IN RE MARRIAGE OF WINTERS v. Winters, 2004AP747.

• Court: Court of Appeals of Wisconsin
• Writing for the Court: Before Anderson, P.J., Nettesheim and Snyder, JJ.
• Citation: 2005 WI App 94,281 Wis.2d 798,699 N.W.2d 229
• Parties: IN RE the MARRIAGE OF: Timothy J. WINTERS, Petitioner-Respondent, v. Linda WINTERS, Respondent-Appellant, ADAIR, Garnishee.
• Docket Number: No. 2004AP747.,2004AP747.
• Decision Date: 13 April 2005

281 Wis.2d 798
2005 WI App 94
699 N.W.2d 229

IN RE the MARRIAGE OF: Timothy J. WINTERS, Petitioner-Respondent,
v.
Linda WINTERS, Respondent-Appellant,¹
ADAIR, Garnishee

No. 2004AP747.

Court of Appeals of Wisconsin.

Submitted on briefs February 3, 2005.

Decided April 13, 2005.

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.

281 Wis.2d 800

¶ 1. SNYDER, J

Linda Winters appeals from an order addressing contested child support issues. Linda

281 Wis.2d 801

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

281 Wis.2d 802

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

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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

281 Wis.2d 804

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

281 Wis.2d 805

undistributed income can be considered when calculating the payer's child support obligation. Id. at...