S.L.W. v. S.R.W.

J-A07008-14

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

S.L.W. IN THE SUPERIOR COURT OF PENNSYLVANIA Appellee

v.

S.R.W.

Appellant No. 1520 MDA 2013

Appeal from the Order July 23, 2013 In the Court of Common Pleas of Adams County Civil Division at No(s): 04-DR-158

BEFORE: GANTMAN, P.J. , DONOHUE, J., and STABILE, J. MEMORANDUM BY GANTMAN, P.J.: FILED AUGUST 05, 2014 entered in the Adams County Court of Common Pleas. We affirm in part, and vacate and remand in part.

The trial court opinion sets forth the relevant facts and procedural history of this case as follows:

Father is a small business owner, operating the business known as Herr Ridge, Inc. for thirty-five years. The business consists of a restaurant and a school bus company. Mother[, Appellee,] works at Sportsman Liquidation and has been employed there for four and one-

Income Tax Return lists gross receipts of $1,631,446, gross profit of $1,144,453, and total income of

U.S. Corporation Income Tax Return states a negative taxable income value. For 2011, Father paid himself a salary from his business of $23,538.54, including $17,313.76 compensation and $6,224.78 for insurance.

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For tax year 2012, Father paid himself $12,000 compensat gross monthly income is $2,346.43 with a net monthly income of $1,879.78.

On March 24, 2004, Mother filed a Complaint for Support,

S.L.W., born [September 1998]. A support conference was scheduled for April 14, 2004. By Order of Court dated

Support without prejudice because Mother withdrew the action and indicated in an Affidavit of Dismissal that the parties were reconciling.

On July 6, 2004, Mother again filed a Complaint for Support, requesting that the prior support complaint be

child. A support conference was scheduled for July 19, 2004. By Order of Court dated July 15, 2004, the support conference was continued for ninety days pending settlement of the parties. The Order of Court indicated that if the parties reached a settlement outside of Domestic Relations or if Mother did not make a request to proceed with such action during this time, the Complaint would be dismissed and case closed after ninety days. By Order of Court dated November 24, 2004, this [c]ourt

prejudice because Mother did not request that Domestic Relations address the Complaint.

On February 23, 2005, Mother filed a Complaint for Support. A support conference was scheduled for March 15, 2005. An Interim Support Order was entered on March 9, 2005, where F at $570.00 per month for child support.

consent, Attorney Henry O. Heiser, III, Esquire was granted permission to withdraw as counsel for Mother.

By Order of Court dated September 30, 2005, a support modification conference was scheduled for October 24, 2005. Both parties appeared at the support modification conference and both parties submitted materials analyzing

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onference officer

and held Father to $24,000 gross per year as taxable income and $108,223 per year as non-taxable income which included add-backs for rental income and two depreciation deductions. By Order of Court dated November 23, 2005, a Modified Support Order was

per month, consisting of $1,165.00 in child support and $100 in arrears.

On December 8, 2005, Father filed a Demand for Hearing, alleging that the conference officer made several errors in

calculating the support order. By Order of Court dated December 8, 2005, a de novo hearing was scheduled for January 26, 2006. On December 9, 2005, Father filed a Petition for Stay, requesting this [c]ourt to enter a stay over the November 23, 2005 support order. A hearing on y Order of Court dated December 30, 2005, the January 26, 2006 de novo hearing was rescheduled for January 31, 2006. By Order of Court dated January 27, 2006, the de novo hearing was rescheduled for March 6, 2006. By Order of Court dated March 3, 2006, the de novo hearing was rescheduled for May 4, 2006. By Orders of Court dated May 1, 2006 and May 2, 2006, the de novo hearing was rescheduled for August 3, 2006.

By Praecipe filed May 25, 2006, Attorney Kollas withdrew his appearance for Father and Martha Baum Walker, Esquire, entered her appearance for Father.

