Lead Opinion
In these cross-appeals, Marcus J. Hampers (husband) and Kristin C. Hampers (wife) challenge a post-divorce decision of the 5th Circuit Court — Claremont Family Division (Yazinski, J.) on the husband’s motion to modify his child support and alimony obligations and on the wife’s petition for contempt. The husband asserts that the trial court erred by: (1) applying a standing order requiring him to pay the reasonable attorney’s fees incurred by the wife for any proceeding or matter related to the divorce decree and subsequent amendments; and (2) failing to calculate “gross income” for child support purposes under RSA chapter 458-C by using “net” figures for investment income to account for losses and expenses as well as gains. The wife asserts that the trial court erred by: (1) calculating child support based upon the husband’s 2009 income and tax return when his 2010 income information and tax return were available; and (2) ordering her to repay sums that she had received in excess child support. We affirm in part, reverse in part, vacate in part, and remand.
I. Attorney’s Fees Order
The husband contends that the standing attorney’s fees order should be vacated because, among other things, it violates his rights to equal protection and due process under the State and Federal Constitutions. See U.S. CONST, amends. Y, XIV; N.H. CONST, pt. I, art. 14. The wife responds that the husband has challenged the same attorney’s fees order on two
Evaluation of the parties’ procedural arguments requires an analysis of our previous rulings on the attorney’s fees award. In the parties’ 2004 divorce decree, the trial court ordered the husband to pay all of the wife’s attorney’s fees incurred in the case and in any appeal from its ruling. In the Matter of Hampers & Hampers,
We left undisturbed the attorney’s fees that the wife had already incurred and the husband had already paid. Id. at 290-91. However, we vacated the award of attorney’s fees that the wife had incurred, but the husband had not yet paid, and remanded to the trial court to determine the reasonableness of those fees pursuant to the procedure we set out in Gosselin v. Gosselin,
In 2007, the husband again challenged the attorney’s fees award. In an unpublished order, we vacated the trial court’s attorney’s fees award “[t]o the extent that the trial court awarded fees to the [wife], which were incurred between December 2004 and September 2006, without first subjecting these fees to a Gosselin review.” In the Matter of Hampers and Hampers, No. 2007-519 (N.H. Jan. 24, 2008). We explained that “fees incurred after the date of the final divorce decree could not have been part of the property settlement,” and, therefore, were required to be reviewed under Gosselin — including those incurred in connection with the defense of the original case and appeal. Id. However, we rejected the husband’s
The applicability of res judicata presents a question of law that we review de novo. Sleeper v. Hoban Family P’ship,
The husband contests both the second and third elements, arguing as to the latter that our decision based upon his failure to preserve constitutional arguments for vacating the attorney’s fees award does not constitute a decision on the merits. We are not persuaded, since even a default judgment can “constitute res judicata with respect to a subsequent litigation involving the same cause of action.” McNair v. McNair,
“The term ‘cause of action’ means the right to recover and refers to all theories on which relief could be claimed arising out of the same factual transaction in question.” Radkay v. Confalone,
The husband argues that the divorce proceeding and the present petition to modify are not the same “cause of action” because “a cause of action is the underlying right that is preserved by bringing a suit or action” (quotation omitted), and the underlying right at issue in the divorce proceeding was the bundle of issues connected with the dissolution of a marriage requiring equitable review. The underlying right now at issue, he contends, is his statutory ability to modify his child support payments under RSA 458-C:7 (Supp. 2013). He maintains that the attorney’s fees award was ancillary to each of these rights, and, therefore, his claim is not barred. We are not persuaded.
In our 2006 opinion on the divorce proceeding, we upheld the enforceability of the standing attorney’s fees order, including the portion of the order awarding the wife her reasonable attorney’s fees for “any proceeding or any other matter relating to any term of this decree and any amendment thereto or to [the child] in this matter in the future.” See Hampers I,
Although attorney’s fees may be an ancillary issue, see, e.g., Vinson v. Ass’n of Apartment Owners,
The husband next argues that res judicata does not apply to attorney’s fees awards when the trial court maintains jurisdiction to review ongoing child support, custody, and alimony issues. He distinguishes “ordinary” divorce-related attorney’s fees awards, which address the attorney’s fees incurred during the initial divorce action, from the award here, which
Although the modifiability of an order may affect the applicability of res judicata, see RESTATEMENT (SECOND) OF JUDGMENTS § 13 comment c at 133-34, § 73, at 197-200 (1982), here, unlike in Appeal of Carnahan,
We recognize that the Restatement (Second) of Judgments provides that “[jjudgments that govern continuing or recurring courses of conduct may be subject to modification even though the power of doing so is not expressly provided.” RESTATEMENT (SECOND) OF JUDGMENTS, supra § 73 comment b at 198. However, “the principal factor in whether a judgment is subject to modification is whether it contemplates an interaction between the activity of the judgment obligor and some other conditions over which the judgment does not exercise control.” Id. at 199. Thus, when an “unforeseen or uncontrollable interaction occurs between the judgment obligor and the surrounding circumstances, the balance between burden and benefit can be disturbed,” and if such disturbance “assumes substantial proportion, redress by modification may be appropriate.” Id.
