In re Marriage of Gibbs — , 446 P.3d 968 ( 2019 )

The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.
SUMMARY
July 3, 2019
2019COA104
No. 18CA0250, In re Marriage of Gibbs — Family Law — Post-
dissolution — Modification and Termination of Provisions for
Maintenance, Support, and Property Disposition — Imputed
Income
This opinion answers the unresolved question of whether a
district court can, for the purpose of calculating maintenance,
impute to a party rental income from that party’s primary residence
when the primary residence has never been used as a rental
property. A division of the court of appeals concludes that a district
court cannot impute rental income to a party when that party has
never used the residence as an income-producing asset.
COLORADO COURT OF APPEALS 2019COA104
Court of Appeals No. 18CA0250
Larimer County District Court No. 12DR408
Honorable Devin R. Odell, Judge
In re the Marriage of
Carl Joseph Gibbs,
Appellant,
and
Joellen Elizabeth Gibbs,
Appellee.
ORDER AFFIRMED IN PART, REVERSED IN PART,
AND CASE REMANDED WITH DIRECTIONS
Division IV
Opinion by JUDGE LIPINSKY
J. Jones and Martinez*, JJ., concur
Announced July 3, 2019
Thomas & Associates Law Firm LLC, Joseph G. Williams, Greenwood Village,
Colorado, for Appellant
Alison Ruttenberg, Louisville, Colorado; Vigil Law Offices, P.C., Frank G. Vigil,
Lakewood, Colorado, for Appellee
*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.
VI, § 5(3), and § 24-51-1105, C.R.S. 2018.
¶1 Three years after the district court entered permanent orders
in his dissolution of marriage case, husband, Carl Joseph Gibbs,
sought to modify or terminate his maintenance obligation to wife,
Joellen Elizabeth Gibbs, under section 14-10-122(1)(a), C.R.S.
2018. Husband argued that his alleged loss of income resulting
from a shoulder injury he incurred three years following the entry of
the permanent orders constituted a substantial and continuing
change in his circumstances that warranted a decrease in his
maintenance payments.
¶2 The district court denied husband’s motion based on its
calculation of husband’s monthly income, including imputed rental
income from husband’s primary residence.
¶3 We affirm the portion of the decision addressing husband’s
self-employment income and reverse the portion imputing rental
income to him because husband never used the residence as an
income-producing asset. We remand to redetermine husband’s
maintenance obligation without considering imputed rental income.
I. Background
¶4 The parties’ marriage ended in 2013. In the permanent
orders, the district court awarded wife $1,850 in monthly
1
maintenance until the death of either party, the remarriage or civil
union of wife, or further court order.
¶5 In September 2016, husband moved to modify or terminate his
maintenance obligation. He alleged that, as a result of a severe
shoulder injury, he was no longer able to perform labor-oriented
work. He further alleged that he had been diagnosed with stenosis,
which would require surgery and affect his ability to work for the
rest of his life.
¶6 Following a hearing at which husband, wife, and a physician
testified, the court found that husband had not shown a
substantial and continuing change in his circumstances and,
therefore, denied husband’s motion.
II. Husband’s Income
¶7 Husband contends that the district court abused its discretion
in determining that his income was $6,500 per month for purposes
of calculating maintenance.
A. Standard of Review
¶8 We review a district court’s order continuing or modifying
maintenance for an abuse of discretion. In re Marriage of Kann,
2017 COA 94, ¶ 75, ___ P.3d ___, ___. A district court abuses its
2
discretion when its decision is manifestly arbitrary, unreasonable,
or unfair. In re Marriage of Gromicko, 2017 CO 1, ¶ 18, 387 P.3d
58, 61.
¶9 We defer to the district court’s factual findings unless they are
clearly erroneous. In re Marriage of Connerton, 260 P.3d 62, 66
(Colo. App. 2010). The district court must make sufficiently explicit
findings of fact to give the appellate court a clear understanding of
the basis of its order. In re Marriage of Rozzi, 190 P.3d 815, 822
(Colo. App. 2008).
