Hall, A. v. Bartron, J., IIIHall, A. v. Bartron, J., III
Alicia M. Hall (Mother) appeals the order establishing the amount she is owed from Stark Bartron, III (Father) to support their 11-year-old child. Mother argues, inter alia, that Father, who is the owner of a closely-held corporation, shielded income by reinvesting the profits back into the company. She maintains the court should have set Father‘s monthly net income at a much higher level. Moreover, she argues her monthly net income should have been lower than what the court established. After review, we conclude the trial court largely acted within its discretion; however, we must find that the court erred when it failed to attribute, as income to Father, the benefit of the personal perquisites he receives through the company. We therefore affirm in part, vacate in part, and remand with instructions.
The record provides the following background.
Mother‘s petition was initially heard by the domestic relations officer, who agreed with Mother on all issues. The officer noted that Father was the majority owner (75%) of his business, Bartron Supply, Inc. (the Corporation); Father‘s sister was the owner of the other 25%. The Corporation sells agricultural and construction equipment. The domestic relations officer determined that Father‘s monthly net income was far greater than the salary he claimed on his tax return (approximately $80,000 annual gross1). Instead, the officer imputed to Father 75% of the Corporation‘s profits, which excluded the Corporation‘s depreciation deductions. The officer ultimately recommended that Father‘s monthly obligation be set at $3,434 per month. Exceptions were filed, and the trial court held a hearing de novo.
At the hearing, Father called his accountant as a witness
Mother is not employed. She was injured in a car accident in 2019, and as a result, she received a monetary settlement in the amount of $1.2 million after attorneys’ fees and costs. After buying a home and making other real estate investments, approximately $250,000 remained from the settlement. Mother said she cannot receive social security disability because she received too much income in child support and survivor benefits.2 Mother receives survivor benefits, amounting to $2,800 per month, because the father of Mother‘s other children is deceased.
Father exercises partial physical custody – approximately 5 overnights out of 14 during the school year, and 50/50 during the summer months. Upon consideration of the testimony and evidence, the trial court departed from the domestic relation officer‘s recommendation and ruled that Father‘s obligation should remain $867 – the amount set forth in the prior obligation from 2020.
Mother timely filed this appeal.
- Did the trial court err at law and abusе its discretion when it improperly calculated the income of Father, because it failed to properly consider and calculate his net profit from his business, Bartron Supply, Inc. in which he had 75% ownership and control?
- Did the trial court err at law and abuse its discretion when it improperly calculated the income of Father, because it failed to properly consider the net profit of his corporation, available to him as income for purposes of child support?
- Did the trial court err at law and abuse its discretion when it improperly calculated the income of Father, beсause it failed to consider the income available to Father that had been the depreciation deduction by Bartron Supply, Inc. of which Father had a 75% ownership interest for purposes of calculating his income for child support?
- Did the trial court err at law and abuse its discretion when it improperly calculated the income of Father, because it failed to consider the income available to Father that had been retained earnings for the corporation, of which Father had a 75% ownership interest for purposes of calculating his income for child support?
- Did the triаl court err at law and abuse its discretion when it improperly calculated the income of Father for purposes of child support because it failed to consider the rental income benefit derived by Father from his ownership of the real estate in Tunkhannock, where his corporation, Bartron Supply, Inc., is located? That rental income was used to directly reduce his mortgage obligation and increase his equity in his real estate.
- Did the trial court err at law and abuse its discretion when it improperly calculated the income of Father, for purposes of child support because it failed to
consider the rental income benefit derived by Father from his ownership of the real estate in Honesdale? That rental income was used to directly reduce his mortgage obligation and increase his equity in his real estate. Moreover, Bartron admitted that he derived a benefit because his corporation paid the downpayment and closing costs for the purchase of the real estate for which Father directly benefitted and owned? - Did the trial court err at law and abuse its discretion when it improperly calculated the income of Father for purposes of child support because it failed to consider the potential rental income of other real estate in Tunkhannock which he owns?