The husband, however, does not argue that changed circumstances warrant modifying the standing attorney’s fees order. Rather, he contends that the standing attorney’s fees order is based upon an error of law. Thus, the husband alleges no reason why the “balance between burden and benefit” should be disturbed, and has failed to demonstrate that “redress by modification” is warranted. Id.
II. Investment Income
On the issue of child support, the parties’ 2004 divorce decree, which deviated from the child support guidelines, explained:
*432 For purposes of calculating child support under the guidelines, [the husband’s] income shall consist of his employment income plus one-half of all interest, taxable or tax-exempt, dividends, capital gains, or other income to which he is legally entitled whether he chooses to actually receive it annually as reported on this tax return. The court makes this deviation from the requirements of RSA 458-C:2, IV.
On appeal from the divorce decree, the husband did not challenge this definition of income for child support purposes, but rather the trial court’s alleged failure to apply it properly. See Hampers I,
This appeal challenges the trial court’s ruling on the husband’s March 5, 2010 motion to modify the child support order. See RSA 458-C:7, 1(a) (permitting either party to move for “modification of such order 3 years after the entry of the last order for support, without the need to show a substantial change of circumstances”). The parties agreed to the amount of the husband’s earned income for child support purposes, but disagreed as to how to calculate his “substantial unearned income from investments in partnerships and capital gains.” Each party presented an expert witness to testify as to calculation of the husband’s “present income.” The husband’s expert, Richard J. Maloney, CPA, testified that capital losses of more than $3,000 in excess of capital gains should be carried forward to offset capital gains in subsequent years, in order to fully recognize the “economic reality” of the capital loss. He also testified that only the net income from the husband’s investments in partnerships should be attributable to present income for the purposes of child support.
The wife’s expert, Dennis R. Stone, CPA, testified that a capital loss in excess of a capital gain should not affect gross income for child support purposes because it represents a loss of principal, not a reduction of income available for child support purposes. He contended that the practice of carrying forward capital losses to offset unrelated capital gains was tantamount to averaging income over time. As for partnership investment expenses, Stone explained that they are reported on the partner’s personal tax return as itemized deductions, “[n]ot as a reduction of the [partnership] income.”
The trial court agreed with the wife’s expert. It noted that federal tax law is inapplicable to calculations of child support under New Hampshire law, and that RSA 458-C:2 “includes a definition of gross income and contains
On appeal, the husband argues that the trial court erred by refusing to allow him to carry over capital losses in excess of capital gains to offset future years’ capital gains, and by declining to deduct the partnerships’ expenses from the revenues of the partnership investments.
Trial courts have broad discretion in reviewing and modifying child support orders. In the Matter of Jerome & Jerome,
For purposes of calculating a parent’s child support obligation, RSA 458-C:2, IV defines gross income as:
all income from any source, whether earned or unearned, including, but not limited to, wages, salary, commissions, tips, annuities, social security benefits, trust income, lottery or gambling winnings, interest, dividends, investment income, net rental income, self-employment income, alimony, business profits, pensions, bonuses, and payments from other government programs . . . including, but not limited to, workers’ compensation, veterans’ benefits, unemployment benefits, and disability benefits.
(Emphases added.). Although trial courts have discretion to adjust a child support award based upon special circumstances, see RSA 458-C-.4, II (2004), the legislative scheme requires that all items includable as “gross income” be considered to determine the parties’ support obligation. In the
A. Capital Losses in Excess of Capital Gains
The husband argues that the trial court erred by allowing capital losses to offset gains only to the extent of the capital gains for any given year. He contends that this ruling: (1) is internally inconsistent because it recognizes losses only up to the point of the gain, but no further; (2) conflicts with persuasive authority recognizing the effect of capital losses; and (3) is against sound public policy.
