1 No. 118,406 1

IN THE COURT OF APPE ALS OF THE STATE OF KANSAS

In the Matter of the Marriage of

D ENISE D EAN , Appell ant ,
and

C HAD D EAN , Appell ee

.

SYLLABUS BY THE COUR T

1. The effect of not providing a transcript on appeal is not necessarily preclusive. Instead, when a party provides no transcript, the appellate court presumes the district court's factual findings were correct.

2. An appellate court reviews a district court's interpretation and application of the
Kansas C hild Support Guidelines de novo.

3. The Kansas Child Suppor t Guidelines ' definition of income is intentionally broad and includes every conceivable form of income whether it be in the form of earnings, royalties, bonuses, dividends, interest, maintenance, or rent

.

1 REPORTER'S NOTE: Previously filed as an unpublished opinion, the Supreme Court granted a motion to publish by an order dated December 28, 2018, under Rule 7.04 (2019 Kan. S. Ct. R. 45 ). The published version was filed with the Clerk of the Appellate Courts on February 13 , 2019.2

4.
A district court does not have discretion to choose a method of determining
income that varies from the Kansas Child Support Guidelines ' definition of gross income.
5. The Kansas Child Support Guidelines do not grant a district court the discretion to
exclude non

- liquid capital gains from rental income recei ved by self

- employed persons. Under the circumstances of this case, the district court erred in determining that rental income received was not to be counted as income because the recipient had used it to pay down the principal on loans.

6.
The Kansas Ch ild Support Guidelines do not consider the subsequent availability or liquidity of income. Thus, the fact that a party chooses to use income to pay for an asset does not change t he character of the money from income to non

- income for purposes of calculatin g child support under the Guidelines.

7. A motion for attorney fees must be filed in a non

- argued case within 14 days of the date of the letter assigning the case to a non

- argument calendar.

Appeal from Sedgwick District Court; E RIC A. C OM M ER , judge. Op inion filed August 17 , 2018. Affirmed in part, vacated in part, and remanded with directions.

Stephen M. Turley , of Wagle & Turley, LLC, of Wichita , for appellant.

Michael P. Whalen
, of Law Office of Michael P. Whalen, of Wichita , for appellee.

B efore A RNOLD

- B URGER , C .J., P OWELL and G ARDNER , J J

.3

G ARDNER , J : Chad and Denise Dean married in 2002 and had two children. They
divorced in 2016 and the district court ordered Chad to pay child support. Denise timely appeals, arguing that the district court err ed in not following the definition of income in the Kansas Child Support Guidelines (Guidelines). Agreeing with Denise, we vacate the child support order and remand with instructions

.

Factual and procedural background

During their marriage, the parties acquired over 50 rental properties and amassed a joint estate with a net value of more than $1,000,000. Both were self

- employed. Denise worked as a real estate agent. Chad was the sole owner of three real estate management

comp anies that generated income from purchasing, managing, leasing, and selling real estate. Chad also held a majority ownership interest in a roofing company.

The evidentiary hearing for the divorce proceedings lasted 10 days. During that time, the district court heard from different experts about how to calculate Chad's income for child support purposes. It found that Denise's expert, Dr. Jeff Quirin, provided the most reliable indication of Chad's income. The parties do not challenge that decision.

Both Quirin and the district court conced ed the difficulty of accurately calculating
Chad's income. That difficulty was cause d in part by the parties' failures to file true, complete, and accurate Domestic Relations Affidavits , tax returns, and profit and loss statements. Quirin examined profit and loss statements and income tax filings to calculate
Chad's income.

Denise challenges only the method that the district court used to determine Chad's income. Quirin offered two different methods of determining Chad' s income: the net income method and the cash flow method. The net income method deducts depreciation and interest payments but does not deduct amounts paid to reduce the principal owed on4

mortgages. Under that method, Chad's income from his four businesse s was $336,672. In contrast, the cash flow method does not deduct depreciation but does deduct payments of principal on the mortgages. Under that method, Chad's income was $233,863, and, after removing earnings from Denise's real estate sales, was $152,024 . The district court used
the cash flow method. Denise contends it should have used the net income method
instead.

Using the cash flow method, the district court excluded "non

- liquid capital gains" from both parties' income. It defined these gains as "th e principal reductions that occur by virtue of monthly, quarterly, or otherwise regular payments of the mortgages . . . [that] increase[] a party's net worth." The district court granted Chad most of the couple's properties, transferred 16 properties to Denise, and reasoned that because each par ty owned some properties, each could benefit from such capital gains.

