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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Hanson v. Hanson (12/09/2005) sp-5962

Hanson v. Hanson (12/09/2005) sp-5962

     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

MICHELLE M. HANSON, )
) Supreme Court No. S- 11294/11313
Appellant/Cross-Appellee, )
) Superior Court No.
v. ) 3AN-02-6671 CI
)
HANS E. HANSON, ) O P I N I O N
)
Appellee/Cross-Appellant. ) [No. 5962 - December 9, 2005]
)
          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, William F. Morse, Judge.

          Appearances:  Vanessa White,  Anchorage,  for
          Appellant/Cross-Appellee.   Susan  D.   Mack,
          Wilkerson, Hozubin & Burke, P.C., and Ryan R.
          Roley,    Anchorage,   for    Appellee/Cross-
          Appellant.

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

          CARPENETI, Justice.

I.   INTRODUCTION
          The  divorce  of Hans and Michelle Hanson required  the
division  and  distribution of assets that  included  an  ongoing
business,  an  investment account funded with  business  profits,
proceeds from the sale of a business vehicle, the businesss  2001
tax  refund,  and  the  couples residence.   The  superior  court
determined  that Hanss ninety-five percent share in the  business
and the investment account were Hanss separate property, that the
2001  tax return was not a distinct asset but had been taken into
account  in  valuing  the business, that the  proceeds  from  the
vehicle  sale  were the property of the business,  but  that  the
house  was  marital  property.  Michelle  challenges  the  courts
failure  to classify the business and related items as assets  of
the  marriage; Hans appeals the courts finding that the home  was
marital property.  The superior court also held that Michelle was
entitled  to payment for her five percent share of the  business,
but  rejected  the  type of minority discounts  proposed  by  the
parties  experts.  Hans challenges the courts departure from  the
experts  recommendations.  Finally, the  court  offset  Michelles
interim support and attorneys fees award against her share of the
marital estate, and Michelle appeals.
          Because  the trial court did not commit clear error  in
finding  that  the house was marital property,  did  not  err  in
declining to apply a minority discount to Michelles share of  the
business and in declining to make an award to Michelle in respect
of  the  vehicle, and acted within its discretion  in  offsetting
Michelles pre-trial awards against her final share of the marital
estate,  we  affirm  on those issues.  But we conclude  that  the
trial court erred in determining that Hanss share in the business
was   Hanss   separate  property  without  applying   an   active
appreciation analysis.  We hold instead that the increase in  the
businesss  value  caused  by Hanss marital  efforts  was  marital
property,  and remand for specific findings regarding the  amount
of  this  appreciation.  We also hold that the investment account
is  marital  property  because  it  became  marital  income  once
withdrawn  from  the  business, while the tax  refund  should  be
classified and distributed in the same manner as the rest of  the
business.
II.  FACTS AND PROCEEDINGS
     A.   Facts
          Michelle  and Hans Hanson married in November 1998  and
separated on May 1, 2002, when Hans filed for divorce.  They have
no children.
          During the marriage Michelle was employed by the Alaska
Department  of  Transportation, while Hans  operated  a  business
known  as  Shaman,  LLC  (Shaman), which offers  traffic  control
services  to  construction companies.   While  the  parties  kept
various personal accounts during the marriage, they also shared a
joint  account.   Hans  contributed to  this  account  by  making
regular  monthly  deposits  and through  substantial  draws  from
Shaman.   Michelle  deposited her paychecks, two  Permanent  Fund
Dividend checks, and a $10,000 gift into the joint account.
          The  key asset at issue in this appeal is Shaman.  Hans
purchased  Shaman in 1993, and the business grew steadily  during
the  marriage.   The  parties stipulated that  Shaman  was  worth
$1,150,000 at the end of 2002, although they dispute the value of
each partys shares in the corporation.  Hans initially ran Shaman
as  a  sole  proprietorship, but he organized it into  a  limited
liability corporation in 1999.  The organization papers allocated
a  ninety-five  percent  interest to  Hans  and  a  five  percent
interest to Michelle.  Hans maintains that he never intended  for
Michelles five percent share to transform Shaman from personal to
marital  property, and that he only gave her a share because  his
lawyer told him that an LLC needs at least two members.
          Various Shaman-related assets are also relevant to this
appeal.   First,  there  is  Hanss  Capital  Advisors  investment
account; this account contained $15,000 before the marriage, Hans
placed $200,000 from Shaman into the account during the marriage,
and  it  contained $119,000 at the time of trial.1   Second,  the
parties dispute the classification of the proceeds from the  sale
of  a  Small Unit Support Vehicle (SUSV) that Hans purchased  for
use  by  Shaman.2   In  the  spring of 2002,  before  the  couple
separated,  Hans  sold  the  SUSV for $21,000  and  withdrew  the
proceeds  from Shamans bank account.  Third, there is a 2001  tax
refund  of  $65,000 for payments made by Shaman.   As  a  Limited
Liability  Company,  Shaman  does not  directly  pay  taxes,  but
instead  passes on its liability to Michelle and Hans.   The  tax
refund  was issued to Hans and, pursuant to the courts order,  he
deposited  it  into  the  Shaman account  pending  resolution  of
whether Michelle was entitled to a share of the refund.
          Finally,  there is the couples home, which  Hans  built
before  the  marriage.  Hans initially paid for the  construction
costs  with a loan from his mother, but then took out a  $250,000
mortgage to repay the loan; a balance of $35,000 was placed  into
the couples joint account.  Michelle was never placed on the deed
to  the  house and initial mortgage payments were made  from  the
Shaman account, but payments totaling $40,000 were made from  the
couples joint account.
     B.   Proceedings
          The  superior court held that there is no question that
Hans intended to give Michelle [a] 5% interest in Shaman (and not
a  penny  more).  The court rejected Michelles argument that  the
five  percent was a pro forma offering, and that she was actually
a  member  with an equal share in the business, and her  argument
that  her  participation  in  Shaman was  significant  enough  to
