byat
the trial court need
the value arrived
upon distribution.
would be taxable
assets
a reasonable
only fall “within
combined federal
Applying the 35%
figures.” Id.
trial court also
marginal tax
state
the trial court’s
contends
of Maurer’s re-
Galvin
found the after-tax value
here
$63,964.
consequences
of tax
par-
consideration
to be
Both
tirement assets
speculation un-
impermissible
findings and Gal-
constituted
ties moved for amended
trial,
beginning
court’s cases
der a line of this
alternatively moved for
new
vin
Aaron,
trial with Aaron v.
things,
other
that the
arguing, among
(Minn.1979).
essence,
argues
In
Galvin
not have considered future
court should
progeny
establish
that Aaron and
Maur-
income tax
that,
event
unless a taxable
bright-line
rule
response
In
er’s retirement assets.
motions,
by
likely
or
to occur
required
is either
the trial court
alternative
Galvin’s
dissolution, the consider-
after the
shortly
evidence before
“[t]he
stated
specu-
future tax
tax rate is what
ation of
is that the
Court
argues
impermissible. Maurer
lative and
possible
apply.
While
does not es-
Aaron line of cases
that the
apply,
tax rate could
no evidence
higher
According
rule.
bright-line
such a
ap-
tax rate would
tablish
that a lower
suggests
Maurer,
merely
cases
establish
those
court amended its
ply.” Although the trial
where no evidence of
conse-
sale of real
is required
estate
or is
introduced,
has been
a court en-
to occur within a short time after the dis-
speculation by considering
gages
solution, that
should not consider
consequences.
tax consequences
it should.” Id.
—indeed
argues,
at 153. Galvin
and the
have,
occasions,
We
several
ad-
appeals agreed,
language
dressed the issue of whether a trial court
Aaron
that only
establishes
two situations
permit
court to consider future
con-
dividing
marital
mar-
sequences
a sale
the property
—when
riage dissolution
See
cases.
required
either
certain
occur
within a
153;
N.W.2d at
Miller v.
Maurer,
short time of the dissolution.
O’Brien v.
*4
183;
Hattstrom,
N.W.2d at
v.
Hattstrom
O’Brien,
850,
343 N.W.2d
854
332,
385 N.W.2d
336 (Minn.App.1986);
Johnson,
208,
277
Johnson
N.W.2d
Brockman,
664,
Brockman v.
(Minn.1979). Aaron,
In
appellant
the
hus-
fact,
(Minn.App.1985).
In
that
not
is
band was awarded a 25% interest
in cer-
what
in
any
we held Aaron. Nor have
of
apartment properties.
tain
281 N.W.2d at
our subsequent
so
cases
held. To
so
have
argued
152. He
that the trial court erred
held would have been
with
inconsistent
by failing to consider that he would have to
recognition
our
that “it within
is
the trial
pay significant capital gains taxes when
court’s discretion to consider the tax con-
apartment properties
the
were sold. Id. at
sequences of its award.”
152-53.
