      Notice: This opinion is subject to correction before publication in the P ACIFIC R EPORTER .
      Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,
      303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email
      corrections@appellate.courts.state.ak.us.



               THE SUPREME COURT OF THE STATE OF ALASKA

CLINTON SWANEY,                                )
                                               )        Supreme Court No. S-14356
                      Appellant,               )
                                               )        Superior Court No. 3AN-04-09668 CI
      v.                                       )
                                               )        OPINION
AIMEE GRANGER,                                 )
                                               )        No. 6762 – March 22, 2013
                      Appellee.                )
                                               )

              Appeal from the Superior Court of the State of Alaska, Third
              Judicial District, Anchorage, Eric A. Aarseth, Judge.

              Appearances: Laurence Blakely and Allison Mendel, Mendel
              & Associates, Anchorage, for Appellant. Notice of non-
              participation filed by Appellee.

              Before: Fabe, Chief Justice, Carpeneti, Winfree, and
              Maassen, Justices. [Stowers, Justice, not participating.]

              FABE, Chief Justice.


I.    INTRODUCTION
              In May 2011, the superior court modified an existing child support order,
specifying that the modification was to be effective as of March 2007. But because the
motion requesting modification was not filed until February 15, 2008, the superior
court’s order constituted a retroactive modification. In addition, the superior court
modified the child support award based on its finding that the father’s income exceeded
the maximum amount specified in Alaska Rule of Civil Procedure 90.3(c)(2). Because
retroactive modification of child support is prohibited and because the superior court’s
determination of the amount owed did not conform to the analysis specified in
Rule 90.3(a), we vacate the superior court’s modification of the child support order and
remand this case for further proceedings.
II.   FACTS AND PROCEEDINGS
             When Aimee Granger and Clinton Swaney divorced in 2005 they had four
minor children, born between 1993 and 2003. In granting the divorce, the superior court
awarded the parents joint legal custody and named Aimee the children’s primary
physical custodian. The superior court granted Clinton visitation rights and ordered
Clinton to pay Aimee $3,000 per month in child support. The child support award was
based on the couple’s agreement that Clinton’s income exceeded $100,000 annually, the
maximum amount specified at the time by Civil Rule 90.3(c)(2).1




      1
              Civil Rule 90.3(a) provides a formula for the determination of child support
awards in cases where one parent has primary physical custody. The formula is based
on a percentage of the non-custodial parent’s income. Rule 90.3(c)(2) provides that, with
certain exceptions, the amount of the non-custodial parent’s income to be used in
determining child support is capped at a specific amount. In December 2005, when the
couple’s divorce was finalized, the cap was $100,000; it was increased to $105,000 on
April 15, 2009. Supreme Court Order Nos. 1526 (Feb. 1, 2005) and 1686 (Dec. 19,
2008). In the order on appeal in this case, the superior court applied $105,000 as the cap
for the entire period from March 2007 forward. As explained in the commentary to
Rule 90.3, this was error; courts are to apply the income cap in effect for the month for
which support is being calculated. Alaska R. Civ. P. 90.3 cmt. VI.E.2. Thus, assuming
the father’s income exceeded $105,000 for the entire period, the superior court should
have applied a cap of $100,000 before April 15, 2009 and $105,000 thereafter. (The
commentary to Alaska R. Civ. P. 90.3 has not been officially adopted by this court, but
it provides useful guidance in applying the rule. See Caldwell v. State, Dep’t of Revenue,
Child Support Enforcement Div., 105 P.3d 570, 573 n.6 (Alaska 2005)).

                                            -2-                                     6762

              In July 2006, the superior court temporarily changed the children’s primary
physical custodian to Clinton and ordered Aimee to pay Clinton $200 per month in child
support.2 In November 2007, the superior court denied Aimee’s motion to terminate the
temporary custody order and reinstate the December 2005 custody order. In doing so,
the superior court made “explicit . . . that it has found there has been a substantial change
in circumstances from the original custody order, leading to (among other things) the
interim order.”
              In February 2008, Aimee again moved to be named as the children’s
primary physical custodian, as well as their sole legal custodian. In her motion, she
stated that, in accordance with the recommendation of the custody investigator, the
children had been residing with her since December 2007.3 In April 2008, the superior
court granted her motion.      The superior court indicated that it would issue “the
appropriate child support orders” after the parents filed updated child support guideline
affidavits. But for reasons not apparent from the record, the superior court did not issue
new child support orders at that time.
              In April 2010, Superior Court Judge Eric A. Aarseth, to whom the case had
been assigned in the interim, determined that the support arrangement should be
modified to reflect the custody arrangements that had been in place since March 2007.
The superior court held a hearing in December 2010 and January 2011 that focused in
large part on the income that Clinton, a small-business owner, had derived from his



