Made available by Touch N' Go Systems, Inc.
e-mail: touchngo@touchngo.com, and
Law Offices of James B. Gottstein
406 G Street, Suite 210, Anchorage, AK 99501
(907) 274-7686 fax 333-5869
e-mail: jimgotts@touchngo.com
You can
recent opinions, or the
chronological or
subject indices.
Nass v. Seaton (10/20/95), 904 P 2d 412
NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers
are requested to bring errors to the attention of the
Clerk of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501-2084 or call (907) 264-0607.
THE SUPREME COURT OF THE STATE OF ALASKA
FREDERICK LAWRENCE NASS, )
) Supreme Court No. S-5827
Appellant, )
) Superior Court No.
v. ) 3KO-87-392 Civil
)
SHARON MICHELE SEATON, ) O P I N I O N
)
Appellee. ) [No. 4275 - October 20, 1995]
______________________________)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District, Kodiak,
Donald D. Hopwood, Judge.
Appearances: Charles A. Winegarden, Kodiak,
for Appellant. Alan L. Schmitt, Jamain,
Ebell, Bolger & Gentry, Kodiak, for Appellee.
Before: Moore, Chief Justice, Rabinowitz,
Matthews, Compton and Eastaugh, Justices.
RABINOWITZ, Justice.
I. INTRODUCTION
Fred Nass appeals from the superior court's
modification of his monthly child support obligation. This
appeal raises the issues of whether gifts received by Fred should
be considered income for purposes of calculating child support;
whether accounts receivable from Fred's business were properly
considered income; whether Fred should be allowed to straightline
depreciate that portion of his home used for business; whether
Fred was voluntarily underemployed and capable of earning $45,000
per year; whether Fred was properly allocated 100% of the
children's visitation transportation expenses; and whether Sharon
Seaton was entitled to attorney's fees and costs.
II. FACTS AND PROCEEDINGS
Fred and Sharon were married in Kodiak on May 23, 1976.
There were two minor children born of the marriage: Kimberly
Michele, born September 20, 1979, and Robert Henry, born October
18, 1981. The parties were granted a divorce on May 25, 1988.
In conjunction with the divorce, Fred and Sharon entered into a
"Separation, Child Custody and Property Settlement Agreement"
(agreement) in which the parties agreed to share legal custody of
their two minor children. Fred and Sharon agreed that Sharon
would have primary physical custody of the children and that Fred
would have liberal visitation rights. The agreement was
incorporated into the superior court's decree of divorce.
Additionally, the superior court determined that Fred should pay
monthly child support in the amount of $675 per child, or $1,350
per month.
In May 1989, the superior court modified the decree
based upon the parties' stipulation that Fred's monthly child
support obligation should be reduced to $335 per child, and that
"[t]he parties agree that they will seek no accounting for prior
child support or prior spousal support through May 31, 1989
. . . ." In May 1992, Sharon filed a motion to modify child
support requesting that the superior court order Fred to pay
child support every month, even for those months in which he
exercises visitation, and additionally that Fred's monthly child
support obligation be increased. Sharon's motion was based on
two grounds: (1) the amendments to Alaska Civil Rule 90.3 which
went into effect on January 15, 1990 (Supreme Court Order No.
1088), and (2) Fred's receipt of $20,000 in gifts in 1991 and
1992 from Walter and Alice Nass, his parents. Fred opposed the
motion, arguing that Sharon had no competent evidence that the
gifts were made; however, Fred did not explicitly deny that he
had received the gifts. Fred further contended that a gift is
not income for purposes of determining his child support
obligations under Civil Rule 90.3.1 Fred in turn moved to
retroactively decrease his child support obligation to the date
Sharon filed her modification motion, or alternatively, to modify
child support under Civil Rule 90.3 "based upon his present
income."
