This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A05-1305

 

In re Lisa M. Flagstad,

f/k/a Lisa M. Jaynes,

Respondent,

 

vs.

 

Thomas A. Green,

Appellant.

 

Filed May 23, 2006

Reversed and remanded
Klaphake, Judge

 

Washington County District Court

File No. F8-97-4849

 

Thomas W. Tuft, Scott M. Rodman, Tuft & Arnold, PLLC, 2109 County Road D East, Maplewood, MN  55109 (for respondent)

 

Lee R. Wolfgram, Wolfgram Law Firm, Ltd., 100 North Sixth Street, Butler Square Building, Suite 705A, Minneapolis, MN  55403 (for appellant)

 

            Considered and decided by Hudson, Presiding Judge, Klaphake, Judge, and Peterson, Judge.

U N P U B L I S H E D   O P I N I O N

KLAPHAKE, Judge

            Appellant Thomas A. Green challenges the district court’s decision to increase his child support obligation from $450 to $1,743 per month, based on the court’s rejection of appellant’s tax returns as unreliable and its finding that appellant is “earning in excess of the statutory net income cap of $6,795.”  Appellant also challenges the district court’s decision to award respondent Lisa M. Jaynes need- and conduct-based attorney fees of $6,500.

            Because the district court abused its discretion when it (1) calculated appellant’s net income from self-employment using statements he made in unverified loan applications and failed to deduct appellant’s business expenses; and (2) awarded excessive need- and conduct-based attorney fees that were unsupported by the record, we reverse and remand.

D E C I S I O N

I.

            A district court has broad discretion to determine whether to modify a child support order.  Gully v. Gully, 599 N.W.2d 814, 820 (Minn. 1999).  A reviewing court will not reverse the district court’s determination of an obligor’s net income if it has a reasonable basis in fact and is not clearly erroneous.  Ludwigson v. Ludwigson, 642 N.W.2d 441, 446 (Minn. App. 2002); Duffney v. Duffney, 625 N.W.2d 839, 843 (Minn. App. 2001).  A finding is clearly erroneous if the reviewing court is “left with the definite and firm conviction that a mistake has been made.”  Fletcher v. St. Paul Pioneer Press, 589 N.W.2d 96, 101 (Minn. 1999) (quotation omitted).

            Modification of child support is warranted if the moving party shows a substantial change in circumstances that makes the existing child support obligation unreasonable and unfair.  Minn. Stat. § 518.64, subd. 2(a) (2004).  The moving party has the burden of proof in support modification proceedings.  Bormann v. Bormann, 644 N.W.2d 478, 481 (Minn. App. 2002); see Spooner v. Spooner, 410 N.W.2d 412, 413 (Minn. App. 1987); Minn. Stat. § 518.551, subd. 5b (2004).

            The child support guidelines define income from self-employment as “gross receipts minus ordinary and necessary expenses.”  Minn. Stat. § 518.551, subd. 5b(f) (2004).  This statute further provides:

Ordinary and necessary expenses do not include amounts allowed by the Internal Revenue Service for accelerated depreciation expenses or investment tax credits or any other business expenses determined by the court to be inappropriate for determining income for purposes of child support.  The person seeking to deduct an expense, including depreciation, has the burden of proving, if challenged, that the expense is ordinary and necessary.  Net income under this section may be different from taxable income.

 

Here, rather than basing her child support request on an analysis of appellant’s tax returns and bank statements, respondent argued that the district court should reject this evidence and base child support on appellant’s unverified statements from several loan applications, two of which were prepared in 2000.

            The district court agreed with respondent’s arguments and rejected appellant’s tax returns as unreliable.  While a district court is not limited to consideration of an obligor’s tax returns and may reject them as not reliable, other methods for determining the income of a self-employed obligor generally consider cash flow, lifestyle, or some other concrete evidence of resources available to the obligor.  See, e.g., Johnson v. Fritz, 406 N.W.2d 614, 615-16 (Minn. App. 1987) (stating that court can take lifestyle of sole business owner into account if figures offered fail to comport with evidence that person owned new electronic equipment, airplane, boat, and numerous vehicles); Schelmeske v. Veit, 390 N.W.2d 309, 311 (Minn. App. 1986) (stating that district court may consider cash flow when calculation of self-employed obligor’s income becomes “difficult task”); Ferguson v. Ferguson, 357 N.W.2d 104, 108 (Minn. App. 1984) (stating that district court has broad discretion to determine income of self-employed obligor because “opportunity for a self-employed person to support himself yet report negligible net income is too well known to require exposition”).  If a district court finds that it is impractical or impossible to determine the actual income of a self-employed individual, the court may impute income based on earning capacity.  See Beede v. Law, 400 N.W.2d 831, 835 (Minn. App. 1987).

            Respondent does not claim that appellant has sources of income that are unreported or unreflected in either his tax returns or in his bank statements; nor does respondent claim that appellant is underemployed.  Examination of appellant’s bank statements fails to suggest that he has any substantial cash flow to support the district court’s finding that his monthly income exceeds $6,795.  Other than the $65,000 that appellant claimed were the proceeds from refinancing his residence in December 2003, few deposits were made into these accounts between September 2003 and January 2005.  Moreover, examination of appellant’s individual and corporate tax returns from 2000 to 2003 shows that his gross receipts have decreased every year, from $134,489 in 2000 to $70,375 in 2003.

            Given these facts, we conclude that the district court clearly erred in rejecting appellant’s tax returns as unreliable and in basing its finding of appellant’s net income on unverified statements in loan applications that appeared to represent figures for gross income.  On remand, the district court should attempt to ascertain appellant’s current income based on Minn. Stat. § 518.551, subds. 5(b)(1), 5b(f) (2004) (defining income of self-employed individual as “gross receipts minus ordinary and necessary expenses”).  The court is directed to give appellant an opportunity to present evidence on his necessary monthly expenses and the needs of his after-born child.  See Minn. Stat. § 518.551, subd. 5f (2004) (outlining circumstances under which needs of subsequent child “shall” be considered in motion to modify prior support obligation).  Finally, the court is directed to reconsider both parties’ modification motions, particularly appellant’s claims that his income has decreased substantially since 2000 and that he is entitled to a decrease in his child support obligation.

II.

            Appellant challenges the district court’s attorney fee award.  The court awarded respondent attorney fees of $6,500 “based on [her] need and [appellant’s] ability to pay,” appellant’s “unreasonably contributing to the length of these proceedings,” and appellant’s “unwillingness to cooperate with [respondent] or her counsel.”

            A district court “shall” impose need-based attorney fees and “may” award additional conduct-based attorney fees under Minn. Stat. § 518.14, subd. 1 (2004).  An award of fees under this statute “rests almost entirely within the discretion of the [district] court and will not be disturbed absent a clear abuse of discretion.”  Crosby v. Crosby, 587 N.W.2d 292, 298 (Minn. App. 1998) (quotation omitted), review denied (Minn. Feb. 18, 1999).

            Appellant argues that the award of attorney fees is excessive and unsupported by the record.  Given our decision here accepting some of the arguments made by appellant, we do not believe that his conduct was unreasonable and question whether he has the ability to pay these fees.  See Rask v. Rask, 445 N.W.2d 849, 855 (Minn. App. 1989) (questioning district court’s fee award where appellant’s argument was not frivolous).  We therefore reverse the district court’s fee award.

            Reversed and remanded.