B. Self-Employment Income
¶ 10 Husband argues that the district court miscalculated his self-
employment income because it did not accurately calculate the
ordinary and necessary business expenses that needed to be
deducted from his gross receipts, as required by section
14-10-114(8)(c)(III)(A), C.R.S. 2018. We disagree.
¶ 11 In applying the maintenance guidelines, an individual’s gross
income from self-employment is calculated by deducting from gross
receipts the ordinary and necessary expenses required to produce
income. Id. Ordinary and necessary expenses do not include
business expenses that the district court finds are “inappropriate
3
for determining gross income.” § 14-10-114(8)(c)(III)(B). A self-
employed party’s gross income includes expense reimbursements
or in-kind payments received in the course of self-employment if
they are significant and reduce personal living expenses.
§ 14-10-114(8)(c)(I)(X).
¶ 12 The record reflects that, when the district court entered the
permanent orders, husband performed the manual labor of a
framer for his own construction company. As a result of husband’s
shoulder injury and pain from stenosis, he transitioned to a
supervisory position at his girlfriend’s construction company.
¶ 13 The court found that husband earned a $5,000 monthly salary
as a supervisor. The court acknowledged that husband was
required to use a portion of his salary to pay for certain business
expenses, including a cell phone, general liability insurance, and
auto insurance. However, the court found that these business
expenses were offset by his ability to use a company vehicle and the
cell phone for personal purposes.
¶ 14 The record supports the district court’s finding that husband’s
business expenses were offset by the value of the vehicle and cell
phone. Husband testified that his business expenses for his cell
4
phone, general liability insurance, auto insurance, and loan
payment totaled $1,057 per month. He also testified that he was
provided the vehicle at no cost to himself and was allowed to use
the vehicle for personal use. Husband estimated that the monthly
loan payment on his vehicle was around $800 and that he spent
around $300 per month in fuel. Husband further said that his
construction company paid his cell phone bills. His monthly cell
phone bill was $123.
¶ 15 In finding that husband’s business expenses were offset by the
in-kind payments he received from his girlfriend’s construction
company, the court essentially added those payments to his salary,
see § 14-10-114(8)(c)(I)(X); see also In re Marriage of Long, 921 P.2d
67, 69 (Colo. App. 1996) (noting that in-kind payments might
include a company car, free housing, or reimbursed meals), and
then deducted his business expenses from his salary, see
§ 14-10-114(8)(c)(III)(A). Because his monthly business expenses
($1,057) were nearly the same as the monthly in-kind payments for
the vehicle, fuel, and cell phone ($1,223), we discern no abuse of
discretion in the district court’s calculation of husband’s self-
employment income.
5
C. Imputed Rental Income
¶ 16 Husband argues that the district court erred in imputing
$1,500 per month in rental income to him. We agree.
¶ 17 The record reflects that husband continued living in the
marital residence following the dissolution of the parties’ marriage.
His monthly mortgage payment on the five-bedroom, 2,500-square-
foot home was $2,552 at the time of the modification hearing.
Husband lived in the home with his girlfriend and her three
children. They lived there together as a family. Husband testified
that he paid the mortgage and, although his girlfriend did not pay
rent, she paid for the utilities and groceries.
¶ 18 The district court found that this arrangement was not a fair
market exchange because husband’s portion of the utilities and
groceries was only a small fraction of these costs. In addition, the
district court imputed to husband rental income from the house,
noting that husband “owns a large house — the former marital
residence — that he could use to generate rental income. . . . [T]he
property . . . is much larger than he needs for himself.”
¶ 19 The district court “estimate[d] that fair rental value would be
at least $1,500 per month for a house of that size.” It therefore
6
concluded that husband was “essentially receiving at least $1,500
in income that he is gifting to [his girlfriend] and her children.” The
district court found that “[t]he fact that [husband] chooses to forgo
this income from an asset should not be used to penalize [wife].”
The district court added the $1,500 in imputed rental income to
husband’s $5,000 monthly salary for a total income of $6,500 per
month.
