Schmitz v. SchmitzSchmitz v. Schmitz
FABE, Chief Justice.
I. INTRODUCTION
This appeal is from a judgment determining custody and dividing property in a divorce proceeding. Christina Schmitz challenges the superior court‘s decision that she and her former husband, Michael Schmitz, will share custody when their son, Johnathon, turns five. Christina also disputes the superior court‘s characterization of certain assets as Michael‘s separate property, as well as its interim attorney‘s fees award. Because the superior court did not abuse its discretion in making its custody determination, we affirm the custody decision. Because the superior court erred in characterizing Michael‘s interest in the accounting firm of Schmitz & Buck as separate property without applying an active appreciation analysis, we vacate that determination and remand for analysis under the active appreciation doctrine. Because the superior court did not err in characterizing Michael‘s business interest in the Nugget Men‘s Store as Michael‘s separate property, we affirm that decision. Because the superior court erred in characterizing Michael‘s First National Bank accounts and individual retirement account (IRA) as Michael‘s separate property, we reverse and remand these determinations. We affirm the superior court‘s characterization of the Edward Jones stock account as Michael‘s separate property and its award of interim attorney‘s fees to Christina.
II. FACTS AND PROCEEDINGS
A. Factual History
Michael Schmitz and Christina Schmitz married in Juneau in January 1999. The couple‘s child, Johnathon, was born in March 1999. While Christina and Michael were married, Christina was Johnathon‘s primary caregiver. Michael and Christina separated in August 2001.
Michael is a certified public accountant and a partner in the firm of Schmitz & Buck. Michael has owned a fifty percent interest in Schmitz & Buck since November 2000. From January 1997 to November 2000, Michael owned only a thirty-three percent share in the business. In addition to his partnership in Schmitz & Buck, Michael owns a twelve-and-a-half percent share in the Nugget Men‘s Store, which sells men‘s outdoor clothing. Michael‘s share in the store was purchased with proceeds from a tort settlement resulting from a car accident. Michael prepares the Nugget Men‘s Store‘s monthly accounting statements and its tax return, he participates somewhat in the store‘s management, and he attends the store‘s annual meeting.
Michael holds two accounts at First National Bank Alaska. He refers to one account as his “checking” or “regular” account and the second as his “investment” or “business” account. Michael deposited income from his accounting business into both of the accounts. At trial, he explained his deposit practices: “It just depends if ... we need money for [ ] living expenses and Tina needs money or I need money, I put them into my [checking account]. If we‘ve got enough in there, I‘d just put it into [the business account].” Michael deposited money from a number of sources into his “regular” account, including funds to cover wedding expenses; profits distributed from his accounting business;
Michael has a stock account at Edward Jones. He opened this account prior to his marriage. Michael started it with First National Bank stock purchased for him from the settlement funds resulting from his car accident. Michael testified at trial that he transferred the First National Bank stock into the Edward Jones account, sold that stock, and used the proceeds to invest. Michael also has an individual retirement account (IRA) at Edward Jones.
Christina has work experience in bookkeeping and office management. Although she did not work during the marriage after Johnathon‘s birth, she went back to bookkeeping and office management after she and Michael separated.
B. Procedural History
Michael filed a complaint for divorce in October 2001. The superior court then entered a domestic relations standing order, which prohibited each party from disposing of, encumbering, or transferring marital property without the other party‘s written consent or the prior approval of the court. The court appointed a custody investigator in December 2001.
Christina moved for $15,000 in interim attorney‘s fees in March 2002; the $15,000 represented $5,942.54 in fees already incurred and $10,000 in anticipated expenses. The court ordered Michael to pay Christina $5,000 in attorney‘s fees and to pay Christina‘s counsel the “equivalent amount that he pays his own counsel during the course of the proceedings.” In April 2002 Christina filed a corrected certificate of counsel that explained that Christina‘s actual attorney‘s fees were $11,874. The court denied Christina‘s request for additional fees. Christina‘s motion for reconsideration of this decision was denied.
Trial was held in Juneau from May 28 through May 30, 2002. After trial, the superior court awarded Michael and Christina joint legal custody of Johnathon, with Christina to have primary physical custody. The court further ordered that this arrangement would change to equally shared physical custody upon Johnathon‘s fifth birthday. The court characterized the marital home, two cars, and items of personal property as marital assets.
The court awarded the marital home to Michael and ordered him to pay Christina $93,487 as an offset payment. All property not listed in the trial court‘s chart of marital assets was deemed separate property. Finding that Christina violated the standing order when she sold a marital vehicle, the court credited her with the difference between the vehicle‘s fair market value and the price that Christina received. The court also ordered Michael to pay Christina $10,000 in attorney‘s fees.
On appeal, Christina challenges the superior court‘s custody determination, several aspects of the property division, and the court‘s interim attorney‘s fees award.
