In re the Marriage of: Laurel A. Ferris, petitioner, Respondent, vs. Edward H. Szachowicz, M.D., Appellant.
Annotate this CaseThis opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480 A. 08, subd. 3 (2004).
STATE OF MINNESOTA
IN COURT OF APPEALS
A05-553
In re the Marriage of:
Laurel A. Ferris, petitioner,
Respondent,
vs.
Edward H. Szachowicz, M.D.,
Appellant.
Filed January 3, 2006
Affirmed
Dietzen, Judge
Hennepin County District Court
File No. DC 275703
Susan C. Rhode, Moss & Barnett, 4800 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402-4129 (for respondent)
Robert H. Zalk, Amy L. Helsene, Zalk & Bryant, P.A., 5861 Cedar Lake Road, Minneapolis, MN 55416 (for appellant)
Considered and decided by Lansing, Presiding Judge; Hudson, Judge; and Dietzen, Judge.
U N P U B L I S H E D O P I N I O N
DIETZEN, Judge
In this dissolution proceeding, appellant challenges entry of an amended judgment and decree of dissolution, arguing that the district court erred (1) in awarding respondent permanent spousal maintenance; (2) in deviating from the Hortis/Valento formula without making specific findings of fact to justify the deviation; and (3) in requiring appellant to pay respondent $29,745 capital gains tax on marital property. Because we conclude that the consensual special magistrate and the district court properly applied the law, and its determinations are sufficiently supported by the record, we affirm.
FACTS
Appellant Edward Szachowicz, M.D. and respondent Laurel Ferris were married in August 1989, and their marriage was dissolved in July 2004. They are currently 52 and 48 years old, respectively. The parties have one minor child, A.S., who is currently 10 years old. Appellant and respondent separated in June 2002.
Appellant is self-employed as a plastic surgeon and is the owner of a business known as Facial Plastic Surgery Specialists-Edina, Inc. His practice focuses on facial cosmetic surgery, and elective procedures not covered by insurance. His income is derived from cosmetic surgeries and botox and collagen injections, and a "Useful Aging" program which employs human growth hormones.
Respondent is self-employed with Laurel Ferris, Inc. Her specialty is providing training on "medical coding" and general consulting work for various physician practice groups and their staff. Medical coding is a necessary skill for physicians to obtain payment from third-party payors. In addition, respondent created several coding-oriented publications including one named "QuikCode" which is a coding guide for 24 different medical specialties.
The parties entered into a Parenting Plan in May 2003, and an amended Parenting Plan in October 2003, which provided, inter alia, that appellant and respondent would have joint legal and physical custody of A.S. In June 2003, the parties stipulated to the appointment of a consensual special magistrate to hear the dispute. Trial before the special magistrate occurred over a five-day period ending in January 2004.
At trial, the parties reached an agreement on many of the financial aspects of the case. They retained an accountant to serve as a neutral expert to review documents, help them reach an agreement on some issues, and present alternative scenarios to the special magistrate on particular issues upon which they could not agree. At conclusion of the trial, the issues that had not been resolved were (a) spousal maintenance, (b) child support, and (c) the tax liability arising out of the sale of the "Lake Elmo Property."
Spousal Maintenance
In 1995, A.S. was born and appellant opened his solo practice as a plastic surgeon. At that point, respondent left her career to help establish and run appellant's business and to raise their infant son. In March 2002, respondent left appellant's practice; and later resumed a contract with the American Society of Plastic Surgeons for $53,750 per year. The contract required respondent to teach five three-day sessions at various locations in the country during 2004. In addition, respondent was also required to invest substantial additional time in preparing and updating her materials for teaching and to keep current on the developments in the industry.
During the litigation, appellant retained the services of Philip Haber, Ph.D., to testify as a vocational expert regarding respondent's employability. Based on his testing and evaluation of respondent, Dr. Haber opined that respondent could easily obtain a job to replace the work she had done at appellant's clinic and earn an additional $50,000 to $60,000 per year, and do so without conflicts with her existing weekend seminar work. Dr. Haber concluded that respondent's current overall earning capacity was between $110,000 and $120,000 per year.
Respondent challenged Dr. Haber's conclusions. Specifically, she presented controverting testimony relating to her lack of qualifications for the jobs Dr. Haber had listed. Moreover, respondent testified that she was not able to perform her teaching and consulting work while also doing the additional work identified by Dr. Haber.
