Clark v. Clark

Decision Date11 December 2013
Docket NumberNo. 31,547.,31,547.
PartiesRosalyn CLARK, Petitioner–Appellant, v. Frank CLARK, Respondent–Appellee.
CourtCourt of Appeals of New Mexico

320 P.3d 991

Rosalyn CLARK, Petitioner–Appellant,
v.
Frank CLARK, Respondent–Appellee.

No. 31,547.

Court of Appeals of New Mexico.

Aug. 12, 2013.
Certiorari Denied, No. 34,414, Dec. 11, 2013.


[320 P.3d 994]


Atkinson & Kelsey, P.A., Thomas C. Montoya, Albuquerque, NM, for Appellant.

Johnson Family Law, P.C., Barbara V. Johnson, Albuquerque, NM, for Appellee.


OPINION

GARCIA, Judge.

{1} Wife appeals the district court's award of spousal support for a fixed eighteen-month term that was based upon the apportionment of wages between Husband and the community but that excluded certain income distributions from Husband's separate Subchapter–S corporation. Wife asserted three claims of error. We have determined that this matter should now be remanded to the district court to address two of the issues raised. First, subject to certain exceptions, income received from a Subchapter–S corporation owned by a spouse is included when calculating spousal support. Second, the duration of spousal support is controlled by the recipient spouse's ability to become self-sufficient. Neither of these two issues were adequately addressed by the district court nor was an adequate explanation provided for the deviation from the standards prescribed to establish the duration of spousal support and the inclusion of Husband's income from the Subchapter–S corporation. As a result, we affirm in part, reverse in part, and remand for further proceedings.

BACKGROUND

{2} Husband and Wife were married in California in 1998. Wife did not work outside the home during the marriage, although she received income of $3,220 per month as an officer of Husband's separate property business, IPR, Ltd. IPR is a Subchapter–S corporation and Husband is the sole owner and operator of the business.

{3} As a Subchapter–S corporation, all profits and losses from IPR (the K–1 allocations) were passed through to Husband, who paid taxes on the parties' individual income tax return at individual income tax rates. During the marriage, Husband also received both a regular salary from IPR (W–2 income) as well as additional cash distributions from IPR (non–W–2 income), both of these sources of funds were deposited into the same bank account. The district court appointed a Rule 11–706 NMRA financial expert who supplied a three–year summary of wages and other distributions paid to Husband by IPR. The average annual wages reported as W–2 income over the three–year period was $423,413, and the average annual non–W–2 income distributed from IPR was $212,020. The record established that the non–W–2 income distributed from IPR did not match up with the K–1 allocations from IPR that were reported on the parties' tax returns. Based upon this evidence, the district court found that it could not determine from the record what portion of the overall allocations from IPR were actual income received by Husband and what portions were unrelated to income or intended to defray additional income taxes arising from the K–1 allocations received from IPR. Accordingly, based on Husband's W–2 income alone, it calculated Husband's gross pre-tax income for spousal support purposes as $35,284 per month. The district court also determined that a comparable salary for the field work Husband was performing as a project manager for IPR was only $8,333 per month. Despite the difficulties with calculating Husband's significant income from IPR, Husband's pending retirement was also a consideration identified by the district court in making its decision regarding spousal support.

{4} At the time of the final decree of divorce, Husband was 66 years of age, and Wife was 60. Husband's job was physically demanding and, due to his age and health, he wanted to retire. In fact, Husband testified that the pending divorce action was the only reason he had not retired.

{5} The parties did not introduce any evidence of Wife's earning capacity and did not anticipate Wife's return to work as a viable reality under the circumstances presented to the district court. Wife submitted a budget to the court alleging that her reasonable

[320 P.3d 995]

support needs were $20,078 per month. The district court found that many of Wife's alleged expenses were unreasonable or not supported by the evidence. The district court explained, as examples, that “$200 per month for a psychic is not a reasonable therapy expense,” and “[v]acations of $1,000 per month [are] not reasonable for an unemployed person.” It also considered Wife's lack of effort to become self-supporting and the fact that “[b]oth parties are of retirement age and need to transition to retirement.” The district court awarded Wife transitional spousal support for an eighteen-month period, in the amount of $6,500 per month, without any findings regarding how she would be supporting herself thereafter.

{6} The district court entered its final decree of divorce and order on July 13, 2011. The court later entered a stipulated order modifying the final decree on August 2, 2011. Wife timely filed her notice of appeal to this Court.

