Troutman v. Troutman ( 2017 )

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SUPREME COURT OF ARKANSAS
No. CV-16-144
MARILYN CURRY TROUTMAN Opinion Delivered April 20, 2017
APPEAL FROM THE WASHINGTON
APPELLANT COUNTY CIRCUIT COURT
V. [NO. DR-04-1055]
RONALD TROUTMAN HONORABLE MARK LINDSAY,
JUDGE
APPELLEE REVERSED AND DISMISSED;
COURT OF APPEALS OPINION
VACATED.
JOSEPHINE LINKER HART, Justice
Marilyn Curry Troutman (Curry) appeals from a December 8, 2014 Washington
County Circuit Court order reducing her exhusband Ronald Troutman’s monthly child-
support obligation to $2108 from $6005 per month established by an agreement of the parties
and memorialized in an order entered on October 25, 2012. The new support obligation was
made retroactive to June 9, 2014, and the circuit court ordered amortization of the $27,279
overpayment by a further $1000 per month reduction in Troutman’s payments. On appeal,
Curry argues that the circuit court erred in (1) finding that Troutman met his burden of
proving that there has been a material change of circumstances; and (2) calculating Troutman’s
income for the purpose of child support. We agree that Troutman failed to prove a material
change of circumstances, and we reverse and dismiss.
After the court of appeals affirmed the circuit court’s order, Curry petitioned for
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review. She alleged that the court of appeals had failed to follow its own precedent in regard
to the treatment of retained earnings of a closely held Subchapter S corporation, thus creating
a split of authority. Because it was apparent that the court of appeals decision calculations
conflicted with prior court of appeals decisions, Pannell v. Pannell, 64 Ark. App. 262, 981
S.W.2d 531 (1998) and Anderson v. Anderson, 60 Ark. App. 221, 963 S.W.2d 604 (1998), we
granted Curry’s petition pursuant to Supreme Court Rule 2-4, which is invoked when the
court of appeals “renders a decision which is in conflict with a prior holding of a published
opinion of either the supreme court or the court of appeals.”1 When we grant a petition for
review, we consider the appeal as though it had been originally filed in this court. Lagios v.
Goldman, 2016 Ark. 59, 483 S.W.3d 810.
The parties married in 1998 and divorced in 2005. In 1999, the parties’ only child was
born. In the divorce decree, Troutman’s original support obligation was set at $762 per
month. In 2011, Curry successfully petitioned the circuit court to raise Troutman’s monthly
1
The dissent’s discussion of Anderson and Pannell shows a misunderstanding of how
appellate-court decisions must affect lower-court decisions. First there is no “procedural
matter” that affects the binding effect of these cases on the circuit court. When a lower court
correctly identifies a point of law, and the case is affirmed, that holding is just as binding on
the circuit court as a case where an appellate court identifies a trial court’s mistake of law.
Second, the trial court in Anderson, after propr calculation of the income that the payor had
available for child support purposes, found that it would be inequitable—in that case—to count
retained earnings in assessing the payor’s child-support obligation. Anderson was a case where
the trial court found that the equities weighed in favor of deviating from the amount of child
support indicated by the family-support chart included in Administrative Order No. 10.
Section V of Administrative Order No. 10 expressly gives trial courts the discretion to deviate
from the child-support chart in appropriate cases. The case before us is not a deviation case,
but rather one in which the trial court improperly calculated Troutman’s income for child-
support purposes.
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child-support obligation to $3,095. In 2012, Curry again petitioned for an increase in child
support. Pursuant to her petition, Curry sought to discover Troutman’s income in 2012, and
when Troutman resisted, she moved for contempt. The circuit court denied Curry’s
contempt motion, but in the same order, memorialized an agreement by the parties raising
Troutman’s child-support obligation to $6,005 per month.
On June 9, 2014, Troutman petitioned the circuit court to reduce his child-support
payments. Attached to his petition was a summary of his taxable income, as reported on his
Form 1040 for 2012 and 2013, as well as the deductions allowed by Administrative Order No.
10. He represented that the net sum was his income for child-support purposes.
At the hearing on his petition, Troutman testified that he is a general contractor as well
as the owner of other businesses that he claimed were not profitable. As a contractor, he
conducts his business through Boulder Construction, Inc. (Boulder), which he started in 2004.
Troutman acknowledged that Boulder is a subchapter S corporation, in which he owns all of
the stock. He claimed that he used “completed projects” for “our type of accounting.”
