Marriage of Fulmer v. Fulmer

594 N.W.2d 210, 1999 Minn. App. LEXIS 528, 1999 WL 314871

Opinions

OPINION

HUSPENI,

* Judge

Appellant contests the trial court’s use of earning capacity and refusal to consider debt incurred in satisfaction of the parties’ stipulated property award in calculating spousal maintenance. Because the trial court did not abuse its discretion, we affirm.

FACTS

Appellant Don Brian Fulmer and respondent Cathy Fulmer were married in 1975 and had three children during their 20-year marriage. The parties also co-owned Dog House Boarding Kennels, Inc., which operated one boarding kennel and two retail pet stores. In December 1995, the parties entered into a partial Marriage Termination Agreement (MTA). As part of this agreement, appellant assumed approximately $480,000 in debt to pay respondent $806,000 for her share of the family'business and to satisfy outstanding marital debts. The parties also relied on a company accountant’s business appraisal to project appellant’s stipulated future earninjgs of $210,000 per year. Based on this estimation, they set respondent’s spousal maintenance award at $4,750 per month, for five years. After commencement of the dissolution trial, the parties resolved the outstanding issues of spousal maintenance, life insurance, and debts that exceeded the agreement reflected in the partial MTA. Thus, no issues remained for the court to resolve. The terms of the MTA ánd the subsequent agreement were incorporated into the dissolution decree entered in May 1996.

In December 1996, appellant moved to amend his temporary spousal maintenance based on a decrease in the business’s income. Three months later, appellant moved to reduce his child support obligations. A referee initially heard these motions and, because he found appellant’s income to be significantly less than originally projected by the parties in their MTA, ordered an evidentiary hearing before a district court judge.

During a two-day evidentiary hearing, the trial court compared appellant’s initial projected income of $210,000, which was consistent with the parties’ 1994 tax return, with (a) appellant’s 1995 federal income tax return reporting appellant’s income to be $45,901, (b) appellant’s 1996 federal income tax return reporting appellant’s income to be $93,837, and (c) a projection estimating appellant’s 1997 income to be $66,334. Based on these comparisons, the trial court concluded that appellant’s income had substantially decreased since the parties’ dissolution.

The trial court denied appellant’s motion to decrease child support, but reduced maintenance to $2,900 per month for five years.¹ The trial court based this reduction on an estimate of appellant’s earning capacity rather than evidence of appellant’s actual income. Specifically, the trial court used the 1994 corporate tax return as amended by appellant’s accountant and compared the business’s $885,370 in gross receipts with appellant’s reported gross income of $170,000.² This comparison yielded a 19% ratio of gross income to gross receipts, which the trial court applied to the business’s 1997 gross revenues of $820,000 to determine appellant’s estimated gross monthly earning capacity of $12,430. The trial court also refused to deduct appellant’s debt incurred as part of the parties’ MTA from his budget in setting the spousal maintenance award. Appellant’s motion for amended findings and conclusions was denied.

ISSUES

I. Did the trial court abuse its discretion in using earning capacity to determine appellant’s spousal maintenance obligation?

II. Did the trial court abuse its discretion in refusing to incorporate appellant’s debt into his net income in calculating spousal maintenance?

ANALYSIS

I.

The standard of review for an appeal from a maintenance award is whether the trial court abused its discretion. Erlandson v. Erlandson, 318 N.W.2d 36, 38 (Minn.1982). Before a reviewing court will find an abuse of discretion, a conclusion must be clearly erroneous and against logic and the facts on record. Rutten v. Rutten, 347 N.W.2d 47, 50 (Minn.1984). Minn.Stat. § 518.64, subd. 2(a) (1998), permits a reduction in support obligations upon a showing of a substantial decrease in a party’s earnings, that makes the original terms unreasonable or unfair. Giesner v. Giesner, 319 N.W.2d 718, 719 (Minn.1982); see also Prange v. Prange, 437 N.W.2d 69, 70 (Minn.App.1989) (noting trial courts may also modify stipulated maintenance provisions if parties’ circumstances have materially changed), revieiu denied (Minn. May 12,1989).

Trial courts may use earning capacity to measure income if it is either impracticable to determine an obligor’s actual income or the obligor’s income is unjustifiably self-limited. Warwick v. Warwick, 438 N.W.2d 673, 677 (Minn.App.1989); Beede v. Law, 400 N.W.2d 831, 835 (Minn.App.1987). Earning capacity findings are commonly used when reviewing a self-employed individual’s support obligations. Beede, 400 N.W.2d at 835; LeTendre v. LeTendre, 388 N.W.2d 412, 416 (Minn.App.1986); see also Ferguson v. Ferguson, 357 N.W.2d 104, 108 (Minn.App.1984) (stating “opportunity for a self-employed person to support himself yet report a negligible net income is too well known to require exposition”).