justify  awarding  her an equal interest in  the  business.   The
court rejected her claims of active participation in the business
on   the   grounds   that  the  labor  she   provided   was   too
inconsequential  to  have  contributed  to  the  success  of  the
business, and that her business advice was neither sought or used
by   Hans.    Thus,  it  held  that  neither  the  doctrines   of
transmutation  or  active  appreciation  justify   changing   the
ownership  or  invading  Hans  separate  interest  [in   Shaman].
Michelle does not appeal the superior courts conclusion that  she
did  not  contribute to the business, but she contends  that  the
court  erred  in  holding  that this determination  governed  her
active appreciation claim.
          Relying  on  its  conclusion that Shaman  was  separate
property, and finding that the SUSV and the 2001 tax refund  were
Shaman  property, the court concluded that the SUSV sale proceeds
and the tax refund were not marital property.  Instead, the court
noted that Michelles interest in the tax refund was reflected  in
her  five percent share of Shaman.3  The court also held that the
$200,000 Hans deposited into the Capital Advisors account was his
separate  property  because  its  source,  Shaman,  was  separate
property.  Michelle appeals all of these findings.
          In  valuing Michelles five percent interest in  Shaman,
the  court  declined to apply a minority discount.  Both  parties
          experts agreed that Michelles portion should be discounted for
its  lack  of  marketability, which  accounts  for  the  lack  of
liquidity  and  control  associated  with  a  minority  interest,
although they disagreed about the size of the discount.  However,
the   superior   court  concluded  that  such  a   discount   was
inappropriate  in  this  case because the minority  interest  was
being acquired by the party that also controlled the rest of  the
shares.  It noted that:
          [In this case] there will not be a sale to  a
          third  party.  Instead, the  Court  is  being
          asked  to allow Hans to buy out Michelle.  If
          the   Court  simply  requires  Hans  to   pay
          Michelle  $22,000 for her 5%  interest,  then
          Hans will achieve a windfall.  He will end up
          with  100%  of  Shaman.   That  is  not   the
          assumption  of  the [experts]  models.   They
          assume  that the 5% will go to someone  else,
          thus  maintaining the conditions that produce
          lack of control and the lack of marketability
          and thus necessitated discounting. If Hans is
          allowed to buy Michelles 5% interest for  the
          discounted   price   of  $22,000,   then   he
          recaptures not only the discounted  value  of
          Michelles  interest, but also the  discounted
          value of his 95% interest.  He ends up with a
          business  worth the full $1,150,000,  whereas
          before  the sale his 95% interest  was  worth
          only  $865,000.   For $22,000  paid  he  gets
          $242,000 of recaptured value.
          The  court  suggested that the parties engage  in  what
Hanss  expert referred to as an investment analysis, which  would
account  for  the fact that the purchasing party also  owned  the
other  shares  in  the company.  However, neither  party  offered
evidence  about the investment value of Michelles  interest,  and
the  court  declined  to  apply any discount,  pricing  Michelles
interest at five percent of Shamans total value of $1,150,000, or
$57,000.  Hans appeals this finding.
          As  to  the  house,  the court held  that  the  parties
intended  for  the house to be marital property,  reasoning  that
joint use, maintenance and improvement of the residence show that
the  parties  intended that it be a marital asset  and  allocated
Michelle  a  sum  equal to half its equity.   Hans  appeals  this
finding.
          Finally, the trial court offset Michelles share of  the
marital  estate  by  the full value of her  interim  support  and
attorneys fees awards.  The court reasoned that it had  not  been
aware  of  the full extent of Michelles assets when it  made  the
original  award and that evidence at trial demonstrated that  she
had not been in need of interim aid.  Therefore, it credited Hans
for his interim support and attorneys fees payments by offsetting
them  against  her portion of the estate.  Michelle appeals  this
finding.
          To   summarize,  Michelle  appeals  the  findings  that
Shaman, the Capital Advisors account, the SUSV sale proceeds, and
the  2001  tax return are Hanss separate property, and  she  also
challenges the trial courts deduction of the interim support  and
attorneys  fees  awards from her portion of the  marital  estate.
Hans cross-appeals the trial courts refusal to discount Michelles
five percent share of Shaman and its determination that the house
was marital property.
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.4    We review the trial courts determination  of  what
property  is available for distribution for abuse of discretion.5
Findings  of  fact are reviewed for clear error, but whether  the
trial  court  applied the correct legal rule  in  exercising  its
discretion is a question of law that we review de novo using  our
independent judgment.6  Whether the trial court correctly  valued
the assets to be divided is a question of fact that we review for
clear error.7
          The  trial courts finding that the parties intended  to
transmute  separate  property  into  marital  property  is   also
reviewed for clear error.8  A finding is not clearly erroneous if
it is supported by substantial evidence.9
          Finally,  awards  of both interim spousal  support  and
attorneys  fees  are left to the sound discretion  of  the  trial
court  and  will  be  reversed  only  if  we  find  an  abuse  of
discretion.10
IV.  DISCUSSION
     A.   Classification of Shaman
          Michelles  primary  claim is that  the  superior  court
erred in failing to apply the active appreciation doctrine.   She
argues  that, under this doctrine, the increase in Shamans  value
that  resulted from Hanss efforts during the marriage is  marital
property.
          We  have  previously summarized the doctrine of  active
appreciation in this way:
          Active appreciation occurs when marital funds
          or  marital efforts cause a spouses  separate
          property  to  increase in  value  during  the
          marriage. . . . [T]he time and energy of both
          spouses   during  the  marriage  is   to   be
          considered      in      dividing      marital
          property. . . .  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.[11]
          
