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STATE OF MINNESOTA IN COURT OF APPEALS A08-0826 A08-1010 In re the Marriage of: Matthew Shane Melius, petitioner, Appellant, vs. Julie Ann Melius, Respondent (A08-0826); In re the Marriage of: Matthew Shane Melius, petitioner, Appellant, vs. Julie Ann Melius, n/k/a Julie Ann Gomer, Respondent (A08-1010). Filed May 19, 2009 Affirmed in part, reversed in part, and remanded Schellhas, Judge Hennepin County District Court File No. 27-FA-06-2656 Edward L. Winer, Jana Aune Deach, Moss & Barnett, P.A., 4800 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402 (for appellant) Alan C. Eidsness, Melissa J. Nilsson, Henson & Efron, P.A., 220 South Sixth Street, Suite 1800, Minneapolis, MN 55402 (for respondent) Considered and decided by Kalitowski, Presiding Judge; Lansing, Judge; and Schellhas, Judge.

SYLLABUS The district court must make a finding of bad faith or unjustifiable self-limitation of income before income can be imputed to a spousal-maintenance obligor. OPINION SCHELLHAS, Judge On appeal in this spousal-maintenance dispute, appellant argues that the district court (1) incorrectly imputed income to him without finding him to be underemployed in bad faith, (2) overstated respondents reasonable monthly expenses by considering her post-separation expenses, and (3) should have granted a new trial because it excluded certain admissible testimony as hearsay. FACTS Appellant Matthew Shane Melius (husband) and respondent Julie Ann Melius (wife) were married in November 1985. Husband was a business executive during the marriage. In 2004 his income totaled $679,004, in 2005 it totaled $3,173,871, and in 2006 it totaled $2,510,233. Husband left his employment in January 2006. The parties dispute the reason why husband left his employment; husband claims that wife told him that she would leave him if he did not leave his employment, while wife denies this allegation. The parties separated shortly after husbands resignation, and wife moved to an apartment. When husband left his employment, he was subject to a non-compete agreement with his former employer. He was paid $1,800,000 in separation benefits under his non-compete agreement, which expired in January 2007.

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After husbands non-compete agreement expired, he formed a consulting company with four other persons and invested $120,000 in the company. Husband testified at trial that he does not expect to receive income from this consulting company for two-to-five years. After that time, if the company performs, husband expects to earn approximately $130,000 in gross annual income. Wife has an elementary-education degree and worked periodically as a teacher during the marriage. Wife is also the co-owner and co-operator of a Curves franchise. The parties stipulated that the value of wifes one-half share of this business is $19,050 and that wife receives a gross monthly draw of $1,800. Prior to trial, the parties entered into a property-distribution agreement under which each party received approximately $2,580,000 in liquid and illiquid assets. The parties also agreed to share legal and physical custody of their minor children, then ages 17 and 16. A trial was held on the remaining issues, including spousal maintenance. Wife asked the district court to find that husband has the ability to earn $500,000 per year, but did not ask the court to find that he is underemployed in bad faith. The district court noted that husband testified at trial that jobs paying in the range of $300,000 per year were available, but that he had made a decision not to pursue those jobs based on his desired lifestyle and had not applied for any jobs after his non-compete agreement ended. The district court concluded that husband has "the ability to earn $300,000 annually" and gave husband six months after the entry of judgment to obtain such employment. This appeal follows.

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ISSUES I. Did the district court abuse its discretion in determining husbands spousal-

maintenance obligation based on a finding that husband has the ability to earn $300,000 per year without a finding of bad-faith underemployment? II. Did the district court abuse its discretion by determining husbands spousal-

maintenance obligation based on wifes spending during the post-separation period before the dissolution? III. Did the district court abuse its discretion in excluding hearsay testimony

offered by husband? ANALYSIS I A district court generally has broad discretion in its decisions regarding spousal maintenance. Erlandson v. Erlandson, 318 N.W.2d 36, 38 (Minn. 1982). The standard of review in spousal-maintenance determinations is whether the district court abused its discretion by improperly applying the law or making findings unsupported by the evidence. Dobrin v. Dobrin, 569 N.W.2d 199, 202 (Minn. 1997). "A district courts determination of income for maintenance purposes is a finding of fact and is not set aside unless clearly erroneous." Peterka v. Peterka, 675 N.W.2d 353, 357 (Minn. App. 2004). But this court reviews questions of law related to spousal maintenance de novo. Van de Loo v. Van de Loo, 346 N.W.2d 173, 175 (Minn. App. 1984). A court may consider an obligors earning capacity in determining the obligors ability to comply with an order for child support or spousal maintenance. See, e.g., Hopp 4

v. Hopp, 279 Minn. 170, 176, 156 N.W.2d 212, 217 (1968). In 1982 the Minnesota Supreme Court extended this holding to the modification of decrees for child support and spousal maintenance, stating that when an obligors income changed as a result of goodfaith actions, "the child and the separated spouse should share in the hardship as they would have had the family remained together." Giesner v. Giesner, 319 N.W.2d 718, 720 (Minn. 1982); see also Beede v. Law, 400 N.W.2d 831, 835 (Minn. App. 1987) (remanding a district courts modification of child support, which was based on a finding of earning capacity, because the court failed to find that calculating the obligors income was impractical or that his income was unjustifiably self-limited). Before Giesner and until 1991, no express statutory provision addressed the imputation of income to an unemployed or underemployed obligor; the supreme courts 1982 ruling in Giesner "filled this statutory gap." Putz v. Putz, 645 N.W.2d 343, 350 (Minn. 2002) (citing Giesner, 319 N.W.2d at 719-20). And in Veit v. Veit, we held that income could be imputed to an obligor in the initial determination of child support. 413 N.W.2d 601, 606 (Minn. App. 1987). We extended that principle to the initial determination of spousal maintenance in Warwick v. Warwick, 438 N.W.2d 673, 677-78 (Minn. App. 1989). While we observed in Warwick that the district court did not explicitly find bad faith, we concluded that the court "did not err in considering [the obligors] earning capacity rather than his actual income" because the record supported the courts implicit finding that the obligor unjustifiably reduced his income. Warwick, 438 N.W.2d at 678. Warwick is therefore consistent with the rule that "earning capacity is not an appropriate measure of income unless (1) it is impracticable to determine an obligors actual income 5

or (2) the obligors actual income is unjustifiably self-limited." Beede, 400 N.W.2d at 835; see also Fulmer v. Fulmer, 594 N.W.2d 210, 213 (Minn. App. 1999) (affirming the use of earning capacity to determine spousal maintenance where it was impracticable to determine the obligors income); Doherty v. Doherty, 388 N.W.2d 1, 3 (Minn. App. 1986) (affirming use of earning capacity to determine spousal maintenance where the district court found that obligor "had not been employed in good faith" for several months). In 1991, the legislature adopted the provisions of 1991 Minn. Laws ch. 292, art. 5,

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