*3 CIRILLO, HOFFMAN, and Before BECK JJ. CIRILLO, Judge: (Husband) appeals Labar from an order entered
Thomas S. dis- Northampton County in the Court of Common Pleas of and af- objections support Husband’s calculations missing directing spousal an earlier order Husband to remit firming per in the amount of support payments and child $474.00 remand. week. We vacate and 6, 1992, petition support for was filed on On November (Wife) Jo Labar and two minor appellee Mary behalf of children, support Labar. An order of fol- Ryan and Jason lowed, Husband week for providing pay per $144.00 support, for child week per support, spousal $251.00 per a total of arrearages per $474.00 week $79.00 —for on its determina- based these amounts The trial court week. $1,203.73 per week. net income was that Husband’s tion of remitting weekly payments for given credit Husband was loan on the marital resi- mortgage a second towards $36.46 of another weekly payments dence and $76.00 Husband, a hearing Objections were filed obligation. support payments. adjudicate held to issue was affirmed the subsequently C. Hogan Honorable James order. challeng for reconsideration petition
Husband filed a Specifical of his income. disposable the court’s calculation ing inflated argued improperly that the trial court Husband ly, percent of by factoring fifty disposable income Husband’s of Blue and entertainment depreciation expenses (Blue Lanes, Valley), Corpora “S” Subchapter Inc. Valley fifty sharehold percent of which Husband is a (S-Corp.),1 tion er. reconsideration, for
Judge petition denied Husband’s Hogan following Husband raises the issues appeal and this followed. our consideration: (1) its when it the trial court abused discretion Whether assets, as corporate part S-Corp. depreciation included support pay- disposable income for calculation appellant’s ments, amount was expended the entire when necessary expenses? other obligations on debt (2) its when it the trial court abused discretion Whether expenses expended by S-Corp., included entertainment *4 (50%) shareholder, part is fifty percent which appellant support pay- for disposable of his income calculation ments? S-Corp., delving explanation of an into a full of the structure
1. Without opinion, designation, purposes is as significance of the of this First, purposes designation tax follows. it is for federal income Second, corporate purposes. chief law character- has no effect for or S-Corp. implicated in Mr. Labar's case is istic an level, corporate through recognized flow to the at the but losses are not seq. generally § I.R.C. 1361 et individual members. See 616
(3) its discretion in render- the trial court abused Whether previous, that is inconsistent with its recent ing opinion order, in which it held that involving appellant a case recognize any disposable did not income from appellant depreciation by corporate because the was offset S-Corp. expenses?
1. The Standard Review for claims
Initially, we note that our standard of review concerning support orders is a narrow one. concerning support pay-
A court has discretion trial broad ments and we will not reverse its decision unless there is to sustain it or the trial court abused insufficient evidence the award. More than mere fashioning its discretion discretion is if judgment required, error of abused misapplied judgment the law is overridden or or the exer- manifestly cised is unreasonable. 352, 355, A.2d 824 Captan, v.
Caplan (1990) Lesko, 240, 243, (quoting Lesko (1990) (citations omitted)). A.2d Depreciation Expense II. The fifty Valley, bowling is a owner of Blue percent Husband time, full all alley manager, where he works acts as and does accounting ordering. Husband contends that the financial by doubling court abused its discretion resources received” in 1991 in its calculation of his “actually he exaggerated figure resulting largely from the obligation, Valley’s depreciation trial court’s inclusion of one-half of Blue $34,066.00.2 Thus, 1991, $34,066.00 worth of expenses, $1,914.50 of entertainment were expenses $1,914.50, 2. The trial court also included entertainment Hearing will below. The Officer of the Domestic be discussed Northampton Relations Section of the Court of Common Pleas of County part disposable included these as of Husband’s income based on objection being the Wife’s to these amounts excluded.