       2
              The change in custody was intended to allow a custody investigator time
to investigate allegations that one or more of the children had suffered abuse while in
Aimee’s care. In December 2007, the investigator recommended that Aimee be
reinstated as the children’s primary physical custodian.
       3
              This arrangement was at odds with the custody order that was in effect until
April 2008.

                                            -3-                                        6762

businesses during 2007 and 2008. In calendaring the hearing, the superior court told the
parties that it intended to issue two support orders. The first order would be for the
period March through November 2007, when the parents shared physical custody, and
the second order would be effective as of December 2007, when Aimee reassumed
primary physical custody.4 The orders were to be based on Clinton’s income in 2007 and
2008.
              At the hearing, Clinton, who in 2005 had stipulated to having an annual
income of more than $100,000, testified that his income had declined significantly by
2007 and 2008. He testified that he had operated a drywall contracting business in 2005.
He also pointed out that he had formed a partnership with Aimee’s brother-in-law several
years earlier to build and sell houses “on spec.” When that partnership was dissolved
in 2006, the partners divided the remaining lots. Clinton built houses on his lots and sold
them during the following years. The primary source of revenue for his business during
the period he was building and selling houses was from that activity, not from drywall
work. Clinton stopped building houses following a market decline in the middle of the
decade; he built his last house in 2006. But during 2007 and 2008, Clinton’s business
sold several houses that were already built and also sold assets used in the construction
business. Clinton testified that in spite of the sales in 2007 and 2008 the business
operated at a loss during those years. He testified that they were “horrible” years for his


        4
              Under Civil Rule 90.3(b), when parents share physical custody a support
award is calculated using the incomes of both parents. McDonald v. Trihub, 173 P.3d
416, 423 (Alaska 2007). Here, according to the superior court, only Clinton’s income
was at issue, because the court found that Aimee had no income for the relevant period.
The superior court did not apply, and did not explain its reason for not applying, the
minimum support award provision of Rule 90.3(c)(3). But, given our holding that the
award modification for the entire period during which the parents shared physical
custody was erroneous, any error the superior court may have made in calculating that
award was harmless.

                                           -4-                                       6762

business. By 2010 Clinton had returned to operating only a drywall business, which he
claimed was unable to generate an income similar to the income he had derived from
building houses.
              Clinton’s 2007 individual income tax return, which he filed jointly with his
wife, Mandy, showed an adjusted gross income of negative $237,533 and medical
expenses of $24,071. The return showed no items of positive income, instead reflecting
losses from Clinton’s various businesses.
              Clinton’s drywall and construction business’s return reflected receipts of
$487,310, which, when reduced by the cost of goods sold, left a gross income of
$12,161. After deduction of more than $165,000 in expenses for the year, the business
declared a net loss for tax purposes of $151,327. According to Clinton and his
accountant, the bulk of the business’s receipts that year were from the sale of existing
homes and the sale of business assets. The deductions claimed by the business included
amounts for repairs and maintenance, rents, taxes and licenses, interest, depreciation,
advertising, training and education, supplies, bank service charges, dues and
subscriptions, insurance, office supplies, postage and delivery, professional fees, travel,
utilities, telephone, automobile expenses, fees, a commission fee, storage, equipment
rental, and meals and entertainment. Testimony as to the nature and amount of many of
these deductions was presented to the superior court.
              The business return also contained an “item affecting shareholder basis,”
further denominated as a “property distribution,” of $104,157, which Clinton’s
accountant testified reflected a distribution to Clinton. The accountant explained that this
amount represented money that Clinton’s business could not account for, and that the
amount was therefore categorized for tax purposes as a distribution for the benefit of the
sole shareholder, Clinton. The accountant testified that Clinton may have spent these



