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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Caldwell v. State, Dept. of Revenue, Child Support Enforcement Div. (01/21/2005) sp-5861

Caldwell v. State, Dept. of Revenue, Child Support Enforcement Div. (01/21/2005) sp-5861

     Notice:   This opinion is subject to 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, phone (907) 264-0608, fax (907) 264-0878,
     e-mail corrections@appellate.courts.state.ak.us.


            THE SUPREME COURT OF THE STATE OF ALASKA

KENNETH A. CALDWELL,          )
                              )    Supreme Court No. S-11149
               Appellant,          )
                              )    Superior Court No.
          v.                  )    3AN-97-7007 CI
                              )
STATE OF ALASKA,              )    O P I N I O N
DEPARTMENT OF REVENUE,   )
CHILD SUPPORT ENFORCEMENT     )    [No. 5861 - January 21, 2005]
DIVISION, and JAKKI THORNTON, )
                              )
               Appellees.          )
                              )

          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, Morgan Christen, Judge.

          Appearances:  Sarah J. Tugman, Anchorage, for
          Appellant.   D.  Kevin  Williams,   Assistant
          Attorney  General, Anchorage,  and  Gregg  D.
          Renkes,   Attorney   General,   Juneau,   for
          Appellee State of Alaska.

          Before:   Bryner,  Chief  Justice,  Matthews,
          Eastaugh, Fabe, and Carpeneti, Justices.

          BRYNER, Chief Justice.

I.   INTRODUCTION

          In  December  2000,  a year and a  half  after  Kenneth

Caldwell  and Jakki Thornton divorced, Caldwell and other  owners

of  Audio-Video, Inc., sold the company to a competitor; as  part

of  the  sale, Caldwell gave up his job at Audio-Video and agreed

not  to compete with the buyer for five years.  Caldwell was paid

his  share of the sale proceeds, more than $500,000, in 2000  and

2001.  More than a year later, however, in a proceeding filed  to

establish Caldwells future child support obligation, the superior

court  ruled that the sale proceeds should be counted  as  annual

income  spread  evenly  over the five-year  period  of  Caldwells

agreement  not to compete.  Caldwell appeals this  decision.   We

reverse, concluding that the sale proceeds were returned  capital

with  one-time capital gains and, absent a finding of exceptional

circumstances,  could not properly be treated as  five  years  of

income  for  the  purpose of determining Caldwells  duty  to  pay

support.

II.  FACTS AND PROCEEDINGS

          Kenneth  Caldwell and Jakki Thornton  divorced  in  May

1999.   Thornton was awarded primary custody of the  parties  two

children.   Caldwell  was ordered to pay  monthly  child  support

based on his annual earnings at Audio-Video, Inc.  a closely held

company  in which Caldwells father had given him stock comprising

a  minority interest and where Caldwell had worked since  he  was

twenty years old.  As part of the property distribution, Caldwell

was  also awarded his Audio-Video stock, which the court  treated

as being his separate property.

          In  December  2000 Caldwell sold his  stock  in  Audio-

Video.   The sale was part of a larger transaction in  which  the

companys majority shareholders apparently decided to sell out  to

a  larger competitor.  As part of the sale, Caldwell gave up  his

job  and, together with Audio-Videos other shareholders, promised

not  to compete with the new buyer for five years after the sale.

Caldwell received most of his part of the sale proceeds when  the

sale  closed in December 2000 and was paid the rest in 2001  sums

totaling  about $553,210.  After selling his shares and receiving

these  funds, Caldwell did not attempt to find a new job, relying

on the proceeds to pay his child support and usual expenses.

          Thornton  moved to Mississippi in the summer  of  2001.

Caldwell   requested  a  modification  of   the   child   custody

arrangements  and the superior court awarded him interim  custody

pending  a  child  custody  investigation.   The  custody   award

terminated  his  support payments and ordered Thornton  to  begin

paying  monthly  support  to Caldwell.  Thornton  failed  to  pay

support  while  the  children lived  with  Caldwell  but  resumed

primary  custody  in  July  2002 as recommended  by  the  custody

investigator.  Her duty to pay monthly support then  ceased,  but

she  did  not  immediately move to renew Caldwells child  support

payments.

