## Facts

- Before the marriage (May 12, 1990), the husband owned an employer retirement plan valued at about $957,000, treated as nonmarital property.
- During the marriage, additional contributions of roughly $396,455 were made to the retirement accounts.
- The disputed “investment return” was the difference between account value at marriage and value on the valuation date, including all appreciation/depreciation and all income (interest, dividends, capital gains) that remained in the accounts.
- Professional investment advisors largely managed the accounts; the husband selected advisors, authorized investment activity, and chose not to withdraw funds.
- During dissolution, a stipulated temporary order restrained both parties from using marital property except in the usual course of business or for necessities of life.
- Despite the restriction, the husband paid attorney fees using marital assets.
- The district court treated the investment return on the nonmarital portion as nonmarital and made no adjustment for the attorney-fee payments.
- The court of appeals treated the investment return as marital (relying on “active management” and agency theories) and treated the attorney-fee payments as improper use of marital assets requiring correction.

## Issues

1. Whether the investment return on the nonmarital portion of retirement accounts accrued during marriage is marital property or nonmarital property.
2. Whether paying attorney fees from marital assets during dissolution, contrary to Minn. Stat. § 518.58, subd. 1a, required an adjustment in the property division.

## Decision

- The Supreme Court held that the controlling test for classifying appreciation of nonmarital property is whether marital effort generated the increase.
- Applying that test, it concluded no significant marital effort produced the investment return on the husband’s nonmarital retirement funds; the return remained nonmarital.
- The Court reversed the court of appeals on the investment-return classification and remanded for consideration of whether commingling/tracing principles nevertheless required treating some or all return as marital.
- The Court affirmed that using marital assets to pay attorney fees during the dissolution violated Minn. Stat. § 518.58, subd. 1a, and that the district court abused its discretion by failing to account for that use in dividing property.

## Legal Principles

- The single test for whether appreciation of nonmarital property is marital is the extent to which marital effort—financial or nonfinancial efforts of either spouse during marriage—generated the increase.
- Market-driven gains and returns produced without significant marital effort remain nonmarital, even if the owner-spouse made limited decisions such as selecting advisors or authorizing transactions.
- Commingling of marital and nonmarital components may affect classification if the nonmarital portion cannot be traced; tracing must be evaluated when properly raised.
- During dissolution, Minn. Stat. § 518.58, subd. 1a restricts use of marital assets to ordinary business or necessities of life; attorney-fee payments from marital assets outside those exceptions require a corrective adjustment in the final division.

## Conclusion

The Minnesota Supreme Court held that investment returns on a spouse’s nonmarital retirement funds remain nonmarital unless significant marital effort caused the increase, while also requiring an offset when a spouse improperly uses marital assets to pay attorney fees during dissolution proceedings.


Baker v. Baker, 753 N.W.2d 644 (Minn. 2008)