Title: Fleenor v. Fleenor

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Fleenor v. Fleenor1999 WY 164992 P.2d 1065Case Number: 98-295Decided: 12/09/1999Supreme Court of Wyoming
 
DIANA 
W. FLEENOR, n/k/a DIANA W. McDOUGAL, Appellant (Defendant),

v.

JAMES FLEENOR, Appellee 
(Plaintiff).

 

Appeal from the District 
Court of Laramie County, Honorable Nicholas G. Kalokathis, 
Judge.

G. Kevin Keller, 
Cheyenne, Wyoming, representing Appellant.

Mark A. Bishop 
and Stacey L. Best of Bishop Law Offices, Cheyenne, Wyoming, representing 
Appellee.

Before 
LEHMAN, C.J., and THOMAS, MACY, GOLDEN and HILL, JJ.

Golden, 
Justice.

[¶1]      In this case we 
must decide to what extent business debt reduction payments, fluctuating income, 
and joint interest are to be considered when determining "net income" available 
for child support. Appellant Diana W. McDougal (Mother) challenges the district 
court's order that denied her petition to modify child support. She claims that 
the district court abused its discretion in calculating Appellee James Fleenor's 
(Father) net income by improperly ruling the principal portion of a business 
mortgage is deductible as a reasonable unreimbursed legitimate business expense; 
applying income averaging; and not including joint interest and dividend income. 
We affirm the district court's order denying the petition to modify child 
support. 

ISSUES

[¶2]      Mother presents 
these issues for our review:

Whether the 
trial court made the following errors in calculating the Appellee's net income 
for purposes of determining presumptive child support:

(1) That the 
Appellee's principal debt reduction payment associated with a business mortgage 
is deductible;

(2) That the 
Appellee does not have to include one-half (1/2) of the interest income reported 
on his joint income tax return; and,

(3) That the 
Appellee is entitled to use income averaging in determining his net 
income.

Father rephrases 
the issues:

1. The Trial 
Court properly held that there had not been a 20% change in the presumptive 
child support amount and, therefore, the Trial Court's denial of Defendant's 
Petition to Modify Child Support was not an abuse of 
discretion.

1. Payments made 
by [Father's] sole proprietorship business in order to reduce debt, both 
principal and interest, are a reasonable, unreimbursed, legitimate business 
expense under Wyoming Statute § 20-6-301.

2. Interest 
income attributable to [Father's] spouse should not be included in his income 
for purposes of determining child support.

3. [Father's] 
income was appropriately calculated by averaging his income over a three (3) 
year period.

FACTS

[¶3]      The Fleenors 
married on June 11, 1983, and had one child during their marriage. In 1987, 
Father borrowed money and built a gas station/convenience store. While he 
operated the business as a sole proprietorship, Mother taught school for the 
Laramie County School District. Father filed for divorce on December 29, 
1993.

[¶4]      Mother received 
$250,000.00 as a property settlement and was granted custody of the child. 
Father received substantial and liberal visitation and was ordered to pay 
$800.00 per month in child support. He was awarded all interest in the business. 
Father's income from his business increased, and in 1995, the parties agreed 
Father's child support obligation should be increased to $1,330 per month, 
subject to $230 per month abatement. The district court ordered Father to pay 
support of $1,100.00 per month for the child.

[¶5]      In 1996, to 
remain competitive in his business, Father borrowed approximately $400,000.00 
and built a car wash adjoining his business premises. He makes monthly principal 
and interest payments on the loan amount, now standing at a little over 
$389,000.00. Father moved to Huntsville, Texas, in 1997 and petitioned to modify 
the divorce decree regarding visitation. Mother responded by petitioning to 
modify child support and visitation, contending that there had been a twenty 
percent change in the presumptive child support amount.

