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In re Marriage of Gill

Court of Appeals of Minnesota

August 14, 2017

In re the Marriage of: Francis Stephen Gill, petitioner, Respondent,
Gretchen Zwakman Gill, Appellant.

         Hennepin County District Court File No. 27-FA-14-5356

          Karim El-Ghazzawy, Basil El-Ghazzawy, El-Ghazzawy Law Offices, LLC, Minneapolis, Minnesota; and Michael V. Ciresi, Michael A. Sacchet, Ciresi Conlin LLP, Minneapolis, Minnesota (for respondent)

          Alan C. Eidsness, Lisa T. Spencer, Henson & Efron, P.A., Minneapolis, Minnesota (for appellant)

          Considered and decided by Jesson, Presiding Judge; Rodenberg, Judge; and Bratvold, Judge.


         When the marital interest in a business entity is sold and includes, as part of the sale price, a provision for "earn-out" payments based on future company performance, the earn-out payments are marital property, notwithstanding purchaser's employment of one of the spouses under a separate employment agreement during the "earn-out" period.


          RODENBERG, Judge.

         Appellant-wife Gretchen Zwakman Gill appeals the district court's award of "earn-out" payments to respondent-husband Francis Stephen Gill as his nonmarital property. We reverse and remand.


         The parties married in 1993. There were four children born of the marriage. Husband is an entrepreneur and, during the marriage, he helped lead Talenti, a successful gelato company. In 2008, husband and a business partner purchased a majority ownership interest in Talenti. Husband set up Wyndmere LLC to hold his interest in Talenti. Twenty percent of his interest in Wyndmere LLC was transferred to trusts created for the parties' children. The remaining 80% of the LLC was held in husband's name. Between 2008 and 2014, Talenti's value grew significantly. During that time, David Goliath Group LLC (DGG) was created. By 2014, DGG was the parent company for Talenti, and Wyndmere LLC held a membership interest in DGG. In 2014, DGG's members sold all of their membership units and DGG's assets-including Talenti-to Unilever N.V. and Conopco Inc. (collectively, "purchaser"). At the time of that sale, husband held an 80% interest in Wyndmere LLC, which in turn owned 38.7043% of DGG. DGG in turn owned 100% of Talenti.

         Dissolution-of-marriage proceedings were commenced by husband on August 11, 2014. While that case was proceeding, husband negotiated a sale of DGG and the Talenti brand. Purchaser paid DGG and its members $180 million at closing and agreed to make two earn-out payments over the next two years, in exchange for all of DGG's assets and the DGG members' membership units. The earn-out payments were described in the purchase agreement as payments to be made to DGG members at the end of the first and second "earn-out years" (calendar years 2015 and 2016), according to a formula based on the amount by which yearly sales exceeded an established "floor, " times a set multiplier, and minus certain variable costs. In the written purchase agreement, the earn-out payments were described as "additional consideration" for the purchase. Each member of DGG was to receive a portion of these payments equal to each's ownership interest in DGG.

         In addition to the purchase agreement, husband also negotiated an employment agreement with the purchaser. Under that employment agreement, husband would continue to work for the purchaser at an annual salary of $362, 500 for 2015 and $375, 625 for 2016, in addition to other benefits. Members of DGG who did not continue to work for purchaser after the sale would receive earn-out payments according to the same formula as husband.

         After husband petitioned for dissolution of the marriage, the district court set the valuation date for marital property as September 5, 2014. That valuation date is unchallenged on appeal. The sale of DGG closed on December 2, 2014. As a member of DGG, Wyndmere LLC received 38.7043% of the $180 million up-front payment, as well as a right to the appropriate percentage of any future earn-out payments. Husband continued to work for purchaser and was paid for that employment as noted. Husband argues, and the district court ruled, that the parties' marital interest in the 80% ownership of Wyndmere LLC as of the valuation date was its proportionate share of the $180 million paid by purchaser at closing. It ruled that the earn-out payments were husband's nonmarital property.[1]

         Wife challenges the district court's determination that the earn-out payments from the sale of DGG are husband's nonmarital property. The district court characterized the earn-out payments as nonmarital property because they "represent compensation for the value added to Talenti by husband post-valuation date." Wife's motion for posttrial relief was denied. Wife appealed, and husband filed no notice of related appeal. We therefore confine our ...

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