III. STANDARD OF REVIEW
We reverse a trial court‘s custody determination if the court‘s critical factual findings were clearly erroneous or if we find that the trial court abused its discretion.1 We set aside findings of fact as clearly erroneous if a review of the entire record firmly convinces us that a mistake has been made.2 We will find that the trial court abused its discretion if it has considered improper factors, failed to consider relevant statutory factors, or assigned disproportionate weight to some factors while ignoring others.3 When
Equitable division of marital property involves three steps: determining what property is available for distribution, valuing the property, and allocating the property equitably.5 The trial court‘s characterization of property as marital or separate may involve the resolution of disputed facts and questions of law. Findings of fact are reviewed under the clearly erroneous standard,6 and questions of law are reviewed de novo using our independent judgment.7 Whether the trial court valued the property correctly is a question of fact we review for clear error.8 We review the trial court‘s distribution of assets for abuse of discretion and will overturn the trial court‘s determination only if the distribution is clearly unjust.9 We review de novo whether the trial court applied the correct legal rule in exercising its discretion.10
The trial court has broad discretion in awarding attorney‘s fees in divorce actions.11 We will not reverse a trial court‘s attorney‘s fees determination unless it is arbitrary, capricious, or manifestly unreasonable.12
IV. DISCUSSION
A. The Trial Court Did Not Err in Ordering a Change in Custody from Christina‘s Primary Physical Custody of Johnathon to a 50/50 Shared Custody Arrangement To Occur Automatically When Johnathon Turns Five.
The superior court awarded Michael and Christina joint legal custody and Christina primary physical custody of Johnathon. The court provided that upon Johnathon‘s fifth birthday, Christina and Michael would share custody equally. Christina raises two challenges to the court‘s determination that she and Michael will share custody when Johnathon turns five. First, she contends that the trial court‘s order is erroneous as a matter of law. Christina asserts that the court‘s order has no evidentiary basis and is based upon unsupported assumptions about what might be best for Johnathon in the future. Second, Christina contends that the court‘s order violated her due process rights because it made a “factual determination about the future without allowing the parties a reasonable opportunity to be heard.”
The trial court must base custody determinations upon the child‘s best interests, using the factors listed in
The trial court considered the factors set out in
Because a parenting plan “is intended to be a dynamic instrument,” it may allow for changes under certain circumstances.16 “[T]hese changes are enforceable as implementations of the plan, and do not require modification....”17 An example of such a change would be a provision in a parenting plan directing that “primary custodial responsibility for a child changes when the child reaches a certain age.”18
We have affirmed a custody determination, like the one at issue here, that achieved equal physical custody between parents in two chronological steps.19 In Elliott v. Settje, the trial court weighed the
Christina also argues that the court‘s order violated her due process rights because it prescribed a change in custody without affording her an opportunity to be heard. She asserts that “[i]t was not possible at the time of trial to present evidence of what custody arrangement will be in Johnathon‘s best interests after he turns five, because that evidence does not exist.”
“Under the Alaska Constitution, procedural due process requires that a party be afforded notice and opportunity for a hearing appropriate to the nature of the case.”24 Parties to a child custody proceeding are entitled to a hearing granting them “`the opportunity to present the quantum of evidence needed to make an informed and principled determination.‘”25 Because the requirements
Christina was well aware that this issue would be argued at trial. The custody investigator‘s report contained the recommendation that Michael and Christina share custody when Johnathon turns five. In her trial brief, Christina acknowledged this recommendation and challenged it, arguing that “[i]t is simply too speculative to decide now whether it will be in Johnathon‘s best interests to alternate weeks between his parents two years in the future.” Christina also made her position known in her proposed findings of fact and conclusions of law after the trial. Because Christina had notice of the proposed custody arrangement and because she had an opportunity to be heard on the matter, the superior court‘s order did not violate her due process rights. Accordingly, we affirm the superior court‘s custody determination.
B. Characterization of the Couple‘s Assets as Separate or Marital
The first step in equitable division of marital property requires the trial court to determine what property is available for distribution; to accomplish this, the trial court must characterize assets as separate or marital property.26 The three primary examples of separate property are property acquired by one spouse before marriage, property acquired by gift, and inherited property. Assets acquired during marriage “as compensation for marital services“—most commonly salaries earned by either spouse during marriage—are considered marital assets.27
The superior court determined that Michael and Christina‘s marital property included: the marital residence, two vehicles, and certain items of personal property. The court did not list the items of property it considered separate, nor did it explain why it characterized the property as it did. However, the court made general remarks that suggest its conclusion that all property that Michael brought into the marriage remained his separate property: “The court believes that husband‘s separate property remains his separate property.” Christina contests the superior court‘s characterization of a number of Michael‘s assets as his separate property.
