What’s the Risk of Confusing Spousal Maintenance with a Property Settlement in Minnesota Divorce?

The line between spousal maintenance and property division can blur in complex divorce settlements, and getting this distinction wrong can cost you thousands of dollars and years of litigation—as one Minnesota couple learned the hard way.

When Labels Don’t Match Reality: The Hidden Dangers

In Minnesota divorce law, spousal maintenance and property settlements serve fundamentally different purposes and follow different rules. Spousal maintenance is designed to meet ongoing financial needs and can typically be modified when circumstances change substantially. Property settlements, on the other hand, divide the marital estate and are generally permanent and non-modifiable once finalized.

The confusion between these concepts often arises when sophisticated couples structure their settlements for tax advantages or security reasons. What appears to be spousal maintenance might actually function as a property division, or vice versa. When courts later examine these arrangements, they look beyond the labels to determine the true nature of the agreement—and their conclusions can completely upend what the parties thought they had negotiated.

This distinction matters because the characterization of payments determines whether they can be modified in the future. Mislabel a property settlement as spousal maintenance, and you might find yourself paying indefinitely for what was supposed to be a finite property division. Conversely, structure actual spousal maintenance as a property settlement, and the recipient might lose crucial protections if their circumstances change.

A Tale of Two Tiers: Fenlon v. Fenlon

The complexity and consequences of this confusion became starkly apparent in the case of Fenlon* v. Fenlon*. This wasn’t a simple divorce where one spouse paid the other a straightforward monthly maintenance amount. Instead, the Fenlons had negotiated what seemed like a sophisticated two-tiered spousal maintenance structure that would provide Mrs. Fenlon with both basic support and additional income if her husband’s earnings increased significantly.

The Fenlons’ agreement divided spousal maintenance into two distinct components. Tier 1 provided spousal maintenance in a set amount—traditional monthly support designed to meet Mrs. Fenlon’s basic needs. Tier 2 provided additional spousal maintenance calculated as a percentage of Mr. Fenlon’s income over a certain threshold—essentially giving Mrs. Fenlon a share in any significant increase in her ex-husband’s earnings.

From Mrs. Fenlon’s perspective, this arrangement probably felt like comprehensive protection. The tier 1 payments would cover her essential expenses, while the tier 2 payments would ensure she shared in her ex-husband’s future success. She likely viewed both components as spousal maintenance, providing her with ongoing financial security that could be adjusted if her needs changed.

Mr. Fenlon probably saw the arrangement differently. The tier 1 payments represented his obligation to support his ex-wife’s reasonable needs. The tier 2 payments might have seemed like a way to share future prosperity—perhaps a compromise that allowed him to keep more of his current income in exchange for a percentage of future earnings above a certain level.

Both parties likely believed they understood their agreement. They were both wrong about the legal implications.

When Courts Look Beyond Labels

Years after their divorce, Mr. Fenlon’s circumstances changed, and he petitioned the court to modify his spousal maintenance obligations. This is where the Fenlons discovered that the legal system cares more about substance than labels. The trial court’s initial response seemed straightforward: it eliminated the tier 2 spousal maintenance because tier 1 spousal maintenance, as modified, met the wife’s reduced needs.

Mrs. Fenlon probably felt devastated. Not only had her tier 1 maintenance been reduced due to her supposedly “reduced needs,” but now she was losing the tier 2 payments entirely. What she thought was permanent financial protection was evaporating in a single court ruling.

However, the Minnesota Court of Appeals saw the situation differently. In a decision that would reshape how the Fenlons—and many other Minnesota couples—understood their divorce settlements, the court examined the true nature of the tier 2 payments.

The Court of Appeals found that “the true nature of the tier 2 spousal maintenance was a property award, and therefore, it could not be modified.” Fenlon v. Fenlon, No. A16-2026, 2017 WL 3863844 (Minn. Ct. App. Sept. 5, 2017). This ruling completely transformed the financial landscape of the Fenlons’ post-divorce relationship.

The Legal Test: Function Over Form

The Fenlon decision illustrates a crucial principle in Minnesota divorce law: courts will examine the true nature and function of financial arrangements regardless of how they’re labeled. The tier 2 payments weren’t really spousal maintenance designed to meet Mrs. Fenlon’s ongoing needs—they were a mechanism for dividing Mr. Fenlon’s future income as part of the property settlement.

This distinction had enormous practical consequences. As spousal maintenance, the tier 2 payments could be modified or eliminated if circumstances changed. As a property award, they became a permanent obligation that Mr. Fenlon could not escape regardless of future circumstances.

The court’s analysis focused on the purpose and structure of the payments rather than their label. The tier 2 payments weren’t calculated based on Mrs. Fenlon’s needs or Mr. Fenlon’s ability to pay—the traditional factors for spousal maintenance. Instead, they were a percentage of income above a threshold, functioning more like a revenue-sharing agreement or a division of future earnings.

From Mr. Fenlon’s perspective, this recharacterization was probably both surprising and financially devastating. What he thought was modifiable spousal maintenance that might decrease or end if circumstances changed was now a permanent property obligation. His attempt to reduce his financial obligations had backfired spectacularly.

