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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Martin v. Martin (7/19/2002) sp-5598

Martin v. Martin (7/19/2002) sp-5598

     Notice:   This opinion is subject to correction  before
     publication  in  the  Pacific  Reporter.   Readers  are
     requested to bring errors to the attention of the Clerk
     of  the  Appellate  Courts, 303  K  Street,  Anchorage,
     Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
     e-mail corrections@appellate.courts.state.ak.us.


            THE SUPREME COURT OF THE STATE OF ALASKA


DONALD H. MARTIN,             )
                              )    Supreme Court No. S-9837
             Appellant,            )
                              )    Superior Court No. 3AN-99-3833
CI
     v.                       )
                              )    O P I N I O N
MELINDA K. MARTIN,            )
                              )    [No. 5598 - July 19, 2002]
             Appellee.             )
________________________________)


          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, Karen L. Hunt, Judge.

          Appearances:  Peggy A. Roston, Law Office  of
          Peggy  A.  Roston, Anchorage, for  Appellant.
          Barbara  A. Norris, Law Office of Barbara  A.
          Norris, Anchorage, for Appellee.

          Before:    Fabe,  Chief  Justice,   Matthews,
          Eastaugh, Bryner, and Carpeneti, Justices.

          EASTAUGH, Justice.

I.   INTRODUCTION

          I.   A husband appealing the property division in a divorce

contends  that the trial court erred in finding that the  parties

intended  to  treat the husbands premarital business  as  marital

property.  We affirm, because the husband used marital  funds  to

finance  the  business and because, at the husbands request,  the

wife made substantial uncompensated contributions to the business

during  the fifteen-year marriage.  We also affirm the  contested

property  valuations,  but  reverse the  award  of  the  husbands

premarital camera to the wife.

II.  FACTS AND PROCEEDINGS

          Melinda  and  Donald Martin met in 1979,  began  living

together  in  1980, and married in 1985.  Don began managing  his

sisters Anchorage health food store, Roys Health Foods (Roys), in

1971.   Don purchased the store for $140,000 in 1980.1   Don  has

been  a  full-time,  salaried employee of  Roys  since  purchase.

Melinda has worked full-time for the State of Alaska since  1978.

Melinda  also  worked at Roys on a part-time basis from  1980  to

1999.  Melinda and Don separated in January 1999 and divorced  in

October 2000.

          In  dividing the property during the divorce, the trial

court  determined  what property was available for  distribution,

valued  that property, and divided it 50/50" between the parties.

The court characterized Roys as marital property.  Don argues  on

appeal  that  Roys  is  his  separate property,  not  subject  to

equitable  division by the court.  Don also disputes  the  courts

valuation  of  the parties weekend cabin on the Kenai  Peninsula,

undeveloped  land in Arizona, and Alaska Airlines frequent  flier

mileage accounts.  Finally, Don argues that the court abused  its

discretion  by  failing to award him a portion of Melindas  state

employee  retirement account and by awarding his Nikon camera  to

Melinda.

III. STANDARD OF REVIEW

          Equitable  division of marital assets is  a  three-step

process: determining what property is available for distribution,

assessing  the  propertys  value,  and  allocating  the  property

equitably.2   We  review  the  trial courts  characterization  of

property  as  separate  or  marital  for  abuse  of  discretion.3

Whether  the  trial  court  applied the  correct  legal  rule  in

exercising its discretion, however, is a question of law that  we

review  de  novo  using our independent judgment.4   Whether  the

court correctly valued the assets to be divided is a question  of

fact  that  we review for clear error.5  Finally, we  review  the

courts  ultimate  distribution of the assets under  an  abuse  of

          discretion standard, and will only reverse if the distribution is

clearly unjust.6

IV.  DISCUSSION
     
          A.    The Court Did Not Err in Holding that Roys Health
          Foods Was Marital Property.
          
          Because  Don  purchased  Roys  Health  Foods  prior  to

marriage,  Roys  would  ordinarily  be  considered  his  separate

property, not subject to equitable division.7  However, under the

doctrine  of transmutation, separate property can become  marital

property  if the parties so intend.8  The trial court found  that

[t]he  words  and acts of the parties before and during  marriage

establish their intent that the health foods store was  a  family

business.  (Emphasis added.)  The court accordingly characterized

Roys  as  marital property.9  Don argues that despite  the  trial

courts express finding of intent, the court improperly relied  on

a mixture of legal theories to reach its conclusion.  Because the

evidence supports the courts express finding of intent, we affirm

the courts characterization of Roys as marital.

