This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2002).
STATE OF MINNESOTA
IN COURT OF APPEALS
In re the
Jennifer Lee Ruehle,
f/k/a Jennifer Lee Schmitz, petitioner,
Joseph Richard Schmitz,
Filed July 27, 2004
Affirmed in part, reversed in part, and remanded
Hennepin County District Court
File No. DC 172 401
Jennifer Ruehle, 6265 Winnetka Avenue North, Brooklyn Park, Minnesota 55428 (pro se respondent)
Michele R. Wallace, MacMillan & Wallace, PLLP, 9955 – 59th Avenue North, Suite 125, Minneapolis, Minnesota 55442-1671 (for appellant)
Considered and decided by Hudson, Presiding Judge; Lansing, Judge; and Willis, Judge.
U N P U B L I S H E D O P I N I O N
In this appeal from an order modifying child support, Joseph Schmitz argues that the district court erred in calculating his net monthly income by disallowing an accelerated vehicle-depreciation deduction, a business deduction for truck expenses, and child-support payments made from his business account. Because the district court acted within its discretion in disallowing more than half of Schmitz’s depreciation, we affirm that deduction. But the record does not support the disallowance of Schmitz’s business expenses for his trucks or the treatment of child-support payments as “in-kind” income, and we reverse on those issues and remand for recalculation.
F A C T S
The April 1997 judgment dissolving Jennifer Ruehle and Joseph Schmitz’s marriage obligated Schmitz to pay Ruehle $675 a month for support of their two minor children. In 1999, in response to Schmitz’s motion to reduce his child-support obligation and stay his cost-of-living increase, the district court modified Schmitz’s obligation to $388 a month plus $54 for child-care, subject to cost-of-living increases. At the time of the 1999 order, Schmitz had an average monthly income of $1,293 and monthly living expenses of $1,005. Ruehle had a net monthly income of $2,772 and monthly living expenses of $2,134.
In May 2003 Ruehle moved to increase Schmitz’s child-support payments, alleging that Schmitz had an increased gross income of $64,934, amounting to a substantial change in circumstances that warranted modification. At the time of Ruehle’s motion, because of cost-of-living increases, Schmitz was obligated to pay $419 a month in child support plus $54 a month in child-care expenses.
Following a hearing on the motion, the magistrate found that Ruehle had a gross monthly income of $5,665 from her employment at Qwest. Schmitz is self-employed as a building contractor. The district court computed Schmitz’s income from his income on his 2002 income-tax return together with the evidence produced at the hearing.
On his 2002 tax return, Schmitz claims an adjusted gross income of $21,357 a year. Relying on the child-support statute’s method for calculating income of a self-employed obligor, the magistrate determined that two of Schmitz’s deductions on his tax return should be counted as income for child-support purposes, and the amount of child support Schmitz paid out of his business account should be considered in-kind income for purposes of calculating child support. Adding these amounts back into Schmitz’s income, the magistrate determined that, for child-support purposes, Schmitz had a net income of $36,872.60.
Based on this calculation, the magistrate found that Schmitz receives an average net monthly income of $3,072.71. The magistrate determined that Ruehle receives an average net monthly income from wages of $3,457. The magistrate further found that Schmitz’s reasonable monthly living expenses are $1,585, and Ruehle’s reasonable monthly living expenses for a household of one adult and two children are $3,804. On these calculations, the magistrate determined that Schmitz’s increased income amounted to a substantial change in circumstances warranting a modification and increased Schmitz’s child-support obligation to $921.60 a month.
The district court denied Schmitz’s request for review and approved the magistrate’s findings. Schmitz appeals, contending that the district court abused its discretion by (1) disallowing, for child-support purposes, the $10,000 Internal Revenue Service (IRS) section 179 accelerated vehicle-depreciation deduction, (2) disallowing a $5,555.60 deduction for truck expenses, and (3) finding that because Schmitz paid his $473 child-support payment out of his business account, it should be considered “in-kind” income.
D E C I S I O N
Modification of child support is within the district court’s discretion and a modification order will be reversed only when it is against logic and the facts of record. Putz v. Putz, 645 N.W.2d 343, 347 (Minn. 2002). When a magistrate’s decision is affirmed on a motion for review, that decision becomes the decision of the district court. Kilpatrick v. Kilpatrick, 673 N.W.2d 528, 530 n.2 (Minn. App. 2004); see Minn. R. Gen. Pract. 376.03 (stating “[a] motion for review may be decided either by the child support magistrate who issued the decision and order or, at the request of any party, a district court judge”). Findings of fact are upheld unless they are clearly erroneous. Gessner v. Gessner, 487 N.W.2d 921, 923 (Minn. App. 1992).
First, Schmitz acknowledges that statutory and case law permit the district court to disallow accelerated-depreciation deductions when determining income for child-support purposes, but claims that, while he may not have been entitled to the entire $10,000 deduction, he was entitled to deduct standard depreciation of his vehicles.
