Tag Archives: Schmitz Formula

Barton v. Barton

Barton v. Barton

In Barton v. Barton, A13-0921 (Mar. 10, 2014), the Court of Appeals upheld the district court’s division of assets, allocating all the equity in the homestead to the wife. The parties had been married for seventeen years, and, at the time the wife sought a divorce, she was a registered nurse while her husband was and unemployed as a result of a work-related injury; he was receiving social security (SSI) and workers’ compensation benefits. The parties agreed that the wife would have full legal and physical custody of their two children.

The wife had inherited money from several relatives, and she used a significant amount of her inheritance to buy the parties’ homestead. The court applied the Schmitz formula; this formula calculates the current value of a party’s nonmarital interest in a homestead that the party purchased during marriage by dividing the equity at the time of the purchase by the value at the time of the purchase and then using that figure to determine the value at the time of the divorce. Any remaining amount is marital property. Because the wife’s nonmarital interest in the homestead was more than the net equity in the home, the court awarded the wife the homestead and divided the remainder parties’ marital property equally.

On appeal, the Minnesota Court of Appeals held that the wife’s nonmarital share of the property included not only the inherited money used for the purchase but also included nonmarital funds paid toward the mortgage when the homestead was refinanced.   The court also rejected the husband’s argument a $16,000 increase in the value of the homestead should have been classified as marital property. The court held that there was no evidence that marital funds had been used to improve the property. .

The fact that the parties owned the homestead as joint tenants did not abolish the nonmarital share of the home. The court held that the nonmarital share is only extinguished if there is evidence that the spouse intended to donate the nonmarital share to the marriage so that it becomes marital property

The court also held that the district court did not abuse its discretion in not finding that the husband suffered an undue hardship from failing to allocate some or all of the nonmarital property to the husband. Under Minnesota Statute 518.58, subd. 2, the court can apportion up to one-half of the nonmarital property if the court finds that, otherwise, there would be an undue hardship for either spouse.   The Minnesota Court of Appeals held that the statute does not require the court to evaluate whether either party would suffer any undue hardship. Here, although the district court found that the husband, due to his disability, would be unlikely to obtain employment in the future, it also found that both spouses earned too little to meet their monthly expenses or maintain their pre-dissolution standard of living.

Although the homestead was the principal issue, the Court of Appeals also rejected the husband’s claim to half of his wife’s retirement savings, as the district court divided the total of all marital assets, including the retirement savings, in half. Because the husband was on fixed disability benefits, the district court allotted all the marital debt to the wife. Thus, the district court did not abuse its discretion in dividing the assets.

The Court of Appeals also held the district court did not abuse its discretion in reserving the issue of spousal maintenance for the husband until the youngest child was emancipated, as the wife’s monthly expenses were greater than her income. She may be able to afford spousal maintenance when the children are emancipated.

Anyone who is concerned about the division of marital assets in a divorce proceeding should consult with an experienced family law attorney.

ALLOCATING THE VALUE OF THE FAMILY HOMESTEAD

ALLOCATING THE VALUE OF THE FAMILY HOMESTEAD

One contentious issue that arises in divorce proceedings is the division of the value of the homestead, the family home.   While often, the parties purchase the homestead during the marriage with marital property, allowing for an even 50/50 division, there many instances in which one party already owns a home at the time of the marriage, so there is nonmarital equity in the home from the outset.

In Mahowald v. Mahowald, A12-2243 (Minn. Ct. App. Sept. 9, 2013), the Minnesota Court of Appeals upheld the district court’s award of a portion of the current value of the homestead based on her premarital interest in the homestead to the wife. Before the parties were married in 1991, the wife had $7,400 in equity in the home, which amounted to 17.6% of the value of the home. The homestead at issue in Mahowald had been improved by the parties over the course of the marriage; they had added new siding, remodeled the kitchen, and added a new garage/shop. These improvements were marital property.

The district court calculated that 20% of the value of the homestead was attributable to the improvements made during the course of the marriage and, therefore, was marital property. Therefore, the court deducted the 20% of the value of the homestead first, leaving 80%, and then calculated the nonmarital portion owned by the wife as 17.6% of the balance (80%), or 14.08% of the total value of the homestead.

The court rejected the husband’s claim that nonmarital interest had been extinguished when the parties refinanced the home three times, relying on the Minnesota Supreme Court’s decision in Antone v. Antone and Minn. Stat. 518.003, subd. 3 (2013).

In Antone, the Minnesota Supreme Court held that a portion of the increased value of a home attributable to market forces is marital property and rejected the argument that refinancing eliminated marital property. The court explained the so-called “Schmitz rule,” as follows: “The present value of a nonmarital asset used in acquisition of marital property is the proportion the net equity or contribution at the time of acquisition bore to the value of the property at the time of purchase multiplied by the value of the property at the time of separation. The remainder of equity increase is characterized as marital property.” In applying this rule to the facts in Antone, the court said that the net equity at the time of the marriage is nonmarital property as it was acquired before the marriage. Then, when the parties used marital property to pay the mortgage, they created marital equity. The court held that refinancing the homestead did not amount to withdrawing nonmarital equity in the homestead. Thus, the case was remanded to the trial court to determine (1) the fair market value of the homestead on the date of the marriage and also at the dissolution of the marriage and (2) to apply the “Schmitz formula” to determine the marital and nonmarital interests in the homestead.

Anyone who has nonmarital funds invested in a homestead should consult with an experienced family law attorney before entering into a property settlement.