Knoebel v. Knoebel ( 2023 )

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
In re the Matter of:
LISA MARIE KNOEBEL, Petitioner/Appellee,
v.
ERIK ANDREW KNOEBEL, Respondent/Appellant.
No. 1 CA-CV 22-0405 FC
FILED 3-14-2023
Appeal from the Superior Court in Maricopa County
No. FC2021-070099
The Honorable Joseph S. Kiefer, Judge
AFFIRMED IN PART; VACATED AND REMANDED IN PART
COUNSEL
Schmillen Law Firm, PLLC, Scottsdale
By James R. Schmillen
Counsel for Petitioner/Appellee
Cordell Law, LLP, Scottsdale
By Kristina L. Cervone
Counsel for Respondent/Appellant
KNOEBEL v. KNOEBEL
Decision of the Court
MEMORANDUM DECISION
Presiding Judge Paul J. McMurdie delivered the Court’s decision, in which
Judge Michael J. Brown and Judge Michael S. Catlett joined.
M c M U R D I E, Judge:
¶1 Erik Knoebel (“Father”) appeals from the superior court’s
dissolution decree, denial of his motion to alter or amend the judgment, and
grant of attorney’s fees to Lisa Knoebel (“Mother”). We affirm the decree in
part but vacate the spousal maintenance, child support, and attorney’s fees
awards and remand for proceedings consistent with this decision.
FACTS AND PROCEDURAL BACKGROUND
¶2 Father and Mother were married in 1995 and have two minor
children. Mother petitioned for dissolution in January 2021. The parties
litigated issues involving child support, spousal maintenance, and division
of assets and debts.
¶3 Father and Mother jointly owned a business selling jet skis.
Originally, Father operated the business while Mother homeschooled their
children. Mother began working full-time as a teacher in 2021. Mother also
has a photography business. Mother testified her gross monthly income is
about $4,200, and her expenses are around $5,600. Mother has a B.S. in
Education but testified she could increase her earnings by obtaining a
master’s degree.
¶4 Father’s highest level of completed education is high school.
In his affidavit of financial information, Father reported that before they
opened the business, he made around $4,000 per month as a production
manager. At the evidentiary hearing, he relayed that the community
business faced supply chain and product issues and would face “an
extreme struggle for the next six to twelve months.” Father stated that if
they sold the business, he would not return to the jet ski sales industry
because of these difficulties.
¶5 The parties disputed Father’s monthly income during the
marriage. Father asserted he earned around $5,000 per month. He did not
provide supporting documentation but said this was the “actual salary that
[he] get[s] from the business from paychecks.” He claimed his monthly
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personal expenses are about $4,000. On the other hand, Mother offered an
expert who testified that Father’s gross monthly income from the business
was around $12,500. Mother’s expert calculated Father’s community
earnings by averaging the sum of Father’s estimated market salary1 and the
business’s pre-tax revenue between December 2016 and March 2021.2
¶6 The parties disagreed on the business’s overall value.
Mother’s expert valued the jet ski business at a fair market value of around
$410,000. Father hired an expert to review and comment on the valuation
report. Father’s expert believed the business was worth between $169,000
and $294,000. Mother proposed a settlement to “split the differences in
values on the business” and value the business at $325,750. In the joint
pretrial statement, Mother requested that the court award Father the
business with appropriate equalization to her. Father asked the court to
order the business sold and the proceeds equitably divided. If the court
ordered the business sold, Mother requested that until the sale closed, she
receive half of “the business generated net income in excess of a market
salary.”
¶7 The parties also disputed whether they were responsible for
a loan from Father’s parents. Father testified that his parents loaned them
money to start the jet ski business. Father explained they “took over [his
parent’s] mortgage” to repay his parents, and the community owes them
around $280,000. He also said they repay the loan “through the business
every month.” Father offered evidence of his parents’ mortgage statements
and the business’s bank statements showing he paid his mother about
$1,600 in October, November, and December 2020. Father asked the court
1 Mother’s expert estimated Father’s market salary based on the
Economic Research Institute Database reports of median compensation for
a sales manager, a branch store manager, and a motorcycle sales
representative.