          Don  argues that many of the courts findings supporting

its  conclusion are not relevant to the parties intent.   Indeed,

the  two  findings immediately preceding the trial courts finding

that  the  parties  intended to treat Roys as a  family  business

support an active appreciation theory rather than a transmutation

theory.10  The court noted that Don paid almost $117,000  of  the

promissory note on Roys through his marital efforts and  reasoned

that  the resulting equity increase should be considered  marital

property,  just as it would be if Don had earned  this  money  as

take-home pay:

               18.   Almost  $117,000 out  of  $140,000
          purchase  price of the store was paid  during
          the  marriage.   This  is  money  that  [Don]
          generated by spending time and energy on  the
          store.  He spent his marital employment  time
          and  energy creating financial gain which  he
          used to buy an asset.  If he had not used his
          employment time and energy to buy the  store,
          he would reasonably have been expected to use
          that  time and energy generating income  that
          would have been marital.  [I].e., [Don] spent
               his  marital time and energy  generating
          resources  to  pay for approximately  80%  of
          what he claims is a non-marital asset.
          
               19.  There is no evidence that defendant
          was  employed  other than  in  the  business.
          There  is  evidence  that  income  from   the
          business was used to support the family unit.
          To  find  that  the business was  non-marital
          would  .  .  . [be] contrary not  only  to  a
          preponderance of the evidence  in  the  case,
          but  also  contrary  to  the  legal  view  of
          marriage as an economic unit.
          
These  findings  do  not  directly bear on  whether  the  parties

intended to treat Roys as marital property.  Rather, they suggest

that  the  appreciation  in Roys should  be  treated  as  marital

property because it derived from Dons marital efforts.

          Don  further  asserts  that  the  court  expressly  and

incorrectly  disavowed  any reliance on  the  parties  intent  in

reaching its conclusion.  In the paragraph following its  finding

of intent, the court qualified its conclusion by stating that the

parties intentions were not entitled to much weight:

               21.  The parties intention as an element
          of  determining whether a business  purchased
          before   marriage   became   marital   cannot
          reasonably  be  given  the  same  weight   or
          meaning  as the parties intent in determining
          whether   a  business  transaction   occurred
          between  non-marital partners because spouses
          are not dealing with the business in an arms-
          length transaction.
          
(Emphasis added.)  Melinda responds that the court did not reject

the intent standard, but merely noted that the standard should be

applied  more liberally in the context of a marital relationship.

Both  Don  and Melinda are partially correct; the court  properly

distinguished  the  context  of marriage  from  that  of  typical

business deals, but erroneously de-emphasized the significance of

the parties intent in applying the transmutation doctrine.

          Don  argues that these are the same errors that  caused

us to reverse in Nicholson v. Wolfe.11  We noted in that case that

the  trial court erroneously relied upon equitable considerations

in  concluding  that the husbands premarital business  should  be

          considered marital property:

          The   trial  court  did  not  find  that  the
          Northstar  assets  were marital  because  the
          parties  intended  to  treat  them  as  such.
          Instead, it found that it would be unfair  to
          treat  the  property as separate, since  both
          parties  had contributed significant  efforts
          to the business during the marriage.[12]
          
We  held  that  [w]ithout finding that the  parties  intended  to

convert  [the husbands premarital business] to marital  property,

the trial court could not properly consider the business to be  a

marital  asset.13   Accordingly,  we  vacated  the  trial  courts

decision  and  remanded with instructions to treat  the  husbands

premarital  business  as separate property  unless  it  expressly

finds an act or acts that demonstrate the parties intent to treat

the property as marital.14

          Melinda  argues that the court satisfied  Nicholson  by

making  an  express  finding  of intent  and  by  noting  several

specific  acts evincing this intent.  The trial court found  that

marital  funds were used to finance the business and that Melinda

had worked at the store for many years without pay.