1. Michael‘s businesses: Schmitz & Buck and the Nugget Men‘s Store
The trial court found that Michael‘s separate property, including his interest in the Nugget Men‘s Store and Schmitz & Buck, remained his separate property because Michael had no intention to transmute the assets from separate to marital. Christina argues that the trial court made two errors in its characterization of the Nugget Men‘s Store and Schmitz & Buck as separate property. First, she argues that the court erred in applying a transmutation analysis rather than an active appreciation analysis.28 Second, she claims that the court‘s erroneous analysis led it to mischaracterize Michael‘s business interests as separate. Christina asserts that Michael spent significant marital time and energy on both
In any property division, the first step is determining what property will be divided between the parties.29 The trial court determines what property is marital as opposed to separate.30 Marital property includes all property acquired during the marriage, “excepting only inherited property and property acquired with separate property which is kept as separate property.”31 We have recognized that a spouse‘s premarital separate property can become marital through transmutation or active appreciation.32 Transmutation occurs when a married couple demonstrates an intent, by virtue of their words and actions during marriage, to treat one spouse‘s separate property as marital property.33 “Active appreciation occurs when marital funds or marital efforts cause a spouse‘s separate property to increase in value during the marriage.”34 We have noted that “[t]he time and energy of both spouses during the marriage is to be considered in dividing marital property.”35 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.”36
The elements of active appreciation are significantly different from those of transmutation.37 Transmutation requires intent, as demonstrated through conduct, to change the character of property from separate to marital.38 To find active appreciation in separate property, the court must make three subsidiary findings: “First, it 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.”39
In addressing the question whether the property at issue was separate or marital, the trial court focused only on the theory of transmutation. This focus was overly narrow and should have included an analysis of whether Michael‘s efforts during the marriage caused the value of his businesses to increase. To prevail on the active appreciation theory, Christina bore the burden of proof on the first two elements—appreciation in the property‘s value and marital contribution.40 Michael bore the burden on the third
As to Schmitz & Buck, Christina proved that Michael spent significant marital time working at the business: Michael testified that he worked approximately eleven hours a day, seven days a week, at Schmitz & Buck during tax season, from January through April. And although Christina‘s proof on the first element of appreciation in the property‘s value did not include evidence that the value of the firm‘s tangible assets or the value of its good will increased from the date of the marriage to the date of separation, according to Christina this was due to her inability to afford an expert to value Michael‘s business interests. Christina presented this dilemma to the superior court prior to trial, informing the court that she was financially unable to hire an expert to value Michael‘s business interests and requesting a continuance and the financial resources to be able to perform that valuation. Despite the trial court‘s earlier recognition that Christina was the economically disadvantaged spouse and its resulting order that Michael pay her “an equivalent amount he pays his own counsel during the course of the proceedings,” she apparently was unable to perform the financial valuation of Michael‘s businesses due in part to Michael‘s realization that by failing to pay—or even open—his own attorney‘s bills, he could avoid paying Christina‘s. Because of this, Christina alleges that she was unable to prove the value of business assets such as inventory and accounts receivable or demonstrate an increase in these business assets during the course of the marriage.
But Christina did prove that Michael‘s revenue from the accounting business increased during the course of the marriage, from $69,419 in 1999 to $77,584 in 2001. From this evidence of increasing revenue, it can be inferred that the value of the business may have increased during the marriage. Because Christina was the financially disadvantaged spouse and asserts that she was unable, due to Michael‘s circumvention of the superior court‘s order, to hire an expert to present evidence of an increase in the value of Schmitz & Buck, and because she alerted the superior court to this predicament prior to trial, requesting appropriate relief, Michael cannot rely on the argument that she failed to meet her burden of proof on the increase in Schmitz & Buck‘s value.42 Michael conceded at trial in the end of May 2002 that he had not paid any of his attorney‘s bills after the superior court‘s April 1, 2002 attorney‘s fees order.
Q Have you paid your attorney anything since March?
A No.
Q Do you know how much you owe her?
A To tell you the truth, no. There‘s been some billings, I haven‘t opened them. I‘m just leaving them.....
Because he failed to open or pay his own attorney‘s bills, Michael was able to avoid paying Christina‘s. Where a party‘s inequitable conduct hampers an opposing party‘s ability to develop potentially important
By contrast, an active appreciation analysis fails on the element of marital contribution when applied to the Nugget Men‘s Store. The record shows that Michael‘s involvement with the store was quite limited: He only performed some accounting and tax returns for the store and attended its annual meeting. We cannot say, therefore, that Christina met her burden of proof on the element of marital contribution for the Nugget Men‘s Store. Accordingly, we affirm the superior court‘s determination that the Nugget Men‘s Store is Michael‘s separate property.
