COURT OF APPEALS
DECISION
DATED AND FILED
January 20, 2010
David
R. Schanker
Clerk of Court of Appeals
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NOTICE
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This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official
Reports.
A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See Wis. Stat. § 808.10 and Rule 809.62.
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Appeal No.
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STATE OF WISCONSIN
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IN COURT OF
APPEALS
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DISTRICT III
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In re the marriage of:
Elizabeth Courtney Rayala,
Petitioner-Appellant,
v.
Daniel Robert Rayala,
Respondent-Respondent.
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APPEAL
from a judgment of the circuit court for Vilas County: neal
a. nielsen III, Judge. Affirmed.
Before Hoover,
P.J., Peterson and Brunner, JJ.
¶1 PER CURIAM. Elizabeth Rayala appeals the
property division portion of a judgment dissolving her marriage to Daniel
Rayala. Specifically, Elizabeth argues the trial court erred by
concluding Daniel’s partnership interest in Rayala Cranberry Company is
nonmarital property. Elizabeth also claims the trial court erred
by failing to include earnings arising from the 2006 harvest in the marital
estate. We reject Elizabeth’s arguments and affirm the
judgment.
Background
¶2 Elizabeth and Daniel were married in August 1986. The couple had four children and were
guardians for a fifth child. During the
marriage, Elizabeth
did not work outside the home, with the exception of some sporadic part-time
work in 2000, 2001 and 2002. Daniel
worked as an employee of his parents’ cranberry marsh business until February
1993, when they gifted him a 30% partnership interest in the company, while
each retained a 35% interest. Daniel’s
interest was later reduced to 28.74% as a result of capital contributions made
by Daniel’s parents and draws taken by Daniel.
¶3 In September 2005, Elizabeth
filed for divorce. Although most of the
divorce matters were resolved by a marital settlement agreement, a few issues
were left for the trial court to address.
Relevant to this appeal, Elizabeth
asserted she had gained a marital interest in the Rayala Cranberry Company. After a hearing, the court determined that Elizabeth had no interest
in the company or in undistributed partnership income. Elizabeth
now challenges that determination.
Discussion
¶4 The division of property in divorce actions is entrusted to
the circuit court’s discretion, and will not be disturbed on appeal unless the
court has erroneously exercised its discretion. LeMere v. LeMere, 2003 WI 67, ¶13,
262 Wis. 2d
426, 663 N.W.2d 789. We generally look
for reasons to sustain the circuit court’s discretionary decisions, see Loomans v. Milwaukee Mutual Insurance Company,
38 Wis. 2d 656, 662, 158 N.W.2d 318 (1968), and “may search the record to
determine if it supports the court’s discretionary determinations.” Randall v. Randall, 2000 WI App 98,
¶7, 235 Wis. 2d
1, 612 N.W.2d 737. This court will
sustain discretionary decisions if the circuit court examined the relevant
facts, applied a proper standard of law and, using a demonstrated rational
process, reached a conclusion a reasonable judge could reach. Liddle v. Liddle, 140 Wis. 2d 132, 136,
410 N.W.2d 196 (Ct. App. 1987). Findings
of fact will be affirmed unless clearly erroneous. Wis.
Stat. § 805.17(2).
The circuit court is also the ultimate
arbiter of the credibility of witnesses. Cogswell v. Robertshaw Controls Co.,
87 Wis. 2d
243, 250, 274 N.W.2d 647 (1979).
¶5 Gifts are not subject to division upon divorce unless
hardship is shown. Wis. Stat. § 767.61(2); see also Wright v. Wright, 2008 WI
App 21, ¶9, 307 Wis. 2d 156, 747 N.W.2d 690. The burden of showing that property should be
excluded from the marital estate, however, is on the party asserting the claim.
Brandt v. Brandt, 145 Wis. 2d 394, 408, 427
N.W.2d 126 (Ct. App. 1988). In order to
satisfy the burden, Daniel must establish: (1) the original gifted or inherited
status of the property; and (2) that the character and identity of the property
has been preserved. See id. at 408. The character inquiry examines “whether the
owning spouse intended to donate non-divisible property to the marriage” and,
therefore, may accurately be described as “donative intent.” Derr v. Derr, 2005 WI App 63, ¶23,
280 Wis. 2d
681, 696 N.W.2d 170. Because the
identity inquiry addresses “whether the gifted or inherited asset has been
preserved in some present identifiable form,” it is more a matter of tracing
the asset. Id., ¶15.
¶6 Here, Elizabeth
concedes that Daniel’s interest in the company was gifted to Daniel alone. Elizabeth
recounts, however, that because of poor economic times in the cranberry
business, Daniel did not take the full income draws to which he was entitled or
which he reported as income on the couple’s joint tax returns for 2000, 2001,
2002 and 2003. Rather, Daniel left a
portion of what Elizabeth
characterizes as marital income in the business to allow its continued
operation. Elizabeth argues that because Daniel
reinvested this marital income back into the company, the commingling of that
income with the business’s assets effectively altered what was initially a gift
into divisible marital property. We are
not persuaded.
