Opinion
Appellate Case No. 28917
04-16-2021
TRACEY N. WILLIAMS Plaintiff-Appellee v. JACK H. WILLIAMS, JR. Defendant-Appellant
TERRY W. POSEY, JR., Atty. Reg. No. 0078292, 109 North Main Street, Suite 500, Dayton, Ohio 45402 Attorney for Plaintiff-Appellee ALFRED WILLIAM SCHNEBLE, III, Atty. Reg. No. 0030741, 11 West Monument Avenue, Suite 402, Dayton, Ohio 45402 Attorney for Defendant-Appellant
Trial Court Case No. 2010-DR-195 (Domestic Relations Appeal)
OPINION
TERRY W. POSEY, JR., Atty. Reg. No. 0078292, 109 North Main Street, Suite 500, Dayton, Ohio 45402 Attorney for Plaintiff-Appellee ALFRED WILLIAM SCHNEBLE, III, Atty. Reg. No. 0030741, 11 West Monument Avenue, Suite 402, Dayton, Ohio 45402 Attorney for Defendant-Appellant WELBAUM, J.
{¶ 1} Defendant-appellant, Jack H. Williams, Jr. ("Jack"), appeals from a judgment of the Montgomery County Court of Common Pleas, Domestic Relations Division. The judgment overruled Jack's objections to a magistrate's decision that increased his monthly child support payment and granted the objections of plaintiff-appellee, Tracey N. Williams ("Tracey"), which resulted in the trial court's further increasing Jack's child support payment. For the reasons outlined below, the judgment of the trial court will be affirmed.
Facts and Course of Proceedings
{¶ 2} Jack and Tracey Williams were married on June 28, 2002, and three children were born of their marriage. After ten years of marriage, Jack and Tracey were granted a Final Judgment and Decree of Divorce on December 19, 2012. In the decree, Tracey was designated legal custodian and child support obligee, and Jack was ordered to pay child support in the amount of $219 per child every month.
{¶ 3} In 2018, Jack requested an administrative modification of his child support payment through the Child Support Enforcement Agency ("CSEA"). On October 3, 2018, the CSEA issued an administrative adjustment hearing Recommendation Order that increased Jack's child support payment. Jack thereafter requested the trial court to hold an Administrative Appeal Hearing on CSEA's recommendation order. Jack's request was granted and the matter was referred to a magistrate for a "Mistake of Fact Hearing."
{¶ 4} The parties were ordered to bring proof of income to the mistake of fact hearing, which was held over two days on March 20 and May 15, 2019. Tracey's income was not in dispute at the hearing. The primary issue before the magistrate was Jack's income for purposes of calculating his child support payment. Specifically, Jack's income during 2016, 2017, and 2018 was in question.
{¶ 5} The testimony and evidence presented at the mistake of fact hearing established that Jack operated an insurance business named Gem City Insurance, Inc. ("Gem City"). Jack was the only employee of Gem City. Jack founded Gem City in 1999 with his parents, Jack Sr., who died in 2017, and Beverly Williams, who was 81 years old at the time of the hearing.
{¶ 6} On July 1, 2015, Gem City sold its Erie Insurance Book of Business to Kesner Insurance Agency, Inc. ("Kesner"). The sale was memorialized in an "Agreement for Transfer," which provided that Kesner would pay Gem City 75% of the commissions it received from the Erie Book of Business for the latter of the lifetimes of Jack Sr. and Beverly. See Def. Exhibit I. Kesner issued 1099s to Gem City showing that Kesner paid Gem City $81,872.84 in 2016, $74,485.20 in 2017, and $95,482.19 in 2018. See Pl. Exhibits 22 and 23.
{¶ 7} As evidence of his income, Jack submitted Gem City's tax returns for 2016 and 2017. The tax returns reflected that, before various deductions, Gem City had a gross income of $119,566 in 2016 and $124,228 in 2017. See Def. Exhibits A and B. Because Jack did not yet have tax returns prepared for 2018, he provided the court with a profit/loss statement for that year's information. The profit/loss statement reflected a gross income of $107,791 for 2018. See Def. Exhibit C.