- Did the trial court err at law and abuse its discretion when it improperly calculated the income of Father, for purposes of child support because it failed to consider the direct benefits he received from the personal use of his cell phone?
- Did the trial court err at law and abuse its discretion when it improperly calculated the income of Father for purposes of child support because it failed to consider the direct benefits he recеived from the personal use of his truck and the payment by his corporation, Bartron Supply, Inc., of the monthly purchase funds, vehicle insurance, vehicle gasoline expenses and vehicle maintenance?
- Did the trial court err at law and abuse its discretion when it improperly calculated the income of Father for purposes of child support because it failed to consider the direct benefits he received from the personal use of his pension?
- Did the trial court err at law and abuse its discretion when it improperly calculated the income of Father for purposes of child support because it failed to consider the lack of the earning capacity of Mother? Did the trial court err at law and abuse its discretion when it improperly calculated the net proceeds she received from settlement of a personal injury claim that she will need to use to support herself for the remainder of her lifetime, and not just for the time
period prior to her child reaching 18 years of age or graduating from high school?
Mother‘s Brief at 5-9 (style adjusted).
Our standard of review in matter concerning child support orders is well-settled:
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.
Sichelstiel v. Sichelstiel, 272 A.3d 530, 534 (Pa. Super. 2022) (quoting Silver v. Pinskey, 981 A.2d 284, 291 (Pa. Super. 2009) (en banc) (further citation omitted).
A. Business Profits
Mother collapses her first four issues into a singular argument, which forms the crux of her appeal. See generally Mother‘s Brief at 15-26. The essence of her claim is that Father shielded his income by claiming a salary of only $80,000, while the business, which he owns and controls, retains its profits and lowers its taxable income by claiming depreciation deductions.
Child support awards are calculated in accordance with specific statutory guidelines, using a complex system that accounts for the obligor‘s capacity to
Relevant here, the statutory definition of “income” includes “income derived from business;” “gains derived from dealings in property;” “rents;” “dividends;” and “distributive share of partnership gross income.” See
The question posed by the instant appeal is how to calculate an obligor‘s monthly net income, when that obligor is a business owner who controls how much salary he takes from the business. The Supreme Court has adopted the reasoning that an obligor‘s income “must reflect the actual available financial resources and not the oft-time fictional financial picture” created by the application of federal tax laws. Fennell v. Fennell, 753 A.2d 866, 868 (Pa. Super. 2000) (citing Labar v. Labar, 731 A.2d 1252, 1255 (Pa. 1999) (“Otherwise put, cash flow ought to be considered and not federally taxed income.“)). It is possible that a person could use a corporation to shelter income from the support obligation calculation by improperly retaining cash
In situations where the individual can control the retention or disbursement of funds by the corporation, he or she still will bear the burden of proving that such actions were “necessary to maintain or preserve” the business. Fennell, 753 A.2d at 869 (quoting Labar, 731 A.2d at 1255). If the individual can demonstrate that the retention of corporate earnings is “necessary for the continued operation and smooth running of the business,” then the court should not include these earnings when calculating the individual‘s income available for support. See id.
Returning to the instant matter, Mother‘s first four claims largely concern two notions: 1) the business retained too much net profit, which should have been considered income for purposes of calculating Father‘s support obligation; and 2) there would have been more business profit, available to Father, if the Corporation did not make so many unnecessary expenditures, as evidenced by the Corporation‘s use of depreciation.