                                            -5-                                       6762

funds for personal expenses or for business expenses for which he did not have
documentation.5
              The evidence showed that Clinton’s business improved in 2008. While in
2007 the business declared a loss for federal tax purposes of more than $150,000, in
2008 it declared net income of $794. This figure was determined by subtracting
$426,280 as the cost of goods sold and deducting $161,879 for various expenses from
the business’s gross receipts of $588,953.
              On their 2008 individual tax return, Clinton and Mandy declared $22,500
as income from salary, $3,794 from rent, $30 in interest, $9,072 from Mandy’s real estate
business, and $6,538 from PFDs. In addition, Clinton received a distribution of $38,308
from his business, which his accountant testified was similar to the $104,157 distribution
Clinton received in 2007. But after deducting more than $200,000 for a “Prior Year
NOL,”6 the couple declared an adjusted gross income for tax purposes of negative
$159,758.
              Following the hearing, the superior court modified the existing child
support award to require Clinton to pay support to Aimee. The new support orders
specified different support amounts for March through November 2007 and
December 2007 going forward. The superior court based the award for March through



       5
              Testimony was also presented about yet another business that Clinton
operated with a partner during a portion of 2007. That business was targeted at
providing cleanup services for damage caused by Hurricane Katrina. Clinton claimed
not to have made any profit from that business, which was dissolved during the year. His
individual tax return reflected a loss of $82,539 on the sale of assets from that business.
No tax return for that business was submitted to the superior court.
       6
             The amount of this loss does not match any figure from the portions of
Clinton and Mandy’s 2007 returns that appear in the record. Neither this figure nor any
other aspect of the 2008 individual return was the subject of testimony at the hearing.

                                             -6-                                     6762

November 2007 on Clinton’s income in 2007, and it based the ongoing award on his
income in 2008. The superior court found that in both years Clinton’s income exceeded
the maximum specified in Rule 90.3(c)(2). The superior court’s finding regarding the
2007 income appears to have been based primarily on its characterization of the
$104,157 shareholder distribution as income to Clinton. In addition, the superior court
stated, without further discussion or analysis, that Clinton “likely” received some
personal benefit from “many” of the deductions claimed by his business,7 but the court
did not otherwise parse the business’s tax returns or analyze the net loss of more than
$150,000 that the business claimed in 2007.
              The superior court relied on its finding that Clinton’s 2007 income
exceeded the maximum under the rule as the basis for making a similar finding regarding
his 2008 income. The superior court noted that in 2008 the business’s receipts increased
over those of 2007, while the cost of goods sold decreased, resulting in gross income of
more than $162,000, compared to gross income in 2007 of less than $13,000. The
superior court thus concluded that Clinton “was much better off in 2008 than in 2007,”
but, once again, the court did not analyze the deductions claimed by the business or
address the fact that, after its expenses were deducted from its gross income, the business
showed net income in 2008 of only $794.
              Clinton moved for reconsideration, challenging the superior court’s
findings that his income in both 2007 and 2008 exceeded the cap listed in Rule 90.3(c),
and raising for the first time an assertion that a portion of the superior court’s order
violated the rule against retroactive modification of child support awards. He also
asserted for the first time that instead of considering his 2007 and 2008 income in


       7
             In particular, the superior court listed “supplies, office supplies, home
insurance, professional fees, travel, utilities, telephone, automobiles and miscellaneous
fees.”

                                           -7-                                       6762
isolation, the superior court would have arrived at a more realistic portrayal of his
finances by averaging his income over a number of years. The superior court denied the
motion for reconsideration.
             Clinton appeals the superior court’s order awarding child support to Aimee.
On appeal, he asserts that insofar as the award was effective before the date of Aimee’s
motion to modify custody (February 15, 2008) the order constitutes an impermissible
retroactive modification of child support. He also challenges the superior court’s
findings that his income in both 2007 and 2008 exceeded $105,000.
III.   STANDARD OF REVIEW
             We review an award of child support, including a modification to such an
award, for abuse of discretion, which we will find only when, based on a review of the
entire record, we are left with a definite and firm conviction that the trial court made a
mistake.8 We review factual findings regarding a party’s income when awarding child
support for clear error.9 The proper method of calculating child support is a question of
law, which we review de novo, adopting the rule of law that is most persuasive in light
of precedent, reason, and policy.10




       8
            Faulkner v. Goldfuss, 46 P.3d 993, 996 (Alaska 2002); Nass v. Seaton, 904
P.2d 412, 414 (Alaska 1995).
       9
              Williams v. Williams, 252 P.3d 998, 1005 (Alaska 2011) (citing Koller v.
Reft, 71 P.3d 800, 804 (Alaska 2003)).
       10
             Faulkner, 46 P.3d at 996.

