In Curtis v. Curtis, 887 N.W.2d 249 (Minn. 2016), the wife sought spousal support in a divorce case. But she received, as part of her share of the marital property, an Ameritrade account worth over $2 million.
The trial court held that the income from this account constituted income for purposes of spousal support. The account was invested in growth-oriented securities and produced income of less than $3,000 per year. This income was not sufficient to meet the wife's support needs. But the husband proved that the account could be reinvested into income-oriented securities at a rate of 7% per year and earn $9,500 per month in income. On this basis, the trial court imputed $9,500 per month income to the wife, and found that she had no need for spousal support. Minnesota's intermediate appellate court affirmed, and the wife appealed to the Minnesota Supreme Court.
The wife relied primarily on the well-known rule that a spouse cannot be expected to support herself after the marriage by spending her share of the marital property. By expecting her to sell the securities in the account and purchase other securities, she argued, the trial court violated this rule.
The Minnesota Supreme Court agreed that the principal of the investment account was not a resource for spousal support. "[I]t would have been erroneous to require the spouse to diminish the principal value of her share of the marital estate to provide sufficient income to meet her reasonable needs." Id. at 254. The income from the account, however, was a different matter:
But just because a court may not require one of the spouses to diminish the value of the property received in the distribution to cover monthly expenses does not mean that a district court must also assume that the distributed property will forever remain in the same form. Broms [ v. Broms, 353 N.W.2d 135 (Minn. 1984),] and Nardini [ v. Nardini, 414 N.W.2d 184 (Minn. 1987)], for example, recognize that a court should not assume that one spouse would keep the cash from a division of marital property under the proverbial mattress, thereby depriving it of all of its income-producing potential and requiring a court to make an unrealistic assumption about the most likely uses of the cash. Christine's [position] is also inconsistent with a district court's broad discretion, which allows it to determine what needs are reasonable, what amount of self-support is adequate, and what income the assets can provide.
The court therefore held that the trial court could effectively require the wife to reinvest the Ameritrade account into income-oriented securities. But it suggested that a different result might apply on other facts:
Of course, discretion has its limits, and our cases outline several principles to guide the exercise of the district court's discretion. One important factor is the nature of the asset, and in particular, its liquidity. Although we have drawn a distinction between "nonliquid" and other assets, see Lyon [v. Lyon,] 439 N.W.2d [18,] 22 ](Minn. 1989)], assets fall along a continuum of liquidity. At the most liquid extreme is cash, which we expect a maintenance-seeking spouse to invest in an effort to meet the spouse's reasonable needs. . . . At the other end of the continuum is residential real property, which a district court should rarely, if ever, expect a spouse to sell to meet day-to-day needs. . . . A requirement that a maintenance-seeking spouse liquidate a residence in order to meet reasonable expenses is likely to involve not only a loss of the value of the asset, but also an alteration of the spouse's lifestyle. Furthermore, the sale of such an asset is likely to trade long-term stability for short-term liquidity.
Id. (emphasis added). Thus, the rule that a spouse is expected to reasonably maximize investment income applies primarily to cash, investment accounts and other mostly-liquid funds, and does not generally apply to real estate.
An income-oriented investment policy may not be universally appropriate, especially for younger parties:
Other factors for the district court to consider are the spouse's age and how the asset was invested during the marriage. For younger people, it may not make sense to convert a growth-oriented investment account into one targeting the production of income, but the opposite may be true for those approaching retirement.
Id. at 255.
Finally, the evidence showed that to convert the Ameritrade account into income-oriented securities, the wife would have to sell growth-oriented securities, thereby incurring $155,000 in capital gains taxes. The trial court refused to consider these tax consequences in setting spousal support. The Minnesota Supreme Court reversed:
Even under Gregory's view, the payment of taxes would require Christine to invade the principal of the assets she received in the distribution, which is something we have said that a court considering a maintenance request may not order. Lee, 775 N.W.2d at 640 n.10. Applying Aaron [ v. Aaron, 281 N.W.2d 150 (Minn. 1979),] to the facts of this case, therefore, we hold that the district court was required to consider the tax consequences of requiring Christine to reallocate her investment assets.
Id. at 256. The trial court's decision was affirmed to the extent that it imputed to the wife a 7% investment return on the Ameritrade account. But the decision was reversed and remanded with instructions to consider the tax consequences of changing the account's investment strategy.