White v. White

• Decision Date: 24 May 2006
• Docket Number: No. CA 05-1029.,CA 05-1029.
• Citation: 236 S.W.3d 540
• Parties: Phil WHITE, Appellant v. Alice Ann WHITE, Appellee.
• Court: Arkansas Court of Appeals

236 S.W.3d 540

Phil WHITE, Appellant v. Alice Ann WHITE, Appellee.

No. CA 05-1029.

Court of Appeals of Arkansas.

May 24, 2006.

Smith, Maurras, Cohen, Redd, & Horan, PLC, by: Matthew Horan, Fort Smith, AR, for appellant.

Kelly A. Procter-Pierce, Fort Smith, AR, for appellee.

OLLY NEAL, Judge.

This appeal involves the calculation of child support for an "S" corporation shareholder and whether the trial court can add back to the shareholder's income expenses incurred by the business and deducted that same year instead of being depreciated over several years. On cross-appeal, issues are raised concerning whether the shareholder would have to share in the expenses of his daughter's extracurricular activities, whether the shareholder could claim the tax deduction for the daughter, whether he could satisfy part of a judgment for child support by purchasing a car for the daughter, and whether he owed any money for obligations imposed by the original divorce decree. We vacate and remand in part and reverse and remand in part on direct appeal. On cross-appeal, we vacate and remand in part, dismiss in part, and affirm in part.

Appellant Phillip White and appellee Alice White were divorced in 1998. In the decree, Phillip was awarded custody of the parties' now-adult son and Alice was awarded custody of the parties' daughter. Phillip was ordered to pay child support of $400 per month. As part of the property division, Phillip agreed to pay Alice $8,500 as her share of the equity in the parties' marital residence. This payment was to be made to the closing company when Alice purchased a home for herself and her daughter. The decree also provided that, if Phillip sold the marital residence within one year from entry of the decree, Alice would be entitled to half of the sales price, less the real-estate commission, the equity payment, and the current mortgage payments and all payments made by Phillip.

On May 17, 2004, Alice filed a petition seeking to modify the divorce decree to increase Phillip's child-support obligation. The petition alleged that Phillip's income had substantially increased since the entry of the decree. The petition also sought to hold Phillip in contempt for failing to make the $8,500 payment to the closing company. Alice sought judgment for the $8,500. Alice also sought judgment for her half of the proceeds from the sale of the marital residence. Phillip denied the allegations of the petition. In addition, he affirmatively alleged that he had paid the daughter's annual tuition at a private school, paid the daughter's extracurricular expenses, and paid closing costs for Alice, as well as other monies totaling over $8,500. Phillip further alleged that Alice was not due any funds from the sale of the residence because the amounts that he was entitled to deduct exceeded the amount of the proceeds.

David Potts, a certified public accountant, testified as Alice's expert. He stated that he examined Phillip's individual tax returns for the years 2002, 2003, and 2004, as well as the tax returns for Phillip's businesses for those same years. He stated that one of the businesses, General Pallets, purchased, among other items, a 2000 Peterbilt tractor in 2004 for $45,000 and, as authorized by section 179 of the tax code, deducted the entire cost that same year. Phillip owned eighty-one percent of the shares of General Pallets. Potts stated that General Pallets was an "S" corporation and that the income from it and the other business "passed through" to Phillip. He calculated Phillip's income for 2004 as $150,804, prior to any adjustment for the section 179 expense. He decided to arbitrarily charge back to Phillip's income ninety percent of the depreciation expense. He stated that the average for Phillip's income in 2002 and 2003 was $218,869, resulting in a child-support obligation of $2,736 per month. The average for Phillip's income in 2003 and 2004 was $224,139, resulting in a child-support obligation of $2,802 per month. Potts stated that he included a capital gain of $98,766 in Phillip's income for 2003. He also stated that the total depreciation expenses added back into Phillip's income were $19,283 in 2003 and $46,121 in 2004.

