JOSEPH FRANKLIN EDWARDS, Appellant v. DONNA GAIL EDWARDS, Appellee

Reversed and Rendered and Opinion filed November 28, 1990
 
 
S
In The
Court of Appeals
Fifth District of Texas at Dallas
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No. 05-90-00209-CV
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JOSEPH FRANKLIN EDWARDS, Appellant
V.
DONNA GAIL EDWARDS, Appellee
 
.................................................................
On Appeal from the 254th District Court
Dallas County, Texas
Trial Court Cause No. 89-7370-K
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O P I N I O N
Before Justices Stewart, Ovard, and Whittington
Opinion By Justice Ovard
        This case is a dispute over child support. Joseph Franklin Edwards and Donna Gail Edwards became divorced on May 27, 1986. The divorce decree named Donna managing conservator of their two minor children and Joseph as possessory conservator (the noncustodial parent). The divorce decree ordered Joseph to pay child support of $1,100 monthly, at least until the oldest child turns eighteen in 1997. On May 4, 1989, Donna filed a motion to modify the original decree to increase child support. Joseph contested her motion and requested a reduction in obligatory support. The family court modified the child support order so as to reduce the fixed amount of Joseph's child support obligation to $588.50 per month. The modified order also created an unliquidated child support liability of twenty-five percent of all Joseph's income from any source above his base salary. The trial court capped the potential obligation at $7,500 annually. The modified order also required Joseph to send Donna his bank statements and tax returns semi-annually to help her monitor his nonsalary income. From this complex and unusual order, Joseph and Donna both appeal. The Texas Family Code (Vernon 1990) provides the rules of decision.
        The Family Code defines "net resources" to include all money received from any source minus income taxes, social security taxes, union dues, and child support (private or governmental). See Tex. Fam. Code Ann. § 14.052(6). (Vernon Supp. 1990). Donna Edwards works in a jewelry store. She earns $300 per week in salary and a commission check, which averages about $300 monthly. She has a savings account which earns interest. The trial court estimated her available net resources at $1,691.75 per month. She also receives child support.
        Joseph's finances are more complicated. He works for Hipwell Sheet Metal, the family business. Joseph's father is the president. Hipwell paid Joseph $24,000 in salary in 1986, the year of his divorce from Donna. In 1989, the year of the modification hearing, Hipwell paid Joseph $25,000 in salary. Hipwell provided a company pickup truck, gasoline, and vehicle insurance throughout the period. The trial court found Joseph's available net resources from salary only to be $2,140 per month. The trial court's findings noted the existence of the company pickup but did not include the truck in the net resources calculation.
        Joseph also receives from his family large amounts of money of a disputed character. Since 1974 or 1975, Joseph has owned 10% of HEC Roofing Company, an entity closely intertwined with Hipwell. Joseph's siblings own another 40% of HEC, and his father owns 1%. The children gave proxies to their father, giving him control of 51%. The father also controls a bank account denominated 5E. The account exists ostensibly to distribute HEC's profits to its shareholders. In 1987, HEC earned $143,481. HEC lost $46,634 in 1988. Mr. Fulbright, an Edwards family accountant, estimated in the modification hearing in October 1989 that HEC would approximately break even for 1989. In 1986, Joseph received $53,000 from 5E. In 1987, 5E paid Joseph $62,000. Joseph received $56,000 from 5E in 1988. In 1989, Joseph received distributions through September 15 which would total $64,000 if annualized. Joseph's father and the accountant characterized the payments as loans. They admitted the absence of a note, an interest rate, and a repayment schedule. The father mentioned that Joseph could repay the loan by receiving a smaller legacy from his will.
        The family court judge characterized the 5E transfers as gifts from the father to Joseph. The statute specifically includes gifts as part of "net resources." Tex. Fam. Code Ann. § 14.053. However, the judge declined to classify the gifts as "net resources." She explained that since Joseph's father could cut off the gifts at any time, calculating net resources based on the gifts would be unfair to Joseph and would not serve the best interests of the children. The judge noted that she lacked the power to make Joseph's father pay Joseph's child support obligations. She took account of the gifts by ordering Joseph to pay as additional child support 25% of his nonsalary income up to an annual cap of $7,500 (25% of $30,000). Additionally, she ordered Joseph to turn over to Donna his tax returns and bank statements twice annually to help enforce compliance.