          Several  months  later, Thornton  asked  Alaskas  Child

Support  Enforcement Division for help in obtaining support.   In

March 2003 CSED filed a motion asking the superior court to issue

a  child  support  order.  Noting that Caldwell  appeared  to  be

voluntarily  unemployed, CSED sought an order  directing  him  to

make monthly payments of $1,537  an amount calculated by imputing

future earnings to Caldwell equaling CSEDs estimate of his income

during his last full year of actual work.1

          Caldwell  opposed  CSEDs motion, objecting  that  CSEDs

imputed  income  figure  neglected  to  offset  Thorntons  unpaid

support  and  was  excessive in any event because  it  improperly

included capital gains from his Audio-Video stock sale.  Caldwell

also  denied CSEDs claim that he was voluntarily and unreasonably

unemployed,  and  he accused CSED of unfairly  assuming  that  he

could still earn as much as he did before losing his job at Audio-

Video.   He pointed out that he had sold his stock and  lost  his

job  as a result of a corporate buy-out of a company in which  he

was  a  minority shareholder.  He further emphasized that he  was

subject, for several more years, to a non-compete agreement which

does  not allow him to work in Alaska in the only field in  which

he has training and experience.  Moreover, according to Caldwell,

he  had used the buy-out proceeds to pay child support at a  much

higher rate than he would have been required to pay based on  his

actual  income during that time; he had purchased private medical

insurance  for  his children; and he had paid all their  expenses

when  they  lived  in  his custody and had  received  no  support

payments  from Thornton.  In summary, Caldwell insisted  that  he

probably at best could expect to find a minimum wage job.  If  he

          did, his income would . . . result in a child support obligation

of  less  than  $400.00 a month.  Calling CSEDs proposed  support

payment  egregiously unfair, Caldwell asked the court to set  his

child support payments at $400.

          CSED   shifted   grounds  in  replying   to   Caldwells

opposition.   Abandoning its initial approach of imputing  income

to  Caldwell  because he was voluntarily unemployed,  the  agency

proposed  a revised theory of calculating his payment   one  that

increased its original request for support by characterizing  the

buyout  proceeds as income replacing the five years  of  earnings

that Caldwell gave up by signing the agreement not to compete:

               The  stock  sale  is income  that  falls
          under [Alaska Civil Rule 90.3 Commentary  III
          A. (3), (4), (5), (7), and (8)].  Because Mr.
          Caldwell has received money for agreeing  not
          to  work,  and  in  fact is not  working  and
          instead   spending   this   money,   it    is
          appropriate   to   divide   the   $553,210.00
          received  by  five  years  (representing  the
          duration of the non compete clause), and  add
          in  the  anticipated permanent fund dividends
          over  five years to calculate a gross  annual
          income  of  $112,182.76.  After allowing  for
          deductions, Mr. Caldwell should pay $1,789.00
          per month[.] (Internal references omitted.)
          
          The  superior court accepted this theory and  issued  a

written order adopting the view that, for purposes of calculating

Caldwells  child support payments, the sale proceeds  equated  to

five years of future income:

          CSEDs  revised  calculation does  not  impute
          income   based  upon  the  theory  that   Mr.
          Caldwell  is voluntarily under employed.   It
          is  premised upon Mr. Caldwells argument that
          the  non-compete makes it impossible for  him
          to work in his chosen field, and that the buy-
          out   is   therefore  compensation  for   not
          working.  Though Mr. Caldwell argues that the
          non-compete makes it impossible  for  him  to
          achieve  income comparable to the  levels  he
          earned  before  the company  was  sold,  this
          argument  reinforces the conclusion that  the
          buy-out  should be considered as compensation
          for  not  working for a period of five  years
          and   treated  as  income  for  purposes   of
          calculating child support.
          
               CSED amortized the entire buy-out over 5
          years, and concluded that Mr. Caldwell  could
          be  fairly  assessed with $112,182 in  annual
          income.   Mr. Caldwell correctly argues  that
          this  sum  is  significantly  more  than  his
          annual  income during the years when  he  was
          working in the company.  However, a review of
          CSEDs  attached  calculation shows  that  the
          income  cap  was  applied and  Mr.  Caldwells
          adjusted  income  for child support  purposes
          was $79,524.
          
          Using  CSEDs  revised calculation,  the  court  ordered

Caldwell  to pay monthly support of $1,708 as of July  2002,  the

month when the children left Alaska and reunited with Thornton in

Mississippi.