Following a hearing, the superior court entered a
modification of its previous support order. The new decree
required Fred to pay a total of $1,012.50 in monthly child
support for the parties' two children, with a fifty percent
reduction in this level of support to take place when Fred has
physical custody of the children.2
Fred now brings this appeal.3
III. APPLICABLE STANDARDS OF REVIEW
A court's modification of a child support award "will
not be overturned absent a finding of a clear abuse of
discretion." Eagley v. Eagley, 849 P.2d 777, 778 & n.1 (Alaska
1993). We will disturb an award only if our review of the entire
record leaves us with a "definite and firm conviction that a
mistake has been made." Id. at 778 n.1 (quoting Richmond v.
Richmond, 779 P.2d 1211, 1216 (Alaska 1989)).
It is firmly established that, pursuant to Alaska Civil
Rule 52(a), "[f]indings of fact shall not be set aside unless
clearly erroneous, and due regard shall be given to the
opportunity of the trial court to judge the credibility of the
witnesses." See Horton v. Hansen, 722 P.2d 211, 215 n.7 (Alaska
1986).
As to whether gifts should be treated as income for
purposes of calculating child support, and whether straightline
depreciation of real estate should be permitted in this case, we
apply a de novo standard of review and adopt the "rule of law
that is most persuasive in light of precedent, reason, and
policy." Matter of K.L.J., 813 P.2d 276, 278 n.1 (Alaska 1991).
IV. DISCUSSION
A. Whether the Superior Court Erred in Considering
the Gifts Fred Received from his Parents as Income in
Determining his Child Support Obligations
Where one parent is awarded sole or primary physical
custody, Civil Rule 90.3(a) provides in part that child support
awards are based upon the noncustodial parent's adjusted annual
income. "Adjusted annual income" is in turn defined as "the
parent's total income from all sources" minus various deductions
not at issue here. Alaska R. Civ. P. 90.3(a)(1). Comment III(A)
to Civil Rule 90.3, which relates to the subject of defining
income, states:
Means based sources of income such as Aid to
Families with Dependent Children (AFDC), Food
Stamps and Supplemental Security Income (SSI)
should not be considered as income. The
principal amount of one-time gifts and
inheritance should not be considered as
income, but interest from the principal
amount may be considered as income and the
principal amount should be considered as to
whether unusual circumstances exist as
provided by 90.3(c).
(Emphasis added.)4
In regard to whether the $20,000 gifts should be
included in Fred's adjusted gross income under Civil Rule 90.3,
the superior court entered the following relevant findings of
fact:
The undisputed evidence is that [Fred]
received gifts of $20,000 in each of the
following years: 1990, 1991, 1992. And I
find that he is due and more than likely will
receive an additional $20,000 for 1993.
Whether or not he receives it in 1993 is
irrelevant. The undisputed testimony is that
both [Fred] and his sister have received and
are to receive a total of $80,000 each as
part of an estate planning plan of his
father. His sister has received all $80,000.
The father's testimony during a deposition
conducted by the parties is that he intends
to pay [Fred] all $80,000 and he stopped
solely because of this support dispute in
this case. Accordingly, the $20,000 payment
in 1992 and what he is to receive for 1993 is
included in his income for calculating child
support.
(Emphasis added.)
In its formal findings of fact the superior court
states:
Based upon defendant's reported income, his
potential income, the gifts from his father
of $20,000.00 per year, and the value of his
extraordinarily low business and living
expenses, the court finds that defendant's
adjusted gross income for child support
purposes is $45,000.00 per year. This
applies to 1992 and to 1993.