¶7 Elizabeth’s
argument depends on her assertion that the retained earnings were marital income. To support this underlying premise, Elizabeth cites Metz v. Keener, 215 Wis. 2d 626, 573 N.W.2d
865 (Ct. App. 1997), in which this court determined that the retained earnings
fund of a wife’s inherited corporation was properly included in the marital
estate. Before her marriage to Theodore
Keener, Dorothy Metz inherited her late husband’s estate, including all the
stock in a Subchapter S corporation that operated a McDonald’s franchise. Id. at
628. The corporation retained some of
its earnings in an accumulated adjustment account, and Metz used funds from the account to purchase
two additional McDonald’s restaurants—one purchased before her marriage to
Keener and one purchased during the marriage.
Id.
at 629.
¶8 The Metz court
acknowledged that while the appreciated value of a gift is nonmarital, income
generated by an exempt asset should not be excluded from the marital
estate. Id. at 632-33. In determining whether the retained earnings fund
constituted divisible income generated by the asset, the court focused on
whether Metz
controlled distribution of the fund. Id. at
633-34. There, as here, the retained
earnings did not pass through Metz’s
hands for further use or reinvestment because they were always held by the
corporation. Id. at 633. Further, as in the present case, Metz paid income tax on
the retained earnings. Id.
In determining that the retained
earnings represented divisible income, however, the court emphasized that Metz “had full ownership
and possession of all the corporate shares and was the sole managing force
behind the corporation.” Id. at
634.
¶9 In contrast, here, the court found that Daniel had only a
minority interest in the partnership.
The court noted:
[Daniel] is unable to call any of the shots, and the
court really understands that either adjoining management decisions made by he
and his parents, or as the court … had the opportunity to see from … the
testimony of Don Rayala, his father, ultimately Don calls the shots if he feels
that he needs to in order to preserve the assets and to follow his intentions
as to how the marsh is going to operate.
Elizabeth nevertheless asserts that by virtue
of the partnership agreement, Daniel had full access and control over his taxed
income. The partnership agreement
provided: “The profits and losses of the partnership shall be determined in the
manner in which the partnership reports its income and expenses for federal
income tax purposes.” Emphasizing that
under federal income tax law, all profits are distributed and taxed to the
individual partner, Elizabeth
asserts Daniel had full control over his portion of the reported income. However, as Daniel points out, under the
partnership agreement he could not have unilaterally withdrawn income from the
partnership. Daniel’s parents, as the
majority interest holders, determined if distributions would be made based upon
the business climate.
¶10 Under the present facts, it appears the retention of any
“guaranteed payments” was really more about cash flow than about retained
earnings. The court acknowledged that
like any other business, “when the money isn’t there to do it, the option is
either take the money that you want as income and turn it around and borrow to
keep things stitched together, or don’t take the money in the first
place.” In any event, based on the trial
court’s finding that Daniel did not control the distribution of retained
earnings, we conclude those earnings did not constitute divisible marital
income. See Metz, 215 Wis. 2d at 633-34; cf. Weis v. Weis, 215 Wis. 2d 135, 572 N.W.2d 123 (Ct. App.
1997) (where partner with 50% interest did not have authority to individually
exercise control over retained earnings, the earnings were not considered gross
income available for child support).
Because we reject Elizabeth’s
underlying premise, we need not address her commingling argument.
¶11 Elizabeth
alternatively argues the trial court erred by failing to include payments Daniel
received for the 2006 crop in the marital estate. Elizabeth
notes that the company sold its crop to Ocean Spray exclusively. Each year’s crop is harvested in October,
with payment for a crop doled out over the following eighteen months. Because the 2006 crop was harvested during
the marriage, Elizabeth
claims entitlement to any payments made for that crop after the couple
divorced. To the extent Elizabeth asserts an
interest in any retained earnings that arose from the 2006 crop, as noted
above, under the facts of this case, retained earnings do not constitute
divisible marital income.
¶12 With respect to future distributed income arising from the 2006
harvest, accounts receivable are usually assets subject to property division. See Hubert v. Hubert, 159 Wis. 2d 803, 812, 465
N.W.2d 252 (Ct. App. 1990). The trial
court, however, has discretion to exclude accounts receivable from the marital
estate if the evidence indicates a link “between the receivables and salary and
that dividing the receivables would adversely affect the ability to pay support
or maintain professional and personal obligations.” Sharon v. Sharon,
178 Wis. 2d 481,
495, 504 N.W.2d 415 (Ct. App. 1993). Here,
Daniel’s family support obligation of $3,750 per month was based on his income,
including, presumably, income arising from the 2006 harvest. Generally, it is error to double count an
account receivable as both an asset and as anticipated income. See Peerenboom
v. Peerenboom, 147 Wis.
2d 547, 553, 433 N.W.2d 282 (Ct. App. 1988).
Because Elizabeth
has failed to establish that the subject income was not considered when setting
Daniel’s family support obligation, we reject her claimed entitlement to that
income as divisible marital income.
By the Court.—Judgment affirmed.
This
opinion will not be published. See Wis. Stat.
Rule 809.23(1)(b)5.