Opinion
No. 04-0346.
March 31, 2005.
Appeal from the Iowa District Court for Polk County, Michael D. Huppert, Judge.
Paul Vanden Brink appeals the trial court's denial of his petition for modification of the alimony provisions of the dissolution decree dissolving his marriage to Diana Vanden Brink. REVERSED IN PART AND AFFIRMED IN PART ON APPEAL; AFFIRMED ON CROSS-APPEAL.
Todd Elverson of Elverson, Vasey Peterson, L.L.P., Des Moines, for appellant.
John Vernon of Dickinson, Mackaman, Tyler Hagen, P.C., Des Moines, for appellee.
Heard by Huitink, P.J., and Miller and Eisenhauer, JJ.
Decisions without published opinions. Reversed in part and Affirmed in part on Appeal; Affirmed on Cross-Appeal.
Paul Vanden Brink appeals the trial court's denial of his petition for modification of the alimony provisions of the dissolution decree dissolving his marriage to Diana Vanden Brink. He contends the court erred in failing to decrease his alimony obligation to Diana and abused its discretion in not awarding him trial attorney fees. Diana cross-appeals contending the court abused its discretion in failing to award her trial attorney fees. Both parties seek appellate attorney fees. We reverse in part and affirm in part on the appeal and affirm on the cross-appeal.
I. BACKGROUND FACTS AND PROCEEDINGS.
Paul and Diana Vanden Brink were married on November 24, 1980. Diana filed a petition for dissolution on December 6, 1999, and, following trial, the district court entered a decree of dissolution on October 5, 2001. At the time the original decree was entered Paul was a partner at the accounting firm of Meriwether Wilson and Company (MWC), where he earned a base salary of $162,000 per year plus a year-end profit distribution. During the dissolution trial there was an indication that the largest client at MWC attributable to Paul, Ryko Manufacturing (Ryko), was likely to leave MWC for another accounting firm.
The dissolution decree ordered, in relevant part, that Paul pay Diana alimony in the amount of $5,750 per month, with that amount to increase by $1,000 per month once Paul was no longer responsible for child support, and to be reduced by one and one-half times Diana's monthly social security benefit when she reached full retirement age and began receiving social security benefits. In addition, Paul was ordered to pay twenty-five percent of his gross year-end profit distributions as alimony, beginning with the distribution paid by MWC for its fiscal year ending March 31, 2002.
Paul appealed the property division, alimony, and attorney fees provisions of the decree to this court on November 2, 2001. Ryko then did in fact leave MWC in November 2002. As a result of losing Ryko, Paul's monthly base salary was reduced from $13,500 to $10,500. His efforts at replacing the revenue lost by Ryko's departure (approximately 460 hours of work per year) were unsuccessful. On January 14, 2003, Paul filed an application for limited remand with this court seeking modification of his alimony based on the decrease in his income from the loss of Ryko as a client. Approximately two weeks later, in January of 2003, Paul was informed that the partners of MWC had unanimously voted to terminate him as a partner with the firm effective March 31, 2003.
Paul was also diagnosed with a brain tumor in August of 2002 which required medical treatment and time away from his work. However, both parties agree this was not a factor in the decision to terminate his employment or regarding any claim of reduced earning capacity or income.
On June 13, 2003, this court entered its decision on appeal. We reduced Paul's alimony obligation by eliminating the increase the trial court had ordered to take effect when his child support obligation ended, and by eliminating the requirement that he pay as additional alimony twenty-five percent of his gross year-end profit distributions. In re Marriage of Vanden Brink, No. 2-857/01-1790 (Iowa Ct.App. June 13, 2003). His alimony obligation of $5,750 per month was kept in place, however we reduced it to $3,500 per month when Paul reaches age sixty-three, and $1,000 per month when he reaches age sixty-five. Id. In doing so we stated that although alimony at these levels would "not be sufficient to sustain Diana, she is college-educated, and her good health will allow her to contribute significantly to her own support." Id.
Presumably we meant not sufficient to sustain Diana "at a standard of living reasonably comparable to that enjoyed during the marriage," see Iowa Code § 598.21(3)(f) (2003), rather than meaning she could not sustain herself on alimony of $5,750 or $3,500 per month.
Paul filed the present petition for modification on June 19, 2003, asserting his alimony obligation should be decreased due to the material and substantial change in circumstances of losing his job at MWC and the significant decrease in his income and resources which resulted. Hearing was held on his petition January 7-8, 2004.