Fred relies on a number of decisions from other
jurisdictions which refuse to consider gifts to the obligor as
income for purposes of calculating child support. These
authorities emphasize the fact that the donors have no legal
obligation to continue giving the gifts. See In re Marriage of
Harmon, 568 N.E.2d 948, 950-51 (Ill. App. 1991); True v. True,
615 A.2d 252, 252-53 (Me. 1992); Ikard v. Ikard, 819 S.W.2d 644,
648-49 (Tex. App. 1991) (holding that gifts are not to be
considered a resource to the recipient unless the donor has a
legal obligation to give them); Ebbert v. Ebbert, 744 P.2d 1019,
1023 (Utah App. 1987).5
On the other hand, this court has previously held that
gifts to a noncustodial parent from his mother must be considered
in determining the level of the noncustodial parent's child
support obligation. Pattee v. Pattee, 744 P.2d 658, 662 (Alaska
1987). In Pattee, the noncustodial parent's primary source of
income was a $1,000 monthly allowance he received from his
mother. Id. at 662.6
Review of authorities addressing the question of
whether gifts to the obligor parent should be considered income
for purposes of determining the level of the obligor's support
obligation leads us to the determination that the principal
amount of gifts and inheritances should not be considered as
income for purposes of Rule 90.3. We are persuaded that any
other approach blurs the easily administered and well-established
historical distinction between gifts and earned income. In
short, we conclude that the authorities which refuse to recognize
the inclusion of gifts in determining the level of the obligor's
adjusted gross income for purposes of calculating a child support
obligation represent the correct rule of law.7 We therefore hold
that it was error for the superior court to include any gifts
from Fred's parents in calculating his child support obligation
under Civil Rule 90.3.8
B. Whether the Superior Court Erred in Finding that
Fred's Machine Business Accounts Receivable were Income
In its formal findings of fact the
superior court stated: Defendant has a number
of accounts receivable. Given that his
business practice is careful, and that he
normally does not carry bad debt, the court
finds that by and large these accounts are
collectible and are the equivalent of a
savings account.
Our review of the record supports these findings.9 We
cannot say that the superior court's finding that these accounts
receivable were collectible is clearly erroneous.10
C. Whether the Superior Court Erred in Disallowing
Straightline Deductions for Real Estate Depreciation of
Machine Business Premises
Fred challenges the superior court's determination that
real estate used in conjunction with Fred's machinery business
could not be depreciated straightline for purposes of determining
Fred's adjusted income. In our view the superior court's holding
is contrary to our decision in Eagley, 849 P.2d at 777. At the
time of the Eagley decision, Comment III(B) to Civil Rule 90.3
stated:
Income from self-employment . . . includes
the gross receipts minus the ordinary and
necessary expenses required to produce the
income. Ordinary and necessary expenses do
not include amounts allowable by the IRS for
the accelerated component of depreciation
expenses, [and] depreciation of real estate.
In Eagley we rejected the commentary's categorical
disallowance of all depreciation of real estate, and held that
straightline depreciation of business real estate was
appropriate. Id. at 781-82. Eagley thus requires reversal of
the superior court's disallowance of straightline depreciation
for that portion of the residence which Fred used in his
machinery business. This aspect of the appeal is therefore
reversed and remanded with instructions to calculate straightline
depreciation limited to the areas of the residence that are in
fact used in the conduct of Fred's machinery business.
D. Whether the Superior Court Erred in Finding that
Fred was Voluntarily Underemployed
Fred has raised a number of arguments asserting that
the superior court's findings that he was voluntarily
underemployed are clearly erroneous. The superior court's
determination of Fred's underemployment was based on the
following findings: Fred's past annual income of $100,000; Fred
was currently operating a highly skilled machinist business which
had attracted major customers; he had established and benefited
from a good business reputation as well as twenty years of
experience; Fred's history of borrowing large sums of money on
his credit cards indicated an ability to repay significant
monies; Fred possessed a significant number of collectible
accounts receivable (which the superior court treated as
equivalent to savings accounts); and Fred was selective in the
type of work he takes as well as for whom he does work. The
superior court additionally found that Fred did not maintain a
business phone; that he acknowledged a desire to keep a low
profile; that Fred's business had been increasing over time; and
that Fred owned a bulldozer which was not being optimally used to
earn income.
Fred argues that Sharon should be estopped from relying
on his past annual wages of $100,000 while he was employed at
Kodiak Sanitation, Inc. (KSI), because Sharon previously
acknowledged that Fred's income would decrease as a result of the
sale of their KSI stock.