2 The superior court found that “both business valuation experts
placed Father’s draw from the parties’ jet ski business at about $12,500 per
month.” We cannot find record evidence that Father’s expert agreed his
monthly income was $12,500. Although Father’s expert stated the
“adjustments to include a fair market salary for Mr. Knoebel” appeared
reasonable, she disagreed with Mother’s expert’s income adjustments and
revenue projections, which were considered when determining Father’s
monthly income.
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to hold the community “equally responsible for the community debt” and
pay the remaining loan balance from the business sale’s proceeds.
¶8 Mother argued there was insufficient evidence supporting a
loan obligation. Mother acknowledged that “Father and his parents
exchange[d] money regularly throughout the marriage,” and Father
accepted money from his parents to start the business and buy out a
business partner. But she claimed that the community was not responsible
for repayment and no documents supported Father’s loan claim. In essence,
Mother claimed that the money was a gift to the community, and Father’s
parents could “pursue the parties accordingly” if they expected repayment.
¶9 In January 2022, the superior court entered the dissolution
decree. The court awarded Mother the family home and ordered her to pay
Father his share of the home’s equity by April 2022. To calculate child
support and spousal maintenance, the court found that Father earned about
$12,500 monthly, and Mother earned roughly $4,200 monthly. The court
ordered Father to pay $690 per month in child support, $1,500 monthly in
spousal maintenance for 24 months, and $1,000 monthly in spousal
maintenance for 12 months.
¶10 The court declined to find a community loan from Father’s
parents because “no documentation of this purported loan was offered at
trial.” The court also found that “the best way to establish the value [of the
business] is to list the business for sale.” Thus, the court ordered the parties
to place the business for sale within 90 days. Finding that the equity in the
business is a community asset, the court ordered the parties to share any
sale proceeds equally. Finally, the court declined “to rule on specific
disputes regarding assets, income, or debts of the business” to see if they
would be “resolved through the sales process.”
¶11 The court awarded Mother a portion of her requested
attorney’s fees under A.R.S. § 25-324(A) after finding there was a
“substantial disparity of financial resources between the parties” and that
Father “acted unreasonably in the litigation.”
¶12 Father moved to alter or amend the judgment under Arizona
Rule of Family Law Procedure (“ARFLP”) 83(a), arguing the court erred
when calculating Father’s income, declining to divide the loan between the
parties, and granting Mother’s request for attorney’s fees. Father also
challenged the court’s findings in its award for spousal maintenance. The
court denied the motion.
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¶13 Father appealed. We have jurisdiction under A.R.S.
§ 12-2101(A)(1), (2) and ARFLP 78.
DISCUSSION
¶14 We review the denial of a Rule 83 motion for an abuse of
discretion. Wisniewski v. Dolecka, 251 Ariz. 240, 241, ¶ 5 (App. 2021). A court
abuses its discretion by making an error of law or reaching a decision
unsupported by the record. DeLuna v. Petitto, 247 Ariz. 420, 423, ¶ 9 (App.
2019). We defer to the superior court’s credibility determinations. Hurd v.
Hurd, 223 Ariz. 48, 52, ¶ 16 (App. 2009).
A. The Superior Court Did Not Abuse Its Discretion by Declining to
Find a Community Loan from Father’s Parents.
¶15 We briefly discuss Father’s contention that the court erred by
failing to allocate the debt Father claims the community owed to his
parents. We review a court’s division of debt for an abuse of discretion.