The de novo hearing was held on August 3, 2006. By Order of Court dated August 16, 2006, this [c]ourt directed the Adams County Domestic Relations Office to prepare a PACSES generated child support order effective to

obligation being reduced from $1,165 per month to $960 per month, plus $50 per month for arrears. This [c]ourt

$9,071.72, and noted in the August 16, 2006 Order that

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rather than year 2005 tax rates. The PACSES generated support order memorializing this [c] filed on August 17, 2006.

On August 31, 2006, a Petition for Contempt was filed, alleging that Father had failed to comply with the support order. By Order of Court dated August 31, 2006, a contempt hearing was scheduled for September 21, 2006. On September 11, 2006, Mother filed a Petition for Modification of an Existing Support Order, requesting a review and increase in support due to Father acquiring a new bus route since the last order had been established. By Order of Court dated September 11, 2006, a support modification conference was scheduled for October 4, 2006. By Order of Court dated September 14, 2006, the conference was rescheduled to October 25, 2006. By Order of Court dated September 21, 2006, this [c]ourt schedule for November 8, 2006. By separate Order of Court dated September 21, 2006, Father was ordered to appear for a hearing on contempt on November 8, 2006, to be held contemporaneously with the hearing on Mothe

On September 13, 2006, Father filed a Motion for Reconsideration and a Motion for Stay of Enforcement. By Order of Court dated September 21, 2006, hearings on

be held contemporaneously with the hearings previously scheduled.

contempt hearing was scheduled for December 6, 2006. By separate Order of Court dated November 8, 2006, this n for Modification to December 6, 2006. By Order of Court dated December 7, 2006, the Petition for Contempt against Father was dismissed because Father had purged the contempt.

On December 6, 2006, this [c]ourt held the de novo hearing. At the hearing, the parties reached an interim agreement for support, with Father being responsible for $667 per month for current child support and $200 per

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month arrears, totaling $867 per month. This agreement was memorialized in an Order of Court dated December 7, 2006.

for Modification of an Existing Support Order, requesting a decrease in support due to alleged reduction in income.

Office on January 15, 2008. On January 14, 2008, an Order of Court was entered scheduling a conference on

2008, Attorney Walker filed her Praecipe for Withdrawal of Appearance. By Order of Court dated February 7, 2008, the February 11, 2008 conference was continued for ninety days pending a possible settlement. The Order indicated that if no settlement was reached during that time, the conference would be rescheduled.

By Order of Court dated June 30, 2008, the parties having reached an agreement in regards to child support which included the dismissal of the Order for Support with all credits and arrears waived by the parties, this [c]ourt dismissed the action without prejudice and with no arrears or credits.

For the period of time from June 30, 2008 until November 21, 2012, the parties operated under their private agreement regarding child support with no involvement from Domestic Relations or this [c]ourt.

On November 21, 2012, Mother filed a new Complaint for

case. By Order of Court dated November 21, 2012, a conference was scheduled for December 20, 2012. By Order of Court dated December 10, 2012, the conference was rescheduled to January 10, 2013. On January 10, 2013, the support conference was held.

By Order of Court dated January 31, 2013, a support order was entered requiring Father to pay $668 per month in child support and $67 per month in arrears, totaling $735 per month. The conference officer determined that

Father provided health insurance for the child. The

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conference officer averaged the results of two separate

conferen

bankruptcy filings, the United States Bankruptcy Court Official Form 6-Summary of Schedules (hereinafter Current Income

stated his income in both the Summary of Schedules and Schedule I as $10,047.16 per month. The conference

listed wages, $24,000 rent add-back and $37,544 depreciation expense for tax year 2011, totaling $85,082 in income. The conference officer determined the guideline support amounts for both income calculations, $701 and $635 respectively, and averaged them to determine a recommended support amount of $668 per month. The conference officer noted in the Order that the recommended support amount was close to the $667 per month support amount as agreed to by the parties the last time the case has been open through Domestic Relations.

On February 11, 2013, Father filed a Demand for Hearing De Novo correctly, that Father was not credited for arrears remitted, and that Mother had more income than as determined by the conference officer. By Order of Court dated February 11, 2013, a de novo hearing was scheduled for March 6, 2013. By Order of Court dated March 7, 2013, the de novo hearing was rescheduled for April 3, 2013. By Orders of Court dated April 3, 2013 and April 4, 2013, the de novo hearing was continued to June 6, 2013.