2. The First National Bank accounts
Christina argues that because Michael deposited money he earned during the marriage into both of his First National Bank accounts, the superior court should have characterized the accounts as marital property. Michael counters that the accounts are comprised in part of his separate property and that commingling of separate and marital funds in the accounts does not transmute the accounts into marital property. He argues that these accounts are his separate property.
In its findings of fact, the trial court never mentioned the First National Bank accounts and thus never explicitly characterized the accounts as separate. However, the accounts are not listed as joint property in the superior court‘s findings of fact and the trial court determined that Michael‘s separate property would remain his separate property. Thus, we assume that the superior court characterized the bank accounts as Michael‘s separate property. The superior court reasoned generally that Michael‘s separate assets flowed from his personal injury claim and investments arising from his settlement award. The court also found that Michael never intended to transfer any property, other than the marital home, to Christina. The court stated: “[Michael] was careful only as a trained and suspicious [certified public accountant] could be in making sure that there was not commingling and he did that intentionally and deliberately. To the extent separate money was placed in joint accounts the evidence was strong that it was only temporary and not to make into joint property.”
To provide a context for our discussion of the First National Bank accounts, we must first discuss briefly the nature of separate and marital assets and the concept of tracing an asset to either a primary marital or primary separate source.43 As mentioned earlier, the three primary types of separate property include property acquired by one spouse before marriage, property acquired by gift, and property acquired by inheritance. Assets acquired during marriage “as compensation for marital services“—most commonly salaries earned by either spouse during marriage—are considered primary marital assets.44 Some assets might have been acquired through a source other than described above; for example, from another asset “through exchange, appreciation, or income.”45 These assets are referred to as secondary property because such an asset requires for its classification the classification of another asset.46
To classify secondary assets, courts “must first identify the specific asset from which it was derived (the source asset), and then determine the classification of that asset.”47 This process is referred to as tracing.48
Because bank account funds generally “are not in and of themselves either marital or separate property,” bank accounts are a secondary asset.52 Thus, if possible, the funds must be traced back to their source—either primary marital or primary separate property. Tracing back to the source of a secondary asset frequently stops, however, when a secondary asset‘s source cannot be determined.53 When a secondary asset‘s source cannot be proven, it is impossible to know whether the asset in question is marital or separate property. The party seeking to establish that the property is separate always bears that burden of proof; thus untraceable assets are marital property.54
Both parties concede that the bank accounts included both marital and separate property. Michael concedes that $132,100 in marital earnings went into the checking account, while a total of $65,500 in separate property was contributed to both accounts. The accounts could thus be referred to as a mixed secondary asset because they have more than one source.55 The record shows that Michael deposited money he earned during his marriage into both of the First National Bank accounts. Specifically, Michael claims that he deposited into his “regular” or “checking” account those funds needed to cover wedding expenses, profits from his accounting business, transfers from his business account, wedding gifts, and baby gifts for Johnathon. The record suggests that Michael deposited earnings from his accounting business into his “business” account. The record also suggests that in addition to marital property, Michael also deposited separate property, for example, proceeds from the Nugget Men‘s Store.
A spouse‘s separate property does not become untraceable to its separate source merely because it is mixed with marital property in the same secondary asset.56 However, placing separate property in joint ownership is rebuttable evidence that the owner intended the property to be marital.57 If evidence is presented that is sufficient to overcome this presumption, tracing can take place. To characterize a mixed secondary asset, the superior court must know the character of each source feeding into the mixed asset and the amount of value each source contributed to the mixed whole.58 The court can then determine the ratio between the sources. “The marital and separate interests in a mixed secondary asset are ordinarily in the same ratio as the marital and separate contributions used to acquire the asset.”59
If, however, the sources can be proved but their respective amounts cannot, the proper ratio cannot be determined. Thus, even when it is known that a mixed secondary
Because the record suggests that the First National Bank accounts consisted of both marital and separate property, we reverse the superior court‘s determination that these accounts were solely Michael‘s separate property.61 Additionally, given the above considerations and the lack of relevant findings by the superior court, we remand to the superior court to make findings as to whether the presumption that commingled property is intended to be marital has been rebutted and if so, to make findings recharacterizing the accounts.62
3. The Edward Jones stock account
Christina next argues that the trial court erred in characterizing the Edward Jones stock account as separate property. Prior to his marriage, Michael opened this account with stock that his father had purchased for him from Michael‘s personal injury settlement award. Christina asserts that Michael deposited marital earnings into the Edward Jones account. She concludes that Michael‘s intention to keep the Edward Jones account as separate property is irrelevant because by contributing marital funds to the account he made the account marital property. Michael counters that he did not deposit marital earnings into the Edward Jones account. He also argues that he never intended to transmute the account into a marital asset.
