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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Mallory D. v. Malcom D. (9/20/2013) sp-6826

Mallory D. v. Malcom D. (9/20/2013) sp-6826, 309 P3d 845

         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,  email  

          corrections@appellate.courts.state.ak.us.  



                    THE SUPREME COURT OF THE STATE OF ALASKA  



MALLORY D.,                                              )  

                                                         )        Supreme Court No. S-14715  

                            Appellant,                   )  

                                                         )        Superior Court No. 3PA-09-01846 CI  

         v.                                              )          

                                                         )  

MALCOLM D.,                                              )        O P I N I O N  

                                                         )  

                            Appellee.                    )        No. 6826 - September 20, 2013  

                                                         )  



                   Appeal from the Superior Court of the State of Alaska, Third  

                                                                  

                   Judicial District, Palmer, Eric Smith, Judge.  



                   Appearances:  Mallory D., pro se, Palmer, Appellant.  Tara  

                   Logsdon  and  J.  Matthew  Hayes,  Golter  &  Logsdon,  P.C.,  

                                                         

                   Palmer, for Appellee.  



                   Before:  Fabe, Chief Justice, Winfree, Stowers, Maassen, and  

                                                                                      

                   Bolger, Justices.   



                   BOLGER,  Justice.  



          I.       INTRODUCTION  



                   A mother appeals from an order modifying her child support obligation.  



She argues that the court improperly calculated the father's self-employment income and  



also erred by imputing a 40-hour workweek when calculating her income.  We agree that  

                                               



the court did not conduct a sufficiently probing review of the father's business expenses,  

                                                                                 



reimbursements, and in-kind contributions to determine his adjusted annual income for  

                                                                                                             



child  support  purposes.             And  the  superior  court  erroneously  ruled  that  controlling  

                                              


----------------------- Page 2-----------------------

precedent  required  the  court  to  conclude  that  the  mother  was  underemployed.    We  



therefore reverse and remand for recalculation of the child support award.  



II.       FACTS AND PROCEEDINGS  

                    Malcolm and Mallory were married and had three children.1  

                                                                                                                In August  



                                                                                  2  

2009   they  filed   a   petition   for   dissolution   of   marriage.                                       

                                                                                      Following  the  entry  of  the  

dissolution decree, Mallory filed a motion to modify custody on May 5, 2010.3  

                                                                                                                       After  



litigation in superior court and an appeal to this court, the parties were granted joint legal  

                                                            



custody and shared physical custody of their two daughters, and Malcolm was granted  

primary custody of their son.4  



                    On remand, the parties filed several proposed child support orders; they  



disputed the amount of Malcolm's income and whether Mallory was voluntarily and  

                                



unreasonably underemployed.  The superior court held an evidentiary hearing regarding  

                                                                          



child support on February 21, 2012.  Mallory testified that she worked an average of 30  

                                                                                       



hours per week.  Her wages were $18.00 per hour.  She explained that her employer was  

                                



a construction company that did not have full-time work for her, especially in the winter  



season.  But her employment schedule also allowed her to drive her daughter to and from  

                                                                                                                



school during the weeks that she was exercising custody, so that she did not have to use  

                                                                                     



day care.  Mallory testified that she had applied for full-time employment in Anchorage  

                                                                            



without success.  Malcolm testified that he owned a business that applied urethane foam  

                           



insulation.  He explained that the income tax figures used in his child support guidelines  



affidavit were based on information that he received from his accountant.  



          1        Mallory D. v. Malcolm D. , 290 P.3d 1194, 1197 (Alaska 2012).  We use  

                                                                                                                     

             

the same pseudonyms in this case that we used in our previous opinion.  



