Stepp v. Gray

Malika L. STEPP v. Winifred T. GRAY

CA 96-730                                          ___ S.W.2d ___

                  Court of Appeals of Arkansas
                           Division IV
                 Opinion delivered July 2, 1997


1.   Divorce -- child-support calculation based upon income as
     defined in federal income tax laws -- chancellor may not use
     only one of several definitions of income found in tax code. -
     - For the purposes of calculating child support, the child-
     support guidelines state that "income refers to the definition
     in the federal income tax laws," less proper deductions as
     enumerated; however, the Internal Revenue Code contains a
     number of provisions which purport to define income; "gross
     income" is defined in 26 U.S.C.  61 (1994); section 62
     defines "adjusted gross income," while section 63 defines
     "taxable income"; where none of these definitions, standing
     alone, provided a sufficient basis for calculating income for
     the purpose of support guidelines, the appellate court
     concluded that the chancellor could not simply utilize one of
     the definitions of "income" found in the tax code,
     particularly in the case of self-employed persons, to arrive
     at the true disposable income of the support obligor.

2.   Divorce -- child-support modification -- depreciation
     deduction should be considered in awarding child support --
     tax return alone not accurate indicator of noncustodial
     parent's available expendable income. -- A depreciation
     deduction used by a noncustodial parent should be considered
     in awarding child support; the tax return alone is not an
     accurate indicator of available expendable income; determining
     the "expendable income" of a child-support payor is still the
     ultimate task of the chancellor, even after the adoption of
     the child-support guidelines in 1989. 

3.   Divorce -- child-support calculation -- how presumption of
     support chart's correctness rebutted. -- Once income is
     determined, Ark. Code Ann.  9-12-312 (a)(2) (Repl. 1993)
     makes reference to the family support chart mandatory when
     determining the appropriate amount of child support; the
     statute creates a rebuttable presumption that the amount of
     child support indicated by the chart is correct, and the
     presumption can only be rebutted upon a written finding or
     specific finding on the record that the application of the
     support chart would be unjust or inappropriate, as determined
     under the established criteria set forth in the family support
     chart. 

4.   Divorce -- child-support modification -- income exceeding
     amounts set by chart necessitated separate calculation --
     written findings necessary for deviation from guidelines. --
     Where appellee's income exceeded the amount for which there
     was a specific entry on the child-support chart, this
     necessitated a separate calculation made in accordance with
     the child-support guidelines; however, the appellate court
     found that the same imperative applied regarding written
     findings for deviation from the level of support indicated by
     the guidelines.

5.   Divorce -- child support -- omission of spendable income
     without specific finding error -- chancellor deviated from
     child-support chart without making requisite written findings.
     -- By omitting that portion of the depreciation deduction
     which represented spendable income to appellee without
     entering a specific finding on the record that it would be
     unjust or inappropriate to calculate appellee's support based
     on its inclusion, the chancellor in effect deviated from the
     child-support chart without making the requisite written
     findings.  

6.   Appeal & error -- case remanded for further consideration of
     depreciation issue -- determination left to chancellor's
     discretion. -- The appellate court remanded the case to the
     chancellor for further consideration of the depreciation-
     deduction issue, leaving it in his discretion to determine
     whether further evidence is needed to arrive at the amount of
     the depreciation deduction to be considered as income to
     appellee.

7.   Appeal & error -- allegation not supported by evidence --
     appellant failed to bring up record sufficient to demonstrate
     error. -- Where appellant's claim that the chancellor failed
     to consider the fact that appellee received a company car was
     not supported by the evidence, and where, moreover, appellant
     presented no evidence with regard to the actual monetary value
     for the use of the car, appellant failed to bring up a record
     sufficient to demonstrate error.

8.   Divorce -- rental income considered in calculating support
     obligation. -- Appellant's claim that the chancellor failed to
     consider that appellee received rent from seventeen rent
     houses was meritless where this income was clearly reflected
     on appellee's tax returns and was a substantial portion of the
     income upon which his support obligation was calculated.  


9.   Divorce -- child-support calculation -- trial court did not
     err in allowing appellee self-employed health-insurance tax
     deduction. -- Appellant's assertion that the court erred in
     allowing appellee a self-employed health-insurance tax
     deduction was without merit where appellee claimed that
     health-insurance coverage on his three minor children cost
     $3540.94 per year, and he was credited with these payments
     pursuant to the Family Support Guidelines; appellant did not
     argue that excluding the tax deduction from appellee's income
     in effect allowed him a double credit for the health-insurance
     payments; consequently, the appellate court could not say that
     the chancellor erred by excluding this amount from appellee's
     income.

