Merrill v. Merrill

• Decision Date: 05 March 1992
• Docket Number: No. 71A03-9110-CV-327,71A03-9110-CV-327
• Citation: 587 N.E.2d 188
• Parties: In re the Marriage of Marc O. MERRILL, Appellant-Respondent Below, v. Joan M. MERRILL, Appellee-Petitioner Below.
• Court: Indiana Appellate Court

Page 188

587 N.E.2d 188

In re the Marriage of Marc O. MERRILL, Appellant-Respondent Below, v. Joan M. MERRILL, Appellee-Petitioner Below.

No. 71A03-9110-CV-327.

Court of Appeals of Indiana Third District.

March 5, 1992.

Jeffrey Kehl, South Bend, for appellant-respondent.

Aladean M. Derose, South Bend, for appellee-petitioner.

STATON, Judge.

Marc O. Merrill (Father) appeals from a judgment modifying his weekly child support payment from $50 to $177 per week. He raises the following two issues for our review:

I. Whether the trial court erred by failing to deduct payment made toward principal on business debts from gross profit from Father's closely held corporation in determining weekly available income for child support purposes.

II. Whether the trial court erred in including a portion of retained earnings of Father's closely held corporation as disposable income for child support purposes.

We affirm.

The marriage of Father and Joan M. Merrill (Mother) produced a child, Kristin Marie, aged nine at the time of this proceeding. They were divorced in 1986 and custody of Kristin was granted to Mother, while Father was ordered to pay weekly support in the sum of $50 per week. On January 21, 1991, Mother filed a petition to modify the support payment. A hearing was held before a magistrate, and upon the evidence presented, Father's support payment was increased to $177 per week. He appeals.

The magistrate entered findings pursuant to Indiana Code 33-4-7-8, which were approved by the Circuit Court judge. Since the trial court made specific findings of fact and conclusions of law, we are bound to review the same under the following standard: we first must determine whether the evidence supports the findings; then determine whether the findings support the judgment. Kaminszky v. Kukuch (1990), Ind.App., 553 N.E.2d 868, 870, transfer denied. The judgment of the trial court will be affirmed if we conclude that the special findings support the judgment and are not clearly erroneous. Brancheau v. Weddle (1990), Ind.App., 555 N.E.2d 1315, 1317. A judgment is clearly erroneous where a review of the record leaves us with a firm conviction that a mistake has been made. Indiana Dept. of Correction v. Stagg (1990), Ind.App., 556 N.E.2d 1338, 1341, transfer denied.

I. Principal Payments on Business Debts

Father is the sole stockholder of a pharmacy organized as a Subchapter S corporation. He takes issue with the following finding:

The Court finds that the husband voluntarily left a lucrative pharmacist position which paid $34,387.00 in 1984 to start his own business. While husband should be congratulated for his entrepreneurial skill, he should not be able to reap the benefits of entrepreneurial skill and withhold income or other resources from the Court in considering the amount of child support to be enjoyed by his offspring. A self-employed person such as the husband has discretion to defer current income by incurring debt, the interest on said debt being deductible for tax purposes. The principal, as it is paid back over years, increases the husband's net worth and by the time this child is of the age majority [sic], the husband would be the owner of valuable real estate debt free. If the husband's argument was allowed to prevail, a noncustodial parent could engage in self-employment, borrow money to the maximum amount allowed, and declare that a very large percentage of income is used to pay the interest and principal on the debt and therefore, very little income should be considered available for determining child support. Such is obviously not contemplated by the guidelines when considering the language of I.C. 31-1-11.5-12.

Record, p. 42. Father argues that payments of principal on the debts incurred to purchase his pharmacy business were "ordinary and necessary expenses" which are properly deducted from the weekly gross income calculation under the child support guidelines.

The Preface of the Indiana Child Support Guidelines states that the guidelines are consistent with the provisions of Indiana Code 31-1-11.5-12. That statute outlines a number of considerations in the setting of child support payments, one of which is the financial resources of the noncustodial parent. ¹ Ind. Child Support Guideline 1. Evidence of a parent's net worth and assets are relevant subjects of inquiry in a proceeding to establish or modify child support. Green v. Green (1983), Ind.App., 447 N.E.2d 605, 609, transfer denied. Child Support Guideline 3 specifically addresses income from self-employment or operation of a business:

2. Weekly Gross Income from self-employment, operation of a business, rent, and royalties is defined as gross receipts minus ordinary and necessary expenses. Specifically excluded from ordinary and necessary expenses for purposes of these Guidelines are depreciation, investment tax credits, or any other business expense determined by the Court to be inappropriate for determining weekly gross income for purposes of calculating child support. In general, these types of income and expenses from self-employment or operation of a business should be carefully reviewed. In most cases, this amount will differ from a determination of business income for tax purposes.

(Emphasis added). This Guideline clearly vests discretion with the trial court to scrutinize the self-employed parent's financial situation closely, and to exclude as a business expense any expenditure which the court in its discretion finds will personally benefit the parent. The Commentary gives further light to this provision:

Calculating weekly gross income for the self-employed or for those who receive rent and royalty income presents unique problems and calls for careful review of expenses. The principle involved is that actual expenses are excluded and benefits that...