Opinion
J-A01012-16 No. 832 EDA 2015
04-08-2016
M.B. Appellee v. K.B. Appellant
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
Appeal from the Order Entered February 13, 2015
In the Court of Common Pleas of Chester County
Domestic Relations at No(s): No. 01295N2013 PACSES No. 090108307 BEFORE: LAZARUS, J., OTT, J., and STEVENS, P.J.E. MEMORANDUM BY STEVENS, P.J.E.:
Former Justice specially assigned to the Superior Court.
Appellant K.B. ("Father") appeals from the order entered by the trial court in this child support case. We vacate and remand for further proceedings.
The lower court aptly summarized the history of the case and its findings and conclusions as follows:
This is an action by plaintiff [Appellee M.B., hereinafter "Mother"] to modify an existing support order entered on September 18, 2013 with an effective date of September 1, 2013. The original order covered two children, [Ma.B.] (d.o.b. 9-23-09) and [Ko.B.] (d.o.b. 12/31/04). Another child, [Kh.B] (d.o.b. 3/28/14), was conceived and born subsequent to the parties['] divorce. Plaintiff seeks to have [Kh.B.] added to the order as of April 16, 2014. A further issue is the earning capacity of each party.
The parties have a 50-50 custody arrangement for [Ma.B.] and [Ko.B.]. While [Mother] has had primary custody of [Kh.B]l since birth, the parties agreed that she too would be included in the 50-50 custody arrangement effective March 15, 2015.
When the order of September 18, 2013[,] was entered, [Mother's] monthly net income was "determined" to be $1,500 and [Father's] $2,000. I use the term "determined" loosely as neither party brought wage statements or tax returns to the conference to verify their incomes. They, not the court, "determined" what their incomes were. Now that the court has to "determine" earnings/earning capacity, it comes as no surprise that the parties disagree significantly as to what their earnings were or should be. The fact that both are self-employed in occupations where cash is a common method of payment complicates my analysis.
Testimony was taken on December 16, 2014[,] at which time I had the opportunity to observe the witnesses, judge their demeanor and assess their credibility. Each witness will be addressed separately.
I also have the benefit of the parties['] briefs.
Mrs. [B.] [Mother]
[Mother] worked in the day care in the day care industry where she earned approximately $30,000/year gross. Once her children were born she was able to bring them to work with her at no cost.
After the parties initially separated, she babysat out of her home for several children earning a comfortable sum. However, when she became pregnant with [Kh.B.] she had to cut back on the number of children she could supervise and, significantly, had to stop working for several months after [Kh.B.] was born. Obviously, this interruption caused a loss of clientele which is understandable. Further, the ability to supervise not only her own children, but other children was complicated by having to tend to an infant.
To the argument that she should attempt to return to a day care position, she responded that due to the ages of the children she
would have to pay for their care which would greatly reduce her income.
[Mother] suggests that her current situation of babysitting at home is the most sensible approach, a position I agree with FOR THE TIME BEING.
[Father] argues that [Mother's] admitted monthly expenses of approximately $2,130 supports the conclusion that she must be earning $25,000+/year babysitting. [Mother] countered that family was assisting her.
A further complication for [Mother's] business model is that state law regulates the number of children that can be babysat at any one time. I realized this may be one of those regulations honored more in the breach than by compliance. However, it is a limitation on her earnings/earning capacity.
[Mother's] 2013 tax return showed receipt of gross income of $18,128 from her babysitting business. I did not have the benefit of a 2014 return, but I imagine it would not be greater than her 2013 income given the birth of [Kh.B.] and the impact that had on [Mother's] ability to babysit other people's children.
Accordingly, for 2014, I determine[d] [Mother's] earning capacity to be $18,128. For 2015, I determine[d] her earning capacity to be $24,000, as I believed she will be able to rebuild her clientele to its former level.
Mr. [B.] [Father]
[Father] is obviously very distressed by the dissolution of the marriage and asserts that it has impacted his ability to work. He also asserts that his business has suffered from the decision of former clients to take work he previously did for them "in house.'