The parties sharply disputed the amount of appellant's potential income from his practice. Appellant's income consists of a draw of $200,000 per year, plus additional net-profit distributions after business expenses. Appellant testified that averaging his income over a three-year period resulted in an average of $201,000 per year. Respondent disagreed, concluding that appellant's income was $313,000 per year. The primary area of disagreement was projected expenses of the practice. Specifically, the parties disputed the projected amount for the Cost of Goods Sold (COGS), advertising and promotion, and website. The COGS was not for surgical services, but rather for Botox, Youthful Aging or other products that were injected. The neutral expert employed by the parties prepared two exhibits which highlighted the differences in the parties' position. The total amount of the difference for all three categories of projected expenses was $139,500.
Respondent contends that a significant portion of the projected COGS expense was for the parties' personal use. Respondent estimated that the amount of COGS attributable to their personal use was in the tens of thousands of dollars. Respondent also testified that appellant's projected legal and accounting fees were inflated; that the advertising expenses were incurred with the expectation of increasing his income and therefore should not be considered unless revenues were also increased. Appellant acknowledged that the parties used Botox, Youthful Aging and other products without reimbursing the company. Appellant did not call his business accountant to testify, or offer any testimony to estimate the yearly dollar amount attributable to personal use.
The parties enjoyed an affluent lifestyle. They lived in Edina, had cosmetic treatments, employed a personal trainer, and enjoyed other luxuries. Respondent claimed monthly expenses for herself and A.S. totaling $13,263 which includes medical insurance premiums for her continuation coverage. Of this figure, $1,333 per month is A.S.'s school tuition, which is to be divided equally between the parties. Appellant presented budget for himself and A.S. totaling $9,137 per month. Of this amount, $1,144 is allocated for the minor child's expenses, many of which are duplicative of respondent's budget.
Child Support
Respondent testified that she and appellant were not able to communicate or agree on how to allocate A.S.'s expenses. Respondent described several disputes regarding his attendance at private school, his French tutoring, and the need for court intervention to resolve those issues. Respondent observed that the temporary order required her to be responsible for the child's expenses. Appellant acknowledged that respondent typically cares for A.S. on two of the days respondent is scheduled to have A.S.'s care due to his surgery schedule or other conflicts.
Capital Gains Tax
Prior to the marriage, respondent acquired certain real property known as the Lake Elmo Property. During the pendency of the proceeding, the parties agreed to sell the property and use a portion of the proceeds to pay debt incurred during the marriage. Prior to execution of the purchase agreement, respondent advised appellant that she intended to use a "section 1031 exchange" to defer capital gains tax on the sale of the property. Appellant agreed and signed the purchase agreement and addendum which indicated that a 1031 exchange would be utilized.
Appellant testified that he refused to proceed with the 1031 exchange as to the marital portion the Lake Elmo sale proceeds but did not oppose its use for the non-marital portion of the proceeds. Respondent testified that appellant placed other conditions on his approval of the 1031 exchange.
Following appellant's motion to amend or for a new trial, the consensual magistrate and the district court entered amended findings of fact, conclusions of law, order for judgment and amended judgment, and decree of dissolution of the marriage on January 10, 2004 (Amended Decree). In the Amended Decree, the district court found that respondent was appropriately employed based on her training and her work efforts during the marriage, and that her pre-tax gross income for 2005 is projected to be $42,000; that she receives $11,250 per year of investment income; and that appellant's income, based on a three-year average, was $313,000 per year. The district court adjusted the parties' proposed budget expenses and found that respondent's budget for reasonable monthly expenses was $12,596, while appellant's budget for reasonable expenses was $8,659.
Based on the length of the marriage, respondent's absence from the work force, the marital standard of living, appellant's ability to pay, and respondent's financial needs, the district court found that respondent will require $10,000 per month in spousal maintenance to meet her needs.
The district court determined that the Hortis/Valento formula for determining child support was not appropriate in this case and that it would deviate because the parties, during their separation, were unable to cooperate on financial issues even when the cooperation would have financially benefited both parties. Consequently, the district court concluded that guideline support of $1,744 per month was appropriate and reasonable.
Finally, the district court concluded that the capital gains tax for the sale of the Lake Elmo property totaling $46,204 should be allocated so that appellant paid $29,745, and respondent paid $16,459. This appeal follows.