For Mrs. Fenlon, the appellate court’s decision was a financial lifeline. While she had lost at the trial court level, the appeals court’s recharacterization of the tier 2 payments as property meant she would continue receiving them regardless of changes in her needs or circumstances.

The Broader Implications: Why Characterization Matters

The Fenlon case demonstrates several critical principles that affect how Minnesota courts analyze complex financial arrangements in divorce:

Courts prioritize substance over form. No matter how you label payments in your divorce agreement, courts will examine their actual purpose and function. If payments are designed to divide property rather than meet ongoing needs, they’ll be treated as property division regardless of what you call them.

Property divisions are generally permanent. Once a court determines that payments represent property division rather than spousal maintenance, those payments typically cannot be modified even if circumstances change dramatically. This permanence can be either a benefit or a burden, depending on your situation.

Spousal maintenance modifications require actual need and ability to pay. Traditional spousal maintenance can be modified when circumstances change substantially, but only if the modification serves the underlying purposes of spousal support—meeting reasonable needs based on ability to pay.

Hybrid arrangements create interpretive challenges. When divorce settlements blend elements of property division and spousal maintenance, courts must determine which legal framework applies. This analysis can produce results that neither party anticipated.

Strategic Considerations for Complex Settlements

The Fenlon case offers important lessons for couples negotiating sophisticated divorce settlements:

Be intentional about characterization. If you want payments to be modifiable spousal maintenance, structure them based on needs and ability to pay. If you want them to be permanent property division, make that clear in both the structure and documentation.

Consider tax implications carefully. While it’s tempting to structure property settlements as spousal maintenance for tax advantages, remember that this choice affects modifiability. Sometimes property settlements are structured as spousal maintenance for tax or security reasons, but this strategy carries the risk that courts might later treat the payments according to their label rather than their intended function.

Document your intent clearly. In these instances, a carefully drafted waiver may clarify the parties’ intent. If you’re creating hybrid arrangements, make sure your documentation explains the purpose of each component and whether you intend for them to be modifiable or permanent.

Plan for future disputes. Complex financial arrangements are more likely to generate future litigation. Consider whether the benefits of sophisticated structures outweigh the risks of later disputes about characterization.

Protecting Yourself from Characterization Problems

To avoid the problems that plagued the Fenlons, consider these protective strategies:

Match structure to purpose. If you’re dividing property, use property division mechanisms. If you’re providing spousal support, use spousal maintenance structures. Avoid hybrid approaches unless you’re prepared for interpretive challenges.

Be explicit about modifiability. State clearly whether each component of your financial arrangement is intended to be modifiable or permanent. Don’t leave courts to guess about your intentions.

Consider separate agreements. Instead of combining property division and spousal maintenance in complex formulas, consider separate agreements that clearly distinguish between these different types of financial obligations.

Plan for changed circumstances. Think about how your arrangement will work if incomes change, needs change, or other circumstances evolve. Make sure your intended results align with the legal framework you’re using.

The Role of Minnesota Statutes § 518.552

Minnesota’s spousal maintenance statute, § 518.552, provides the framework for determining when maintenance is appropriate and how it can be modified. This statute focuses on factors like the recipient’s needs, the payor’s ability to pay, and the standard of living during marriage. When courts analyze whether payments are truly spousal maintenance, they examine whether the payments serve these statutory purposes.

Property settlements, by contrast, are governed by different statutory provisions that focus on dividing marital assets equitably. The different legal frameworks mean that characterization determines not only modifiability but also the standards courts apply when reviewing these arrangements.

Moving Forward with Clarity

The confusion between spousal maintenance and property settlement isn’t just an academic legal distinction—it’s a practical reality that can affect your financial security for decades. The Fenlon case shows how this confusion can lead to years of expensive litigation and unexpected results for both parties.

The key is intentionality in both structure and documentation. Before agreeing to complex financial arrangements, understand whether you’re creating spousal maintenance, property division, or some hybrid structure. Make sure your documentation reflects your actual intentions and consider the long-term implications of each choice.

Remember that while sophisticated financial structures can provide tax advantages and security benefits, they also create interpretive challenges that simpler arrangements avoid. Sometimes the best approach is the clearest approach—one that leaves no doubt about whether payments are modifiable spousal maintenance or permanent property division.

The Fenlons learned this lesson through expensive litigation and years of uncertainty. By understanding the distinction between spousal maintenance and property settlement from the beginning, you can structure your divorce settlement to achieve your actual goals while avoiding the pitfalls that have trapped other couples in similar situations.

📚 Citations

• Fenlon v. Fenlon, No. A16-2026, 2017 WL 3863844 (Minn. Ct. App. Sept. 5, 2017) (holding that tier 2 spousal maintenance structured as a percentage of husband’s income above a threshold was actually a property award and therefore not modifiable, despite being labeled as spousal maintenance)
• Minnesota Statutes § 518.552 (2025) (governing spousal maintenance awards, modifications, and the factors courts consider when determining appropriate maintenance arrangements)

*The identities of these parties and facts of their matter were publicly published and thus not confidential. While the case holdings and statutory references are accurate, creative liberty has been imposed for the emotional portrayal of the parties.