Opinion
22A-DR-1384
01-30-2023
Kevin R. Yurkus, Appellant-Petitioner, v. Heather R. Yurkus, Appellee-Responent.
ATTORNEY FOR APPELLANT Brian A. Karle Ball Eggleston, P.C. Lafayette, Indiana ATTORNEY FOR APPELLEE Cynthia L. P. Smith Lafayette, Indiana
Pursuant to Ind. Appellate Rule 65(D), this Memorandum Decision shall not be regarded as binding precedent, but it may be cited for persuasive value or to establish res judicata, collateral estoppel, or law of the case.
Appeal from the Tippecanoe Circuit Court The Honorable Sean M. Persin, Judge Trial Court Cause No. 79C01-1110-DR-327
ATTORNEY FOR APPELLANT Brian A. Karle Ball Eggleston, P.C. Lafayette, Indiana
ATTORNEY FOR APPELLEE Cynthia L. P. Smith Lafayette, Indiana
MEMORANDUM DECISION
Riley, Judge.
STATEMENT OF THE CASE
[¶1] Appellant-Petitioner, Kevin Yurks (Father), appeals the trial court's Order modifying parenting time, child support, and state and federal tax exemptions in favor of Appellee-Respondent, Heather Yurks (Mother).
[¶2] We reverse and remand with instructions.
ISSUE
[¶3] Father raises one issue on appeal which we restate as follows: Whether the trial court abused its discretion in modifying Father's ability to claim three of his children as dependents on his taxes every year.
FACTS AND PROCEDURAL HISTORY
[¶4] Father's and Mother's marriage was dissolved in March 2012, and the parties have five children, A.Y., born April 28, 1998, T.Y., born April 3, 2000, N.C. Y., born June 7, 2002, N.E.Y., born August 23, 2006, and M.Y., born June 23, 2009. Their divorce Settlement Agreement, which the trial court adopted, stipulated joint physical and legal custody, with parenting time in favor of Father in accordance with the Indiana Parenting Time Guidelines. The parties agreed that Father should claim all of the minor children as dependents on his federal and state tax returns every year.
[¶5] As of 2017, Mother had remarried. In response to Mother's motion, on June 7, 2017, the trial court granted Mother sole physical custody of the children, modified child support, but denied her request to claim the children as dependents on her federal and state tax returns. As a result of an employment opportunity for her husband in Pennsylvania, Mother filed a notice of intent to relocate in mid-2019. Mother also moved to modify parenting time, but sought to retain primary physical custody of the children who were minors at the time. Pursuant to the Mediated Agreement, in order to accommodate Father's parenting time, Mother agreed to assume responsibility for all interstate transportation. She also agreed to cover the costs associated with the children's extracurricular activities. The Mediated Agreement did not affect Father's ability to claim the children as dependents on his tax returns.
[¶6] In January 2020, Mother and the children moved to Pennsylvania. At the time, A.Y. and T.Y. were adults, but N.C. Y., N.E.Y., and M.Y. were still minors. In September 2021, Mother filed a motion, requesting, among other things, the right to claim N.E.Y. and M.Y. as dependents on her tax returns. A hearing was held on May 4, 2022. At the time of the evidentiary hearing, N.C. Y. was eighteen years old and living with Father because he had applied for an Indiana need-based scholarship-the 21st Century Scholars Program-and one of the requirements of the program was that N.C. Y. had to complete his senior year of high school in Indiana. N.E.Y. and M.Y. were sixteen and thirteen years old and were attending school in Pennsylvania. Mother presented evidence that she was unemployed but that her husband's annual gross income for 2020 was $224,476. Mother also stated that her husband's gross income in 2021 was the same. Father reported earning $62,000 in gross income. Father stated that N.C. Y., who was about to enroll in college, and N.E.Y., who was in high school, were both applicants for the Indiana 21st Century Scholars Program. Father stated that to be eligible for the program, applications must be tendered when a child is enrolled at an Indiana school in seventh grade, and he also has to show that his income was at or below "poverty level". (Tr. Vol. II, p. 65). He argued that if he did not claim N.E.Y. and M.Y. as dependents for tax purposes, his taxable income would be higher, which would result in N.C. Y., who was entering college, being disqualified from the program. Father clarified that even if N.E.Y. was attending high school in Pennsylvania, N.E.Y. could benefit from the scholarship program if she returned and graduated from a high school in Indiana. Father also contended that claiming M.Y. as a dependent on his tax returns, would continue to reduce his taxable income. Mother also presented that while she agreed with Father claiming N.C. Y. on his tax returns because N.C. Y. was living with Father, she argued that N.E.Y. and M.Y. continued to dwell with her, and that she covered "81%" of their expenses, therefore, she should be allowed to claim them as dependents on her tax returns. (Tr. Vol. II, p. 25). Mother also argued that even though N.E.Y. had expressed a desire to attend college, she had not conveyed that she wanted to move back to Indiana in order to comply with the requirements of the 21st Century Scholars Program. At the close of the evidence, the trial court took the matter under advisement, and on May 18, 2022, the trial court issued an Order.