D E C I S I O N
I.
Appellant raises three issues on appeal. First, appellant challenges the award of spousal maintenance. Appellate courts review a district court's maintenance award under an abuse-of-discretion standard. Dobrin v. Dobrin, 569 N.W.2d 199, 202 (Minn. 1997). A district court abuses its discretion regarding maintenance if its findings of fact are unsupported by the record or if it improperly applies the law. Id.at 202 & n.3 (citing Sefkow v. Sefkow, 427 N.W.2d 203, 210 (Minn. 1988)). "Findings of fact concerning spousal maintenance must be upheld unless they are clearly erroneous." Gessner v. Gessner, 487 N.W.2d 921, 923 (Minn. App. 1992). When reviewing the record, this court views the evidence in the light most favorable to the district court's findings. Ayers v. Ayers, 508 N.W.2d 515, 521 (Minn. 1993).
Spousal maintenance awards are governed by Minn. Stat. § 518.552, subd. 1 (2004), which allows a grant of maintenance if the recipient (1) "lacks sufficient property . . . to provide for reasonable needs . . . considering the standard of living established during the marriage," or (2) cannot provide self-support. Once need is established, the district court considers various statutory factors, including "the financial resources of the party seeking maintenance . . . and the party's ability to meet needs independently" and "the ability of the spouse from whom maintenance is sought to meet needs while meeting those of the spouse seeking maintenance." Minn. Stat. § 518.552, subd. 2(a), (g) (2004); see Erlandson v. Erlandson, 318 N.W.2d 36, 39-40 (Minn. 1982) (stating no single statutory maintenance factor is dispositive, and the issue is basically the recipient's need balanced against the obligor's financial condition).
Award of Spousal Maintenance
Appellant contends that the district court erred in awarding spousal maintenance in two regards. First, appellant argues that the district court "ignored the virtual certainty that respondent will soon be fully self-supporting," which should preclude a permanent award. The requirements for spousal maintenance are set forth in Minn. Stat. § 518.552, subd. 1 (2004); see also Nardini v. Nardini, 414 N.W.2d 184, 198-99 (Minn. 1987) (failure to award permanent maintenance was an abuse of discretion when the court was uncertain that the spouse seeking maintenance could ever become self-supporting); Zamora v. Zamora, 435 N.W.2d 609, 612 (Minn. App. 1989) (the maintenance statute "requires that a trial court award permanent maintenance when it is uncertain that the party seeking maintenance can become self-supporting"); Reif v. Reif, 426 N.W.2d 227, 231 (Minn. App. 1988) ("Where future earnings are uncertain, maintenance awards should be permanent, subject to future modification."); Bolitho v. Bolitho, 422 N.W.2d 29, 32 (Minn. App. 1988) (temporary maintenance award was improper in light of finding that the spouse's "future employment and income are uncertain").
Appellant argues that respondent can work more hours than her present contract requires and relies upon the testimony of Dr. Haber that respondent could reasonably expect to earn an annual salary between $35,000 and $78,000 by taking a separate full time job. But there is evidence in the record that respondent may never be self-supporting. Respondent testified that she was not qualified for four of the five positions suggested by Haber because she lacked the required paralegal, law, or nursing degree, or the required management experience. She also stated that some positions did not have the flexibility she needed to appropriately care for their minor child.
The district court found that Haber failed to reasonably correlate his list of jobs with respondent's work abilities, and that respondent should not be required to work two full-time jobs. Based on conflicting testimony, the district court found respondent's testimony on her potential earning capacity more persuasive. The district court's conclusion that it was uncertain whether appellant would be self-supporting is sufficiently supported by the record.
Appellant also argues that the district court violated Minn. Stat. § 518.552, subd. 3 (2004), and erred in eliminating the three-year de novo review provision in the original judgment and decreea provision that was removed in the amended judgment and decree. Appellant argues that the language in the statute stating that "[w]here there is some uncertainty as to the necessity of a permanent award, the court shall order a permanent award leaving its order open for later modification," requires that the award of spousal maintenance be subject to de novo review. Respondent argues that Minn. Stat. § 518.64 governs the requirements for all modifications of spousal maintenance. We agree with respondent.
