IN RE THE MARRIAGE OF LEVONNE ALICE HUBER AND DAVID AUGUSTINE HUBER Upon the Petition of LEVONNE ALICE HUBER, Petitioner-Appellee, And Concerning DAVID AUGUSTINE HUBER, Respondent-Appellant.
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IN THE COURT OF APPEALS OF IOWA
No. 8-180 / 07-1111
Filed April 9, 2008
IN RE THE MARRIAGE OF LEVONNE ALICE HUBER
AND DAVID AUGUSTINE HUBER
Upon the Petition of
LEVONNE ALICE HUBER,
Petitioner-Appellee,
And Concerning
DAVID AUGUSTINE HUBER,
Respondent-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Linn County, Kristin L. Hibbs,
Judge.
David Huber appeals the trial court’s modification ruling increasing his
support obligation for the parties’ minor children. AFFIRMED AS MODIFIED.
Ryan P. Tang of Law Office of Ryan P. Tang, P.C., Cedar Rapids, for
appellant.
Carolyn J. Beyer of White & Johnson, P.C., Cedar Rapids, for appellee.
Considered by Huitink, P.J., and Mahan and Miller, JJ.
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HUITINK, P.J.
David Huber appeals the trial court’s modification ruling increasing his
support obligation for the parties’ minor children. We affirm as modified.
I. Background Facts and Proceedings
The June 27, 2003 decree dissolving the parties’ marriage awarded
Levonne Huber physical care of the parties’ two minor children.
David was
ordered to pay Levonne $603.62 monthly child support. At that time, David was
employed as a chiropractor, earning $40,000 per year.
Levonne’s annual
earnings were approximately $18,000. The amount of child support awarded
was calculated based on the parties’ stated incomes and adjusted for a twentyfive percent extraordinary visitation credit.
In 2004 David incorporated Huber Chiropractic, P.C. and opened his own
clinic in Cedar Rapids. Huber Chiropractic, P.C. is a Subchapter S corporation.
David is the corporation’s only shareholder.
On September 5, 2006, the Child Support Recovery Unit (CSRU) filed a
petition to modify the child support provisions of the June 2003 decree. CSRU
cited David’s increased earnings as a substantial change of circumstances
justifying an increase in his child support obligation. On May 25, 2006, CSRU
submitted a revised child support guidelines worksheet based solely on the
parties’ 2006 individual income tax returns (Form 1040).
CSRU’s worksheet
indicated David’s 2006 gross taxable income was $74,389, including wages of
$46,258 (Form 1040 line 7) and business income of $25,697 (Form 1040 line 17)
from Huber Chiropractic, P.C. CSRU’s worksheet also indicated Levonne’s 2006
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gross taxable income was $18,379 (Form 1040 line 22). CSRU’s resulting child
support calculations indicated David’s child support should be $899 per month
after an adjustment for a twenty-five percent extraordinary visitation credit.
For reasons not entirely clear in the record, Levonne retained her own
attorney to represent her in the modification proceedings. Levonne’s attorney
requested production of Huber Chiropractic, P.C.’s corporate tax returns, bank
records, and other financial information relevant to David’s income and financial
condition.
The trial court granted Levonne’s motion to compel David’s
compliance with her requested discovery and awarded Levonne related attorney
fees in an amount to be determined in the final modification decree.
In a separately-submitted child support guidelines worksheet, Levonne
claimed David’s 2006 annual gross taxable income was $111,949.
Levonne
arrived at this amount by adding $48,692, the amount Huber Chiropractic, P.C.
deducted on its 2006 corporate tax return for compensation of officers (Form
1120S line 7), and a $63,257 loan to shareholder (Form 1120S Schedule 1
line 7).
Levonne’s worksheet also indicated her 2006 annual gross taxable
income was $18,379. Levonne’s resulting calculation indicated David’s monthly
child support obligation should be $1227.71 after adjustment for an extraordinary
visitation credit.
David’s child support guidelines worksheet indicated his gross taxable
income was $46,258 as reported on his 2006 personal income tax return. His
worksheet also indicated Levonne’s 2006 gross annual taxable income was
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$18,683.
David’s resulting calculations indicated his child support obligation
should be $679.60 after an adjustment for an extraordinary visitation credit.
The fighting issues at trial concerned David’s actual income and his
financial condition.
According to Levonne’s version of the evidence, David’s
standard of living exceeded his income and he was understating or otherwise
concealing his income and financial condition.
Levonne also offered expert
testimony from a certified public accountant to support her contention that the
earlier-mentioned $63,257 loan should be treated as David’s personal income.