DISCUSSIONSpousal Support
A. Standard of Review

{7} Spousal support represents a substitute for or a continuation of the right to support that the spouse had during marriage. Ellsworth v. Ellsworth, 1981–NMSC–132,¶ 1, 97 N.M. 133, 637 P.2d 564. In determining whether to order spousal support, the district court is to consider: (1) the needs of the proposed recipient, (2) the proposed recipient's age, health, and means of self-support; (3) the proposed payor's earning capacity and future earnings; (4) the duration of the marriage; and (5) the amount of property owned by the parties. See Michelson v. Michelson, 1974–NMSC–022, ¶ 8, 86 N.M. 107, 520 P.2d 263. The actual need of the proposed recipient is a focal consideration in determining whether to order spousal support. Mattox v. Mattox, 1987–NMCA–021, ¶ 29, 105 N.M. 479, 734 P.2d 259.

{8} The district court has wide discretion to award spousal support, and its decision will only be set aside if it constitutes an abuse of discretion. See Martinez v. Martinez, 1997–NMCA–125, ¶ 10, 124 N.M. 313, 950 P.2d 286;Ellsworth, 1981–NMSC–132, ¶ 2, 97 N.M. 133, 637 P.2d 564. “An abuse of discretion occurs when a ruling is clearly contrary to the logical conclusions demanded by the facts and circumstances of the case.” Sims v. Sims, 1996–NMSC–078, ¶ 65, 122 N.M. 618, 930 P.2d 153. Further, to establish an abuse of discretion, “it must be shown that the court's ruling exceeds the bounds of all reason or that the judicial action taken is arbitrary, fanciful, or unreasonable.” Meiboom v. Watson, 2000–NMSC–004, ¶ 29, 128 N.M. 536, 994 P.2d 1154 (alteration, internal quotation marks, and citation omitted). “When there exist reasons both supporting and detracting from a [district] court decision, there is no abuse of discretion.” Talley v. Talley, 1993–NMCA–003, ¶ 12, 115 N.M. 89, 847 P.2d 323. “Where the court's discretion is fact-based, we must look at the facts relied on by the [district] court as a basis for the exercise of its discretion, to determine if these facts are supported by substantial evidence.” Apodaca v. AAA Gas Co., 2003–NMCA–085, ¶ 60, 134 N.M. 77, 73 P.3d 215 (internal quotation marks and citation omitted).

B. Amount

{9} Wife contends that the district court abused its discretion in calculating the amount of spousal support. The issue before this Court is whether the district court should have considered the non–W–2 income distributions from IPR when it calculated Husband's current earnings for spousal support purposes. Wife asserts that it was an abuse of discretion for the district court to base its spousal support calculation only on a portion of Husband's W–2 wage income and not on the total amount of his income from IPR because NMSA 1978, Section 40–4–7(E)(2) (1997) requires the non–W–2 income distributions to be included in this calculation. Under the particular facts of this case, we agree with Wife on this issue.

{10} As an owner of IPR, Husband is required to include in the parties' personal tax return the portion of IPR's income as set forth in the K–1 allocations to Husband. See Ashmore v. C.I.R., T.C. Memo 2013–137, 105 T.C.M. (CCH) 1815 (recognizing that even where a taxpayer did not receive a tax document

[320 P.3d 996]

such as a form W–2 or schedule K–1, the taxpayer is not excused from his or her duty to report the income on a federal income tax return). Allocations of corporate income are not the same as distributions of corporate income. The non–W–2 income that is actually distributed by IPR is available to be consumed by the parties and can also be used to pay the increased tax obligations incurred as a result of the K–1 allocations issued to Husband by IPR. Important to this analysis, the non–W–2 income distributions from IPR that exceed the amount necessary to pay corporate business expenses or the shareholder-spouse's tax obligations are considered income for purposes of calculating family support obligations. See, e.g.,NMSA 1978, § 40–4–11. 1(C)(2)(b) (2008) (defining, for purposes of child support, a self-employed parent's gross income as gross receipts minus ordinary and necessary expenses required to produce such income); see In re Marriage of Schenkelberg, 824 N.W.2d 481, 484–85 (Iowa 2012) (requiring the inclusion of husband's distributions from his Subchapter–S corporation that are not used for business or to pay tax liabilities).

{11} Only income that has been retained by a corporation for corporate purposes or distributed to a shareholder-spouse in an amount sufficient to pay business–related expenses or tax obligations would be deemed unavailable for use by a shareholder-spouse to satisfy the financial obligations imposed by a dissolution of marriage. SeeNMSA 1978, § 7–4–2(A) (1999) (defining “business income” as “income arising from transactions and activity in the regular course of the taxpayer's trade or business and income from the disposition or liquidation of...

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