Prior to 1985, a court could award temporary or permanent maintenance under Minn. Stat. § 518.552, while retaining the ability to modify the award under Minn. Stat. § 518.64. See Gales v. Gales, 553 N.W.2d 416, 418 (Minn. 1996). Courts construed the maintenance statute to contain a presumption in favor of temporary maintenance, which provided for payments over a specified term. See id. In 1985, the legislature amended the statute and added subdivision 3, specifically providing that the statutory presumption is in favor of a permanent award, and such an award did not have durational limits. Id. at 419.
In 1987, the supreme court interpreted the amendment as the legislature's "unmistakable intention that the 1985 enactment was not intended to change the intent of the statute but only to correct the interpretation." Nardini, 414 N.W.2d at 196. In other words, the amendment did not add anything more than what was already there prior to 1985; specifically, the statute did not add a requirement that "leaving open for modification" was to be something more than modification under Minn. Stat. § 518.64. Thus, we affirm the district court's decision to omit the de novo review provision.
Amount of Spousal Maintenance
Second, appellant argues that the amount of spousal maintenance was clearly erroneous. Essentially, appellant contends that the marital standard of living was artificially inflated due to the parties' extravagant lifestyle, fueled by overspending and borrowing, and that the district court improperly imputed $112,000 more in income to appellant than he currently receives.
Appellant relies on Chamberlain v. Chamberlain, 615 N.W.2d 405, 410 (Minn. App. 2000), for the proposition that the standard of living should be based on the "marital standard of living that would have been within the parties' means" rather than a standard inflated by borrowing. But Chamberlain does not conclude that having marital debt is conclusive evidence of an excessive standard of living. Instead the Chamberlain court noted that "absent further direction from the legislature or the supreme court, the long-standing affluent lifestyle of the parties is an appropriate factor for the district court to consider, . . ." Id.at 412.
First, we consider the financial needs of the respondent, and the marital standard of living. See Minn. Stat. § 518.552, subd. 1, 2(a). Here, the court found that the parties enjoyed an affluent lifestyle, which included travel, entertainment, a large home, investments, expensive automobiles, and private schooling for their son. The district court found, and the record supports the conclusion that respondent's reasonable monthly living expenses are approximately $12,596; her monthly income from her business, investment income, spousal maintenance and child support minus reasonable deductions is approximately $12,147, leaving her with a $449 monthly deficit.
Appellant argues that the parties had significant debt and were over-spending. But the proceeds from the sale of the Lake Elmo property were used to pay off the line of credit, past due income taxes for 2002, and attorney fees. At the time of the Amended Decree, the parties had satisfied all of their joint debts. In short, the district court's conclusion that the liquidation of the Lake Elmo property was sufficient to pay off their debts is supported by the record.
Second, we consider the ability of appellant to pay spousal maintenance. See Minn. Stat. § 518.552, subd. 2(g). Appellant argues that the district court inflated his annual income by $112,000. Appellant contends that his annual income is $201,000, not $313,000 as determined by the district court. The calculation for determining income of a self-employed person is the gross receipts minus the ordinary and necessary business expenses. Minn. Stat. § 518.551, subd. 5(b)(f) (2004). The person seeking to deduct an expense has the burden of proving that such expense is ordinary and necessary. Id.
Thomas Harjes, a neutral accountant employed by the parties, prepared a historical and projected income and expense report; and testified that there were three major areas in dispute regarding the business expenses and related projections: the COGS, advertising, and website expenses. The dispute over the COGS involved a difference of opinion as to what amount of money was attributable to appellant's and respondent's personal use of unreimbursed company product that they used that should not be included as a company expense.
The parties sharply disagreed as to the proper amount of COGS to be deducted for the parties' personal use. Appellant challenged respondent's competency to provide a reliable estimate. Respondent argued that the district court should draw an adverse inference from the fact that appellant's business accountant was not called to testify on this issue. On conflicting testimony, the district court made a downward adjustment to the COGS to reflect the parties' personal use. The amount of the adjustment was $104,000. Cf. Sefkow v. Sefkow, 427 N.W.2d 203, 210 (Minn. 1988) (stating appellate courts defer to district court credibility determinations). The district court determination is supported by the record.
The parties also disagreed on the proper amount of expenses to allocate for legal and accounting fees, advertising expenses and increased website costs. Appellant argued that the expense actually incurred should be used. Respondent argued that the expenses are not ordinary, but are extraordinary expenses not likely to reoccur at those inflated levels. The record reflects that both parties were knowledgeable of appellant's business.
