Opinion
No. 1753
04-21-2016
SUSAN YOWELL COSTER v. TIMOTHY WAYNE COSTER, ET AL.
UNREPORTED
Meredith, Kehoe, Moylan, Charles E., Jr. (Retired, Specially Assigned), JJ. Opinion by Kehoe, J. *This is an unreported opinion, and it may not be cited in any paper, brief, motion, or other document filed in this Court or any other Maryland Court as either precedent within the rule of stare decisis or as persuasive authority. Md. Rule 1-104.
This is an appeal from an order of the Circuit Court for Harford County which modified the child support obligation of Timothy Coster. Susan Coster, Mr. Coster's former spouse, raises three issues, which we have reworded:
1. Did the court err when it excluded Mr. Coster's lump sum withdrawal of the proceeds of an annuity when the court calculated his income for purposes of determining his child support obligation?
2. Did the court err when it applied a credit to Mr. Coster's child support obligation for derivative social security disability benefits payable to his children?
3. Did the court err in converting the Master's recommended judgment against Mr. Coster, for the derivative social security disability benefits, to an arrears payment of $75 a month?
Effective October 1, 2015, the designation "master" was changed to "family magistrate." See Md. Rule 1-501. The proceedings giving rise to this appeal took place before the effective date of the amended rule. We will refer to the judicial appointee by his title at the time of the proceedings - Master.
For the reasons set forth below, we will reverse and remand the case to the circuit court.
The Harford County Department of Social Services, Office of Child Support Enforcement was a party in the proceedings in the circuit court but did not file a brief in this appeal.
Background
The evidence in this proceeding was generated in hearings before the Master. These hearings were not transcribed. Our statement of the relevant facts is gleaned from the orders of the Master and the circuit court, together with documents contained in the extract.
Mr. and Ms. Coster were married in May 1993, and were divorced in September 2004. At that time, the parties had two minor children and Mr. Coster was ordered to pay child support in the amount of $948 per month. At all times relevant to this appeal, Ms. Coster was the primary custodial parent.
The older child became an adult while this case was pending in the circuit court.
Mr. Coster was a boilermaker by profession. He retired because of a disability in 2012. He filed a petition to modify the support order in May 2012. A Master conducted a hearing on the petition in February 2013. At that time, Mr. Coster was receiving temporary disability payments in the amount of $1,750 a month from Cigna Group Insurance. Following the hearing, the Master entered an order reducing Mr. Coster's child support obligation to $480 per month, effective December 1, 2012. The Master scheduled a review hearing for June 2013.
The order was titled "Consent Order." We assume this was a typographical error on the Master's part as neither the Master, the circuit court nor the parties treated the order as a consent order.
After the June 2013 hearing, and in anticipation of a reduction in Mr. Coster's monthly disability income from $1,750 to $875, the Master reduced Mr. Coster's child support obligation to $250 a month, effective July 26, 2013. The Master scheduled a review hearing for November 2013.
In fact, Mr. Coster's income did not decrease in July 2013—it substantially increased. In that month, he received notice of an award of a monthly Social Security Disability Insurance ("SSDI") benefit of $2,174.00, with payments retroactive to September 1, 2012. When Mr. Coster was approved for SSDI benefits, the children, both of whom were still minors, became eligible to receive SSDI benefits of $1,087 a month (the "Derivative Benefits"), also retroactive to September 1, 2012. Normally, the Social Security Administration would have paid this money to Ms. Coster because she was the primary custodial parent. However, Mr. Coster represented to the Administration that he was the custodial parent. This representation was at the very least inaccurate because at all relevant times, Ms. Coster was the primary custodial parent and was entitled to the monthly benefit to offset the cost of raising the children. There is no dispute that the misdirected Derivative Benefits, totaling $16,305, were not used to benefit either child.
In his report dated June 17, 2014, the Master characterized Mr. Coster's misrepresentation as fraudulent.
In April 2013, Mr. Coster exercised a right that he had pursuant to an annuity with the Boilermakers National Annuity Trust to receive a lump sum payment of $136,429.92 in lieu of a monthly benefit. From what we can glean from the record, Mr. Coster did not inform Ms. Coster that he had received this distribution.
