Bjorgo v. Bjorgo
| Decision Date | 30 April 2015 |
| Docket Number | No. 2014AP214.,2014AP214. |
| Citation | 362 Wis.2d 539,865 N.W.2d 884 (Table) |
| Parties | In re the marriage of Rita BJORGO, Petitioner–Appellant, v. Mark Iner BJORGO, Respondent–Respondent. |
| Court | Wisconsin Court of Appeals |
Rita Bjorgo appeals a judgment of divorce from Mark Bjorgo following a trial to the circuit court. She challenges the court's decisions on child support, maintenance, the establishment of a trust for the couple's minor children, and a property division equalization payment relating to a particular asset.
¶ 2 For the reasons that follow, we conclude that the circuit court erred in determining Mark's income and, therefore, must reconsider child support, maintenance, and property division generally on remand. We further conclude that the establishment of a trust for the children out of divisible property was a proper exercise of the court's discretion. Finally, with respect to one aspect of property division, an equalization payment relating to Mark's stock in his employer, Rita has not shown that the circuit court erred. Accordingly, we affirm in part, reverse in part, and remand for the circuit court to reconsider child support and maintenance, along with property division, consistent with this opinion.
¶ 3 Rita Bjorgo filed a petition for divorce from Mark Bjorgo in June 2011, and a judgment of divorce was entered in January 2014. At the time of the divorce, Rita and Mark were married for approximately nineteen years and had three minor children.
¶ 4 Mark is a shareholder at Bader Rutter & Associates, Inc., and has worked there throughout the marriage. Bader Rutter is organized as a Subchapter–S corporation; therefore, taxes on income from the business are passed to the shareholders. Mark owns stock in the company, currently valued at $1,500,000. Mark's annual salary, based on W–2 information, is approximately $117,000. Mark also receives annual bonuses ($19,000 in both 2011 and 2012). Finally, Mark receives Subchapter–S corporation distributions. In 2011 and 2012, Mark received, respectively, distributions of $686,800 and $844,831 and was required to pay corporation taxes of approximately $227,752 and $346,373. Thus, after paying taxes, Mark netted approximately $459,048 in 2011 and approximately $498,458 in 2012. So far as the parties explain, Mark does not pay personal income tax on these net distributions.1
¶ 5 In 1997, Rita left full-time employment to stay at home with her children, which she did throughout the remainder of her marriage. Rita attended some college classes after high school, and at the time of trial, was attending classes at UW–Milwaukee. The parties stipulated that Rita's annual earning capacity was $25,000.
¶ 6 A trial was held before the court on the disputed issues of property division, maintenance, and child support. The court issued findings of fact, conclusions of law, and a judgment of divorce.
¶ 7 In the divorce judgment, the circuit court ordered Mark to pay child support in the amount of $1,590.78 per month, based on “the formula”2 as applied to Mark's prior years W–2 wages. The court also ordered an additional amount of child support consisting of 23% of Mark's annual bonuses. The court declined to include any part of Mark's Subchapter–S corporation distributions in his income for purposes of calculating child support. As part of its child support order, the court ordered that $300,000 held in a money market account be placed in a separate fund or trust for the Bjorgo children's education and other substantial expenses.
¶ 8 The circuit court awarded maintenance to Rita for a term of nine years. The court ordered maintenance in two components. First, a fixed $1,600 per month based on “the formula against [Mark's W–2] wages.”3 Second, a variable amount which would be “23% of non-tax, non-business investment distributions to [Mark] on his Bader Rutter stock.” The court declined to award maintenance based on Mark's year-end bonuses because the court concluded that the “two sums [already awarded] arising from wages and investment distributions adequately provide [Rita] with a temporary means of support to live near the lifestyle she enjoyed during marriage.”
¶ 9 As a part of the property division order, the circuit court adopted the parties' agreement that Rita receive one-half the value of Mark's Bader Rutter stock, $750,000, and ordered Mark to pay Rita that amount “within a reasonable period of time and no later than 10 years from the date” of the final order. This part of the property division award did not include interest on the outstanding balance. Rita appeals.
¶ 10 Rita challenges the circuit court's decision in regard to child support and maintenance, the establishment of the trust, and the property division equalization payment. We address each issue in turn.
