Minnesota Lawyer
Cynthia Brown and Jason Brown
On July 1, 2019, the Minnesota Court of Appeals issued its decision in Nelson v. Nelson. The main issue on appeal involved the valuation and allocation of two businesses owned by the parties.
Husband and Wife owned two companies with similar models and organizational structures. The second business was created to take over the client base of the first business because the first business was filing for bankruptcy.
The Court of Appeals characterized the matter as “extremely contentious,” and noted that Husband did not turn over all requested financial information about the businesses during the discovery process.
During the trial, Wife was granted access to the marital residence by Husband. When she entered, she found the documentation she previously sought about the businesses. Wife was awarded conduct-based fees as a result of Husband’s actions.
The District Court ultimately valued the first business at $50,000 and the second business at $20,000. The businesses were awarded to Husband. Wife was awarded a property equalizer. Husband appealed.
The Court of Appeals noted it was “unable to determine whether the district court abused its discretion in valuing the businesses because the district court did not set a date of valuation.”
Judge John Smith noted that without agreement of the parties or specific findings in the record, the District Court was required to value the businesses as of the date of the first pretrial conference. He reiterated “there is no evidence in the record of what value or profitability either of these businesses had specifically on that date.”
Consequently, the Court of Appeals reversed with instruction for the District Court to determine the date of value, value of the businesses as of that date, and modify the property equalizer as necessary.
Interestingly, despite the lack of a valuation date, the Court of Appeals preemptively disposed of the numerous arguments Husband raised on appeal. Husband tried to argue about business value, based upon bankruptcy proceedings, alleged nonmarital interests, and the characterization of business “investments.” Smith specifically opined that “none of these arguments require the date of valuation to effectively review.”
Naturally, the Nelson decision underscores the importance of selecting and/or pronouncing a valuation date. This particular case was venued in Anoka County. Like Hennepin County, the Anoka judiciary utilizes the initial case management conference and early neutral evaluation processes.
Unlike Hennepin County, however, Anoka County (like most) does not have a standing policy to use the date of the ICMC as the valuation date in divorce cases, raising three questions.
First, if Anoka County had adopted a standing policy to use the date of the ICMC as the valuation date, would Nelson have been kicked back?
Second, should Anoka County, and every other Minnesota county, follow the lead of Hennepin County and adopt the date of the ICMC as the valuation date?
Third, what authority does any county have to utilize the date of the ICMC as a valuation date, given the statutory requirement to use the date of the pre-trial conference?
While Minn. Stat. sec. 518.58 mandates the first pretrial date as the valuation date, the existing statute is outmoded. The current statute was enacted well before the prevalence of early neutral evaluation. It’s time to amend the statute.
Today, most parties are, by default, using a time at or near the date of the ICMC to value assets and debts anyway. Most parties are settling through the ENE process.
Even if cases don’t settle through an FENE, significant work often goes into preparing for the session. The statute, in current form, essentially requires the parties to work up their case twice.
Finally, if the statute was amended, expert reports wouldn’t have to come in at the last minute. That would give the parties ample time to consider settlement alternatives before showing up for the pre-trial conference. Pre-trial conferences would be more efficient.
Another issue raised by Nelson involves Husband’s non-cooperation during discovery. Too many litigants seem to get away with a slap on the wrist in failing to provide meaningful documentation during litigation.
Suppose Wife didn’t have access to the marital residence around the time of trial. It seems Husband would have gotten away with hiding valuable information concerning the parties’ businesses. While he was ordered to pay conduct-based fees of $3,500 to Wife, is that enough to dissuade others from trying to do the same?
It has been our experience that too much time and money is wasted arguing over the production of documents in family court. Ironically, nearly every family law attorney relies on the same generic requests for information as a baseline. Incorporating them into a court order would streamline document exchange substantially.
For every bank account, retirement account, loan, and credit card of the parties, two years of statements should be exchanged. The parties should exchange the last five years of individual tax returns, county tax records for real estate, and current KBB values for all assets with an engine. Each party could be delegated an equal share of the work by the court.
Each party should be required to provide the last six months of paystubs. Business owners should be ordered to turn over the last five years of business tax returns and year to date financial reports.
If the parties are ordered to produce their share of the documentation within 30 days of the date of the ICMC, they will be well on their way to adequately preparing for early neutral evaluation — and beyond. If accountable to the court, fewer games are likely to be played, litigants will save money, and cases will be better positioned for settlement.
Jason and Cynthia Brown, husband and wife, are the founding shareholders in the Brown Law Offices, P.A., a northwest Twin Cities divorce and family law firm.
