This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1998).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

C1-99-1476

 

 

In Re the Marriage of:

Pam Marie Cornell Pavicic,

n/k/a Pam Marie Larson, petitioner,
Respondent,

vs.

Joseph Nicholas Pavicic,
Appellant.

 

Filed May 16, 2000

Reversed and remanded

Crippen, Judge

 

Dakota County District Court

File No. FX8736293

 

 

Sharon K. Hills, Jana Aune Deach, Severson, Sheldon, Dougherty & Molenda, P.A., Suite 600, 7300 West 147th Street, Apple Valley, MN 55124 (for respondent)

 

Mark A. Olson, Olson Law Office, 2605 East Cliff Road, Burnsville, MN 55337 (for appellant)

 

            Considered and decided by Klaphake, Presiding Judge, Crippen, Judge, and Shumaker, Judge.

U N P U B L I S H E D   O P I N I O N

CRIPPEN, Judge

            Appellant disputes the administrative law judge’s calculation of his income for purposes of an upward modification of appellant’s child support obligation.  Although the ALJ properly faulted the quality of evidence submitted by appellant, related findings are contradictory and are not supported by evidence in the record.  We reverse and remand for a redetermination of appellant’s income based on the present record or additional information volunteered by the parties or elicited by the factfinder.

FACTS

 

            Prior to this action, appellant was paying monthly child support of $409 based on a 1988 finding that he earned something over $1,000 per month ($12,300 per year) and with upward cost-of-living adjustments.  The support award is for two children, now ages 15 and 14, calling for a guidelines award of 30% of net guidelines income.

            In February 1998, the county, acting on behalf of the mother of the children, sought an award of $1,300 based on a claim that appellant had net guidelines monthly income of over $4,336 ($52,000 per year).  This calculation occurred after the county learned that appellant had been the recipient of $79,072 (gross) in 1997 for services in the marketing of mutual funds.

            Appellant suggests that his current guidelines monthly income is only $1,493 ($17,900 per year) resulting in a guidelines award of $448.  He acknowledges gross receipts of $79,072, but claims business expenses of $42,533, leaving him with $36,539 income, reduced further by guideline deductions of $18,624 for taxes, pension and health insurance.^[1]  Under appellant’s calculations, his present income supports a monthly support award increase of $39, nine-and-one-half percent more than the existing award, an amount insufficient to trigger the statutory presumption of a substantial change that makes the prior award unfair.  Minn. Stat. § 518.64, subd. 2(b)(1) (Supp. 1997).

            The ALJ found cause for a monthly award of $1,605, finding monthly guidelines income of  $9,624 ($115,488 per year), reduced to $5,349 after guidelines deductions.  The ALJ found that appellant’s $79,072 receipt was in addition to the $36,420 appellant says he reported as his business-related taxable income for 1997.

D E C I S I O N

 

Decisions on modification of child support are reviewed under an abuse-of-discretion standard.  Hennessy v. Stelton, 302 Minn. 550, 550, 224 N.W.2d 926, 927 (1974).  The standards of review that apply to a district court are used to review orders of an ALJ.  Lee v. Lee, 459 N.W.2d 365, 368-69 (Minn. App. 1990), review denied (Minn. Oct. 18, 1990).  An abuse of discretion will not be found unless the ALJ’s resolution of the matter is “against logic and the facts on record.”  Murphy v. Murphy, 574 N.W.2d 77, 79-80 (Minn. App. 1998) (quoting Rutten v. Rutten, 347 N.W.2d 47, 50 (Minn. 1984)).

1.  Business Expenses.

            The ALJ determined that appellant’s 1997 annual income totaled $115,492.  This total includes a $79,072 1997 payment for appellant’s mutual fund marketing work, reported on a 1099 form.  Appellant contends that this item represented his only 1997 income and that he had $42,533 in business expenses for the year, leaving a total taxable income of $36,539. After first advancing this simple analysis of his net income, appellant also presented a more complex analysis, again demonstrating a total taxable income of $36,539 but showing the handling of appellant’s income and expenses in an individual income tax return and another return for appellant’s alter ego, J. Pavicic Securities, Inc.^[2]  The ALJ disregarded appellant’s alleged expenses after noting that appellant did not specifically refer to those expenses in either the individual or corporate tax forms furnished by appellant.  The ALJ also observed that many of the claimed expenses appeared to be personal expenses or were otherwise non-deductible for tax purposes.  Although elsewhere acknowledging that appellant was paying these expenses, the ALJ disregarded them from her income calculation without further explanation.

            As noted before, appellant claimed that the expenses were reported as part of the expenses incurred by his personal corporation for the production of income.  See supra, n. 2.  Although the ALJ could find this claim lacked credibility, the findings lack a specific explanation for disregarding the expenses.  In addition, the findings rely on specific omissions from tax returns that the ALJ otherwise faulted as imprecise or inaccurate, they conflict with the ALJ’s recitation of the fact that the expenses evidently were paid, and they erroneously disregard the compelling inference that appellant must have incurred at least some expenses in the production of his income.

