Marriage of Baker v. Baker
753 N.W.2d 644 (2008)
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Rule of Law:
The appreciation in value of a nonmarital asset is classified as nonmarital property unless that appreciation is the result of significant financial or nonfinancial marital effort by one or both spouses during the marriage. The actions of a third-party investment manager hired by a spouse do not constitute "marital effort" for the purposes of this classification.
Facts:
- Dr. Daniel Baker and Carol Bernice Baker married on May 12, 1990.
- At the time of the marriage, Dr. Baker owned retirement accounts (SIGS accounts) from his former employer valued at $957,473.
- During the marriage, Dr. Baker moved some of these accounts to Merrill Lynch, where he hired a financial advisor, Randy Trask, who was given discretion to manage the investments.
- Dr. Baker's personal involvement with the accounts was characterized as "very passive," with his only direct investment decision being a single, small stock purchase related to his son's company.
- Dr. Baker occasionally moved funds from the SIGS accounts between different investment institutions.
- The nonmarital portion of the accounts grew in value by $1,491,022 during the marriage.
- During the dissolution proceedings, Dr. Baker paid $114,257.16 in attorney fees from a marital checking account.
Procedural Posture:
- Carol Bernice Baker filed a petition for dissolution of marriage against Dr. Daniel Remember Baker in a Minnesota district court (trial court).
- The district court ruled that the investment return on the nonmarital portion of Dr. Baker's retirement accounts was nonmarital property.
- Carol Baker appealed the decision to the Minnesota Court of Appeals.
- The Court of Appeals, as the intermediate appellate court, reversed the district court, holding that the investment return was marital property due to active management by Dr. Baker and his agent.
- Dr. Baker petitioned for further review to the Supreme Court of Minnesota, the state's highest court, which granted the petition.
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Issue:
Does the appreciation of a spouse's nonmarital investment portfolio become marital property when the spouse hires a third-party financial advisor to manage the funds and occasionally moves funds between institutions, but does not personally direct most investment decisions?
Opinions:
Majority - Meyer, J.
No. The appreciation of a nonmarital asset is marital property only to the extent it was generated by the marital effort of one or both spouses. The court rejects the 'control' test used by the court of appeals and reaffirms the 'marital effort' test from Nardini v. Nardini. Marital effort requires the personal financial or nonfinancial contributions of the spouses themselves, not the actions of a third-party agent like a financial advisor. Hiring a professional to manage a pre-existing, nonmarital asset is not a marital effort that transforms the asset's passive appreciation into marital property. Dr. Baker's minimal personal actions, such as moving funds between institutions and one minor stock purchase, were insufficient to constitute the significant marital effort required to convert the appreciation. Therefore, the increase in value of the nonmarital portion of the SIGS accounts remains Dr. Baker's nonmarital property.
Concurring - Anderson, Paul H., J.
Concurred in the result without a separate written opinion.
Analysis:
This decision clarifies the 'active vs. passive appreciation' doctrine for nonmarital assets, particularly in the context of professionally managed investment portfolios. It establishes that merely having control over a nonmarital asset or hiring an expert to manage it does not automatically convert its market-driven growth into marital property. By focusing strictly on the spouses' own labor or financial contributions from the marital partnership, the court sets a higher bar for claims that appreciation is marital. This holding protects the nonmarital character of pre-marital investments and prevents a spouse from being penalized for the prudent decision to seek professional financial advice.