          2        Id.
  

                         



          3
        See id. at 1197-98.  



          4         See id. at 1198-1200, 1207.  

             



                                                              -2-                                                       6826
  


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                    At the close of the hearing, the court invited the parties to submit post- 



hearing briefing regarding (1) Malcolm's deductions for the business use of his home and  



(2)  imputation  of  income  for  Mallory.    After  considering  the  parties'  post-hearing  

                                                                                                   



briefing, the superior court determined that Malcolm's income should be as stated in his  

                                                                                                                  



2011 federal income tax return and that Mallory's income would be imputed at the rate  

                                                                                                                     



of $18 per hour for full-time employment.  The court issued a new child support order  



effective June 1, 2010.  Mallory appeals from this order.  



 III.     STANDARD OF REVIEW  



                    We may reverse a child support award if the trial court abuses its discretion  

                                                                                              



                                                         5  

or applies an incorrect legal standard.  

                                                             "We will find an abuse of discretion when our  



review of the record leaves us with a 'definite and firm conviction based on the record  



                                                                     6  

as a whole that a mistake has been made.' "                                      

                                                                         The  correct legal standard for a child  



                                                                                                              7  

support determination is a question of law that we review independently.   



                                                                                                                                  8  

                                                                                                                       

          "Whether a party is voluntarily underemployed is essentially a question of fact." 



                                                                                                     

"We set aside a trial court's factual findings only if they are clearly erroneous, including  



          5         Beaudoin v. Beaudoin , 24 P.3d 523, 526  (Alaska  2001) (citing Sanders  

                                                                                                   

             

v. Sanders, 902 P.2d 310, 313 (Alaska 1995)).  



          6         Id. at 526 (quoting Kowalski   v. Kowalski, 806   P.2d   1368, 1370 (Alaska  

             

 1991)).  



          7         Id. (citing Marine v. Marine , 957 P.2d 314, 316 (Alaska 1998)).  

             



          8          Ward  v.  Urling,    167   P.3d   48,   52   (Alaska   2007)  (citing  Robinson v.  

             

Robinson , 961 P.2d 1000, 1004 (Alaska 1998)).  



                                                                -3-                                                         6826
  


----------------------- Page 4-----------------------

                                                                              9  

a trial court's findings regarding a party's income."   We review the superior court's  

                                                                                                    

decision to impute income for abuse of discretion.10  

                                                                              



IV.	      DISCUSSION  



          A.	       The  Superior  Court  Erred  By  Failing  To  Examine  Malcolm's  Self- 

                                           

                    Employment Income And Expenses.  



                    Alaska Civil Rule 90.3(a)(1) states that "[a]djusted annual income as used  

                                                                



in this rule means the parent's total income from all sources minus" certain mandatory  

                                                                  



deductions, voluntary retirement contributions, child support and alimony payments, and  

                                                                                          

child care expenses.11  

                                  The commentary to Rule 90.3 states:  



                    Income from self-employment . . . includes the gross receipts  

                    minus  the  ordinary  and  necessary  expenses  required  to  

                    produce the income . . . . Expense reimbursements and in- 

                                       

                    kind payments such as use of a company car, free housing or  

                                                                                       

                    reimbursed meals should be included as income if the amount  

                                                                                  [12] 

                    is significant and reduces living expenses.  



This court has approved a superior court's decision to disallow business deductions if  

those expenses significantly reduced the parents' living expenses.13  



                    In this case, the superior court credited Malcolm's testimony, and found that  

                                                                            



his 2011 tax return accurately reflected his income.  The court found that  Malcolm's  



          9         Id. (citing  Bennett v. Bennett ,  6  P.3d  724, 726 (Alaska 2000); Koller v.  

                                                                              

             

Reft , 71 P.3d 800, 804 (Alaska 2003)).  



          10        Helen  S.K.  v.  Samuel  M.K. ,  288  P.3d  463,  473  (Alaska  2012) (citing  

                                                                                                                       

              

O'Connell v. Christenson, 75 P.3d 1037, 1039 (Alaska 2003)).  



