IN RE MARRIAGE OF DERR v. Derr

• Citation: 2005 WI App 63,696 N.W.2d 170,280 Wis.2d 681
• Decision Date: 17 March 2005
• Docket Number: No. 03-2181.,03-2181.
• Parties: IN RE THE MARRIAGE OF: Martha E. DERR, Joint-Petitioner-Respondent-Cross-Appellant, v. Michael J. DERR, Joint-Petitioner-Appellant-Cross-Respondent.
• Court: Court of Appeals of Wisconsin

280 Wis.2d 681

2005 WI App 63

696 N.W.2d 170

IN RE THE MARRIAGE OF: Martha E. DERR, Joint-Petitioner-Respondent-Cross-Appellant, v. Michael J. DERR, Joint-Petitioner-Appellant-Cross-Respondent.

No. 03-2181.

Court of Appeals of Wisconsin.

Submitted on briefs April 22, 2004.

Decided March 17, 2005.

On behalf of the joint-petitioner-appellant-cross-respondent, the cause was submitted on the briefs of Walter R. Stewart of W.R. Stewart & Associates, S.C., Madison.

On behalf of the joint-petitioner-respondent-cross-appellant, the cause was submitted on the briefs of Cynthia A. Curtes of Curtes & Bednarek, S.C., Mt. Horeb.

Before Dykman, Vergeront and Lundsten, JJ.

¶ 1. LUNDSTEN, J.

This is a divorce case involving challenges to property division and child support. With respect to property division, Michael Derr's appeal and Martha Derr's cross-appeal each challenge the circuit court's categorization of items as non-divisible. Martha argues that the court improperly categorized a gifted apartment building as Michael's non-divisible property. Michael contends the court improperly categorized a mortgage debt relating to the same apartment building as non-divisible. Michael also asserts the circuit court erred when it determined that he "wasted" $45,000 and counted that amount against him when dividing property. Finally, Michael argues that the circuit court incorrectly determined his income for purposes of calculating child support.

¶ 2. We conclude that the circuit court correctly categorized the apartment building as Michael's non-divisible property, but that the court should have deemed the mortgage debt a divisible debt. We also conclude that the circuit court properly determined that Michael wasted the $45,000. Finally, we conclude that the court correctly determined Michael's income for purposes of child support. Accordingly, we affirm in part, reverse in part, and remand with directions.

Background

¶ 3. Michael and Martha married in 1990. They have one child, born in August 1993.

¶ 4. In 1994, Michael's parents gave him a 27-unit apartment building that was titled solely in Michael's name. In 1999, Michael and Martha borrowed $300,000 and used this borrowed money for the benefit of the marriage. The $300,000 loan was a mortgage equity loan using Michael's apartment building as collateral.¹ The mortgage note indicated that the loan was made to both Michael and Martha, and mortgage payments were made with marital funds. At the time of the divorce, the outstanding principal balance on the mortgage loan was $282,935 and the fair market value of the apartment building was $905,000.

¶ 5. During the marriage, Michael managed his 27-unit apartment building and other smaller apartment buildings. The rents from these properties appear to have been the major source of income for the family. At some point, Michael lost approximately $45,000 in a type of investing activity commonly referred to as "day trading."

¶ 6. In the divorce judgment, the circuit court categorized the 27-unit apartment building and the mortgage debt as Michael's non-divisible asset and non-divisible debt. The court also concluded that the $45,000 that Michael lost in day trading was "wasted" within the meaning of WIS. STAT. § 767.275 (2003-04).² The court took this "wasting" into account by allocating to Michael $45,000 that did not exist. The property division required that Michael pay Martha an equalizing payment of $157,417. The circuit court also imputed to Michael monthly income of $3,200 and used this amount when calculating that Michael must pay to Martha $60 per month in child support. We refer to additional relevant facts as needed below.

Discussion

I. Classification of the Apartment Building and the Related Mortgage Debt as "Divisible" or "Non-Divisible"

¶ 7. Michael's appeal and Martha's cross-appeal both address whether the 27-unit apartment building and the related mortgage debt were properly categorized as non-divisible under WIS. STAT. § 767.255(2)(a). As set forth below, we conclude that the building is Michael's non-divisible asset, but that the debt is subject to division.