10.  Divorce -- child-support modification -- chancellor has
     discretion to modify child-support obligation retroactively --
     such award not mandatory. -- A chancellor has discretion to
     set the amount of child support, and his findings will not be
     disturbed absent an abuse of discretion; while it is well
     settled that a chancellor may retroactively modify a child-
     support obligation up to the date a modification petition is
     filed, such an award is not mandatory. 

11.  Divorce -- child-support modification -- no abuse of
     discretion in making award retroactive for only six months. --
     Where there was nothing in the record which suggested that the
     needs of the children would justify ordering the increase
     retroactive for more than six months, the chancellor did not
     abuse his discretion in ruling that the increase be made
     retroactive for only six months.

12.  Appeal & error -- issue raised by appellant not included in
     record -- issue not reached. -- The issue raised by appellant
     concerning appellee's lump-sum payment of child support was
     not reached because permission to pay part of the support in
     a lump sum was apparently granted in an order that was not
     included in the record; parties seeking relief in the
     appellate court must bring up a record sufficient to show
     error. 

13.  Divorce -- child-support modification -- award of attorney's
     fees and expert-witness fees discretionary -- Appellant's
     argument that the chancellor erred in denying her request for
     attorney's fees and expert-witness fees for her accountant was
     without merit; the chancellor is in a better position to
     evaluate the services of counsel than an appellate court; an
     award of fees in domestic-relations cases is a matter within
     the sound discretion of the chancellor and not a matter of
     right. 


     Appeal from Pulaski Chancery Court, Second Division; Collins
Kilgore, Chancellor; reversed in part and remanded; affirmed in
part.
     Ogles Law Firm, P.A., by:  John Ogles, for appellant.
     Robert Batton, for appellee.

     Andree Layton Roaf, Judge.
     Malika L. Stepp appeals from an order increasing the child-
support payments made to her by the appellee, Winifred T. Gray. 
She argues that the chancellor erred in: 1) calculating the amount
of child support; 2) making the increase retroactive for only six
months; 3) allowing Gray to pay a part of the child support in an
annual, lump-sum payment; and 4) denying her request for attorney
fees and expert witness fees.  We agree that the chancellor erred
by excluding the amount of a depreciation deduction reflected on
Grayþs income tax return in calculating the child support, and
reverse and remand on the first issue.  We affirm the chancellor on
the remaining three issues raised.
     Stepp and Gray were divorced in 1991.  Stepp was awarded
custody of the partiesþ three minor children, and Gray was ordered
to pay child support of $1075 per month.  On December 1, 1994,
Stepp petitioned for an increase in child support, alleging, among
other changes in circumstances, that Gray was earning more from his
business than when the prior support order was entered in 1991. 
     At the hearing held on September 11, 1995, Stepp placed into
evidence the fact that Gray had acquired a dozen rental properties
since the divorce, and as a result had substantially increased his
after-tax income.  On December 12, 1995, the chancellor entered a
letter order raising Gray's child-support obligation from $1,075 to
$3,054.46 per month.  On January 5, 1996, Gray filed a motion to
reconsider, and after a February 13, 1996, hearing in which the
chancellor accepted additional evidence, he lowered Gray's child-
support obligation to $2,418.56 per month, retroactive for six
months.  The chancellor also denied Stepp's motion for attorney and
expert-witness fees.
     After Steppþs motion to reconsider this order was deemed
denied, Stepp timely filed her notice of appeal.  There was a
subsequent order entered on April 29, 1996, which apparently
allowed Gray to pay a part of his regular support in a lump-sum,
end-of-the-year annual payment.  This order is not abstracted and 
does not appear in the record; however, Stepp has abstracted her
notice of appeal from this order.
1.  Child-Support Calculation
     Stepp first argues that the chancellor erred in calculating
Gray's child-support obligation because he: 1) allowed a $34,861
depreciation deduction on Grayþs rental properties; 2) failed to
consider the fact that Gray received a company car; 3) failed to
consider that Gray received income from seventeen rent houses; and
4) allowed a self-employed health-insurance tax deduction of $793. 
Stepp urges that this court remand to the chancellor for him to
consider all the factors stated in the 1993 Supreme Court Per
Curiam Order setting forth child-support guidelines.  Stepp further
cites Black v. Black, 306 Ark. 209, 812 S.W.2d 480 (1991), in
urging that Gray should be ordered to pay additional child support
based on a net-worth approach, because Gray owns seventeen rent
houses and a company car.  We agree that Steppþs argument has merit
only with regard to the depreciation tax deduction. 
     Gray's sources of income for 1994 were clearly established at
the hearings.  His two main sources of income were his primary
business, Bart Gray Realty, from which he drew a regular salary of
$44,650, and his rental properties, with gross receipts of $152,513
and net taxable income of $24,226.  This income, as well as income
from several other ventures, was clearly reflected on Gray's tax
returns, which were entered into evidence and relied upon by the
chancellor.  Gray's adjusted gross income for 1994 was $127,820. 
From this sum, the chancellor disallowed a $2,000 deduction for an
IRA, which brought his adjusted gross income to $129,820.  After
properly subtracting federal and state income taxes, FICA, and a
deduction for maintaining health insurance on the minor children,
which are specifically allowed by the child-support guidelines, In
Re Guidelines for Child Support, 314 Ark. App. 644, 863 S.W.2d 291
(1993), the amount of Gray's income upon which his child-support
obligation was calculated stood at $90,696.  Because he owed
support for three children, his monthly support obligation pursuant
to the child-support guidelines was 32% of this total, or
$2,418.56, the amount ultimately ordered by the chancellor. 
     Stepp presented testimony by her accountant and argued to the
chancellor that a depreciation deduction claimed by Gray on his
rental properties should be included as income for the purpose of
calculating Grayþs child-support obligation because it was not an
actual expenditure.  However, the chancellor based the support
award on Grayþs adjusted gross income, allowing all of the business
deductions claimed by Gray and disallowing only a deduction for an
IRA.
     For the purposes of calculating child support, the child-
support guidelines state that, "Income refers to the definition in
the federal income tax laws," less proper deductions for:
     1.  Federal and state income tax;
     2.  Social security (FICA) or railroad retirement       
         equivalent;
     3.  Medical insurance paid for dependent children; and
     4.  Presently paid support for other dependents by      
         Court order.