          Caldwell   moved  for  reconsideration.    His   motion

challenged  the courts characterization of the sale  proceeds  as

payment  for  five  years of not working,  renewed  his  original

arguments,  and supplied additional documentation to support  his

position.   The  superior  court  denied  Caldwells  motion   and

confirmed  its earlier ruling, explaining its decision concerning

the sale proceeds as follows:

               Mr. Caldwells implied argument is that a
          one-time  sale of a capital asset  cannot  be
          considered to be a regular source of  income.
          However,  in this case the sale of stock  was
          coupled with Mr. Caldwells agreement  not  to
          compete  in  the same field for a  period  of
          five    years.    In   fact,   Mr.   Caldwell
          represented that he was unable to  work  much
          after the sale due to this agreement and  the
          limitation  of other employment  outside  the
          audio-video industry suited to his  education
          and  training. . . .  This appears to be  the
          basis for Mr. Caldwells assertion . . .  that
          his   net  annual  income  was  approximately
          $13,300  subsequent  to  the  sale.  .  .   .
          However, the inescapable conclusion  is  that
          Mr.   Caldwell   treated  the  net   proceeds
          received  from the stock sale as a substitute
          source  of  income for the ensuing  five-year
          period  during which he would not be  working
          in  the  audio-visual field.  These  proceeds
          constituted his primary source of income  for
          the   duration  of  the  non-compete  period.
          (Internal references omitted.)
          
          Caldwell then filed this appeal.

III. DISCUSSION

     A.   Standard of Review

          We  will reverse a superior courts child support  order

only for abuse of discretion or if the court applied an incorrect

legal standard.2  Whether the trial court used the correct method

of  calculating  child support is a matter of law,  therefore  we

give  no  deference to the trial courts decision.3  We  review  a

superior courts findings of facts used to determine child support

under the clearly erroneous standard.4

     B.   Stock Sale Proceeds

          On  appeal,  Caldwell argues that  the  superior  court

erred in basing his future child support payments on an old, one-

time  only,  receipt  of  proceeds  from  the  sale  of  personal

property.  He insists that the proceeds were payment for an asset

he sold, and also contends that the evidence fails to support the

courts conclusion that the proceeds amounted to compensation  for

him  not to work.  We agree.  The sale proceeds amounted to  one-

time capital gains, plus a return on capital.5

          In  treating  the stock sale proceeds  as  a  five-year

stream  of  income,  CSED and the superior court  relied  on  the

Commentary  to  Civil  Rule 90.3.6  But the  commentary  provides

scant support for CSEDs proposal.

            Rule 90.3(a)(1) requires child support to be based on

the non-custodial parents adjusted annual income and looks to the

parents  total  income from all sources as  the  proper  starting

point  for  calculating adjusted annual income.  These provisions

are  addressed  in Part III.A. of the Commentary  to  Rule  90.3,

which  generally advises that the rules key phrase  parents total

income from all sources  should be interpreted broadly to include

benefits  which  would have been available  for  support  if  the

family  had  remained intact.  The commentary  goes  on  to  list

twenty-nine examples of items to be included as income.   As  one

of  these examples, the commentary specifically advises courts to

include  capital gains in real and personal property transactions

          to the extent that they represent a regular source of income.7

Here,  the  superior court expressly acknowledged this  provision

but  did  not find it to be controlling and chose to give greater

weight to other listed examples.

          Specifically,   the  court  cited   Civil   Rule   90.3

Commentary III. A. (3), (4), (5), (7), and (8), which lists items

of  income  including  severance pay,8  royalties,9  bonuses  and

profit  sharing,10 income derived from self-employment  and  from

businesses  or  partnerships,11 and social  security.12   But  as

Caldwell  correctly  points out, none of  these  examples  neatly

describes his situation, a one-time sale of corporate stock.

          The court also placed weight on the commentarys general

admonition  that courts should interpret Rule 90.3(a) broadly  to

include  benefits which would have been available for support  if

the  family  had  remained  intact.13  Yet  invoking  this  broad

interpretive  principle  here  appears  problematic  for  several

reasons.

