In re Schaefer
| Decision Date | 29 September 2022 |
| Docket Number | Court of Appeals No. 21CA0183 |
| Parties | IN RE the MARRIAGE OF Sarah Louise SCHAEFER, f/k/a Sarah DePumpo, Appellant, and Timothy John DEPUMPO, Appellee. |
| Court | Colorado Court of Appeals |
The Harris Law Firm, PLLP, Katherine O. Ellis, Denver, Colorado, for Appellant
Aitken Law, LLC, Sharlene J. Aitken, Denver, Colorado, for Appellee
Opinion by CHIEF JUDGE ROMÁN
¶ 1 Sarah Louise Schaefer, formerly known as Sarah DePumpo (wife), appeals the district court's maintenance and child support awards, and in particular the court's income calculations, entered in connection with the dissolution of her marriage to Timothy John DePumpo (husband). As matters of first impression, wife asks us to consider (1) whether the unrealized capital gains on an investment account awarded as part of the property division constitute "income" for maintenance and child support purposes; and (2) whether the calculation of rental income, required by statutes for child support and maintenance purposes, excludes all depreciation. We say "no" to both considerations.
¶ 2 Our conclusions lead us to reverse the judgment and remand the case to the district court for it to recalculate the parties’ incomes and enter new maintenance and child support awards. We also direct the court on remand to consider wife's request for appellate attorney fees under section 14-10-119, C.R.S. 2021.
¶ 3 The parties had a fifteen-year marriage, during which husband was the source of income through his ownership of several businesses. The income the parties received from the businesses allowed them to amass substantial investment accounts, including a TD Ameritrade account, and purchase several real properties, many of which were used as rentals.
¶ 4 By agreement of the parties, wife stayed home during the marriage to care for the parties’ four children. Wife last worked outside the home in 2007, although she sometimes helped husband with his businesses. At the time of the 2020 permanent orders hearing, wife was enrolled in an online program to earn a master's degree in library science.
¶ 5 As its permanent orders, the court awarded husband $6,703,173.22 of the marital estate. Husband received all the real properties, including the rental properties. The remaining $2,782,365.80, which included the TD Ameritrade investment account, went to wife. To equalize this uneven division, the court ordered husband to pay wife $1,960,403.71.
¶ 6 For maintenance and child support, the court calculated husband's monthly income at $57,662 and wife's at $19,666. The court found that certain factors, such as husband's history as the family income provider and the parties’ high standard of living, entitled wife to a monthly maintenance award while she obtained her master's degree. The court awarded wife $5,000 per month for forty-eight months (the duration of her graduate school program), citing her receipt of substantial liquid assets, current income, and ability to increase her earnings upon graduation.
The court's child support calculations resulted in an order for wife to pay $132 per month to husband.
¶ 7 Wife contends that the court miscalculated both parties’ incomes for maintenance and child support purposes. As mentioned above, wife raises two contentions: First, she argues that the court erroneously included the unrealized capital gains on the TD Ameritrade account as part of her income. Second, she argues that the court erroneously included depreciation expenses associated with the rental properties when calculating husband's income. For the following reasons, we reverse both parties’ income calculations and remand the issue for further consideration.
¶ 8 We review maintenance and child support orders for an abuse of discretion. In re Marriage of Tooker , 2019 COA 83, ¶ 12, 444 P.3d 856. We will not disturb the district court's factual findings unless they are clearly erroneous and unsupported by the record. In re Marriage of Salby , 126 P.3d 291, 298 (Colo. App. 2005). We review de novo whether the court applied the proper legal standard. Tooker , ¶ 12.
¶ 9 Wife does not dispute on appeal the court's finding that she could earn $3,000 per month. However, she disputes that the $16,666 in unrealized monthly gains reflected in the TD Ameritrade account should be imputed to her as additional income.