{¶ 8} Jack and his mother, Beverly, testified that Beverly received income from Gem City during the three years in question. Beverly testified, however, that she did not have a license to sell insurance, had never performed any work for Gem City, and did not know much about Gem City's business. Beverly's income tax returns for 2016, 2017, and 2018 were admitted into evidence, and they reflected that Gem City paid her $14,950 in 2016, $16,905 in 2017, and $28,255 in 2018. See Def. Exhibits D, E, and F. Beverly testified that it was her understanding that she received payments from Gem City as a result of the Agreement for Transfer with Kesner. There was, however, no provision in that agreement requiring payments to be made to Beverly.
{¶ 9} Jack testified that Gem City's payments to his mother were made by virtue of an unwritten agreement that he had entered into with his father, Jack Sr., when they founded the business together in 1999. According to Jack, the agreement called for Gem City to pay his father and mother until their deaths as a form of retirement. Beverly testified, however, that she did not begin receiving income from Gem City until after Jack's divorce from Tracey.
{¶ 10} Beverly's tax returns also reflected that she received rental income in the amount of $7,400 in 2016, $11,981 in 2017, and $13,792 in 2018. Beverly testified that she purchased a residence on Ome Avenue in Dayton, Ohio, for Jack to live in after his divorce from Tracey. Beverly testified that she charged Jack $500 in rent.
{¶ 11} On September 1, 2013, Beverly signed an unrecorded land contract to purchase Gem City's office building from Jack for $70,000. See Pl. Exhibit 11. Jack had purchased the office building in 2004 for $120,000, and as of the date of the Mistake of Fact Hearing, Jack was listed as the owner of the property via a general warranty deed. See Pl. Exhibit 10. The land contract provided that Beverly was to make a down payment of $1.00 and thereafter pay Jack $800 per month in rent.
{¶ 12} Beverly testified, however, that she had never paid rent to Jack for the office building. In fact, Beverly's testimony indicated that she believed that Jack had purchased the property from her in order to provide her with a stream of income or "pension." Beverly indicated that she did not understand the land contract she signed and claimed that Jack paid the office building rent to her by making the property's mortgage payment directly to the bank. Jack testified that Gem City paid the office building rent by paying the mortgage, but he provided no documentation to prove that Gem City had made any mortgage payments.
{¶ 13} The land contract also provided that Beverly was responsible for any maintenance and repairs to the office building property. However, the profit/loss statement Jack submitted to the court showed that Gem City paid those expenses. See Def. Exhibit C. When asked why Gem City was making these payments when the land contract called for Beverly to be responsible for them, Jack merely indicated that it was a typo in the land contract.
{¶ 14} As evidence of his income, Jack also submitted his individual tax returns for 2016 and 2017. See Def. Exhibits G and H. Those tax returns reflected that Jack had a gross income of $16,352 in 2016 and $11,353 in 2017. For 2018, Jack provided a 1099 indicating that he received $25,628 in compensation from Gem City. See Def. Exhibit M. Jack, however, agreed to use $25,750 as his income for 2018.
{¶ 15} The record indicates that Jack, as the sole employee of Gem City, prepared the business's 1099s and profit/loss statements that were submitted into evidence. Paul Alexander, a public accountant, prepared all of the tax returns that were submitted into evidence. Alexander testified that he was friends with Jack's father and that he had known Jack for years.
{¶ 16} With the exception of Beverly's 2018 tax return, Alexander testified that he prepared all of the tax returns in question beyond the IRS filing deadline. Alexander testified that although the 2016 and 2017 tax returns were due on April 15, 2017 and 2018, he prepared Jack's on August 24, 2018, Gem City's on December 13 and 14, 2018, and Beverly's the following year, on March 3, 2019. Alexander also testified that he prepared all of the tax returns submitted to the court based solely on information and documentation provided to him by Jack. Alexander further testified that he did not audit the information that Jack provided him, but simply took it as being true. Alexander did not know whether any of the tax returns in question were actually filed with the IRS.
{¶ 17} Jack testified that up until March 20, 2019 (the first day of the mistake of fact hearing), he had not filed any personal or corporate income tax returns since 2010. Jack testified that he had since filed all of his personal and corporate tax returns with the IRS. However, Jack provided no verification of this. Jack also testified that he paid the IRS for the tax years in question, but he could not recall how much he had paid. Jack only recalled paying the IRS with an unknown amount of cash that was loaned to him by his mother.