The trial court apparently determined that the Edward Jones account was separate property because it did not mention the Edward Jones account in the divorce decree and did not include it in the chart of marital assets. The court‘s reasoning as to the characterization of the Edward Jones account appears to be the same as that used for the bank accounts—that Michael did not intend to transmute the asset into marital property. A review of the record suggests that the evidence supports this finding by the superior court. Michael testified at trial that he only deposited separate funds into his Edward Jones account. He explained that he transferred funds from the settlement into his First National “business” account and then into the Edward Jones account. He testified: “There‘s a clear path.” There is some indication in the trial court‘s divorce decree that the court accepted Michael‘s testimony; the court noted generally that Michael did not commingle funds and “[t]o the extent separate money was placed in joint accounts the evidence was strong that it was only temporary and not to make it into joint property.” Because the superior court did not abuse its discretion in characterizing the Edward Jones account as Michael‘s separate property, we affirm this determination.
4. The trial court erred in characterizing the Edward Jones IRA as Michael‘s separate property.
Christina next contests the trial court‘s characterization of the Edward Jones IRA as Michael‘s separate property. She argues that the IRA is marital property because an increase in its value during marriage represents retirement contributions from marital earnings. We have held that
C. The Trial Court Did Not Abuse Its Discretion in Declining To Award Additional Interim Attorney‘s Fees to Christina.
Christina moved for interim attorney‘s fees of $15,000 in March 2002. The court ordered Michael to pay Christina $5,000 in attorney‘s fees and directed Michael to pay Christina‘s counsel “an equivalent amount that he pays his own counsel during the course of the proceedings.” Shortly after the superior court‘s order, Christina filed a corrected certificate of counsel in support of her motion for attorney‘s fees. Because Christina‘s counsel had changed her billing system, Christina‘s expenses were higher than noted in her motion for fees. In her memorandum in support of her second motion to continue the trial, Christina again argued her need for attorney‘s fees. She asserted that the trial court‘s order regarding fees had impacted her trial preparation, as Michael had not paid her. Christina also claimed that she did not benefit from the trial court‘s order that Michael pay her the same amount that he paid his attorney because Michael stopped paying his attorney‘s bills in March 2002. Michael testified at trial that he did not even know how much money he owed his attorney because he had not opened the bills.
The superior court declined to award Christina further interim attorney‘s fees, noting that, if necessary, it would adjust attorney‘s fees awards at the end of the case. Christina moved to reconsider that order, arguing primarily that the court‘s denial of an additional fee award to Christina prevented her from litigating on an equal playing field with Michael. The trial court denied reconsideration of its order on attorney‘s fees. In its findings of fact and conclusions of law at the end of trial, however, the superior court awarded Christina an additional $10,000 in attorney‘s fees.
Under
Christina argues that the court abused its discretion in its order for interim attorney‘s fees “in failing to award sufficient fees to `level the playing field‘....” Christina‘s argument that interim attorney‘s fees are integral in equalizing the playing field between divorce litigants is correct.
But to analyze the overall adequacy of attorney‘s fees in this case, we must also consider a related issue—Christina‘s sale of the family‘s Ford Expedition. Christina sold a Ford Expedition, a marital asset, receiving $14,500 in cash plus a replacement car worth $2,495. Christina testified that she sold the vehicle to pay for her attorney‘s fees. She did not inform Michael of the sale, nor did she split the proceeds with him. Because the trial court found that the sale violated the standing order,73 it attributed the difference between the fair market value and the actual proceeds from the sale to Christina.74
Because Christina sold the Ford Expedition, receiving $14,500 plus a replacement car worth $2,495, she received the equivalent of $16,995 from the sale of the Ford Expedition. In the property division, the superior court valued the Ford Expedition at $23,525, but credited Christina with only $6,525, the difference between the car‘s value, $23,525, and the amount that Christina received for the car, $14,500 plus a $2,495 replacement vehicle. By crediting Christina with only $6,525, the superior court gave her a benefit—although Christina received $14,500 in cash from the sale of the vehicle, plus a replacement car, the court credited her with $6,525, leaving Christina with $7,975 in cash proceeds to be applied to attorney‘s fees. Because we cannot say that the court‘s award of almost $13,000 in interim attorney‘s fees ($5,000 plus $7,975) to Christina, in addition to an order requiring Michael to pay her interim attorney‘s fees equal to his own, was an abuse of discretion, we affirm the trial court‘s decision. However, as discussed above, because Michael avoided paying Christina‘s pre-trial fees, as required by the trial court‘s order, by failing to pay his own attorney‘s fees, we have remanded to the trial court the issue of whether Schmitz & Buck‘s value increased during the marriage in order to avoid unfairness to Christina.