Paul was fifty-three years of age at the time of the modification hearing. His income from MWC for fiscal year ending March 31, 2003, including year-end profit distribution, was approximately $224,000. His income from MWC for the four fiscal years ending March 31, 2003, including year-end profit distributions, had averaged approximately $220,000. Paul testified at the modification hearing that after losing his employment with MWC at the end of March 2003 he decided to start his own accounting firm. He was allowed to contact his former clients at MWC and he was able to convince some of them to go with him. Taking into account the fact two of the clients Paul took with him had merged, he estimated the annual revenue from the clients that went with him had been approximately $151,000. Paul testified part of the reason he decided to start his own firm was because he did not believe this amount of business would be attractive to another accounting firm and thus starting his own firm was his best long-term option at that point in his career.
Paul had practiced in a two-person accounting partnership for many years before his partner retired and Paul joined MWC in 1998.
Part of the incentive Paul offered the clients to go with him, and hoped would attract new clients, was use of a "fixed price agreement" rather than billing on an hourly basis as MWC did. While some of these agreements resulted in approximately the same charges as before, many of the clients received considerable discounts as a result of the fixed price agreements. Paul estimated that his gross revenue from the clients he had retained for 2004 would be approximately $125,000, plus approximately $10,000 in special projects. After deducting the operating expenses he claimed he would incur in running his own business, Paul estimated his earnings for 2004 would be approximately $58,500. He expects those earnings to rise to approximately $130,000 by his third year on his own. However, he does not anticipate ever being able to achieve the equivalent of the $224,000 he was earning at MWC when he left because he does not have the same quality and type of clients he had at the larger firm, such as Ryko.
In arriving at estimated earnings of $58,500 for 2004 Paul deducted from estimated gross revenue certain amounts and items which the evidence shows are probably not appropriate deductions. He deducted $1,500 for "peer review." The evidence shows this expense generally is incurred only every third year. He deducted $15,492 and $1,582 for one-year loan amortizations, and deducted $9,883 for twelve payments on a vehicle loan. The evidence shows that such loans are neither income when received nor an expense when repaid. Paul deducted $2,912 as amortization, over a three-year period, of "hardware" expense. The evidence shows that tax guidelines normally require hardware to be amortized over five years. These items thus involve arguably excessive expense deductions totaling about $29,000. Assuming appropriate adjustments should be made, it appears Paul's estimated earnings for 2004 would be approximately $87,500.
Because of MWC's loss of Ryko and the other clients that Paul took with him when he left, his "equity points" at MWC were tentatively reduced from $369,487 to $171,807. Under his agreement with MWC, Paul was to receive ninety percent of this latter figure, $154,623, payable over ten years without interest. He also received his capital account, valued at approximately $40,000, to be paid to him in twelve monthly installments without interest, the last of which was to be paid in March 2004. Paul had been awarded both his equity points, then valued at $300,000, and his capital account as part of the property division in the dissolution of the parties' marriage.
The reduction was based in part on an assumption Paul was taking $165,000 of client business with him. If MWC accepted Paul's estimate of $151,000 of client business it appears the reduction would be $14,000 less.
Diana was fifty-five years old at the time of the modification hearing. She is college educated and was a real estate agent for several years but gave up her career after the birth to the parties' first child, Ryan, in 1981. After Ryan's birth she was not employed outside the home during the remainder of the marriage and became their children's primary caretaker. Diana is in good health. Although she does have glaucoma both parties agree it does not affect her ability to work. After the dissolution she worked at an optometrist's office from January to September 2003, earning $10.50 per hour. She then began working for a temporary agency in October 2003 and was still doing so at the time of the modification hearing in January 2004, earning between $9.00 and $12.00 per hour when she is employed. She would like to obtain a full-time job with benefits but had not done so at the time of the hearing.
The district court issued a written ruling on February 4, 2004, denying Paul's petition for modification. The court concluded that Paul's termination from MWC was not contemplated by the court when his alimony obligation was set, and that his termination from MWC was not self-inflicted or motivated by a desire to deprive Diana of the alimony he had been ordered to pay. However, the court concluded that Paul failed to meet his burden to prove that his claimed loss of earning capacity since losing his employment at MWC and beginning his own firm is permanent or continuous, and not merely a temporary interruption. The court stated that Paul was earning "well below what he is capable of" and it was "unwilling to conclude from the record before it that [Paul] will be unable to earn an income consistent with the capacity upon which his alimony obligation was calculated." The court also denied each party's request that the other be responsible for their trial attorney fees.