The district court reasoned that use of the cash flow method would create fewer opport unities for continued litigation. It highlighted the contentious nature of the case

— the record reflects 135 hearings and 600 entries in the first 3 years. It explained that including the principal reduction payments in income would require tedious calculat ions that would provide fodder for further arguments about the amounts

.

Denise appeals but has not included in the record on appeal any transcript from the
10

- day trial. Chad contends that this precludes her from prevailing on appeal. But the
effect of not providing a transcript is not necessarily preclusive. Instead, when a party provides no transcript, we presume the district court's factual findings were correct. King v. Stephens , 113 Kan. 558, 560, 215 P.311 (1923). Because Denise has provided no

tra nscript or a dequate substitute, we will not review any action of the trial court requiring

us to examin e the evidence. First Nat 'l Bank & Tr ust Co. v. Lygrisse , 231 Kan. 595, 603, 647 P.2d 1268 (1982) ( citing Osborne v. Fakes , 1 78 Kan. 373, 376, 286 P.2d 1 56 [ 1955 ] ).5

Denise does not dispute the district court's factual findings but challenges its method of deriving a gross income figure for Chad. She styles the sole i ssue on appeal as
one of law: D id the district court properly exclude "non

- liquid capit al gains" from Chad's income for purposes of calculating his child support payment. We restrict our review to that question.

Standard of review

We review a district court's interpretation and application of the Guidelines de

novo. In re Marriage of Bran ch , 37 Kan. App. 2d 334, 336, 152 P.3d 1265 (2007)

. Because this appeal turns on interpreting "gross income" under the Guidelines, we apply
de novo review.

Analysis

Kansas relies on gross income, not net income, in calculating child support.
Gross in come for self

- employed parents is defined as "income from self

- employment and all other income including that which is regularly and periodically received from any source." Kansas Child Support Guidelines §§ II.E.1

. , II.E.3. (2018 Kan. S. Ct. R. 82 )

. The Child Support Worksheet (Worksheet) (2018 Kan. S. Ct. R. 112) guides the calculation of the child support obligation. Self

- employment gross income is recorded on Line B.1

. and is then reduced by the "reasonable business expenses" recorded on Line B.2

. to yield the "domestic gross income." This method is much like the net income method described by the expert and rejected by the district court.

The Worksheet then lists adjustments to the domestic gross income in Section C to yield the "child support income" amount recorded on Line C.5. The " basic parental child support obligation" is based on that income and is recorded on Line D.9. A rebuttable6

presumption arises that the amount on Line D.9

. is a reasonable amount of child support. Kansas Child Suppo rt Guidelines § I

. (2018 Kan. S. Ct. R. 79 )

.

A court may deviate from the Line D.9

. child support amount if it finds, from relevant evidence, that a deviation would serve the best interests of the child, but it must make written findings explaining the d eviation. Kansas Child Support Guideline s § I

. (2018 Kan. S. Ct. R. 79 )

. "Any deviation from the amount of child support determined by the use of the guidelines must be justified by written findings in the journal entry." In re Marriage of Thurmond , 265 Ka n. 715, 716, 962 P.2d 1064 (1998) . Failure to follow the
Guidelines is reversible error. 265 Kan. at 716

.

The district court here did not deviate from the Line D.9

. amount, but it deviated from the beginning amount of gross income on Line B.1. Co mmon sense and logic dictate that "use of the guidelines" includes use of the Guidelines' definition of income. The Guidelines' definition of income is "intentionally broad to include every conceivable form of income whether it be in the form of earnings, royalties, bonuses, dividends, interest, maintenance, rent or whatever." 2 Elrod, Kansas Law and Practice : Kansas Family Law § 14:10, p. 694 (2017

- 18 ed.). The district court's decision to exclude some of Chad's rental income from the gross income figure on Line B.1

. does not facially comply with the Guidelines.