Hammett v. Hammett, 247 Ariz. 556, 559, ¶ 13 (App. 2019). We will affirm the
superior court’s ruling if reasonable evidence supports it. Kohler v. Kohler,
211 Ariz. 106, 107, ¶ 2 (App. 2005).
¶16 Father argues that his testimony, record of his parents’
mortgage, and payments to his parents sufficiently showed the community
owed a debt to his parents. He asserts, “it can be inferred that these
payments are being made to his parents based on the loans.” But the court
did not have to accept Father’s inferences. See Hurd, 223 Ariz. at 52, ¶ 16.
Because of the lack of loan documentation, the superior court could
reasonably find insufficient evidence showing a community debt. See
Kohler, 211 Ariz. at 107, ¶ 2.
B. The Superior Court Abused Its Discretion When Determining the
Spousal Maintenance Award.
¶17 Father contends that the superior court improperly
determined Father’s spousal maintenance obligation. We review a spousal
maintenance award for an abuse of discretion. Leathers v. Leathers, 216 Ariz.
374, 376, ¶ 9 (App. 2007).
¶18 In reviewing a spousal maintenance award, we first consider
whether the spouse seeking maintenance is eligible under A.R.S.
§ 25-319(A). Gutierrez v. Gutierrez, 193 Ariz. 343, 348, ¶ 15 (App. 1998).
“Second, we must review the amount and duration of the award to
determine whether the trial court properly considered the factors listed in
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A.R.S. § 25-319(B).” Thomas v. Thomas, 142 Ariz. 386, 390 (App. 1984). The
statute requires the superior court to balance factors such as the ability of
the payor spouse to meet his or her needs while paying spousal
maintenance, the “comparative financial resources” of the parties, and the
“financial resources of the party seeking maintenance, including marital
property apportioned to that spouse.” A.R.S. § 25-319(B)(4), (5), (9). If
inappropriate bases are used to determine spousal maintenance, we reverse
the award for redetermination. See Cullum v. Cullum, 215 Ariz. 352, 355, ¶ 15
(App. 2007).
¶19 The superior court found that the parties did not have
significant assets besides their home and business. The court also found
Mother’s expenses exceeded her income, and during the marriage, Mother
agreed to stay home so Father could work. Substantial evidence supported
these findings. See A.R.S. § 25-319(A)(1), (2), (4). But we cannot affirm the
court-ordered amount and duration of spousal maintenance because the
court miscalculated Father’s income. See Cullum, 215 Ariz. at 355, ¶ 15.
¶20 Father argues the court improperly attributed business profits
to Father’s income after the business’s sale. We agree. When calculating the
spousal maintenance and child support awards, the court adopted the
expert’s determination of Father’s monthly earnings, which incorporated
business income. The court ordered the business sold but still included the
business’s pre-tax revenue in Father’s earnings by adopting the $12,500
figure as Father’s monthly income.
¶21 Given the evidence presented, the court acted within its
discretion to find that Father’s pre-divorce income was the sum of his
market salary and the business’s pre-tax profit. But because Father works
for a business that the court ordered to be sold, the court must determine
Father’s income and earning capacity separate from the jet ski business.
Mother argues it would be improper to speculate about Father’s future
income. See Gutierrez, 193 Ariz. at 349, ¶ 23 (quoting Thomas, 142 Ariz. at
391 (“A maintenance award ‘cannot be based upon . . . speculative
expectations.’”)). But here, we are not speculating whether Father will keep
earning income as a jet ski business owner. The court ordered the
community to place the business for sale within 90 days. Because of the
court’s order to sell the business, Father will no longer benefit from being
the business owner. Instead, he must find a new job or work at the business
as a manager who no longer receives business proceeds. The superior court
abused its discretion by basing the amount and duration of spousal
maintenance on Father’s continued role as owner of a sold business.
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¶22 Likewise, until the business sold, it remained a community
asset, and Mother was entitled to 50% of the business-generated net income
over Father’s market salary. Mother requested this approach until the
business sold. The court refused. It is not apparent from the record that the
spousal maintenance order covered Mother’s entitlement to her half of the
business proceeds before the mandated sale.