Mr. Coster received the benefit of a distribution in the amount $136,429.92. He received cash in the amount of $122,454.11. The remaining $13,975.81 was withheld to satisfy a loan against the annuity.
In November 2013, the Master held another review hearing. Following the hearing, the Master issued an order suspending Mr. Coster's child support obligation. According to the order, Mr. Coster's child support obligation was $930 a month pursuant to the Maryland Child Support Guidelines. However, because the Master found—erroneously as it turned out—that Ms. Coster was receiving $1,087 a month as a result of the Derivative Benefits, Mr. Coster's support obligation was suspended. The Master set another review hearing for February 2014 to address, retroactively, Mr. Coster's child support obligation from May 2012, when the initial petition to modify was filed, through November 18, 2013.
The Master again titled the Order "Consent Order." We, again, assume that this was a typographical error.
The second review hearing was held on February 19, 2014. By this time, Ms. Coster had learned of the $136,429.92 lump sum distribution and argued that it should be treated as income for purposes of calculating child support. In April 2014, the Master filed his report and recommendations. The Master addressed three issues relevant to this appeal.
(1) With regard to Mr. Coster's income and support obligations from May 12, 2012, through September 1, 2012, the Master found that Mr. Coster's sole source of income during that period was $1,750 a month in disability payments from Cigna, and that, pursuant to the Maryland Child Support Guidelines, his child support obligation was $474 a month.
(2) As to Mr. Coster's income and support obligation from September 1, 2012, through November 18, 2013, the Master determined that Mr. Coster's income was $7,700 a month because he was receiving retroactive SSDI benefits as well as monthly pension payments. Pursuant to the Child Support Guidelines, the Master determined that Mr. Coster's child support obligation was $1,457 per month. Because the Master thought that Ms. Coster was receiving the Derivative Benefits on behalf of the children, the Master offset the support obligation by $1,087 - the amount in Derivative Benefits awarded to the children each month - and thus concluded that Mr. Coster owed $370 a month. Recognizing that Mr. Coster may have paid child support from May 2012 through November 2013, the Master ordered the Office of Child Support Enforcement to apply the amounts actually paid by Mr. Coster against the $370 per month obligation to determine his actual arrearage.
(3) Finally, the Master addressed the parties' contentions as to whether the $136,429.92 lump sum distribution should be treated as income for child support purposes. The Master concluded that it should not be treated as income.
Ms. Coster filed exceptions to the Master's report and recommendations, asserting that the Master: (1) erroneously concluded that she was receiving $1,087 a month because neither she nor the children had received the Derivative Benefits; (2) failed to account for the fact that the parties' oldest child reached age 18 in November 2013; and (3) erred in concluding that the lump sum payment was not income for purposes of the child support calculation.
In June 2014, the Master held another hearing, and issued a supplemental report shortly thereafter. It is evident from the report that a clearer picture of Mr. Coster's treatment of the Derivative Benefits was developed at the hearing. The report states:
[T]he evidence presented at the supplemental hearing indicates that [Mr. Coster] kept those benefits from September of 2012 through November of 2013, a period of fifteen months. When the Master calculated child support under his prior recommendations, he believed that the children were actually receiving the benefits during this period of time. They were, in fact, not receiving them. [Mr. Coster] was somehow receiving them and keeping them. This means for a period of fifteen months, he received $1,087.00 which was designated for the children. This totals $16,305.00. The only way [Mr. Coster] could have received these benefits was by fraudulently filling out the necessary forms with the Social Security Administration to indicate that he was the custodial parent of the children. Evidence is clear that none of these monies have been returned to [Ms. Coster] on the children's behalf. The Master believes that the appropriate thing to do under the facts presented is to recommend that a Judgment against [Mr. Coster] in [Ms. Coster's] favor in the amount of $16,305.00 be entered. In this manner, [Ms. Coster] can collect the monies and any monies not collected can at least draw interest.
The Master also reconsidered Mr. Coster's child support obligation from November 2013 forward. Both parties agreed that the prior report failed to account for the fact that the oldest child was emancipated. The Master determined that, pursuant to the guidelines, Mr. Coster's child support obligation was to be $1,022 a month, but that his obligation was suspended because the SSDI Derivative Benefits were now being paid to Ms. Coster and that amount was in excess of the child support obligation.