The child-support statute states that “[i]ncome from self-employment is equal to gross receipts minus ordinary and necessary expenses.” Minn. Stat. § 518.551, subd. 5b(f) (2002). Ordinary and necessary expenses do not include amounts allowed by the IRS for accelerated-depreciation expenses, investment tax credits, or any other business expenses determined by the court to be inappropriate for determining income for purposes of child support. Id. But total disregard of claimed depreciation is reversible error. Freking v. Freking, 479 N.W.2d 736, 740 (Minn. App. 1992). The person seeking to deduct an expense, including depreciation, has the burden of proving the challenged expense is ordinary and necessary. Minn. Stat. § 518.551, subd. 5b(f).
Schmitz argues that if the district court does not accept the full $10,000 accelerated-depreciation deduction it should at least accept the standard depreciation of the vehicles he uses for work purposes. But a close review of Schmitz’s income-tax return shows that the district court did not totally disregard all of Schmitz’s claimed depreciation deductions; rather, it merely reduced the deduction by the $10,000 accelerated-depreciation deduction. Line 13 of Schmitz’s tax return states that Schmitz deducted $18,077 for depreciation of various property. Lines 25-28 of the depreciation and amortization form, calculating the amount Schmitz could deduct as standard depreciation for his vehicles, shows that Schmitz stated that $5,149 would cover the standard depreciation of his vehicles used in his business. He then added $10,000 to this number for the IRS section 179 accelerated-depreciation deduction, $2,694 for the cost of other property, and $234 for an additional deduction. These amounts, taken together, total $18,077. Out of this amount, the district court only disallowed, for child-support purposes, the $10,000 accelerated-depreciation deduction. The district court allowed Schmitz to deduct $5,149 for standard depreciation of his vehicles, $2,694 for cost of other property, and $234 for an additional deduction.
The child-support magistrate explicitly found that accelerated-depreciation deductions do not constitute ordinary and necessary expenses. This finding is consistent with the facts and the record. We therefore conclude that the district court did not err by disallowing the $10,000 accelerated-depreciation deduction from Schmitz’s income for purposes of calculating child support.
Schmitz’s second argument is that the district court erred when it found that Schmitz had double counted his truck installment payment. The court found that Schmitz had included the payment in the $6,743 car-and-truck-expense deduction on line 10 of Schmitz’s schedule C and also counted the payment as a monthly living expense. Schmitz contends that the $5,004 he deducted for the 2002 F350 truck was based on the cost of gas, repairs, maintenance, and insurance, and it did not include the $555.56 monthly installment payment on the truck.
Schmitz’s tax return supports Schmitz’s argument. In the car-and-truck-expense worksheet accompanying Schmitz’s taxes, Schmitz lists the following expenses for his truck: gas, $3,348; repairs and maintenance, $846; and insurance, $1,693. These amounts total $5,887. Schmitz reduced this number by fifteen percent for his personal use of the truck, resulting in a total of $5,004. Schmitz’s tax return and financial information do not provide a basis for finding that Schmitz included his monthly truck payment in the car-and-truck-expense deduction.
Minnesota courts have held that “[l]egitimate business expenses must be considered by the trial court in determining an obligor’s net income.” County of Nicollet v. Haakenson, 497 N.W.2d 611, 615 (Minn. App. 1993). Because Schmitz’s deductions on the truck were legitimate business expenses, Schmitz’s car-and-truck-expense deduction was proper, and the record does not provide a factual basis for adding back in the $5,555.60 deduction for child-support purposes.
Finally, Schmitz argues that the district court erred by finding that because Schmitz paid his monthly child-support obligation out of his business account, these payments constituted “in-kind” income and should be attributed to Schmitz for child-support purposes.
Net income for child support purposes includes “in-kind payments received by the obligor in the course of . . . self-employment or operation of a business if the payments reduce the obligor’s living expenses.” Minn. Stat. § 518.551, subd. 5(b)(1) (2002). But as a matter of arithmetic, we find no support for the determination that the $473 monthly child-support obligation was an in-kind payment. Schmitz’s tax records establish that his company is a sole proprietorship, not a separate entity. He maintains a single bank account for both business and personal use. Accordingly, Schmitz’s income is derived from everything he earns as profits minus expenses and deductions. On his tax return, Schmitz did not deduct or expense the child-support payments of $473 a month. Therefore, because these payments were never deducted from Schmitz’s income, the $5,676 in child-support payments came out of Schmitz’s earnings. By adding an additional $5,676 into Schmitz’s income, the district court counted this amount against Schmitz twice.
The district court acted within its discretion by disallowing Schmitz’s $10,000 accelerated-depreciation deduction. But the record does not support disallowing $5,555.60 of Schmitz’s car-and-truck expenses or adding the child-support payments back into his sole-proprietorship business account as in-kind income. We therefore affirm the disallowance of the accelerated depreciation and reverse the disallowance of the truck expenses and the addition of the in-kind income and remand for recalculation of Schmitz’s income and child-support obligation.
Affirmed in part, reversed in part, and remanded.