V. CONCLUSION
The superior court did not abuse its discretion with regard to its custody determination, and we therefore AFFIRM its decision that Christina and Michael will share equal custody of Johnathon upon the child‘s fifth birthday. Because the trial court erred in failing to consider whether the active appreciation doctrine may apply to some portion of Michael‘s interest in Schmitz & Buck, we VACATE the trial court‘s decision and REMAND for analysis under the active appreciation doctrine. Because the trial court did
CARPENETI, Justice, with whom EASTAUGH, Justice, joins, concurring in part and dissenting in part.
CARPENETI, Justice, with whom EASTAUGH, Justice, joins, concurring in part and dissenting in part.
I agree with most aspects of today‘s Opinion but cannot join the court‘s holding that Christina raised the claim of active appreciation in the trial court nor its determination that the trial court‘s attorney‘s fees rulings somehow impaired Christina‘s ability to litigate her case. Because Christina did not raise the claim of active appreciation in the trial court, I would affirm the trial court‘s determinations regarding Michael‘s interest in Schmitz & Buck and the Nugget Men‘s Store on the basis of waiver. Because the trial court did not abuse its discretion in its interim or final attorney‘s fees rulings, I would simply affirm them.
I. Failure to raise active appreciation
The Opinion deals with this issue in footnote 28. It notes Michael‘s claim that the issue was not raised in the trial court, but finds the argument without merit because Christina “argued in substance that the court should apply the active appreciation standard” and because we first used the label “active appreciation” in Martin v. Martin,1 “a case that was decided after the Schmitz divorce trial.” I respectfully suggest that both reasons fail close scrutiny.
A. “First use of active appreciation in Martin”
This court discussed “active appreciation” in at least two cases before Martin. In Brooks v. Brooks,2 we stated that “[m]any courts have recognized two types of `causes’ for the appreciation of separate property—passive and active.... [A]ctive appreciation is the result of some affirmative action taken by one or both spouses which caused the increased value of the separate property.”3 Finding that the appreciation in that case was passive, and noting that “[w]e have never held that a non-titled spouse is entitled to share in the passive appreciation of separate property,”4 we held that the non-titled spouse in Brooks was not entitled to share in the appreciation of the subject property.5 Along the same lines, we held against the non-titled spouse in Miles v. Miles6 because “[t]he superior court found that [the wife‘s] efforts were de minimis and did not constitute an active interest in [the husband‘s premarital properties], and her efforts did not contribute to the active appreciation of the properties.”7 And in Lowdermilk v. Lowdermilk,8 while not using the phrase “active appreciation,” we held that an increase in the value of the husband‘s separate business owing to the husband‘s “contributions of time and energy”9 during the marriage was marital property. (Indeed, in Martin we cited Lowdermilk, a 1992 case, to support application of the doctrine of active appreciation.10) Under these circumstances, the suggestion that Christina did not have notice that the
B. “Substance of active appreciation argued”
The fact that “active appreciation” was a term (and a doctrine) used in our jurisprudence before the trial in Schmitz will not necessarily bar Christina from raising the issue on appeal if, as the Opinion says, “despite Christina‘s failure to use [the] precise phrase, she argued in substance that the court should apply the active appreciation standard.”11 Although a party may not present new issues or advance new theories on appeal, we have “adopted a liberal approach towards determining whether an issue or theory of a case was raised in a lower court proceeding.”12 We will allow a party to use an issue or a theory on appeal that was not used at the trial level if the underlying arguments (1) are not dependent on new facts, (2) are closely related to the trial pleadings, and (3) could have been gleaned from the pleadings.13 Analysis of the proceedings in the superior court shows that Christina satisfied none of these three requirements.
(1) Are the underlying arguments dependent on new or controverted facts?
Christina did allege a few facts at trial that were relevant to a claim for active appreciation. Christina‘s trial brief notes that Michael “was primarily the breadwinner, and spent a great deal of time working away from home.” He “devoted much of his marital efforts” to the accounting business, while “Tina had primary responsibility for the child and the home during the marriage.” But she did not meet the first Zeman requirement because she did not submit sufficient evidence to prevail on the theory of active appreciation. Specifically, as discussed below at 1134, Christina failed even to introduce evidence of the value of the accounting business.14 Because the theory of active appreciation requires a showing that an asset has increased in value, it is dependent here on new facts not introduced at trial.
(2) Is the argument closely related to the trial pleadings; could it have been gleaned from them?