¶ 11 Child support determinations are within the circuit court's discretion and will not be reversed in the absence of an erroneous exercise of that discretion. Jarman v. Welter, 2006 WI App 54, ¶ 4, 289 Wis.2d 857, 711 N.W.2d 705. We affirm a circuit court's discretionary decision if the court makes a rational, reasoned decision and applies the correct legal standard to the facts of record. LeMere v. LeMere, 2003 WI 67, ¶ 13, 262 Wis.2d 426, 663 N.W.2d 789. Whether the circuit court applied the correct legal standard is a question of law, which this court reviews de novo. See Cook v. Cook, 208 Wis.2d 166, 172, 560 N.W.2d 246 (1997).
¶ 12 Rita argues that the circuit court erred by substantially underestimating Mark's income when it excluded his Subchapter–S corporation distributions. The parties agree that the circuit court should have included Mark's net distributions (that is, the distribution amount left after he pays his portion of the corporation's taxes) in its calculation of Mark's gross income. However, the parties disagree on whether the portion of Mark's Subchapter–S corporation distributions used to satisfy his tax obligation should also be included in Mark's income for purposes of calculating child support and, for that matter, maintenance.
¶ 13 Rita contends that the full amount Mark receives in Subchapter–S corporation distributions should be included, even though Mark must pay his corporate tax liability from that distribution. Mark argues that only the amount he nets should be considered. For 2011, the net amount was $459,048 ($686,800 less $227,752 in taxes) and for 2012, the net amount was $498,458 ($844,831 less $346,373 in taxes). We agree with Rita. As explained below, courts normally look to taxable income when determining a paying spouse's ability to pay child support and Mark fails to persuade us that the amounts he nets are comparable to normal taxable income.
¶ 14 Mark argues that the portion of the Subchapter–S corporation distributions that he receives to pay his portion of the corporation's tax liability is not gross income for child support purposes. His argument is that he does not actually receive the portion of the distribution used to pay taxes because the money was distributed to him for the purpose of satisfying his personal tax liability on the corporation's earnings. In other words, he contends that the money is illusory to him, Rita, and the children because he never gets to use the money. Mark analogizes the distributions made to pay taxes with the facts in Winters v. Winters, 2005 WI App 94, 281 Wis.2d 798, 699 N.W.2d 229, where the minority shareholder in that case had no control or access to corporate retained earnings, and argues that the result in Winters should be the same here. We are not persuaded.
¶ 15 When determining child support, Wisconsin law requires a court to base its determination on the parent's annual gross income. Wis. Admin. Code § DCF 150.03. The definition of gross income includes, “[a]ll other income, whether taxable or not ” except for several types of income that are not at issue here. Wis. Admin. Code § DCF 150.02(13)(a)1 0. (emphasis added). Gross income for child support purposes is defined in broad terms. In Schinner v. Schinner, 143 Wis.2d 81, 104, 420 N.W.2d 381 (Ct.App.1988), we stated that the “[s]ources of income, ordinary and extraordinary, are to be considered when setting child support.” In Lyman v. Lyman, 2011 WI App 24, ¶¶ 13–17, 331 Wis.2d 650, 795 N.W.2d 475, we started with the premise that all income is included in gross income to determine child support obligations. This language is broad and all-inclusive, and is construed as including all before-tax income, with certain exceptions. See id., 331 Wis.2d 650, ¶ 23, 795 N.W.2d 475 ().
¶ 16 To sum up, in the usual case a payer's gross income is the starting point in setting child support. Thus, a reasonable starting assumption here is that Mark's Subchapter–S distributions, including the portion used to pay Mark's tax obligation, are properly considered in determining Mark's gross income.
¶ 17 Mark does not provide a cogent reason for treating pass-through distributions to a minority shareholder differently than other taxable income, such as W–2 wages. Regardless of the source of income, under both scenarios the payer is mandated to pay taxes on the amount received, and yet, in Mark's view, his “distribution” income should be treated differently. We fail to see the distinction that Mark wants us to accept. In sum, there is no indication in the definition of gross income that would lead us to believe that the portion of Mark's Subchapter–S corporation distributions used to pay his tax liability should be treated differently from other taxable income for child support purposes.
¶ 18 As indicated, the circuit court relied on Winters when it declined to include Mark's Subchapter–S corporation distributions in his gross income. Mark also relies on Winters as the basis for excluding his Subchapter–S corporation distributions from his gross...
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