White v. White and Baker v. Baker on Retirement Accounts

White v. White and Baker v. Baker on Retirement Accounts

Retirement accounts are often litigated during a divorce, especially when a non-marital claim exists.  In White v. White, a couple had been married for six years and were in the process of being divorced. 521 N.W.2d 874 (Minn. Ct. App. 1994). The main issue before the Minnesota Court of Appeals was the issue of the husband’s TIAA/CREF retirement plans that he began participating in 1965 and the annuity he had acquired before the marriage. The wife’s position was that the entire increase in value of the retirement funds and annuity from the time that they were married to their divorce should be considered marital and should be divided equally. The court disagreed.

The court determined that an increase in value during the marriage due to efforts by a spouse such as financial investments, labor, or decision-making would be considered marital property. In contrast if the increase in value was solely because of market forces, not the influence of a spouse, the property would remain nonmarital. The court empathized that property can be part marital and part nonmarital in nature and have distinguished the difference between active and passive appreciation. When dissolving a marriage, the spouse is entitled to their original non-marital asset and any passive appreciation to it. Active appreciation, when a spouse contribute money during the marriage is considered marital property.

The court found in White, that the TIAA/CREF and annuity were part marital and part nonmarital in nature. A valuation number was accepted by the trial court for what the TIAA/CREF and annuity values would have been had the couple not contributed to them. These numbers were then used to figure out what the martial portion of both the TIAA/CREF and annuity were. The court also makes a point of mentioning that the TIAA/CREF does not provide for cash withdrawals prior to retirement or termination of employment nor does it allow for further control of the investments once they have been contributed to the TIAA/CERF.

The court ended its decision on the retirement accounts in White by stating that the nonmarital property was not available as a liquid asset during the marriage and that because of this a portion of the interest cannot be attributed to marital efforts and therefore must be considered nonmarital in nature.

In Baker v. Baker, a husband sought review by the Minnesota Supreme court for the court of appeals decision that his retirement account, which held the investment return on his nonmarital property, was all marital and ordered that there be an equitable redistribution of the account. 753 N.W.2d 644 (Minn. 2008). The Baker case looks at two issues: (1) whether the investment return on the nonmarital portion of certain retirement accounts are also nonmarital and (2) whether the husband’s use of marital assets to pay his attorney’s fees should have been taken into account in the property division. This blog will only look at the first issue.

The court decided that there was a single test to determining if appreciation of a nonmarital property is marital or nonmarital. The test is the extent that marital effort, financial or nonfinancial efforts of one or both spouses during the marriage causes the increase in value. The Baker case specifically looks at the control and effort expended on the investments during the marriage. The husband argued that the court of appeals focus on control eviscerates the statutory intent to protect the nonmarital character of increases in value of the nonmarital property.

The Baker case is considered to be different from other earlier marital effort cases because of the investment nature. The court looked at the underlying investments within the portfolio. The court of appeals relied on two theories that the Minnesota Supreme Court rejected. The court of appeals believed that the husband expended enough personal effort to be active management over the portfolio and therefore the appreciation should be considered marital. In response to this belief the Minnesota Supreme Court reasoned that the use of a professional investment institution relieved the husband of personal effort. The second theory presented by the court of appeals was that the portfolio manager’s actions were directly attributable to the husband. The Minnesota Supreme Court explained that this theory has been implicitly rejected because an increase in value of a nonmarital property to become marital has to come from personal efforts of a spouse.

The case was remanded to look at two other issues that the wife brought up: (1) the husband’s tracing of the nonmarital interest was defective and (2) commingling of the nonmarital and marital interest. Baker v. Baker, No. A06-1252r, 2008 Minn. App. Unpub. LEXIS 1403 (Dec. 9, 2008). The result in the final Baker case, was that the husband’s tracing was sufficient. The wife appealed again and review was denied. Currently, Baker is the favored approach to retirement accounts and the like.

At Lake Harriet Law Office, we provide strong legal representation for our clients who are going through divorce, and we use a data-focused approach to address the division of assets and debts.  If you are concerned about divorce and the related financial issues, please contact us to schedule a consultation at 612-750-4843.

Randall A. Smith – Managing Attorney             612-750-4843

Chinyere Okwulehie – Student Attorney           612-223-8925

Jessica Dulz – Student Attorney                          612-223-8925

Addy Scriver – Student Attorney                         612-223-8925