            We reverse and remand for a finding as to the amount of appellant’s business expenses, exclusive of expenses actually found to be for personal use.

2.  Other Income.

            The ALJ determined that appellant, in addition to his $79,072 receipt, had income of $36,420, the total income he reported in the personal income tax form he submitted to the ALJ, less interest income, so that his total income was $115,492.  Because neither of the tax documents produced by appellant made specific reference to the $79,072, the ALJ concluded that (a) the sum was excluded from the figures reported on those forms, and (b) income reported in the personal return must have been from another source. 

Appellant has furnished the only evidence as to his treatment of the $79,072 receipt, and he testified that it was included in the income reported by J. Pavicic Securities, Inc.  Allowing for doubt as to the credibility of appellant’s testimony, there is no alternative evidence to support the conclusion that the item was reported in neither the individual nor the corporate return.  Moreover, if appellant’s tax return theory is to be disregarded and he is to be charged with that $79,072 income, there is no evidence in the record to support a finding that he had any other income.  Ironically, the ALJ’s finding rests on specifics stated in tax documents that the ALJ insisted were imprecise and inaccurate. 

            Although appellant gave undisputed testimony that the returns he furnished were copies of his actual individual and corporate returns for 1997, his documentation for this claim was incomplete and he failed to document many critical entries in the forms.  Hence, the ALJ was concerned, among other things, with the facts that (a) appellant failed to document the “pass-through” vehicle sales that explained, he said, the total income and cost of business reported in his corporate return; (b) appellant could not explain why business expenses were included as “costs of goods sold” in his corporate returns; (c) the primary distribution appellant traced from the corporation to his personal return, $28,028, was reported in the corporate return as “other deductions” and in the personal return as self-employment income, instead of being reported as salary paid and earned; (d) appellant failed to produce a copy of the 1099 form that reported his $79,072 receipt, in the face of evidence suggesting that the report form may have stated a payment to appellant as an individual, and (e) on the ALJ’s request for an accountant’s verification of the tax returns appellant furnished, appellant submitted letters from the accountant that merely stated the accountant had prepared appellant’s 1997 returns, without reference to the documents actually provided to the ALJ. 

Without question, appellant failed to clearly prove the integrity of his description of income as reported in tax returns.  But there is no evidence to show the falsity of the information shown in the returns or appellant’s description of their contents, all of which are plausible on their face.  If any evident reporting of income or expenses was irregular or unlawful, there was no evidence to show that this was the case.

            In sum, the record suggests the need for defensible findings to show appellant’s 1997 income.  It must be determined without speculation whether he had income other than the $79,072 item and whether he can demonstrate business deductions of $42,533.

3.  Net Income for Guidelines Calculation.

            Appellant’s $1,493-net-guidelines-income claim is not demonstrated by his successful showing of total 1997 income of $36,539.  He claims guidelines deductions of $18,600, bringing his net income to the point where a guidelines calculation would not trigger the presumption of cause for modifying the present award.  The findings of the ALJ confirm $6,000 of these guidelines deductions, the sum stated for pension contributions.  Although income tax forms furnished to the ALJ confirm appellant’s income tax and FICA expense claims, he has not documented payment of these items.  And a claim of $3,500 for medical insurance was specifically rejected by the ALJ as undocumented.  On remand, appellant has the opportunity to document his claimed tax and medical insurance payments.  Should he fail to do so, the record permits the approach taken by the ALJ in respect to the medical insurance item, namely, to disregard the assumption that the expenses have been incurred.

4.  Retroactivity.

            Appellant challenges the determination of the ALJ making the support award modification retroactive to December 1, 1997.  Respondent asserts that the retroactive order is proper under Minn. Stat. § 518.5511, subd. 1(c) (Supp. 1997); the section states circumstances in which an upward modification may be made retroactive to the date when a private party requests public action to seek a modification. 

Normally, in contested matters, retroactivity is permitted only to the date when notice was served on the non-initiating party.  Minn. Stat. § 518.64, subd. 2(d) (Supp. 1997).  The early retroactivity provision of section 518.5511 was premised on an expectation that public proceedings would begin shortly after being requested, at which time notice would be given to the non-initiating party. 

We note that 1998 amendments to section 518.5511, subd. 1, which do not govern this case, make even more evident what was already provided in the statute, that early retroactivity depends upon the occurrence of early service of notice of the claim on the non-initiating party.  See 1998 Minn. Laws ch. 338, § 1.  In this case, interaction between the obligee and public authorities began in November, but appellant was given no notice of a claim before February 20, 1998.  Section 518.64 governs the issue, and any upward modification in the case should be effective no earlier than the date when notice of the claim was served on appellant.

5.  Constitutionality of Proceedings.

            Appellant makes a due process and equal protection challenge to the constitutionality of the administrative child support proceedings.  The Supreme Court has stated that the administrative system would remain in effect until July 1, 1999.  Holmberg  v. Holmberg, 588 N.W.2d 720, 727 (Minn. 1999).  This court will not uphold a constitutional objection that conflicts with that declaration.

            Reversed and remanded.