Kriesel v. Gustafson, C3-93-1708

• Decision Date: 08 March 1994
• Docket Number: No. C3-93-1708,C3-93-1708
• Citation: 513 N.W.2d 9
• Parties: Kevin Carl KRIESEL, Petitioner, Respondent, v. Allison Echo GUSTAFSON f/k/a Allison Echo Kriesel, Appellant.
• Court: Minnesota Court of Appeals

Page 9

513 N.W.2d 9

Kevin Carl KRIESEL, Petitioner, Respondent, v. Allison Echo GUSTAFSON f/k/a Allison Echo Kriesel, Appellant.

No. C3-93-1708.

Court of Appeals of Minnesota.

March 8, 1994.

Syllabus by the Court

1. Matters regarding the financial effect of future tax exemptions for dependent children should be included only in the court's determination of issues regarding child support and custody and not in division of marital property.

2. The trial court erred in characterizing future tax exemptions for dependent children as personal property with a present value for purposes of division of the marital estate.

Patrick T. O'Neil, Mark W. Benjamin, Parker, Satrom, O'Neil, Lindberg & McKinnis, P.A., Cambridge, for respondent.

Rita Clare Steinhagen, Jennings, DeWan & Anderson, P.A., North Branch, for appellant.

Considered and decided by PARKER, P.J., and HUSPENI and FOLEY, ^* JJ.

OPINION

DANIEL F. FOLEY, Acting Judge.

The parties' marriage was dissolved by judgment and decree, granting wife physical custody of their two minor children, awarding her the right to claim the children as future income tax exemptions, and characterizing said tax exemptions as personal property with a present value of $4,630 for the purpose of division of the marital estate. The trial court denied wife's posttrial motions.

Wife appeals from the amended judgment, arguing that the trial court erred in allocating the future dependency tax exemption as marital property and abused its discretion in ordering an unequal division of property. We reverse and remand.

FACTS

Appellant Allison Echo Gustafson and respondent Kevin Carl Kriesel were married on October 24, 1980. Two children were born to the parties. By stipulated agreement of the parties, Allison was granted physical custody of the parties' two minor children. The trial court was asked to resolve remaining issues regarding Allison's proposed relocation of the children to Wisconsin, child support, marital property valuation and division, and attorney fees.

Both parties requested the right to claim the children as deductions for income tax filing purposes. The trial court awarded this continuous right to Allison. The trial court set Kevin's child support obligation at $252.48, based on calculation of his net income according to a single withholding status with one deduction (S-1).

The trial court found that Allison's gross monthly income was $887.25 and that her net monthly income was $820.70. The trial court found Allison would have no liability for federal and state income taxes after deduction for the tax exemptions for two children, herself and the standard deduction.

Although neither party presented evidence of projected future monetary value of the right to claim the children as a tax exemption, nor did they argue that said right was personal property subject to equitable division by the court, the trial court, sua sponte, assessed a $4,630 value to Allison's right to claim the children as future deductions for income tax filing purposes and adjusted the marital property distribution accordingly. The trial court explained its calculation of the valuation of said future exemptions as follows:

This was arrived at by multiplying the marginal tax rate of 23 percent times $4600, giving the annual tax savings under the current code. This was then reduced to present value assuming an 8% rate of interest and a 10 year term.

The trial court gave the following reasons for its award:

While the Court notes that allocating the value of the minor children as tax exemptions in the property division may not be appropriate in all cases, the Court believes that it is appropriate in this case.

Under the Internal Revenue Code, the Court has no option but to grant the tax exemptions to Respondent. 26 U.S.C.A. Sec. 152(e)(1) (West Supp.1993). The Respondent has apparently been unwilling to consider giving the exemptions up even when it costs the "family unit" money. The Respondent has given no consideration to giving the exemptions to the Petitioner at present and shifting them back to her at a later date. Since the Respondent has chosen to take a purely vindictive approach, she cannot complain about the result in a suit which, in reality, has its basis in equity. It only seems appropriate to value the tax exemptions as a property right when Respondent herself made them a property right by asking for them when there was no benefit to her except in a future sense.