[¶6]      Mother disputed 
the income figures that Father submitted, primarily because Father deducted the 
monthly payments that he paid on the car wash business debt. At an unrecorded 
hearing, the district court ordered briefs on the issue. Briefs were submitted 
on the specific issue of whether the principal portion of a business debt was 
deductible as a reasonable unreimbursed legitimate business expense. Based on 
the authorities in Father's brief, the district court permitted the deduction of 
principal debt reduction payments. Later a hearing was held on both petitions. 
At that hearing, Father testified that he would agree to bear 100% of the 
visitation transportation costs, and his expert witness testified as to interest 
and dividend income attributable to him and that attributable to his spouse. 
Father's expert established that Father's income fluctuated almost every year 
that he was in business; dropping in 1996 from 1995 when he acquired the car 
wash debt; increasing in 1997; and declining for a part of 1998. Father 
submitted financial computations based on income averaging for the three years 
of 1995, 1996, and 1997.

[¶7]      Following that 
hearing, the district court ordered Father to bear 100% of the visitation 
transportation costs, found it appropriate to average Father's income over the 
specified three year period, and accepted his monthly net income figure that was 
based on his expert's testimony of the interest and dividend income attributable 
to him. Based on these findings, the district court ruled that the statutorily 
required twenty percent change in the presumptive child support amount had not 
been established and denied Mother's petition to modify the child support 
amount. The district court determined that Father's child support should be 
increased, however, because his child from another marriage would reach majority 
in August of 1998. Finding that Father's net monthly income was $10,808.00 per 
month, the Court ordered him to pay $1,370.00 per month less abatement when the 
child stayed with Father. This appeal followed.

DISCUSSION

Standard of 
Review

[¶8]      Modification of a 
child support order is appropriate only when there has been a subsequent 
material and substantial change in circumstances. Garver v. Garver, 981 P.2d 471, 472 (Wyo. 1999). "If, upon applying the presumptive child support to the 
circumstances of the parents or child at the time of the review, the court finds 
that the support amount would change by twenty percent (20%) or more per month 
from the amount of the existing order, the court shall consider there to be a 
change of circumstances sufficient to justify the modification of the support 
order." Wyo. Stat. Ann. § 20-6-306(a) (LEXIS 1999). A[T]he determination of the 
district court with respect to . . . calculation of income for purposes of child 
support . . . will not be overturned on appeal unless the record demonstrates a 
clear abuse of discretion." Scherer v. Scherer, 931 P.2d 251, 253-54 (Wyo. 
1997).

[¶9]      We review a 
decision issued upon a petition to modify a child support order under an abuse 
of discretion standard. We recently defined discretion as:

Judicial 
discretion is a composite of many things, among which are conclusions drawn from 
objective criteria; it means a sound judgment exercised with regard to what is 
right under the circumstances and without doing so arbitrarily or 
capriciously.

Vaughn v. State, 
962 P.2d 149, 151 (Wyo. 1998) (quoting Martin v. State, 720 P.2d 894, 897 (Wyo. 
1986)). Income Determination

Statutory 
Deductions.

[¶10]   Presumptive child support is 
determined by combining the net income of both parents and applying the total 
amount to the tables as set forth in the statutes. Wyo. Stat. Ann. § 20-6-304 
(LEXIS 1999). Income is defined in Wyo. Stat. Ann. § 20-6-301(a)(i) (LEXIS 
1999):

(a) As used in 
this article:

(i) "Income" 
means any form of payment or return in money or in kind to an individual, 
regardless of source. Income includes, but is not limited to wages, earnings, 
salary, commission, compensation as an independent contractor, temporary total 
disability, permanent partial disability and permanent total disability worker's 
compensation payments, unemployment compen-sation, disability, annuity and 
retirement benefits, and any other payments made by any payor, but shall not 
include any earnings derived from overtime work unless the court, after 
considering all overtime earnings derived in the preceding twenty-four (24) 
month period, determines the overtime earnings can reasonably be expected to 
continue on a consistent basis. In determining income, all reasonable 
unreimbursed legitimate business expenses shall be deducted. Means tested 
sources of income such as Pell grants, aid under the personal opportunities with 
employment responsibilities (POWER) program, food stamps and supplemental 
security income (SSI) shall not be considered as income. Gross income also means 
potential income of parents who are voluntarily unemployed or 
underemployed[.]

