Tucker v. Office of Child Support Enforce.

Decision Date18 January 2007
Docket NumberNo. 06-1143.,06-1143.
Citation247 S.W.3d 485
PartiesRandy TUCKER, Appellant, v. OFFICE OF CHILD SUPPORT ENFORCEMENT and Regina L. Tucker, Appellees.
CourtArkansas Supreme Court

Tripcony Law Firm, P.A., by: Heather M. May, Little Rock, AR, for appellant.

G. Keith Griffith, Office of Child Support Enforcement, Van Buren, AR, for appellee.

JIM HANNAH, Chief Justice.

Appellant Randy Tucker appeals from an order of the Pope County Circuit Court that increased his child-support obligation from $45 per week to $1,809.92 per month, based on a net-worth approach. Appellees Regina Tucker and the Office of Child Support Enforcement (collectively referred to as OCSE) cross-appeal from the circuit court's refusal to make the modification retroactive to the date of the filing of the petition for modification. Randy originally appealed to the court of appeals. The court of appeals affirmed the increase in child support on direct appeal, and reversed the order on cross-appeal, making the increase retroactive to the date of the filing of the motion for modification. See Tucker v. Tucker, 96 Ark.App. 194, 239 S.W.3d 532 (2006). Randy petitioned this court for review, which we granted pursuant to Ark. Sup.Ct. R. 2-4. Upon the grant of a petition for review, we consider the case as though it had been originally filed in this court. Rodriguez v. Ark. Dep't of Human Servs., 360 Ark. 180, 200 S.W.3d 431 (2004). We affirm on direct appeal, and we reverse and remand on cross-appeal.

Facts

Randy and Regina were divorced by decree of the circuit court on April 30, 1997. The decree awarded Regina custody of the parties' minor child and ordered Randy to pay child support of $45 per week.

On October 2, 2003, OCSE intervened and filed a motion to modify Randy's child-support obligation. The motion alleged that, since the entry of the decree in 1997, Randy's income had increased by more than twenty percent or by more than $100 per month, thereby constituting a material change in circumstances.

A hearing on the motion was held on March 16, 2005. William Lawton, a certified public accountant, testified that he reviewed Randy's tax returns and other information as requested by OCSE. From that information, he prepared a worksheet showing Randy's monthly expenses to be $8,084. He also stated that Randy's 2003 Schedule C appeared reasonable, but that it could be used to hide income. Lawton said that it was reasonable to believe that Randy paid his personal living expenses out of his business accounts. He also testified that Randy may be living on borrowed money because his liabilities, such as loans and lines of credit, had increased dramatically over the past five years.

Randy testified that he was a self-employed contractor, that he had been in the business since 1997, and that his financial situation had "substantially changed" since that time. Randy stated that he paid all of his bills, both business and personal, at the end of the month and that, if he needed money to make the payments, he drew from one of three bank loans or two lines of credit for his business. Randy testified that he had three credit cards that he used for both business and personal expenses. He said that he submitted updated financial statements to the banks at the beginning of every year and periodically throughout the year. Further, he testified that the banks had a lot of faith in his ability to repay debt.

The record shows that Randy listed his family's monthly expenses as $4,101, and that after his current wife's contributions, he needed to contribute $576.67 per week to meet the monthly expenses. He testified that he tithed approximately $20,000 per year to his church, which was more than ten percent of his income. In response to interrogatories, Randy listed seven vehicles he owned, including two tractors and two all-terrain vehicles. He also testified that he owned two boats, purchased on the lines of credit. Randy stated that, aside from taking his kids to Branson each year to purchase school clothes, he had only been on one vacation in the past four years.

Ricky Taylor, Randy's certified public accountant, testified that he generated a worksheet showing Randy's 2003 net income as $509.46 per week, not including losses from Randy's farming operation. He said that the calculation of Randy's expenses was based on averages of what he spent each month, as well as tax returns. Taylor confirmed that Randy paid all of his bills, business and personal, once a month, from one of his lines of credit. Further, Taylor stated that, based on his discussions with Randy and a review of the financial documents, he did not believe that Randy made as much money as he spent.