Alice testified that the parties' daughter, Lindsey, was a talented barrel racer and qualified for the Youth World competition the last two years but did not get to participate because she could not afford the expenses, including the entry fees, the cost of transportation for the horse, feed for the horse, gasoline, and expenses for herself and her daughter. She described Lindsey's activities as a means to obtain a scholarship to Oklahoma State University and further her career goal of becoming a veterinarian. Alice asserted that Phillip should be ordered to pay for half of the cost of these activities, adding that she could afford the expenses for activities within a twenty-mile radius but needed financial assistance for other more distant competitions such as those held in Oklahoma, Mississippi, or Tennessee.

Alice testified that she closed on the purchase of a home on September 16, 1999. She stated that, at the time of closing, Phillip paid $5,688.90 and that she was asking for judgment for the difference. Although the closing statement showed a deposit or earnest money of $500, she did not know if Phillip paid that. She also did not recall whether Phillip paid $548 to a bank on October 28, 1999, and added that Phillip has never given her any extra money. She stated that, if Phillip ever made payments on her behalf, he always took it out of other payments he owed. Alice did not agree that Phillip had made significant payments other than the child support on Lindsey's behalf. She also stated that, during the pendency of the divorce, she lost her home, her car, and almost lost her life.

On cross-examination, Alice stated that she was not currently employed and last worked in May 2002. She stated that she was diagnosed and treated for breast cancer and was drawing disability of $925 per month. She stated that she did not claim Lindsey as a deduction on her tax returns. According to Alice, she and Lindsey lived with her sister and her family and she paid her sister to help with the utilities.

Phillip testified that his source of income was the pallet company and other investments. He identified financial statements from the years 2002, 2003, and 2005 but claimed that they did not reflect his personal financial situation because twenty-five to thirty percent belonged to his wife. He stated that the January 2005 statement listed his salary from the pallet company as $253,000 and rental income of $296,666, which were the figures reflected on his tax return. According to Phillip, the capital gain resulted from the restructuring of the ownership of a building that burned. He said that he retained ownership of the land on which the building had been situated and that his business partner kept the insurance proceeds.

Phillip described Alice as being irresponsible with money. He acknowledged that, although the divorce decree required him to pay $8,500 on Alice's behalf at the time she closed on a house, he only paid approximately $5,600 because that was the only amount that Alice was required to pay at closing. According to Phillip, he also purchased a washer and dryer and some other items for Alice and identified copies of checks for those purchases. Phillip also stated that he purchased a car for Alice for $4,500 but did not have documentation from the sale. He said that the extra payments, including the car, totaled $5,250.

Phillip also asked the court to allow him to claim Lindsey as a tax deduction until she turned eighteen. Alice objected, stating that she had never been placed on notice of this request. Phillip also proposed that he be allowed to buy Lindsey a vehicle and to deduct that cost from the child support, together with an allowance of $200 per month. He stated that he heard David Potts's testimony that child support should be $2,800 per month but stated that he drew a salary of only $3,200 per month. He said that such a payment would cause a real problem with his cash flow. Phillip did not believe that Lindsey needed $2,800 per month but did not dispute that there were times that he gave Alice money and deducted it from child support.

Michael Moser, Phillip's CPA, testified that he reviewed the same financial information that David Potts had used and also listened to Potts's testimony. He calculated Phillip's average income for 2003 and 2004 at $133,842, which would yield a child-support obligation of $1,673 per month. He stated that one of the differences between Potts's calculations and his own is that he did not include the $98,766 capital gain in Phillip's income. He said that adding ninety percent of the section 179 expense "would probably be a proper calculation to make." He said that the business used straight-line depreciation over the life of the asset. Moser stated that he disagreed with Potts's calculation adding back the current section 179 expense. He denied that Phillip was trying to manipulate the book tax difference by using the section 179 expense. He said that, because of the section 179 expense, Phillip's taxes were much lower in 2004.

In its order, the trial court found that Phillip was entitled to deduct ten percent of the cost of the equipment for depreciation purposes. The trial court also added back to Phillip's income the sum of $98,766 from a capital gain. The court rejected Phillip's argument that he should not have to pay support on this amount because he received the payment in the form of land, not money. The court also declined Phillip's request to deviate from the fifteen-percent amount required by the child-support guidelines, finding that other similar, high-income cases had not deviated from the guideline amount. The trial court calculated Phillip's child-support obligation at $2,847 per month, beginning January 1, 2005...