                                           -8-                                      6762

IV.	   DISCUSSION
       A.	    The Superior Court’s Modification Of The Support Order Before
              February 15, 2008 Was An Impermissible Retroactive Modification.
              Clinton argues that the superior court erred by ordering a modification to
the existing child support order to be effective before February 15, 2008, the date Aimee
moved to modify the custody order. Because Clinton did not timely raise this issue in
the superior court,11 we review the superior court’s decision for plain error, which “exists
where an obvious mistake has been made which creates a high likelihood that injustice
has resulted.”12 Here, the superior court’s ruling meets that standard. Civil Rule 90.3
prohibits retroactive modification of existing child support orders.13 Modifications are
allowed to the extent that they are “effective on or after the date that a motion for
modification . . . is served on the opposing party.”14
              On January 10, 2007, the superior court issued an order that obligated
Aimee to pay Clinton $200 per month in child support. On May 29, 2007, Aimee moved



       11
              See DeNardo v. GCI Commc’n Corp., 983 P.2d 1288, 1290 (Alaska 1999)
(issue raised for the first time in a motion for reconsideration is not timely raised for
purposes of appellate review).
       12
            Paula E. v. State, Dep’t of Health & Soc. Servs., Office of Children’s Servs.,
276 P.3d 422, 436 (Alaska 2012) (internal quotation marks and citation omitted).
       13
              Alaska R. Civ. P. 90.3(h)(2); Yerrington v. Yerrington, 933 P.2d 555, 558
(Alaska 1997) (“Although the plain language of the rule applies only to arrearages, we
have held that, appropriately interpreted, this rule prohibits both retroactive decreases
and increases in child support awards . . . .”) (citations omitted). Limited exceptions to
the prohibition on retroactive modification apply when paternity has been disestablished
or on an obligor’s motion when a clerical mistake was made or the support order was
based on a default amount. Teseniar v. Spicer, 74 P.3d 910, 915 (Alaska 2001); see
AS 25.27.166(d); Alaska R. Civ. P. 90.3(h)(2).
       14
              Alaska R. Civ. P. 90.3(h)(2).

                                            -9-	                                      6762

to clarify or correct that order, asserting that under Rule 90.3(c)(3) her obligation should
have been $50 per month, and she also moved to terminate the temporary custody order
on which the support order was based. On November 5, 2007, the superior court denied
Aimee’s motion to terminate the temporary custody order, and it issued an amended
child support order under which Aimee’s obligation remained $200 per month. That
order was in effect when Aimee next moved to modify the custody order, on
February 15, 2008.15 Thus the superior court’s order modifying the child support
arrangement could be effective only as far back as February 15, 2008. Any modification
intended to be effective before that date was erroneous. Clinton should not be obligated,
as the result of a clear error by the superior court, to pay child support for the months in
question.16



       15
             Clinton concedes that Aimee’s motion to modify custody satisfied the
provision of Alaska R. Civ. P. 90.3(h)(2) that specifies that modification of a support
award may be effective on or after the date of a motion for modification, even though her
request to modify custody was silent as to child support. We note that under
Rule 90.3(a) the change of a child’s primary physical custodian from one parent to the
other ordinarily will require modification of an existing support order.
       16
             We note that although the parents testified that they shared physical custody
during the months in question, under the custody order in place Clinton was the
children’s primary physical custodian. A court errs if it bases a support award on a
custody arrangement that differs from a court-ordered arrangement. We have stated:
              Child support awards should be based on a custody and
              visitation order. If the parties do not follow the custody
              order, they should ask the court to enforce the custody order
              or should move to modify the child support order.
                     . . . [T]he trial court erred to the extent it based its
              calculation of support arrearages on the visitation exercised,
              rather than the visitation ordered.
                                                                             (continued...)

