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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  

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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.  


                    Malcolm and Mallory were married and had three children.1  

                                                                                                                In August  


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  


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.


        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.  


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



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  


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

                                                                         The  correct legal standard for a child  


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



          "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  



          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

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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  



          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  


                    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  


                    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

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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  


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  



                 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

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          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  




                              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  



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.


                   Id. at 524.  

          25       Id. at 525.  


          26       Id.  


          27       Id. at 524-25, 527.  


                                                              -8-	                                                      6826

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                   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  


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

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 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  



                   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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