Messer v. Messer, 3825.

Decision Date14 June 2004
Docket NumberNo. 3825.,3825.
Citation359 S.C. 614,598 S.E.2d 310
CourtSouth Carolina Court of Appeals
PartiesPatricia Houston MESSER, Respondent/Appellant, v. John A. MESSER, III, Appellant/Respondent.

S. Allan Hill, of Greenville; for Appellant/Respondent.

William B. Swent, of Greenville; for Respondent/Appellant.

HOWARD, J.:

Patricia Houston Messer ("Wife") brought this contempt action against her former husband, John A. Messer, III ("Husband"), to collect alimony payable under a separation agreement incorporated into the parties' final divorce decree.

After multiple hearings, the family court ruled: 1) income should be imputed to Husband for his voluntary underemployment; 2) Husband improperly classified income derived from the sale of his business under a covenant not to compete as capital gains, thus shielding the income from the alimony formula contained in the agreement; 3) Husband was responsible for Wife's attorney's fees; and 4) Wife waived her right to additional alimony for the period prior to 1997. Both parties appeal. We affirm in part, reverse in part, and remand.

FACTUAL/PROCEDURAL BACKGROUND

Wife and Husband were married in 1960 and separated in 1982. They had two minor children when they separated, a son, fourteen years of age, and a daughter, ten years of age.

The parties entered into a separation agreement later approved and incorporated into the final divorce decree. In pertinent part, the decree provided Husband would pay Wife $1,200 per month in alimony and $250 per month in child support for each child during their minority. Thereafter, when the children graduated from high school, they each had two years in which to begin college, during which the child support obligation continued. Once they entered college, child support payments for each child decreased to $100 per month and ceased once each child had been given the opportunity to complete at least four years of college or post-graduate study.

Once child support payments ceased under the formula above, Husband's alimony payments became subject to an alimony formula. Pursuant to the formula, Husband was to pay thirty percent of the first $85,000 of his adjusted gross income, excluding capital gains, and ten percent of his income as so defined over $85,000. Furthermore, the formula provides, "in no event... [shall Husband pay] less than Sixteen Thousand ($16,000.00) per year, nor more than Twenty Nine Thousand Five Hundred ($29,500.00) Dollars per year."1

The alimony formula contained a second, limiting clause ("the seventy-five percent clause") providing as follows:

That because of any future changes in federal tax structure or the economic or physical conditions affecting the husband, he, at no time, under the payment schedules set forth above, shall pay more than Seventy Five (75%) percent of his annual income after Federal and State Taxes, FICA deductions, and child support payments are deducted.

At the time of separation, Husband was a salaried employee in his father's mirror manufacturing company, Messer Mirror, earning $42,000 per year. By 1988, through purchase and inheritance of the company's stock, the Husband controlled the company and owned a fifty-seven percent interest in it. In 1988, the Husband sold Messer Mirror to Messer Industries, a newly formed company owned by outside interests, under an Asset Purchase Agreement for a total acquisition price of $6.5 million. As a part of the purchase agreement, Messer Industries agreed to pay Husband $1.5 million as consideration for a five-year covenant not to compete.

In the ensuing years, Husband declared each payment under the covenant as capital gain, rather than ordinary income, thereby shielding the income from the alimony formula. He also invested his proceeds from the sale in investments yielding non-taxable income. Because payments were temporarily discontinued during a dispute between Messer Industries and the Husband, he will continue to be paid $66,766 per year through 2007.

After Husband discontinued child support, he ceased making alimony payments because his ordinary income was so low no alimony was payable under the seventy-five percent clause. Subsequently, Wife filed a petition seeking a rule to show cause, arguing the seventy-five percent clause was inapplicable and Husband's ordinary income was artificially low. Husband moved to dismiss the action because the agreement incorporated into the decree contained an arbitration provision. The family court dismissed the petition, ruling the action must be arbitrated. Thereafter, Wife appealed to this Court, and this Court reversed and remanded, ruling the arbitration clause was unenforceable.2

Upon remand, the family court: 1) ruled Husband was liable for unpaid alimony and interest accruing after August 1997; 2) ruled Wife waived her claim for alimony for the period prior to August 1997; and 3) awarded Wife attorneys' fees. Both parties appeal.