Our review of the record convinces us that the superior
court's ultimate finding that Fred is in fact voluntarily
underemployed is not clearly erroneous. Fred testified as
follows:
There probably is more work out there to do.
I'm sure if I got a shop somewhere and hired
a bunch of people and bought more machinery I
could be busier than the dickens. But that
is not my desire. I've had employees in the
past and I think I had very good employees
but it's still a big pain in the neck and I
would prefer not to go through it.
And as follows:
I don't have a listing for my business in the
phone book. I try to keep kind of a low
profile.
And as follows:
I try not to advertise at all because all of
the business that I do is walk in the door
business. My philosophy is that if I
advertise, I am soliciting someone's
business. If they just walk in my door they
are soliciting my help and there's a major
difference there.
In brief, the above, when considered in light of the
entire evidentiary record, leads us to hold that the superior
court's conclusion that Fred "has the potential to earn more
income than he has shown from his machine work" is not clearly
erroneous. However, this holding requires us to address several
related issues which must be decided by the superior court upon
remand.
Comment III(C) to Civil Rule 90.3 provides, as to
imputed potential income, the following:
The court may calculate child support
based on a determination of the potential
income of a parent who voluntarily is
unemployed or underemployed. . . . Potential
income will be based upon the parent's work
history, qualifications and job
opportunities. The court also may impute
potential income for non-income or low income
producing assets.
(Emphasis added.)
We have previously held that a noncustodial parent who
voluntarily reduces his or her income should not automatically
receive a corresponding reduction in his or her child support
obligation. Pattee, 744 P.2d at 662. There we said:
On the one hand, we do not believe that an
obligor-parent should be 'locked in' to a
particular job or field during the minority
of his or her children when accepting a lower
paying position may ultimately result in
personal or professional advancement. On the
other hand, the children of the marriage and
the custodial parent should not be forced to
finance the noncustodial parent's career
change. We believe that the better rule is
that stated by the Montana Supreme Court:
"[T]he Judge [is] to consider the nature of
the changes and the reasons for the changes,
and then to determine whether, under all the
circumstances, a modification is warranted."
Id. at 662 (citations omitted); see also Pugil v. Cogar, 811 P.2d
1062, 1066 (Alaska 1991). Given the above, we offer the
following guidance to the parties and the superior court on
remand. First, it was not error for the superior court to
consider Fred's past income with KSI in calculating support. The
superior court's consideration of this past particular earning
history, together with other relevant evidence, is in accordance
with the purpose of Civil Rule 90.3 and the above quoted
commentary thereto.11
Second, as noted previously, the superior court found
that Fred's adjusted gross income for child support purposes is
$45,000 per year.12 Our decisions have clearly established that
it is the duty of the trial court to enter findings of fact which
are adequate to accord rational appellate review.13 Admittedly,
in the circumstance of a voluntarily underemployed parent, the
superior court's task of determining child support levels based
upon imputed potential income is a difficult one. However, on
remand it is incumbent upon the trial court to enter sufficiently
detailed findings of fact which disclose its methodology, as well
as the factual basis, for its determination of the appropriate
imputed potential income level for the obligor-parent.
E. Whether the Superior Court Abused its Discretion
in Allocating Visitation Related Expenses
In its conclusions of law the superior court ruled that
Fred "continues to be obligated to pay all expenses associated
with visitation." Civil Rule 90.3(g) gives the superior court
the discretion to allocate travel expenses among the parties "as
may be just and proper for them to contribute."14 Fred argues
that he is having financial difficulties and that these
difficulties have been compounded by the trial court's award of
child support. He further contends that there is an absence of
findings that his present economic situation, when compared with
that of Sharon, warrants assessment of the total transportation
costs to him.
Although we are not persuaded that the superior court's
allocation of visitation expenses is erroneous, given the fact
that the superior court's determination of Fred's adjusted income
is vacated and remanded for further proceedings, we think it
appropriate that on remand the superior court review its
expense-allocation decision in light of its redetermination of
Fred's adjusted income and the parties' relative current
financial situations.
