This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2000).
STATE OF MINNESOTA
IN COURT OF APPEALS
In Re the Marriage of:
Steven C. Leverington, petitioner,
Paula K. Leverington,
n/k/a Paula K. Edgerton,
County of Dakota,
Filed March 27, 2001
Dakota County District Court
File No. F6-98-13394
Kathryn A. Graves, Katz & Manka, Ltd., 4150 U.S. Bank Place, 601 Second Avenue South, Minneapolis, MN 55402 (for appellant)
Paula K. Leverington n/k/a Paula K. Edgerton, 1212 – 131st Street East, Burnsville, MN 55337 (respondent pro se)
Considered and decided by Crippen, Presiding Judge, Harten, Judge, and Hanson, Judge.
Appellant-father challenges a child support magistrate’s order increasing his support obligation. He alleges that: (1) the magistrate overstated his income by including undistributed interest earned by a subchapter S corporation and distributions that were intended solely to enable appellant to repay a personal debt he had incurred for the benefit of the corporation; (2) the magistrate understated the amount of time he spends with the children for purposes of the Valento child-support formula; (3) the magistrate misapplied the Valento formula; and (4) the district court abused its discretion by affirming the magistrate’s decision without considering a transcript of the hearing. Appellant also moves to strike respondent’s pro se brief and seeks from respondent reimbursement for attorney fees incurred in bringing this motion. We affirm the magistrate’s order, grant appellant’s motion to strike and deny appellant’s motion for reimbursement.
Appellant Steven Leverington and respondent Paula Edgerton were divorced in May 1998. They agreed on joint legal and physical custody of their four children, with an initial parenting schedule providing that Leverington was the primary custodian until Edgerton found suitable housing. In January 1999, the parties stipulated to an Order to Amend Judgment, based on a revised child-support and custody agreement, whereby Leverington would pay $650 per month in child support and the children would be with Leverington every other weekend and two evenings per week and with Edgerton the remaining time.
In March of 2000, Edgerton sought an order for modification of child support, alleging an increase in her expenses, an increase in Leverington’s income, and a reduction in the amount of the scheduled time he was spending with his children. Based on its finding that Leverington’s income had increased substantially, the child support magistrate determined that his monthly obligation would be $1,653 under the guidelines provided by Minn. Stat. § 518.551, subd. 5 (2000), as interpreted by Valento v. Valento, 385 N.W.2d 860 (Minn. App. 1986), review denied (Minn. June 30, 1986). After crediting Leverington with the $350 paid monthly for spousal maintenance (which the parties had treated as a credit against child support in their earlier stipulation), the magistrate exercised its discretion to reduce guideline child support further to $1,090, based on factors concerning Leverington’s ability to pay. This resulted in an increase in monthly child support of $440 ($1,090 vs. $650). The district court subsequently denied Leverington’s motion for review. This appeal followed.
We will reverse a district court order to modify child support only if “the court abused its broad discretion by making a clearly erroneous conclusion that is against the logic and the facts on [the] record.” Gully v. Gully, 599 N.W.2d 814, 820 (Minn. 1999) (quotation omitted). A similar standard applies upon review of a magistrate’s decision. Brazinsky v. Brazinsky, 610 N.W.2d 707, 710 (Minn. App. 2000).
The magistrate found that Leverington had a net yearly income of $65,450. Leverington contends that the magistrate made three distinct errors in arriving at this figure: (1) that $9,417 in interest on a money-market account held by the subchapter S corporation of which he was a shareholder was not distributed to him and thus was not income for child-support purposes; (2) that the magistrate’s deduction of only $7,200 of the $12,000 that the corporation distributed to him to make payments on a business loan that he had taken out on the corporation’s behalf failed to recognize his obligation to pay income taxes on the $12,000; and (3) that the magistrate erred in subtracting the 1999 maximum social-security deduction of $4,501 instead of the 2000 maximum social security deduction of $4,724.
For the purpose of determining a child-support obligation, the legislature has defined income as
any form of periodic payment to an individual including, but not limited to, wages, salaries, payments to an independent contractor, workers’ compensation, unemployment benefits, annuity, military and naval retirement, pension and disability payments.
Minn. Stat. § 518.54, subd. 6 (2000). The designation of a particular source of funds as income for child-support purposes is a question of law to be reviewed de novo. Sherburne County Soc. Servs. v. Riedle, 481 N.W.2d 111, 112 (Minn. App. 1992).
1. Interest Income
Leverington owns a one-third share in a construction company that has elected S corporation status under 26 U.S.C. § 1362 (a) (1994). Thus, Leverington and his fellow shareholders have tax liability for the company’s earnings regardless of whether it distributes any dividends.
The magistrate did not include Leverington’s share of the corporate profits in his net income, recognizing that the only distribution he received from these profits was an amount sufficient to satisfy his tax liability. However, the magistrate included $9,417 in Leverington’s net income as his share of interest the corporation earned on a money-market account it was required to maintain for bonding purposes.
