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Verhey v. McKenzie

April 2, 2009

JEFFREY T. VERHEY, PLAINTIFF, APPELLEE, AND CROSS-APPELLANT
v.
JACQUELYN K. MCKENZIE, F/K/A JACQUELYN K. MCKENZIE-VERHEY, DEFENDANT, APPELLANT, AND CROSS-APPELLEE



Appeal from the District Court of Ward County, Northwest Judicial District, the Honorable Gary H. Lee, Judge.

The opinion of the court was delivered by: Crothers, Justice.

REVERSED AND REMANDED.

[¶1] Jacqueline K. McKenzie appeals, and Jeffrey T. Verhey cross- appeals, from an amended judgment ordering McKenzie to pay $3,334 per month child support. We reverse and remand for recalculation of McKenzie's child support obligation, concluding the district court erred in failing to apply the child support guidelines.

I.

[¶2] McKenzie and Verhey were married in March 1990, divorced in January 1998 and had three children together. In the divorce judgment, McKenzie was awarded custody of the children, and Verhey received visitation and paid child support. Verhey and McKenzie were both licensed physicians practicing in Minot. In April 2006, McKenzie was arrested and charged with possession of illegal drugs. Prior to her arrest, McKenzie was licensed and had a gross annual income in excess of $250,000. After her arrest, McKenzie's medical license was suspended and later revoked. McKenzie lost her full-time employment as a pathologist. McKenzie ultimately pled guilty to the drug charges and was on probation at the time of the district court hearing in this case.

[¶3] After McKenzie's arrest, Verhey moved the district court for an ex parte order for a change of custody, giving him immediate custody of the children and suspending his child support obligation. Verhey also moved the court to amend the divorce judgment to award him custody, terminate his child support obligation, and require McKenzie to pay child support under the child support guidelines. Verhey and McKenzie thereafter stipulated to the change in custody. On April 17, 2007, a hearing was held on the stipulation and to determine McKenzie's child support obligation. The district court found a permanent change of custody was in the best interests of the minor children.

[¶4] Regarding McKenzie's child support obligation, the district court concluded that although McKenzie was unemployed, she was living a "lifestyle" requiring a net income of at least $9,800 per month. On that basis and under its application of the child support guidelines the court ordered McKenzie to pay child support of $3,334 per month. Despite finding McKenzie was unemployed at the time of the hearing, the court found she had been living on her significant investments and savings. McKenzie made a motion to reconsider, which the district court denied. Both parties appealed from the district court's amended judgment.

II.

[¶5] McKenzie argues the district court erred in its application of the child support guidelines. "Child support determinations involve questions of law which are subject to the de novo standard of review, findings of fact which are subject to the clearly erroneous standard of review, and may, in some limited areas, be matters of discretion subject to the abuse of discretion standard of review." Buchholz v. Buchholz, 1999 ND 36, ¶ 11, 590 N.W.2d 215. "If the district court fails to comply with the child support guidelines in determining an obligor's child support obligation, the court errs as a matter of law." Serr v. Serr, 2008 ND 56, ΒΆ 18, 746 N.W.2d 416; Knoll v. Kuleck, 2004 ND 199, ¶ 5, 688 N.W.2d 370.

"Child support determinations are governed by N.D.A.C. Chapter 75-02-04.1. A correct finding of an obligor's net income is essential to determining the proper amount of child support. To determine the proper amount of support owed, the court must first determine the obligor's net income from all sources and the number of children to be supported. After the obligor's net income is established, that amount is applied to the Guidelines to determine the proper amount of child support. The amount prescribed by the Guidelines enjoys a rebuttable presumption of correctness."

Henry v. Henry, 1998 ND 141, ¶ 12, 581 N.W.2d 921 (quoting Hieb v. Hieb, 1997 ND 171, ¶ 7, 568 N.W.2d 598 (citations omitted)). Section 75-02- 04.1-02(10), N.D. Admin. Code, requires that a "child support order... include a statement of the [obligor's] net income... used to determine the child support obligation, and how that net income was determined."*fn1

[¶6] At the hearing, McKenzie testified she made $260,000 in 2004, $295,000 in 2005, but had reduced wages of about $107,000 in 2006 after she lost her job. The 2006 wages represent about three and a half months of employment. The parties do not dispute this income information, which is supported by exhibits admitted into evidence at the hearing including McKenzie's tax returns for 2005 and 2006 and a two-year comparison worksheet containing McKenzie's 2004 income information.

[¶7] Rather than imputing an amount as calculated under N.D. Admin. Code § 75-02-04.1-07, the district court extrapolated McKenzie's income based on McKenzie's "lifestyle" and on the use of her assets to maintain this lifestyle. The court found from the evidence of McKenzie's expenses that although McKenzie had lost her employment, she had not adjusted her lifestyle or her standard of living. The court concluded, "If McKenzie opts to live a lifestyle that requires approximately $10,000 per month to maintain, she should pay child support based on a similar standard."