The trial court disagreed. It determined that the Corporation‘s retention of earnings was necessary to sustain thе business, which is a C-Corp and pays
As for the depreciation issue, as it pertains to the facts of this case, the court acknowledged that the question turns on whether the Corporation‘s expenditures were discretionary and used to expand the business or whether they were necessary to maintain and preserve the business. See Labar, 731 A.2d at 1258-59 (“If the source of the funds used to make these capital
On direct examination, Fathеr‘s counsel confronted the accountant with the domestic relation officer‘s recommendation. The domestic relations officer excluded the depreciation deductions from the Corporation‘s profits, and then used those profits to calculate Father‘s annual net income. The accountant testified that if those profits ($393,493.00) were actually paid to Father then “[the Corporation] would not be able to continue business. They would not have the current assets available to pay their current liabilities. Their vendors would not supply them anymore. They would essentially bankrupt the comрany.” See N.T. at 43.
To resolve Mother‘s claims, we begin by observing the parties’ shifting burdens. As the party seeking modification, Mother would typically shoulder the burden of establishing a change in circumstances necessitating a
We will not find an abuse of discretion simply because we might have reached a different result. Rather, “we may only reverse the trial court‘s determination where the order cannot be sustained on any valid ground.” Silver, 981 A.2d at 291. It is not our role to second-guess the trier-of-fact or substitute its judgment for our own. “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.” Id.
Upon review, we conclude that the trial court‘s determinations were supported by the record, particularly the accountant‘s expert testimony. Of course, the law of child support recognizes that the financial picture depicted
B. Rental Properties.
In her fifth and sixth appellate issues, Mother argues the trial court erred when it failed to include Father‘s income from his rental properties. See Mother‘s Brief at 27-31; see also
Our analysis of these issues mirrors the analysis of the Corporation‘s profits. The trial court believed the testimony that the investment into these properties was a proper business decision to lower the Corporation‘s long-term costs. Again, the court had discretion to decide whether the business decision was necessary to maintain or preserve the business, or whether it was an effort to shield income from Father‘s support obligation. The court ruled in Father‘s favor, and we cannot conclude that such a determination was manifestly unreasonable. The testimony indicated that the Corporation pays less rent than it did before the purchase. Father receives no additional income on top of what is paid to satisfy the mortgage; and the accountant testified that, from a cash-flow perspective, the acquisition of the rental properties was a wash. We conclude Mother‘s fifth and six appellate issues merit no relief.
In her seventh issue, Mother raises another claim relating to one of Father‘s properties. By way of background, Father owns one vacant property, and Mother owns two vacant residential properties, which she purchased with her settlement money. The trial court mentioned, in passing, that Mother
Mother merits no relief on this point. Whatever the reason for the trial court‘s remark, the court clearly did not factor into its analysis the potential rental income from either party. Mother‘s seventh issue warrants no relief.
C. Father‘s Perquisites
Comprising her eighth, ninth, and tenth appellate issues, Mother argues the trial court erred when it failed to include as income certain perquisites Father receives through the business. Specifically, Father drives a company truck, which is paid for and maintained (i.e., fueled and insured) by the Corporation. Additionally, the Corporation pays for Father‘s cell phone. The Corporation matches Father‘s pension contribution (3%, or $2,400). Lastly, Mother alleges that the Corporation paid for Father‘s personal professional services (i.e., legal and accounting services). Mother concludes that all these personal perquisites should have been included as income. Although the Rules of Procedure exclude from income a party‘s non-voluntary retirement
As noted above, the statutory definition of income is expansive. See
Our decision in Murphy v. McDermott, 979 A.2d 373, 379-380 (Pa. Super. 2009) provides guidance on how to calculate the value of these perquisites. There, the obligor‘s еmployer paid $16,798.65 per year for the vehicle. The obligor used the vehicle 40% of the time for personal use; 40% of the gross amount ($16,798.65) was $6,719.46. Thus, $6,719.46 was the figure which would have been attributable to him as a personal perquisite
In the instant case, the accountant testified that he could not opine how much Father‘s use of the truсk and cell phone were personal versus business related. See generally N.T. at 24-29; 54-55. The truck was purchased new, by the Corporation, in November 2022. Father testified that he uses it mostly for business, and that other employees have access to the vehicle and are authorized to drive it. Id. at 103. Father said he would estimate that the cell phone was mostly used for business, but that he does not keep track. Id. at 101. Ultimately, Father testified that he used the truck and the phone between 60%-70% for business and the rest for personal use. Id. at 103.