          Under this theory, the assets value at the inception of
the  marriage retains its separate character, but any  subsequent
increase  in value is treated as marital property to  the  extent
that  it  results from active marital conduct.12   A  finding  of
active  appreciation requires application of a  three-part  test:
First,  [the  court]  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.13
The spouse seeking to classify the appreciation as active has the
burden  of proving the first two elements  an increase  in  value
and  marital  contribution14  while the  burden  of  showing  the
absence of a causal link lies with the owning spouse.15
          The   trial   court   declined  to  apply   an   active
appreciation  analysis based on its conclusion that  the  parties
intended  an unequal ownership of Shaman.  However, even  if  the
parties did intend the 95/5 distribution to be controlling as  to
their  separate ownership interests in Shaman, there  is  nothing
that  indicates that they intended to answer the question of  how
to  treat  the increase in value of the corporation that occurred
during the marriage.16  To do so, the trial court must apply  the
active  appreciation doctrine.  We therefore  conclude  that  the
trial  court  erred  in failing to consider  active  appreciation
based  solely on its finding that the parties intended  to  treat
Shaman as separate property according to the 95/5 distribution.
          Turning   to   the   specific   elements   of    active
appreciation,  we  first look to whether the  record  shows  that
Shaman gained value during the course of the marriage.  As  Hanss
expert  noted  in  his  report, Shaman saw  improvements  in  key
economic  indicators during the marriage: in 1998  Shaman  posted
$663,000 in revenues, $109,000 in net income and had $228,000  in
balance  sheet  equity,  while in 2001 Shamans  revenues  reached
$1,640,000,  its  income  increased to $827,000,  and  it  posted
$1,035,000   in  equity.   These  figures  suggest  that   Shaman
experienced significant growth during the marital period, but the
parties did not present evidence regarding Shamans value  at  the
beginning  of  the  marriage,  preventing  calculation   of   the
appreciation  in Shamans value over the course of  the  marriage.
Thus,  on remand, the superior court must calculate the  size  of
the marital gains to Shaman by determining Shamans total value at
the  beginning of the marriage and deducting this figure from its
stipulated value at separation of $1,150,000.17
            As  to  the  second  element of active  appreciation,
marital contribution, it is undisputed that Shaman was Hanss full-
time job and that he worked seventy to ninety hours per week when
Shaman had a contract.  Hans was adamant that it was his efforts,
as  opposed to Michelles, that led to the success of Shaman.   In
light  of  this evidence, we conclude that Hans spent significant
marital time working on Shaman.
          Finally,  as to causation, Michelle argues that  Shaman
grew  because  of Hanss efforts.  Hans, who bears the  burden  of
proving  a  lack of causation, replies that Shamans  success  was
driven less by his active efforts during the marriage and more by
passive factors that either predated the marriage or were out  of
his  control.   First,  he  argues that  since  many  of  Shamans
contracts grew out of pre-marital business ties and the  business
loan  used to purchase Shaman was paid off prior to the marriage,
the  business  growth  was primarily due to pre-marital  efforts.
Second,  Hans  notes  that much of Shamans  business  stems  from
government  contracts,  and asserts that business  gains  due  to
          fortuitous government action are passive and that his own
conduct, which involved submitting bids for subcontracting  work,
was  de  minimis  and insufficiently connected to  the  gains  in
Shamans  value.   Third, Hans argues that  Shamans  success  also
depended  on his employees contributions, further minimizing  the
impact of his personal efforts on Shamans growth.
          We  conclude,  however, that the record contains  ample
evidence that Hanss efforts were sufficiently related to  Shamans
appreciation to satisfy the causation requirement.  Although Hans
may  have  created  the foundation necessary for  Shamans  growth
prior  to  the marriage, it was his later efforts  including  the
seventy-  to ninety-hour work weeks he testified to  that  helped
effectuate its substantial growth.  While the superior court may,
on remand, impute part of the growth to Hanss premarital  efforts
or  other  factors,  it would be unreasonable  to  conclude  that
Shaman  was  able  to  thrive and expand without  any  effort  or
guidance from Hans.  In addition, while purely fortuitous changes
in  government policy can result in passive growth, the  treatise
Hans  relies  on  for this point cites changes  in  environmental
regulations and currency exchange rates as examples; these  sorts
of  changes  would  allow  appreciation without  any  significant
action  by the business owner, and thus are truly passive.18   On
the  other  hand, an upswing in government outlays  is  simply  a
market  expansion,  and  a business owner  must  still  undertake
significant  efforts to benefit from such developments.19   Hanss
submission of bids and fulfillment of his contractual obligations
were  thus necessary prerequisites for Shamans growth.   Finally,
although  some portion of Shamans success certainly  depended  on
the  efforts  of its employees, it is reasonable  to  infer  that
their success was due to Hanss knowledge of the business and  his
ability  to hire and manage his staff.20  Thus, we conclude  that
Hanss  efforts during the marriage played a significant  role  in
Shamans  success.  On remand the superior court should  determine
what portion of the increase in Shamans value was caused by Hanss
efforts during the marriage, distinguishing the effects of  these
efforts from any appreciation stemming from passive factors.
          In  sum,  we  hold that some portion of the value  that
Shaman gained during the marriage is marital property, and remand
for  further proceedings regarding: (1) the exact amount of  this
increase;  and (2) the amount of growth due to Hanss efforts  and
the  amount  due  to  other, passive, factors.   The  portion  of
Shamans  gains due to Hanss active efforts is marital property.21
In   making  these  findings,  the  superior  court  retains  the
discretion to take whatever evidence it deems appropriate.22
     B.   The  Capital Advisors Account, the 2001 Tax Return, and
          the SUSV
          Michelle  also  appeals the superior  courts  decisions
concerning the Capital Advisors account, the 2001 tax refund, and
the SUSV.
          Capital Advisors Account
           Hans  withdrew from Shaman the money for  the  Capital
Advisors  account  thus converting this money into income.   This
income should fairly be regarded as earned income as it was taken
by  Hans  as a draw rather than as a distribution of LLC earnings
(since  there is no indication that a like distribution was  made
on account of Michelles five percent interest).23  Spousal income
from  active  efforts  during  marriage  is  marital  property.24
Accordingly, we hold that the superior court erred in determining
that  the  Capital Advisors account was Hanss separate  property.
Thus,  on remand the superior court should distribute the account
and the sale proceeds as marital property.
          2001 Tax Return
          As  for  the  2001  tax  return,  Michelle  offers  two
arguments:  (1) the refund is marital property since  the  couple
reported  Shamans taxes on their joint tax return;  and  (2)  the
expert  valuation of Shaman did not include the  2001  return  as
part of Shamans overall value.
          Both  of  these arguments fail.  (1) Shamans  estimated
taxes  were paid out of Shaman funds but reported on the  parties
joint return in order to reap certain tax benefits to Shaman  and
the  parties.   Such  commingling of business  and  personal  tax
liabilities  is  not alone sufficient to convert the  Shaman  tax
refund  to marital property.25  (2) The superior court determined
that the expert valuation of Shaman took the 2001 tax refund into
account, although the 2001 refund check was not received from the
IRS  until after the expert completed the valuation report.  This
finding  is supported by the experts report, which states:  [O]ur
analysis focused primarily on the 1994-2001 income statement data
presented in the tax returns.  Therefore, the superior court  did
not  err  in finding that the 2001 tax refund is part of  Shamans
total value.
          Accordingly, valuation and distribution of the 2001 tax
refund  will  depend  on the superior courts  overall  conclusion
about Shamans active appreciation.  As the tax refund is part  of
Shamans  value, it is marital to the same extent and in the  same
proportions  as  the rest of Shaman.  Thus, on  remand  when  the
superior court determines the value and proportion of the marital
property  in  Shaman,  it should also apportion  the  tax  refund
between the parties according to the same ratio.
          SUSV Sale Proceeds
          The  evidence suggests that in spring 2002, before  the
parties separated, Hans deposited the SUSV sale proceeds  into  a
Shaman account and immediately withdrew them.  Neither party  has
offered  evidence  on  the  fate of  these  proceeds  after  Hans
withdrew  them  from the Shaman account.  Thus,  in  contrast  to
funds in the Capital Advisors account, the SUSV sale proceeds are
indistinguishable from any other draws Hans may have  taken  from
Shaman before separation.  Since only property existing as of the
date of trial is subject to division unless there is a basis  for
recapture,26 and Michelle has not argued that there is a basis for
recapture, we decline to disturb the superior courts treatment of
the SUSV proceeds.
     C.   Classification of the Marital Home
          On  cross-appeal, Hans argues that the  superior  court
erred  in  determining that the house was marital property  under
the  doctrine  of  transmutation.  This doctrine  recognizes  the
movement  of separate property into the marital sphere,  and  the
central issue in determining transmutation is the intent  of  the
          owner of the separate property, as demonstrated through . . .
words  and  actions.27   Upon a finding of intent,  the  separate
property is transformed into marital property.28  Factors relevant
in   determining  the  parties  intent  regarding  real  property
include:  (1)  the  use  of  property  as  the  parties  personal
residence;  (2)  the ongoing maintenance and  management  of  the
property  by both parties; (3) placing title in joint  ownership;
and  (4) using the credit of the non-titled owner to improve  the
property.29
          In this case, the parties used the house as a residence
and  there is evidence that Michelle was actively involved in its
maintenance and improvement.  She testified that she managed  the
design  and construction of a garage and attached loft;  selected
carpet for installation in the house; landscaped portions of  the
property;  and oversaw the initial construction of  a  greenhouse
and  then  completed  it herself when it was  not  built  to  her
satisfaction.    Also,  Michelle  contributed   $10,000   towards
construction of the garage, the couple made $40,000  in  payments
on  Hanss mortgage and paid for additional construction work with
money from their joint account, and Michelle managed the finances
and  wrote  the checks for these payments.30  These  factors  all
support  the  superior courts finding that the  house  transmuted
into marital property.
          Hans  points  to  countervailing factors,  noting  that
Michelle  was  not added to the deed and was not liable  for  the
mortgage   or  the  construction  contracts.   In  addition,   he
testified  that  he  always intended for  the  house  to  be  his
separate   property.    However,  these  contrary   factors   are
insufficient  in this case.  Use of the home as a  residence  and
mutual  management  and improvement satisfied  two  of  the  four
criteria  that  show  that  the parties  intended  to  treat  the
property  as marital, and thus provided substantial evidence  for
the trial courts decision even though Michelle was not listed  on
the  deed  or  liable  for the construction contracts.   Further,
Hanss  testimony  that he always intended  the  house  to  remain
separate  property is insufficient to reverse  the  trial  courts
finding of intent because such testimony is accorded less  weight
than  other,  more  objective factors.31  We  conclude  that  the
superior  courts finding that the parties intended to  treat  the
property as marital was not clearly erroneous.
     D.   Valuation of Michelles Five Percent Interest in Shaman
          