None of the husband’s arguments is persuasive as to the issue at hand: i.e., the treatment, for child support purposes, of capital losses that exceed capital gains within a given year. Maloney testified to three potential ways to address capital losses in excess of capital gains: (1) to follow the method consistent with federal tax law, pursuant to which a portion of the excess loss ($3,000) is deducted from other income, and the remainder of the loss is carried over to offset capital gains (and up to $3,000 of other income) in future years; (2) to deduct the entire capital loss from gross income in the year in which the loss was incurred; or (3) to “ignore the economic reality of the loss” by deducting capital losses only up to the point of capital gains. Another option, which neither party addresses, is to treat capital gains as income and not to account for capital losses when calculating gross income. The husband argues in favor of option (1), and claims that option (3), which he characterizes as the approach that Stone supported and the trial court ordered, is not “rational” because it does not accurately reflect the income available for child support purposes. We disagree and discuss each option in turn.
We first conclude that “investment income” for child support purposes should not be defined as consistent with the federal taxation approach of carrying over to future years capital losses which exceed capital gains. See 26 U.S.C. § 1212(b) (2012). “[H]ow federal income taxation statutes define ‘income’ is of little relevance to our interpretation of gross income under the child support guidelines.” Taylor, 153 N.H: at
“The child support guidelines set forth in RSA chapter 458-C mandate that an obligor’s entire income be considered.” Jerome,
We likewise conclude that “investment income” for child support purposes should not be defined to permit deducting an excess capital loss from other categories of gross income in the year it is incurred. Under that option, capital losses could exceed income generated from other sources, leaving a parent with “negative” income, regardless of whether the parent has actual income available for child support. As the parties agree, that approach would be against the best interest of the child.
Because neither party argues in' favor of the fourth option, we need not decide whether to adopt the construction under which capital gains constitute income without regard to capital losses. See L. Morgan, Child Support Guidelines: Interpretation and Application § 4.07[H] at 4-47 to 4-48 (2d ed. 2013) (analyzing different courts’ approaches to capital gains as income for child support purposes); cf. Abercrombie v. Abercrombie, No. E2003-01226-COA-R3-CV,
Thus, we uphold the trial court’s decision to give effect to capital losses only up to the amount of capital gains realized during the same year.
Accordingly, as between the two approaches advanced by the parties, because the purposes of RSA chapter 458-C are better served by limiting the offset for capital losses to the extent of capital gains in the same year, as the trial court did, we affirm that ruling. If the legislature wishes to clarify the treatment of capital losses, it is of course free to amend the statute as it sees fit. See Evans v. J Four Realty,
B. Income From Investments in Partnerships
The husband next argues that in determining his gross income, the trial court erroneously declined to deduct reasonable and necessary investment expenses from the revenues of his partnership investments. There is no dispute that his 2009 income included income from investments in eight partnerships. Maloney explained in his report:
[The husband] is a limited partner in eight limited partnerships. These partnerships generate a variety of types of income as well as expenses. Because these investments are partnerships, the specific category of income and expense is reported in different sections of the tax return rather than combined to determine the actual net income from a particular partnership. Solely because of the requirements of the Internal Revenue Code, the expenses related to the investment activity in the partnership are not netted against the income for reporting purposes. Rather, the items of income are reported in determining gross income but the expenses are reported as itemized deductions.
The partnerships must file an information return (Form 1065). On Schedule K-l of that return, the partnership separately identifies many items of income, deduction, capital gain, capital loss, credits,*437 etc., with the remaining activity being summarized as ‘ordinary business income (loss)’. Each partner reports these various items on his individual tax return. These items will be reported on separate schedules (Schedule A for expenses, Schedule B for Interest and Dividends, Schedule D for capital gains, Schedule E for ordinary business income or loss, etc.). In order to calculate the correct total income from a partnership, all these items must be considered.
Stone disagreed that “investment and portfolio expenses should be deducted” from income, reasoning “that such amounts are correctly categorized as expenses and as such should not be accounted for as a reduction of total income for child support purposes.” Noting that the statutory definition of gross income includes the word “net” only as applied to rental income, the trial court accepted Stone’s opinion “as the appropriate standard to apply.”