617
$32,627.003 in its
of
disposable
to Husband’s
income
added
for a total
obligation;
of Husband’s
determination
$68,607.50.
income of
disposable
matter,
critical to recall that
a threshold
it is
As
spouse is
reviewing
transaction of either
of
a business
purpose
personal
sheltering
or
from
actual
one
the other
prevent
calculating
support.
included in
child
income that should be
has
that a
Pennsylvania
recognized
of
Supreme
The
Court
provide
“voluntarily
ability
may not
decrease”
parent
“unreasonable
or un
by sheltering
through
income
her own benefit.”
or
large
for his
necessarily
expenditures
462, 472,
991,
Witsberger, 505
Pa.
996
Meltzer v.
480 A.2d
LeNoir,
added)
36,
v.
(1984)
Costello
(citing
462 Pa.
(emphasis
(1975)).
King
King,
also
v.
866,
See
40,
390
868
226,
Pa.Super.
Despite
apparent
proven
has
most difficult.
courts
this Commonwealth
touchstone and used it as a
seemingly
upon
have
seized
position.
an
advancing
otherwise unwarranted
springboard
in
used
process began
language
by
majority
This
with the
Cunningham
280,
Cunningham, 378
Pa.Super.
Both of these statements proprietor it is for the operation possible of a business when and other manipulating purchases income:6 the shelter ac by manipulating of the business and the cash outflows These situations create two counting of those transactions. related, which must be resolved. independent inquiries but
First,
utilized
accounting
may
a choice of
methods
be
taken so as to raise
depreciation expense
to raise or lower the
income, deductions, and debts of a business do not translate
5. The
deductions,
income,
proprietors.
It is
directly into
and debts of the
partnership
only through
operation
federal tax law or state
law
Here,
Valley
S-Corp.
it
because Blue
is an
that this occurs.
gross
depreciation
can be translated into those
its
income and
supra, note 1.
of Husband. See
opportunity
when subtleties in the federal tax law are
6. A third
occurs
taxpayer.
manipulate numbers to benefit
This court
utilized to
cases, stating
point
Cunningham
earlier
that the
addressed this
disposable
parent
“must reflect actual available financial
income
develops
picture
financial
which
resources and not the oft-time fictional
depreciation
against
...
result of
deductions taken
as the
permitted by
put, ‘cash flow’
the federal
income tax laws. Otherwise
federally
Cunningham,
ought
and not
taxed income.”
to be considered
282,
(quoting
Pa.Super.
at 612-13
Commonwealth ex
378
548 A.2d
562; 568-69,
Eyster,
Pa.Super.
Hagerty
286
668-69
rel.
v.
Accord,
(citations omitted)).
(1981)
Flory
Flory,
v.
Parkinson,
(1987);
A. part analysis, with first of the proceeding Before in a small recognize must that it is not unusual business we this, as manage as for a to own as well setting, proprietor such not a arrangement propri business. This does render inherently suspicious decisions unreason etor’s business impact obligations, these other able. When business decisions payments, by as an the courts should be inquiry such carefully tailored. may depreciate by example, a an asset
7. For
business
choose
period
depreciation (taking
equal portion
straight-line
an
over
(two
years), by
declining
double
balance
times
amount calculated
method),
(accelerated
recovery
cost
straight-line
or under ACRS
regulations.
system) as set forth in I.R.S.
outlays
business
important
capital
It is
to note that
of a
reflect
the net income of a
purchases made from cash or on credit and affect
(such
they generate expenses
marginal
to the
extent that
interest).
depreciation or
as
ReDavid,
ReDavid v.
251 Pa.Su-
Commonwealth ex rel.
In
(1977)
and its
the court
progeny,
Depreciation, flow, liability as its direct effect is on the tax of the business. liability This reduction tax is not a dollar for dollar relation- tax ship, product applied but rather is a rate to the Therefore, savings income. are created from the marginally increases the cash flow of the business. Williams, this fact Williams recognized This court 409, 413, (1954), “Al- stating, not treated nei- though depreciation expense, must be it in the category profit.” ther can be treated same as net *8 Likewise, only portion this court has allowed a of depreciation, representing actually monies available to the defendant for use, to be considered when a personal making support award. Maier, See Commonwealth ex rel. Maier v. (1980).