F. Whether the Superior Court's Attorney's Fees and
Cost Award to Sharon Constitutes an Abuse of Discretion
Fred takes exception to the superior court's findings
that he failed to object to the necessity and reasonableness of
Sharon's attorney's fees and costs. Our review of the record
persuades us that on remand the superior court should afford Fred
the opportunity to address the reasonableness of the attorney's
fees and costs claimed by Sharon. The court's award of
attorney's fees and costs is therefore vacated and the matter is
remanded for further proceedings.
V. CONCLUSION
The superior court's decree is AFFIRMED in part,
REVERSED in part, and the case REMANDED for further proceedings
consistent with this opinion. We affirm the superior court's
rulings that Fred was voluntarily underemployed and that his
accounts receivable were properly characterized as income for
purposes of determining Fred's adjusted income under Civil Rule
90.3.
We reverse the superior court's ruling that gifts
received by Fred were income for purposes of calculating child
support under Civil Rule 90.3; we reverse the superior court's
failure to allow Fred to take a deduction for straightline
depreciation limited to those portions of Fred's residence which
are used in conjunction with his machinery business; and vacate
the superior court's award of attorney's fees and costs to Sharon
in order to afford Fred the opportunity to address the
reasonableness of this award.
Upon remand the superior court is to enter sufficiently
detailed findings of fact and conclusions of law as to its
methodology, and the factual basis for its determination of
imputed potential income to Fred from his machinery and bulldozer
businesses. Additionally, the superior court should reconsider
its allocation of visitation expenses to Fred in light of its
redetermination of Fred's support obligations.
_______________________________
1 After some procedural maneuvering, Fred stipulated that
he had received $20,000 in the years 1990, 1991, and 1992 from
his parents.
2 In addition, the court awarded Sharon $2,266.50 in
attorney's fees and $240.11 in costs.
3 Fred has advanced nineteen separate specifications of
error.
4 Civil Rule 90.3(c) provides in part as follows:
(1) The court may vary the child support
award as calculated under the other
provisions of this rule for good cause upon
proof by clear and convincing evidence that
manifest injustice would result if the
support award were not varied. The court
must specify in writing the reason for the
variation, and the estimated value of any
property conveyed instead of support
calculated under the other provisions of this
rule. Good cause may include a finding:
(A) that unusual circumstances, such as
especially large family size, significant
income of a child, health or other extra
ordinary expenses, or unusually low expenses,
exist which require variation of the award in
order to award an amount of support which is
just and proper for the parties to contribute
toward the nurture and education of their
children. The court shall consider the
custodial parent's income in this determina
tion.
5 In addition to the authorities relied upon by Fred,
there are other decisions which support his position. For
example, in In re Marriage of Seanor, 876 P.2d 44 (Colo. App.
1993), the court considered whether gifts to the wife from her
current husband should be included in the wife's income for
purposes of calculating her former husband's child support
obligation. The Colorado court held that such gifts do not fall
within the statutory definition of gross income. Id. at 49. The
court further noted that current spouses are usually not required
to contribute support to stepchildren. Id.
In Shiveley v. Shiveley, 635 So. 2d 1021 (Fla. App.
1994), the court held that the trial court erred in imputing
income to the wife for purposes of calculating child support
based upon a historical pattern of gift giving by the wife's
parents. In Huebscher v. Huebscher, 614 N.Y.S.2d 524 (N.Y. App.
Div. 1994), the court held that the husband's testimony that the
wife's mother had provided the couple with annual gifts during
the course of their marriage, coupled with other evidence of past
generosity, was an improper basis upon which to impute such
income to the wife for purposes of calculating child support. To
this effect, the court stated that the mother had no legal
obligation to continue to give these gifts and that there was no
guarantee that such gifts would continue in the future.
6 See also Barnier v. Wells, 476 N.W.2d 795 (Minn. App.
1991). In Barnier, the court considered whether the trial court
erred in including monthly payments of $830 from the husband's
father and payments of $5,000 from the husband's grandmother on
his birthday, Easter, and Christmas as income in determining his
child support obligation. The court concluded that if a gift is
regularly received from a dependable party, it may properly be
used to determine the amount of child support obligations. Id.
at 797.