The circuit court issued a letter opinion on July 15, 2005, in which it found that the OCSE had met its burden of proving that there was a material change of circumstances since the entry of the child-support order in 1997. Further, the circuit court found that Randy was self-employed and that his tax returns were unreliable for the purpose of determining his income upon which a modification of child support could be based. The circuit court then proceeded to use the net-worth approach found in Holland v. United States, 348 U.S. 121, 75 S.Ct. 127, 99 L.Ed. 150 (1954). In using this approach, the circuit court relied on three financial statements, dated August 2003, April 15, 2004, and January 19, 2005, that Randy issued to banks in the ordinary course of business. The circuit court found that Randy's net worth had increased by $214,000 over that period and calculated Randy's average monthly income, after excluding income from Randy's current wife, to be $12,066.11. Because Randy's income exceeded the child-support chart levels, the court applied the child-support guidelines' percentage for one child, 15%, to arrive at a monthly obligation of $1,809.92. The circuit court made the modification retroactive to January 19, 2005, instead of October 3, 2003, as sought by OCSE, finding that there was no proof offered to enable the court to conduct a net-worth analysis for the two-year period prior to the petition's filing. This resulted in an arrearage judgment of $9,689.52, which Randy was ordered to pay at the rate of $200 per month.

On appeal, Randy argues: (1) that the circuit court erred in disregarding his tax returns and applying the Internal Revenue Code standards and procedures in determining his disposable income for child support; (2) that if the court follows the net-worth method of determining child support, then it should clarify or modify the method used by the circuit court because it did not present the entire picture and because the standards and procedures used produced erroneous and unreliable results; and (3) that the circuit court erred in awarding an increase in support because such a ruling is clearly contrary to the preponderance of the evidence and creates an undue hardship on Randy. On cross-appeal, OCSE argues that the circuit court erred in not making modification retroactive to October 3, 2003.

Standard of Review

Recently, in Hill v. Kelly, 368 Ark. 200, 207, 243 S.W.3d 886, 890 (2006), we stated:

Our standard of review for an appeal from a child-support order is de novo on the record, and we will not reverse a finding of fact by the circuit court unless it is clearly erroneous. Ward v. Doss, 361 Ark. 153, 205 S.W.3d 767 (2005). A finding is clearly erroneous when the reviewing court, on the entire evidence, is left with a definite and firm conviction that a mistake has been made. Mathews v. Mathews, 368 Ark. 252, 244 S.W.3d 660 (2006). We give due deference to the trial court's superior position to determine the credibility of the witnesses and the weight to be given their testimony. Id. In a child-support determination, the amount of child support lies within the sound discretion of the trial court, and the lower court's findings will not be reversed absent an abuse of discretion. Id. However, a trial court's conclusions of law are given no deference on appeal. Id.

Net-Worth Approach

Randy first argues that the circuit court erred in disregarding his tax returns and applying the IRS Code standards and procedures in determining his disposable income for child support. Administrative Order No. 10 sets forth the guidelines for determining child support. At issue in this case is Section III(c) of Administrative Order No. 10, which provides in relevant part:

For self-employed payors, support shall be calculated based on the last two years' federal and state income tax returns and the quarterly estimates for the current year. A self-employed payor's income should include contributions made to retirement plans, alimony paid, and self-employed health insurance paid; this figure appears on line 22 of the current federal income tax form. Depreciation should be allowed as a deduction only to the extent that it reflects actual decrease in value of an asset. Also, the court shall consider the amount the payor is capable of earning or a net worth approach based on property, life-style, etc.

(Emphasis added.)

Randy argues that, because his tax returns were available, the circuit court clearly erred in relying on net-worth figures alone. The letter opinion reflects that the circuit court began its analysis by considering Randy's tax returns. The circuit court found:

Defendant's 2003 tax return indicates a loss of $11,423 on the first page line # 34. However, Schedule A of said return reflects expenditures of $34,275 as itemized deductions. Mr. Rick Taylor, testifying on behalf of the Defendant, stated that based on the 2003 tax return the Defendant receives from his construction business a net weekly income of $509.46. Defendant testified that he contributes $400 per week to his church. [OCSE] asserts that, in addition to this inconsistency which demonstrates Defendant's true income cannot be evaluated by reference to his tax returns, there is commingling of income/expense...

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