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Court of Appeals tackles surprising gap in dissolution-of-marriage case law
The Court of Appeals, ruling Monday on a high-income divorce case, took a stab at resolving a surprising gap in pertinent case law.
The three-judge panel reversed a Hennepin County District Court divorce-decree order denying spousal maintenance to the wife because her monthly income exceeded her monthly expenses.
But the earlier ruling failed to account for some of her significant expenses, such as federal and state income taxes, health insurance and retirement savings.
Monday’s opinion in Schmidt v. Schmidt, issued June 21, is precedential because, as the court noted, Julie Ann Schmidt “states that ‘it‘s not a settled matter’ as to ‘whether a District Court has discretion to ignore income taxes an obligee must pay on her income when assessing her need for spousal maintenance.’”
Consequently, Schmidt asked the court to issue a precedential opinion. “We appreciate the suggestion,” Judge Matthew E. Johnson wrote for the court in a footnote, “and take this opportunity to clarify the law on the issue.”
The parties were divorced after about 20 years of marriage. The husband was an executive at Microsoft. The wife was the founder of an event-planning business.
After a three-day trial in 2019, the court denied the wife’s request for spousal maintenance, divided the marital property and awarded her child support of $1,667 per month for two children.
The District Court found that Martin Schmidt, 51, had a gross annual income of $249,071, or $20,756 per month, and reasonable monthly expenses of $6,994.
The court also determined that Julie Ann Schmidt had a gross annual income of $95,000, or $7,917, with reasonable monthly living expenses of $7,624. The court therefore denied spousal maintenance.
The Court of Appeals reversed in part and remanded, in the opinion written by Johnson. The statute governing spousal maintenance does not specify whether a court should consider gross or net income. However, the court observed:
“An employed person’s obligation to pay income taxes may affect his or her ability to provide adequate self-support. Because an employee usually has no choice but to pay income taxes, it usually is necessary for the District Court to consider a spouse’s obligation to pay income taxes when determining his or her ability to provide adequate self-support through employment.”
The trial record included evidence produced by Martin of Julie Ann’s likely obligation of $1,386 per month in federal and state income taxes.
The District Court’s failure to consider those taxes is “against logic and the facts in the evidentiary record,” the Court of Appeals said. She had little investment income to meet her expenses and could not invade principal to pay monthly bills, the court found.
Continuing, the Court of Appeals said there can be no dispute that health insurance also is a reasonable expense, given the parties’ marital standard of living. The court relied on testimony from Julie Ann that she had learned from Martin’s employer that COBRA coverage would be $574 per month.
“The estimates of Julie Ann’s health-insurance expenses are greater than the difference between her gross income and her reasonable monthly expenses,” the Court of Appeals said.
The court then turned to the issue of Julie Ann’s contributions to a retirement-savings account. It noted that the parties regularly saved for retirement during the marriage. Julie Ann, age 51, proposed to save $14,250 per year for retirement.
The court said that retirement savings was an integral part of the marital standard of living and there was no logical reason not to include it, writing:
“[T]he evidentiary record is unequivocal with respect to retirement savings. The parties consistently set aside significant amounts in a tax-deferred retirement-saving account.”
The court remanded with instructions to amend its findings on Julie Ann’s income and expenses and reconsider her request for spousal maintenance.
Johnson was joined in the unanimous opinion by Court of Appeals judges Carol Hooten and Randall J. Slieter.