In pertinent part, Family Law ("FL") Article § 12-204 provides:
(j) Setoff for third party payments. — (1) [W]hen a disability dependency benefit, a retirement dependency benefit, or other third party dependency benefit is paid to or for a child of an obligor who is disabled, retired, or is receiving benefits from any source as a result of a compensable claim, the amount of the compensation shall be set off against the child support obligation calculated using the guidelines.
The Master refused to alter his recommendation as to the lump sum annuity payment. The Master provided the following explanation:
[Ms. Coster's] attorney argues that this annuity payment should be annualized for the calendar year 2013 and included under the child support guidelines. Under the above mentioned master's report and recommendation of April 2, 2014, the Master declined to do this. The Master continues to take the same position he took in the before mentioned report. The Master accepts [Ms. Coster's] argument that under the strict letter of the statute, those monies should be included for child support purposes. However, the Master takes the position that this annuity was divided at the time of the divorce and should be considered a division of marital property and not included in child support. The annuity was not counted for child support purposes at the time [Ms. Coster] received it. Additionally, including the annuity would produce an extremely high child support amount which would be almost impossible for [Mr. Coster] to pay. Evidence is clear that he was out of work for a long period of time and that he needed those funds to catch up on the payment of his bills. Placing [Mr. Coster] in a position where he has additional debt to pay to [Ms. Coster] for child support is not in [the children's] best interest from this Master's perspective. The Master is already recommending that a judgment of $16,305.00 be entered against [Mr. Coster]. Any more burdensome debt
would probably put [Mr. Coster] under and make him completely unable to survive financially. His children would certainly feel these effects.
Both parties filed exceptions to the Master's report and recommendations, and a hearing was held in the circuit court on September 2, 2014.
On September 15, 2014, the court issued a memorandum opinion granting the exceptions in part and denying them in part.
First, the court declined to follow the Master's recommendation that a judgment be entered against Mr. Coster for the Derivative Benefits that he withheld. The court explained:
[Mr. Coster argues] that he was not receiving credit for what he did pay during this period of time. . . . [C]ounsel for the Family Support Division, argued that from an accounting standpoint, it would be easier for her client to address this issue by assessing child support in the full amount of $1,457 for those months, and directing that [Mr. Coster] receive credit for what he, in fact, paid during that period of time. That seems like the prudent and accurate way to proceed and would result not only in recouping the erroneously awarded offset, but also accurately crediting what [Mr. Coster] did pay. This would eliminate the $16,305 judgment at this point, as the accurate arrearage would be reflected by assessing the full $1,457, but crediting what was, in fact, paid.
The court addressed the arrears accrued from May 2012 through November 2013, in its subsequent order, providing for repayment at a rate of $75 a month.
The court found no error in the Master's treatment of the lump sum annuity payment. The court explained its reasoning, as follows:
[Ms. Coster] takes exception to the Master's Supplemental Report and Recommendations for failing to include the lump-sum annuity payment
received by [Mr. Coster] as income for purposes of the child support guidelines calculations. In addition, in [Ms. Coster's] written exceptions, she avers that the Master erred and abused his discretion in excluding the lump sum annuity payment from the child support calculations on the discretionary basis that the inclusion of such a payment put the support calculation outside of the guidelines. At the hearing [Ms. Coster] focused primarily on the failure to include the annuity lump sum payment in the child support calculation and argued that the Master varied from the use of the guidelines without following the mandate contained in the Family Law Article 12-202(a)(2)(v)2. That Section requires a Court which determines that the application of the guidelines would be unjust or inappropriate in a particular case to make a written or specific finding on the record stating the reasons for the departure from the guidelines, including the amount of child support that would have been required under the guidelines, how the Order varies from the guidelines, and how the finding serves the best interests of the child.
In this case, the Master in his Report, attempted to explain his reasoning. The Master did find that the annuity income fits within the definition of income, which should be considered in calculating child support; however, he found reasons to decline to do so. He did not state the amount of child support that would have been required under the guidelines or how the Order varies from the guidelines. He did state that he felt that "placing [Mr. Coster] in a position where he has additional debt to pay to [Ms. Coster] for child support is not in [the children's] best interest."