On May 20, 2013, a Petition for Contempt was filed alleging that Father had failed to pay support as ordered. By Order of Court dated May 20, 2013, a hearing on the contempt was scheduled for June 26, 2013.

The de novo hearing was held on June 6, 2013. Both parties testified. After the hearing, this [c]ourt entered an Order of Court dated June 6, 2013, providing each party until Friday, June 21, 2013 to file a memorandum on any relevant matter regarding the case, directing Mother to

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deliver to the Domestic Relations Office a copy of her 2012 federal income tax return as filed, including all schedules, no later than June 7, 2013, and stating that this [c]ourt would decide the appropriate amount of support to be paid and also decide the issue of which party is entitled to the dependency exemption for the child, effective with calendar year 2012. By Order of Court dated June 7, 2013, an additional hearing was scheduled for July 31, 2013.

On June 18, 2013, Fa

income was $25,159.00, or $2,096.00 per month, consisting of $12,000.00 in wages, $11,411.00 in real estate depreciation and $1,748.00 in real estate profit. Father alleged that his income for 2012 was less than his 2011 income, and stated that there should be no support

month. Father also argued that he should be able to claim the child as a dependent each year because he pays $305.00 per month in health insurance for the child, all of

of her support.

On June 17, 2013, Domestic Relations received a Motion for Continuance from Father, asking this [c]ourt to continue the contempt hearing scheduled for June 26, 2013. By Order of Court dated June 20, 2013, the contempt hearing was continued to July 31, 2013.

On July 23, 2013, this [c]ourt entered its Order of Court regarding child support. This [c]ourt determined that

listed wages, $24,000 rent add-back, and $37,544

2011 personal and corporate federal income tax returns, -2. This [c]ourt monthly support obligation effective November 19, 2012, the date that Mother filed her Complaint for Support, through March 31, 2013, is $635 per month plus $100 per

incom

support obligation would increase on April 1, 2013 from

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$635 per month to $768 per month based on an income of $103,605, consisting of $18,480 listed wages, $24,332 rent add-back, and $60,793 depreciation. This [c]ourt exercised its discretion to deviate from the recommended

support obligation effective April 1, 2013 would remain at $635 plus $100 arrears per month, for a monthly total of $735 per month in support. This [c]ourt also determined that effective for the 2012 calendar year, Mother is entitled to the dependency exemption for the child in even- numbered tax years, and Father is entitled to the dependency exemption for the child in odd-numbered tax years. By Order of Court dated July 30, 2013, the PACSES generated child support order was entered.

After hearing, and by Order of Court dated July 31, 2013, Father acknowledged contempt and sentencing was deferred to September 25, 2013. By Orders of Court

sentencing hearing was continued to October 2, 2013.

On August 22, 2013, Father timely filed his Notice of Appeal, appealing this [c]o Court. By Order of Court dated August 22, 2013, this [c]ourt directed Father to file and serve on this Judge a concise statement of [errors] complained of on appeal. On September 9, 2013, Father timely filed his Statement of [Errors] Complained of on Appeal.

(Trial Court Opinion, filed on October 11, 2013, at 1-9) (internal footnotes and citations to the record omitted).

Father raises the following issues for our review:

DID THE TRIAL COURT MAKE AN ERROR OF LAW/ABUSE OF DISCRETION IN CONSIDERING AS INCOME FOR [FATHER] THE DEPRECIATION OF ASSETS HELD BY HERR RIDGE, INC., WHICH CONSIST OF EQUIPMENT, MACHINES, AND SUPPLIES USED BY THE BUSINESS, WHERE (A) THERE WAS NO EVIDENCE THOSE CASH FLOWS COULD HAVE INSTEAD BEEN DISPERSED TO FATHER, (B) FATHER SHOWED THE EXPENDITURES WERE NECESSARY FOR THE CONTINUED OPERATION OF THE

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BUSINESS, AND (C) THE VALUE OF THE ASSETS AFTER THE DESIGNATED DEPRECIATION PERIOD WILL BE DE MINIMUS?

