Non-Marital Tracing and Minnesota Divorce - An Overview

Non-Marital Tracing and Minnesota Divorce – An Overview

Under Minnesota law, all property, real or personal acquired either jointly or individually during a marriage is presumed to be marital property under Minn. Stat. §518.003 subd. 3b. Non-marital property is defined by the statute as “property real or personal, acquired by either spouse before, during, or after the existence of their marriage, which:”

  • is acquired as a gift, bequest, devise or inheritance made by a third party to one, but not the other spouse;
  • is acquired before marriage;
  • is acquired in exchange for or is the increase in value of property which is described in clauses (a), (b), (d), and (e);
  • is acquired by a spouse after the valuation date; or
  • is excluded by a valid antenuptial contract.

Any other non-marital claim must overcome this presumption by showing that the property is non-marital by a preponderance of the evidence. Wopata v. Wopata, 498 N.W.2d 478 (Minn. Ct. App. 1993). The burden of proof is on the party claiming that the property is non-marital. The tracing required to prove a non-marital claim must persuade the trier of fact that the property in question is more likely than not non-marital.

In order for non-marital property to stay non-marital, it must either be kept separate from marital property or if commingled with marital property is has to be traceable. Olsen v. Olsen, 562 N.W.2d 797, 800 (Minn. 1997). Strict tracing of non-marital property is not required, however, “credible testimony otherwise unsupported by documentation can be sufficient to trace a non-marital asset.” See Doering v. Doering, 385 N.W.2d 387, 390-91 (Minn. Ct. App. 1986). But the more detailed the tracing and thorough documentation, the stronger the likelihood that the non-marital claim will prevail.

In Minnesota, the appellate courts’ requirements for tracing have varied depending on the character of the non-marital property. Whether non-marital property is claimed in a brokerage account, retirement plan, real estate, or a business will to some extent determine the way the claim must be made. Here are four cases that outline how variable the requirements for tracing are and what makes non-marital property marital property in whole or in part.

The case that seems to be most pivotal is the Baker case. Baker v. Baker, 753 N.W.2d 644 (Minn. 2008) addresses the issue of whether or not the total investment return on a non-marital portion of the husband’s SIGS accounts is marital property. The court specifically looked at the appreciation on the non-marital account. The question was whether the appreciation was due to marital effort or by market forces, and if the appreciation is due to marital effort then both parties should benefit from rather than one party to the exclusion of the other. Absent the efforts made by either spouse, appreciation is considered to be passive. Utilizing a professional investment agency allowed Dr. Baker to avoid significant personal effort into managing his retirement funds. A third party’s actions, such as an investment agency’s actions do not constitute marital effort for determining if assets are marital or non-marital.

In White v. White, 521 N.W.2d 874 (Minn. Ct. App. 1994), the court determined that upon dissolution, a spouse was entitled to receive the original non-marital asset and any passive appreciation in value. The court held that part of the retirement accounts and annuity were attributable to the parties’ martial investments and made that portion marital in nature. The other portion was attributed to the passive appreciation of the husband’s investments and property that had remained non-marital. In this case, the husband had remained passive, made no “entrepreneurial decisions,” nor had “either spouse decided during the marriage whether to invest money in the non-marital funds, nor could either spouse withdraw the funds.” Id. at 879.

In White, the non-martial property was traceable, in contrast, to the next case. In the unpublished case, Peppler v. Peppler, No. A09-86 2009 Minn. App. Unpub. LEXIS 1222 (Minn. Ct. App. Nov. 17, 2009) Minnesota Court of Appeals upheld a district court’s finding that where “the parties’ monies are so commingled that it would be impossible to distinguish between the two.” At *16.

In another unpublished case, Jacobs v. Jacobs, No. A11-1683 2012 Minn. App. Unpub. LEXIS 656 (Minn. App. Ct. July 16, 2012), the court found that the husband’s testimony of his premarital property credible. In addition to the husband’s testimony, his financial advisor’s testimony that the parties didn’t earn “significant salaries during the marriage that could have funded the accounts” in question. Id. at *10. The court of appeals went on further to determine that the trial court didn’t err in determining that the husband had sufficiently traced his premarital assets in two accounts.

If you have Divorce and Family Law questions, please contact the Family Law financial experts at Minneapolis based Lake Harriet Law Office at 612-750-4843.

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