IN RE MARRIAGE OF WINTERS v. Winters

Citation2005 WI App 94,281 Wis.2d 798,699 N.W.2d 229
Decision Date13 April 2005
Docket NumberNo. 2004AP747.,2004AP747.
PartiesIN RE the MARRIAGE OF: Timothy J. WINTERS, Petitioner-Respondent, v. Linda WINTERS, Respondent-Appellant, ADAIR, Garnishee.
CourtCourt of Appeals of Wisconsin

On behalf of the respondent-appellant, the cause was submitted on the briefs of Carl Robert Scholz of Carl Robert Scholz, S.C., Mequon.

On behalf of the petitioner-respondent, the cause was submitted on the brief of Thomas D. Klein and Jennifer J. Van Kirk of Peckerman & Klein, Milwaukee.

Before Anderson, P.J., Nettesheim and Snyder, JJ.

¶ 1. SNYDER, J.

Linda Winters appeals from an order addressing contested child support issues. Linda and Timothy J. Winters divorced in 1993 and Linda now seeks judicial review of Timothy's child support obligation. She contends that Timothy improperly excluded investment profit when calculating his child support obligation and that he failed to set aside a certain percentage of the cash distributions from his investment for their children's post-high school education expenses. She further contends that the circuit court erred in ruling that her discovery demand exceeded the bounds of information reasonably calculated to lead to discovery of admissible evidence. The circuit court ruled in favor of Timothy. We agree and affirm the order of the circuit court.

BACKGROUND

¶ 2. In 1993 Linda and Timothy divorced. Pursuant to the marital settlement agreement, Timothy is obligated to pay 25% of his gross income as child support for his two children. At the time of the divorce, Timothy owned 200 shares of stock in Precision Color Graphics, Inc., which was awarded to him in the settlement agreement. The marital settlement agreement provided that dividends, distributions or proceeds from the sale or redemption of this stock would be divided; Timothy would receive 90%, and 5% would go to each of the parties' two children. According to the agreement, that portion of the "funds awarded to the minor children may be deposited in trust ... for distribution to them outright at age 24, or for application to payment of tuition and room and board expenses for post-high school education."

¶ 3. Timothy's ownership interest in Precision Color Graphics is 10%, a minority interest. Between 1993 and 2002, Timothy reported a total of $341,018 on his tax returns as his proportionate share of Precision Color's corporate net profits. Between 1995 and 2002, Timothy reported $113,848 in cash distributions from the company. Precision Color is an S corporation, and therefore taxes are paid by the shareholders. Precision Color retains all of its earnings, distributing cash to allow shareholders to pay the tax liability created by the earnings. Pursuant to Precision Color's Stock Redemption Agreement, Timothy is permitted to sell his stock. However, as a minority shareholder, he has no power to force distribution of the retained earnings of the company.

¶ 4. In February 2002, the State filed a motion to convert Timothy's child support obligation from an income percentage to a set dollar amount. Timothy's child support obligation was converted to a fixed rate based on his employment income only. At that time, Linda noticed the Precision Color income Timothy had reported on his 1998 to 2001 income tax returns. Linda subsequently filed an Order to Show Cause seeking to include Timothy's share of the undistributed net profits as well as the cash distributions from Precision Color when calculating his child support obligation. She further sought to compel Timothy to place 10% (5% per child) of the cash distributions he received into post-high school education accounts. In addition, Linda sought discovery of financial documents she alleged would support her claim that Timothy was underreporting his income for child support purposes.

¶ 5. The circuit court ruled in Timothy's favor, holding that neither the proportionate share of net profits from Timothy's investment nor the cash distributions paid to him should be considered income available for child support purposes, and that the children's share of the Precision Color proceeds should be distributed upon the final sale or redemption of the stock. The court denied Linda's request for production of financial documents other than Timothy's tax returns and his Financial Disclosure Statement. Linda appeals.

DISCUSSION

¶ 6. Linda raises several issues for our review. First, she contends that the circuit court erred when it ruled that Timothy's undistributed investment profits and the cash distributions from Precision Color were not gross income for child support purposes. Next, she argues that Timothy should be obliged to put a percentage of his Precision Color cash distributions into an educational fund for the children. Finally, Linda argues that the court's decision to quash her demand for discovery was error. We take each issue in turn.