DID THE TRIAL COURT MAKE AN ERROR OF LAW/ABUSE OF DISCRETION IN FAILING TO ASSIGN THE DEPENDENCY EXEMPTION TO FATHER EVERY YEAR WHERE FATHER PAYS THE MAJORITY OF THE LUDING MEDICAL INSURANCE?

The well-settled standard of review in a child support case provides:

When evaluating a support order, this Court may only

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

interests. Silver v. Pinskey, 981 A.2d 284, 291 (Pa.Super. 2009) (en banc) (quoting Mencer v. Ruch, 928 A.2d 294, 297 (Pa.Super. 2007)).

In his first issue, Father argues an analysis under Labar v. Labar, 557 Pa. 54, 731 A.2d 1252 (1999) is required to ascertain the true nature and to examine whether Father had sheltered cash flow that should be attributed to his income. Rather, Father alleges the court improperly included the depr

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assets have significant value at the end of their life. Father contends he provided the court with specific documentation to show the nature of the equipment depreciated, but the court ignored his testimony regarding the difficult to construe that the buses retain significant value after their depreciation period of five years because, after seven years, the buses have little value to Herr Ridge, Inc. and eventually will be worth only scrap value. Father maintains including the depreciation for buses as income available to Father was error because the court cannot attribute as income funds which are not actually available to or received by Father, and there has been no evidence or analysis of whether the depreciation at issue represented sheltered assets. of $635 per month. Specifically, Father asserts Mother had primary custody in 2006, whereas now Mother and Fathe income in 2005 was $141,403.00 as compared to his total income of only $85,083.00 in 2011. Father concludes the depreciation should be not are constrained to vacate and remand for further proceedings.

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-2. Pennsylvania Rule of Civil Procedure 1910.16-2 provides:

Rule 1910.16-2. Support Guidelines. Calculation of Net Income

• • * *

(a) Monthly Gross Income. Monthly gross income is ordinarily based upon at least a six-month average of all of

support law, 23 Pa.C.S.A. § 4302, and includes income from any source. The statute lists many types of income including, but not limited to:

(1) wages, salaries, bonuses, fees and commissions;

(2) net income from business or dealings in property;

(3) interest, rents, royalties, and dividends;

(4) pensions and all forms of retirement;

(5) income from an interest in an estate or trust;

(6) Social Security disability benefits, Social Security retirement benefits, temporary and permanent disability compensation and unemployment compensation;

(7) alimony if, in the discretion of the trier of fact, inclusion of part or all of it is appropriate; and

• • * *

(8) other entitlements to money or lump sum awards, without regard to source, including lottery winnings, income tax refunds, insurance compensation or settlements; awards and verdicts; and any form of payment due to and collectible by an individual regardless of source.

• • * *

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(c) Monthly Net Income.

(1) Unless otherwise provided in these rules, the court shall deduct only the following items from monthly gross income to arrive at net income:

(A) federal, state, and local income taxes;

(B) unemployment compensation taxes and Local Services Taxes (LST);

(C) F.I.C.A. payments (Social Security, Medicare and Self-Employment taxes) and non-voluntary retirement payments;

(D) mandatory union dues; and

(E) alimony paid to the other party.

(2) In computing a spousal support or alimony pendente lite obligation, the court shall deduct from the obl monthly net income all of his or her child support obligations and any amounts of spousal support, alimony pendente lite or alimony being paid to former spouses.

Pa.R.C.P. 1910.16-2(a), (c). Income is defined as:

compensation for services, including, but not limited to, wages, salaries, bonuses, fees, compensation in kind, commissions and similar items; income derived from business; gains derived from dealings in property; interest; rents; royalties; dividends; annuities; income from life insurance and endowment contracts; all forms of retirement; pensions; income from discharge of indebtedness; distributive share of partnership gross income; income in respect of a decedent; income from an interest in an estate or trust; military retirement benefits; railroad employment retirement benefits; social security benefits; temporary and permanent disability benefits;

other entitlements to money or lump sum awards, without regard to source, including lottery winnings; income tax refunds; insurance compensation or settlements; awards

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or verdicts; and any form of payment due to and collectible by an individual regardless of source.