          As  noted  above,  the trial court  runs  together  the

doctrine of transmutation, which is based on the parties  intent,

with  the  doctrine  of active appreciation, which  is  based  on

equitable  considerations.15   These  theories  are  analytically

distinct, and should be treated as such.16  But it would be unduly

formalistic  to  reverse the trial court on  this  basis  if  the

record  actually supports the courts express finding  of  intent.

Accordingly, we consider whether the court abused its  discretion

in  finding that the parties intended to treat Roys as  a  family

business.17

          Don  argues that the record does not support the  trial

courts finding that the parties intended to treat Roys as marital

property.   Don  first  argues  that  Melinda  did  not  play   a

substantial role in the business during the marriage.  The  court

found, however, that Melinda contributed effort and energy to the

          business . . . during the marriage and worked at the store

without pay in the early and mid-1990s.

          In  Chotiner  v. Chotiner we summarized  the  types  of

conduct that might evince an intent to convert separate property.18

Of  particular  pertinence here, we noted that separate  property

can become marital when the non-owner spouse lends her credit  to

improve  the property or otherwise devote[s] substantial  efforts

to its management, maintenance, or improvement.19  Conversely, we

have   repeatedly   held   that   non-substantial   efforts   are

insufficient to demonstrate the requisite intent.20

          Don  argues that Melindas level of involvement  in  the

store   dropped   appreciably  before  the  marriage   in   1985.

Nonetheless,  even by the most conservative estimate  she  logged

hundreds of hours at the store and at trade conventions over  the

parties fifteen-year marriage.21  More importantly, she was  only

paid  for a fraction of that time.  The court found that  Melinda

only  began  receiving paychecks in 1997, after a  hiatus  of  at

least  seven  years,  so  that she could obtain  social  security

benefits and participate in the corporations profit-sharing plan.22

The  majority  of  Melindas work contributions,  therefore,  went

directly to the earned surplus of the corporation.

          Melinda  further testified that Don demanded  that  she

work  at  the  store.  She testified that she did so without  pay

because she considered it her marital obligation to help out with

the  family  business.   Although Melindas  hours  at  the  store

decreased once she moved to the day shift of her state  job,  she

testified that she still helped out when she could, or  when  Don

was  short-staffed.  Melinda testified that Don said a couple  of

times,  We  have  a goldmine here, we have to take  care  of  it.

Dons  failure to record her time or compensate her for  her  time

and  Melindas  willingness to fill in whenever she could  without

pay  strongly  suggest that both parties intended  to  treat  the

store as a joint enterprise.

          Don  alternatively  argues that Melindas  contributions

          were not substantial because she did not play a management role

at  Roys.   He  asserts that her tasks were mostly  clerical  and

janitorial.  Melinda, on the other hand, argues that she  trained

employees, often represented the store at trade conventions,  and

acted as decision-maker while Don was away on vacation.23  It  is

not  necessary to resolve this dispute, however, because we  have

never  held  that the non-owner spouse must have equal  decision-

making  authority  to  demonstrate an  intent  to  hold  property

jointly.  In Lundquist v. Lundquist we affirmed the trial  courts

finding  that the parties intended to treat the husbands  fishing

boat as a joint asset where the wife testified that she worked on

the  boat  as a deck hand, shopped and cooked for the  crew,  and

tended to the business while her husband was out fishing.24  Like

the  wife  in Lundquist, Melinda contributed substantial  efforts

that helped maintain the business and contribute to its growth.25

Whether  these  efforts  were  primarily  oriented  towards  non-

managerial  tasks is irrelevant  the salient fact  is  that  they

substantially contributed to the business.

            This  case  also resembles Lundquist in that  marital

funds  were  used to finance the business.26  Melinda  documented

checks totaling $31,000 written from marital accounts to Roys  in

the 1990s.  Don admitted to writing the checks.  Accordingly, the

court  found  that marital funds were used in the business.   Don

disputes this finding, arguing that the checks were probably just

loans to Roys from the profit-sharing plan in which both Don  and

Melinda participated and that the marital bank accounts were just

conduits for the loans.

          Don  explains  that participants in the  profit-sharing

plan  were allowed to borrow up to fifty percent of their  vested

balance.  Because the corporation was not allowed to borrow  from

the  plan  directly, Don would borrow from the plan and loan  the

borrowed  funds  to the corporation by writing  a  check  from  a

personal  account.  The corporation would pay him  back,  and  he

would  in  turn  reimburse  the  profit-sharing  plan.  In   Dons

          accountants words, the transactions were a wash.