                                           -10-                                       6762

      B.	    The Superior Court Must Make Adequate Findings In Accordance
             With Civil Rule 90.3 In Determining Clinton’s Income.
             The superior court apparently based its modified child support order for
March through December 2007 on Clinton’s 2007 income and its award from
January 2008 forward on Clinton’s 2008 income.17 Even though we hold that the
modified award is invalid for the entire period that was based on Clinton’s 2007 income,
we still must review the superior court’s determination of the 2007 income because the
court relied on that determination in finding that Clinton’s 2008 income exceeded the
maximum specified in Rule 90.3(c). Thus, if the 2007 determination was erroneous, the
2008 determination also must fail.
             Civil Rule 90.3(a) provides the framework for determining a child support
award when one parent has primary physical custody.18 Under the rule, the foundation
of a proper award is an accurate determination of the non-custodial parent’s “adjusted




      16
             (...continued)
Turinsky v. Long, 910 P.2d 590, 595 (Alaska 1996) (footnote and citation omitted). Cf.
Karpuleon v. Karpuleon, 881 P.2d 318, 320 (Alaska 1994) (parents have burden to move
promptly to modify a child support order when a child changes residency).
      17
              An award of child support for a period in the past is properly based on the
parent’s actual income for that period. Spott v. Spott, 17 P.3d 52, 56 (Alaska 2001)
(citing Crayton v. Crayton, 944 P.2d 487, 490 (Alaska 1997)). According to the
commentary to Rule 90.3, an ongoing award should be based on the parent’s expected
income during the period in which the award will apply. Alaska R. Civ. P. 90.3
cmt. III.E. Here, in 2011, the superior court used Clinton’s 2008 income as the basis for
an ongoing award, apparently because at the time of the hearing the court was under the
impression that its modified custody order would be effective only through May 2008.
But the order ultimately issued by the superior court contains no termination date and no
indication that it is not an ongoing order.
      18
             Turinsky, 910 P.2d at 595.

                                          -11-	                                    6762

annual income.”19 The rule defines this term, and the commentary explicates the
definition.20 Together, the rule and commentary contain an extensive list of items that
are properly included in, or excluded from, a parent’s income.21 The commentary
specifically addresses the situation of a self-employed parent, prescribing that “[i]ncome
from self-employment . . . includes the gross receipts minus the ordinary and necessary
expenses required to produce the income.”22 We have approved this approach.23 The
commentary lists certain business expenses that are allowed by the IRS for federal tax
purposes that are not appropriate when calculating child support, and it notes that
“[e]xpense reimbursements and in-kind payments such as use of a company car, free
housing or reimbursed meals should be included as income if the amount is significant
and reduces living expenses.”24
             Here, the superior court found that Clinton “intermingled his business and
assets with his personal income and expenses” to an extent that “made it impossible for
him to prove that the cash available to him for expenses was not just as available to him

      19
             Adrian v. Adrian, 838 P.2d 808, 810 (Alaska 1992).
      20
              Civil Rule 90.3(a)(1) defines “adjusted annual income” to mean “the
parent’s total income from all sources” minus certain items listed in the rule. The
commentary to the rule contains a list of benefits that are considered income for purposes
of the rule. Alaska R. Civ. P. 90.3 cmt. III.A. Civil Rule 90.3 comments III.B, C, D,
and E specifically address self-employment income, potential income, deductions, and
the time period for calculating income.
      21
             Alaska R. Civ. P. 90.3(a)(1); Alaska R. Civ. P. 90.3 cmt. III.A, B, D.
      22
             Alaska R. Civ. P. 90.3 cmt. III.B.
      23
            See, e.g., Faulkner v. Goldfuss, 46 P.3d 993, 997 (Alaska 2002); Hammer
v. Hammer, 991 P.2d 195, 200 (Alaska 1999); Neilson v. Neilson, 914 P.2d 1268, 1272­
73 (Alaska 1996).
      24
             Alaska R. Civ. P. 90.3 cmt. III.B.