[HUSBAND]: have access to that income. That programmed income has to be to be back put keep into the business to of the operation going. Labar,
Q. Mr. figure depreciation, did you either or your partner any realize cash or income that of, could you dispose personally? No. You can’t yourself
[HUSBAND]: write a check for the If we started depreciation. taking money out of that busi- to, ness and don’t do what we are supposed we have the over looking bank our shoulders to tell us we are wrong. just can’t We write checks whenever we If there please. there, money bonus, extra we could write ourselves a small maybe, somewhere down the road. But right way now the it long-term is structured it is a investment for us and we got keep have the place running. find, therefore,
N.T. at 21-22. We that the expendi- 4/1/93 did, fact, tures reduce Husband’s actual income. Necessity Capital Outlays B. The We turn now to the second part analysis dealing with necessity expenditures Husband’s on the particular debt, you paid if have to cover that short term that has to be off in $20,000 year. gives you that That an extra to work with. Of that $20,000, goes expenses, improvements, into other other other places corporation you where in the money, upgrading your will need chassis, works, motors, your computer your your machinery, buying money a new lane machine.... That is how the is used. And that is thing the same in N.T. at 15-16. that, starting 12. The record Valley's equip- reflects Blue new ment/improvements ($260,760); following: pin included the setters ($135,362); computer system permanent bumpers score 12 lanes of ($12,600); ($3,900); ($2,585); pin updated phone system decks new ($2,175); ($4,590). system paving alarm 44, 613 at A.2d McAuliffe, assets issue. Hus earlier, As the intent to shelter 22.13 stated *10 to if it for Husband may exist was unreasonable band also the deprecia of for which purchase the initial the assets make court, Meltzer, supra. The trial was later taken. expense tion the regarding opinion, testimony addressed Husband’s in its on as follows: “What expenditures assets propriety in his building up equity to is that he is defendant fails state the ‘good bowling a center for communi creating business and support. the his children’s We cannot expense at of ty’ the this permit not to occur.” Before court reached will no conclusion, fact Husband made pointed it out the that by of the generated of the amount increased income mention to did not as testify that Husband improvements, business’s necessary to maintain the improvements the were whether business, Husband stated that the federal current level of that $7,511.00 in the corporation, was reinvested profit tax of his in the business equity that Husband admitted that increasing passes. year as each however, did indicate testimony hearing, the
Husband’s
in
the partners
when
business was purchased
that
the
bowling
year,
to
range plan
update
alley year
a
to
the
long
had
pockets
not
in our
but
“taking
money
putting
it back
the
community
good
a
it
that the
would have
putting
back
so
at 13.
bowling
years.”
center over the
N.T. 4/1/93
It is
for a business to make investments which
natural
profit
enterprise
of
with
impact the short term
negatively
long
profits. See
expectation
greatly increasing
of
term
Weiser,
It
488,
Recognizing
primary obligation
Husband’s
of support, we
*11
cannot,
record,
based on this
uphold
computation
of support
that
upon
is based
an inflated disposable
Adding
income.
$34,066.00 to Husband’s income under
the instant circum-
stances creates a “fictional
picture.” Cunningham,
financial
282,
The
in question
only
must
be taken
from that amount
personally,
available to Husband
after the
Rasler,
business has been taken into account.
Beegle
See
(1990) (when
395 Pa.Super.
III. The Entertainment inclusion entertain concerns the second issue Husband’s $1,914.50 his disposable amount of expenses ment opinion we are of the While purposes.16 for support expense issue also used analysis issue, preclud we are expense to the entertainment pertinent juncture. at this reviewing that question from ed at the of Husband’s entertainment mention following exchange: in the is reflected hearing testimony---- take a little right. All Let’s THE COURT: I think the other issue was HUSBAND: FOR COUNSEL you if want to cover I don’t know expenses, entertainment all. that at *12 they substantial?