(emphasis 
added). The income used to calculate the child support obligation is "net 
income," defined as: 

(ii) "Net 
income" means income as defined in paragraph (i) of this subsection less 
personal income taxes, social security deductions, cost of dependent health care 
coverage for all dependent children, actual payments being made under 
preexisting support orders for current support of other children, other 
court-ordered support obligations currently being paid and mandatory pension 
deductions, arrearage payments excluded.

Wyo. Stat. Ann. 
§ 20-6-301(a)(ii) (LEXIS 1999).

[¶11]   In determining a parent's income 
for a presumptive child support obligation, "all reasonable unreimbursed 
legitimate business expenses shall be deducted." Roseman v. Sackett, 979 P.2d 940, 943 (Wyo. 1999). Mother contends that the district court abused its 
discretion by deciding that Father's principal debt reduction payment associated 
with a business mortgage (principal payment) is deductible as a reasonable 
unreimbursed legitimate business expense in determining his income. Father 
contends that, in certain cases, the statutory term applies to mortgage 
principal paid for an income producing asset. We have not addressed this issue 
before.

[¶12]   North Carolina and Montana do not 
allow principal payments as a legitimate business expense. Barham v. Barham, 487 S.E.2d 774, 778 (N.C. App. 1997); Lawrence v. Tise, 419 S.E.2d 176, 182 (N.C. 
App. 1992); In Re Marriage of Nikolaisen, 847 P.2d 287, 292 (Mont. 1993). In 
Barham, principal payments constitute value retained "unlike expenses for 
repairs, property management and leasing fees, real estate taxes, insurance and 
mortgage interest all of which are spent money never to be regained by the 
spender." Barham, 487 S.E.2d  at 778. Similarly, although interest on the 
mortgage would be a legitimate business expense, Montana considers principal 
applied to the mortgage each year increases net equity and should not be allowed 
as a deduction for child support purposes. Nikolaisen, 847 P.2d  at 
292.

[¶13]   Illinois, Indiana, Colorado, and 
Delaware appear to find it discretionary whether principal payments should be 
deducted from net income for child support purposes. Rimkus v. Rimkus, 557 N.E.2d 638, 642-43 (Ill. App. 1990); In re Marriage of Lefler, 542 N.E.2d 1, 5 
(Ill. App. 1988); Zakrowski v. Zakrowski, 594 N.E.2d 821, 824 (Ind. App. 1992); 
R.T. v. R.T., 494 A.2d 150, 155 (Del. Supr. 1985); In Re Marriage of Crowley, 
663 P.2d 267, 269 (Colo. App. 1983). These courts decided that a parent's 
ability to pay was directly connected to debt reduction expenses reasonably 
necessary for the production of income. Rather than adopting a view that debt 
reduction represented increased net equity, these courts adopted the view that 
it is "unsound to consider the cash coming into the husband's business as 
flowing through to net income without deducting (to the extent that they are 
reasonable) the items which must be taken from his cash flow in order to 
maintain his business operations." R.T., 494 A.2d  at 155. A trial court retains 
discretion concerning principal payments because it is recognized that principal 
payments may be unreasonably excessive or because assets were acquired to 
depress income to avoid support payments.

[¶14]   We have said that "the only factor 
in the Wyoming statutory definitions of `income' and `net income' that relates 
in any way to the federal above the line deductions [in a federal tax return] is 
the phrase that permits an individual to deduct `all reasonable unreimbursed 
legitimate business expenses' in arriving at income." Houston v. Smith, 882 P.2d 240, 243 (Wyo. 1994) (emphasis omitted). Father concedes that mortgage principal 
is not deductible on a federal tax return; however, he believes that Houston 
does not prevent us from deciding to allow his principal payments as a 
deduction.

[¶15]   In Houston, we considered 
depreciation of real property and adopted this rationale:

Since the 
purpose of depreciation is to assist a person in regaining their expenditures, 
it does not follow that depreciation is a business expense for the calculation 
of disposable income under the Guidelines.