Paul appeals from the district court's denial of his petition for modification. He contends the court erred in failing to decrease his alimony obligation based on his substantial change in circumstances and abused its discretion in not awarding him attorney fees. He further argues that the modification should be effective as of January 14, 2003, when he first invoked the power of the court by filing an application for limited remand with this court. Diana cross-appeals, contending the court abused its discretion in failing to award her trial attorney fees. Both parties seek appellate attorney fees.
II. SCOPE AND STANDARDS OF REVIEW.
This action for modification of a dissolution of marriage decree is an equity case. See Iowa Code § 598.3 (2003) ("An action for dissolution of marriage shall be by equitable proceedings. . . ."); Id. § 598.21 (providing for modification of orders for disposition and support when there is a substantial change in circumstances). Our review is thus de novo. Iowa R. App. P. 6.4. We give weight to the fact findings of the trial court, especially when considering the credibility of witnesses, but are not bound by them. Iowa R. App. P. 6.14(6)( g). This is because the trial court has a firsthand opportunity to hear the evidence and view the witnesses. In re Marriage of Will, 489 N.W.2d 394, 397 (Iowa 1992).
III. MERITS.
A. Alimony.
Iowa Code section 589.21(8) allows modification of an alimony award "when there is a substantial change in circumstances." This provision further states: "In determining whether there is a substantial change in circumstances, the court shall consider" a number of specifically listed factors. The principal factor relevant here is "[c]hanges in the employment, earning capacity, income or resources of a party." Iowa Code § 598.21(8)(a).
A party seeking modification of a dissolution decree must establish by a preponderance of the evidence that there has been a substantial change in circumstances of the parties since the entry of the decree or of any subsequent intervening proceeding that considered the situation of the parties upon application for the same relief. Other well-established principles govern modification: (1) not every change in circumstances is sufficient; (2) it must appear that the continued enforcement of the decree would, as a result of the changed circumstances, result in positive wrong or injustice; (3) the change in circumstances must be permanent or continuous rather than temporary; and (4) the change in circumstances must not have been within the contemplation of the district court when the original decree was entered.
In re Marriage of Maher, 596 N.W.2d 561, 564-65 (Iowa 1999) (citations omitted).
We agree with the district court that, although the loss of Ryko as a client was probably contemplated by the court when the decree was entered and certainly was considered by this court when it modified Paul's alimony obligation as set in the decree, Paul's loss of employment at MWC was not contemplated by either court. Furthermore, we agree that although Paul's actions did not help his standing at MWC during the crucial time after Ryko left, the loss of his job was not self-inflicted or motivated by a desire to deprive Diana of the alimony she was awarded. However, we disagree with the district court's determinations that Paul's decrease in earning capacity, income, and resources is merely temporary and that he in fact is able to earn an income consistent with that upon which his alimony obligation was calculated but is just not performing up to his capabilities.
Paul is in the process of starting his own accounting firm, and is incurring all of the costs associated with such an enterprise. Starting his own business appears from the record, based on his age and the number of clients he could convince to leave with him when his employment at MWC was terminated, to be Paul's best chance to earn the most income possible at this point in his career. Furthermore, the fixed price agreements he offered to his clients, and the lower rates thus afforded to a substantial number of them, was perhaps the biggest incentive he could offer in order to entice them to leave the large, established firm MWC and go to Paul's newly-established, one-person firm. Thus, we disagree with the trial court's conclusion that these agreements were "nothing more than an attempt by [Paul] to artificially limit his earning capacity."
In Diana's brief she lists the amount Paul receives each year as payment for his equity points as part of his income. However, the equity points were awarded to Paul as part of the property division in the dissolution of the parties' marriage. Paul's receipt of the payments is thus merely the change in form of an asset. Further, there has been a substantial decrease in the value of this "resource" which increased in value from $300,000 at the time the parties' marriage was dissolved to $369,487 before Paul's termination from MWC and then decreased to approximately $154,623 as a result of the loss of Ryko as a client and the business that went with Paul.
Diana also points to Paul's "continued extravagant spending" since the loss of his employment at MWC as a reason that continued enforcement of the original alimony amount would not result in injustice. She points to his purchases of a new, more expensive vehicle, move to a newer townhouse at higher rent, purchase of some new furniture, and a trip to Mexico as examples of such spending. We agree that some of Paul's personal spending choices since his termination from MWC and attempting to start his own business appear to have been unwise. However, Paul purchased the vehicle before Ryko was lost as a client and some six months before he was terminated at MWC, he had rented his former townhouse at a below-market rate and moved only because his lease had expired and the owner wanted possession, his trip to Mexico had been booked and partially paid for before he knew is employment would be terminated, and the $2,391 he spent for new furniture was for bedroom furniture, which he did not have.
