Opinion
No. C2-00-1977.
Filed June 22, 2001.
Appeal from the District Court, Stearns County, File No. F1-95-274.
Cynthia D. Stricker, (for respondent)
Paul W. Rogosheske, (for appellant)
Considered and decided by Willis, Presiding Judge, Klaphake, Judge, and Amundson, Judge.
UNPUBLISHED OPINION
Appellant father challenges the denial of his motion to modify his child-support obligation based on an alleged decrease in his income.
We affirm.
FACTS
Harry Burns and Margaret Lynch were divorced in December 1995. Under the judgment and decree, the parties were awarded joint legal and physical custody of their three minor children. Burns, who is self-employed and the sole shareholder of his law firm, was ordered to pay child-support of $1,864 per month, based on a gross annual income of $110,000, including a salary of $74,000 and personal expenses paid by the firm of approximately $36,000 per year. The parties stipulated to a visitation schedule, to which they have adhered since 1995. The judgment and decree provided that child-support payments be made 12 months per year regardless of the residential location of the children.
In 1998, Burns moved to modify his child-support obligation based on decreased income from his law firm. Both his motion and a subsequent motion for amended findings were denied.
Appellant appealed the order to this court, and we held that including $36,000 of appellant's personal expenses paid by the law firm as current income was not error; appellant had unjustifiably self-limited his income; and the method used to calculate a decrease in the firm's costs was erroneous. Accordingly, we reversed and remanded for a hearing to update the parties' income and expenses and for a decision on the motion based on the parties' current financial circumstances. Lynch v. Burns , No. C9-99-821 (Minn.App. Dec. 28, 1999).
After a hearing, on remand, involving the parties' income and expenses, a child-support magistrate (CSM) denied the appellant's request to modify the child-support order, finding that he had failed to demonstrate by a preponderance of the evidence that his monthly income, or ability to earn income, was substantially different from the time of the 1995 order. The CSM further determined that the circumstances of the business had not changed substantially, because the firm's 1999 financial statements showed net income from operations as $18,988.04, as compared to financial statements for 1995, which revealed net income from operations as $18,674.10. The CSM noted that the firm had paid Burns's personal expenses on an ongoing basis and maintained a loan note on its books payable to "officer," when Burns was the sole officer and shareholder of the firm.
The CSM determined that since Burns was in a unique position to manipulate his income and expense reports to his advantage, it was impracticable to determine his actual income. Further, his income was unjustifiably self-limited, because the salary of others in his firm had increased, while he had maintained his income at the same level. Because he had undiminished earning capacity, he was voluntarily underemployed.
The CSM also deemed it inappropriate to make a Hortis-Valento calculation of child-support, because the circumstances of the custody arrangement remained unchanged and the original settlement agreement specified that child-support would not be based on the residence schedule of the children.
The district court affirmed the CSM's findings of fact, conclusions of law, and order for judgment. This appeal followed.
DECISION
The decision to modify a child-support order lies in the broad and sound discretion of the trial court and will be reversed only for a clearly erroneous conclusion that goes against logic and the facts on record. Rutten v. Rutten, 347 N.W.2d 47, 50 (Minn. 1984). Findings of fact will not be set aside unless clearly erroneous. Minn.R.Civ.P. 52.01.
Burns first argues that the district court erred by failing to make a specific determination as to his present income, instead finding that it was impracticable to determine his actual income. He cites his business financial statements, which show a decrease in gross revenues, and his individual income-tax returns, which show a decrease in his salary, to allege he satisfied his burden of proving a substantial change in circumstances. He contends that his testimony and the affidavit of his accountant support only a small sum in personal expenses paid by his law firm.
An existing award for child-support may be modified upon a showing of "substantially increased or decreased earnings of a party * * * which makes the terms unreasonable and unfair." Minn. Stat. § 518.64, subd. 2(a) (2000). The party seeking modification of support must, first, demonstrate that a substantial change in circumstances has occurred, and, second, show that the substantial change has rendered the original award unreasonable and unfair. See Kuronen v. Kuronen, 499 N.W.2d 51, 53 (Minn.App. 1993), review denied (Minn. June 22, 1993). A calculation of net income will not be disturbed on appeal as long as it has a reasonable basis in fact. Borcherding v. Borcherding , 566 N.W.2d 90, 93 (Minn.App. 1997).
Here, the testimony from both parties and the financial records of Burns's law firm showed virtually the same net income from operations as in 1995, the year of the original child-support order. Appellant's financial statements for the first two months of 2000 showed that the firm's net operating income in those two months was greater than that for the whole previous year. Thus, the conclusion that there was no substantial reduction in appellant's net income had a reasonable basis in the evidence presented at the hearing.
The district court also did not err in using Burns's earning capacity as a basis for reviewing his ability to pay child-support. A trial court may properly consider earning capacity to determine a party's ability to comply with a child-support order. LeTendre v. LeTendre, 388 N.W.2d 412, 416 (Minn.App. 1986). It is not an abuse of discretion to use earning capacity to measure income either if it is impracticable to determine an obligor's actual income, or if the obligor's income is unjustifiably self-limited. Fulmer v. Fulmer, 594 N.W.2d 210, 213 (Minn.App. 1999).
The financial information submitted in this case supports the conclusion that appellant was unjustifiably self-limiting his income. In 1998, Burns temporarily reduced the salaries of other staff members, but kept only his own salary at a reduced level, while the firm continued to pay for a number of his personal expenses, including utility bills for his homestead, a vehicle used in part for personal use, and yearly Caribbean vacations. The firm also carried an outstanding note of nearly $6,000 payable to "officer" when Burns was the sole officer and shareholder of the firm. Under these circumstances, the district court did not err in using appellant's earning capacity to measure his ability to pay child support. Therefore, the district court did not abuse its discretion by holding that appellant had failed to sustain his burden of showing a substantial change of circumstances.
Burns also argues that because the parties share joint custody of their minor children, the Hortis-Valento formula should be applied to recalculate his child-support obligation so that he does not pay child-support for the time that the children are in his custody. See Hortis v. Hortis, 367 N.W.2d 633, 635 (Minn.App. 1985); Valento v. Valento, 385 N.W.2d 860, 863 (Minn.App. 1986), review denied (Minn. June 30, 1986). The trial court may not vary the mandate of the appellate court or decide issues beyond those remanded. See In Re Estate of Boysen, 351 N.W.2d 398, 400 (Minn.App. 1984), Sefkow v. Sefkow, 427 N.W.2d 203, 213 (Minn. 1988). Burns failed to raise the Hortis/Valento issue in his first appeal, and this court expressly limited the scope of the remand to the parties' financial circumstances. Therefore, the district court properly declined to make a Hortis-Valento calculation in the instant case.
We also note that the parties' 1995 divorce decree provides that the child-support payments "shall be made 12 months each year regardless of the residential location of the minor children." Where the language of a stipulated judgment is plain and unambiguous, there is no room for construction. Starr v. Starr, 312 Minn. 561, 562-3, 251 N.W.2d 341, 342 (1977). The stipulated agreement here was unambiguous: Burns's obligation to pay child-support did not depend on the residence of the minor children. Further, it was undisputed that the physical-custody arrangement had not changed since 1995.