¶23 Contrary to Mother’s position in defending the decree, it is
speculative to presume Father will keep earning $12,500 monthly after the
sale of the jet ski business. The superior court acknowledged that “upon
sale of the family business, Father may not be able to immediately earn at
the same level he has over the past few years.” When determining Father’s
income, Mother’s expert calculated Father’s draw as an owner and a
manager of the business. But the $12,500 figure does not represent Father’s
monthly income as a non-owner manager. Nor is there any evidence
supporting a finding that Father could earn $12,500 per month in a similar
role. The record shows Father’s highest level of education is a high school
diploma, and he made $4,000 per month as a production manager before he
opened the business. And Mother’s expert capped Father’s market salary
for his duties at the business at a high of $93,099 (or about $7,758 per month)
for the period ending March 31, 2021.
¶24 There is no evidence supporting a determination that Father
could earn $12,500 per month after the business is sold. The community
business generated revenue after years of operation and substantial cash
contribution. The record lacks evidence that Father could have income at
the level attributed by Mother’s expert based on the community business
after the sale.
¶25 Because the court ordered spousal maintenance based on
income that Father would no longer earn, it left open the possibility that
Father would need to exhaust his share of the marital property to pay for
Mother’s spousal maintenance, leaving him without adequate resources to
support himself. When considering the parties’ financial resources, this
court has established that requiring the spouse seeking maintenance to rely
solely on the principal of his or her community share for support would be
inequitable. See Thomas, 142 Ariz. at 391; Gutierrez, 193 at 348, ¶¶ 18–19.
Although the court may consider the community property when
determining whether the receiving spouse can sufficiently meet his or her
needs, Gutierrez, 193 Ariz. at 348, ¶ 18, the spouse “should not be expected
to . . . exhaust[] whatever financial reserves [he or] she possesses to the
extent that when [he or] she no longer had any earning capacity there
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would be nothing left upon which [he or] she could draw,” Thomas, 142
Ariz. at 391 (citing Wineinger v. Wineinger, 137 Ariz. 194, 198 (App. 1983)).
¶26 It is just as unfair to require the payor spouse to exhaust his
or her share of the community property to fulfill spousal maintenance
obligations. Although the court may consider Father’s share of community
property when determining whether he can meet his needs while paying
spousal maintenance, it cannot require Father to exhaust his share to
support Mother. See Gutierrez, 193 Ariz. at 348, ¶ 18; Thomas, 142 Ariz. at
391. To ensure Father would not need to exhaust his share of the business
and home equity to pay Mother, the court must consider Father’s monthly
earnings separate from his role as the owner of the jet ski business because
the court ordered that business sold.
¶27 The superior court could not use the $12,500 figure without
evidence suggesting that Father could continue to earn this amount after
the business sold. See DeLuna, 247 Ariz. at 423, ¶ 9 (We cannot affirm a
finding without supporting evidence.). Thus, the court abused its discretion
by attributing income to Father without record evidence supporting his
capacity to earn it. Id.
¶28 We vacate the superior court’s spousal maintenance award
and remand for the court to reconsider Father’s income, his ability to meet
his own needs while paying spousal maintenance, the financial resources
of the parties, and other factors the court deems appropriate. See A.R.S.
§ 25-319(B).
C. The Superior Court Abused Its Discretion by Calculating Father’s
Income for the Child Support Award.
¶29 We review a child support award for an abuse of discretion.
Engel v. Landman, 221 Ariz. 504, 510, ¶ 21 (App. 2009). “An abuse of
discretion exists when the record, viewed in the light most favorable to
upholding the trial court’s decision, is ‘devoid of competent evidence to
support the decision.’” Milinovich v. Womack, 236 Ariz. 612, 615, ¶ 7 (App.
2015) (quoting Little v. Little, 193 Ariz. 518, 520, ¶ 5 (1999)).