While the Master may have been deficient in failing to state how the Order varies from the guidelines, this Report was a Supplemental Report to the Report filed on April 2, 2014 in which the Master not only attempted to explain why he was not including the annuity income in the calculation of child support, but he also pointed out that the use of that income put the child support outside of the limits of the guidelines, which thus made the issue discretionary to the Master. See Family Law Article Section 12-204(d).
Accordingly, while there was not absolute strict compliance with the mandate of Section 12-202 in explaining why he did not annualize the lump-sum annuity payment for the calendar year 2013 in calculating the
guidelines for that period of time, there was certainly an attempt by the Master to explain his reasons for the same and how that would serve the best interests of the children. In addition, and more importantly, since such an annualization for that year would have the income exceed the highest level specified under the guidelines, the setting of the amount of child support is in the Court's discretion, and the Master set forth his reasons and factors used in exercising his discretion. This Court does not find any abuse of discretion.
The court entered an Order on October 16, 2014, providing in pertinent part (formatting in original):
ORDERED, that effective May 12 , 2012, [Mr. Coster] shall pay the sum of $474.00 per month as the child support for the support and maintenance of the parties' minor children . . . ; and it is further
ORDERED, that effective September 1 , 2012, [Mr. Coster's] child support obligation shall increase to the sum of $1 ,457.00 per month ; and it is further
ORDERED, that effective December 1 , 2013 , [Mr. Coster] does not owe any child support obligation as the amount of the minor child['s] . . . derivative benefit exceeds the recommended amount of child support pursuant to the Maryland Child Support Guidelines; and it is further
ORDERED, that [Mr. Coster] shall receive credit towards any arrears accrued pursuant to this Order for any payments made between May 12, 2012, and December 1, 2013; and it is further
ORDERED, that [Mr. Coster] shall pay the sum of 75.00 per month towards the arrears until said balance is paid in full[.]
* * * *
Ms. Coster filed a timely appeal.
Standard of Review
We recently explained the standard for reviewing child support orders, as follows:
Ordinarily, child support orders are within the sound discretion of the trial court. Nonetheless, where the order involves an interpretation and application of Maryland statutory and case law, our Court must determine whether the lower court's conclusions are legally correct under a de novo standard of review.Reichert v. Hornbeck, 210 Md. App. 282, 316 (2013) (internal citations and quotation marks omitted).
Analysis
I. The Lump Sum Annuity Payment
The circuit court denied Ms. Coster's exception to the Master's recommendation that the 2013 lump sum distribution of $136,429.92 should not be treated as income for child support purposes. In effect, the court concluded that (1) the Master's fact-finding regarding the 2013 lump sum annuity payment to Mr. Coster was legally deficient because the Master did not address the factors set out in FL § 12-202(a)(2)(v), which requires a court to make particular findings when it departs from the guidelines; but (2) the Master could have reached the same result through the exercise of discretion.
We agree with the first step in the circuit court's analysis. The Master's analysis did not address the statutory factors and there is no purpose in belaboring the point. However, we do not agree with the second part of the court's reasoning. Even when exercising discretion, a court has no right to disregard the law and the relevant facts. See Noor v. Centreville Bank, 193 Md. App. 160, 175 (2010). We will vacate the circuit court's decision as to the lump sum distribution issue and remand the matter to the circuit court.
In order to provide guidance to the court and the parties on remand, we make the following observations. First, we will address whether the lump sum distribution should be treated as income for purposes of calculating child support.
FL § 12-204(e) provides the schedule of basic child support guidelines. Courts determine the child support obligations of parents on the basis of their "combined adjusted actual income" and the number of children that they must support. FL § 12-204(e). The amount owed by each parent is adjusted in proportion to each parent's income. FL § 12-204(a). While FL § 12-201(c) defines "adjusted actual income" and § 12-201(f) defines "combined adjusted actual income," both of which are essential to determining child support under the guidelines, it is FL § 12-201(b), defining "actual income," with which we are primarily concerned.
FL § 12-201(b) provides, in pertinent part:
(b) Actual income. — (1) "Actual income" means income from any source.