23 Pa.C.S.A. § 4302.

his children, a trial perquisites, and the true nature and extent of his property and financial resources. Labar, supra at 59, 731 A.2d at 1254 (citing Commonwealth ex rel. Gitman v. Gitman, 428 Pa. 387, 237 A.2d 181 (1967)).

[I]n computing income available for support when the payor owns his own business, income must reflect actual available financial resources and not the often times fictional financial picture which develops as the result of depreciation deductions taken aga permitted by the federal income tax laws. Otherwise put,

taxed income. Heisey v. Heisey, 633 A.2d 211, 212 (Pa.Super. 1993) (quoting McAuliffe v. McAuliffe, 613 A.2d 20, 22 (Pa.Super. 1992)) (emphasis in original).

Id. (citing Coffey v. Coffey, 575 A.2d 587 (Pa.Super. 1990)). income tax law without proof of actual loss, will not automatically be deducted from gross income for purposes of determining awards of alimony and equitable di Cunningham v. Cunningham, 548 A.2d 611,

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612 (Pa.Super. 1988) (quoting Commonwealth ex rel. Hagerty v. Eyster, 429 A.2d 665, 668-should be deducted from gross income only where they reflect an actual Id. at 613. Thus, a calculation of disposable income for purposes of support will include federal tax deductions, unless the obligor proves the tax deductions (depreciation) gross personal income. Labar, supra at 60, 731 A.2d at 1255. income from the support obligation calculation by improperly retaining cash flows within the corporation rather than disbursing them to the

Id.

Id.

Depreciation is an accounting mechanism which allocates the original cost of an asset to the periods in which the asset is used. Depreciation does not result in income. Rather, when depreciation expense is claimed, taxable income is decreased by the amount so claimed, resulting in se in income.

The presence of a depreciation deduction (on a federal income tax return) or a depreciation expense (on consolidated financial statements) simply signals that a corporation has made capital expenditures, the costs of which it seeks to allocate to the periods in which the assets underlying the capital expenditures are being used. Only by asserting that the capital expenditures, for which depreciation deductions are currently being claimed, were made with cash flows that should have instead been

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disbursed to the shareholders, can it be argued that a corporation is improperly sheltering cash flows.

Id. at 61-62, 731 A.2d at 1255-56 (emphasis in original).

In situations where the support obligee contends that the in a closely held corporation is

an appraisal of the true nature and extent of the support aisal can

in the corporation, or it can take the form of an allegation that the corporation has sheltered cash flows by not making disbursements to its shareholders. When it is alleged that the corporation has sheltered cash flows, the sources of those cash flows must be identified[,] i.e., it must be shown that the cash flows could have been disbursed to shareholders. In cases where cash flows which could have been disbursed to shareholders have instead been disbursed for business expenses, the corporation must show that the expenditures were necessary for the continued operation and smooth running of the business in order to refute an allegation that the corporation has sheltered cash flows.

Id. at 63-whether the depreciation and depletion expenses reflected an actual any such marginal income created through tax savings was reinvested in the

Id. at 64-65, 731 A.2d at

her they

separately and the trial

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Id. at 65, 731 A.2d at 1257-58 (emphasis in original).

Instantly, in its opinion, the trial court explained it did not make a Labar return. (See Trial Court Opinion at 15.) Nevertheless, the court recognized:

the depreciation, and Father did not provide the conference officer or this [c]ourt with any specific documentation indicating the nature of the equipment being depreciated. Father did provide to the conference officer a Form 4562 Depreciation and Amortization 2011,

which was also admitted as an exhibit at the de novo hearing. The Form 4562, in Line 6(a) Description of

incomplete.

business has made capital expenditures it wishes to allocate to that year. See Labar, [supra at 66,] 731 A.2d at 1258. It is not clear from the record if Father actually made these capital expenditures or whether the listed depreciation expense is sheltered cash flow. Father alleges that the depreciation is for equipment and rolling stock, including the school buses Father owns as part of his business. Father testified that the depreciation listed on his tax returns came from

testified that the depreciable life of the school buses and vans would be five to seven years. Father testified that the typical lifespan of that equipment was five to seven years, and at most ten years. When asked by his counsel if school buses were similar to real estate regarding depreciation, Fath

