Everett v. Tawes

• Decision Date: 31 October 2019
• Docket Number: Record No. 181238
• Citation: Everett v. Tawes, 833 S.E.2d 876 (2019)
• Court: Virginia Supreme Court
• Parties: James David EVERETT, II v. Kathryn Jean TAWES

833 S.E.2d 876

James David EVERETT, II

v.Kathryn Jean TAWES

Record No. 181238

Supreme Court of Virginia.

October 31, 2019

Robert L. Harris, Jr. (Barnes & Diehl, on briefs), Richmond, for appellant.

Player B. Michelsen (Stiles Ewing Powers, on brief), for appellee.

PRESENT: All the Justices

OPINION BY JUSTICE S. BERNARD GOODWYN

In this appeal, we consider whether the Court of Appeals erred in affirming a circuit court judgment that denied a request to retroactively modify a pendente lite spousal support award.

I. BACKGROUND

On April 26, 2016, Kathryn Tawes (Tawes) filed a complaint for divorce in the Circuit Court of the City of Williamsburg and James City County against James Everett, II (Everett). Tawes also filed a motion for temporary spousal support pursuant to Virginia Ninth Judicial Circuit guidelines and moved for a pendente lite hearing on the matter.

The circuit court held a hearing on the motion for spousal support pendente lite on October 13, 2016. At that hearing, Tawes testified that she has monthly expenses of approximately $11,700. Everett’s tax returns were presented to the court. They showed that his average gross monthly income was approximately $33,000.

A chef by profession, Everett testified that he is a member of multiple limited liability corporations (LLCs) that run several restaurants in the Williamsburg area. He stated that he earns income from his hours spent at these restaurants via a "guaranteed payment to management," which totals $10,000 per month. He explained that for purposes of taxation, he has to report his share of ordinary income allocated to him from the LLCs, even if he does not actually receive a cash distribution from the LLCs. Everett testified that the $33,000 gross monthly income figure inflated the amount of cash income he actually received because he did not directly receive the ordinary income allocated to him as an LLC member, and the distributions he in fact received from the LLCs were primarily to pay his personal tax liability on the pass-through income allocated to him.

The circuit court commented that it needed an expert to understand Everett’s tax returns. Tawes noted that, regardless of Everett’s assertion regarding his actual cash flow, the Ninth Judicial Circuit spousal support guidelines require using the amount of gross income in determining the appropriate amount of spousal support.

On December 12, 2016, the circuit court entered a pendente lite order, which required Everett to continue to pay the mortgage and expenses for the marital home and Tawes’ car payments and insurance, which totaled approximately $5,900 per month. The order also awarded Tawes an additional $7,831 per month in cash spousal support, retroactive to May 1, 2016. The circuit court calculated that Everett owed an arrearage of $46,986 upon entry of the order.

Everett paid the mortgage and car payment obligations, but only a portion of the cash spousal support obligation due and owing for December 2016 through March 2017, and none of the arrearage. Tawes subsequently requested, and the circuit court issued, a rule to show cause to Everett because of his failure to pay as required by the pendente lite order. In response, Everett filed a motion for the circuit court to reconsider the pendente lite spousal support award, arguing that the award amount improperly exceeded his ability to pay and Tawes’ needs.

On March 28, 2017, the circuit court held a hearing on the rule to show cause and motion to reconsider the pendente lite spousal support amount.¹ Everett once again testified that all of the LLC members have to pay tax according to their ownership interests in the LLCs and that they are allocated income from the LLCs for taxation purposes, but are not necessarily paid those allocations.

He also presented expert testimony concerning the income reported on his tax return. David Damiani (Damiani), a certified public accountant, testified that Everett’s tax forms show his share of the LLCs' "net ordinary business income," but that those shares do not represent actual cash received by Everett. Damiani explained that the restaurant LLCs do not pay state and federal taxes themselves, and those taxes pass through to the LLC members. He testified that, where an LLC member receives no distributions or guaranteed payments from the LLC, the member would still have to pay taxes on his or her share.

At the conclusion of the evidence, Everett argued that, without any distributions, which are not guaranteed and are primarily used to pay taxes owed on his income from the LLCs, he regularly receives only his guaranteed payment of $10,000 a month. Therefore, the current pendente lite spousal support award was excessive. He also asserted that the circuit court had the authority to retroactively modify the pendente lite order.