          Hans argues that the superior court erred in failing to
apply discounts for lack of control and lack of marketability  to
Michelles  five percent stake in Shaman, and cites  to  Hayes  v.
Hayes32  for the proposition that such discounts are required  in
the  context of a divorce.  In Hayes the trial court  rejected  a
minority discount, and instead valued the business based  on  the
size  of the life insurance policies taken out by the parties  to
allow  the  surviving  spouse to purchase  the  interest  of  the
deceased  stockholder.33   We reversed, finding  the  evidentiary
basis for this valuation inadequate.34  In addition, in Hayes  we
explicitly  rejected the contention that minority  discounts  are
inappropriate  in  divorce cases, noting that  [t]he  concept  of
          value is keyed to the price that a prospective buyer would pay.35
Hans relies on this language, arguing that the superior court was
required to calculate the fair market value of Michelles share by
applying a minority discount.
          However,  as Michelle points out, Hayes merely  affirms
that  minority discounts can be used in proper settings, not that
they  must  be  applied  in  all  instances.   Indeed,  there  is
authority  for  the trial courts position that  where  the  party
buying  the  shares would gain control of the business,  minority
discounts ought not be applied.  As Turner notes in his  treatise
on  equitable distribution,  [i]n determining whether to apply  a
minority discount or control bonus, the court should look at  the
amount of stock owned by the parties together, not the amount  of
stock  titled  in  the  name  of each spouse  separately.36   The
rationale  for  such a rule is reflected in the concerns  of  the
superior  court: Rote application of minority discounts  in  such
situations undervalues minority shares because the key assumption
underlying  minority discounts  that the hypothetical buyer  will
also  be  a minority shareholder and would thus demand a discount
simply does not apply.37
          Hanss  expert  noted that a separate kind  of  analysis
known  as  an investment analysis would account for the value  of
Michelles  share  in light of the fact that the buyer  owned  the
rest  of  the corporation, and the court invited the  parties  to
undertake  this analysis while making it clear that the  already-
presented  minority  discounts were inapplicable  in  this  case.
However, the parties chose not to submit an investment analysis.
          Because  we  agree  that a minority  discount  was  not
appropriate given that Hans would own all of the shares of Shaman
after  the sale and given that the parties did not offer evidence
about  a discount that could account for the facts of this  case,
we  affirm the superior courts decision to value Michelles  share
as five percent of the total value of Shaman.38
     E.   Offset of Michelles Interim Support and Attorneys  Fees
          Awards Against Her Portion of the Marital Estate
          
