STATE OF MINNESOTA
IN COURT OF APPEALS
State of Minnesota,
County of Dakota,
Sharon L. Engebretson,
Kenneth Jay Lee,
Filed July 21 , 1998
Affirmed in part, reversed in part, and remanded
Holtan, Judge *
Dakota County District Court
File No. F4977146
Miriam J. Wolf, R. Kathleen Morris, Morris & Wolf, 404 First Avenue East, Shakopee, MN 55379 (for respondent)
John R. Hill, Larkin, Hoffman, Daly & Lindgren, Ltd., 1500 Norwest Financial Center, 7900 Xerxes Avenue South, Bloomington, MN 55431 (for appellant)
Considered and decided by Short, Presiding Judge, Willis, Judge, and Holtan, Judge.
U N P U B L I S H E D O P I N I ON
Appellant challenges the ALJ's decision awarding respondent present and past child support and the child dependent tax exemption, ordering appellant to pay off a loan taken on his life insurance policy, and refusing to credit appellant's child support obligation with the child's social security payment. Because the law has changed to require crediting a dependent child's social security benefit to the disabled obligor parent on whose behalf the child received social security, we reverse that holding; because we see no abuse of the ALJ's discretion in the other determinations, we affirm them and remand for a recalculation of child support.
On April 22, 1995, M.J.E. was born to respondent Sharon L. Engebretson and appellant Kenneth Jay Lee. (1) Prior to M.J.E.'s birth, appellant gave respondent $36,250 for a down payment on a home and paid $5,000 for baby furniture and furnishings for the home. In 1996, respondent filed a request in Dakota County seeking child support from appellant. Dakota County issued a proposed child support order in December 1996; both parties rejected the order and requested a hearing.
At the hearing in front of an administrative law judge (ALJ), appellant submitted a report showing that his monthly income totaled $2,130 and his monthly expenses totaled $3,367.42. (2) Appellant asserted that he made up the difference between his expenses and income by selling assets and borrowing $12,143 from a $10,000 life insurance policy that had a cash value of $15,075. Appellant also introduced evidence that he owned 16 pieces of rental property. (3) From these rental properties, appellant generated $85,649 in gross income, $56,923 in expenses, and claimed $30,360 in depreciation. Appellant realized no taxable income from these properties.
Respondent's net monthly income is $4,234.75. She claimed $2,992 per month in regular expenses and $650 per month in childcare. M.J.E. receives $489 per month in derivative social security benefits on behalf of appellant.
The ALJ concluded that appellant's testimony and tax returns were not credible evidence of his monthly income because it would not have been logical for him to purchase a new home if his monthly income failed to cover his monthly expenses. As a result, the ALJ held that appellant's income must at least cover his $3,367.42 in expenses and ordered him to pay child support based on that figure. The ALJ did not credit the child's monthly social security benefit to appellant's child support obligation. The ALJ also ordered appellant to pay $3,641.11 in back child support and $229 per month towards the loan taken from his life insurance policy, and awarded respondent the child dependent tax exemption. Appellant moved for amended findings or a new trial. The motion was withdrawn and appellant filed this appeal.
D E C I S I O N
1. Current child support obligation
An appellate court will not reverse a trial court's determination of net income used to calculate child support if it has a reasonable basis in fact. Strauch v. Strauch, 401 N.W.2d 444, 448 (Minn. App. 1987). An appeal from an administrative hearing is treated the same as an appeal from the district court. Lee v. Lee, 459 N.W.2d 365, 368-69 (Minn. App. 1990), review denied (Minn. Oct. 18, 1990).
a. Appellant's income
Appellant argues that the ALJ abused her discretion in calculating appellant's child support obligation because she failed to consider the depreciation in his rental properties, erroneously calculated his income, and based his income on his standard of living.
Appellant argues that the ALJ failed to consider the $30,000 in depreciation that he claimed as a deduction from his rental property income. See Preussner v. Timmer, 414 N.W.2d 577, 579 (Minn. App. 1987) ("[U]nder certain circumstances depreciation deductions may be considered when determining an obligor's net income for the purposes of establishing child support obligations."). Preussner, however, also held that courts need consider only legitimate depreciation deductions. Id.; see also Beltz v. Beltz, 466 N.W.2d 765, 767 (Minn. App. 1991) ("The trial court must evaluate the claimed depreciation to determine whether it reflects true depreciation or depreciation for tax purposes only."), review denied (Minn. Apr. 29 & May 23, 1991).
In the present case, the ALJ found that appellant "did not present any evidence that any of the properties are actually decreasing in value." Without evidence of how the rental properties were actually physically depreciated, it was reasonable for the ALJ to assume that the depreciation was for tax purposes only. Nothing in the case law requires the ALJ to consider the depreciation in calculating appellant's income, and it did not abuse its discretion in failing to do so.
Next, appellant argues that the ALJ erroneously found that appellant received $450 per month from his position on the City Council of Mason City when he actually received only $300 per month. Although appellant testified that he made $300 a month as a city council member, his paystub indicates that he made $2,700 as of July 1, 1997. Appellant asserts that where his paystub says year-to-date, it is referring to the fiscal year from July to July and that his income was only $300 per month. The only evidence that appellant presented to support this assertion was a signed affidavit by himself. The ALJ was not required to accept appellant's argument without supporting evidence and it was reasonable for the ALJ to conclude from the face of the paystub that appellant was being paid $450 per month.