The district court acknowledged that "the Child Support Guidelines provide that
the calculation of income is to include income from all sources." But it found the Guidelines required it to consid er all relevant evidence presented and that the Line D.9

. figure was a rebuttable presumption of a reasonable child support order. The court explained in detail why it decided to exclude non

- liquid capital gains from Chad's
income :7

" [T] he non

- liquid capit al gains are not being included as income in the calculation of child support for this c ase for the following reasons: ' [1] both parties have the potential to benefit from such gains on the properties they each own; [2] that determining these

non

- liquid capital gains would require tedious calculations throughout the remainder of the children's lives during minority; [3] that these parties' case history indicates that if these gains were included in the calculation of each party's income for child support purposes, these parties would be arguing incessantly from year

- to

- year about the accurate calculation of those gains; [4] because the Court has evidence of other income of the parties that would sufficiently provide for the calculation of child support of the children; [5] the Court is seeking to limit or reduce the waste of the parties assets through unending litigation expenses to dispute what those non

- liquid capital gains are. ' And this Court finds that such waste of the parties' assets and parental ene rgy and the continuing conflict between the parents is not in the children's best interests."

Chad argues that these detailed findings justify the district court's deviation from the Guidelines' definition of gross income, citing In re Marriage of Skocz ek , 51 Kan. App. 2d 606, 608, 351 P.3d 1287 (2015)

. We disagree. In that case, the district court used true gross income and followed the Worksheet through Line C.5

. to calculate "child support income" but then applied a formula other than the equal parent ing time formula.
We found that the court 's written findings justified its choice of a formula other than the equal parenting time formula, but only because the relevant Guideline explicitly granted
it discretion. As Guideline s § III.B.7 .b. (2013 Kan. Ct. R. Annot. 131) provided: "'The Equal Parenting Time Formula is discretionary with the court and may be used to set child support when the district court makes the required affirmative findings. '" 51 Kan. App. 2d at 611

.

Similarly, the Guidelines grant th e district court discretion to de termine whether to include depreciation as income. In re Marriage of Wiese , 41 Kan. App. 2d 553, 554, 203 P.3d 59 (2009) . The Guidelines expressly recognize that depreciation should not categorically be deducted as a busine ss expense or treated as income ; rather, its inclusion, if any, should depend on the particular circumstances of each case. Kansas Child Support8

Guidelines § II.E. 2. (2018 Kan. S. Ct. R. 82)

. A court may include depreciation as a business expense only if i t is reasonably necessary to produce income . A district court
has discretion to choose which accounting method to use for depreciation because the Guidelines grant it discretion to de termine whether to include depreciation. In re Marriage of Wiese , 41 Kan. App. 2d at 554 (finding no abuse of discretion by a district
court's use of straight

- line depreciation instead of accelerated depreciation to calculate child support income )

.

Skoczek and Wiese do not suggest that making written findings empower s a district
court to substitute its own definition for a Guidelines ' line item. See In re Marriage of
Leoni , 39 Kan. App. 2d 312, 317, 180 P.3d 1060 (2007) (affirming award because it followed sound accounting practices and was legal and lawful under the Guidelines). The
district court did not have discretion to choose an accounting method that varied from the
Guidelines ' definition of gross income.

We have also recognized that the district court has discretion to include or exclude
an individual's share of a Subchapter S corporation's income as income for purposes of calculating child support . This is because determining an individual's share of a Subchapter S corporation's income received for purposes of calculating child support is highly fact specific

. In re Marriage of Brand
, 273 Kan. 346, 356, 44 P.3d 321 (2002).

"Even in those states with particularized formulas for determining the income available to
self

- employed payors, the calculation of income is highly fact specific. Glass v. Oeder,
716 N.E. 2d 413, 416

- 17 (Ind. 1999). There is no presumption that an individual's share of a Subchapter S corporation's income should be included as income for purposes of calculating child support. Individual inquiry on a case

- by

- case basis is necessary to ensure that the appropriate

amount of income is considered 'received' when determining 'Domestic Gross Income' for
the self

- employed." Brand , 273 Kan. at 356

.9

B ut here, the parties do not dispute whether Chad received the income from his rental properties

. The sole issue is whether the district court erred in deducting certain amounts
from that income.

Brand considered the same underlying policy concern that Denise raises here

— that excluding an increase in equity from income permits the payor to build up equity at the expense of the ch ild because the payor can defer income until the child reaches the age of majority. 273 Kan. at 356

- 57. Because of that potential for abuse, courts avoid a
blanket rule and handle the matter case

- by

- case . In Brand , t he Supreme Court upheld the
district cou rt's decision not to include the distributions from a Subchapter S corporation
in the father's income for child support purposes because the mother had not shown that the father, as a minority shareholder, had " manipulated corporate assets, decreased the

a mount of his salary to increase retained earnings, or act ed in any way to shield income." 273 Kan. at 355. Similarly, in In re Marriage of Unruh
, 32 Kan. App. 2d 770, 77 4

- 75 , 88
P.3d 1241 (2004), we found nothing to show that the father was somehow manipulating the Subchapter S corporation for his own benefit and to the detriment of his minor
children. We affirmed the district court's decision not to count 100% of the earnings or
distributions attributable to the father as self

- employmen t domestic income

.