          Under AS 25.24.140(a), during the pendency of a divorce
proceeding,  the  trial court, in appropriate circumstances,  may
award   a   spouse  attorneys  fees  and  costs  that  reasonably
approximate  the actual fees and costs required to  prosecute  or
defend  the  action  and  reasonable  spousal  maintenance.   The
primary  factors  to be considered when awarding interim  spousal
support  and  attorneys  fees are the parties  relative  economic
circumstances, earning capacities, and ability to pay.39  Support
awards  and attorneys fees help to ensure that neither  party  is
disadvantaged in presenting their claims,40 but where the parties
economic  situations and earning capacities are comparable,  each
party should bear his or her own costs.41
          Michelle  argues  that  the  superior  court  erred  in
offsetting her interim support and pre-trial attorneys fees award
against  her share of marital property.  Michelle maintains  that
allowing  offset  of pre-trial awards unfairly burdens  the  more
vulnerable  spouse  since  spousal support  is  only  awarded  to
financially disadvantaged parties.  However, her argument assumes
          that the spouse against whom an offset is granted is actually
disadvantaged.  Where it becomes evident that the spouse  granted
interim  fees  was, in fact, able to bear these  costs,  then  an
offset for these payments is an appropriate exercise of the trial
courts broad discretion in matters involving interim support  and
attorneys fees.
          Michelle cites Lewis v. Lewis42 for the proposition that
spousal  support  is  distinct from the distribution  of  marital
property,  and notes that in Lewis we reversed the  trial  courts
offset  of interim support and attorneys fees.  Michelle suggests
that   Lewis   supports  reversal  because  the  superior   court
improperly  treated  interim support  as  a  species  of  marital
property.   However,  in  this case the superior  court  did  not
consider the interim support award as marital property.  Instead,
it   concluded  that  interim  support  was  unjustified  because
Michelle  had not been actually disadvantaged.  Thus, the  proper
question is whether the court made factual findings sufficient to
uphold its conclusion.
          In  this case, the court made various factual findings.
Specifically,  it observed that Michelle had long  been  employed
and   retained  significant  earning  capacity,  that   she   had
substantial assets, and that both parties had sufficient economic
means to prosecute their claims.  In contrast, Michelle makes  no
mention  of  assets  anywhere in her discussion  of  this  issue.
Further, as Hans notes, there was evidence before the court  that
she  had  substantial  assets that allowed her  to  purchase  and
furnish a home three months after receiving notice of her divorce
and  to  take numerous trips while ostensibly in need of  spousal
support.  Thus, in light of the courts specific findings and  the
other evidence in the record, we conclude that the superior court
did  not  abuse  its  discretion in offsetting Michelles  interim
support award against her share of the marital estate.
          Michelle  also argues that allowing offsets amounts  to
unfair  surprise.  She  asserts that because parties  take  their
interim  awards  into  consideration when  budgeting,  the  court
misl[eads] the recipient into overspending her income.   However,
in  its original interim support order, the superior court  noted
that  both parties had significant assets and cautioned that [i]t
is  very  likely  that  each  party will  ultimately  bear  their
respective  attorneys fees and costs.  And, at a subsequent  pre-
trial  hearing  Michelles counsel prevented cancellation  of  the
interim support by reminding the court of its earlier warning:
          [I]f  at  trial the court were  to  determine
          that the spousal support was inappropriate or
          something  like that, theres certainly  money
          there for Mr. Hanson to recover his interest.
          The  spousal support can always be dealt with
          at  trial  retroactively, which is what  Your
          Honor ruled back when the initial motion  was
          filed in July.
          