Tawes argued that the circuit court had spoken through the pendente lite order "as it exists now." The circuit court responded to Tawes:

I understand that. And that is creating an issue for me . Gentlemen, I do find it offensive to come in and imply that somebody’s income is $600,000 [when] he is living in an outbuilding and there is absolutely no evidence of a lavish lifestyle or anything else and to come in and to point to certain areas in a tax return and say, see, you know, there is a lot more money here than meets the eye, when there is not, absolutely no external evidence of that being true .

(Emphases added.)

The circuit court declined to find Everett in contempt and dismissed the rule to show cause. The circuit court observed that the amount of pendente lite spousal support awarded and the arrearage it created was an "injustice." Unsure whether it had the authority to retroactively change the pendente lite spousal support it previously ordered, the circuit court deferred ruling on the motion to reconsider, pending further briefing from the parties on whether a circuit court can retroactively modify a pendente lite spousal support order.

After the requested briefing, the circuit court held a hearing on June 6, 2017. At that hearing, concerning the circuit court’s inquiry about its authority to retroactively modify a pendente lite spousal support order, the circuit court noted that there is "no answer to this question." The circuit court indicated that it preferred to avoid answering the question regarding its authority to modify the pendente lite order. It stated it would consider any unjust pendente lite arrearage or payments when ruling on equitable distribution.

The circuit court conducted a four-day trial on equitable distribution and spousal support beginning on July 25, 2017. At the conclusion of the evidence, before closing argument, the circuit court noted that the $66,437 owed pursuant to the pendente lite order

is an arrearage .... Whether or not I have the authority to vacate that is just ground I don’t want to cover. And as far as I know, the appellate courts have never addressed the authority to vacate that. And I don’t want to do something at the expense of this family.

After closing argument, the circuit court stated from the bench:

The arrearage of $66,437 remains. I am not going to change the pendente lite order .... That put Mr. Everett in a position where he flat out almost didn’t have the ability to pay and allow himself anything to live on. I can only surmise that arguing Mr. Everett’s ... tax return is what caused this and gave an inaccurate ability – inaccurate picture of his ability to pay. But that arrearage stays in the case.

On November 1, 2017, the circuit court entered a final divorce decree,² ordering Everett to pay $4,800 in spousal support per month, declining to modify the pendente lite order retroactively, and ordering Everett to pay $66,437 in pendente lite spousal support arrearage.³

Everett appealed to the Court of Appeals, which affirmed the judgment of the circuit court and stated that the circuit court "did not err in denying [Everett’s] request to modify the pendente lite order retroactively." The Court of Appeals premised its holding on the "settled" notion that "support payments vest as they accrue and may not be modified retroactively." Everett v. Tawes , No. 1838-17-1, 2018 WL 3351291, at *2 (July 10, 2018). Everett appeals.

II. ANALYSIS

Everett argues that the Court of Appeals erred in affirming the circuit court’s judgment because the cases cited by the Court of Appeals pertain to spousal support owed pursuant to a final decree, not an interlocutory order. He asserts that a circuit court has the authority to retroactively modify a pendente lite spousal support order because it is an interlocutory order. Additionally, Everett claims that the circuit court abused its discretion in refusing to retroactively modify the pendente lite spousal support ordered in this case because it mistakenly believed it did not have the authority to do so.

Tawes argues that Code §§ 20-109 and -112 bar circuit courts from retroactively modifying pendente lite spousal support orders. She also contends that the circuit court did not abuse its discretion in refusing to reconsider the terms of the pendente lite spousal support ordered in this case. She asserts that reasonable jurists could differ on the appropriate amount of spousal support, and there was sufficient evidence to support the amount of pendente lite spousal support awarded to her.

In determining this case, we must resolve two issues. First, does a circuit court have the power to retroactively modify a pendente lite order for spousal support? Second, if so, did the circuit court abuse its discretion in its consideration of the motion to reconsider the pendente lite spousal support awarded in this case?

A. Authority to Modify a Pendente Lite Order Retroactively

Whether the circuit court has authority to modify its own order is a question of law we review de novo. Hackett v. Commonwealth , 293 Va. 392, 399, 799 S.E.2d 501 (2017).

1. A Pendente Lite Order Is Interlocutory

In a divorce proceeding, a pendente lite order...