The husband argues that the business expenses of the partnerships were the natural, necessary, and ordinary cost of investing in such partnerships, and maintains that these expenses must be deducted annually from the gains realized from the partnerships to determine the correct amount of “investment income.” He explains that, like the Limited Liability Company (LLC) at issue in Albert or an S-corporation, the partnerships are “pass through” entities, requiring each investor to report the partnership’s gains, losses, and expenses on his or her tax return. See Albert,
The wife counters that each source of income enumerated in RSA 458-C:2, IV, other than “net rental income,” is intended to refer to that source in gross, citing Albert,
We first note that the statute’s failure to refer to “net” investment income is not dispositive. We rejected a similar argument in Woolsey,
We turn now to how an obligor parent’s income from partnerships should be calculated. A partnership is subject to “pass through” taxation, similar to an S-corporation or an LLC. See, e.g., Thill v. Thill,
We agree with the logic analogizing self-employment, proprietorship of a business, and joint ownership of a partnership. Cf. Opinion of the
The determination of a parent’s partnership income “net of legitimate business expenses incurred for the purpose of earning that income,” however, involves more than simply applying the figures reported on income tax returns. See Woolsey,
The statute does not suggest that an obligor parent’s status as a limited partner should result in the blanket deductibility of his share of the partnership’s tax-reported expenses, without regard to whether those expenses are reasonable and necessary for the production of income. See RSA 458-C:2, IV. The husband argues that the “relevant calculus is whether the partnership expense is merely a mask for the personal expense of the obligor,” asserting that the “stereotypical case” would be one in which an obligor who owns an interest in a closely held corporation makes minimal distributions to himself, while characterizing his personal living expenses as business expenses in order to avoid child support obligations. He contends that because he lacked decision-making authority over the partnerships, and therefore could not shield income or manipulate the amount of money he received in order to reduce his child support obligation or use the business to defray his personal expenses, the rationale for limiting deductions to only those that are reasonable and necessary for the production of income does not apply.
In so interpreting our statute, we admittedly place a risk on a parent who is a limited partner with no control over the partnership’s expenses: The partnership may incur expenses that are not reasonable and necessary for the production of income, and thus not deductible from the parent’s income for child support purposes, yet the parent may not receive any benefit from these expenses. However, this is a justifiable risk. As between a parent who chooses to participate in (or invest in) a partnership that might incur unnecessary expenses, and that parent’s children, it is the parent who should bear the risk. Other investment vehicles that are not in the nature of self-employment will not carry the same risk; however, with respect to income from a partnership, only those expenses that are reasonable and necessary for the production of income are deductible therefrom for the purposes of calculating child support. See id. at 306-07.
Whether to deduct reasonable and necessary expenses from the business’s income distributions when calculating a parent’s income for child support purposes is a highly fact-specific determination. See In re Marriage of Brand,
Here, the wife characterizes the contested partnership expenses as nondeductible personal expenses; the husband, based upon Maloney’s testimony, disagrees. The trial court did not determine whether the expenses were reasonable and necessary for the production of the partnerships’ income, however, and the record does not allow such a conclusion as a matter of law. Maloney explained that he had generated the schedules for his report by taking the figures as reported by the partnerships to the husband — that is, as they appeared in the tax returns. Stone likewise expressly disclaimed any knowledge as to whether the expenses were “actually incurred and paid, and reasonable and necessary for producing income.” Because “[i]t is for the trial judge to determine whether claimed expenses meet [our established] criteria,” Woolsey,
Accordingly, we reverse the trial court’s ruling on this issue and remand for further proceedings consistent with this opinion.