          In  response,  the  trial  court  allowed  the  spousal
support  to continue, but again warned that [Michelle]  needs  to
simply  understand that theres some possibility that once  I  see
          the entire picture I decide I should never have given [interim
support] to her or should be held against her somehow. . . .  The
trial  court  thus gave her full notice that her award  could  be
offset against a later judgment and she cannot now claim that she
was unprepared to deal with the superior courts offset.
V.   CONCLUSION
          Because the superior court erred in failing to consider
the  active  appreciation doctrine in valuing Shaman, we  REVERSE
the  courts decision that Shaman was separate property and REMAND
for  calculation and distribution of the marital gains in Shaman.
In  addition, we also REVERSE the superior courts conclusion that
the  Capital  Advisors account was Hanss separate  property.   We
instead  conclude  that the Capital Advisors account  is  marital
property because it was funded from marital income, and that  the
marital  classification  of  the tax  refund  should  mirror  the
marital classification of Shaman.
          Because the superior court did not err in finding  that
the  marital  home had been transmuted into marital property,  we
AFFIRM  that  determination.  We also AFFIRM the superior  courts
decision  not to apply a minority discount to Michelles share  in
Shaman  and  not  to make an award in respect to  the  SUSV  sale
proceeds.  Finally, because the superior court did not abuse  its
discretion  in  offsetting Michelles interim  support  award  and
attorneys fees against her share of the marital estate, we AFFIRM
that decision.

