208 A.3d 221
R.I.2019Background
- Joel and Denise Trojan divorced after a long marriage; their minor child Tiffany (b. 2001) was awarded joint custody with Denise as primary residential parent.
- On the first day of trial (Dec. 16, 2015) parties entered a consent order resolving most property issues; child support was reserved. Denise had recently received ~ $505,000 from a divided joint marital account.
- Joel is sole shareholder of Century Drywall, Inc. (S corporation). Century reported substantial 2015 net income; some earnings were retained for bonding/working-capital requirements and some were distributed to Joel and applied to taxes, buyouts of former shareholders, and a life-insurance premium.
- Denise sought interim/retroactive child support (initially asking ~$16,000/mo). Joel made voluntary interim payments of $2,444/mo from Jan–Dec 2016.
- At the Sept. 28, 2016 child-support hearing, Century’s CPA testified the retained earnings served legitimate business needs (bonding/working capital) and that many distributions did not inure to Joel’s personal benefit.
- The Family Court (Dec. 14, 2016) calculated Joel’s gross income using his 2015 wages and taxable interest, excluded most S-corp retained earnings and certain distributions as not inuring to Joel, and set child support. On appeal the Supreme Court affirmed in part, vacated in part, and remanded.
Issues
| Issue | Plaintiff's Argument (Denise) | Defendant's Argument (Joel) | Held |
|---|---|---|---|
| Whether trial court erred by not awarding interim/retroactive child support on Dec. 16, 2015 or at July 26, 2016 | Trial court prematurely denied interim support and failed to apply guidelines before declining $16,000/mo request | Denise had received large funds from marital account; court properly deferred and parties later agreed interim payments | No abuse of discretion as to Dec. 16, 2015 denial; July 26 argument waived for failure to preserve; voluntary $2,444/mo paid pending judgment |
| Whether S-corp undistributed 2015 net income must be included in Joel’s gross income for child-support calculations | All pass-through S-corp income should be attributed to sole shareholder under the guidelines; no exception for retained earnings | Retained earnings served legitimate business purpose (bonding/working capital) and were not available for personal use | Court applied case-specific analysis; exclusion of retained earnings for legitimate business purposes was within discretion (affirmed) |
| Whether 2015 distribution used to pay corporate tax liabilities should be included in Joel’s gross income | Tax-related distributions reported on tax returns should count as income available to Joel | Distribution paid corporate tax liability and did not inure to Joel personally | Distribution for corporate taxes properly excluded—did not inure to Joel (affirmed) |
| Whether distributions used to (a) buy out former shareholders and (b) pay Joel’s personal life-insurance premium should be included in gross income | Such distributions met personal obligations and thus should be treated as gross income available for child support | Joel characterized buyout payments and other items as corporate transactions or necessary to business; CPA testimony suggested distributions did not enhance lifestyle | Exclusion of distributions that paid buyout obligations and the life-insurance premium was error; those specific distributions were personal in nature and must be included on remand for recalculation (vacated and remanded) |
Key Cases Cited
- Tamayo v. Arroyo, 15 A.3d 1031 (R.I. 2011) (child-support award guided by balancing child’s needs and parent’s ability to pay; worksheet and guidelines central)
- Vieira v. Hussein-Vieira, 150 A.3d 611 (R.I. 2016) (Family Court must use guidelines worksheet as baseline; discretion to deviate only with findings)
- Cardinale v. Cardinale, 889 A.2d 210 (R.I. 2006) (trial justice must review guideline worksheet to determine base support)
- J.S. v. C.C., 912 N.E.2d 933 (Mass. 2009) (undistributed S-corp earnings require case‑specific inquiry; consider shareholder control, legitimate business reasons, and attempts to shield income)
- Tuckman v. Tuckman, 61 A.3d 449 (Conn. 2013) (endorses J.S. factors for S-corp pass-through income in child-support context)
- Lembo v. Lembo, 624 A.2d 1089 (R.I. 1993) (broad definition of ability to pay; aim to provide greatest possible support)