Opinion
No. C5-02-407.
Filed September 3, 2002.
Appeal from the District Court, Hennepin County, File No. DC123123.
Robert J. Hajek, (for appellant)
Michael Ormond, (for respondent)
Considered and decided by Anderson, Presiding Judge, Lansing, Judge, and Kalitowski, Judge
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
Appealing from a judgment increasing the amount of his spousal maintenance obligation, appellant argues that the district court abused its discretion by considering as income money he received from an IRA distribution. Appellant argues alternatively that if the money received from the IRA distribution is considered income it should also be considered an expense as he immediately used that money to pay the tax liability on the distribution. Finally, appellant argues that the district court also abused its discretion when it improperly calculated respondent's income. Because characterizing the money appellant received from his IRA distribution as income, but not as expense when spent, fails to provide an accurate and balanced record of appellant's financial situation at the time of the motion to modify maintenance, it imposes an inequitable result. We reverse and remand.
FACTS
Appellant-petitioner J. Gerald Levey and respondent Rita S. Levey dissolved their 31-year marriage in July 1989. Both parties retained counsel and negotiated a marital-termination agreement that was signed in 1989. At the time of dissolution, the court found that appellant's gross income was $244,500 and that respondent had an annual earning capacity of $12,000. The judgment incorporated the terms of the stipulation; distributed the marital property equally, including appellant's retirement accounts; and provided permanent monthly spousal maintenance for respondent of $4,000.
In the early 1990's, appellant was forced to move to London for employment reasons. While in London, appellant's salary decreased and his cost of living increased. Appellant moved to reduce his maintenance obligation based on his decreased income and increased expenses. The district court found that appellant had experienced a substantial change in circumstances rendering the original award unreasonable and unfair. His maintenance payments were reduced to $2,000 per month.
In 1999, alleging that appellant's earnings had increased, respondent moved to restore her maintenance award to $4,000 per month. Appellant argued that he had no earned income. Further, the appellant claimed that he had been able to meet his monthly living expenses only by prudently investing his retirement benefits and liquidating certain assets awarded in the dissolution. The district court found that husband's 1999 gross income was $269,896. Much of this income ($203,658) came from an IRA distribution he received that year from an IRA that he was awarded as part of the original property settlement. From the gross income, the district court determined that husband's annual net income was $199,511, or $16,625 per month. The court then found that wife's monthly income was $3,025. Although reciting the parties' claimed monthly expenses, the court failed to make findings regarding the reasonableness of the claimed living expenses, beyond flatly asserting that some of wife's claimed expenses were "unreasonably high."
Husband argued that although he did receive the $203,658 distribution in 1999, he immediately re-deposited the money into another IRA. While doing so, he kept $50,000 to pay a one-time tax liability associated with withdrawing and reinvesting the IRA money. Because the IRA money either was re-invested or used to pay taxes resulting from the IRA withdrawal, husband argued that no part of the IRA money should be considered as income. Accordingly, husband claimed that his gross annual income was only $64,104, an amount that would not be enough to support an increase in his monthly maintenance obligation.
The district court disagreed and included the entire IRA distribution as part of appellant's income. The court concluded from these findings that the current maintenance award was unreasonable and unfair because it "contravene[d] the agreement the parties reached at the time of the dissolution." The court increased respondent's spousal maintenance award to $4,000.
Husband appealed, and this court reversed and remanded to the district court, stating that the district court failed to provide adequate findings of fact from which it could support its determination that maintenance should have been modified. Levey v. Levey, No. C3-00-2233, 2001 WL 684314, at *3 (Minn.App. June 19, 2001). This court remanded to allow the district court to make findings concerning the monthly expenses of each party and to distinguish between money that was properly part of the assets awarded to husband at the dissolution and money that has been earned since those assets were distributed. Id. at *3-4.
On remand, the district court found that the money from appellant's IRA distribution that was immediately placed into another IRA would not be considered income. The court maintained, however, that the money appellant retained to pay the tax liability incurred due to the IRA transfer was still income for the purpose of determining his ability to pay maintenance. The court reasoned that at the time of the original dissolution agreement appellant was awarded an IRA account valued at $52,523. By 1999, this same account was worth $203,658. According to the district court, under the analysis provided in Kruschel v. Kruschel, 419 N.W.2d 119, 121-22 (Minn.App. 1988), this meant that appellant was entitled to have $52,523 of that account excluded from maintenance-payments calculations. Appellant admitted that he had already taken a $43,381 distribution from this IRA in 1998. Therefore, the court found that only $9,142 of the $50,000 appellant used to pay his taxes related to the IRA transfer was excluded and the remaining $40,858 could be considered as income.
Based on these calculations and the rest of its findings, the court concluded that appellant had a total gross income of $8,924 per month and expenses of $3,884 per month, whereas respondent had an income of $1,025 per month (separate from her $2,000 monthly maintenance income) and reasonable expenses of $4,138 per month. The court declined to classify the $50,000 tax liability as an expense in either his 1999 expenses or his 2000 expenses because it believed that doing so would artificially increase appellant's expenses. Instead, the court relied on appellant's 2001 expenses as a more accurate reflection of his yearly expenses. Based on these findings, the district court set appellant's maintenance obligation at $3,500 per month.
On appeal, appellant argues that it is "[a]gainst all logic" for the district court to count the $40,858 used to pay his IRA transfer tax as income and then refuse to consider it as an expense. He asks this court to either find that the money is not income or, in the alternative, that it is treated as both income and an expense. Appellant also claims that the district court incorrectly determined respondent's monthly income because it failed to recognize that respondent's own affidavit establishes that her income was higher than $1,025 per month.