THE COURT: Were substan- are not that They FOR HUSBAND: COUNSEL tial. disput- will be I not think we FOR WIFE: do
COUNSEL statement, is my it copies of the I have seen ing them. conclusion, does not "reana- Contrary this decision to the dissent’s 15. Rather, lapse attempts clarify testimony. the it lyze” the level, court, less as a result of a than in this occurred at the trial and misapplication a of the thorough analysis of Husband’s income law. calculation, support figure of this discussed 16. The derivation supra. understanding expenses entertainment are for music played bowling alley. at
THE have to Apparently, thing COURT: we look depreciation. at is the Okay,
COUNSEL FOR HUSBAND: fíne. 9-1Q. that, exchange N.T. From this it is evident 4/1/93 the time of the did not think the hearing, parties amount of the entertainment to be of Howev- expenses consequence. er, remand, if pursued this issue is further on should be there testimony additional on necessity expenses these in order the analysis suggested record to utilize herein. support.17 We vacate and remand for recalculation of relinquished. Jurisdiction BECK,
. J., Opinion. files a Dissenting
BECK, Judge dissenting. This from appeal appellee is an an order per wife and her two children in the amount of week. $474.00 Appellant figure husband this on an alleges that is based erroneously high his calculation of income. He contends that calculating the trial court erred in his by improperly income portion in that including calculation a Lanes, Inc., of Blue Valley corporation fifty percent Valley husband is a shareholder. Blue Lanes owns operates bowling alley manages which Husband on a fulltime basis. majority agrees with for a recal- husband remands and, therefore,
culation of husband’s his support obligation. disagree grounds. I with this conclusion on two First, although faithfully the majority recites the standard of order, review to an from a applicable appeal majority comply reviewing fails with that standard Second, case. the majority’s resolution of the substantive disposition appeal, necessary issue Due to the of the first it is not that we Husband’s third reach issue.
627 court’s with this in is inconsistent this case presented issue on that issue. precedent clear of review as standard applicable sets forth the majority
follows: concerning support pay- discretion
A trial court has broad
unless there is
will not
its decision
we
reverse
ments and
court abused
it or the trial
evidence
sustain
insufficient
More than mere
fashioning
in
the award.
its discretion
only if
is abused
is
discretion
judgment
required,
error of
if the judgment
misapplied
overridden or
law is
manifestly unreasonable.
exercised is
352,
Caplan,
Pa.Super.
v.
400
(quoting Caplan
at 616
Maj.Op.
(1990)).
355,
823, 824
583 A.2d at
v.
the law.
See
This is an accurate statement
Crawford
(1993).
155,
It
A.2d
158-59
633
Crawford,
Pa.Super.
of our stan-
however,
be said
not,
may accurately
all that
is
this
review,
in a case such as
where
particularly
dard of
assessing
the income
trial
erred
issue is whether the
court
to be entered.
whom a
order is
against
party
stated,
case,
recently
has
a
of this court
panel
In such
of reduced income
court finds that claims
the trial
“[w]here
not
credible,
generally
will
reviewing
court
simply
are
not
McAu-
appeal.”
v.
disturb this determination
McAuliffe
20, 22
42, 613 A.2d
liffe,
so as
review of the instant matter
curtailing
Rather than
its
reanalyzes
majority
parameters,
remain
these
within
income,
testimony
appellant’s
on the issue
provided
himself,
and reaches
testimony
appellant
which was the
the trial court.
contrary
to that reached
conclusion
conclusion,
fails to
Moreover,
majority
reaching
Pennsylvania case law
which
the dictates of
follow
determining
treatment of
proper
Penn-
forth. Older
obligor
clearly
is
set
income of a
“depreciation
principle
sylvania cases established
from
determining
the income
not
be
considered
ex rel. ReDavid
Commonwealth
may
support.”
wife
seek
(1977)
ReDavid,
103, 106,
*14
Turnblacer,
Commonwealth v.