          11	       Alaska R. Civ. P. 90.3(a)(1)(A)-(E).  



          12        Alaska R. Civ. P. 90.3 cmt. III.B.  



          13        Coghill v. Coghill, 836 P.2d 921, 926 (Alaska 1992)  (affirming the superior  

                                                                     

court's denial of various deductions).  



                                                              -4-	                                                       6826
  


----------------------- Page 5-----------------------

home office was an "ordinary and necessary" business expense.  The court's order did  



not discuss the extent to which expense reimbursements and in-kind  payments were  

                                                                                                            



"significant and reduce[d] living expenses."  



                    Mallory argues that the superior court erred by failing to require proof of  

                                             



Malcolm's ordinary and necessary business expenses.  In response, Malcolm claims that  

                                                                                  



his 2011 tax return contained an accurate reflection of his business expenses for that year.  



                    At  the  hearing,  the  superior  court  questioned  Malcolm's  deduction  for  

                                                                                                               



business use of his home, which was apparently based on the use of his heated shop to  

                                                          



store  the  truck  containing  his  urethane  material.                       But in  its  final  decision,  the  court  

                                                                                                      



approved the deduction for Malcolm's use of his home.  



                    In  Mallory's  post-hearing  briefing,  she  contended  that  about  $4,933  of  



Malcolm's personal fuel purchases were being passed off as business expenses.  Mallory  

                                                                                                        



repeated this argument in a motion for reconsideration.  She pointed out that $4,078 in  



fuel purchases were made at the Holiday station in Meadow Lakes, which is the station  

                                             



that Malcolm uses to fuel up his snowmachines on his way to his family cabin.  In her  

                                             



motion for reconsideration, Mallory also objected to several other business expenses that  

                  



she contended were actually for personal groceries, meals, cell phones, and recreational  

                                                                                                



goods.  The court did not mention these other business expenses in its final decision;  

                                                                        



instead, it simply approved the deduction of the expenses shown on Malcolm's income  

                                                                                        



tax  return.        On  appeal,  Malcolm  argues  that  all  of  these  business  expenses  were  



legitimate.  



                    Mallory  also  argues  that  the  court's  reliance  on  Malcolm's  tax  return  



income of $29,224 was erroneous because Malcolm had transferred $94,669 from his  



business account to his personal account during calendar year 2011 and because his tax  

                                                                                                       



return income does not match his current lifestyle.  Malcolm responds that these transfers  

                                              



(and his personal expenditures) do not necessarily document his business income because  

                                                                                          



                                                               -5-                                                          6826
  


----------------------- Page 6-----------------------

they could be due to expense reimbursements, non-cash expenses like depreciation, or  



simply funds that were borrowed.  



                    The  superior  court's  order  did  not  address  whether  the  expenses  that  

                           

                                                                                                            



                                                                                  14                                     15 

                                                                     

Malcolm claimed actually reduced his living expenses.                                  In Swaney v. Granger,                we      



recently explained:  



                    The [Civil Rule 90.3(a)] commentary specifically addresses  

                    the  situation  of  a  self-employed  parent,  prescribing  that  

                                                                                    

                    "[i]ncome  from  self-employment  .  .  .  includes  the  gross  

                    receipts minus the ordinary and necessary expenses required  

                    to produce the income." . . .  The commentary lists certain  

                    business expenses that are allowed by the IRS for federal tax  

                                                

                    purposes  that  are  not  appropriate  when  calculating  child  

                                                 

                    support, and it notes that "[e]xpense reimbursements and in- 

                                                          

                    kind payments such as use of a company car, free housing or  

                                                                

                    reimbursed meals should be included as income if the amount  

                                                                                              

                    is significant and reduces living expenses."[16]  



                                                                                               

In  Swaney,  we  reversed  the  child  support  order  because  "the  superior  court  did  not  



examine the affairs of [the ex-husband's] business in relation to his personal finances to  



determine his adjusted annual income, nor did it meaningfully discuss or analyze the  

                                    

deductions claimed by the business."17  

                                                                                                                

                                                         We explained that "the commentary to Rule 90.3  



makes  clear  that  a  probing  review  of  [the  ex-husband's]  -  and  his  business's  -  



          14        See Alaska R. Civ. P. 90.3 cmt. III.B ("Expense reimbursements and in-kind  



payments such as use of a company car, free housing or reimbursed meals should be  

included as income if the amount is significant and reduces living expenses.").  