DECISION
A district court has broad discretion in determining spousal maintenance, and this court will not overturn the district court's decision absent an abuse of discretion. Erlandson v. Erlandson, 318 N.W.2d 36, 38 (Minn. 1982). Before this court may determine that there has been an abuse of discretion, it must find that the district court resolved the matter in a manner that is "against the logic and facts on the record." Rutten v. Rutten, 347 N.W.2d 47, 50 (Minn. 1984). That the record might support findings other than those made by the district court does not render the findings clearly erroneous, and we view the "evidence in the light most favorable to the findings." Vangsness v. Vangsness, 607 N.W.2d 468, 474 (Minn.App. 2000).
Minn. Stat. § 518.64, subd. 2(a) (2000), allows for a modification in support obligations if one of the following is demonstrated: "(1) substantially increased or decreased earnings of a party; (2) substantially increased or decreased need of a party * * *; (4) a change in the cost of living for either party * * * any of which makes the terms [of the maintenance] unreasonable and unfair." The equation for determining the amount of maintenance is essentially the recipient's need balanced against the obligor's financial condition. Erlandson, 318 N.W.2d at 39-40.
I.
Appellant's first argument is that the court should not have counted any portion of his IRA distribution as income for the purposes of determining maintenance. Retirement or pension benefits awarded as property in a dissolution cannot be included in the income of a party when determining that party's maintenance obligation. Kruschel, 419 N.W. at 123. An obligor cannot be ordered to pay maintenance out of pension payments until the obligor has received payments in the amount of the pension's original value, as determined at the original property distribution. Walker v. Walker, 553 N.W.2d 90, 94 (Minn.App. 1996). Once that amount has been surpassed, a court may properly consider the subsequent payments as income or earnings for maintenance purposes. Id.
The district court determined that appellant's IRA account was worth $52,523 at the time of the dissolution. Accordingly, once appellant exceeded this amount in distributions, the money could be considered as income for the purpose of determining maintenance amounts. The husband admits that in 1998 he took a distribution of $43,381 from his IRA. Therefore, the record supports the district court's finding that of the $50,000 he used to pay the taxes from his $203,000 distribution in 1999, all but $9,142 was income for purposes of determining appellant's ability to pay maintenance.
We reject appellant's argument that the IRA distribution is a one-time event and is, therefore, not appropriately considered as income for the purpose of determining maintenance. Because appellant is retired, he relies on his IRA distributions to meet his day-to-day expenses. He admits that he has already taken a distribution in 1998, and it is likely that it will happen again given his retired status. The district court properly characterized his latest distribution, after giving appellant the appropriate Kruschel credit, as income.
II.
While we accept the district court's characterization of appellant's IRA as income, we conclude that the district court incorrectly neglected to treat this money as an expense when it was used to pay the tax liability caused by the transfer. In ordering a modification of maintenance, a court must find that that party had substantially increased earnings or the obligor had substantially increased expenses, rendering the current maintenance arrangement unreasonable and unfair. Minn. Stat. § 518.64, subd. 2(a). When determining the financial status of the parties, the court must consider the net income of the parties, and this includes subtraction of any tax liabilities from their gross income. Schreifels v. Schreifels, 450 N.W.2d 372, 373 (Minn.App. 1990).
Here, the court failed to consider appellant's payment of his tax liability as an expense. Although appellant did not pay the liability until 2000, there is no question that the tax liability was incurred in 1999. The district court's asymmetric treatment of appellant's transfer tax as income but not as expense is inconsistent with Minnesota caselaw and is against logic and the facts on the record. E.g., Kostelnik v. Kostelnik, 367 N.W.2d 665, 670-71 (Minn.App. 1985) (remanding maintenance where, among other things, district court's estimate of obligor's ability to pay maintenance failed to account for taxes on obligor's income), review denied (Minn. July 26, 1985). Accordingly, we remand so that the district court may treat appellant's IRA distribution and the tax liability it created symmetrically when determining whether a modification of maintenance is appropriate.
It is also worth noting that given the intermittent and sporadic nature of these continuing IRA distributions and their attendant expenses, the court may, in its discretion, limit its modification findings based on the present IRA distribution to the year 1999 only. The court may then adjust the maintenance again for the year 2000 (when there were no IRA distributions and no associated taxes) from that point forward. Doing so may avoid future motions from either party questioning the propriety of the maintenance modification as applied retroactively to 2000 and to following years when appellant received no IRA distribution.
III.
Appellant's final argument is that the evidence contradicts the district court's findings with respect to wife's expenses. Specifically, the appellant alleges that the district court did not take into account information provided in respondent's affidavit submitted on remand establishing that she received approximately $500 more per month than the district court originally recognized as income from interest on investments. The district court did reopen the record on remand allowing both parties to conduct new discovery and submit new affidavits. The district court, however, found respondent's income to be $1,025 per month while her affidavit indicates her monthly income might be higher. It is unclear from the record on what facts the district court relied when it made its findings regarding respondent's income. Therefore, we cannot determine from the record whether the district court determined respondent's income from respondent's most recent affidavit or if it simply adopted the findings from its initial order modifying appellant's maintenance obligation. We therefore, direct the court on remand to make all of the necessary particularized findings to support its determination of whether modification of maintenance is proper. Tuthill v. Tuthill, 399 N.W.2d 230, 232 (Minn.App. 1987).