it
within
We stated that was
the
Miller,
153;
744;
at
N.W.2d
352 N.W.2d at
discretion to
court’s
consider the tax
Johnson,
tax Courts II. have held that the consideration of dictions valuing retire Having rejected the notion that speculative is too because tax ment assets progeny bright- Aaron and its created subject change.2 rule, are to Courts in rates line must now determine whether however, jurisdictions, have conclud other trial court discretion the abused its outweighed uncertainty by ed that such is valued Maurer’s deferred that, fact while the tax rate will using the and retirement their after-tax actually applied Testimony be to a retirement asset at trial established that value. unknown, practically proper it is certain to future income taxes be assets; professional that the asset will be taxed.3 As one court when Wilkins, 541, 401(k) plan’s N.C.App. plan the v. 111 before she could use 2. See Wilkins 891, funds’’); 155, (1993) (holding Day App.3d Day, 897 v. 432 S.E.2d the 40 Ohio 532 201, (1988) that, considering hypothetical (concluding trial court erred in N.E.2d 205-06 predict although to variables the tax at the tax because time the structure, government’s including tax the his husband withdraws funds from retirement condition, ascertained, plaintiffs the date speculative financial and plan are too to be years into plaintiffs retirement several the properly apply pres the "the trial could engage "requires the future trial court to considering tax rates in the tax ent conse Hovis, impermissible speculation”); because, v. Hovis quences” "[gjiven the current 137, 1380, 1378, rates, Pa. 541 A.2d applied say by we cannot rates that the (1988) (reversing unreasonable, the court's deduction they even if are pen- rate”); value of and a of the certain stock highest 10% In re applicable be the Mar 259, plan Alexander, court could sion because the trial riage Or.App. P.2d liability that, reasonably predict 63, (1987) "be- future (concluding where the constantly change”). cause tax rates presented expert testimony husband withdrawn his retirement account 45%, Dodson, 902, taxed would be between the 35% 3. See Dodson 955 P.2d 909-10 (Alaska 1998) properly trial court considered tax conse (concluding that the trial court because, "[although the amount acknowledging by did not abuse discretion liability frequently cannot be (k) the tax deter plan to the that the transfer a 401 wife her, expert complete certainty, tes liability by apply mined a tax to also shifted timony provides a stating, in this reasonable and case "[al supportable making an though informed precise magnitude of the tax basis liabil * n * probable judgment unpredictable husband’s lia ity [the] [the wife] bility”). pay would have deferred taxes generally accepted standards and account- occur within a short time after the dissolu- tion, ing principles require that current income and that court did not abuse tax rates be used to calculate future in- applied its discretion when it the 35% mar- taxes; come and that the lowest combined ginal income tax rate in valuing those federal and state income tax rate that plans, we reverse the court of appeals. apply to Maurer’s retirement assets Reversed. is 35%. The record further reflects the 35% rate is based on the following: income; projected Maurer’s 1997 his LANCASTER, (concurring). Justice income; assumption that Maurer’s I concur with by the result reached fluctuate; 1999 income would not and the majority. I separately emphasize write assumption that Maurer’s other income that the decision upon is based the facts of and deduction items would remain consis- case, this represent and does not depar- tent. ture from general rule that tax conse- argues Galvin because the 35% tax quences may not be taken into account using anticipa- rate was calculated mere when to do so speculative. would be Aar- assumptions, specula- tions and the rate is (Minn. on v. Ultimately, argument goes tive. 1979); Miller v. question of whether the trial court had O’Brien, O’Brien v. supportable “reasonable and basis for (Minn.1984). Restricting making an judgment informed as to [the] consideration of tax consequences Alexander, probable liability.” 742 P.2d at events that are to occur within a 64. Specifically, question we must now short time of the dissolution a safeguard answer is whether the 35% rate used against speculation. unfair I Although am in calculating the value of Maurer’s retire- *6 not convinced the consideration of future ment assets caused the trial court’s valua- in this case resulted tion to fall outside a range “reasonable equitable assets, distribution of I con- Minn, figures.” at cur the result because the record is 44. Based on the record before lacking in evidentiary support applica-
us, we conclude that it did not. The testi- rate, tion of lower tax which may well be mony provided by expert, Hin- appropriate in many retirement situations. nenkamp, provides support in the record marginal for the 35% tax rate. There is BLATZ, Chief Justice (concurring). suggesting evidence the record some lower rate would be appropri- more join I in the concurrence of Justice Joan Indeed, parties ate. made no effort to Ericksen Lancaster.
have the trial court consider a lower rate. While it be that evidence could have ANDERSON, produced RUSSELL A. supporting application
been of a Justice (concurring). lower no such evidence
was offered at trial. Because the trial join I in the concurrence of Justice Joan court’s valuation did not fall outside a “rea- Ericksen Lancaster. figures,” sonable hold trial court did not abuse its discretion.
Because we hold that the trial court’s
consideration of future income tax conse- valuing Maurer’s deferred com-
pensation and was not speculative
rendered in that a taxable
event was not required by