It has been my experience as a judge and practitioner that "competent tradesmen" are always in demand no matter what the state of the economy is. While certainly larger clients may cut back in tight economic times, there are always a myriad of smaller jobs available for one wanting to work. In happier times, [Father's] business did very well. I am certain it did so as he was motivated to perform for the benefit of his family. It is
therefore not surprising that the downturn in his business coincides with the dissolution of his marriage.2 Interestingly, as
2 Exhibit D-3 shows the decline in earnings that, in my view, coincides with the dissolution of the family unit: 2010 - $585,142.55; 2011 - $685,609.01; 2012 - $405,099.03; 2013 - $335,411.91.
of the date of the hearing, [Father] did not have available for review his 2014 year to date profit and loss statement. In fact, he only submitted the 2013 tax return of his company after the hearing of December 16th was concluded[, pursuant to court order.] I am considering the document as it's preparer testified at the hearing. Initially, I note that there is a positive $12,000 difference between Exhibit D-3 and the 2013 tax return "gross receipts" number. Further, it is my understanding that Mr. Dominick, the CPA [and preparer of the return], was given the supporting data by [Father] and has just begun functioning as his accountant.3 Despite my concerns, I accept the 2013
3 A new accountant lacks a sense of the business "long term" as he has nothing to compare the data given to him with the historical record of the business. Accordingly, the numbers used for this return are viewed with some skepticism on my part.
business tax return as accurate.
[Father] operates his business from his home which affords him a tax benefit yet his [business] return shows a "rent" charge. He also purchased a new truck to replace one that was only 13 months old. His stated reason for doing so is not credible. I am hard pressed to accept "automobile and truck expenses" of $10,838 for a single vehicle and that it cost $16,374 to fuel. I note that [Father] received a $26,093 "loan" from his company. There are significant legal fees ($6,015) and a "uniform" cost of $100/month. While all these deductions pass the federal tax SMELL test, they are warning bells to me that someone is intentionally trying to drive down their "income." I recognize that in "happier times" both parties are generally willing participants in this type [of] conduct as the savings drop to the
"joint" bottom line, i.e., real dollars available to spend. However, in times of conflict, this type of income adjusting quickly becomes unacceptable to one of the parties.Lower Court Opinion, filed February 13, 2015, at 1-5.
[Father] has an obligation to maximize his income for the benefit of his children even if doing so results in an indirect benefit to his former wife. The focus of all, court and parents, needs to be on the children, not indirect beneficiaries. When I add back "suspect deductions"4 I find [Father's] 2013 income to be just over $100,000.00, a sum consistent with what a competent tradesman of his experience would earn. Accordingly, I find his earning capacity to be $104,000.00/year for 2013 and going forward.
4 To me, a "suspect deduction" is one that while allowed for federal tax purposes permits a person to shift what would otherwise be taxable outlays or income to tax deductible ones or to have the use of funds (a loan) versus ownership of the funds (income).
The Accountants
Ms. Evans testified for [Mother] and Mr. Dominick testified for [Father]. Neither contributed anything of significance to my analysis.
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All first-person references in the lower court's opinion are retained for ease of reading.
The lower court entered an order directing child support payments consistent with its determination of the parties' respective earning capacities. Father filed this timely appeal, in which he raises the following issues for our review:
1. Whether the lower court abused its discretion when it ignored and misapplied law by placing the entire burden of supporting the children on Father, held Father to an artificially high
income, considered matters not of record and did not accurately calculate Mother's income available for support.Appellant's brief at 5.
2. Whether the lower court abused its discretion by exercising judgment that is shown by the record to be manifestly unreasonable as well as the product of partiality, prejudice and bias toward Father and by making assumptions that were gender based.
3. Whether the lower court's decision must be reversed because there is insufficient evidence on the record to sustain the support order that holds Father to an artificially high and unsubstantiated $104,000.00 gross income per year and Mother to an unreasonably low $18,000.00 gross income per year where the record indicated that Mother's true income and her earning capacity were in excess of $30,000.00 gross per year.
Our standard of review over child support orders is:
When evaluating a support order, this Court may only reverse the trial court's determination where the order cannot be sustained on any valid ground. We will not interfere with the broad discretion afforded the trial court absent an abuse of the discretion or insufficient evidence to sustain the support order. An abuse of discretion is not merely an error of judgment; if, in reaching a conclusion, the court overrides or misapplies the law, or the judgment exercised is shown by the record to be either manifestly unreasonable or the product of partiality, prejudice, bias or ill will, discretion has been abused. In addition, we note that the duty to support one's child is absolute, and the purpose of child support is to promote the child's best interests.Kimock v. Jones , 47 A.3d 850, 853-54 (Pa.Super. 2012).
Essentially, Father's issues coalesce to challenge the court's calculations of the parties' respective earning capacities. To the extent Father charges error in the calculation of Mother's earning capacity, our careful review leads us to disagree, as the court's determination in this regard finds ample support in the record. In this respect, we adopt the attached lower court opinions and their expression of rationale as to Mother's earning capacity.