{¶ 18} Following the hearing, the magistrate issued a decision increasing Jack's monthly child support payment from $657 ($219 multiplied by three children) to $939.42. The magistrate arrived at $939.42 by using the gross income reflected on Jack's tax returns and the profit/loss statement. The magistrate, however, determined that certain items deducted from Jack's gross income (primarily the commissions paid to Beverly, rent payments, mileage expenses, and maintenance expenses) were improper. As a result, the magistrate added those expenses back to Jack's gross income. In doing so, the magistrate found that Jack's gross income was $39,025 in 2016; $41,492 in 2017; and $66,979 in 2018. The magistrate then used those figures to calculate Jack's three-year average income, which came to $49,165. The magistrate used that figure along with Tracey's undisputed income of $38,051 to calculate Jack's monthly child support payment.
{¶ 19} Jack and Tracey both filed timely objections to the magistrate's decision. Jack argued that the magistrate erroneously added the aforementioned items back to his gross income. Tracey argued that it was erroneous for the magistrate to use Jack's recently-generated tax returns to calculate his average-three-year income, as she claimed that the tax returns did not accurately reflect what Jack had earned. Tracey also argued that the Kesner 1099s were the only verifiable evidence of Jack's income because they were the only documents that were not controlled or generated by Jack. Tracey therefore requested that the trial court calculate Jack's three-year average income using only the Kesner 1099s, which show that Kesner paid Gem City (whose only employee is Jack) $81,872.84 in 2016, $74,485.20 in 2017, and $95,482.19 in 2018.
{¶ 20} After conducting a de novo review, the trial court denied Jack's objections and granted Tracey's objections. In so holding, the trial court found that the tax documents and profit/loss statement provided by Jack were not reliable evidence of his income. The trial court also found that Jack's testimony regarding his income was inconsistent and not credible. The trial court agreed with Tracey's claim that the only verifiable information regarding Jack's income was contained in the 1099s from Kesner. Therefore, using the amounts shown on the 1099s from Kesner, the trial court calculated Jack's three-year average income to be $83,946.74. The trial court also found that Tracey's income was higher than what was determined by the magistrate, finding that it was $38,434.01. Using these two figures, the trial court calculated Jack's monthly child support payment to be $1,408.63 per month for all three of his children.
{¶ 21} Jack now appeals from the decision of the trial court, raising two assignments of error for review.
First Assignment of Error
{¶ 22} Under his first assignment of error, Jack challenges the trial court's determination of his gross income for purposes of calculating his child support obligation. Specifically, Jack contends that the trial court abused its discretion by ignoring the income and expenses reflected on the tax documentation and profit/loss statement he submitted into evidence and by using only the 1099s from Kesner to calculate his three-year-average gross income.
{¶ 23} Although we review trial court decisions modifying child support for an abuse of discretion, Matlock v. Matlock, 2d Dist. Montgomery No. 28278, 2019-Ohio-2131, ¶ 12, " '[t]he determination of gross income [for purposes of calculating child support] is a factual finding which is reviewed using the "some competent, credible evidence" standard.' " Habib v. Shikur, 10th Dist. Franklin No. 17AP-735, 2018-Ohio-2955, ¶ 24, quoting Serra v. Serra, 10th Dist. Franklin No. 15AP-528, 2016-Ohio-950, ¶ 10, citing Dannaher v. Newbold, 10th Dist. Franklin No. 05AP-172, 2007-Ohio-2936, ¶ 14. Therefore, an appellate court "will not reverse a trial court's factual determination of gross income for child support purposes if there is some competent and credible evidence in the record supporting that determination." (Citations omitted.) Funkhouser v. Funkhouser, 6th Dist. Erie No. E-18-039, 2019-Ohio-733, ¶ 31.