The guidelines further provide that:
     For self-employed payors, support shall be calculated
     based on last yearþs federal and state income tax returns
     and the quarterly estimates for the current year.  Also
     the court shall consider the amount the payor is capable
     of earning or a net-worth approach based on property,
     life-style, etc.

     However, the Internal Revenue Code contains a number of
provisions which purport to define income.  þGross incomeþ is
defined in 26 U.S.C.  61 (1994).  Section 62 defines þadjusted
gross income,þ while section 63 defines þtaxable income.þ 
     Section 61 defines gross income as comprising a laundry list
of various forms of compensation, including gross income derived
from business, gains derived from dealings in property, and income
from discharge of indebtedness.  Clearly, reference to this
definition alone will not suffice to determine a proper amount on
which to calculate child support because at least one of the items,
income from discharge of indebtedness, does not represent funds
actually received, and business income is defined as þgross income
derived from business,þ before deduction of any out-of-pocket
business expenses.
     We also do not find that section 62, which defines adjusted
gross income, provides a sufficient basis for calculating income
for the purpose of the support guidelines.  This section allows
deductions from gross income for, among other items, þtrade and
business deductions,þ and þlosses from the sale or exchange of
property,þ which could also lead to an inequitable result in
calculating a child-support obligation.  Finally, taxable income is
defined in section 63 as adjusted gross income less certain
deductions including personal and itemized deductions. 
Consequently, we conclude that the chancellor may not simply
utilize one of the definitions of þincomeþ found in the tax code,
particularly in the case of self-employed persons, to arrive at the
true disposable income of the support obligor.
     Moreover, Arkansas appellate courts have suggested that a
depreciation deduction should properly be considered in awarding
child support, in two pre-child-support-guideline cases.  In Hoyt
v. Hoyt, 249 Ark. 266, 459 S.W.2d 65 (1970), the supreme court
declined to reduce an award of child support and alimony totaling
$1000 per month, which the appellant, a practicing physician,
argued was excessive.  The court commented that, although the
appellantþs net income after taxes was about $24,000, þif personal
exemptions and unfunded depreciation are added to that figure, it
appears that Dr. Hoyt had about $32,000 of spendable income in that
year.þ  Id. at 267, 459 S.W.2d  at 66 (emphasis added).
     In Pierce v. Pierce, 268 Ark. 864, 596 S.W.2d 364 (Ark. App.
1980), this court affirmed a denial of a petition for reduction of
child-support payments filed by a self-employed payor whose federal
tax return showed an income, for tax purposes, of only $2,892.12
for the previous year.  The court noted that the appellant admitted
that he had a gross income of over $15,000 and had included a
deduction for depreciation on business equipment of $4,930.61 on
his return.  The court stated that þit is clear from this and other
evidence in the record that the tax return alone is not an accurate
indicator of his available expendable income for 1978.þ  Id. at
866, 596 S.W.2d  at 366 (emphasis added), c.f., Belue v. Belue, 38
Ark. App. 81, 85, 828 S.W.2d 855, 857 (1992)(it is appropriate for
a chancellor to look beyond the technical definitions of income). 
Surely, determining the þexpendable incomeþ of a child-support
payor is still the ultimate task of the chancellor following the
adoption of the child-support guidelines in 1989. 
     Once income is determined, Arkansas Code Annotated section 9-
12-312 (a)(2) (Repl. 1993) makes reference to the family support
chart mandatory when determining the appropriate amount of child
support.  The statute creates a rebuttable presumption that the
amount of child support indicated by the chart is correct, and the
presumption shall only be rebutted þupon a written finding or
specific finding on the record that the application of the support
chart would be unjust or inappropriate, as determined under the
established criteria set forth in the family support chart.þ  Id. 
Moreover, in Roland v. Roland, 43 Ark. App. 60, 859 S.W.2d 654
(1993), this court stated þ[r]eference to the chart is mandatory,
and the chart itself establishes a rebuttable presumption of the
appropriate amount which can only be explained away by written
findings stating why the chart amount is unjust or inappropriate.þ 
We recognize that Gray's income exceeds the amount for which there
is a specific entry on the child-support chart and that this
necessitated a separate calculation made in accordance with the
child-support guidelines, but find that the same imperative applies
regarding written findings for deviation from the level of support
indicated by the guidelines.
     By omitting that portion of the depreciation deduction which
represents spendable income to Gray without entering a specific
finding on the record that it would be unjust or inappropriate to