III. Use of 2009 Income Figures
The wife asserts that the trial court erred when it calculated child support based upon the husband’s 2009 income and tax return, despite the fact that his 2010 income figures and tax return were available and neither party questioned the reliability of the more current earnings data. She contends that, unless the most recent figures are misleading, as they were in Feddersen,
The husband responds that the trial court’s decision to use his 2009 income figures was within its discretion, after hearing substantial testimony from both experts concerning the husband’s income for both 2009 and 2010. He supports this argument with two policy considerations: first, that to require the court to consider only the most current information available would result in a cycle of discovery, expert preparation, and potentially strategic trial delay, leaving the figures (and thus the payment obligation)
In its October 2011 order, the trial court stated: “[T]his case began in 2009 and the Court will utilize [the husband’s] 2009 income for purposes of setting a child support payment.” On reconsideration, the court further explained: “The Court utilized the income of 2009 because it found that the experts’] analysis, exhibits, and testimony were more beneficial to the Court’s analysis of [the husband’s] current income than the testimony relating to other years. Further, [the husband] filed for modification in 2010 based upon his 2009 income.” However, in its analysis of the capital gains issue, the trial court acknowledged that New Hampshire cases, including Rattee,
“Trial courts have broad discretion in reviewing and modifying child support orders.” Taylor,
It is undisputed that “child support should be determined on the basis of present income.” Rattee,
The trial court’s decision was based upon review of two full sets of financial data relating to the husband’s 2009 income and 2010 income, with analysis by experts for both sides. The court explained that it “utilized the income of 2009 because it found that the expert[s’] analysis, exhibits and testimony were more beneficial to the Court’s analysis of [the husband’s] current income than the testimony relating to other years. Further, [the husband] filed for modification in 2010 based upon his 2009 income.” The trial court did not explain what characteristics of the 2009 evidence, as compared to the 2010 evidence, made the older information “more beneficial” to an analysis of present income. Nor does the record support that conclusion. Furthermore, nothing indicates that the court’s decision to use the 2009 figures was grounded in any concern raised in the husband’s modification petition: He did not move to modify on the ground of a substantial change in circumstances, see In the Matter of Duquette & Duquette,
The husband argues that “[t]he decision to use financial information from the date of filing is .. . critical to preserving a moving party’s rights to modification.” He asserts that if the obligor’s financial circumstances warrant a modification when he moves for it, but change before the case is heard, then the obligor’s right to modify his child support obligation to that commensurate with his ability to pay during the year in which he moved for hearing will be lost. He also points out that a court’s order granting modification of a child support award is frequently retroactive to the date of the motion, indicating that the figures at the time of filing are intended to govern the modification. We agree that fairness concerns may be implicated when a parent’s income fluctuates between the time of a request for modification and the time that the case is actually heard, resulting in either overpayment or underpayment for the period while the case is
“New Hampshire’s child support guidelines shall be applied in all child support cases, including any order modifying a support order.” Duquette,
In the case of a parent’s fluctuating income, the correct course of action is to calculate the parties’ child support obligation under the guidelines, and then to explain what, if any, circumstances warrant deviation from that amount. See Feddersen,
Nor are we persuaded by the husband’s argument that our holding will require endless delays in order to obtain the latest financial data and allow experts time to analyze that data. We do not hold that hearings must be delayed to allow the calculation and review of ever-newer financial data. Our holding today merely reaffirms our long-standing rule that child support awards are to be based upon the obligor’s “present income.” See Hillebrand v. Hillebrand,
We conclude that, on the record before us, the trial court erred by using the husband’s 2009 income for purposes of calculating his “present income.” Accordingly, we vacate the calculation of child support and remand for further proceedings consistent with this opinion.
IV. Reimbursement of Overpaid Child Support
The wife argues that the trial court lacked subject matter jurisdiction to order her to reimburse the husband for overpayment of support resulting from the modification of the support order. She maintains that the 2007 amendment to RSA 458-C:7, III, affects substantive rights because it provides that “the court shall order, absent a showing of undue hardship, the obligee to directly reimburse the obligor” (emphasis added) for any overpayment of support resulting from a modification of a support order. Therefore, she argues, because her divorce was finalized in 2006, application of the 2007 amendment to her is unlawful. See In the Matter of Donovan & Donovan,
Because we are remanding for redetermination of the child support amount, and the wife’s argument regarding the trial court’s authority to award reimbursement of any overage may again arise, we address the issue.
The wife’s reliance upon Donovan,
Because the statutory amendment affects only modification procedures, it is the date of the motion to modify, rather than the date of divorce, that controls our retroactivity analysis. The husband’s motion to modify was filed in 2010, after the effective date of the 2007 amendment to the modification procedures; the application of that amendment to the modification proceedings, therefore, cannot constitute a retrospective law. Laws 2007, 274:1 (effective January 1, 2008).
Because we are vacating the court’s child support award and remanding, we do not address her argument that the trial court erred by failing to address whether the award would cause her “undue hardship.”
Affirmed in part; reversed in part; vacated in part; and remanded.
Concurrence Opinion
concurring specially. I write separately to make explicit what I take to be implicit in section 11(B) of Justice Conboy’s opinion. I agree that, in the case of a pass-through entity like a limited partnership, it makes sense to impose upon the limited partner, here the husband, the burden of demonstrating that expenses claimed by the partnership are reasonable and necessary for the production of income. To the extent that the limited partner is unable to sustain this burden, reported expenses may not be used to offset the limited partner’s reported gross income from the partnership. However, consistent with the core principle that the basis for determining an obligor’s child support obligation must be the income available to pay child support, in the case of a limited partner who establishes that he or she does not have control over the management of the partnership, I do not understand the court to suggest that the income