          15        297 P.3d 132 (Alaska 2013).  



          16        Id. at 138 (alterations in original) (footnotes omitted) (citations omitted).  

              



          17        Id.  

              



                                                              -6-                                                        6826
  


----------------------- Page 7-----------------------

financial affairs must be conducted to determine his adjusted annual income for child  

                                                    

support purposes."18  



                   The applicable commentary thus requires the superior court to consider the  



extent to which Malcolm's reimbursements and in-kind contributions were "significant  



                                            19  

and reduce[d] living expenses."  

                                                 

                                                                                           

                                                Mallory has identified several areas where Malcolm's  



reimbursements and in-kind contributions could have significantly reduced his living  



expenses.    We  thus  conclude  that  the  superior  court  did  not  apply  the  correct  legal  

                                                                                                   

standard.20  

                 We must reverse and remand for the superior court to determine whether  



Malcolm's   claimed   business   expenses   were   legitimate   and   whether   Malcolm's  



reimbursements and in-kind contributions significantly reduced his living expenses.  



                   Mallory  also  argues  that  the  superior  court  erred  by  failing  to  address  

                                                                                                 

Malcolm's 2010 income.  The child support order was effective June 1, 2010.21  

                                                                                                               We note  



that the superior court had a copy of Malcolm's 2010 tax return, which was attached to  



his  child  support  guidelines  affidavit  filed  on  August  9,  2011.    This  return  shows  

                                                                                     



substantially  higher  self-employment  income  that  would  support  income  for  child  



support  purposes  in  the  amount  of  $62,348.    On  remand,  the  superior  court  should  



consider Malcolm's actual 2010 income and either enter a separate child support order  

                                                                                 



for 2010 or average Malcolm's income to calculate child support.  



          18       Id. (emphasis added).  



          19       Alaska R. Civ. P. 90.3 cmt. III.B.  



         20        See Beaudoin, 24  P.3d  at 526   (explaining  that   a   child   support award will  

              

be reversed if the superior court applied the incorrect legal standard).  



         21        Boone v. Boone , 960 P.2d  579,  585 (Alaska   1998) (stating that the service  



date of a motion to modify   child support is the preferred effective date of a modified  

child support order).  



                                                           -7-                                                     6826
  


----------------------- Page 8-----------------------

          B.	       The Superior Court Was Not Required To Impute Mallory's  

                    Income From Full-Time Employment.  



                    When calculating child support, the superior court may impute additional  

                                                                                       



income  to  a  parent  if  the  court  finds  the  parent  is  voluntarily  and  unreasonably  

                                                                                  



                        22  

underemployed.                                                                                       

                              Mallory  argues  that  the  superior  court  erred  when  it  imputed  



                                                                                              

additional income to make her child support income equivalent to a full-time job at $18  

per hour.  We conclude that the superior court erred when ruling that under  Beaudoin23  



                                                                                                             

it was required to "impute full-time income to a parent who could work full-time but  



chooses not to in order to meet their children's scheduling needs."  In so ruling, the  



superior court misinterpreted our holding in Beaudoin .  



                    In Beaudoin , the father, Michael, claimed that his ex-wife Georgia was  

                                                                       

voluntarily underemployed.24  

                                              Georgia worked  without any compensation in her new  



                                                                                                                             25  

                                           

domestic partner's business, and she chose not to seek gainful employment elsewhere. 