_______________________________
     1     The  account lost value due to a decline in the  stock
market.

     2    An SUSV is a kind of tracked, all-terrain transport.

     3    The parties stipulated to an appraisal of Shamans value
which took into account the expected 2001 tax return.

     4     Schmitz v. Schmitz, 88 P.3d 1116, 1122 (Alaska 2004).

     5     Green v. Green, 29 P.3d 854, 857 (Alaska 2001) (citing
Cox v. Cox, 882 P.2d 909, 913 (Alaska 1994)).

     6    Schmitz, 88 P.3d at 1122.

     7    Id.

     8    Green, 29 P.3d at 857.

     9    Inman v. Inman, 67 P.3d 655, 658 (Alaska 2003).

     10    Beal v. Beal, 88 P.3d 104, 110-11 (Alaska 2004).

     11     Schmitz,  88  P.3d at 1125 (internal  quotations  and
citations omitted).

     12    Harrower v. Harrower, 71 P.3d 854, 858 (Alaska 2003).

     13    Id. (quoting Brett R. Turner, Equitable Distribution of
Property  5.22, at 236 (2d ed. 1994)).

     14    Id. at 859 (citing Turner, supra note 13).

     15    Id. (citations omitted).

     16     Id.  at  858 n.5 (under active appreciation  doctrine
efforts  of  either  spouse can lead to gains which  are  marital
property).

     17     See id. at 859-61 (determination of amount of marital
appreciation remanded where record supported reasonable inference
that item increased in value during course of marriage).

     18    Turner, supra note 13,  5.22 at 255.

     19    See id. at 248:

          The   mere  presence  of  favorable  economic
          conditions,  however, does  not  guarantee  a
          finding that the appreciation is passive. . .
          .   Where the business was small on the  date
          of  marriage  and  grew  dramatically  before
          divorce,   or  where  the  owners  individual
          expertise  was a major factor in the  success
          of  the business, the appreciation can be  at
          least   partly  active  despite  a   thriving
          economy.
          
     20     See  id.  at  252 ([T]here is considerable  value  in
selection   and  supervision,  and  the  prudent  management   of
personnel resources often marks the difference between successful
and unsuccessful businesses.).

     21    This holding applies to both Hanss ninety-five percent
share and Michelles five percent share.

     22     If  the  superior courts reexamination of this  issue
leads  to  an  increase in the value of the marital  estate,  the
court  may  revisit the larger question of how best to  equitably
divide  the estate, and may consider whether invasion of separate
property   is   necessary  to  ensure  a   fair   and   equitable
distribution.   See Harrower v. Harrower, 71 P.3d 854,  860  n.17
(Alaska  2003) (citing Merrill v. Merrill, 368 P.2d 546, 547  n.4
(Alaska 1962)).

