In re the Marriage of: Kristi Rae Pawlak, petitioner, Appellant,

This opinion is nonprecedential except as provided by
Minn. R. Civ. App. P. 136.01, subd. 1(c).

STATE OF MINNESOTA
IN COURT OF APPEALS
A20-0719

In re the Marriage of:
Kristi Rae Pawlak, petitioner,
Appellant,

vs.

Steven Vincent Pawlak,
Respondent.

Filed April 5, 2021
Reversed and remanded
Worke, Judge

Hennepin County District Court
File No. 27-FA-17-5810

Ben M. Henschel, Susan A. Daudelin, Hens chel Moberg, P.A., Minneapolis, Minnesota
(for appellant)

Jason C. Brown, Brown Law Offices, P.A., Champlin, Minnesota (for respondent)

Considered and decided by Reyes, Presiding Judge; Worke, Judge; and Jesson,
Judge.
NONPRECEDENTIAL OPINION
WORKE, Judge
Appellant-mother argues that the district court abused its discretion by denying her
motion to modify child support by (1) omitting respondent-father’s business income from
his gross income, (2) incorrectly determining the range of father’s corporate distributions,

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and (3) excluding these distributions from father’s gross income because they are
inconsistent. We reverse and remand.
FACTS
Appellant-mother Kristi Rae Pawlak and respondent-father Steven Vincent Pawlak
dissolved their marriage by sti pulated judgment in 2017. The stipulated judgment stated
that father’s $7,291 monthly gross income ob ligated him to pay $1,322 in monthly child
support under the statute, but that the parties stipulated to an upward departure, increasing
father’s support obligation to $1,500. Father’s gross income was based on his salary and
not his ownership interest in three businesses. Mother moved to amend the judgment and
decree to “reflect [father]’s actual income.” In her accompanying affidavit, she stated,
“[Father] is a partial owner of three businesses: P&F Partners, LLC, P&F Machining, Inc.,
and P&F Properties, Inc. Find ings of Fact XV of the Judgme nt and Decree provides for
purposes of calculating child support, [father]’s gross income was $87,500. I do not believe
this is accurate.”
The district court denied mother’s motion to amend child support. The district court
found father’s monthly income to be $8,423, and stated,
[Mother] argued [father]’s [monthly] income was
$30,146 instead of $8,423 due to him having 20% ownership
in P&F. The [c]ourt does not find [father] to be a corporate
officer of the company; therefore, he cannot make financial
decisions nor control corporate distributions. . . . Additionally,
distributions vary from each year from $0-$10,963. The
[c]ourt cannot add additional income for the distributions as it
is not consistent, and the [c]ourt does not consider this income
to be a bonus.

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Mother moved to amend the findings, requesting the district court to credit father’s
business income, which she argued “averaged $228,086 per year over the past three years.”
Mother’s claim focused only on father’s joint ownership of P&F Machining.
The district court denied mother’s motion to amend child support. The district court
stated, “Upon further review, the [c]ourt finds there to be no changes to the parties’ income
or submissions that would require adjusting th e child support calcula tions . . . .” This
appeal followed.
DECISION
Mother argues that the dist rict court incorrectly calculated father’s gross income by
considering only his salary, rather than including his 20% ownership of P&F Machining
Inc.
Appellate courts review orde rs modifying child support for an abuse of discretion.
Haefele v. Haefele, 837 N.W.2d 703, 708 (Minn. 2013). District courts abuse this “broad
discretion” by resolving the matter in a manne r “that is against logic and the facts on
record.” Id.
The first step in determining a parent’s presumptive child-support obligation is to
determine the gross income of each parent. Minn. Stat. § 518A.34(b)(1) (2020). Gross
income includes “self-employm ent income.” Minn. Stat. § 518A.29(a) (2020). This
includes income from “joint ownership of a . . . closely held corporation,” and is defined
as “gross receipts minus costs of goods sold minus ordina ry and necessary expenses
required for self-employment or business ope ration.” Minn. Stat. § 518A.30 (2020).

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Section 518A.30 applies in determining a pa rent’s income from joint ownership of a
closely held subchapter S-corporation. Haefele, 837 N.W.2d at 711.
The district court did not include funds father received based on his joint ownership
of P&F in calculating father’s gross income because it did “not find [father] to be a
corporate officer of the company; therefore, he cannot make financial decisions nor control
corporate distributions.” We reject this analysis. In Haefele, the mother had interests in a
closely held business but had no control over the amounts t hose businesses distributed to
their owners. Id. at 705-06. In an attempt to expand, the businesses retained much of the
earnings attributable to their owners and di stributed only the amounts necessary for the
owners to pay the taxes on their shares of the total earnings. Id. at 706. Thus, in Haefele,
the mother received only a fraction of the am ounts attributable to her interests in the
business under the gross-receipts-minus-cost- of-goods-sold-and-ordinary-and-necessary-
expenses formula set out in Minn. Stat. § 518A.30, and almost none of the amounts
distributed were actually available for support purposes because they were needed to pay
the taxes on the earnings attributable to the mother. See id. Despite these facts, the supreme
court ruled that, under Minn. Stat. § 518A.30, both the undistributed earnings attributable
to mother, and the amounts distributed to he r for purposes of paying taxes, should have
been included in her gross income. Id. at 712-13. The supreme court then remanded the
case for the district court to make the required findings of fact. Id. at 714. In doing so, the
supreme court noted that in its discretion, “the district court may depart from the guidelines
in appropriate cases based on the unavailability of money included in gross income.” Id.

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Here, we conclude that the district court abused its discretion by not applying the procedure
outlined in Minn. Stat. § 518A.30 and Haefele when calculating father’s “gross income.”
Father argues that the district cour t did not abuse its discretion because Haefele
permits the district court to make a downward deviation. Father is correct about the
possibility of a deviation, but Haefele also requires the district court to first conduct the
gross-income analysis before deviating. See id. at 713-14 (stating that remand was
necessary even though district court did not abuse its discretion by excluding tax payments
from gross income because deducting ordinary and necessary expens es is only part of
analysis). Further, Minn. Stat. § 518A.37, subd. 2 (2020) states,
If the court deviates from the presumptive child support
obligation . . . , the court must make written findings that state:
(1) each parent’s gross income;
(2) each parent’s PICS;
(3) the amount of the child support obligation computed
under section 518A.34;
(4) the reasons for the deviation; and
(5) how the deviation serves the best interests of the
child.

The district court neither stated that it wa s deviating nor made th ese required findings.
Father’s argument lacks merit. On remand, the district court may make written deviations
as it sees appropriate, but it must support any deviation with the required findings of fact.
The district court may reopen the record at it s discretion for further financial information
from the parties.
Mother also argues that the district cour t abused its discreti on by concluding that
father’s corporate distributions ranged from $0-$10,963 and by not including the
distributions in father’s gross income because they were inconsistent. But as previously

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mentioned, Haefele held that distributions are not the correct method for determining
income from joint ownership of an S-corporation. Id. at 714. We reverse the district
court’s order and remand for the district court to make findings in accordance with Minn.
Stat. § 518A.30, and, if necessary, on any deviation it might deed appropriate in this case.
Reversed and remanded.