        Joseph raises several points of error on appeal. The first five points assert that the trial court had no authority to order the payment of the additional child support based on the gifts. Joseph complains that the percentage of gift formula amounts to prospective modification, a practice traditionally disapproved in Texas. See Blackwell, Child Support Guidelines in Texas: A Step in the Right Direction, 20 TEX. TECH L. REV. 861, 886-69 (Fall 1989). Point six argues that the trial court may consider only income from gifts rather than the asset value of the gifts in determining net resources. Points seven and eight complain that the trial court lacked authority to require Joseph to send Donna his tax returns and bank statements.
        Donna challenges all of Joseph's points of error and asserts two cross-points. She contends in her cross-points that there was no evidence or insufficient evidence to support a finding that circumstances had changed materially and substantially since the 1986 child support order. Without such a finding, the trial court lacked power to modify the original order. Tex. Fam. Code Ann. § 14.08(c)(2) (Vernon 1990). We address first Donna's cross-points.
        To determine whether circumstances have materially and substantially changed, the trial court must examine the circumstances of the children and the parents at the time the prior decree was rendered in relation to their circumstances at the time the movant seeks to modify the decree. Stofer v. Linville, 662 S.W.2d 783, 784 (Tex. App.--Houston [14th Dist.] 1989, no writ); Cannon v. Cannon, 646 S.W.2d 295, 297 (Tex. App.--Tyler 1983, no writ). A material and substantial change occurs if the needs of the children or the financial condition of either parent changes significantly. Stofer, 662 S.W.2d at 784. The trial court concluded that circumstances had materially and substantially changed and that the changed circumstances justified a modification of the support order. We disagree.
        The trial court's findings of fact are insufficient to support the legal conclusion. The trial court did not find that the support needs of the children had fallen or that Donna's earning power had increased. Neither did she find that Joseph had less capacity to pay in 1989 than he had when the original order issued in 1986. Without such a finding, there was no basis to modify the original order. Tex. Fam. Code Ann. § 14.08(c)(2) (Vernon 1990).
        Furthermore, the evidence adduced at the modification hearing does not support a finding of reduced capacity to pay. The evidence established that in 1986 Joseph received income from all sources totaling about $77,000. In 1988, Joseph received between $87,000 and $88,000. At the time of the modification hearing, Joseph's income ran slightly ahead of the 1988 pace. Joseph's father testified that he would continue to "lend" his son money as long as he needed it.
        Evidence of expenses also fails to reveal a material change. From the time of the divorce until June 1989, Joseph paid Donna $1,050 monthly on a promissory note. He executed the note as part of the settlement of community property. The obligation was undoubtedly heavy, but it ended before the modification hearing. Joseph's capacity to pay child support should have improved beginning in July 1989. Between the time of his divorce and the date of the modification hearing, Joseph remarried, fathered another child, and got divorced again. That episode cost Joseph an additional $450 per month in child support. However, economic hardship resulting from remarriage and from supporting additional children may not be allowed to militate against the support provided for the children of the earlier marriage. Penick v. Penick, 780 S.W.2d 407, 409 (Tex. App.--Texarkana 1989, writ denied). Joseph owes a mortgage debt on a house. He makes two payments annually of $5,400. He also pays $461 per month on a note with a bank. While these obligations are substantial, the record does not indicate that Joseph executed the mortgage between the original decree and the modification hearing. Some evidence suggests that the bank note is recent, but the record does not reveal whether he owed other debts at the time of the original order. The bank note may be no more onerous than different obligations owed in 1986 and since paid. In short, the evidence shows that Joseph owes large sums, approximately $3,000 monthly, but the evidence does not show that his obligations had changed materially and substantially since the time of the original child support order. Child support payments themselves represent most of the increase in Joseph's obligations. In the absence of materially and substantially changed circumstances, the trial court lacked authority to modify the original order. Tex. Fam. Code Ann. § 14.08(c)(2) (Vernon 1990).
        We sustain Donna's second cross-point. As a result, we need not address Joseph's points of error. We reverse the judgment of the trial court and render judgment for Donna on her cross-point. Our ruling reinstates the original child support order of $1,100 per month.
 
                                                          
                                                          JOHN OVARD
                                                          JUSTICE
Do Not Publish
Tex. R. App. P. 90
900209F.U05
 
 
File Date[11-27-90]
File Name[900209F]