     23     The parties agree that a fair salary for Hans for his
work at Shaman would have been $130,000, whereas he actually drew
$4,000  per month or $48,000 annually.  He was thus substantially
underdrawn in terms of earned income.

     24     Schmitz v. Schmitz, 88 P.3d 1116, 1124 (Alaska  2004)
(salary  earned during marriage is marital asset) (citing Turner,
supra note 13,  5.23 at 263).

     25     See  Abood  v.  Abood,  119 P.3d  980  (Alaska  2005)
(Commingling  separate property with marital  property  does  not
automatically  lead to a finding of transmutation.);  Carlson  v.
Carlson,  722  P.2d  222,  224  (Alaska  1986)  ([T]he   act   of
commingling,  in itself, does not automatically establish  intent
to  jointly hold property, and a court always should consider the
propertys  source when determining what assets are available  for
distribution.).

     26    See Abood, 119 P.3d at 990 (holding that if spouse has
dissipated  or  wasted  marital property between  separation  and
trial,  recapture may be appropriate); Ogden v.  Ogden,  39  P.3d
513, 521 (Alaska 2001) (same).

     27    Green v. Green, 29 P.3d 854, 857 (Alaska 2001).

     28    Id. at 858; Turner, supra note 13,  5.24 at 277-78.

     29    Green, 29 P.3d at 858.

     30     Hans  argues that this last factor is not persuasive,
explaining  that  Michelle  demanded  that  she,  and  not  Hanss
bookkeeper, make the payments.  However, he testified  that  even
if  the  bookkeeper had made the payments, the funds would  still
have come from the marital account.  Thus, the inference of joint
payment  and  use  remains  unchanged; although  this  particular
arrangement  may  have  been adopted at Michelles  urging,  Hanss
acquiescence to this system supports a finding of intent to treat
the property as marital.

     31     See  Leis  v. Hustad, 22 P.3d 885, 888 (Alaska  2001)
([S]elf-serving testimony at trial is entitled to  little  weight
because  the  parties  actions during  the  marriage  are  better
indicators of the parties intent during the marriage.) (citations
omitted); Turner, supra note 13,  5.24 at 278-79 (testimony  from
owning spouse that he intended to gift property to marital estate
more credible than testimony that no gift was intended).  Indeed,
if  Hans  truly  intended  to  keep  the  property  separate,   a
prenuptial  agreement  or a clear, written  statement  of  intent
would  have provided better evidence of the parties wishes.   See
Compton  v.  Compton, 902 P.2d 805, 809 (Alaska 1995) (prenuptial
agreement provides probative evidence of parties intent  to  keep
premarital property separate).

     32    756 P.2d 298 (Alaska 1988).

     33    Id. at 299.

     34    Id.

     35     Id. at 300 (citing Moffitt v. Moffitt, 749 P.2d  343,
347 (Alaska 1988)).

     36     Turner, supra note 13,  7.08, at 545 (citing Eyler v.
Eyler,  492  N.E.2d  1071 (Ind. 1986) (error  to  apply  minority
discount to wifes portion of shares where couples shares  totaled
ninety percent of corporate stock)).  Hans also cites to Money v.
Money,   852   P.2d  1158  (Alaska  1993),  but  that   case   is
distinguishable.   In  Money neither  party  disputed  whether  a
minority discount should be applied, and instead argued about the
proper  discount  rate.  Id. at 1162.  Nowhere in  Money  did  we
require  application  of  minority discounts  in  all  instances.
Instead,  we  simply  acknowledged that such discounts  could  be
utilized  and  resolved a dispute about the size of a  particular
discount.

     37     In Hayes the husband and wife did not own all of  the
shares of the relevant property; their shares equaled only  fifty
percent  of the total shares, thus arguably justifying a minority
discount because ownership of the shares did not provide control.
756 P.2d at 299.

     38     As  a  consequence of our conclusion in  Part  IV.A.,
supra,  when  valuing  Michelles five percent  separate  property
share,  the  superior court should not include within  her  share
that portion of the business that appreciated during the years of
marriage;  gains  from marital active appreciation  are  properly
categorized as marital property.

     39     Schmitz v. Schmitz, 88 P.3d 1116, 1130 (Alaska  2004)
(discussing  requirements  for interim  attorneys  fees  awards);
Johnson  v.  Johnson, 836 P.2d 930, 934 (Alaska 1992) (discussing
requirements for interim support orders).

     40    Johnson, 836 P.2d at 934.

     41    Schmitz, 88 P.3d at 1130.

     42    785 P.2d 550 (Alaska 1990).