¶ 8. We think a full understanding of the terms and analyses we use to resolve these property division disputes requires that we first provide a summary of certain aspects of property division law and then explain the terms we have chosen to use and why we use them. We use the term "tracing" instead of using "identity" language and we explain the limited nature of the tracing inquiry. We also use "donative intent" instead of "character" terminology and explain the nature of this inquiry. What prompts us is the fact that several of Michael's and Martha's property division arguments employing "identity" and "character" terminology are either misdirected or confusing. We do not fault the parties. A reading of our twenty or so cases addressing WIS. STAT. § 767.255(2)(a) and disputes involving divisible/non-divisible categorization leads to the conclusion that two phrases—"loss of identity" and "loss of character"—are the source of considerable confusion, largely because it is too easy to misunderstand what we mean when we use these non-descriptive phrases. For example, when cash is converted to stock, one might think the asset "lost its identity" as cash. Or, one might think the "character" of the asset changed from cash to stock. But a scrupulous student of our case law will recognize that both of these thoughts are off the mark. In fact, our example provides no clue about any change in "character" because it makes no reference to any factor relevant to donative intent. The example does show that there has been no "loss of identity," but only because identity is simply a matter of tracing and the stock traces directly to the cash. Before addressing the tracing and donative intent inquiries in more detail, we provide a brief overview of § 767.255(2)(a).

A. Property Division Law and WIS. STAT. § 767.255(2)(a)

[1]

¶ 9. We frequently say that a circuit court's decision on property division is discretionary. See, e.g., In re Marriage of Brandt v. Brandt, 145 Wis. 2d 394, 406, 427 N.W.2d 126 (Ct. App. 1988)

. But a more precise statement is this: A circuit court's decision on how to divide divisible property is discretionary. This refinement is helpful because circuit courts are often required to resolve preliminary non-discretionary property division questions under WIS. STAT. § 767.255(2)(a).

[2, 3]

¶ 10. The general rule is that assets and debts acquired by either party before or during the marriage are divisible upon divorce. See McLaren v. McLaren, 2003 WI App 125, ¶ 8, 265 Wis. 2d 529, 665 N.W.2d 405

. There is a statutory exception for property acquired (1) by gift, (2) by reason of death, or (3) with funds from either of the first two sources. WIS. STAT. § 767.255(2)(a). Specifically, that statute provides that if a party acquires property:

1. As a gift from a person other than the other party.

2. By reason of the death of another ....

3. With funds acquired in a manner provided in subd. 1. or 2.

such property "is not subject to a property division." WIS. STAT. § 767.255(2)(a).³ As we shall see, the application of this subsection involves both fact finding and legal questions, but it does not involve the exercise of discretion.

[4]

¶ 11. When a party to a divorce asserts that property, or some part of the value of property, is not subject to division, that party has the burden of showing that the property is non-divisible at the time of the divorce. See Krejci v. Krejci, 2003 WI App 160, ¶¶ 30, 32-33, 266 Wis. 2d 284, 667 N.W.2d 780

(full appreciated value of real estate treated as divisible where spouse asserting that property was non-divisible failed to present evidence showing which part of the property's appreciation was attributable to the original non-divisible inherited property); Brandt, 145 Wis. 2d at 403, 408, 411-13 (wife asserting that part of an investment account was non-divisible did not meet her burden where, although it was undisputed that she originally started the account with inherited non-divisible money, she failed to demonstrate "with any degree of certainty" the current portion of the investment account relating to the inherited money).⁴

[5-7]

¶ 12. Notably, the categorization of property as non-divisible under WIS. STAT. § 767.255(2)(a) does not necessarily dictate how such property will be treated when the court divides divisible property. Under some circumstances courts may avoid "hardship" or inequities that might result from according property non-divisible status. Note the following examples:

• Under § 767.255(2)(b), a court may treat non-divisible property as divisible property if failing to do so would "create a hardship on the other party or on the children of the marriage." The hardship exception involves both a legal question and the exercise of discretion. Once factual disputes are resolved, the existence of a "hardship" is a question of law. See Doerr v. Doerr, 189 Wis. 2d 112, 121, 525 N.W.2d 745 (Ct. App. 1994)

. However, whether an identified "hardship" warrants the "invasion" of non-divisible property is a discretionary determination. Id. at 121-22; see also Spindler v. Spindler, 207 Wis. 2d 327, 341, 558 N.W.2d 645 (Ct. App. 1996).

• Section 767.255(3)(c) authorizes circuit courts to consider "substantial" non-divisible property owned by one party when exercising discretion to divide divisible property.

• When making the discretionary decision whether to deviate from equal property division, a court may consider the fact that divisible property was generated in whole or in part by one party's donation of non-divisible property to the marriage. See Schwartz v. Linders, 145 Wis. 2d 258, 259, 262-63, 426 N.W.2d 97 (Ct. App. 1988)

(in marriage of short duration, circuit court should have considered the fact that a jointly owned investment account was seeded by the husband with non-divisible...