                                          -12-                                      6762

for purposes of paying child support.” The superior court thus indicated that it needed
to consider Clinton’s personal financial situation in tandem with that of his business.
This approach was correct. But after stating that it was “not obligated to accept the
federal tax return as the measure of a person’s access to funds available to pay child
support” and noting that not all deductions allowed under federal tax law apply to the
determination of income for purposes of child support, the superior court did not
examine the affairs of Clinton’s business in relation to his personal finances to determine
his adjusted annual income, nor did it meaningfully discuss or analyze the deductions
claimed by the business.
              In its finding that Clinton’s 2007 income exceeded $105,000, the superior
court relied primarily on its determination that the $104,157 shareholder distribution that
Clinton received was income to him. Neither Clinton nor his accountant was able to
adequately account for those funds. On appeal, Clinton argues that because the source
of the distribution was not apparent, the distribution should not be considered as income
to him. He asserts that the distribution was likely funded by money his business
borrowed, which the business would have been obligated to repay. In support of this
assertion, he points to uncontroverted evidence that the business incurred loans during
2007 of nearly $700,000.
              We cannot determine from the superior court’s findings whether the
shareholder distribution was income to Clinton. Regardless of the nature of the
distribution the business made to Clinton, the commentary to Rule 90.3 makes clear that
a probing review of Clinton’s — and his business’s — financial affairs must be
conducted to determine his adjusted annual income for child support purposes. We have
noted that determining the adjusted annual income of a self-employed parent is generally




                                           -13-                                      6762

more complicated than determining the income of a parent who earns regular wages.25
To determine a self-employed parent’s income, the superior court must subtract the
ordinary and necessary expenses required to produce the income of the parent’s business
from the business’s gross receipts.26 The superior court was not wrong to consider the
$104,157 shareholder distribution in determining Clinton’s adjusted annual income. We
have held that courts should closely scrutinize parents’ claimed business expenses.27
Courts should be mindful of “the potential of a self-employed obligor to manipulate
income for the purpose of avoiding payment of child support.”28 But a court may not
categorically disallow all deductions without conducting a proper analysis.29
             Because the superior court’s findings regarding Clinton’s financial affairs
were insufficient to support its ultimate finding that Clinton’s income in 2008 exceeded
the maximum specified in Rule 90.3(c), we cannot affirm the superior court on this
record. On remand, the superior court should determine, in accordance with Rule 90.3,


      25
          Saleem v. State, Child Support Enforcement Div., Mem. Op. & J. No. 1036,
2001 WL 34818267, *3 (Alaska, July 18, 2001).
      26
             Neilson, 914 P.2d at 1272-73.
      27
             See id. at 1274-75, n.8 (“The deduction of depreciation and other business
expenses is a common issue when a parent owns a closely held company. Like salary,
business expenses can be manipulated to affect net income, and some business
deductions may have a minimal effect on the business owner’s cash flow.” (quoting
2 JEFF A TKINSON , M ODERN CHILD CUSTODY PRACTICE § 10.23, at 525 (1986))).
      28
              Taylor v. Fezell, 158 S.W.3d 352, 358 (Tenn. 2005). Cf. Snow v. Snow, 24
S.W.3d 668, 672 (Ky. App. 2000) (A trial court establishing child support has “the
discretion and the duty to scrutinize taxable income and to deviate from it whenever it
seems to have been manipulated for the sake of avoiding or minimizing a child support
obligation.”) (citations omitted).
      29
            Neilson, 914 P.2d at 1274-75; Watson v. Watson, 60 P.3d 124, 128-29
(Wyo. 2002).

                                         -14-                                     6762

an appropriate award of child support beginning on February 15, 2008, the date of
Aimee’s motion to modify custody. In formulating its award, the superior court should
be mindful that a child support award that is applicable to a past period should be based
on a parent’s actual income for that period, while an ongoing award should be based on
the income the parent is expected to receive during the period to which the award will
apply.30 It will be up to the superior court to evaluate Clinton’s argument that income
averaging is an appropriate vehicle for determining the correct child support award in
this case.31
V.     CONCLUSION
               Based on the foregoing considerations, we VACATE the superior court’s
order modifying the existing child support order and REMAND this matter for further
proceedings consistent with this opinion.




       30
               Spott v. Spott, 17 P.3d 52, 56 (Alaska 2001); Alaska R. Civ. P. 90.3
cmt. III.E.
       31
              Hammer v. Hammer, 991 P.2d 195, 200-01 (Alaska 1999) (citing Alaska
R. Civ. P. 90.3 cmt. III.E).

                                            -15-                                   6762