Although David denied Levonne’s claims concerning his income and
financial condition, he testified that he agreed with the “figures” CSRU used to
compute his child support as well as the amount of child support ($899 per
month) requested by CSRU.
David denied receiving any loans from Huber
Chiropractic, P.C. and could not explain why the loan to shareholder appeared
on Huber Chiropractic, P.C.’s 2006 corporate tax return.
The record also
includes bank records indicating David deposited $82,584 in his personal
checking account, including income tax refunds totaling $7538. Based on the
foregoing evidence, the trial court found:
CPA Epping testified that tax returns show the $63,257 as a loan to
the shareholder would have been money to David. Mr. Epping
testified as to the tax reasons why such a distribution made to the
sole owner of the corporation might be designated as a loan rather
than as salary, on which income tax and FICA (15.3%) would be
due, or as business income on which taxes would have to be paid.
Based on his extensive experience with returns for professional S
corporations, Mr. Epping noted it was unusual to designate the
money as a loan to David when the corporate return reflects a loan
from David of $69,394. Mr. Epping acknowledged that if, indeed,
the amount was paid as a loan, it would be an indebtedness owed
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by David – yet the balance sheet reflects the corporation owes
David $69,394.
David denies receiving this amount. The Court finds David’s
testimony concerning his income not to be credible and looks to
other evidence including documents and expert testimony for
assistance in determining David’s income for purposes of
calculating child support.
CPA Gordon Epping testified. Mr. Epping had reviewed the
corporate and individual returns for David for three years. Mr.
Epping received check registers and check stubs, however, he
received much of that information so late that he was unable to
review it thoroughly. Mr. Epping’s expert opinion is that David’s
gross annual income for 2006 was $111,949. He testified that
David is building his practice and has shown financial growth in
each of its first two and a half years of its existence. In his opinion
based on an examination of the records, David’s income should
continue to increase.
The Court has reviewed the opinion of CPA Gordon Epping
and the documents received into evidence. The Court finds the
testimony of the CPA to be credible. The Court, therefore, adopts it
and the Petitioner’s guideline support worksheet. The Court finds
David’s income to be $111,949.
The trial court accordingly modified the June 2003 decree by increasing David’s
child support obligation from $603.32 per month to $1227.71 per month after an
adjustment for a twenty-five percent extraordinary visitation credit. The trial court
also awarded Levonne $4403 for attorney fees, noting David’s reluctance to
provide his financial records and that he had “not been forthcoming about his
income.”
On appeal, David claims the trial court erred by (1) including a corporate
loan in his income and/or failing to average his income over a number of years in
determining his child support obligation and (2) awarding Levonne trial attorney
fees. Levonne requests appellate attorney fees.
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II. Standard of Review
Our review of this equitable action is de novo. Iowa R. App. P. 6.4. We
examine the entire record and decide anew the legal and factual issues properly
presented and preserved for our review. In re Marriage of Reinhart, 704 N.W.2d
677, 680 (Iowa 2005).
We accordingly need not separately consider
assignments of error in the trial court’s findings of fact and conclusions of law but
make such findings and conclusions from our de novo review as we deem
appropriate. Lessenger v. Lessenger, 261 Iowa 1076, 1078, 156 N.W.2d 845,
846 (1968).
We, however, give weight to the trial court’s findings of fact,
especially when considering the credibility of witnesses, but we are not bound by
them. Iowa R. App. P. 6.14(6)(g).
III. Modification
The child support provision of an original decree may be modified if there
has been a substantial change in circumstances.
(Supp. 2005).
Iowa Code § 598.21C(1)
The court may consider changes in a party’s income.
Id. §
598.21C(1)(a). “[A] substantial change of circumstances exists when the court
order for child support varies by ten percent or more from the amount which
would be due pursuant to the most current child support guidelines. . . .” Id. §
598.21C(2)(a). The party seeking modification bears the burden of proof by a
preponderance of the evidence. In re Marriage of Lee, 486 N.W.2d 302, 304
(Iowa 1992).
“In determining child support, the court must first look to the child support
guidelines.”
In re Marriage of Hilmo, 623 N.W.2d 809, 811 (Iowa 2001).
A
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rebuttable presumption exists that “the amount of child support which would
result from the application of the guidelines . . . is the correct amount of child
support to be awarded.” Iowa Code § 598.21B(2)(c); Iowa Ct. R. 9.4.
Before applying the guidelines, the net monthly income of both parents
must be deduced. In re Marriage of Huisman, 532 N.W.2d 157, 159 (Iowa Ct.
App. 1995).
