Klinksiek v. Klinksiek

• Citation: 104 P.3d 559,2005 NMCA 8,136 NM 693
• Decision Date: 24 November 2004
• Docket Number: Docket No. 23,683.
• Court: Court of Appeals of New Mexico
• Parties: MAURINA GONZALES KLINKSIEK, Petitioner-Appellee, v. STEPHEN ALEXANDER KLINKSIEK, Respondent-Appellant.

2005 NMCA 8

104 P.3d 559

136 NM 693

MAURINA GONZALES KLINKSIEK, Petitioner-Appellee, v. STEPHEN ALEXANDER KLINKSIEK, Respondent-Appellant.

Docket No. 23,683.

Court of Appeals of New Mexico.

Filing Date: November 24, 2004.

Nancy Ann Richards, Las Vegas, NM, for Appellee.

Edward Ricco, Rodey, Dickason, Sloan, Akin & Robb, P.A., Albuquerque, NM, for Appellant.

OPINION

MICHAEL E. VIGIL, Judge.

{1} Appellant Stephen Klinsiek's motion for rehearing is denied. The opinion filed in this case on August 23, 2004, is withdrawn and this opinion is substituted in its place.

{2} Father appeals from a district court order awarding child support arrears, establishing Father's ongoing child support obligations, and awarding attorney fees to Mother. Father contends the district court erred in: (1) excluding rent Mother received from a tenant from her gross income for child support purposes; (2) denying Father any credit for travel expenses to have visitation with his children; (3) allowing Mother to claim work-related child care expenses for a full year, when she worked only during part of the year; and (4) awarding attorney fees to Mother. We hold that the district court erred in excluding all of the rental payments from Mother's gross income and that the wrong factors were considered in refusing to allow Father any travel expense credit. We hold that the district court did not abuse its discretion in allowing Mother the work-related child care expenses, and in awarding attorney fees to Mother. However, since we reverse on two of the four issues, we remand for the district court to consider an adjustment of the amount of attorney fees.

BACKGROUND

{3} When they divorced in 1997, Mother and Father agreed on the division of their community property and liabilities, and on the custody and support of their two minor children. The district court approved their stipulations in the final decree. They were subsequently able to reach agreements that were approved by the district court when Mother wanted to move to Virginia with the children, and also when other disputes subsequently arose. Although the original child support agreement between the parties slightly deviated from the child support guidelines, subsequent agreements between the parties specifically stated child support was to be consistent with the child support guidelines. In 2001, Mother and Father were unable to agree on what Father's past and future child support obligations were under the last agreement, and they filed cross motions for the district court to decide the dispute. At all material times, Father was enrolled as a doctoral candidate in physics at the University of New Mexico, and he was employed as a graduate research assistant. Mother was also attending college, majoring in geology and minoring in anthropology. Following a trial on the merits, the district court assessed child support arrears against Father, determined his ongoing child support obligations, and awarded Mother attorney fees. Father appeals.

DISCUSSION

A. The District Court Improperly Excluded All Rent from Mother's Gross Income

{4} The determination of child support is within the district court's discretion and we review it on appeal only for an abuse of discretion. Styka v. Styka, 1999-NMCA-002, ¶ 8, 126 N.M. 515, 972 P.2d 16. However, that discretion must be exercised in accordance with the child support guidelines. Id. "[T]he trial court abuses discretion when it applies an incorrect standard, incorrect substantive law, or its discretionary decision is premised on a misapprehension of the law." Aragon v. Brown, 2003-NMCA-126, ¶ 9, 134 N.M. 459, 78 P.3d 913. To the extent that Father's appeal requires us to determine questions of law, we review these questions de novo. Quintana v. Eddins, 2002-NMCA-008, ¶ 9, 131 N.M. 435, 38 P.3d 203.

{5} The divorce decree approved the property settlement, which divided the community assets and debts. Mother was awarded real property and a building valued at $125,000, and she was obligated to pay an interest-free loan of $70,000, secured by a mortgage on the property. The loan was made by Mother's parents to the parties while they were married. Mother rented the building to a tenant for $700 per month for twenty-eight months for a total of $19,600. Mother testified she turned the rental payments over to her parents, who applied them to pay the cost of maintenance, insurance, taxes, and other expenses related to the upkeep of the building, and to reduce the mortgage debt. While it is unclear how the expenses of maintaining the building were managed or accounted for, Mother said her mortgage debt was reduced from $70,000 to $58,800.