N.E.Y. was also enrolled in the 21st Century Scholars Program and if she wanted to qualify for the program, she had to move to Indiana for her senior year and graduate in Indiana. Sometime in 2020, Mother wrote a letter to the Indiana Commission for Higher Education, seeking to have N.E.Y. unregistered from the program, but her request was denied.
As for the issue of who would claim the children as dependents on their tax returns, the trial court stated the following:
The [c]ourt has considered the factors in I.C. [§] 31-16-6-1.5. Mother is paying a higher percentage of the younger children's expenses at this time, and she will receive a benefit from her claiming the children as dependents because she files a joint tax return. The increased expenses paid by Mother is [a] substantial change in circumstances. Effective with tax year 2022, Father will claim [ N.C. Y.] as [a] dependent [] for state and federal tax purposes each year. Mother will claim [N.E.Y.] as [a] dependent for state and federal tax purposes each year. The parties shall alternate claiming [M.Y.], with Father claiming M.Y. for tax year 2022 and all even years so long as [] he is current in his regular child support obligation and Mother claiming him in 2023 and all odd years.(Appellant's App. Vol. II, p. 63).
[¶7] Father now appeals. Additional facts will be provided as necessary.
DISCUSSION AND DECISION
[¶8] Father contends that the trial court abused its discretion when it divested him of his right to claim the minor children as dependents on his federal and state tax returns every year. We observe that for tax exemption purposes, "[t]he federal tax code automatically grants to a custodial parent the dependency exemption for a child but permits an exception where the custodial parent executes a written waiver of the exemption for a particular tax year." Bogner v. Bogner, 29 N.E.3d 733, 744 (Ind. 2015) (citations omitted). "A trial court can order the custodial parent to sign over the dependency exemption." Id. A decision about the dependency exemption falls within the trial court's "equitable discretion." Quinn v. Threlkel, 858 N.E.2d 665, 674 (Ind.Ct.App. 2006).
[¶9] Indiana Code section 31-16-6-1.5 provides that
(a) A court shall specify in a child support order which parent of a child may claim the child as a dependent for purposes of federal and state taxes.
(b) In determining which parent may claim the child as a dependent under subsection (a), the court shall consider the following:
(1) The value of claiming the child as a dependent at the marginal tax rate of each parent.
(2) The income of each parent.
(3) The age of the child or children and the number of years that the child or children could be claimed as a dependent or dependents.
(4) Each parent's percentage of the costs of supporting the child or children.
(5) If applicable, the financial aid benefit for postsecondary education for the child or children.
(6) If applicable, the financial burden each parent assumed under the property settlement in a dissolution proceeding.
(7) Any other relevant factors.
Indiana Child Support Guideline 9 is nearly identical to the factors listed in Indiana Code section 31-16-6-1.5, and it recommends that trial courts consider these factors:
(1) the value of the exemption at the marginal tax rate of each parent;
(2) the income of each parent;
(3) the age of the child(ren) and how long the exemption will be available;
(4) the percentage of the cost of supporting the child(ren) borne by each parent;
(5) the financial aid benefit for post-secondary education for the child(ren); and
(6) the financial burden assumed by each parent under the property settlement in the case.
In this case, the trial court determined that it had taken the above factors into account. Father's main contention is that the trial court disregarded the statutory factors under Indiana Code section 31-16-6-1.5(b). We will only address the applicable factors.
[¶10] Considering factor one, the record reveals that Mother, despite being unemployed, filed joint tax returns with her husband and that their gross annual income at the time of the hearing was about $224,000. Father is an unmarried man who reported a gross income of $62,000 per year. Mother earns significantly more than Father, so the exemption may have greater value to Mother for reducing her taxable income. See Quinn, 858 N.E.2d at 675 ("We need not disregard what we know about the federal tax code's progressive rate scheme; it is apparent that the exemption likely is worth considerably more to [the higher-income parent] than [the lower-income parent]. . . ."). While it is true that Mother would receive a greater tax benefit in actual dollars if she could claim the dependent-tax-exemption, the reduction in Father's taxable income will result in a greater tax benefit as a percentage of his actual income would be reduced. To that end, Father testified, "if I do not have the tax exemptions[,] then my income is too high for the need-based scholarships." (Tr. Vol. II, p. 58). He explained that "for [ N.C. Y.] to use the 21st Century Scholarship [] for the next four years" he needed "those tax exemptions" to remain eligible and added that N.E.Y. would benefit from the scholarship if she chose to relocate to Indiana. (Tr. Vol. II, p. 58). This factor favors Father.