As for Father's earning capacity, however, we determine that the court erroneously based its calculations on important evidence not introduced into evidence. It is well-settled that a trial court may not consider evidence outside of the record in making its determination. Ney v. Ney , 917 A.2d 863, 866-67 (Pa.Super. 2007) (citing Eck v. Eck , 475 A.2d 825, 827 (Pa.Super. 1984)). "Nor may this court uphold a trial court's order on the basis of off-the-record facts." Eck , at 27 (citing In re Frank , 423 A.2d 1229 (Pa.Super. 1980)).
In Ney , this Court reversed a support order and remanded for a redetermination of the father's earning capacity where it was evident that the trial court had based its earning capacity calculations in large part on its own internet search of job opportunities in the father's field of work, even though such results were unsubstantiated by evidence of record:
It is apparent that the trial court found that [the father] willfully failed to seek appropriate employment based upon its own internet job search. There is no other evidence of record that there were suitable positions available, and that [the father] failed to apply for these positions. Thus, we conclude that the trial court abused its discretion when it considered and relied on this evidence.Id. at 868. Compare Commonwealth v. Bogosian , 12 A.3d 448, 460-61 (Pa.Super. 2011) (distinguishing Ney where trial court, deprived of precise valuation records in father's control, nevertheless relied on evidence of record in applying unconventional method of calculating equitable distribution as equities in case required).
On this basis, we reverse the Orders of the trial court, and remand for a determination of [the father's] earning capacity based only upon the evidence of record. In light of our holding, we need not address [the father's] remaining claim of error.
Upon our review of the record, we conclude that the lower court, notwithstanding its thoughtful, perceptive, and concerted efforts to promote the equities of the case, improperly considered evidence outside of the record in determining Father's earning capacity. Pivotal to the lower court's calculation was its consideration of the 2013 federal tax return of Father's business, which the court ordered Father to supply only after the hearing's conclusion. Indeed, the court indicated the business return was necessary to a meaningful analysis of Father's earning capacity:
THE COURT: Well, to get a real fix on everything here, I need [Father's] 2013 business tax return. So by next Monday, counsel, I want you to provide me with a copy of that 2013 business return and provide the other side with it. Just for information purposes, I will look at it myself, because while there are plenty of things that get deducted, they don't necessarily get deducted for support purposes, and we will have an opinion for you promptly thereafter. Have a nice day.N.T. at 78-79.
In its written opinion, the court attempts to justify its use of the critical tax return de hors the record on the fact that the accountant who prepared the return testified at the hearing. The accountant, however, provided no testimony regarding key aspects of the business return that factored heavily into the court's decision, nor did any other evidence admitted at the hearing relate to such information. For example, the business return's listing of deductions such as significant legal fees and truck and fuel expenses, which the court viewed with incredulity and, ultimately, rejected in its post-hearing opinion and order, were never addressed at the hearing; indeed, Father had no opportunity to explain these amounts to the court. The court likewise refers to various discrepancies between Father's personal and business tax returns with respect to gross sales and wages he drew from his S corporation, "two glaring errors [which] certainly called into question the accuracy of the information [Father] was providing to me." Lower Court Opinion, filed May 29, 2015, at 2-3. Again, the court acknowledges that it relied on evidence not of record to reject evidence of earning capacity that Father presented at trial.
Indeed, the court indicates in its written opinion and order that neither accountant contributed anything significant to its analysis.
Therefore, while the business return proved essential to a meaningful assessment of Father's income and earning capacity for child support purposes, and we agree with the lower court's demand for such information, we conclude it was nevertheless necessary for the court to receive the return as evidence in open court where the parties could examine it, testify to it, and thereby place it in context for the benefit of the court's analysis. To have rendered an ultimate decision on earning capacity on the basis of information obtained off the record was error.
Also without support in the record were the court's assumptions as to Father's ability to recoup all income lost from the discontinuation of large contracts by simply accepting a "myriad" of smaller jobs in their stead. Again, there was insufficient evidence adduced at trial to support this conclusion, which the court appeared to base on nothing other than its own experience and personal belief that there is always work available for good tradespeople. While both accountants testified to improving economic conditions in the local construction industry, such testimony fell well short of amounting to an earning capacity opinion that Father had the ability to offset all revenue losses from discontinued large contracts but had simply chosen not to act on such ability.
Our decisional law requiring child support orders based on on-the-record facts constrains us, therefore, to vacate the lower court's order and remand for further proceedings, where the court shall accept the 2013 business tax return in open court and invite testimony on it as well as on any other matter it deems pertinent to its task of ascertaining Father's earning capacity.
Order vacated. Case remanded for proceedings consistent with this decision. Jurisdiction relinquished. Judgment Entered. /s/_________
Joseph D. Seletyn, Esq.
Prothonotary Date: 4/8/2016
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