Georgia's partner estimated her work "was worth at least $7 per hour"; "Georgia held  



herself  out  to  be  a  co-owner  of  the  business";  and  "her  friends  described  her  as  a  

businesswoman who devoted substantial time to the business."26  

                                                                                                 Michael pointed out  



                                          

that Georgia had previously held a job, and he submitted a vocational counselor's report  

stating that Georgia could find work paying $15 to $16 per hour.27  



          22        Sawicki v. Haxby, 186 P.3d 546, 550 (Alaska 2008).
  



          23        24 P.3d 523.
  



          24
  

                   Id. at 524.  



          25       Id. at 525.  

              



          26       Id.  

              



          27       Id. at 524-25, 527.  

              



                                                              -8-	                                                      6826
  


----------------------- Page 9-----------------------

                   In Beaudoin , the superior court denied Michael's request for an evidentiary  

hearing on the issue of underemployment.28  

                                                                 On appeal, we reversed and remanded for  



an evidentiary hearing because Michael had presented substantial evidence that Georgia  

                                              



would be capable of earning significantly more money and that she declined to seek  



employment, which raised genuine issues of material fact as to whether Georgia was  

"voluntarily and unreasonably" underemployed.29  

                                                                           We identified the relevant inquiry  



under  Civil  Rule 90.3 as "whether a parent's current situation and earnings reflect a  

                   

voluntary and unreasonable decision to earn less than the parent is capable of earning."30  

                                                                                                



We  emphasized  that  we  were  merely  remanding  for  an  evidentiary  hearing,  and  we  



                                                                                                31  

expressed no opinion as to the ultimate validity of Michael's claim.                                We explained that  

                                                                                                     



it was  "important . . . to observe that Rule 90.3(a)(4) does not rigorously command  



pursuit of maximum earnings.  The rule's more modest objective is to give courts broad  

                                                                                 



discretion to impute income based on realistic estimates of earning potential in cases of  

voluntary and unreasonable unemployment or underemployment."32  



                    Thus, contrary to the superior court's ruling in this case, Beaudoin does not  

                                                                          



establish a bright-line rule that "the court must impute full-time income to a parent who  



could  work  full-time  but  chooses  not  to  in  order  to  meet  their  children's  scheduling  



needs."  This error requires reversal in this case.  There was evidence that Mallory was  

                                                                                         



not  voluntarily  and  unreasonably  underemployed,  including  her  testimony  that  her  



employer could not offer her more hours and that she had applied for other full-time jobs.  

                                           



          28       Id. at 525.  

              

          29       Id. at 530.  



          30       Id. at 528 (citing Alaska R. Civ. P. 90.3(a)(4) & cmt. III.C).  



          31       Id. at 530.  



          32       Id.  

                         



                                                             -9-                                                       6826
  


----------------------- Page 10-----------------------

 There is very little record support for the court's conclusion that Mallory could earn $18  

                                                                                                      



per  hour  at  full-time  employment.    On  remand,  the  superior  court  should  determine  



whether  Mallory  was  voluntarily  and  unreasonably  underemployed  considering  the  

totality of circumstances.33  

                                       



V.       CONCLUSION  



                   We  REVERSE  the  superior  court's  order  modifying  child  support  and  

remand for further proceedings consistent with this opinion.34  



         33        Id. at 528 (citing Alaska R. Civ. P. 90.3 cmt. III.C; Pugil v. Cogar , 811 P.2d   



1062, 1066 (Alaska 1991)); see also Sawicki, 186 P.3d at 550 (explaining that the totality     

of  circumstances  "include  such  factors  as  whether  the  obligor's  reduced  income  is  

temporary, whether the change is 'the result of economic factors or of purely personal  

choices,' the children's needs, and the parents' needs and financial abilities") (footnotes  

                                                                  

omitted) (citations omitted).  



         34        Because  we  remand  for  further  proceedings,  we  do  not  need  to  reach  



Mallory's additional arguments.  



                                                          -10-                                                       6826  

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