* * *
(3) "Actual income" includes:
* * *
(vi) pension income;
(vii) interest income;
(viii) trust income;
(ix) annuity income;
* * * *
In reviewing controversies as to what constitutes "actual income" for the purposes of FL § 12-201(b), this Court looks first to the language of the statute. See Johnson v. Johnson, 152 Md. App. 609, 615 (2003) ("The term 'actual income' includes 'bonuses.'" (citing FL § 12-201(3)(iv))); Tanis v. Crocker, 110 Md. App. 559, 584 (1996) ("The language used by the legislature in § 12-201(c)(4) indicates that the legislature intended that a trial court's decision of whether to include capital gains as a part of a party's actual income be within the sound discretion of the trial court[.]").
Accordingly, a review of the plain language of the statute reveals that "annuity income" is "actual income," under FL § 12-201(b)(3)(ix). Had Mr. Coster elected to receive the annuity benefits on a monthly basis, there can be no question that the monthly payments would be treated as income for calculating the parties' child support obligations. Our analysis does not end here because Mr. Coster took the annuity in a lump sum distribution.
Apparently, when the parties were divorced in 2004, Ms. Coster received some portion of the then-current value of the annuity as a lump sum. At one point, the Master expressed a concern that it would be inequitable to treat the 2013 lump sum distribution to Mr. Coster as income for child support calculation purposes because the distribution to Ms. Coster was not treated as income for the child support purposes in 2004. We believe that the Master's concerns are unfounded for two reasons.
First, if in 2004 Mr. Coster wished for the court to consider the distribution in the award of child support, he could have raised the issue with the court. Second, the amount of Ms. Coster's income in 2004 is irrelevant to the issue of what the appropriate child support should have been nearly a decade later.--------
Whether a lump sum distribution should be treated as "annuity income" and thus "actual income" for child support purposes appears to be unsettled as a matter of Maryland law. There may not necessarily be a uniform answer. For example, some employment-related annuity plans are funded solely by employers and others by a combination of employer and employee contributions. Additionally, many plans allow beneficiaries to withdraw the present value of the annuity and to roll the proceeds over into other forms of retirement benefit plans such as traditional or Roth individual retirement accounts. In the present appeal, however, we are presented with a different factual scenario.
The record in the case does not contain a great deal of documentation regarding Mr. Coster's annuity plan. However, in his brief, he states that his annuity account:
was an employer funded account. Appellee worked for various contractors and contributions were made based on the number of hours worked. The contractors placed the money in the account pretax. Once withdrawn the money is considered income for tax purposes.
Ms. Coster does not challenge this characterization. Additionally, Mr. Coster does not assert that he "rolled over" any portion of the lump sum distribution into an IRA or any other form of retirement account. Based on this record, we conclude that Mr. Coster treated the lump sum proceeds as, in effect, deferred compensation from his previous employers and without restriction as to use. We hold that Mr. Coster's lump sum distribution is properly considered as "actual income" for child support calculation purposes.
Our analysis does not end here, however. Ms. Coster seeks to have the entire amount attributed to Mr. Coster's income for the year 2013-the year in which he received the lump sum payment. We do not think that the law mandates such a result.
Both the Master and the circuit court struggled with how to treat the lump sum annuity payment. This issue also appears to be unsettled as a matter of Maryland law. In suggesting an appropriate approach, we have the benefit of a recent decision by the Court of Appeals, Baltimore County v. Thiergartner, 442 Md. 518 (2015), in which the Court addressed an analogous issue. In Thiergartner, the Court was confronted with determining how a retirement benefit, withdrawn in a lump sum, was to be considered under the Maryland Workers' Compensation Act, which limits the "workers' compensation benefits that a retired public safety employee may receive," based on the retirement benefits that the employee receives. Id. at 520-21. Under the statute, "the sum of workers' compensation benefits and a retired employee's retirement benefits may not exceed the employee's average weekly salary during employment." Id. at 520. Where the retired employee's retirement benefits together with workers' compensation benefits would exceed the retired employee's average weekly salary, the workers' compensation is "offset," or reduced, to avoid such a result. Id. at 522-23. However, the Workers' Compensation Act did not specifically address how the Commission should treat a lump sum distribution. See id. at 520-21.
The Court determined that "a lump sum paid at the outset of retirement" could not be excluded from consideration under the statute, and that, for the purposes of calculating an offset, the lump sum was to be converted to a weekly amount to be applied over the course of the person's retirement. Id. at 521. At the time of retirement, the employee had the option to receive the benefit in a lump sum or "roll it over into an eligible retirement plan and thereby enhance future retirement benefits." Id. at 524. The Court adopted the approach of the Workers' Compensation Commission, id. at 537, whereby the Commission pro-rated the lump sum, "look[ing] to the higher monthly retirement benefit that [the employee] would have received if he had not elected to receive the . . . benefit as a lump sum payment," and then converting that amount to a weekly figure. Id. at 525.