Despite Respondent's protestations regarding this allocation, there is a detriment to the Petitioner and the family unit by awarding the exemptions to her. This is a financial benefit that Respondent will receive, or a detriment that the Petitioner will experience occurring over a period of years (the minor children are now ages 11 and 9).

The assignment of tax exemptions does translate into actual value for Respondent, similar to a spendthrift trust, structured settlement, financial assistance from parents, or income from an annuity. Similarly, the increased taxes of the Petitioner will occur over a period of time.

It is therefore appropriate in this case to value the exemptions as an annuity.

Division of the remaining property between the parties resulted in Allison receiving property valued at $2,300 and Kevin receiving property valued at $7,380. ¹

ISSUE

Did the trial court err in valuing the custodial parent's right to claim the parties' children as tax exemptions on her future tax returns and in determining that the present value of said future tax exemptions was property subject to consideration in an equitable division of the marital estate?

Standard of Review

This court will not overturn the trial court's decision regarding distribution of property upon dissolution of a marriage except for a clear abuse of the broad discretion accorded the trial court. Aaron v. Aaron, 281 N.W.2d 150, 152 (Minn.1979). We will affirm the trial court's distribution of property as long it has a reasonable basis in fact and principle. Kreidler v. Kreidler, 348 N.W.2d 780, 782-83 (Minn.App.1984). However, characterization of a future entitlement as property subject to distribution in a marital estate is a question of law upon which this court exercises its independent judgment. Salstrom v. Salstrom, 404 N.W.2d 848, 850 (Minn.App.1987).

ANALYSIS

This appeal concerns the matter of the trial court's handling future tax exemptions for dependent children in the context of the property settlement in a dissolution proceeding. The trial court acted sua sponte and without statutory authority or case authority.

Allison argues the trial court erred in its determination that the custodial parent's right to claim dependent minor children as an exemption and deduction for income tax filing purposes constituted marital property or a factor to be considered in distribution of marital property. She contends receipt of the dependency exemption is an issue relative only to the computation of child support and future income. She complains that the trial court's valuation of the dependency exemption was speculative and inaccurate. Kevin defends the actions of the trial court as a "new and novel approach" within the trial court's discretion. We agree it is novel, but it is not within the trial court's discretion.

Upon dissolution of a marriage, the court must make a "just and equitable" division of the parties' "marital property" after making findings based on relevant factors, including the following factors set forth by the legislature:

[L]ength of the marriage, any prior marriage of a party, the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities, needs, opportunity for future acquisition of capital assets, and income of each party.

Minn.Stat. Sec. 518.58, subd. 1 (1992). Marital property is defined as

property, real or personal, including vested * * * pension plan benefits or rights, acquired by the parties, or either of them, * * * during the existence of the marriage relation. ...

Minn.Stat. Sec. 518.54, subd. 5 (1992).

The trial court's characterization that the right to claim children as a tax exemption as property to be valued in a dissolution proceeding is neither accurate nor appropriate. Allison cannot sell or transfer this right to any person other than Kevin. Allison contends that she cannot use the dependency deduction as loan collateral. The only benefit Allison receives from this tax deduction is a decreased tax liability and a resulting increase in net income in future years after the dissolution of the parties' marriage. The amount of the exemptions and benefit received are unknown at this time because that amount is dependent on any future changes in the tax codes and Allison's income. In retaining her right to the dependency exemption, Allison lost her right to additional tax-free income which would have been paid by Kevin in his monthly child support obligation had he been awarded the dependency exemption. See Fudenberg v. Molstad, 390 N.W.2d 19, 21 (Minn.App.1986) (effect of awarding the dependency exemption to the noncustodial parent would be to increase net income, and thereby increase guideline child support obligation).

Property settlements in a marital dissolution are deemed final and may not be changed. Minn.Stat. Secs. 518.145; 518.64, subd. 2(d) (1992); see also Maranda v. Maranda, 449 N.W.2d 158, 164 (Minn.1989) (judgment and decree cannot be vacated more than one year after the entry of judgment unless basis for reopening is fraud on the court). However, the circumstances of the parties over time relative to custody and support may require modification from time to time. In those areas, the trial court has great discretion. Here, however, in its decision, the trial court not only diluted the property settlement of Allison, but also reduced the child support obligation of Kevin, the noncustodial parent, so that there was a double penalty to...