On this record we cannot say that the district court's findings are clearly erroneous. See id. The district court properly considered the requirements for spousal maintenance, and its decision is sufficiently supported by the record.
II.
Appellant contends that the district court erred when it did not calculate child support in accordance with Hortis/Valento formula. Where parents share physical custody, the cross-award formula, known as the "Hortis/Valento" formula, is presumptively appropriate. Schlichting v. Paulus, 632 N.W.2d 790, 792 (Minn. App. 2001). Under such formula, the guideline support is the amount indicated by the guidelines, but only for the periods of time the other parent has actual custody of the child. Unless there are specific reasons for departure, this method should be used in all joint-custody situations. Veit v. Veit, 413 N.W.2d 601, 606 (Minn. App. 1987). This court reviews any deviation from the Hortis/Valentoformula under a clearly erroneous standard. Schlichting, 632 N.W.2d at 792.
Parents creating a parenting plan are subject to the requirements of the child support guidelines under section 518.551. Minn. Stat. § 518.1705, subd. 8(a) (2004). Section 518.551 creates a rebuttable presumption that a child-support "obligor" will pay support at the guidelines amount, unless the district court makes findings sustaining a deviation from those guidelines. Minn. Stat. § 518.551, subd. 5(i). An "obligor" under this statute is defined as "a person obligated to pay . . . support" and includes the caveat that "[a] person who is designated as the sole physical custodian of a child is presumed not to be an obligor for purposes of calculating current support . . . ." Minn. Stat. § 518.54, subds. 1, 8 (2004).
According to the parenting schedule, appellant has parenting time two out of every four weekends from 3:00 p.m. on Friday until 9:00 a.m. Monday, and one weekend out of every four weekends from 3:00 p.m. Friday until Sunday noon; every Tuesday morning for breakfast from 7:00 a.m. until 9:00 a.m. or until the start of school; and appellant will take the child to gymnastics on Thursday evenings.
After observing the parties at trial, the court determined that the Hortis/Valento formula was not appropriate because of the parties' animosity. It found that the parties could not cooperate on financial issues, and should the parties be required to cooperate on the daily expenses of their child, it is likely that the child would be caught between the parties' conflicts. The court then concluded that it is in the best interest of the child for appellant to pay the guideline support, and for respondent to be required to pay for all of the child's expenses, less one-half of his private school tuition.
The record supports these findings. The trial itself encompassed five days of testimony. The parties frequently disagreed as to the child's education and religious upbringing and needed a parenting time coordinator to monitor the situation. Because the findings are supported by the record, we affirm.
III.
Appellant argues that the district court's order requiring him to pay $29,335 in capital gains taxes is not supported by the record. Findings of fact are not set aside unless clearly erroneous. Minn. R. Civ. P. 52.01. When reviewing findings of fact, we view the evidence in the light most favorable to those findings. Kennedy v. Kennedy, 403 N.W.2d 892, 897 (Minn. App. 1987). Because the district court's findings are supported by the evidence, we affirm.
Appellant relies on the district court's finding that it was unreasonable for respondent to seek 1031 exchange treatment of the marital portion of the Lake Elmo proceeds. And the proposal rejected by appellant was a package deal that covered both respondent's marital and non-marital interests. Respondent counters that when it came time to close, appellant refused to cooperate and facilitate even the option of a 1031 like-kind exchange, unless respondent met his conditions which included applying her non-marital portion of the funds to the 1031 exchange, committing to pay the attorneys $40,000 and committing to fund a college account in the sum of $50,000. Respondent did not consent to these conditions, and consequently, the favorable tax 1031 like-kind exchange did not occur.
Here the district court concluded that appellant should be liable for additional taxes arising out of the failure of respondent to provide for a section 1031 exchange with respondent's non-marital proceeds. The district court reasoned, "Had [respondent] been allowed to place her non-marital proceeds into a section 1031 exchange transaction, the capital gains taxes would have been $16,459. Without a Section 1031 transaction, her capital gains taxes totaled $46,204."
The district court concluded that both parties had some responsibility for the failure of the 1031 like-kind exchange. Consequently, the district court determined that respondent was responsible for $16,459 in capital gains taxes, and appellant was responsible for $29,745 capital gains taxes. On this record, the district court's determination is not clearly erroneous.
Affirmed.
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