Christina also fails to satisfy the second and third requirements of Zeman. She asserts on appeal that she “clearly made and relied upon” an active appreciation theory in her brief and proposed findings of fact,15 albeit without expressly using that term. But contrary to Christina‘s assertions, the theory of active appreciation is not closely related to her trial pleadings—which are directed solely to transmutation, a different theory—and active appreciation is not readily discernible from her trial submissions. Christina argued only a theory of transmutation in the trial court.16 She stated that “the separate property of one spouse ... can be converted to marital property by the parties’ intents or actions,” and listed evidence often used to infer the intent to transmute separate
As further support for the conclusion that Christina did not advance an active appreciation theory, her evidentiary submissions at trial were devoid of any information showing the value of the business in question. Christina admits in her briefing to this court that “[n]o business valuation was done prior to trial for [the] business.” A party arguing for the division of otherwise separate property under the theory of active appreciation must present evidence of the “increase in value of separate property owing to marital efforts.”17 Accordingly, without such evidence, the claim must fail. Christina‘s failure to present such evidence also shows that she did not make such a claim (and is an independent reason to affirm the superior court‘s decision, for the lack of evidence of value is a separate basis to reject an active appreciation theory, had one been presented).
Christina‘s proposed findings of fact—which in any event were submitted after the trial18 and were therefore too late to raise a claim of active appreciation—similarly suggested a transmutation argument, downplaying or ignoring any appreciation of the various properties at issue, and instead focusing on their total value at the time of trial or separation. Christina further implied a transmutation argument by stressing that deposits to the First National Bank accounts were “from clearly marital sources,” that “it is not possible to segregate or identify separate and marital assets in the account[s],” and that “marital expenses were clearly paid from both First National accounts ...”
Finally, Christina‘s proposed conclusions of law explicitly mentioned transmutation, based on “the actions and intent of the parties,” and made abundant use of the terms “commingled,” “transmute,” and “converted.” They did not suggest appreciation. If Christina made an active appreciation argument at trial, it was not done sufficiently “clearly” as to be gleaned from her pleadings.
Christina argues that she “relied on Lowdermilk [v. Lowdermilk]”19 at trial, thus presenting an active appreciation argument to the trial court “as completely as anyone could have” prior to the Martin decision. Christina‘s attorney did mention Lowdermilk in the opening statement. But the mere fact that Christina cited Lowdermilk at trial does not necessarily mean that she raised the active appreciation issue, because Lowdermilk involved both active appreciation and transmutation.20 And in fact Christina‘s counsel raised Lowdermilk as support for her contention that Michael‘s “assets under the law should be viewed as having been converted to marital property.” Furthermore, Christina‘s attorney also cited Green v. Green,21 a case dealing exclusively with transmutation, in the same sentence as Lowdermilk, to support the same transmutation argument. Christina‘s attorney‘s opening statement referred to “conver[sion]” and “commingl[ing]” of separate property, which go to transmutation. The opening statement did not suggest that Michael‘s separate property should be considered marital as a result of active appreciation.
In sum, Christina did not plead enough facts at the trial level to support an active appreciation argument, such an argument is not closely related to her trial arguments,
Thus, Christina did not raise the claim of active appreciation at the trial level. The proposition that a party may not raise new arguments on appeal is almost as old as this court22 and has been re-affirmed as recently as last month.23 Even where the party failing to raise an issue is a pro se litigant—a class for whom this court relaxes the rules24 —“the requirement that an issue be preserved by being presented in the superior court arises out of notions of judicial finality and efficiency, as well as fairness to the opposing party.”25 Christina is not a pro se litigant; indeed, she is represented here and was represented below by counsel for the appellant in Lowdermilk. Because Christina did not raise the claim of active appreciation at the trial level, I would resolve both the Schmitz & Buck and the Nugget Men‘s Store claims on that basis and affirm the decision of the superior court.
II. Correctness of attorney‘s fees rulings; ability to litigate fairly
Review of the underlying facts shows that the superior court‘s rulings concerning interim and final attorney‘s fees were clearly within the court‘s discretion and that Michael‘s behavior did not prevent Christina from fairly litigating her case. First, some context is in order.
The parties had been married for thirty-one months at the time they separated. Following the filing of the complaint for divorce, a trial setting order was issued in December 2001; trial was set for April 23, 2002. Christina moved for an award of interim attorney‘s fees on March 14, 2002, five weeks before trial. She stated that she had paid fees of $3,942.54 and had incurred another $2,000. Anticipating a two-day trial, she estimated that at least an additional $10,000 in fees would be incurred. She sought $15,000 in fees. On April 1, the court ordered the payment of $5,000 and added, “Father must pay Mother‘s counsel an equivalent amount that he pays his own counsel during the course of the proceedings. The court will review all attorney‘s fees at the end of the case.” At that point, trial was to begin in twenty-two days.