calculate Grayþs support based on its inclusion, the chancellor in
effect deviated from the child-support chart without making the
requisite written findings.  We came to a similar conclusion in
Fontenot v. Fontenot, 49 Ark. App. 106, 898 S.W.2d 55 (1995), a
case that involved awarding to a noncustodial parent the right to
claim the partiesþ children as a tax exemption.  We held that
allowing the noncustodial parent to benefit from the tax deduction
was a deviation from the support chart without the requisite
findings to support such a deviation.  Id.
     Although this court has the power to decide chancery cases de
novo on the record, we think it appropriate to remand this case to
the chancellor for further consideration of the depreciation
deduction issue.  See Jones v. Jones, 43 Ark. App. 7, 858 S.W.2d 130 (1993).  Stepp argues that the entire $34,861 depreciation
should be included in Grayþs income.  However, Gray testified that
he acquired his rental properties with 100% financing.  His tax
returns reflect that he claimed the interest paid on the mortgages
as a business deduction, but not the principal.  It also appears
from the evidence presented concerning Grayþs mortgage payments
that he would have approximately $20,000 in disposable income
remaining from the depreciation deduction even if he is credited
with the amount of principal paid on the rental properties. 
Consequently, we leave it to the discretion of the chancellor to
determine whether further evidence is needed to arrive at the
amount of the depreciation deduction to be considered as income to
Gray.  
     Stepp also claims that the chancellor failed to consider the
fact that Gray received a company car.  However, this allegation is
not supported by the evidence.  According to Stepp's own witness,
CPA Keith Mabry, personal use of the company car should have been
reflected on Gray's W-2, but he could not say it was not included
because the W-2 was not þbroken down.þ  Moreover, there was no
evidence presented by Stepp with regard to the actual monetary
value for the use of this car.  Therefore, she has failed to bring
up a record sufficient to demonstrate error in this regard.  See
Jones v. Jones, supra.
     Also meritless is Steppþs claim that the chancellor failed to
consider that Gray received rent from seventeen rent houses.  This
income was clearly reflected on Gray's tax returns and was a
substantial portion of the income upon which his support obligation
was calculated.  
     Finally, we do not agree with Stepp's assertion that the court
erred in allowing Gray a self-employed health-insurance tax
deduction of $793.  Gray claimed that health-insurance coverage on
his three minor children cost $3540.94 per year, and he was
credited with these payments pursuant to the Family Support
Guidelines.  On appeal, Stepp argues only that Grayþs health-
insurance policy also covered Gray and another son.  Stepp does not
argue that excluding the $793 tax deduction from Grayþs income in
effect allows Gray a double credit for the health-insurance
payments; consequently, we cannot say that the chancellor erred by
excluding this amount from Grayþs income.
     As we agree that the chancellor erred by failing to consider
the depreciation deduction in calculating Grayþs support
obligation, we must remand this case to the chancellor for further
consideration of the child-support award consistent with this
opinion. 
2.  Retroactive Support Award
     Stepp also argues that the chancellor erred in denying her
request that the child-support increase be made retroactive to
December 27, 1994, the date her petition for increase was filed. 
The increase was instead awarded retroactive to approximately the
date of the hearing on the petition in September 1995.  She argues
that awarding child support retroactive for only six months was
inequitable because she deserved the increase retroactive to the
date of the filing of the petition.  She relies upon Pardon v.
Pardon, 30 Ark. App. 91, 722 S.W.2d 379 (1990), as authority for
the proposition that requesting support retroactive to the petition
date was proper.  However, Stepp's argument on this point is
without merit.
     A chancellor has discretion to set the amount of child
support, and his findings in this area will not be disturbed absent
an abuse of discretion.  Creason v. Creason, 53 Ark. App. 41, 917 S.W.2d 553 (1996).  While it is well settled that a chancellor may
retroactively modify a child-support obligation up to the date a
modification petition is filed, Grable v. Grable, 307 Ark. 410, 821 S.W.2d 21 (1991), such an award is not mandatory.  Stepp relies on
Pardon, supra, which quotes with approval 27C C.J.S. Divorce  684
(1986).  Section 684 sets forth the range of options available to
a chancellor regarding retroactive modification of child support,
and provides in pertinent part:
     In an appropriate case, it is within the discretion of
     the court to make an order for child support retroactive
     to an earlier date where it appears that the needs of the
     child existed as of that date.  However, it has been held
     that child support payments may not be ordered to
     commence earlier than the date the divorce action was
     commenced.