We believe that a similar approach may be fair and appropriate in this case. By taking the lump sum distribution, Mr. Coster has reduced his annuity income to $0. While there may have been perfectly valid reasons for him to elect a lump sum distribution, there is no reason why the parties' children should suffer because of that decision. Additionally, following the Thiergartner approach prevents the possibility of an unwarranted windfall to Ms. Coster.
Accordingly, the court should determine the amount Mr. Coster would have received each month had he not liquidated his annuity account, and include that figure in its calculation of his monthly income for purposes of his child support obligation. This information should be readily available from the Boilermakers National Annuity Trust. We believe that this approach is consistent with the purposes of the child support guidelines, and yields an equitable result for both parties - Ms. Coster will not experience a windfall at Mr. Coster's expense and Mr. Coster will not be unduly penalized for the withdrawal.
We add a final note: the lump sum distribution is "actual income" for the purposes of calculating child support. If Mr. Coster wishes to avoid having the full amount of the distribution treated as "actual income" for 2013, he must provide the court with the information necessary to perform such a calculation.
II. and III. Derivative Social Security Disability Benefits
We address Ms. Coster's contentions with regard to the court's treatment of the Derivative Benefits that Mr. Coster was receiving on behalf of the children from September 2012 through November 2013 together. First, Ms. Coster asserts that the court erred by applying a "credit" to Mr. Coster's child support obligation, for the relevant time period, in the amount of the Derivative Benefits - $1,087 - he was awarded on behalf of the children. Second, Ms. Coster contends that the court erred in resolving repayment of the $16,305 to which the children were entitled, converting the Master's judgment in the amount owed to an arrears payment of $75 a month.
We address the court's "credit" first. We begin with the court's memorandum opinion, which, as we recounted above, states that Mr. Coster's child support obligation for the period from September 2012 through November 2013 is $1,457 and that Mr. Coster should "receive credit for what he, in fact, paid during that time." While we take no issue with the court's approach, in light of our conclusion that Mr. Coster's lump sum annuity withdrawal is income and must be converted to a monthly rate over the course of his retirement, it is necessary for the circuit court to reconsider Mr. Coster's child support obligation for the relevant time period.
We turn now to how Mr. Coster's obligation should be satisfied. We agree with Ms. Coster's contention that the court erred in converting the Master's judgment to an arrears payment of $75 per month. By our calculations, based only on the sketchy and inadequate information in the record and which we freely admit might be inaccurate, it appears that Mr. Coster's child support obligation amounted to $23,751 for the period beginning in May 2012 and ending in November 2013. Had Mr. Coster paid Ms. Coster the $16,305 in Derivative Benefits that he improperly used for his own purposes, he would only owe Ms. Coster $7,446, assuming that he had paid nothing else from May 2012 though November 2013. Mr. Coster claims he had paid $16,954.69 during the relevant time. Under the best possible scenario to him, he accumulated a child support arrearage in the amount of $6,796.31 during that period. Ordering Mr. Coster to pay the arrearage in payments of $75 per month would result in his satisfying that arrearage over the course of 90 months. In our view, such a prolonged period is unreasonable and unfair to both Ms. Coster and the children.
On remand, the court, or the Master, should hold an evidentiary hearing to resolve Mr. Coster's child support obligation from May 2012 through November 2013. The court should determine the exact amount of child support that Mr. Coster paid during that time, and make an explicit finding as to the amount of child support that Mr. Coster owes to Ms. Coster. It is Mr. Coster's obligation to produce the necessary information and documentation before the circuit court. Depending upon the amount of the arrearage, Ms. Coster may seek a judgment or utilize another collection method.
THE JUDGMENT OF THE CIRCUIT COURT FOR HARFORD COUNTY IS VACATED AND THIS CASE REMANDED TO IT FOR FURTHER PROCEEDINGS CONSISTENT WITH THIS OPINION. COSTS TO BE PAID 25% BY APPELLANT AND 75% BY APPELLEE.