[¶11] As for factor two, the trial court heard evidence on the parties' unequal gross incomes, with Mother having a much more substantial income than Father. Considering factor three, the children's ages, and the number of years they could be considered dependents, the record shows that N.C. Y. was eighteen years old, N.E.Y. was sixteen years old, and M.Y. was thirteen years old at the time of the hearing. The trial court ordered Father to claim N.C. Y. and Mother to claim N.E.Y., respectively. The parties would alternately claim M.Y. Mother would clearly claim N.E.Y. as a dependent for a greater number of years than Father would for N.C. Y. Consequently, Mother would be more likely to receive benefits than Father in this regard.
[¶12] As for factor four, the parties' expenses related to the children, the trial court noted in its Order that because Mother "is paying a higher percentage of the younger children's expenses", she will benefit to claim her "children as dependents because she files a joint tax return." (Appellant's App. Vol. II, p. 63). Father argues that the "trial court rested" its entire decision to divest him of the opportunity to claim the children on his tax returns exclusively on this issue. (Appellant's Br. p. 18). Father argues that Mother overlooked the fact that he also incurred expenses when he exercised visitation "for significant periods of time around summer break, Christmas break, spring break, etc.," and he contends that her assertion that she paid 81% of the children's expenses is flawed. (Appellant's Br. p. 18). He adds that some of the expense Mother complains of "are expenses that [she] agreed to take-on as part of [the] Mediated Agreement to permit the relocation." (Appellant's Br. p. 18). We agree. Father pays child support, and the parties' 2019 Mediated Agreement stipulated that Mother would pay for minor children's extracurricular activities and interstate transportation to enable Father's parenting time. Thus, we find that Mother's financial burden is not a factor favorable to her since the parties agreed to share those expenses in that manner because Mother has considerably more income than Father.
[¶13] Our analysis shows that factor five, the financial aid benefit for the child or children, heavily favors Father. Father testified that he needed to claim at least "all three" children as dependents on his taxes to reduce his income to enable N.E.Y. and N.C. Y. to qualify for scholarships. (Tr. Vol. II, p. 59). Father explained that if his income were found to be high, N.C. Y., who was entering college, would lose his scholarship, and he would have to apply for student loans. The same situation would apply to N.E.Y., and she would have to apply for student loans if she did not qualify for the scholarship. Mother did not dispute this fact, but she argued it was just mere speculation that N.E.Y. would be willing to move to Indiana for her senior year to qualify for the scholarship. Aside from Mother's claim, Father testified that even if N.E.Y. chose to stay in Pennsylvania and graduate there, he would still "want the lowest taxable income for her to give her the most chance at any grants or whatever Pennsylvania offers for student. It would be in her best interest." (Tr. Vol. II, pp. 46-47). Father illustrated the tax consequences to the parties if the exemption were transferred and, most importantly, how the children would benefit from it. Cf. Eppler v. Eppler, 837 N.E.2d 167, 178 (Ind.Ct.App. 2008) (Husband failed to specifically demonstrate the tax consequences to the parties if the exemption were transferred and, most importantly, how such transfer would benefit the children.) trans. denied.
[¶14] Considering the above factors, we conclude that they favor Father receiving the income tax dependency exemption, and we conclude that the trial court abused its discretion in modifying Father's ability to claim children as dependents on his tax returns. See Carpenter v. Carpenter, 891 N.E.2d 587, 596 (Ind.Ct.App. 2008) (quoting Child Support Guideline 9, we held that the trial court's equitable discretion for reviewing tax exemption questions should be guided by the goal of making the greatest support available for the child).
[¶15] Despite this conclusion, our analysis does not conclude here. When modifying a child support order, the trial court must not only determine who the tax exemption factors favors, but also whether those factors have changed sufficiently, thereby making the continuation of the current order unreasonable. Indiana Code section 31-16-8-1(b), which provides, in part, that modification of a child support order"may be made only . . . upon a showing of changed circumstances so substantial and continuing as to make the terms unreasonable." Not only do the Indiana Code section 31-16-6-1.5(b) factors favor Father receiving the dependency tax exemption of his minor children, but Mother admitted at the evidentiary hearing stated that "[n]othing has changed" since the last child support order. (Tr. Vol. II, p. 44). Because Mother has failed to establish that there had been a change in circumstances justifying a modification of the child support order in light of the Indiana Code section 31-16-6-1.5(b) factors, the trial court's decision to reallocate the tax exemption to Mother was contrary to the logic and effect of the facts and circumstances presented to it. See Scoleri v. Scoleri, 766 N.E.2d 1211 (Ind.Ct.App. 2002); also see Weiss v. Frick, 693 N.E.2d 588, 590 (Ind.Ct.App. 1998) (changes in circumstances justifying modification of a child support order must be proven by the petitioner.) trans. denied.
[¶16] Therefore, we reverse the portion of the trial court's Order on dependent-tax-exemption and remand for proceedings consistent with this opinion.
CONCLUSION
[¶17] Based on the above, we reverse and remand for further consideration on the issue of dependent-tax-exemption consistent with this opinion.
[¶18] Reversed and remanded with instructions.
[¶19] Bailey, J. concurs.
[¶20] Vaidik, J. concurs in result without opinion