     Thus, in various instances it has been held proper for
     the court to fix the effective date of an order of child
     support from the date of filing of the petition or
     complaint, or from the date of the trial . . . .

(Emphasis added.)
     There is nothing in the record which suggests that the needs
of the children would justify a finding that the chancellor abused
his discretion in ordering the increase retroactive for only six
months.  In fact, although Stepp testified that a private school in
which she had enrolled the children was expensive, she nonetheless
stated that she did not need the increase in support because of
this additional expense, and further stated that she was þperfectly
capableþ of paying for it.  Virtually all of Stepp's evidence
consisted of proof that Gray's income had increased substantially
since the entry of the previous support order.  While this evidence
clearly supports an increase in Gray's child-support obligation,
see Ark. Code Ann.  9-14-107 (Supp. 1995), it does not provide an
adequate basis for finding that the chancellor abused his
discretion in ruling that the increase be made retroactive for only
six months.  
3.  Annual Payment of Support
     Stepp next argues that the chancellor erred in allowing Gray
to pay the child support in two parts.  Stepp argues that allowing
Gray to pay $752 twice a month, with the balance payable at the end
of the year when he receives a bonus, violates the intent of the
supreme court per curiam order setting forth the support
guidelines.
     However, we cannot reach this issue because permission to pay
part of the support in a lump sum was apparently granted in an
order that is not included in the record.  Parties seeking relief
in this court must bring up a record sufficient to show error. See
Reynolds v. Rogers, 297 Ark. 506,  763 S.W.2d 660 (1989). Moreover,
although Stepp has abstracted comments made by the chancellor from
the bench regarding the lump-sum payment, the chancellorþs
statements fall far short of even constituting a specific ruling on
this issue.
4.  Attorneyþs Fees
     Steppþs final argument is that the chancellor erred in denying
her request for attorney's fees and expert-witness fees for her
accountant.  Stepp asserts that the chancellor abused his
discretion by increasing her child support, but denying her request
for attorney fees.  We find her reliance on Scroggins v. Scroggins,
302 Ark. 362, 790 S.W.2d 157 (1990), as authority for this argument
to be misplaced. 
     In Scroggins, the supreme court deferred to a chancellor's
determination of whether to award attorney fees in a divorce case,
stating that "the chancellor is in a better position to evaluate
the services of counsel than an appellate court."  As in Scroggins,
here, the chancellor asked Steppþs counsel for an itemized billing
record, but he awarded no fees; the chancellor in Scroggins had
awarded less than one-half the amount that the appellant had
requested.  However, we do not read Scroggins as departing from the
well-settled rule that an award of fees in domestic-relations cases
is a matter within the sound discretion of the chancellor and not
a matter of right.  Ryan v. Baxter, 253 Ark. 821, 489 S.W.2d 241
(1973).
     Reversed in part and remanded, affirmed in part.
     Robbins, C.J., and Arey, J., agree.