          But  the fact that a loan is repaid does not change the

nature  of the transaction.  Calling a repaid loan a wash  belies

the  element  of risk associated with every loan.27  Dons  vested

balance  in  the  profit-sharing account was  a  product  of  his

marital  efforts, and therefore marital property.28  Accordingly,

Melindas  equitable share of Dons marital efforts was  placed  at

risk  by  this lending arrangement.  Furthermore, Dons accountant

admitted that at least one of the loans had not been repaid as of

the  last  accounting  before trial.   The  courts  finding  that

marital funds were used in the business is not clearly erroneous.

          We have never reversed a trial courts finding of intent

to   transmute  when  the  non-owner  spouse  made  uncompensated

contributions  to  the  premarital  owners  enterprise   of   the

magnitude   present   in  this  case.   Don   disputes   Melindas

characterization  of her contributions, but we will  not  reverse

the  courts  implicit decision to credit Melindas testimony  over

his.29  The record adequately supports the main thrust of Melindas

argument   that she assumed that she was working for  the  family

business   and   that   Don   either  shared   that   belief   or

opportunistically  allowed  her  to  persist  in   that   belief.

Accordingly,  the court did not abuse its discretion  by  finding

that Don and Melinda intended to treat Roys as joint property.

     B.   The   Courts   Disputed  Valuations  Are  Not   Clearly
          Erroneous.
          
          1.   The Kenai cabin
               
          The  trial  court  valued the parties  Kenai  cabin  at

$108,500.   This  was the value attributed in a brokers  estimate

Don  requested  in anticipation of litigation.  The  court  noted

that  the  parties purchased the cabin for $85,000  in  1995  and

spent  just  over  $27,000 on improvements.   In  rejecting  Dons

experts   appraisal  obtained  after  Don  rejected  the  brokers

estimate, the court found:

          It   is   unreasonable  and  therefore,   not
          creditable  that  after  the  parties   spent
          $27,000  improving a home on  the  Kenai,  it
          decreased  in resale value to less  than  the
          purchase  price.  [Melindas] contention  that
          $108,500 is FMV for the Kenai house and guest
          cabin  is more credible than Defendants self-
          serving  appraisal  obtained  at  his  behest
          after  rejecting a broker letter  re:  resale
          value.
          
          Don argues that the courts finding is clearly erroneous

because the brokers estimated value was just a starting place  to

list  the  property  for sale and not the present  value  of  the

property.  Don also notes that his expert appraised the  property

at  $91,000,  a  value greater than the original purchase  price.

Melinda argues that Don simply shopped for a lower value after he

was dissatisfied with the brokers conclusion because he knew that

he  would end up owning the cabin, and therefore stood to gain by

obtaining the lowest possible valuation.  The trial court weighed

the credibility of the witnesses and clearly agreed with Melinda.

The   courts   insignificant  error   regarding   the   appraisal

notwithstanding,  its  conclusion  was  based   on   professional

analysis  (the  brokers  estimate) and  its  evaluation  of  Dons

motives  in obtaining a second opinion.  This finding is  clearly

within  the trial courts wide latitude in finding facts,  and  is

not clearly erroneous.

                    2.   The Mojave property
               
           The trial court accepted Melindas submission of a 1993

appraisal valuing one of the parties undeveloped Arizona  parcels

at  $1,900.   Don  argues  that the value  of  this  property  is

actually $1,166, a figure he determined by writing to the  Mojave

Land  Owners  Association.   He did not  submit  any  documentary

evidence  of  this correspondence.  The trial courts decision  to

rely  on  the appraisal obtained during the marriage rather  than

Dons unsupported assertion at trial is not clearly erroneous.

          3.   The Alaska Airlines mileage accounts
               
          The trial court accepted Melindas accountants testimony

that the parties Alaska Airlines mileage was worth two cents  per

mile.   Don argues that because the parties cannot actually  sell

their  mileage,  it has no fair market value.  Melinda  correctly

responds  that  market transferability is not a  prerequisite  to

determining  value for property division purposes.   Fair  market

value  is  defined  as the price a willing  buyer  would  pay  to

purchase  the  asset on the open market from a willing  seller.30

Melindas  expert  testified that a buyer  could  purchase  Alaska

Airlines  mileage for two cents per mile.  The fact that  Don  or

Melinda  cannot  sell their mileage does not preclude  the  court

from  determining what price a buyer would pay for their mileage.