There is no definitive treatment of S corporation income for child-support purposes under Minnesota case law. Compare Roth v. Roth, 406 N.W.2d 77, 79 (Minn. App. 1987) (finding error where the trial court failed to include profits from S corporation in which obligor was sole officer and shareholder) with Marx v. Marx, 409 N.W.2d 526, 529 (Minn. App. 1987) (affirming trial court’s decision to exclude income from three S corporations in which obligor was involved). Obviously, the level of control of the operations of an S corporation may provide the shareholder an opportunity to manipulate personal income. Also, profits left with the corporation do benefit the shareholders by increasing the value of their ownership interest. Ultimately, the court must ascertain the obligor’s ability to pay child support, whether that is best assessed by taxable income, cash flow or some combination of the two. Id. The court’s decision should be affirmed so long as it has a reasonable basis in fact. Strauch v. Strauch, 401 N.W.2d 444, 448 (Minn. App. 1987) (citations omitted).
The magistrate’s recognition of the corporation’s interest income, while excluding other profits of the S corporation, does have a reasonable basis in fact. The interest income is derived from funds borrowed by Leverington and transferred to the corporation to support its bonding capacity. While the principal amount must remain with the corporation as ongoing support for the bond, the interest need not. The magistrate’s explanation, that it would be “unfair” to exclude this interest income, when it was already excluding extra salary paid to Leverington for repayment of the loan, was not clearly erroneous.
2. Business Loan
Leverington took out a personal loan of $50,000 and transferred these funds to the corporation to increase its bonding capacity. The corporation increased Leverington’s annual salary by $12,000 in August of 1999 to facilitate his repayment of the loan. The child support magistrate deducted $7,200 of the salary increase in recognition of the $600 monthly loan payments. Leverington argues that this amount does not consider the portion of the salary intended to cover the increase in Leverington’s personal income tax as a result of the reimbursement. However, the magistrate did separately deduct the income taxes withheld by the corporation from Leverington’s salary. This approach was not clearly erroneous.
3. Social Security Deduction
Leverington argues that the child support magistrate erred in using the 1999 maximum social-security withholding of $4,501 in calculating his net income rather than the 2000 figure of $4,724. He cites no authority for support of this claim, but merely states that the latter figure is currently being withheld from his income. The child support magistrate states in its findings of fact that it based its calculation of Leverington’s net income on a variety of specific findings and his 1999 tax return. The magistrate’s calculation is based on a retrospective analysis and is required by this court only to have a reasonable basis in fact. Strauch, 401 N.W.2d at 448. We find that the standard is satisfied, particularly where the claim of unreasonableness effects less than $19 in monthly income and less than $3.50 in child support.
B. Determination of Appellant’s Custodial Time
Leverington contends that the child support magistrate committed clear error in finding that he was spending less time with his children than was contemplated by the dissolution decree. The magistrate used the figure of 23% to compute his child-support obligation under Minn. Stat. § 518.551, subd. 5(b) (2000), and the formula provided by Valento v. Valento, 385 N.W.2d 860, review denied (Minn. June 30, 1986). (Minn. App. 1986). The magistrate based its finding on the conflicting testimony presented at the child-support modification hearing. Leverington does not contest the magistrate’s computation of the percentage but takes issue with the factual determination that he was no longer spending one night per week with his children. Because the magistrate’s finding is the product of its assessment of the credibility of competing witnesses, we defer to its discretion. Minn. R. Civ. P. 52.01.
C. Application of Valento Formula
Leverington argues that the magistrate abused its discretion by applying the Valento formula to modify his child-support obligation because the parties had stipulated to a child-support amount in the amended dissolution decree that was not based on the Valento formula. The existence of a prior stipulation does not prevent modification where a substantial change in circumstances exists. Miller v. Miller, 415 N.W.2d 920, 923 (Minn. App. 1987). Once the magistrate determines that a change in circumstances justifies modification of a child-support stipulation, the Valento formula should be used in cases of joint physical custody. Rogers v. Rogers, ___ N.W.2d ___, 2001 WL 225001, at * 2 (Minn. March 8, 2001).
In applying the Valento formula the magistrate benefited Leverington in two respects. First, it made a downward departure from guidelines based on factors concerning Leverington’s ability to pay. Second, it credited the $350 spousal maintenance against the guideline amount, setting child support at $1,090. We affirm the magistrate’s child-support determination.
D. Denial of Appellant’s Motion for Review
Leverington argues that the district court abused its discretion by failing to consider the transcript of the child-support modification hearing in ruling on his motion for review. In reviewing a magistrate’s child-support order, the district court must base its decision on the court file, but a transcript of the hearing is not required. Minn. R. Gen. Pract. 372.05, subds. 3 and 5. Therefore, the district court did not abuse its discretion in failing to consider the transcript.
E. Appellant’s Motion to Strike
Leverington requests that respondent’s brief and attachments be stricken, contending that they refer to matters outside the record on appeal contrary to Minn. R. Civ. App. P. 110.01. See Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988) (appellate court may not base its decision on matters outside record on appeal and may not consider matters not produced and received in evidence below). Because Edgerton’s pro se brief consists entirely of extra-record arguments and evidence, we grant Leverington’s motion to strike.
Leverington also seeks attorney fees of $300 for his efforts in bringing this motion pursuant to Minn. Stat. § 518.14 (2000). In order to receive an award of attorney fees under the statute, the court must find “that the party to whom fees, costs, and disbursements are awarded does not have the means to pay them.” Id., subd. 1(3). Because Leverington has offered no evidence of his inability to pay his attorney to bring the motion, we deny his request for attorney fees.
Affirmed. Motion granted in part and denied in part.