Flint Divorce Attorney Terry Bankert discusses problems of establishing a business owners income for child support in these hard times. Flint Divorce lawyer Terry Bankert can be contacted at 810-235-1970. FLINT Matrimonial Counsel Bankert also handles child support, parenting time and child custody.
Issues discussed in this case:
Child support;
The 2004 Michigan Child Support Formula Manual (MCSFM);
Stallworth v. Stallworth; Sparks v. Sparks;
Whether the defendant-father's reduction in income was "voluntary";
Whether the trial court properly imputed an income to defendant;
Rohloff v. Rohloff; Borowsky v. Borowsky; MCSFM 2.10(A) & (E);
Ascertaining an individual's ability and likelihood of earning imputed income where the individual is a business owner;
MCSFM 2.11(A) & (D)
SOURCE:Court: Michigan Court of Appeals (Published June 28, 2011 9:05 a.m.), Case Name: WIFE v. HUSBAND, e-Journal Number: 49154, Judge(s): Wilder, Servitto, and Shapiro No. 292536, Genesee Circuit Court Family Division, removed to Judge Fullerton, LC No. 03-250996-DM. Comments of Terry Bankert in CAPS or cited [trb].THE CASE HAS BEEN MODIFIED BY ORDER OF PRESENTATION
MICHIGAN COURT OF APPEALS (MA). HUSBAND VOLUNTARILY REDUCED INCOME BUT IMPUTED IT TOO HIGH.
While the trial court did not clearly err in finding that the defendant-father voluntarily reduced his income, the court held that the trial court abused its discretion by imputing an income of $95,000 to him.
DID YOU KNOW- An abuse of discretion occurs when a court selects an outcome that is not within the range of reasonable and principled outcomes. Borowsky v Borowsky, 273 Mich App 666, 672; 733 NW2d 71 (2007).
(MA) TELLS LOCAL COURT TO DO IT AGAIN
Thus, the court vacated the trial court's order modifying his child-support obligation and remanded the case for further proceedings as to his motion to reduce his child-support obligation.
THERE WAS AN EVIDENTIARY HEARING
After an evidentiary hearing, the trial court adopted a FOC hearing referee's recommendation.
DID YOU KNOW .In determining the appropriate amount of child support, “a trial court must presumptively
follow the Michigan Child Support Formula (MCSF).” Stallworth v Stallworth, 275 Mich App
282, 284; 738 NW2d 264 (2007).
HUSBAND WAS PRESIDENT OF A COMPANY
Defendant testified that he is an engineer and president of a company (X). He and his brother purchased (X) from their father. (X) had gross receipts in 2006 of $1,198,860 and paid defendant $123,209 in compensation plus $11,700 for reimbursement for the prior year's tax liability. (X) had gross receipts in 2007 of $608,226 and paid him $67,591 in compensation plus $12,500 as reimbursement for his tax liability.
HUSBAND HAD A SIDE JOB
He also earns $12,000 a year as a (Y).
COMPANY HURT BY THE ECONOMY
He testified that (X's) income declined significantly in 2008 due to the slumping economy. As of 6/08, about 20 employees had left or been laid off, leaving only 6 employees. (X) took out a $50,000 line of credit in order to "stay afloat" and paid salaries with loan funds. Defendant testified that he is personally liable on the loan. When over half of the line of credit was expended, defendant, his brother, and his father elected to reduce defendant's income to $250 a week and lay off more employees.
HUSBAND REDUCED INCOME FROM HIS COMPANY TO SAVE IT
The court concluded that the record showed "defendant's decision to reduce his income to $250 per week was a voluntary and strategic decision to keep (X) afloat and to maintain health insurance for him and his children until the economy could turn around."
FOC SAID THIS DISCRETIONARY DECISION WAS TOO LOW
The FOC determined that he took a "‘salary hit' way beyond that which is believed to be reasonable." He was (X) lowest paid employee.
DID YOU KNOW-“A trial court has the discretion to impute income when a parent voluntarily
reduces or eliminates income or when it finds that the parent has a voluntar[y] unexercised
ability to earn.” Stallworth, 275 Mich App at 286-287, citing 2004 MCSFM 2.10(A).
THERE WAS NO EVALUATION OF IMPUTATION FACTORS
However, "neither the FOC nor the trial court ever evaluated the factors set forth in the MCSFM for the imputation of income.
DID YOU KNOW-The MCSFM sets forth a number of equitable criteria that must be considered when
determining whether to impute income:
(1) Prior employment experience;
(2) Education level;
(3) Physical and mental disabilities;
(4) The presence of parties’ children in the individual’s home and its impact on
the earnings;
(5) Availability of employment in the local geographical area;
(6) The prevailing wage rates in the local geographical area;
(7) Special skills and training; or
(8) Whether there is any evidence that the individual in question is able to earn
the imputed income. [2004 MCSFM 2.10(E); see also Stallworth, 275 Mich
App at 286.]
The 2004 MCSFM also contemplates the difficulties in ascertaining an individual’s ability and
likelihood of earning imputed income where the individual is a business owner:
There are special difficulties in determining the income of certain individuals . . .
persons who have significant control over the form and manner of their own
compensation may be able to arrange that compensation so as to be able to
minimize the amount visible to friends of the court and others. [2004 MCSFM
2.11(A).]
TRIAL COURT DID NOT DETERMINE ACTUAL ABILITY
More importantly, the trial court failed to assess whether defendant possessed an actual ability and likelihood of earning the $95,000 imputed income." That (X) could afford to pay him an average salary of $95,000 in 2006 and 2007 did not mean that it could continue to pay him that amount in the existing economic climate.
COMPANY HIT HARD BY RECESSION
The evidence clearly showed that (X's) revenues "precipitously dropped" 50% from 2006 to 2007. By 2008 it had lost 70% of its employees and had to take a line of credit to pay salaries. "Thus, there was no evidence to suggest that defendant could remain at (X) and earn the same amount of income that he earned in 2006 and 2007." There was also no evidence that he could gain outside employment earning $95,000. "
THE LOCAL COURT DID ABUSED ITS DISCRETION
Because the trial court failed to consider the enumerated factors in 2004 MCSFM 2.10(E), including whether defendant possessed an actual ability and likelihood of earning the $95,000 imputed income," the court concluded that the trial court abused its discretion in adopting the FOC's recommendation to impute that income to him.
THE MICHIGAN COURT OF APPEALS TOLD THE LOCAL COURT TO DO IT OVER
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