Houston, 882 P.2d  at 244 (quoting Stewart v. Stewart, 793 P.2d 813, 815 (Mont. 1990)). We 
held that depreciation of rental properties fails to fit within the statute's 
definition of "reasonable unreimbursed legitimate business expenses" and cannot 
be deducted from income for child support purposes because it constituted a book 
reimbursement.Id. Father distinguishes Houston's treatment of depreciation 
representing mere "paper losses" from debt reduction that directly affects the 
business cash flow and his own disposable income.

[¶16]   The crux of this issue is whether 
principal payments resulting in increased asset value but decreased cash flow 
should be permitted to reduce a parent's income for purposes of child support. 
Unlike Houston's determination that depreciation is neither an expense nor 
"unreimbursed," we find that reasonable principal payments can be considered 
unreimbursed expenses although, over time, net equity increases. Our review of 
the authorities persuades us that we should establish as our general rule that 
the principal portion of a business mortgage payment may be deductible if, in 
its discretion, the district court determines that the payment reasonably and 
legitimately reduces net income for child support purposes. The district court 
will retain the discretion to decide if the principal portion of business debt 
reduction payments is excessive, or assets were acquired to reduce child support 
payments, or other circumstances indicating the principal payments are not 
reasonable, unreimbursed, or legitimate. In this particular case, Mother does 
not claim any facts exist establishing the principal payments as unreasonable, 
and we affirm the district court's order allowing the deduction against 
income.

Interest 
Income.

[¶17]   Mother contends that the district 
court erred in not finding the amount of joint interest and dividend income of 
Father and his spouse, and dividing it in half for purposes of determining child 
support. She relies on Houston, contending that decision ruled that a parent's 
income should be increased by one-half of the interest and dividend amounts set 
forth on Schedule B of the parent's "joint" income tax return. Houston, 882 P.2d  
at 244, n.1. Father contends there is no Schedule B for the district court to 
have considered and the district court properly relied on his expert's testimony 
establishing the amount of income attributable to him and not considering the 
income attributable to his spouse. He claims Houston discerned that the district 
court in that case had not considered the parent's interest income and decided 
it was appropriate to divide declared joint interest income in half and apply it 
to the parent's net income for child support purposes. He contends that the 
interest income attributable to him was considered by the district court through 
the testimony of his expert witness.

[¶18]   Houston held that "there is no 
indication the legislature intended, in any manner, to include `spousal income' 
or joint income' in the computation required by the statute to provide the 
premise for calculating presumptive child support owed by one of the parents." 
Id. at 243. We agree with Father's understanding of Houston, and find that its 
division of interest income was based on its particular facts. In contrast, 
Father established the amount of his interest and dividend income and Mother did 
not refute that testimony. Accordingly, the district court's determination is 
supported by the record, and we find no abuse of 
discretion.

Income 
Averaging.

[¶19]   In her final issue, Mother contends 
that income averaging is not applicable when income does not fluctuate. She 
contends that Father's income has steadily grown except in 1996 when he 
installed the car wash. Father contends that he provided the district court with 
testimony that his average net monthly income was $9,300 in 1995, $8,913.00 in 
1996, and $13,133.00 in 1997. Mother concedes these fluctuations occurred. We 
have approved income averaging for the purpose of calculating child support 
"where circumstances require it." Madison v. Madison, 859 P.2d 1276, 1280 (Wyo. 
1993); Triggs v. Triggs, 920 P.2d 653, 662 (Wyo. 1996); Bollig v. Bollig, 919 P.2d 136, 138 (Wyo. 1996); see Wood v. Wood, 964 P.2d 1259, 1264 (Wyo. 1998). 
Income averaging is appropriate when income fluctuations exist. We find the 
district court did not abuse its discretion in deciding that it was 
inappropriate to use only 1997 income figures.

CONCLUSION

[¶20]   The district court retains 
discretion in determining net income for child support purposes. The district 
court may allow deductions of principal payments as a reasonable, unreimbursed 
legitimate business expense upon an appropriate assessment. Finding no abuse of 
discretion on any issue, we affirm the district court's order denying the 
petition to modify the child support order.