STATE OF MINNESOTA
IN COURT OF APPEALS
In re the Marriage of:
Margaret A. Lynch,
f/k/a Margaret L. Burns, petitioner,
Harry E. Burns,
Filed December 28, 1999
Reversed and remanded
Stearns County District Court
File No. F1-95-0274
Thomas W. Pugh, Thuet, Pugh, Rogosheske & Atkins, Ltd., 222 Grand Avenue West, Suite 100, South St. Paul, MN 55075 (for appellant)
Considered and decided by Randall, Presiding Judge, Klaphake, Judge, and Holtan, Judge.
On appeal from an order denying a modification of child support, appellant-father challenges the administrative law judge's (ALJ) finding that he failed to prove a substantial reduction in his income. We reverse and remand.
At the time of dissolution, father was, as he remains currently, self-employed as an attorney and the sole shareholder of a law firm. At the time of dissolution, father's annual salary was $74,000, and his average net monthly income from that salary was $3,887.39. His child support obligation, however, was based on a gross annual income of $110,000, which included personal expenses paid for by the law firm.
In support of his motion to modify child support, father submitted evidence that the law firm was experiencing cash-flow problems and that his income had decreased as a result. Father testified that effective August 1998, his gross annual salary was reduced to $60,000, and he also submitted a sworn statement by a certified public accountant opining that the law firm could not afford to keep paying father at the salary level on which his child support obligation was based. In addition to his salary, father testified that the law firm makes a monthly $500 payment on a car that he uses for personal travel and also pays $394 per month for medical and dental insurance for father and the children.
The law firm's bookkeeper submitted an affidavit stating that the firm had been experiencing cash-flow problems during the last couple of years and increasingly so during the previous several months. The bookkeeper further stated that the law firm was not able to pay bills on a timely basis; owed over $35,000 for current and past-due bills; and had eliminated all nonessential expenses.
The ALJ found:
11. * * * [Father] had a salary of $74,000 in 1995 which, when taken together with expenses being paid by his firm on his behalf, was stated to have a gross income of $110,000 upon which the award of support was based.
[Father] submitted tax and financial documentation for 1997 * * *. That information indicated that [father] had salary of $95,808 in 1997. His firm continues to pay his vehicle payment of $500 per month, provide him with health and dental insurance for himself and children costing $394 per month, and pays all of his professional requirements. These additional benefits were valued at $36,000 per year in the parties' divorce decree and no information was submitted that they had changed. Thus, in 1997, [father] would have had gross income of $131,808 upon which to base support.
The ALJ analyzed evidence regarding the law firm's financial performance during 1997 and the first nine months of 1998 and found that although the law firm's gross income was down $102,483 for the year, the decrease in income was offset by a projected $164,337 savings in costs and expenses. The ALJ found that as of December 31, 1998, father had a yearly gross salary of $73,029.67. The ALJ concluded that there had not been a substantial change in circumstances rendering the existing support order unreasonable and unfair and denied father's motion to modify child support.
A child support order may be modified upon a showing that a party's earnings have substantially decreased making the existing support obligation unreasonable and unfair. Minn. Stat. § 518.64, subd. 2(a)(1) (1998).
Father argues that the ALJ erred in finding that father failed to prove that the law firm's payment of $36,000 in father's personal expenses had changed since the dissolution. Although the dissolution judgment did not specify the personal expenses, mother stated in an affidavit that the personal expenses included vacations around seminars and conventions, payments on his car and other car expenses, and entertainment. At the time of dissolution, father's gross weekly salary income equaled an annual salary income of $74,000. The dissolution judgment is ambiguous as to whether the additional $36,000 was attributable solely to the law firm's payment of father's personal expenses.
When a stipulated provision in a dissolution judgment is ambiguous and extrinsic evidence is admitted to resolve the ambiguity, this court defers to the ALJ's interpretation. Anderson v. Archer, 510 N.W.2d 1, 3-4 (Minn. App. 1993). The ALJ did not err in construing the dissolution judgment as attributing the additional $36,000 solely to the law firm's payment of father's personal expenses. The party seeking a modification of child support has the burden of proving that a modification is warranted. Hecker v. Hecker, 568 N.W.2d 705, 709 (Minn. 1997). Father cites no evidence supporting his assertion that the law firm's payment of his personal expenses has decreased since the time of dissolution. Absent such evidence, the ALJ did not err in including the $36,000 in father's current income.
Father also contends that the ALJ erred in determining his annual salary income to be $73,000 because, effective in September 1998, father's salary was reduced to $60,000 per year. However, an ALJ
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. Earning capacity findings are commonly used when reviewing a self-employed individual's support obligations.
Fulmer v. Fulmer, 594 N.W.2d 210, 213 (Minn. App. 1999) (citations omitted); 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 income is too well known to require exposition"); Resch v. Resch, 381 N.W.2d 460, 462 (Minn. App. 1986) ("proper to look beyond an obligor's earnings to his earning capacity, and to disregard any voluntary inability to pay").
The ALJ did not expressly find that father had unjustifiably self-limited his income. But the ALJ did analyze the differences in the law firm's revenues and expenses during the first nine months of 1997 and the first nine months of 1998. We can infer a finding that father unjustifiably self-limited his income from the ALJ's analysis of the differences in the law firm's revenues and costs and expenses for 1997 and 1998.
The ALJ extrapolated from the figures for the first nine months to determine the law firm's total revenues and expenses for 1997 and 1998. The parties agree that the ALJ erred in projecting a $164,337 decrease in costs and expenses between 1997 and 1998. In determining the decrease in costs, which includes salaries and court costs, the ALJ apparently used the figures for gross profits instead of total costs. Using the figures for total costs, the projected decrease in costs should have been $23,911. The ALJ correctly determined that the projected decrease in operating expenses between 1997 and 1998 was $68,781. Thus, the projected total decrease in costs and expenses should have been $92,692, not $164,337. The ALJ did not err in disregarding interest, depreciation, and income tax expenses, as such figures are subject to manipulation.
Mother argues that even though the ALJ incorrectly calculated the projected decrease in expenses, this court should affirm the ALJ's determination of father's income and denial of father's motion to modify child support because, although the law firm's projected gross profits decreased from 1997 to 1998, father was still capable of earning a higher salary than he did in 1995, the year his child support obligation was established. Although mother may well be correct that the record supports the ALJ's determination of father's income and denial of his motion for modification of child support, the determination of child support is a decision committed to the ALJ's discretion, and we are unable to determine whether the ALJ would have reached the same decision based on the $92,692 decrease in expenses. Due to the erroneous finding on expenses, we reverse the ALJ's determination of father's income and denial of his motion to modify child support and remand the issue for reconsideration. On remand, the ALJ has discretion to conduct a hearing and take additional evidence to bring the information on the parties' income and expenses up to date and base its decision on the parties' present financial circumstances.
Reversed 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.