{6} In calculating Mother's gross income, the district court completely excluded the rent payments she received because all the money was used "to pay the outstanding mortgage and to defray taxes, maintenance and other expenses related to the building; and the property has not appreciated since the divorce, and prospects for any future appreciation are not good." Father contends that the district court's determination was based on a misinterpretation of the applicable statute. We agree.

{7} "In any action to establish or modify child support, the child support guidelines as set forth in this section shall be applied to determine the child support due and shall be a rebuttable presumption for the amount of such child support." NMSA 1978, § 40-4-11.1(A) (1995). To determine the "rebuttable presumption" of the child support due, the district court must first determine the gross income of both parents. Section 40-4-11.1(K). "Gross income" means "income from any source," Section 40-4-11.1(C)(2), and rent is specifically included: "[F]or income from . . . rent . . . `gross income' means gross receipts minus ordinary and necessary expenses required to produce such income, but ordinary and necessary expenses do not include expenses determined by the court to be inappropriate for purposes of calculating child support." Section 40-4-11.1(C)(2)(b). Pursuant to the plain language of Section 40-4-11.1(C)(2)(b), the rent payments Mother received constitute "gross receipts" in calculating her "gross income."

{8} We next determine whether all the rental payments Mother turned over to her parents constitute "ordinary and necessary expenses" to produce the rental income. We hold they do not. Before Mother turned over any payments to her parents, she had an equity of $55,000 in the property and building, and since this was an interest-free loan, all payments made by Mother to her parents which reduced the principal mortgage indebtedness, increased her equity in the property. In the present case, the district court appears to have determined it necessary to deviate from the guidelines by excluding the mortgage payments from "gross receipts" and justifying the deviation on the ground that the value of the property had not appreciated and was not likely to appreciate in the future. The district court erred in failing to include in "gross receipts" to Mother any payments that increased Mother's equity in the property even if the value of the property decreased. There is no evidence showing that the mortgage payments did not increase Mother's equity in the property. See Merrill v. Merrill, 587 N.E.2d 188, 190 (Ind. Ct. App. 1992) (stating that payment on principal of loan for business and real estate venture increases net worth of parent in child support proceeding); Zakrowski v. Zakrowski, 594 N.E.2d 821, 824 (Ind. Ct. App. 1992) (stating that in properly allocating mortgage principal and interest, payments of principal may be considered contributions to parent's net worth, rather than ordinary and necessary business expenses under child support guidelines); Schubert v. Tolivar, 905 S.W.2d 924, 929 (Mo. Ct. App. 1995) (affirming trial court deduction for interest payments on rental property mortgage but not on principal payments, because principal payments increase asset value); Barham v. Barham, 487 S.E.2d 774, 778 (N.C. Ct. App. 1997) (reaffirming that mortgage principal payments on rental property are not "ordinary and necessary" under state child support guidelines because they constitute value which is retained).

{9} It is clear to us that the district court must reconsider whether any of the rental payments can or should be excluded from Mother's gross income. All the rental payments to Mother are "gross receipts" to Mother. Mother is entitled to deduct from the "gross receipts" the "ordinary and necessary expenses" required to produce the rental income to determine her "gross income" from the rent. "The parent claiming a business expense must show not only that it is ordinary and necessary to the business, but also that it is irrelevant to calculating support obligations." Jurado v. Jurado, 119 N.M. 522, 530, 892 P.2d 969, 977 (Ct. App. 1995). Such expenses include, but are not necessarily limited to, expenses for repairs, property management and leasing fees, real estate taxes, and insurance. See Barham, 487 S.E.2d at 778. However, the district court never ruled on what expenses, if any, Mother is entitled to deduct. Furthermore, this record is not clear on how the expenses of maintaining the building and property were managed or accounted for. Mother will be given an opportunity on remand to introduce evidence on the "ordinary and necessary" expenses she asserts should be deducted from her "gross receipts," consistent with Section 40-4-11.1(C)(2)(b). See Jurado, 119 N.M. at 530, 892 P.2d at 977 (remanding for a determination, pursuant to Section 40-4-11.1(C)(2)(b), of how much of the business's income was required to be reinvested as an ordinary and necessary expense which would be excluded from the father's gross income for child support purposes where the father was under-compensated from that business income); Roberts v. Wright, 117 N.M. 294, 297-98, 871 P.2d 390, 393-94 (Ct. App. 1994) (holding that the expense of...