(quoting
41, 44,
183 Pa.Super.
(1956)).
Parkinson,
177,
See also Parkinson v.
128 A.2d
419,
(1986);
More recent cases have refined the current standard used to
depreciation
evaluate
calculating the income of a
Cunningham v. Cunningham, 378 Pa.Su-
In
support obligor.
denied,
280,
(1988),
appeal
per.
576,
[T]hat income must reflect actual available financial re- sources and not the oft-time fictional picture financial which develops as the result of deductions against taken ... permitted by the federal income tax laws.
Depreciation and depletion expenses should be deducted from gross income only they where reflect actual reduc- tion in personal income of the party claiming the deductions, where, such as e.g., he or she actually expends replace funds to worn equipment purchase new reserves.
Id. (citations omitted).
This standard was even more recently supplemented by the
v. McAuliffe,
decision in
418 Pa.Super.
McAuliffe
(1992). There,
the issue was whether
the trial court had
erred in refusing to accept
the testimony of the husband
concerning the necessity
major
of certain
expenditures he had
made
purchasing
equipment
business,
new
for his
thereby
support.
spousal
for
his income available
reducing
allegedly
standard of review
narrowness
stressing the
After
lan-
pertinent
quoting
matters
applicable
court explained:
Cunningham,
from
guage
McAuliffe
above
Furthermore,
contemplated
the “new reserves”
expendi-
for future
an allocation
not be read to mean
should
con-
business. To the
of a
expansion
party’s
or the
tures
must be neces-
“new reserves”
trary,
outlays
the cash
running of the
and smooth
sary
operation
for the continued
has
stated:
Id.
previously
As
court
business.
his
income of
to shield substantial
To allow husband
determining
his
from consideration
legitimate
need
evidence as to
without more
obligation
*15
to
support obligations
with
spouses
so
allow
to do would
in-
their
unilaterally reducing
obligations by
their
evade
Pennsylva-
under
impermissible
This
obviously
come.
is
nia law.
226,
King King, Id. 613 A.2d at that the trial court’s decision court affirmed
The McAuliffe in new $200,000 spent by purchasing husband approximately “necessary to proven not to be his business was equipment for business,” id., and, therefore, could the preserve maintain setting income for of purposes from husband’s not be excluded re specifically court obligation. his McAuliffe the trial court’s assessment to interfere with fused credibility testimony.1 of husband’s expenditures that be requirement court’s
The McAuliffe maintain the busi- and “necessary preserve to be to shown calculating in the they may before be deducted ness” Pennsylvania in concept is not a new of the business owner in fact, is an language In the found law. selfsame all court had assumed that noted that the trial 1. The court McAuliffe spent properly expense by husband had been depreciation claimed equipment preserve to replace fully depreciated or otherwise to job proving thereby husband’s made the business and had maintain assump- expenditures necessary Since this much easier. his were that challenged appeal, did on was not the trial court tion McAuliffe specifically review it. not Williams, case, Williams v. older A.2d (1954), opined: where court Although depreciation must not an be treated as expense, If, neither can it be profit. treated the same category order, for the . purpose complying with a court a man compelled to expend capital, or exhaust his opportu- without nity to maintain and preserve that which makes his busi- ness possible, it will eventually work to the detriment the parties. both added).
Id.