Lastly, appellant asserts that the ALJ erred in using appellant's monthly expenses to represent his monthly income because it was only by liquidating assets that he was able to cover his expenses. "A court can take into account the lifestyle of a sole business owner if the figures offered do not comport with the evidence of that person's lifestyle." Johnson v. Fritz, 406 N.W.2d 614, 616 (Minn. App. 1987); see also Ferguson v. Ferguson, 357 N.W.2d 104, 108 (Minn. App. 1984) ("The opportunity for a self-employed person to support himself yet report a negligible net income is too well known to require exposition.").
Appellant owns 16 rental properties, yet does not realize any income from them. The ALJ considered the $30,000 in depreciation of the rental property to be legitimate for tax purposes only; if appellant realized this $30,000 as income, his income would increase by roughly $2,500 per month. The ALJ chose to assume that appellant's income was only enough to cover his expenses, or an additional $1,200 per month. In addition, we note that although appellant did not have enough income to cover his monthly expenses, he increased these expenses by $632 per month when he purchased a new home. These factors all indicate that there was not an abuse of discretion in basing appellant's child support obligation on his standard of living.
Nothing in these facts indicates there was an abuse of the ALJ's discretion in calculating appellant's income for child support purposes.
b. Credit for M.J.E.'s social security income
Appellant argues that there was an abuse of the ALJ's discretion in failing to credit M.J.E.'s monthly social security benefits to appellant's child support obligation. At the time the ALJ made the decision, it was in accord with Minnesota law. See, e.g., Haynes v. Haynes, 343 N.W.2d 679, 682 (Minn. App. 1984) ("[A] child's receipt of social security benefits from the account of a parent charged with support does not constitute payments from that parent."). However, this holding has been specifically overruled. Holmberg v. Holmberg, ___ N.W.2d ___, ___, No. C7-97-926, slip op. at 23-25 (Minn. App. June 12, 1998).
We overrule the relevant portions of Haynes and its progeny because (1) child support and social security benefits paid on behalf of a child due to a support obligor's disability have almost identical purposes; (2) Haynes is at odds with the majority rule that has now emerged; and (3) a case critical to our ruling in Haynes [Craver v. Craver, 649 S.W.2d 440, 444 (Mo. 1983), overruled by Weaks v. Weaks, 821 S.W. 2d 503, 506-07) M0. 1991)] has been overruled. On remand, the district court shall give [the obligor] an appropriate credit against his prospective support obligation and arrearages for benefits paid on behalf of the child.
Id. We therefore reverse the ALJ's decision and hold that M.J.E.'s social security income must be credited to appellant's present support obligation and arrearages, and remand for recalculation of child support to reflect this change in the law.
2. Past child support obligation
A court's determination of past child support will not be disturbed absent an abuse of discretion. Nash v. Allen, 392 N.W.2d 244, 249 (Minn. App. 1986), review denied (Minn. Oct. 22, 1986). Past child support is limited to the two years preceding commencement of the action for child support. Minn. Stat. § 257.66, subd. 4 (1996). "When determining what amount of past support is just, a court must consider the earnings, needs and resources of the obligor, obligee and child." McNeal v. Swain, 477 N.W.2d 531, 534 (Minn. App. 1991).
Appellant argues that there was an abuse of discretion by the ALJ in failing to consider the $36,000 down payment and the $5,000 in baby furniture and home furnishings given to respondent prior to M.J.E.'s birth. This money, however, was contributed before the child was born and the ALJ could have considered it a gift. It would not then satisfy any of appellant's child support obligation. Minn. Stat. § 518.68, subd. 2(3)(a) (1996). The ALJ, however, found that appellant's contributions benefited M.J.E. and therefore required him to pay past child support only from the commencement of the action, or for 10 months. In doing so, the ALJ ignored the 21 months between the time M.J.E. was born and the commencement of this action. Though the ALJ clearly did not give appellant full credit for the $41,000 in gifts, the fact that appellant was only required to pay support from the commencement of the action saved him roughly $7,000. There was no abuse of discretion.
3. Child dependent tax exemption
The discretion to award the child dependent tax exemption lies with the court. Wopata v. Wopata, 498 N.W.2d 478, 486 (Minn. App. 1993). Respondent notes that appellant only paid $1,300 in taxes in 1996 and would not stand to benefit as much as she would with the tax deduction for M.J.E. Appellant provides no authority or evidence to support the proposition that the ALJ should have given him the tax exemption. It was within the ALJ's discretion to award the exemption to respondent.
4. Life insurance loan
A trial court may order a child support obligor to maintain a life insurance policy to secure child support payments. Thiebault v. Thiebault, 421 N.W.2d 747, 748 (Minn. App. 1988). Appellant admits that the ALJ has the power to require him to maintain life insurance and, by his own admission, he is unable to secure any more life insurance because of his serious health problems. Appellant cites no authority or evidence to support the proposition that there was an abuse of discretion in requiring him to repay the loan. It was reasonable to require appellant to maintain some life insurance in the event that something would happen to him while M.J.E. is a minor.
We see no abuse of discretion in the ALJ's determinations on appellant's net income, appellant's obligation to pay child support from the commencement of this action, the child dependent tax exemption, and the life insurance loan, and affirm them. We reverse the determination that the child's social security benefit is not credited to appellant and remand for a recalculation of the child support obligation and arrearages in accord with this decision.
Affirmed in part, reversed in part, and remanded.
* Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.
(1) Appellant, a resident of Mason City, Iowa, is a 66-year-old man who is diabetic and has a serious heart condition.
(2) In November 1996, appellant purchased a new home for $115,000, which increased his monthly expenses by $632 per month.
(3) Seven of these properties are owned in joint tenancy with his wife.