Although determining a net income of a parent employed by a
wholly owned Subchapter S corporation can be difficult, it is not a sufficient
justification for failing to make the computation.
See In re Marriage of
Titterington, 488 N.W.2d 176, 178 (Iowa Ct. App. 1992). Under the guidelines,
“net monthly income” means gross monthly income minus enumerated
deductions.
Iowa Ct. R. 9.5.
“Gross monthly income” is not defined in the
guidelines; nonetheless, we have stated it is the “total taxable” income on the
Federal 1040 and “net income” on the IA 1040. In re Marriage of Cossel, 487
N.W.2d 679, 683 (Iowa Ct. App. 1992). Gross monthly income can also include
such items as overtime, incentive pay, bonuses, commissions, and corporate
distributions to shareholders. Markey v. Carney, 705 N.W.2d 13, 19 (Iowa 2005).
As noted earlier, Levonne’s claim that David’s actual 2006 income was
$111,949 is based, in part, on David’s receipt of a $63,257 loan from Huber
Chiropractic, P.C. in 2006.
Although Levonne correctly argues that a
compensation-related loan by a corporation to a shareholder may be treated as
personal income, the evidence indicating David received a loan is at best
ambiguous and incomplete.
David denied receiving the loan from Huber
Chiropractic, P.C. The records for David’s only known personal bank account
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disclose no single or series of deposits equal to the amount of the disputed loan.
Additionally, our review of the relevant corporate tax returns indicates that Huber
Chiropractic, P.C. did not have sufficient retained earnings, business income, or
other cash assets from which to make a $63,257 loan to David. Epping’s failure
to address the source of the loan funds based on his review of the same tax
returns diminishes the probative value of his testimony and, unlike the trial court,
we decline to assign significant weight to his opinions concerning David’s 2006
income. Neither Eppings’s opinion nor the trial judge’s incredulity provides a
reasonable basis from which we can determine David’s income.
See In re
Marriage of Powell, 474 N.W.2d 531, 534 (1991) (stating we determine the
parties’ incomes based on the most reliable evidence).
Levonne also argues David’s income should be increased by the amount
of David’s personal expenses paid by the corporation. See In re Marriage of
Titterington, 488 N.W.2d at 178-79. She, however, cites no evidence indicating
David’s personal expenses were deducted from corporate income or were paid
from unreported corporate income. In the absence of such evidence, the amount
of David’s personal expenses paid by the corporation are presumably included in
his taxable share of the corporation’s business income in the year in which those
expenses were paid.
Based on our de novo review of the record, we believe CSRU correctly
determined that David’s 2006 gross taxable income for purposes of calculating
his child support was $74,389 and his resulting child support should be $899 per
month.
CRSU’s version of David’s income is more reliable than Levonne’s
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because it was based on the parties’ 2006 individual income tax returns, which
included their undisputed wages, as well as David’s taxable share of corporate
income.
Because the June 27, 2003 order for child support ($602.32) varies by ten
percent or more from the amount due ($899) pursuant to the most current
guidelines, we conclude Levonne has met her burden of proof in establishing a
substantial change in circumstances justifying modification of David’s child
support obligation.
For the foregoing reasons, we modify the trial court’s
modification decree by reducing David’s child support obligation from $1227.71
to $899 per month.
IV. Trial Attorney Fees
An award of trial attorney fees rests in the trial court’s discretion and,
therefore, will not be disturbed on appeal in the absence of an abuse of
discretion. In re Marriage of Wessels, 542 N.W.2d 486, 491 (Iowa 1995). An
award of attorney fees must be fair and reasonable and based on the parties’
respective abilities to pay. In re Marriage of Hansen, 514 N.W.2d 109, 112 (Iowa
Ct. App. 1994).
Like the trial court, we find the award of trial attorney fees is warranted in
this case. David delayed providing the corporation’s financial records for months
pending trial. As a result, court intervention was required; trial was delayed; and
Levonne incurred significant attorney fees. The trial judge did not abuse her
discretion in awarding Levonne trial attorney fees. We affirm on this issue.
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V. Appellate Attorney Fees
Levonne requests attorney fees on appeal. The award of attorney fees is
discretionary and is not a matter of right. In re Marriage of Sprague, 545 N.W.2d
325, 328 (Iowa Ct. App. 1996). We must consider “the needs of the party making
the request, the ability of the other party to pay, and whether the party making
the request was obligated to defend the trial court’s decision on appeal.” Id. We
decline to award Levonne appellate attorney fees. Costs are taxed equally to the
parties.
We have carefully considered the remaining issues on appeal and
conclude they have no merit or are controlled by the foregoing.
AFFIRMED AS MODIFIED.
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