The trial court here, in a commendably detailed 20-page order containing 45 findings, together with two other orders and a lengthy memorandum responding to motions for amended findings, determined that appellant’s income had substantially declined. The court observed, however, that the

determination of [appellant’s] actual net self-employed income is impractical. The Court has devoted hours and hours to scouring dozens of financial documents and there is no clear picture of [appellant’s] income.

(Emphasis in original.) Nonetheless, appellant argues that the trial court abused its discretion in using estimated earning capacity rather than reported actual income to determine appellant’s spousal maintenance obligation. Because the finding that it is impractical to determine appellant’s actual net income is not clearly erroneous, we see no abuse of discretion in the district court’s use of appellant’s earning capacity.

Appellant presented the trial court with an estimated actual income of $66,334 for 1997. This figure, however, was based on unaudited financial records that contain numerous discrepancies. Although these discrepancies can be attributed to a difference in reporting between appellant’s and the company accountants’ treatment of certain items, they can also be attributed to the poor business skills of appellant, as noted by the trial court. Appellant did not keep invoices, receipts, or bills to monitor the business’s cash flow, failed to implement a system for reconciling the business’s till, and consistently used business funds to cover personal expenses without recording these expenses. Given these facts, the trial court properly concluded that determination of appellant’s actual income was impracticable. See Beede, 400 N.W.2d at 835 (noting trial court may use earning capacity to measure income if impracticable to determine actual income); see also Bollenbach v. Bollenbach, 285 Minn. 418, 428, 175 N.W.2d 148, 155 (Minn.1970) (stating failure to make full and accurate disclosure of assets and liabilities “justifies inferences adverse to the party who conceals or evades”).

The trial court conducted a painstaking review of appellant’s voluminous financial records and reached a reasonable estimated earning capacity based on appellant’s earning history. See Warwick, 438 N.W.2d at 677-78 (extending earnings history analysis to spousal maintenance obligations). The trial court did not abuse its discretion in its formulation of or decision to use earning capacity in its reduction of spousal maintenance from the original $4,750 per month. Rutten, 347 N.W.2d at 50 (noting that reviewing court may only find abuse of discretion when trial court reaches “clearly erroneous conclusion that is against logic and the facts on record”).

II.

Appellant also argues that in calculating spousal maintenance the trial court abused its discretion in failing to consider the debt appellant incurred as part of the parties’ MTA. Our review of the record convinces us that the decision of the trial court on this issue was a sound one. The parties stipulated that appellant would receive full ownership of the business, together with the ability to realize a stipulated $210,000 annual income. In exchange for this full ownership and income-producing ability, appellant was to pay respondent $306,000. The parties also stipulated that appellant would assume an existing debt to his parents in the sum of $223,116. There is nothing in the record to indicate that appellant would be able to satisfy the property award by any means other than borrowing those funds. He did so by increasing his debt to his parents by $480,-000.

The trial court, in refusing to take this new debt into account when determining appellant’s ability to pay child support and maintenance, categorized the debt as personal, not business; that it was not a debt incurred to produce income, but instead a debt incurred to fund a property award. We agree with this categorization.

We recognize that expenses incurred solely for the production of income should be considered in full when determining support and maintenance obligations. See Bartl v. Bartl, 497 N.W.2d 295, 300 (Minn.App.1993) (concluding trial court abused its discretion in refusing to credit appellant in determining his child support obligation for rental expenses related to work and incurred solely for production of income); see also Minn.Stat. § 518.551, subd. 5(d)(2) (1998). We recognize also, as did the trial court, that this debt incurred to fund the property award may, indeed, have the indirect effect of producing income for appellant. Nonetheless, the trial court’s refusal to consider indebtedness appellant incurred to satisfy a stipulated property award, when the court determined income available for support and maintenance obligations, is, we believe, consistent both with the principles of equity and with caselaw. Reversing the trial court on this issue would, we conclude, effectively permit appellant to succeed in a collateral attack on the stipulated dissolution decree. Reversal would also subject respondent to unwarranted and unintended consequences of her agreement to divest herself of one-half ownership of the parties’ business interest; recognizing appellant’s debt and reducing his available income accordingly would very probably reduce respondent’s award of spousal maintenance also, causing her to partially finance payment of her property award.

DECISION

The trial court properly considered appellant’s earning capacity rather than actual income in reducing his spousal maintenance obligations. The trial court also properly refused to consider the debt incurred by appellant in satisfaction of his stipulated property award in calculating income available for payment of support and maintenance.

Affirmed.

Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const, art. VI, § 10.

1

. The trial court increased this maintenance award to $3,100 per month in a December 29, 1997 order.

2

. The trial court reached this figure by adding officer salaries of $36,000, ordinary income of $125,899, and estimated personal expenses paid: by the business of approximately $10,-000. The trial court's estimate of $10,000 in personal expenses is based on evidence that the business paid: (1) $2,000 every summer to maintain the family swimming pool; (2) to install appellant’s home septic system and to paint appellant’s home window trim; (3) for home lawn service, snow removal, home heating propane, automobile fuel, home insurance, telephone costs, and cleaning supplies; and (4) appellant’s property taxes.