James E. O'Hern v. Nancy Brown O'Hern

ARKANSAS COURT OF APPEALS
NOT DESIGNATED FOR PUBLICATION

DIVISION I

JAMES E. O'HERN

APPELLANT

v.

NANCY BROWN O'HERN

APPELLEE

CA03-598

APRIL 14, 2004

APPEAL FROM THE SEBASTIAN COUNTY CIRCUIT COURT

[DR1998-1142(VI)]

HONORABLE JAMES ROBERT MARSCHEWSKI, CIRCUIT JUDGE

AFFIRMED

Karen R. Baker, Judge

Appellant, James O'Hern, appeals from an order of the Sebastian County Circuit Court concerning child-support, determining an arrearage of $3,000, and denying appellant's request for reimbursement of medical expenses. Appellant raises the following seven points on appeal: that the trial court erred in ordering him to assume full liability for the unpaid medical expenses of the minor children incurred prior to the filing of appellee's motion for modification; that the trial court erred when it disallowed the conveyance of oil and gas interests from appellant to his new wife and then included the income from those interests in the computation of appellant's child-support obligations; that the trial court erred when it disallowed depreciation and depletion of the oil and gas interests in the computation of appellant's child-support obligations; that the trial court erred when it disallowed a deduction from appellant's income for one-half of the farm losses suffered in connection with appellant's farming operations; that the trial court erred by including a significant portion of appellant's wife's income in the computation of appellant's child-support obligations; that the trial court erred when it determined that appellant owed $3,000 in support arrearage; that the trial court erred when it admitted appellee's exhibit one at the November 2002 hearing. We find no merit in appellant's arguments and affirm.

The parties were divorced December 3, 1998. There were two children born of the marriage. The parties entered into a property-settlement agreement and a child-custody agreement that was incorporated into the divorce decree. Ms. O'Hern was awarded custody subject to visitation rights given to Mr. O'Hern. Mr. O'Hern's child-support was set and was to be adjusted on an annual basis in January based on his adjusted net income for the previous year. The parties agreed that Ms. O'Hern would obtain medical insurance on the minor children through her employment, and Mr. O'Hern would reimburse her for the cost of insurance. In addition, the parties were responsible for one-half of any outstanding medical bills, including deductibles, not covered by insurance.

Every year following the entry of the divorce decree, Mr. O'Hern adjusted his child-support payments downward. He remarried in June 1999. His new wife, Cathy, began working for Mr. O'Hern in his law practice shortly after their marriage. Cathy incorporated her own business after the parties' marriage, and pursuant to an agreement between her corporation and Mr. O'Hern's corporation, she began working for Mr. O'Hern full time. The contract provided for a payment scale for Cathy's corporation for which the compensation would increase over time for her services. Cathy's duties at the law office included some of the secretarial work after the full-time secretary began working part time. In the spring of 2000, Mr. O'Hern transferred his interests in certain oil and gas properties to Cathy. According to Mr. O'Hern, the transfers offset her contributions to the marital expenses and helped her rebuild a fund for her children's college education.

Around November 2000, the parties agreed to change the children's insurance coverage to Mr. O'Hern's policy. Ms. O'Hern testified that she was told that the coverage was comparable to her own policy. In July 2001, the parties' daughter had to go to the emergency room, and she also had to make a visit to Sparks Regional Medical Center for abdominal problems. The parties' son had to have an echo-cardiogram for a possible heart murmur. When Ms. O'Hern received a letter in December 2001 with a breakdown of the out-of-pocket medical expenses that Mr. O'Hern had incurred and a request for reimbursement, she realized that Mr. O'Hern's insurance policy did not have the same coverage as her previous policy. As a result, neither the daughter's emergency room visit and visit to Sparks nor the son's echo-cardiogram were covered by Mr. O'Hern's insurance policy. She stated that under her insurance policy, the emergency room visit would have been covered and only a $50 co-pay would have been incurred; the visit to Sparks and the son's echo-cardigram would have also been covered under her policy. Part of the medical expenses for which Mr. O'Hern was seeking reimbursement was for counseling sessions for the parties' son regarding an incident that occurred at Mr. O'Hern's home one weekend. Ms. O'Hern felt that any psychological counseling was unnecessary but agreed to accompany her son to counseling "as a courtesy to [Mr. O'Hern]." However, Ms. O'Hern wrote a letter to Dr. Burnett stating specifically that while she would be attending the appointment as an advocate for her son, she would not be responsible for any of the charges. Mr. O'Hern felt that the son needed medication; however, Dr. Burnett did not feel that medication was necessary. Ms. O'Hern testified that she was uncertain if her son's psychological counseling would have been covered under her insurance policy.