Four days later, Christina moved to continue the trial. Although opposed by Michael, the continuance was apparently granted, for trial took place on May 28-30. In the motion to continue, Christina again argued for additional attorney‘s fees. But, contrary to the suggestion in today‘s Opinion, she did not definitively indicate an intention to seek a business valuation. What she said was, “[Christina] has the option, theoretically, of undertaking a business evaluation. But an evaluation of five business[es] would cost at least $15,000, and [Christina] cannot know whether it is even necessary, because she does not know Mike‘s position on the value of the businesses.” (Emphasis added.) Moreover, Christina argued for a business valuation not to pursue a claim of active appreciation, but because the value of the businesses was substantial and because “[e]ven if they were, as Mike apparently believes, entirely separate, the Court must be able to determine their value in order to determine what an equitable distribution of marital property requires.” The court denied further interim
As it turned out, the trial took place less than six weeks after the renewed interim attorney‘s fees request became ripe. After trial, the court awarded almost $18,000 additional attorney‘s fees to Christina: another $10,000 in cash and credit of $7,975 in cash proceeds from the sale of two cars. In short, in a case in which Christina estimated on March 14 that attorney‘s fees would be about $16,000, and in which trial was completed on May 30 in three days, the court awarded her a total of $22,975 in fees.26
With this background, the court‘s conclusion—that Michael‘s failure to pay his attorney‘s fees during the brief interim between the court‘s order and the trial is a sufficient basis to remand the case—is puzzling. Judge Weeks‘s order, that Michael match any payment to his attorney by a payment to Christina‘s attorney, was obviously designed to force counsel for both parties into identical positions.27 And it did just that. The parties were litigating on an even plane. Neither attorney, for a period of about six weeks, received payment. And the judge did what he said he would do: review the question of fees after the trial and make an award if necessary. After that review, he awarded an additional $17,975 to Christina.
Moreover, it is difficult to determine from the evidence in this case that Michael had any particular intent in not opening his attorney‘s billings, much less the intent to avoid paying Christina‘s legal fees and thus impede her ability to gather information about the value of his businesses. As Michael explained to Christina‘s counsel, in response to her question about not opening his attorney‘s billings: “I—I am just tired of the whole thing. I don‘t want to look at it. I—I was hoping we could get this settled a long time ago. And I‘m just—I haven‘t looked at anything.” In any event, there is simply no basis for the court‘s conclusion that Michael did not pay his bills to avoid having to pay Christina‘s counsel.28
Finally, the court‘s conclusion that Michael‘s failure to pay his attorney‘s bill in the brief interim significantly affected Christina‘s ability to litigate her case depends on a series of unproven assumptions. The first is that the bills were of a sufficient amount to have made any difference. The record is silent in this regard. The second is that, had Christina‘s attorney received a payment during the period in question, she would have commissioned the evaluation that she earlier had spoken of only in theoretical terms. The last is that any such evaluation would have been used to try to show active appreciation—a claim never raised by Christina—rather than merely to give the court sufficient information so as to “determine what an equitable distribution of marital property requires“—the purpose that Christina did cite in her memorandum of law.
Judge Weeks was fully aware of Christina‘s claim that she was entitled to greater interim fees and that she had not received interim payments beyond the $5,000 ordered in April. Christina‘s counsel filed a motion for reconsideration on May 20 and alerted the court to these facts. But there is nothing to suggest that the court abused its
In conclusion, the record shows that Christina failed to raise the claim of active appreciation in the trial court and that she therefore waived the issue. It also shows that the superior court acted well within its discretion in awarding interim and final fees. The record does not show that Michael‘s failure to pay his attorney for a period of about six weeks prevented Christina from raising a claim based on active appreciation. For these reasons, I respectfully dissent.
Notes
West v. West, 21 P.3d 838, 841 (Alaska 2001).
[i]n determining the best interests of the child the court shall consider
(1) the physical, emotional, mental, religious, and social needs of the child;
(2) the capability and desire of each parent to meet these needs;
(3) the child‘s preference if the child is of sufficient age and capacity to form a preference;
(4) the love and affection existing between the child and each parent;
(5) the length of time the child has lived in a stable, satisfactory environment and the desirability of maintaining continuity;
(6) the desire and ability of each parent to allow an open and loving frequent relationship between the child and the other parent;
(7) any evidence of domestic violence, child abuse, or child neglect in the proposed custodial household or a history of violence between the parents;
(8) evidence that substance abuse by either parent or other members of the household directly affects the emotional or physical well-being of the child;
(9) other factors that the court considers pertinent.
Id.Orders during action. (a) During the pendency of the action, a spouse may, upon application and in appropriate circumstances, be awarded expenses, including
(1) attorney fees and costs that reasonably approximate the actual fees and costs required to prosecute or defend the action; in applying this paragraph, the court shall take appropriate steps to ensure that the award of attorney fees does not contribute to an unnecessary escalation in the litigation.
After Michael filed for divorce, the court issued a domestic relations standing order, which provided, among other things, that neither party
may dispose of, encumber, transfer, or otherwise dispose of any marital property ... without the written consent of the other party, which shall not be unreasonably withheld, or the prior approval of the court, except that a party may make reasonable use of the funds for the parties’ and the parties’ children‘s expenses, which shall include reasonable attorney‘s fees necessary to prosecute or defend the action.