¶ 20 For purposes of calculating maintenance, potential income is
properly imputed to a party who is voluntarily unemployed or
underemployed. See § 14-10-114(8)(c)(IV); see also People v.
Martinez, 70 P.3d 474, 476-81 (Colo. 2003) (discussing imputing
income to an unemployed or underemployed parent for purposes of
calculating child support). Unrealized income from an investment
asset that earns interest or distributes dividends is also properly
imputed to a party. See In re Marriage of Bregar, 952 P.2d 783,
786-87 (Colo. App. 1997) (interest imputed on portion of capital
gain from stock sale used to reduce margin account debt); In re
Marriage of Laughlin, 932 P.2d 858, 861-62 (Colo. App. 1997)
(interest imputed on portion of capital gain from sale of business
used to construct addition to home and to pay mortgages); In re
7
Marriage of Tessmer, 903 P.2d 1194, 1196 (Colo. App. 1995)
(interest and dividends on a retirement account were income,
although not withdrawn and subject to penalty if withdrawn); In re
Marriage of Armstrong, 831 P.2d 501, 503-04 (Colo. App. 1992)
(income earned on portion of inheritance imputed to the father).
¶ 21 But no Colorado statute addresses whether potential rental
income can be imputed to a party for purposes of calculating
maintenance. Nor does any Colorado statute address whether
potential rental income from a party’s primary residence that has
never before earned rental income can be imputed to that party for
purposes of calculating maintenance. We answer this second, and
more narrow, question “no.”
¶ 22 No evidence in the record shows that the residence ever
produced income. There is also no evidence indicating that
husband was acting in bad faith by staying in the residence to
inflate his monthly expenses and avoid paying maintenance to wife.
By imputing rental income to husband, the court effectively
recharacterized husband’s home from a primary residence to an
income-producing rental property. This was, in our view, an abuse
of discretion.
8
¶ 23 In In re Marriage of Mugge, 66 P.3d 207 (Colo. App. 2003), a
division of this court considered a parent’s unrealized income in the
form of an undistributed retirement account. Mugge held that it
was improper to “consider unrealized income for child support
purposes solely because a parent could liquidate an asset or change
its character into an asset capable of producing income.” Id. at
212. Like the father’s undistributed retirement account in Mugge,
husband’s primary residence in this case would not generate
income unless its character were changed. Id. Moreover, we are
unaware of any case holding, in effect, that a party in a dissolution
of marriage case may be compelled to relocate to a smaller
residence or to rent a portion of his or her home.
¶ 24 For these reasons, we conclude that, where a party has not
historically earned rental income from his or her primary residence,
potential rental income from that asset cannot be imputed to the
party for purposes of calculating maintenance. See id. at 213
(noting that several other statutory income categories expressly
require payment to the recipient).
9
¶ 25 We therefore remand this case to the district court to
redetermine maintenance without imputing to husband potential
rental income from his primary residence.
III. Husband’s Argument that He Is Not Underemployed
¶ 26 We next turn to husband’s contention that the district court
erred in finding him underemployed.
¶ 27 The district court found that husband “has chosen a position
that is comfortable and familiar to him, but there is no evidence
that he has attempted to find the highest paying position possible
given his experience.” But the district court did not make findings
regarding the amount of additional income husband could be
earning. Thus, the district court did not impute any income to
husband on grounds of underemployment, and we need not
address husband’s argument on this point.
IV. Husband’s Other Arguments
¶ 28 Because the district court must redetermine maintenance
based on the parties’ circumstances at the time of that hearing, we
need not address husband’s arguments that he has experienced a
substantial decrease in his income warranting a modification of
10
maintenance and that he would be impoverished if the district court
does not modify his maintenance obligation.
V. Conclusion
¶ 29 We affirm the portion of the district court’s order calculating
husband’s self-employment income, reverse the portion imputing
rental income to husband, and remand the case for redetermination
of maintenance, as provided herein.
JUDGE J. JONES and JUSTICE MARTINEZ concur.
11