On February 15, 2002, Ms. O'Hern filed a motion for determination of child-support and to modify the prior decree regarding child support and health insurance. Two hearings were held on the matter resulting in an order setting child support, awarding an arrearage of $3,000, and denying Mr. O'Hern's request for reimbursement of medical expenses. This appeal followed.

We review traditional equity cases de novo on the record and will not reverse a finding of fact by the trial judge unless it is clearly against the preponderance of the evidence. Williams v. Williams, 82 Ark. App. 294, 108 S.W.3d 629 (2003) (citing Hunt v. Hunt, 341 Ark. 173, 15 S.W.3d 334 (2000)). In reviewing the trial judge's findings, we give due deference to the judge's superior position to determine the credibility of the witnesses and the weight to be accorded to their testimony. Id.

In his first point on appeal, appellant argues that the trial court erred in ordering him to assume full liability for the unpaid medical expenses of the minor children that were incurred prior to the filing of appellee's motion for modification. Appellant asserts that this ruling by the court disregarded the law of the case, res judicata, and was an abuse of discretion. However, we hold thatthe law of the case and res judicata have no application in this situation. See Moon v. Marquez, 338 Ark. 636, 999 S.W.2d 678 (1999) (quoting Clifford v. Danner, 241 Ark. 440, 409 S.W.2d 314 (1966) and stating that no order for child support is ever res judicata or so final that the obligations of a parent to the child are not subject to modification). Section V of In Re: Administrative Order No. 10, Arkansas Child-support Guidelines states relevant factors to be considered in determining the appropriate amount of child support, and includes medical expenses. See Ceola v. Burnham, ___ Ark. App. ___, ___ S.W.3d ___ (December 17, 2003); Guest v. San Pedro, 70 Ark. App. 389, 19 S.W.3d 62 (2000). This court has held that the trial judge always retains jurisdiction and authority over child support as a matter of public policy, and that, no matter what an independent contract states, either party has the right to request modification of a child-support award. Warren v. Kordsmeier, 56 Ark. App. 52, 938 S.W.2d 237 (1997) (citing Crow v. Crow, 26 Ark. App. 37, 759 S.W.2d 570 (1988)). Here, outstanding medical bills, including counseling expenses, were incurred after Mr. O'Hern switched the children to his own health-insurance policy providing less coverage. Ms. O'Hern became aware of the reduced coverage when she received a letter from Mr. O'Hern requesting reimbursement from her for the outstanding balances. She testified that she would not have agreed to change the children to Mr. O'Hern's policy had she known the coverage was not comparable. As a result, the trial judge found that Mr. O'Hern was solely responsible for the medical bills in question. The trial judge's ruling recognized the fact that Ms. O'Hern's original insurance policy would have covered those medical bills. Additionally, Ms. O'Hern's letter to Dr. Burnett expressed her position that she was not responsible for the counseling expenses, which the trial judge found was an effort to resolve issues the son had with his father. Under these facts, we find that the trial judge's ruling that Mr. O'Hern was solely responsible for the outstanding medical bills was not clearly erroneous, and we affirm on this point.

Second, appellant argues that the trial court erred when it included the income from oil and gas interests conveyed to his new wife in the computation of appellant's child-support obligation. In the context of marital property, our supreme court has stated that a spouse has the right to make a transfer of his or her property, either with or without consideration, even though he or she strips themselves of all means of supporting his or her spouse, and leaves him or her without the means of subsistence, provided that he or she does so in good faith and without intention of defrauding the other spouse's claims upon his or her estate. See Skokos v. Skokos, 332 Ark. 520, 968 S.W.2d 26 (1998) (reh'g granted, rev'd on other grounds, 333 Ark. 396, 968 S.W.2d 26 (1998)). However, in child-support cases, it is the ultimate task of the trial judge to determine the expendable income of a child-support payor. See Brown v. Brown, 76 Ark. App. 494, 68 S.W.3d 316 (2002). In reaching this determination, the court shall consider the amount the payor is capable of earning or a net-worth approach based on property, life-style, etc. Mearns v. Mearns, 58 Ark. App. 42, 48, 946 S.W.2d 188, 191 (1997); Irvin v. Irvin, 47 Ark. App. 48, 52, 883 S.W.2d 862, 865 (1994). It has also been held that there are circumstances under which it is appropriate to order child support based on a party's earning capacity rather than on actual earnings. Grady v. Grady, 295 Ark. 94, 97, 747 S.W.2d 77, 78-79 (1988) (emphasis added). In Grady supra, the court held that a supporting spouse does not have total discretion in making financial decisions that affect the welfare of the family, if the minor children have to suffer at the expense of those decisions. A trial court's decision on whether to impute income must be based on the facts and circumstances of each case. Id. Here, Mr. O'Hern attempted to justify his transfer of assets to his new wife Cathy by stating that the transfer was in consideration for her contributions to the marital expenses. However, regardless of Mr. O'Hern's intentions, his decision to make the transfer affected his children, and as in Grady, supra, his children should not have to suffer due to his decision. Under these circumstances, we hold that the trial court did not err by imputing the income from the oil and gas interests to Mr. O'Hern.