In Petrini v. Petrini, 648 A.2d 1016 (Md. App. 1994),
the court considered whether the trial court could include
noncash gifts to a parent in determining the amount of that
parent's actual income for child support purposes. The court
held that the trial court did not abuse its discretion in
deciding that the gifts constitute actual income for purposes of
calculating child support. Id. at 1021.
7 To the extent that Pattee v. Pattee, 744 P.2d 658
(Alaska 1987), is inconsistent with this holding, it is
overruled.
8 We note that on remand it is open to the superior court
to consider whether Sharon, under Civil Rule 90.3(c),
demonstrated good cause, upon proof by clear and convincing
evidence, that manifest injustice would result if the support
award was not varied by inclusion of the gifts which Fred
received.
9 Exhibit P demonstrates annual receivables that have not
yet been collected of $613.60 in 1990, $443.36 in 1991,
$19,030.71 in 1992, and $6,036.46 in 1993.
10 Unlike our resolution of the gift-income specification
of error, here the superior court's finding that Fred lacked
credibility has relevance. Since we noted that the superior
court's credibility finding was not clearly erroneous, being
within the province of the trial court, we further conclude that
the superior court did not err in rejecting Fred's testimony that
he could not collect the debts. In this regard we note that in
its oral decision the superior court observed "[a]nd I find that
some [accounts receivable] were generated as receivables to
reflect a lower income because of this support dispute."
11 In Renfro v. Renfro, 848 P.2d 830 (Alaska 1993), we
affirmed the superior court's calculation of an obligor-parent's
adjusted annual income based in part upon his higher annual
earnings over a decade earlier. Id. at 833. As an owner of a
private business, the obligor-parent claimed that he made only
$24,000 per year, yet the trial court established an adjusted
annual income of $30,000. Id. We approved of an averaging
approach when a parent's future earnings are uncertain and noted
that the obligor-parent's business was improving after three bad
years. Id. at 833 & n.5.
12 More specifically, the superior court found as follows:
Based upon defendant's reported income, his
potential income, the gifts from his father
of $20,000 per year, and the value of his
extraordinarily low business and living
expenses, the court finds that defendant's
adjusted gross income for child support
purposes is $45,000.00 per year.
In speaking to this subject in its oral decision the superior
court further observed:
There is clear and convincing evidence that
if the court were to accept [Fred's]
calculations and reported income, there would
be manifest injustice that would result. It
would be based upon incorrect income and it
would deny appropriate and adequate levels of
support to his children.
For the tax year 1990, Fred reported an adjusted gross
income of $17,255. For the tax year 1991, Fred reported an
adjusted gross income of negative $1,192.
13 For example, in Adrian v. Adrian, 838 P.2d 808 (Alaska
1992), we stated that "Civil Rule 52(a) requires the trial court
to 'find the facts specially and state separately its conclusions
of law.'" Id. at 811. We further stated:
A trial court's findings must be sufficiently
detailed and explicit to give an appellate
court a clear understanding of the ground on
which the trial court reached its decision.
If the trial court fails to provide such
findings, this court will remand the case to
the trial court for more specific findings.
Id. (quoting Sloan v. Jefferson, 758 P.2d 81, 86 (Alaska 1988)).
We then noted that the superior court failed to provide the raw
numbers necessary for a Civil Rule 90.3 calculation, and that the
superior court appeared to rely too heavily on findings of fact
and conclusions of law prepared by the attorneys. Id. at 812 &
n.7. Thus, we remanded the case to the superior court for
further findings. Id.; see also Wright v. Gregorio, 855 P.2d 772
(Alaska 1993).
14 Civil Rule 90.3(g) states that:
After determining an award of child support
under this rule, the court may allocate
reasonable travel expenses which are
necessary to exercise visitation between the
parties as may be just and proper for them to
contribute.