[¶8] The district court continued:

"Neither party has submitted any analysis regarding the tax consequences of McKenzie's activities. No testimony was presented at trial regarding the taxes McKenzie would pay on gains realized by her when liquidating retirement accounts, nor has any information been provided for what will happen when she begins to invade her retirement accounts in order to maintain her present lifestyle. Completing a child support guideline worksheet in this vacuum, is not a useful exercise.

"What is clear from the evidence presented, and what is available to the Court from the evidence presented, however, and by McKenzie's own financial affidavit, she is living a lifestyle that would require a net income of at least $9,800 per month. The Court will therefore establish child support in the amount of $3,334 per month, in accordance with the child support guidelines."

[¶9] Generally, the child support provided for under the guidelines is presumed to be the correct amount. See N.D. Admin. Code § 75-02-04.1- 09(1). We have held, "The child support guidelines plainly and directly prohibit a court from using an obligor's daily living expenses when setting child support." Schmalle v. Schmalle, 1998 ND 201, ¶ 16, 586 N.W.2d 677 (citing Jarvis v. Jarvis, 1998 ND 163, ¶ 32, 584 N.W.2d 84; Horner v. Horner, 549 N.W.2d 669, 670 (N.D. 1996)). The district court here, however, did not follow the guidelines to calculate a net income amount for McKenzie, but instead arrived at an amount based on her expenses and on her spending from savings and investment accounts. Although the district court in denying McKenzie's motion for reconsideration indicated that McKenzie's use of her investments and savings was a non-recurrent payment, the court provided no determination of net income substantiating this calculation, instead relying on its initial determination based upon McKenzie's lifestyle.

[¶10] The method for computing the support obligation for an unemployed or an underemployed obligor is set forth in N.D. Admin. Code § 75-02- 04.1-07(3), which stated:

"3. Except as provided in subsections 4, 5, and 9, gross income based on earning capacity equal to the greatest of subdivisions a through c, less actual gross earnings, must be imputed to an obligor who is unemployed or underemployed.

a. A monthly amount equal to one hundred sixty-seven times the hourly federal minimum wage.

b. An amount equal to six-tenths of prevailing gross earnings in the community of persons with similar work history and occupational qualifications.

c. An amount equal to ninety percent of the obligor's greatest average gross monthly earnings, in any twelve consecutive months beginning on or after thirty-six months before commencement of the proceeding before the court, for which reliable evidence is provided."

"Under this guideline, the subsection resulting in the greatest imputed income must be used." Hoff v. Fitterer, 2005 ND 186, ¶ 6, 705 N.W.2d 807; see also Buchholz, 1999 ND 36, ¶ 14, 590 N.W.2d 215. Thus, the guidelines require McKenzie's gross income be based on earning capacity "equal to the greatest of subdivisions a through c" under N.D. Admin. Code § 75-02-04.1-07(3), which in this case, based upon the record and unrefuted income tax returns, is N.D. Admin. Code § 75-02-04.1-07(3)(c).

[¶11] McKenzie argued to the district court that under N.D. Admin. Code § 75-02-04.1-07(6), the court should impute income at the minimum wage. Section 75-02-04.1-07(6), N.D. Admin. Code, stated:

"If an unemployed or underemployed obligor shows that employment opportunities, which would provide earnings at least equal to the lesser of the amounts determined under subdivision b or c of subsection 3, are unavailable in the community, income must be imputed based on earning capacity equal to the amount determined under subdivision a of subsection 3, less actual gross earnings."

Based upon this guideline's language, McKenzie has the burden to establish these circumstances. See Orvedal v. Orvedal, 2003 ND 145, ¶ 12, 669 N.W.2d 89 (holding district court did not err in finding obligor had failed to present sufficient evidence to warrant a finding that amounts available under subdivision b or c of subsection 3 were unavailable in the community). Although the district court concluded "[n]o employment opportunities exist for a physician without a license," the record lacks evidence showing any "prevailing gross earnings in the community" with respect to someone with McKenzie's work history and occupational qualifications. See N.D.C.C. § 75-02-04.1-07(3)(b). "Community" was defined at N.D. Admin. Code §75-02-04.1-07(1)(a) as "any place within one hundred miles... of the obligor's actual place of residence."

[¶12] At the April 2007 hearing, McKenzie testified she was unlicensed and unemployed, but that she has a bachelor's degree in microbiology, a medical doctor degree and specialized training in pathology, which included clinical and anatomic pathology. McKenzie indicated that before her arrest she was board certified in pathology and was licensed to practice medicine in North Dakota. She also testified regarding her efforts to seek employment subsequent to the revocation of her medical license:

BY MR. SLORBY:

Q: Have you sought any other employment since your license was suspended and ultimately revoked?

A: Well, I have been looking on the Internet for sub-specialty fellowships in pathology and I know that I need a license so I need to find out some legal advice about the special circumstances that I am in in order to get a license for training purposes.

Q: I suppose I should ask you, what was your ...


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