Scott Thomas Frampton, petitioner, Appellant, vs. Leicha Chenoa Garcia-Frampton, Respondent, and County of Washington, Intervenor.

Scott Thomas Frampton, petitioner, Appellant, vs. Leicha Chenoa Garcia-Frampton, Respondent, and County of Washington, Intervenor. A06-1616, Court of Appeals Unpublished, August 7, 2007.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2006).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A06-1616

 

In re the Marriage of:

Scott Thomas Frampton, petitioner,

Appellant,

 

vs.

 

Leicha Chenoa Garcia-Frampton,

Respondent,

 

and

 

County of Washington,

Intervenor.

 

Filed August 7, 2007

Reversed and remanded

Toussaint, Chief Judge

 

Washington County District Court

File No. F9-01-301

 

David K. Meier, Sjoberg & Tebelius, P.A., 2145 Woodlane Drive, Suite 101, Woodbury, MN 55125 (for appellant)

 

Linda M. Ojala, Ojala Law Office, 3300 Edinborough Way, Suite 550, Edina, MN 55435-5923 (for respondent)

 

            Considered and decided by Toussaint, Chief Judge, Willis, Judge, and Parker, Judge.*

U N P U B L I S H E D   O P I N I O N

TOUSSAINT, Chief Judge

            Appellant Scott Thomas Frampton argues that the child support magistrate (CSM) erred in applying Minn. Stat. § 518.551, subd. 5b(f) (2004), to calculate appellant's self-employment income for purposes of setting his child support obligation to respondent Leicha Chenoa Garcia-Frampton, the custodial parent of the parties' two children.  Because the CSM failed to make findings on appellant's gross receipts and ordinary and necessary business expenses, which are required by the statutory formula for determining self-employment income, we reverse and remand for further findings.

FACTS

            Appellant and respondent divorced in a multi-stage action in 2003; complex property issues were resolved in March 2003, and dissolution was granted; custody issues were resolved in July 2003.  Under the terms of the order resolving custody issues, respondent was granted physical custody of the parties' two children, subject to generous parenting time for appellant.  The parties agreed that child support would be reserved as long as appellant paid the children's private school tuition. 

            In 2005, the children no longer attended private school, and respondent sought a child support order.  The issue, which was heard by a CSM, was the determination of appellant's income.  Appellant is self-employed as a 50% owner of a subchapter S corporation, Landscape Renovations, Inc. 

In 2004, appellant claimed $37,108 in W-2 wages and received $21,457 from corporate distributions, for a total income of $58,565.  In 2004, the corporation ended the year with $226,000 in income taxable to the two owners.  According to appellant, "the money retained in the business accounts at the end of 2004 was completely used to pay ordinary and reasonable business expenses over the winter of 2005."  Appellant's accountant acknowledged, however, that appellant could have withdrawn his entire 50% share of the corporate income. 

In 2005, the year of respondent's motion, appellant received $38,520 in W-2 wages and $13,400 as a distribution from the corporation, for a total of $51,920 in income.  At the end of 2005, the business had very little money in the bank and showed a year-end loss, although it had large accounts receivable that presumably would be collected early in 2006. 

According to appellant, his net monthly income for 2004 was $4,202.18 and for 2005, $3,504.92, including W-2 income, distributions, and an allowance for appellant's personal use of a business vehicle.  Based on Minn. Stat. § 518.551, subd. 5(b) (2004), this would result in monthly child support for two children of $1,260.65 in 2004 and $1,051.48 in 2005.  These calculations do not include corporate income or loss for those years.

Respondent's expert, Dax Stoner, examined appellant's individual and corporate tax returns for the years 2004 and 2005.  Using Stoner's figures, the CSM calculated appellant's 2004 net cash flow to be $139,503, or a monthly net income of $11,625.  The CSM included 50% of the corporate income in this figure and disallowed four-fifths of the accelerated depreciation.  The maximum monthly income limit for child support at the date of the hearing was $6,975.

In 2005, the subchapter S corporate income tax return showed a loss, but the CSM noted that assets of the corporation had risen sharply in 2005, and the corporate records showed accounts receivable of $248,158 at the end of 2005, an amount that appellant testified he expected to collect.  The CSM found that "[p]ayments made in early 2006 for work performed in 2005 should not be the basis for a significant decrease in [appellant's] income for child support purposes."  The CSM also noted that the corporation had greatly increased its purchases of equipment in 2005 and had made substantial leasehold improvements to the property owned by appellant that was leased to the corporation, but made no findings about ordinary and necessary business expenses.  The CSM concluded that appellant's actual 2005 net monthly income was well above the maximum of $6,975 used for child support purposes and ordered appellant to pay $2,092.50 in monthly child support.  The CSM did not make findings regarding gross receipts or ordinary and necessary business expenses for either 2004 or 2005.

D E C I S I O N

            The district court has broad discretion to provide for child support.  Davis v. Davis, 631 N.W.2d 822, 825-26 (Minn. App. 2001) (citing Rutten v. Rutten, 347 N.W.2d 47, 50-51 (Minn. 1984).  The standard of review for decisions of a CSM is the same as the standard for the district court.  Ludwigson v. Ludwigson, 642 N.W.2d 441, 445-46 (Minn. App. 2002).  The determination of an obligor's income is a finding of fact, which will not be altered unless clearly erroneous.  Id. at 446.

When the obligor is self employed, the obligor's income is equal to gross receipts less ordinary and necessary expenses.  Minn. Stat. § 518.551, subd. 5b(f) (2004). 

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.

 

Id. 

            Relying on Davis, 631 N.W.2d at 827-28, in which this court remanded a child support order to the district court because the CSM failed to deduct the ordinary and necessary business expenses of the self-employed obligor, appellant argues that the CSM's findings are clearly erroneous because she made no specific findings as to gross income or ordinary and necessary business expenses.

            In the absence of findings regarding gross receipts and ordinary and necessary business expenses, we are unable to determine if the CSM properly applied the statutory formula for calculation of self-employment income.  Generally, the district court's failure to make findings on relevant statutory factors requires a remand.  Stich v. Stich, 435 N.W.2d 52, 53 (Minn. 1989).  We therefore reverse the CSM's child support order and remand this matter for further findings consistent with the statutory formula.

            We are aware of the difficulties inherent in determining self-employment income that fluctuates over time, a problem that can be alleviated to a certain extent by measuring income over a period of time.  See Veit v. Veit, 413 N.W.2d 601, 606 (Minn. App. 1987) (approving averaging of self-employed obligor's income over a 42-month period to more accurately measure income).

            Reversed and remanded.

* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.