STANDARD OF REVIEW

In appeals from the family court, this Court has authority to find the facts in accordance with its own view of the preponderance of the evidence. Woodall v. Woodall, 322 S.C. 7, 10, 471 S.E.2d 154, 157 (1996). This broad scope of review, however, does not require us to disregard the findings of the family court. Stevenson v. Stevenson, 276 S.C. 475, 477, 279 S.E.2d 616, 617 (1981). Rather, we are mindful that the trial judge, who saw and heard the witnesses, was in a better position to evaluate their credibility and assign comparative weight to their testimony. McAlister v. Patterson, 278 S.C. 481, 483, 299 S.E.2d 322, 323 (1982).

ISSUES PRESENTED

I. Husband's Appeal

A. Did the family court err by ruling Husband violated the covenant of good faith and fair dealing?
B. Did the family court err by reclassifying income derived from the covenant not to compete as ordinary income?
C. Did the family court err by imputing income to Husband?
D. Did the family court err in its interpretation of the seventy-five percent clause?
E. Did the family court err by awarding Wife attorneys' fees?

II. Wife's Appeal

A. Did the family court err by ruling Wife waived her right to additional alimony under the alimony formula accruing prior to 1997?
LAW/ANALYSIS
I. Husband's Appeal
A. Did the family court err by ruling Husband violated the covenant of good faith and fair dealing?

Husband argues the family court erred by ruling he violated the covenant of good faith and fair dealing by minimizing his ordinary income and thus his alimony obligation.3 We agree.

In the enforcement of an agreement, the court does not have the authority to modify terms that are clear and unambiguous on their face. Ebert v. Ebert, 320 S.C. 331, 338, 465 S.E.2d 121, 125 (Ct.App.1995).

At the time of the decree, Husband was a salaried employee in his father's mirror manufacturing company, Messer Mirror, earning $42,000 per year. By 1988, through purchase and inheritance of the company's stock, Husband owned a fifty-seven percent controlling interest in the company. Subsequently, Husband sold Messer Mirror to Messer Industries, a newly formed company owned by outside interests. As part of the purchase agreement, Messer Industries agreed to employ Husband for five years as president at a compensation of $86,000 per year, comprised of a salary of $80,000 and a car allowance valued at an additional $6,000 per year.

In 1996, Husband's salaried position with Messer Industries was terminated. Thereafter, he did not seek another salaried position. Instead, Husband started Continental Marketing to market furniture. He organized and managed Continental's finances to avoid paying ordinary income to himself, where possible. Although other members of his family work in the business and receive ordinary income, he does not. At the same time, many of his living expenses, such as automobile, medical and dental bills, are paid through the company without incurring ordinary income subject to the alimony formula.

As a result of these events, Husband claimed his adjusted gross income, excluding capital gains, fell below the minimum amount triggering alimony under the alimony formula, thereby eliminating his alimony obligation in each subsequent tax year.

In its final order, the family court acknowledged Husband's management and tax reporting of Continental's finances may be "technically legal and indeed may well constitute wise tax planning." Nevertheless, the family court ruled Husband voluntarily and purposefully decreased the amount of his ordinary income to avoid paying alimony. Thus, the family court held that by minimizing his tax consequences in the manner described above, Husband acted in bad faith.

We agree with Husband's argument that under the plain terms of the agreement and the decree, he has not acted in bad faith by minimizing his tax consequences, even though it has the effect of decreasing the Wife's alimony. The decree specifically bases the alimony formula on the ordinary, taxable income of Husband as determined for federal income tax purposes, excluding capital gain. This provision is not hidden, implied, or difficult to understand. It is expressly stated, and is policed by the Husband's certification to the Internal Revenue Service as to the correctness of his reporting and by his obligation to provide a copy of his returns each year to Wife. Unequivocally, this was the bargain Wife made. Therefore, we do not agree with the court's finding of bad faith where the structure and reporting of income was not found to be legally improper.4 There is nothing in the wording of the agreement or the decree requiring Husband to forego tax saving advantages merely because they have the effect of decreasing his ordinary income to the disadvantage of Wife.

B. Did the family court err by reclassifying income derived from the covenant not to compete as ordinary income?

Husband next argues the family court erred by reclassifying...

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