{¶ 24} "In reviewing the trial court's factual findings regarding the determination of child support, we are mindful that this court is not permitted to substitute its judgment for that of the trial court in ruling on witness credibility." (Citations omitted.) Habib at ¶ 24. " '[T]he weight to be given the evidence and the credibility of the witnesses are primarily matters for the trier of fac[t] to determine.' " Barclay v. Barclay, 2d Dist. Montgomery No. 24883, 2012-Ohio-1974, ¶ 18, quoting In re Guardianship of Smith, 2d Dist. Clark No. 2009-CA-69, 2010-Ohio-4528, ¶ 19, citing State v. DeHass, 10 Ohio St.2d 230, 227 N.E.2d 212 (1967). "The trier of fact is free to believe all, part, or none of the testimony of each witness." (Citations omitted.) Habib at ¶ 19. Therefore " 'a reviewing court should not reverse a decision simply because it holds a different opinion concerning the credibility of the witnesses and evidence submitted before the trial court.' " In re K.P., 2d Dist. Clark No. 2011-CA-68, 2012-Ohio-1094, ¶ 10, quoting Seasons Coal Co. v. Cleveland, 10 Ohio St.3d 77, 80, 461 N.E.2d 1273 (1984).
{¶ 25} "When determining gross income, 'the trial court must verify the income "with suitable documents, including, but not limited to, paystubs, employer statements, receipts and expense vouchers related to self-generated income, tax returns, and all supporting documentation and schedules for the tax returns." ' " Id. at ¶ 11, quoting Foster v. Foster, 150 OhiApp.3d 298, 2002-Ohio-6390, 780 N.E.2d 1041, ¶ 12 (12th Dist.), quoting R.C. 3119.05(A). With regard to using tax returns as evidence of gross income, this court has stated the following:
Usually, tax returns are not sufficient by themselves. "Federal and state tax documents provide a proper starting point to calculate a parent's
income, but they are not the sole factor for the trial court to consider. In many cases, income for child support purposes is not equivalent to the parent's taxable income." (Citation omitted.) [Foster] at ¶ 12-13, citing Helfrich v. Helfrich, 10th Dist. Franklin App. No. 95APF12-1599, 1996 WL 532185 (Sept. 17, 1996). This is because "the theory behind determining income for child support purposes is different from that of stating income for tax purposes." Offenberg v. Offenberg, 8th Dist. Cuyahoga App. Nos. 78885, 78886, 79425, and 79426, 2003-Ohio-269, ¶ 29; see Marcus v. Marcus, 2d Dist. Greene App. No. 98 CA 83, 1999 WL 960772, *5 (July 30, 1999). The theory behind determining income for child-support purposes is to " 'determin[e] how much [of the parents'] money is actually available for child support purposes.' " Marcus at *5, quoting Helfrich at *3. Accordingly, income is included "whether or not the income is taxable." R.C. 3119.01(C)[(12)]. " 'This recognize[s] the economic reality that all money earned by a parent, irrespective of its taxability, is in fact income to that parent.' " Offenberg at ¶ 29, quoting Helfrich at *3. Consequently , when determining a parent's income , the trial court must beware of " 'the possible manipulation of the numbers contained on the return to conceal income which , as a practical matter , may be available for child support purposes.' " In re Harris, 168 Ohio App.3d 1, 2006-Ohio-3649, 857 N.E.2d 1235, ¶ 50 (2d Dist.), quoting Offenberg at ¶ 30.(Emphasis added.) In re K.P. at ¶ 12.
{¶ 26} " 'Put another way, legitimate business expenses for income tax purposes may also be personal benefits for a parent, freeing up other income for possible child support distribution.' " In re Custody of Harris, 168 Ohio App.3d 1, 2006-Ohio-3649, 857 N.E.2d 1235, ¶ 50 (2d Dist.), quoting Offenberg at ¶ 30. Therefore, when " 'computing income for purposes of child support, a court should pay particular attention to the possibility that a spouse who is the sole shareholder of a business is engaged in "creative accounting" designed to cloak net income.' " Id., quoting Offenberg at ¶ 30, quoting Corrigan v. Corrigan, 8th Dist. Cuyahoga Nos. 74088 and 74094, 1999 WL 304523, *11 (May 13, 1999).
{¶ 27} Although not explicit, the trial court seemed to indicate that Jack was engaged in such "creative accounting," as the trial court stated the following:
Here, Jack is the sole employee of Gem City and is in control. This is exhibited by his decision to pay his mother income, though she does not work there. He also determines payroll, signs checks, issues 1099s, and is the owner of the business property. It appears that Jack is also using the business to shelter income, as he cannot credibly account for money earned, nor spent. Jack claimed expenses for Gem City, but did not provide any proof. Further, he did not start paying his mother income until after the divorce.Decision and Judgment (Aug, 27, 2020), p.11.