¶ 7. Resolution of whether Timothy's undistributed income from Precision Color should be included in the child support calculation requires us to apply WIS. ADMIN. CODE § DWD 40.02(13)(a)(9) (Dec. 2003).2 The application of an administrative rule to undisputed facts is a question of law that we review de novo. Weis v. Weis, 215 Wis. 2d 135, 138, 572 N.W.2d 123 (Ct. App. 1997). Section DWD 40.02(13) defines "gross income" to include salary and wages, investment income, and "[u]ndistributed income of a corporation, including a closely — held corporation, or any partnership, including a limited or limited liability partnership, in which the parent has an ownership interest sufficient to individually exercise control or to access the earnings of the business . . . ." Sec. DWD 40.02(13)(a)(1), (2) and (9) (emphasis added).

¶ 8. Linda contends that no published Wisconsin case discusses proper treatment of "pass-through profit-based income for child support purposes."3 We disagree. In Weis,4 we considered whether undistributed partnership profits should be included in the calculation of a payer's child support obligation. Weis, 215 Wis. 2d at 141. The facts in Weis are sufficiently similar to those presented here, and we comfortably draw the analogy.

¶ 9. In Weis, we held that two factors must be considered when undistributed company earnings are at issue. First, the court must ascertain whether the child support payer has the ability to individually control or access the undistributed earnings. Id. Second, the court must determine whether there is a valid business reason for the company's decision to retain the earnings. Id. at 141-42. If the payer has the ability to individually control or access earnings and the company has no valid reason for retaining its earnings, the undistributed income can be considered when calculating the payer's child support obligation. Id. at 142.

¶ 10. Here the parties agree that Timothy is a minority shareholder, owning a 10% interest in Precision Color. Further, the parties stipulated on the record that John Goeden, who is the majority shareholder of Precision Color, has control of the company and can choose whether or not to make any distribution of earnings to the shareholders. Nonetheless, Linda contends that Timothy is "not ... constrained from obtaining his proportionate share of the company's reported earnings." She asserts that under the Stock Redemption Agreement entered into by Precision Color shareholders, Timothy has the authority to "liquidate all, or any portion, of his investment, at any time." Linda's argument erroneously equates Timothy's ability to control undistributed earnings with his ability to sell his stock.

¶ 11. Linda also argues that public policy prohibits a payer from using "financial stratagems" to hide income. That, in fact, is the concern addressed by the second Weis condition: whether the payer is using the company as a "pretext to manipulate income." Id. at 141-42. Linda does not explain how Timothy has manipulated his income, given that he has no individual control or access to the undistributed earnings. While we have no dispute with Linda's contention that public policy prohibits sheltering income to avoid child support, she presents no logical connection between Precision Color's undistributed earnings and the goals of this public policy.

¶ 12. We conclude that Timothy, in his S corporation minority shareholder status, does not have the ability to individually control or access undistributed earnings; therefore, the first Weis condition is not met. See id. at 141. Because both conditions must be present for the court to consider undistributed earnings for child support purposes, we need not address the second factor. See id. at 142.

¶ 13. Linda next argues that the cash distributed by Precision Color to its shareholders for payment of taxes on the undistributed earnings should be considered income available for child support purposes. Linda fails to set forth any legal authority for her position. She states that the "Trial Court's way of looking at the situation is legally flawed" and calls the court's decision "factually unsound" and "erroneous in several ways." In her reply brief, Linda criticizes Timothy's use of case law from foreign jurisdictions, contending that it is not instructive because she can cite to foreign jurisdictions to support her argument as well.5 Nonetheless, Linda never develops her position. Propositions unsupported by legal authority are inadequate, and we will not consider them. State v. Shaffer, 96 Wis. 2d 531, 545, 292 N.W.2d 370 (Ct. App. 1980). Thus, under Shaffer, our consideration of Linda's proposition ends here.

¶ 14. Linda next argues that the circuit court erred when it held that Timothy was not obligated to set aside money from the cash distributions in an educational trust for future application to the post-high school education expenses of the parties' two children. She points us to the following language in the marital settlement...

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