Put another way, an asset need not be marketable if the court can

objectively determine that it has value to its owner.  Thus,  the

courts finding is not clearly erroneous.

          C.    The Court Did Not Err in Awarding All of Melindas
          State Retirement Account to Melinda.
          
           The  trial  court  awarded Melinda  her  entire  state

retirement  account.   Don  argues  that  the  court  abused  its

discretion  by not awarding him a nominal amount of this  account

so  that  he would be eligible to purchase major medical benefits

under  AS  39.35.535(d).31  Assuming that Don is correct  that  a

nominal  award from Melindas state retirement account would  make

him  eligible for coverage, we hold that the court did not  abuse

its  broad discretion in denying him any portion of the  account.

Don  offered no evidence at trial that he had no other  means  of

obtaining  health insurance, nor does he offer  any  argument  to

this  effect  on appeal.  Don essentially argues  that  he  would

substantially benefit from such an award at no cost  to  Melinda.

But  we  will  only reverse the trial courts disposition  of  the

marital  estate  if  the  court has  abused  its  discretion  and

produced a clearly unjust result.32  Because there is no evidence

of such abuse or injustice here, we affirm the courts award.

     D.   It Was Error To Award the Nikon Camera to Melinda.

          Finally,   Don  argues  that  the  court   abused   its

discretion  by awarding Melinda the Nikon camera he owned  before

the marriage.  Melinda argues that the court must have found that

the  parties  intended  the  camera  to  become  joint  property.

          Melinda testified that she used the camera extensively throughout

the  marriage, that Don consented to this use, and that he rarely

used  it.   But  consent to use, without more, is not  enough  to

evince  an  intent  to  transmute separate  premarital  property.

Accordingly, it was error to characterize the camera  as  marital

property, and an abuse of discretion to award it to Melinda.

V.   CONCLUSION

          For  these  reasons, we VACATE the award of  the  Nikon

camera  to  Melinda  and  REMAND  so  that  the  camera  can   be

reclassified  as non-marital property.  We otherwise  AFFIRM  the

findings and decree on all points.

_______________________________
     1      Don  formed a closely-held corporation  to  make  the
purchase.   Don  also paid his sister $30,000 to execute  a  non-
competition agreement.

     2     Lundquist  v.  Lundquist, 923 P.2d 42,  46-47  (Alaska
1996); Wanberg v. Wanberg, 664 P.2d 568, 570 (Alaska 1983).

     3    Lundquist, 923 P.2d at 47.

     4    Brown v. Brown, 947 P.2d 307, 308 (Alaska 1997).

     5     Alaska R. Civ. P. 52(a); Doyle v. Doyle, 815 P.2d 366,
368-69 (Alaska 1991).

     6     Brotherton v. Brotherton, 941 P.2d 1241, 1244  (Alaska
1997).

     7     AS  25.24.160(a)(4) permits courts to divide  property
acquired only during marriage.

     8     Nicholson  v. Wolfe, 974 P.2d 417, 423  (Alaska  1999)
(citations  omitted).  Intent is demonstrated through  the  words
and  actions of the parties during marriage.  Sampson v. Sampson,
14 P.3d 272, 277 (Alaska 2000).

     9     The parties stipulated that the equity in Roys at  the
valuation  date  was $125,000.  The parties also stipulated  that
the  balance  on  the promissory note used to purchase  Roys  was
almost  $117,000 at the time of marriage, and that the  note  was
completely paid by 1994.

     10    Under the doctrine of active appreciation, any increase
in  value  of  separate  property owing  to  marital  efforts  is
considered  marital property subject to equitable division.   See
Lowdermilk  v.  Lowdermilk, 825 P.2d 874,  877-78  (Alaska  1992)
(holding  that increase in value of husbands premarital  business
owing  to  husbands   contributions of  time  and  energy  during
marriage  was  marital  property);  Brett  R.  Turner,  Equitable
Distribution of Property  5.22 (2d ed. 1994) (explaining doctrine
and collecting cases).