          Because  Caldwells  Audio-Video  stock  was  apparently

acquired  by  him  from his parents and awarded  to  him  in  the

divorce  as  non-marital property, it does not seem  self-evident

that  Thornton would have been entitled to count on the stock  or

its  sale  revenues  as a source of support  if  the  family  had

remained intact.  More important, even assuming that the revenues

could  properly  be  counted as income available  to  the  intact

family, they would amount to income only to the extent that  they

represented capital gains.14  And because they reflected  a  one-

time  sale  and  were non-recurring, the proceeds could  at  most

qualify  as  income accruing only in the two years when  proceeds

were  actually  paid;  absent an express finding  of  exceptional

circumstances  under Rule 90.3(c), CSEDs proposal to  spread  two

years  of  payments  over  a span of five  years  would  directly

conflict  with the policies underlying Rule 90.3s cap  on  annual

income.         In reaching the contrary conclusion and  treating

the  sale  proceeds  as a five-year income stream,  the  superior

          court found it determinative that Caldwell agreed to a five-year

non-compete agreement that left him unable to work much after the

sale.   But these findings are as problematic as reliance on  the

commentary  to  Rule  90.3.  They hinge on the  assumptions  that

Caldwell  voluntarily chose to sell his business to a competitor,

that  he  separately opted to sign a five-year agreement  not  to

compete,  and that the entire payment amount was attributable  to

the agreement not to compete.  As it currently stands, the record

does   not  fairly  support  these  assumptions.   Caldwell   has

consistently asserted that he owned a minority interest in Audio-

Video;  CSED has not refuted, or even contested, this  assertion.

As  a minority shareholder, Caldwell potentially had no power  to

prevent  the  majority shareholders from selling  the  company.15

Moreover,  the covenant not to compete appears to  have  been  an

ordinary  and integral condition of the contract for the companys

sale,  a provision that all shareholders were required to accept.

We see no realistic basis, then, for viewing the sale proceeds as

merely reflecting a payment for Caldwells willingness to sign the

agreement not to compete.

          The superior court appears to have faulted Caldwell  to

a   certain   extent   for  neglecting  to  fully   explain   the

circumstances surrounding the sale and for failing to  prove  the

exact value attributable to his promise not to compete.  But CSED

first raised its proposal to characterize the sale proceeds as  a

five-year  revenue stream at a late stage in the case:  when  the

agency   filed  its  reply  memorandum  to  Caldwells  memorandum

opposing  its  original  theory.   CSED  thus  left  Caldwell  no

opportunity  to  respond to its revised theory before  the  court

issued  its ruling.  Caldwells only recourse, then, was  to  seek

reconsideration  of  a  decision  that  had  already  been  made.

Moreover,  as  the  proponent of the new  theory,  CSED  had  the

primary  burden of justifying this unusual method of calculation.

Although  Caldwells  superior knowledge of  the  sales  financial

details  might  have  given the court  good  reason  to  consider

          shifting part of the burden to him, the court never expressly did

so;  thus, when Caldwell moved for reconsideration, he lacked any

clear notice of what the court expected him to show.  Given  this

unusual procedural backdrop, we think it unfair to fault Caldwell

for failing to make a more detailed showing.

          While   CSED   attempts   to  support   its   view   by

distinguishing  authorities  cited  by  Caldwell,  it  cites   no

persuasive  authority bolstering its own proposal to  treat  sale

proceeds actually paid in 2000 and 2001 as a continuous five-year

income  stream.  Moreover, even if we accepted the  premise  that

CSEDs  proposed approach might be appropriate in certain  unusual

settings,  the  existing  record  indicates  that  this  approach

presents an unrealistic picture of the transaction disputed here.

          On  the  one hand, even assuming that Caldwell actually

wanted  to  sell  the  business, had a say  in  the  matter,  and

actively negotiated the covenant not to compete as a way to avoid

five  years  work,  we  see no evidence to  justify  valuing  his

promise  not  to compete as being worth more than he  would  have

earned  had  he  remained employed at Audio-Video  earnings  that

would evidently lead to an adjusted income falling well below one

attributed  to  him  under CSEDs five-year income-stream  method.

Caldwells  post-sale  willingness to remain unemployed  does  not

point to a different conclusion.  To the contrary, uncontroverted

evidence  offered by Caldwell seems to show that he maintained  a

modest lifestyle after the sale, spending only limited amounts of

the proceeds for his ordinary living expenses  a pattern strongly

supporting Caldwells position that the proceeds were not merely a

substitute  for  five years of lost earnings.  Even  viewing  the

record  in the light least favorable to Caldwell, then,  it  does

not  realistically  support  valuing the  proceeds  as  exceeding

Caldwells prior earnings.16

          On  the  other hand, if we assume that Caldwell had  no

voice in bringing about the sale, that he involuntarily lost  his

job  and  his  ability to obtain similar work, and  that  he  has

          accurately described the limited extent of his current earning

capacity   issues  that  were  left unresolved  below   then  his

willingness  to  remain  unemployed and  use  sale  proceeds  for

support  would at most demonstrate little more than a voluntar[y]

and unreasonabl[e]17 choice to forgo a limited regular income  an

income worth only a fraction of the one that he formerly earned.18

Viewed  in the light most favorable to Caldwell, then, the record

would  support  treating only a minor part  of  the  proceeds  as

continuing income.