Paul's goal is to increase his earnings to the level he had in the accounting partnership in which he practiced before joining MWC in 1998, approximately $130,000 per year. He believes he can do so within three years of the January 2004 modification trial in this case. Thus, although his earnings may have decreased from $220,000 to about $87,500 per year, the present reduction is only partially permanent or continuous rather than temporary. We conclude any deduction in Paul's alimony obligation should be based on Paul having earnings of approximately $130,000 per year.
We reiterate this court's finding in its prior decision in Paul's appeal from the decree dissolving the parties' marriage that Diana is college educated and in good health. Thus, although alimony at the reduced rate will not be sufficient to sustain her in the lifestyle to which she is accustomed, she should be able to obtain full-time employment and contribute significantly to her own support.
Based on our de novo review of the record, we conclude the changes in Paul's employment, earning capacity, income and resources, or at the least the sizeable nature of such changes, were not within the contemplation of the district court when the original decree was entered or of this court when it modified the decree, and such changed circumstances were neither self-inflicted nor motivated by an intent to deprive Diana of her rightful alimony. In addition, at this point substantial portions of these changes appear to be more or less permanent or continuous rather than merely temporary, and it appears that the continued enforcement of the decree would, as a result of Paul's changed circumstances, result in a positive wrong or injustice to him.
We conclude that the changes in Paul's employment, earning capacity, income and resources constitute a substantial change in circumstances warranting a reduction of his alimony obligation. Paul's alimony obligation to Diana should be reduced to $3,500 per month, should decrease to $2,250 per month when he reaches age sixty-three, and should decrease to $1,000 per month when he reaches age sixty-five. However, this modification cannot be made effective as of January 14, 2003 as requested by Paul because Iowa does not permit the retroactive reduction of alimony in modification actions. In re Marriage of Bonnette, 431 N.W.2d 1, 4-5 (Iowa Ct.App. 1988). The decrease in Paul's alimony obligation will be effective as of February 4, 2004, the date the district court denied his petition for modification. See In re Marriage of Schradle, 462 N.W.2d 705, 708 (Iowa Ct.App. 1990) (holding that decision of appellate court reviewing and modifying trial court's denial of modification to reduce alimony was effective as of date of trial court's modification decree).
B. Trial Attorney Fees.
As set forth above, the district court concluded no award of attorney fees should be made to either party. Paul argues the court abused its discretion in failing to award him trial attorney fees and Diana cross-appeals arguing the court abused its discretion in not awarding her attorney fees.
An award of trial attorney fees rests in the sound discretion of the trial court and will not be disturbed on appeal in the absence of an abuse of discretion. In re Marriage of Romanelli, 570 N.W.2d 761, 765 (Iowa 1997). The court should make an attorney fee award which is fair and reasonable in light of the parties' financial positions. In re Marriage of Grady-Woods, 577 N.W.2d 851, 854 (Iowa Ct.App. 1998). We conclude the court did not abuse its considerable discretion in determining that each party has the ability to pay their own trial attorney fees.
C. Appellate Attorney Fees.
Finally, each party seeks appellate attorney fees from the other. An award of appellate attorney fees is not a matter of right but rests within our discretion. In re Marriage of Kurtt, 561 N.W.2d 385, 389 (Iowa Ct.App. 1997). We consider the needs of the party making the request, the ability of the other party to pay, and whether the party making the request was obligated to defend the trial court's decision on appeal. Id. Applying these factors to the circumstances of the parties in this action, we conclude that each party shall be responsible for their own appellate attorney fees.
IV. DISPOSITION AND CONCLUSION.
Based on our de novo review of the entire record, and for all of the reasons set forth above, we conclude there has been a substantial change in circumstances of such a nature as to justify and equitably require modification of the parties' dissolution decree to reduce Paul's alimony obligation. We reduce Paul's alimony obligation to Diana to $3,500 per month, to decrease to $2,250 per month when he reaches ages sixty-three, and to decrease to $1,000 per month when he reaches age sixty-five. The modification order herein shall be effective as of February 4, 2004. We further conclude the district court did not abuse its discretion in denying each party's request for trial attorney fees. Each party shall be responsible for their own appellate attorney fees. Costs on appeal are taxed one-half to Paul and one-half to Diana.