The trial court noted in its opinion that the domestic relations officer included the full value of Father‘s perquisites when calculating his monthly net income. See T.C.O. at 3, 6. The court did not explicitly address the perquisites in its ruling, but evidently believed that any inclusion of these perquisites was unwarranted. We presume the court determined that there had been no change in circumstances, as Father argued. This was an error of law. Section 4352(a.1) provides:
(a.1) Automatic review. -- Upon request of either parent…each order of support shall be reviewed at least once every three years from the date of establishment or
the most recent review. The review shall be for the purpose of making any appropriate increase, decrеase, modification or rescission of the order. During the review, taking into the account the best interest of the child involved, the court shall adjust the order, without requiring proof of a change in circumstances, by applying the Statewide guidelines or a cost-of-living adjustment in accordance with a formula developed by general rule.
In her petition for modification, Mother actually alleged a change in circumstances, but she also noted that the parties’ case was ripe for a three-year review. Why these personal perquisites were not considered in the parties’ prior support order is of no moment.
On remand, we direct the court tо ascertain the value of the personal benefit of Father‘s use of the truck and cell phone, and then include that value as income for purposes of support computation. See Murphy, 979 A.2d at 379-380 (Pa. Super. 2009) (calculating the value of the obligor‘s perquisite income); see also Mackie v. Mackie, 2019 WL 4864073, at *6-7 (Pa. Super. 2019) (non-precedential decision) (discussing the valuation of perquisite flights).
As for the professional services, we would agree with Mother that the value of these services, paid by the Corporation, might be included as income. Here, however, it does not appear that Father was the actual beneficiary of the services. Both the accountant and Father testified that the professional servicеs expense listed on the corporate tax return was solely for the benefit of the Corporation. In other words, there was no evidence to suggest the
As for Father‘s contribution to the Corporation‘s pension program, we remand for the trial court to ascertain whether the Corporation‘s pension program is mandatory to all othеr employees or whether it is optional. If the Corporation mandates that all qualifying employees participate in the pension program, then we would conclude that Father‘s participation is “non-voluntary” for purposes of
D. Calculation of Mother‘s monthly net income
In her final appellate issue, Mother argues the trial court erred when it calculated her income. Specifically, the court annualized her personal injury settlement until such time as the Child turned 18; Mother argues that the settlement was for her inability to work, and thus the court should have annualized the lump sum over her lifetime.
On this point, the Rules of Procedure provide the following guidance:
Note: The trier-of-fact determines the most appropriate method for imputing lump-sum awards as income for purposes of establishing or modifying the party‘s support obligation. These awards may be annualized or averaged over a shorter or longer period depending on the case‘s circumstances. The trier-of-fact may require all or part of the lump sum award escrowed to secure the support obligation during that period.
In other words, the trial court had discretion as to how Mother‘s settlement should be considered. On appeal, Mother has not demonstrated how the court‘s method was so manifestly unreasonable that it constituted an abuse of discretion. Mother‘s final issue merits no relief.
In sum, we conclude that the trial court did not abuse its broad discretion when it failed to include the Corporation‘s profits in its calculation of Father‘s monthly net income, when it failed to the rental incomes paid by the Corporation to Father, or when it annualized Mother‘s settlement until such time as whеn the Child turned 18. However, the trial court erred when it failed to include as income the value of the personal perquisites Father receives through the Corporation. Accordingly, for the reasons discussed above, we affirm in part, vacate in part, and remand for further proceedings.7
Order affirmed-in-part and vacated-in-part. Jurisdiction relinquished.
Judgment Entered.
Benjamin D. Kohler, Esq.
Prothonotary
Date: 8/8/2024