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Generally, after equipment is fully depreciated, it has little or no value and a reduced basis, known as the scrap or salvage value. On the other hand, real estate retains its intrinsic value after depreciation, and often increases in

able to get use and value from his school buses after they have been fully depreciated. According to Father, a school bus on a five year depreciation schedule can be operated for up to ten years, giving Father a useful life of his equipment up to double the length of time it takes to depreciate the equipment. Assuming that the depreciation expense is not representative of sheltered cash flow, and that the equipment being depreciated by Father is all

school bus to up to ten years indicates that the school buses have intrinsic value at the end of their depreciable life. depreciation, even if not representative of sheltered

support purposes because the assets Father alleges to be depreciating have significant value at the end of their depreciated life.

(Trial Court Opinion at 15-16) (internal citations to the record omitted) (emphasis added). Moreover, the court recognized the possible necessity for remand in this case, based on Labar. (See id. at 20.) On this record, we proceedings to allow the c Labar, with a detailed analysis capable of review.

In his second issue, Father argues he should have been granted the child dependency tax exemption for every year, rather than every other year. Father contends he presented evidence in the form of federal tax returns completed with and without the dependency tax exemption, which

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proved Father would receive an additional $3,782.00 in tax refund if he claimed the child yearly as a dependent. Father alleges Mother did not refute his claims or assert that her use of the dependency exemption would result in a similar benefit because Mother grosses only about $28,000.00 annually. Father avers that, even if an analysis of the tax return benefits

ordered support payments should make the evidence on this issue weigh more heavily in his favor. insurance. Father argues that, while Mother also incurs monthly nurturing and child-raising expenses, Father carries a higher proportional share of the

her concludes the court should have awarded him the federal child dependency tax exemption every year. We cannot agree.

Rule 1910.16-2(f) of the Pennsylvania Rules of Civil Procedure provides:

Rule 1910.16-2. Support Guidelines. Calculation of Net Income

(f) Dependency Tax Exemption. In order to maximize the total income available to the parties and children, the court may, as justice and fairness require, award the

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federal child dependency tax exemption to the non- custodial parent, or to either parent in cases of equally shared custody, and order the other party to execute the waiver required by the Internal Revenue Code, 26 U.S.C.A. § 152(e). The tax consequences resulting from an award of the child dependency exemption must be considered in

Pa.R.C.P. 1910.16-

s in the best position to determine

May v. May, 837 A.2d 566, 570 (Pa.Super. 2003)

Id. Nev

Id.

Instantly, the trial court explained its decision as follows:

The parties follow a shared equal physical custody schedule. The record indicates that both parents provide

dical insurance. Father testified that he pays $300 or $305 dollars per month for

of her school lunches. Mother testified that she pays for all

undergarments and personal hygiene products. Mother

dance activity, as well as clothing and equipment for the dance activity. Mother testified that she pays for the

even if the child is attending the birthday party while

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Father has custody. Mother testified that she supplies all

the child is with Father, but testified that the child packs her lunch when with Mother. Father testified that he

have washed. Father testified that he would be happy to

buys shoes for the child, and pointed to one specific example of a recent shoe purchase. Father testified that he buys the child coats, clothes and personal hygiene products.

The record indicates that both parties provide for their

health insurance, it

custody time. Given the testimony and the record in this d care expenses are approximately equal.

(Trial Court Opinion at 21-reason to disturb it on the grounds alleged. Based on the foregoing, we affirm the order in part regarding the dependency exemption, but vacate that part of the order awarding child support of $635.00 plus $100.00 in arrears per month, and remand for further proceedings.

Order affirmed in part and vacated in part; case remanded for further proceedings. Jurisdiction is relinquished.

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Judgment Entered.

Joseph D. Seletyn, Esq. Prothonotary

Date: 8/5/2014

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