{¶ 28} The trial court specifically found that Jack's testimony regarding his income was not credible and that the tax documentation and the profit/loss statement Jack submitted to the court were not reliable evidence of his income. As previously noted, we defer to the trial court on issues of witness credibility and what weight to afford the evidence. In any event, we find that there was competent, credible evidence in the record to support these findings. There was also competent, credible evidence in the record to support the trial court's determination of Jack's gross income, as the trial court relied on amounts reflected in the 1099s from Kesner to calculate Jack's three-year-average gross income.
{¶ 29} We note that this court has previously reviewed claims similar to Jack's for an abuse of discretion. See In re K.P., 2d Dist. Clark No. 2011-CA-68, 2012-Ohio-1094. But, regardless of what standard we apply, Jack's argument fails. We reach this conclusion because it was not unreasonable for the trial court to find that the tax returns and the profit/loss statement submitted by Jack were unreliable evidence of his income; all of the tax returns had been generated recently and prepared beyond the filing deadline (with the exception of Beverly's 2018 tax return). Jack had not filed a personal or corporate tax return in 10 years, yet suddenly decided to have several personal and corporate tax returns generated in 2018, which was conveniently near the time he requested an administrative modification of his child support payment through the CSEA. Jack also claims that he did not file his personal and corporate tax returns until sometime after the first Mistake of Fact Hearing. Moreover, Jack provided no verification of the alleged filings, and he could not even recall how much he paid to the IRS.
{¶ 30} It was also significant that all of the information contained in the tax returns and the profit/loss statement was supplied solely by Jack without any type of verification. In addition, there were several dubious figures included within those documents. For example, the tax returns indicated that Jack's mother was paid a commission from Gem City during all three years in question, yet she had never worked for Gem City. It was also suspicious that Beverly did not begin receiving payments from Gem City until after Jack's divorce. Gem City's profit/loss statement also indicated that Gem City paid for repairs and maintenance to its office building even though the property's land installment contract provided that Jack's mother was responsible for those expenses.
{¶ 31} Because the tax returns and the profit/loss statement were reasonably deemed unreliable, it was reasonable for the trial court to use only the 1099s from Kesner when calculating Jack's gross income. This is because the 1099s from Kesner were the only documents that Jack did not have a hand in creating. Thus, they were the only objective sources of income presented at the Mistake of Fact Hearing. Although Jack maintained that the income from Kesner was supposed to benefit his mother, there was no evidence supporting this claim other than his own self-serving testimony. The Agreement for Transfer between Kesner and Gem City simply provided that Kesner "shall pay Gem City Insurance, Inc." the commissions in question "for a period of the latter of the lives of Jack H. Williams and Beverly M. Williams." (Emphasis added.) See Def. Exhibit I.
{¶ 32} Because there was no abuse of discretion, and because the trial court's findings were supported by competent, credible evidence, Jack's first assignment of error is overruled.
Second Assignment of Error
{¶ 33} Under his second assignment of error, Jack contends that the magistrate erred by adding deducted items, i.e., commissions paid to Beverly, rent payments, mileage expenses, and maintenance expenses back to the gross income shown on his individual tax returns and profit/loss statement. Our resolution of Jack's first assignment of error, however, resolves this one as well, because we have already determined that the trial court did not err by ignoring the tax documentation and the profit/loss statement provided by Jack on grounds that it was unreliable evidence of his income. Therefore, any alleged error concerning how the magistrate deviated from the tax documentation and the profit/loss statement in calculating Jack's gross income is without merit, because the trial court reasonably concluded that those materials should not have been relied upon in the first place.
{¶ 34} Jack's second assignment of error is overruled.
Conclusion
{¶ 35} Having overruled Jack's assignments of error, the judgment of the trial court is affirmed. DONOVAN, J. and EPLEY, J., concur. Copies sent to: Terry W. Posey, Jr.
Alfred William Schneble, III
Hon. Denise L. Cross