In appellant's third and fourth arguments, he asserts that the trial judge erred in not allowing depletion of his oil and gas resources and not allowing him to incorporate any farm loss in determining his income for child support. It is the ultimate task of the trial judge to determine the expendable income of a child-support payor. Brown, supra (citing Stepp v. Gray, 58 Ark. App. 229, 947 S.W.2d 798 (1997)). This income may differ from income for tax purposes. Id. It is proper for the trial judge to consider whether a depreciation deduction should be allowed in calculating expendable income. See Stepp v. Gray at 236, 947 S.W.2d at 801 (discussing appellate cases where a depreciation deduction was properly added back in to the support payor's income in arriving at an accurate indicator of expendable income). The guidelines provide that for self-employed payors, the amount of support shall be calculated based on the last year's federal and state income-tax returns and the quarterly estimates for the current year. See Brown, supra. The guidelines do not mandate that the court include or exclude a payor's depreciation deduction, nor do we make that requirement. Gray v. Gray, 67 Ark. App. 202, 994 S.W.2d 506 (1999). Depreciation is a factor that should be considered, just as property and life-style are considered, on a case-by-case basis. Id. Here, we find that the trial judge's decision not to exclude the depletion of the oil and gas resources or farm losses in determining Mr. O'Hern's income was not clearly erroneous.

Appellant argues in his fifth point on appeal that the trial court erred by including a significant portion of appellant's wife's income in determining appellant's child-support obligation. As stated previously, it is the ultimate task of the trial judge to determine the expendable income of a child-support payor, see Brown, supra, and the court shall consider the amount the payor is capable of earning or a net-worth approach based on property, life-style, etc. See Mearns, supra; Irvin, supra. Mr. O'Hern was paying his wife's corporation for assisting him at his law office, including secretarial work although she could not type. The trial judge ultimately concluded that, ". . . the balance of the money on whatever is being deferred to CSO corporation [Cathy O'Hern's corporation] exceeds the value that she is contributing to the law office, so anything in excess of that the Court will not allow." Given that Mr. O'Hern claimed a net income of $13,000 for 2000 for his law practice, while Cathy O'Hern's corporation was paid $22,462, we cannot say the trial judge's finding was clearly erroneous.

Appellant's sixth point on appeal is that the trial judge erred in calculating a $3,000 arrearage. This court has held that the amount of child support to be paid lies within the discretion of the trial judge. Woodson v. Johnson, 63 Ark. App. 192, 975 S.W.2d 880 (1998). Based upon the child-support guidelines for self-employed payors, the formula for calculating child support is based on the last year's federal and state income-tax returns and the quarterly estimates for the current year. See Brown, supra. Here, the trial judge requested that each party submit its own valuation of the arrearage amount. Each party did as the trial judge requested, and the trial judge calculated the child-support arrearage based on the evidence regarding Mr. O'Hern's income. See Paschal v. Paschal, 82 Ark. App. 455, 117 S.W.3d 650 (2003) (holding that the trial judge did not retroactively modify the child-support order; rather, he clarified and enforced the original order that failed to recite the amount of support as required under the guidelines). We find that the calculation of a $3,000 arrearage on these facts is not clearly erroneous.

For his final point on appeal, appellant argues that the trial court erred in admitting appellee's exhibit one. He asserts that there was no foundation for the document and that he suffered prejudice from the admission because the trial court used the figures from the document in calculating the arrearage. We will not reverse a trial court's evidentiary ruling absent an abuse of discretion. Thomas v. State, 349 Ark. 447, 79 S.W.3d 347 (2002). Exhibit one was a copy of appellee's calculations requested by the court as to the amount of child-support arrearage owed by appellant. Appellant cites no convincing authority in support of this argument, and we find no abuse of discretion on the part of the trial judge in admitting the document.

Based on the foregoing, we affirm on all points.

Affirmed.

Stroud, C.J., and Crabtree, J., agree.