¶ 10 At the hearing, husband hired an expert to calculate the historical returns on the TD Ameritrade account. The expert first calculated the historical, long-term returns on stock accounts, using the S&P 500 and similar returns on a mixed portfolio of stocks and bonds, using Vanguard. He determined that the S&P 500 averaged a 9.5% return rate over 91 years and Vanguard averaged a 7.8% rate over 91 years. The expert then calculated short-term returns, opining that a party could earn a 5% return in the stock market "without working too hard."
¶ 11 Next, the expert looked at the parties’ TD Ameritrade account, concluding that it averaged a 15.32% return rate over 10 years. The expert acknowledged that the returns on the TD Ameritrade account varied from month to month and that his historical analysis was not indicative of future returns. But the expert testified that the account balance grew every year and did not deplete. The expert did not distinguish between unrealized capital gains and dividends, interest, realized capital gains, and other "returns," but included unrealized capital gains as "returns."
¶ 12 Finally, the expert calculated the specific amount of returns that a hypothetical $4,000,000 portfolio of stocks and bonds could expect to each generate under the four percentages stated above.1 The expert established that a 5% return rate on that hypothetical portfolio would generate $200,000 per year ($16,666 per month), a 7.8% rate would generate $312,000 per year ($26,000 per month), a 9.5% rate would generate $380,000 per year ($31,666 per month), and a 15.32% rate would generate $612,800 per year ($51,066 per month).
¶ 13 The court found the expert's testimony credible. It found that the TD Ameritrade account could generate between $16,666 and $51,066 per month in returns. The court adopted the lowest return amount of $16,666 and imputed it to wife as part of her monthly income determination.
¶ 14 We conclude that the court erred by including in wife's income calculation the $16,666 in returns on the TD Ameritrade account. We hold that unrealized capital gains in an investment account are not income for maintenance and child support purposes.
¶ 15 A party's gross income for child support and maintenance purposes means "income from any source." § 14-10-114(8)(c)(I), C.R.S. 2021; § 14-10-115(5)(a)(I), C.R.S. 2021. "Income from any source" includes dividends, interest, and capital gains. § 14-10-114(8)(c)(I)(F), (K), (N) ; § 14-10-115(5)(a)(I)(F), (K), (N). "Income from any source" also includes the amount of income an asset generates or even the principle of the asset if it is used as income. In Interest of A.M.D. , 78 P.3d 741, 746 (Colo. 2003) ; In re Marriage of Bregar , 952 P.2d 783, 786 (Colo. App. 1997) ; In re Marriage of Armstrong , 831 P.2d 501, 503 (Colo. App. 1992).
¶ 16 However, neither the maintenance nor child support statute defines whether unrealized gains in an investment account constitute "income." And no Colorado cases have addressed this point. So, we look at the few out-of-state rulings on this issue before turning to analogous Colorado cases.
¶ 17 Cases in New York hold that the unrealized increase in value of an investment account is "paper only" income and should be excluded when determining income for the purposes of calculating child support. See Cupkova-Myers v. Myers , 63 A.D.3d 1268, 880 N.Y.S.2d 736, 737-38 (2009) (); Gluckman v. Qua , 253 A.D.2d 267, 687 N.Y.S.2d 460, 462 (1999) ().
¶ 18 Arkansas cases similarly conclude that the increase in a stock portfolio is not income for child support or maintenance purposes unless the increase can be accessed and used by the party. See Dare v. Frost , 2018 Ark. 83, at 6-7, 540 S.W.3d 281, 284-85 (); Grimsley v. Drewyor , 2019 Ark. App. 218, at 22, 575 S.W.3d 636, 648 ().
¶ 19 Analogous Colorado cases generally agree that an unrealized compensation source not expressly defined by the maintenance and child support statutes is only "income" if it is available to the party to meet living expenses or to increase their standard of living. See A.M.D. , 78 P.3d at 746 (); In re Parental Responsibilities Concerning N.J.C. , 2019 COA 153M, ¶ 22, 467 P.3d 1209 (); Tooker , ¶¶ 9-10 (); In re Marriage of Davis , 252 P.3d 530, 535 (Colo. App. 2011) (...
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