¶30 Our supreme court adopted guidelines to establish child
support obligations consistent with children’s needs and parents’ abilities
to pay. A.R.S. § 25-320 app. (“Guidelines”) § I; Milinovich, 236 Ariz. at 615,
¶ 8. The guidelines first direct the court to determine the gross income of
each parent. Guidelines § 1.A. (Step 1). Child support income means
“income from any source.” Guidelines § II.A.1.b. Although the guidelines
do not “specify or limit the items that the court may consider in determining
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a parent’s ‘financial resources,’” gross income is determined by the money
or cash-like benefits available for spending. Milinovich, 236 Ariz. at 616, ¶ 11
(quoting Cummings v. Cummings, 182 Ariz. 383, 386 (App. 1994)).
¶31 Here, the superior court reported Father’s income as $12,500
on the child support worksheet. As explained above, the record does not
support the superior court’s income determination. Thus, we vacate and
remand for the court to recalculate the child support award after
considering Father’s income and the spousal maintenance award.
D. We Vacate the Superior Court’s Award of Attorney’s Fees and
Remand for the Court to Reconsider the Parties’ Financial Resources and
the Reasonableness of the Positions Taken.
¶32 Father argues that the superior court erred by granting
Mother’s attorney’s fees request. We review the attorney’s fees award for
an abuse of discretion. Magee v. Magee, 206 Ariz. 589, 590, ¶ 6 (App. 2004).
Under A.R.S. § 25-324, the court may order fees and costs “after considering
the financial resources of both parties and the reasonableness of the
positions each party has taken throughout the proceedings.” A.R.S.
§ 25-324(A).
¶33 The superior court found “that there is substantial disparity
of financial resources between the parties” and that Father acted
unreasonably “with respect to management of the business, lack of
adequate documentation, and his relatively late change of position with
respect to disposition of the business.”
¶34 Father argues the superior court erred by finding a disparity
of financial resources between the parties. Because no record evidence
supports the court’s determination of Father’s income after the business’s
sale, we vacate the superior court’s attorney’s fees award and remand for
reconsideration of “the financial resources of both parties.” See A.R.S.
§ 25-324(A).
¶35 Father also disputes the court’s determination that he acted
unreasonably in the litigation. The court must reconsider the fee award, so
we offer guidance on the stated basis for the court’s finding of
unreasonableness.
¶36 Under A.R.S. § 25-324(A), a court may consider the
“reasonableness of the positions each party has taken throughout the
proceedings.” The conduct must relate to a legal position to be
unreasonable within the statute’s meaning. See, e.g., Keefer v. Keefer, 225
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Ariz. 437, 441–42, ¶¶ 16–17 (App. 2010); see also In re Marriage of Williams,
219 Ariz. 546, 548–49, ¶¶ 10, 12 (App. 2008). At oral argument here, Mother
conceded that Father’s “management of the business” did not relate to his
legal position. Likewise, Mother acknowledged that there is no evidence
that Father changed his position about the business sale. So the finding of
unreasonableness on these grounds was error.
¶37 It is not self-evident what the court was referring to when it
found a “lack of adequate documentation.” If it was documentation for a
claim raised in court or failure to provide requested documents, it could be
a basis for an unreasonableness finding. If, on the other hand, it related to
business or personal records generally, that would not be a basis for an
unreasonableness determination as it does not relate to Father’s legal
position. Because we cannot discern the basis for the finding, we cannot
opine if it was error to make it.
ATTORNEY’S FEES
¶38 Father and Mother request appellate attorney’s fees under
A.R.S. § 25-324. Per our discretion, we decline to award attorney’s fees.
Father is entitled to his costs on appeal upon compliance with ARCAP 21.
CONCLUSION
¶39 We affirm the superior court’s denial of Father’s request to
divide the purported loan from his parents. But we vacate the portions of
the decree on spousal maintenance, child support, and attorney’s fees. As a
result, we remand for the superior court to reconsider these issues
consistent with this decision.
AMY M. WOOD • Clerk of the Court
FILED: AA
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