          Accordingly, although we recognize that these differing

views  of the record could easily support different child support

calculations,  we hold that no tenable view of the  record  could

justify  dividing  the entire amount of the  proceeds  into  five

equal annual income payments accruing under Rule 90.3(a).19

          We  emphasize  that this holding does  not  necessarily

mean that the sale proceeds could have no further bearing on  the

appropriate level of Caldwells child support payments.

          The   continued  availability  of  these  funds   could

conceivably  be treated as an exceptional factor warranting  some

increase in Caldwells support obligation.20  But reliance on  the

proceeds availability as an exceptional factor warranting further

adjustment  could  only  be  justified  if  the  superior   court

considered  the  totality  of  the circumstances,  including  the

childrens need for support and Thorntons income, and only  if  it

then made express findings conforming to the requirements of Rule

90.3(c)  a matter that the superior court has not yet considered.21

IV.  CONCLUSION

          We therefore REVERSE the child support order and REMAND

for further proceedings to establish Caldwells support obligation

in a manner consistent with this opinion.

_______________________________
     1     Caldwells  gross  wages from his work  at  Audio-Video
during  the  last year he worked there, 2000, were  approximately
$63,000.

     2    Beaudoin v. Beaudoin, 24 P.3d 523, 526 (Alaska 2001).

     3    Turinsky v. Long, 910 P.2d 590, 593 n.10 (Alaska 1996).

     4    Routh v. Andreassen, 19 P.3d 593, 595 (Alaska 2001).

     5    The record indicates that Caldwells basis on the stocks
was approximately $90,000.

     6     Although  the  commentary to Rule 90.3  has  not  been
officially adopted, we have previously noted that it can  provide
useful guidance in applying the rule.  See Eagley v. Eagley,  849
P.2d 777, 779 (Alaska 1993).

     7     Alaska  R.  Civ.  P. 90.3 Commentary  Part  III.A.(16)
(emphasis added).

     8    Id. at (3).

     9    Id. at (4).

     10    Id. at (5).

     11    Id. at (7).

     12    Id. at (8).

     13    Alaska R. Civ. P. 90.3 Commentary Part III.A.

     14    See, e.g., Robinson v. Robinson, 961 P.2d 1000, 1003 &
n.3 (Alaska 1998) (allowing non-custodial spouses sale of land to
be  treated  as  income,  but only to extent  that  the  proceeds
represented capital gains or payments of interest).

     15    Cf. Alaska Plastics, Inc. v. Coppock, 621 P.2d 270, 273-
74  (Alaska 1980) (noting that majority shareholders who  control
[and]  operate policy are in a unique position to squeeze  out  a
minority shareholder).

     16    Cf. Ogard v. Ogard, 808 P.2d 815, 819-20 (Alaska 1991)
(suggesting that special circumstances to justify imputing income
under Rule 90.3(c) might arise if non-custodial parent liquidated
income-producing  assets and reinvested them to  avoid  producing
income in order to lower child support payments).

     17    Alaska R. Civ. P. 90.3 Commentary Part III.C.

     18    See Johansen v. State, 491 P.2d 759, 769 (Alaska 1971)
(citing  Houger  v. Houger, 449 P.2d 766, 770 (Alaska  1969)  for
proposition  that a parents inability to work at a  chosen  trade
doesnt excuse child support obligation or justify failure to seek
other work).

     19     Our  decision  makes it unnecessary to  decide  other
points raised in Caldwells briefs.

     20    As we have recognized on other occasions, when a court
is  asked  to reduce a child support obligation where the  parent
seeking the reduction is temporarily employed at an income  level
that  does not accurately reflect past and future income  levels,
the court may properly consider the availability of liquid assets
to  satisfy an ongoing child support obligation.  Patch v. Patch,
760  P.2d  526, 530 (Alaska 1988); see also Nass v.  Seaton,  904
P.2d  412,  416 & n.8 (Alaska 1995) (gift to obligor  parent  not
income  under  Rule 90.3 but may be considered under  90.3(c)  if
clear  and  convincing evidence shows that variation  to  include
gift  is  necessary to avoid manifest injustice); cf. Clemans  v.
Collins,   679   P.2d  1041,  1041-42  (Alaska   1984)   (parents
imprisonment  amounts  to  changed  circumstance  for   modifying
support  absent  showing that parent has income  or  assets  from
which  support can be paid); Houger v. Houger, 449 P.2d 766,  771
(Alaska  1969)  (cited in Patch for proposition that  ability  to
sell assets may be considered when parent disabled and unable  to
work).

     21    See Nass, 904 P.2d at 416 n.8.