     11    974 P.2d 417 (Alaska 1999).

     12    Id. at 423.

     13    Id. (citation omitted).

     14    Id. at 424.

     15     See Sampson, 14 P.3d at 277 (noting that trial courts
analysis runs together the doctrines of transmutation of separate
property   into  marital  property  and  invasion   of   separate
property);   Turner,  Equitable  Distribution   5.22  (explaining
equitable basis of active appreciation doctrine).

     16     Sampson,  14  P.3d  at  277  (noting  that  equitable
considerations have no direct bearing on whether parties intended
to treat property as part of marital estate).

     17     Green  v.  Green,  29  P.3d 854,  857  (Alaska  2001)
(citation omitted).

     18    829 P.2d 829, 832-33 (Alaska 1992).

     19    Id.

     20    E.g., Nicholson, 974 P.2d at 424 (holding wifes limited
help with bookkeeping and answering phone insufficient to support
implicit  finding of intent to hold husbands premarital  business
jointly);  Brooks  v. Brooks, 733 P.2d 1044, 1054  (Alaska  1987)
(holding  wifes limited maintenance and management tasks relating
to apartment complex did not rise to the level of active interest
in  the  ongoing  maintenance,  management  and  control  of  the
property necessary to demonstrate an intent to hold the apartment
complex jointly); Wanberg, 664 P.2d at 573 & n.19 (holding  wifes
minor  efforts at remodeling rental property and collecting  rent
insufficient  to demonstrate intent to transmute  property);  see
also  McDaniel  v.  McDaniel, 829 P.2d  303,  306  (Alaska  1992)
(Participation by both spouses in the management and  maintenance
of the property will not automatically transform pre-marital into
marital  property.  Rather, the participation must be significant
and evidence an intent to operate jointly.).

     21    From 1980 to 1983 Melinda worked at Roys approximately
fifteen  to  twenty  hours  per  week.   Her  hours  dropped   to
approximately four hours per week after she switched to the  day-
shift in 1983, and dropped further after the parties purchased  a
weekend cabin on the Kenai Peninsula in 1995.

     22     Melinda supports this finding by noting that Don  did
not keep track of Melindas hours, so that the paychecks could not
have been tied to the amount of labor she performed.

     23    While Melindas own evidence and testimony suggest that
her   tasks  were  generally  non-managerial,  several  employees
testified that she was second in command to Don at the store.

     24    923 P.2d 42, 47 (Alaska 1996).

     25     Id.   Don  argues  that Lundquist is  distinguishable
because  the wife in that case quit other employment to  work  on
her  husbands fishing boat.  Assuming this to be correct, we  did
not  consider  this  fact significant enough to  mention  in  our
opinion  in Lundquist, and we did not rely on it in reaching  our
conclusion.

     26     See  id. (noting wifes claim that marital funds  were
used  to make improvements to boat as well as to pay off loan  on
boat).

     27    In this regard, the case at bar is distinguishable from
Money  v.  Money,  in which we held that premium  payments  on  a
separate  life insurance policy made from a marital account  were
exactly  offset by policy dividends, and that therefore the  wife
could  not claim to have contributed any funds toward maintaining
the policy.  852 P.2d 1158, 1162-63 (Alaska 1993).

     28     Plan  participants are required to make contributions
based  upon a percentage of their compensation.  Therefore,  Dons
plan  balance is simply another form of income, no different  for
purposes  of  equitable division from Melindas  state  retirement
account.

     29    See Lundquist, 923 P.2d at 47 (noting that trial court
properly chose to believe wifes version of events).

     30    Turner, Equitable Distribution  7.03, at 505.

     31    AS 39.35.535(d) provides:

          [A]  members  former spouse  who  receives  a
          monthly  benefit  under a qualified  domestic
          relations order is entitled to receive  major
          medical  insurance  coverage  if  the  former
          spouse
               (1)   elects the coverage within 60 days
          after  the  first monthly benefit paid  under
          the order is mailed . . . ; and
               (2)  pays the premium established by the
          administrator for the coverage.
          
     32     Brotherton v. Brotherton, 941 P.2d 1241, 1244 (Alaska
1997).