Surprisingly, majority makes reference McAuliffe response this Dissent and then dismisses the case as apposite Rather, not case before us. majority crafts its own new standard and draws ultimately a conclusion that contradicts clear Cunningham. mandate of McAuliffe The majority requires that two questions be answered in the affirmative before expenses may be properly first, a support obligor’s excluded from do the ex income— income, penses represent actual obligor’s reduction second, were the expenses underlying the reduction rea they sonable or were an attempt to shelter income for the *16 of purpose avoiding support a obligation. Maj.Op. at 621. Thus, the majority concludes that finding “a of unreasonable depreciation expense by the court should be limited to those cases where there is of evidence blatant or unreasonableness vast in from another.” Id. change expenditures year one to 781.2 The majority Snively Snively,
2. cites 212 A.2d 905 (1965), support Snively in of proposition. issue The was whether support obligation a father could a receive reduction in his child so that go college. he could to The court the refused reduction. The case commentary depreciation expenses includes no whatsoever on or the proper calculating of manner the of a business owner who expended claims a a reduced income as result of amounts on the improvement the of business. by Cunning- decision established not the standard of This is indicates, foregoing discussion As the ham and McAuliffe. expenses represent the ask whether although proper it is to income, is not question the second reduction an actual an intentional reasonable and not expenses the were whether Rather, ask we must support obligation. to evade a attempt to and main- necessary preserve the were whether 613 A.2d at McAuliffe, tain the business. the words, is clear. Unless the standard In other reasonably necessary preserve to expended were amounts the business, not be used to reduce they may maintain the for support. income available states, reasonable, busi- majority it as the is
Clearly the business expansion in the of money to invest ness owner However, the busi- facilities. of its improvement the owner, obligor, may improve not support who is also a ness or owes a those to whom he she expand expense at the nigh comes first and “well support. duty That legal duty business, the improve In order to or expand absolute.” funds, such as to other sources may required owner be seek or her own to on his may rely or owner have bank loans However, overriding the law is clear that resources. or expand for the owner impermissible is that it is limitation obli- support if it reducing the business means improve for the business family. impermissible It is also gations business, her to his or sole equity increase the owner to There is support obligees. the detriment of the advantage, to in the enunciated principle inherent wisdom McAuliffe family It with stable majority provides erodes. using from person It a business support. prevents source of to reduce the unilaterally in order accounting mechanism the busi- standard obligations. Under McAuliffe maintain and sums to person can deduct reasonable ness it, improve the business expand To preserve the business. than those rely funds other obligor must person/support principle family. necessary McAuliffe a business as the source maintaining the need of recognizes *17 support sacrificing to family without reasonable the family. case,
In trial testimony this court heard the of husband to the effect depreciation expense yielded that issue cash flow that in was reinvested the business. Husband that in partner purchased testified he and his had the business in a poor highly leveraged condition transaction and now to continually update improve physical plant needed and and of in order generate services the business to income with pay long provide which to off and short term debt as well as to I community facility. with a better with bowling agree majority represents highly that this reasonable course of However, pure business we are not review- decisionmaking. as a ing decisionmaking person. husband’s business We are reviewing attempt the trial court’s to fashion a fair and so, In equitable support doing award. we must what ascertain income husband has available for the his ex-wife children, without reduction for amounts expended personal goals expansion achieve husband’s for the of his or to his community. business service I no in find error the trial court’s conclusion that this case, depreciation expense husband’s share of the corporation should not be subtracted from his income for purposes calculating his court support obligation. The trial obviously did money yielded by not believe that depreciation expenses this case was reinvest- be required preserve ed in the in order it. and maintain court that attempting found instead Husband was to enhance equity his the business at of his expense wife (cid:127) conclusion, repre- children. This is a reasonable and certainly sents no abuse of discretion error law. I also no merit
Since find to either of husband’s other claims error,3 I affirm would the order of the trial court. 1) 3. Husband also contends: that the trial decision court’s case contradicts decision the trial an earlier court an action between married; previously husband and woman to he another whom was 2) adding trial court erred in back into Husband’s income an expense played alley. bowling entertainment music at Husband’s I *18 Pennsylvania, Appellee, COMMONWEALTH HICKMAN, Appellant. K. Solomon Pennsylvania. Superior Court May 1994. Submitted July Filed opinion on both these trial court on the basis would affirm issues.