But this is not a Subchapter S case. It may well be that the district courts should
have discretion to determine from the facts of each case whether non

- liquid capital gains
should be excluded from rental income received by self

- emplo yed persons. But the Guidelines do not grant a court discretion to do so.

Our conclusion is consistent with our decision in In re Marriage of Matthews , 40 Kan. App. 2d 422, 193 P.3d 466 (2008) . There , w e held that what a parent chooses to do
with his or her income after receiving it is not relevant to calculating the amount of income for child support purposes. The father in Matthews had received income as dividends. After divorce proceedings began, he pledged 80% of those dividends to10

purchase shares ac cording to a stock

- purchase agreement. We found that the dividends distributed to the father fit within the definition of income for purposes of child support. We reasoned that the Guidelines did not consider the "subsequent availability" of the
income. "T hus, the fact that [F ather] chose to use his income to pay for an asset he purchased does not change the character of the money from 'income' to 'non

- income' for purposes of calculating child support under the Guidelines." 40 Kan. App. 2d at 429 . That
rule applies here as well.

We illustrated that holding in Matthews with an analogy remarkably similar to the
facts here :

"[W]e would reject an argument that rental income received by [Father] was not income . . . simply because [Father] was utilizing the rental income received from his tenant to pay back the bank loan. This is because the bank loan, as it is paid back over years, increases [Father's] net worth in the rental home. By the time his children are at the age of majority, [Father] would be the owner of valuable real estate debt free and at the direct expense of his children." 40 Kan. App. 2d at 430

.

Here, in contradiction to the example in Matthews , the district court determined that
rental income Chad had received was not to be counted as income because he used it to pay down the principal on his loans.

Chad concedes that " Matthews stands for the proposition that income pledged to a debt should still be counted as income for the purpose of child support calculation." But
he contends Matthews does not apply solely because that case, unlike this one, involved only one self

- employed parent. Nothing in Matthews suggests that this distinction makes any difference, however. We reject Chad's argument bec ause our interpretation of "gross income" does not depend on the facts of the case. Indeed, the policy concern noted in
Brand and Matthews is implicated more when both parents are self

- employed, because
both could reduce their incomes to undercut the amoun t of child support owed.11

The underlying policy concern of shielding income is evident here. The expert noted that Chad made "enormous pay downs of principal on mortgages" totaling about $210,000 in the 12

- month period right after Denise filed for divorc e. Those pay downs resulted in "incredibly rapid equity build

- up." The expert also testified that Chad's 2014 income tax return showing a deduction of $211,000 for depreciation of real estate was unrealistic because real estate does not typically decrease in value. Taken together, these facts raise a concern that Chad may have been seeking to reduce his income for child support purposes while growing his net worth

.

We commend the district court for its thorough decision, and we appreciate its desire to p revent ongoing battles about the amount of child support. But the district court had no authority to effect that goal by excluding the non

- liquid capital gains from the
rental income Chad received. As a result, we must vacate and remand for calculation of each parent's "domestic gross income" and "child support income" in accordance with the
Guidelines. We urge the parents to cooperate with one another and with the court in setting a reasonable amount of child support.

Attorney fees

Chad seeks attorney fees under Kansas Supreme Court Rule 7.07(c) (2018 Kan. S. Ct. R. 50) , arguing that this appeal is frivolous . He contends Denise's failure to order transcripts from the 10

- day trial prevents us from making meaningful review.

We deny the motion because it was untimely filed. Supreme Court Rule 7.07(b) requires that motions for attorney fees be filed within 14 days of the date of the letter assigning the case to a non

- argument calendar. ( 2018 Kan. S. Ct. R. 50 .) That letter was dated March 8, 2018
, but Chad's motion was not filed until April 30, 2018

.12

We would have den ied the motion on its merits as well. We were able to review
the district court's decisi on without having transcripts because t he issue on appeal was purely a l egal one. We also found that the district court committed reversible error

— necessarily, then, the appeal was not frivolous . See In re Marriage of Knoll , 52 Kan. App. 2d 930, 942, 381 P.3d 490 (2016)

.

We vacate the child support order and remand with ins tructions. We deny Chad's
motion for attorney fees

.