Troutman further testified that, because of the accounting method he used, Boulder
has income in 2013 that will be distributed in 2014. He also asserted that it was a sound
business practice for Boulder to retain large sums of cash to cover unforseen problems with
projects that could result in the work being less profitable than he anticipated. Nonetheless,
Troutman admitted that he had shareholder distributions in 2013 totaling between $550,000
and $580,000. Further, he conceded that as sole shareholder, he has absolute authority to
decide how much of Boulder’s retained earnings he could withdraw.
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Troutman stated that, as of the hearing, Boulder had approximately $400,000 in
“liquid” assets. Referring to his tax returns, which were made part of the record, Troutman
asserted that his company’s cash reserves “went down substantially in 2013" and his accounts
receivable “went up drastically.” Nonetheless, Troutman admitted that in the 2013 tax year,
he made a considerable cash outlay for land for his rock business, Winslow Stone Works and
also purchased a bulldozer at a cost of more than $100,000. Troutman acknowledged that he
took a $554,000 distribution in 2013, but claimed that he used it to pay his child support and
income taxes.
Troutman defended the declaration of his income found in the attachment to his
petition. He claimed that it was the same calculation that resulted in his voluntary decision
to increase his monthly child support obligation from $3095 in 2011 to $6005 in 2012.
The documentary evidence contradicted Troutman’s testimony in several important
respects. Most importantly, attachment M-1 to his schedule K from his 2013 federal tax
return indicated that Boulder reported $785,392 in deferred income that was not subject to
federal tax in 2013. Accordingly, Troutman’s “liquid assets” were considerably higher than
he represented at the hearing. Also, while purporting to show a loss of income in 2013,
various schedules showed that despite a distribution of $554,745 to Troutman as the sole
shareholder of Boulder, the company’s cash reserves increased.
Certified Public Accountant, Jake Keen, testified in Curry’s case-in-chief. He stated
that Troutman’s accounting method, was uncommon, but not unknown. He opined, based
on Troutman’s 2013 tax returns, that Troutman had at least $705,245 in income “to live on.”
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Further, he testified that Troutman’s income in 2013 was “consistent between 2012 and
2013.” On cross-examination, Keen conceded that Boulder’s cash reserves declined between
2012 and 2013 by as much as $650,000. Nonetheless, Troutman withdrew $554,000 that he
did not count as income on his 2013 tax return. Keen disputed that all of the distribution was
used for child support and taxes—he asserted that, based on a quick calculation, no more than
$295,000 was necessary for those outlays, which left in excess of $200,000 available for child
support.
Troutman presented his Certified Public Accountant Reece Parcham as a rebuttal
witness. Parcham stated that the “completed projects” accounting method was commonly
used by contractors with revenues of less than $10 million per year. He defended Troutman’s
assertion that Boulder’s income was substantially less than in previous years, and asserted that
Troutman’s income would be substantially greater in 2014 when several projects are
completed. According to Parcham, “it will all come out in the wash.” Parcham could not
state whether Troutman had paid taxes on the distribution that he took in 2013, but asserted
that Troutman will not escape paying taxes on it at some point. Parcham stated that Boulder’s
retained earnings should not be considered for child-support calculations. He conceded,
however, that Troutman had the “use and benefit” or the $550,000 he drew down in
distributions from Boulder. Parham also conceded that not all of the depreciation that
Troutman claimed on his income-tax returns were “economic” depreciation.
Curry moved to dismiss Troutman’s petition at the close of the evidence. She asserted
that Troutman had not met his burden of showing a material change-of-circumstances. The
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circuit court declined to consider any proof of Troutman’s income other than what was listed
in the attachment to his petition. It stated that it was going to calculate Troutman’s support
obligation without regard to the previous support order, considering only the decline in
Troutman’s income from 2012 to 2013.
While describing Troutman’s accounting method as “wacky,” the circuit court
declined to “literally apply the section of section III [in Administrative Order No. 10] to this
particular fact situation.” It further found that the depreciation that Troutman claimed was
“going to catch up with him at some point in time.” The circuit court acknowledged that
Troutman had the use of in excess of $500,000 in 2013, but the “preponderance of the
evidence indicates that he paid the income tax on it before he had use of it. So, to make him
pay child support on it again would be punishing him. It would be double taxation, so to
speak on his income as defined by Administrative Order 10.”
The circuit court accepted what Troutman determined to be his “net income” for
2012 and 2013—his adjusted gross income listed on his Form 1040 for the tax years 2012 and
2013, less the allowable deductions listed in Administrative Order No. 10 (social security,
medicare tax, state and federal taxes, and health insurance). It added the sums together,
$470,766 for 2012 and a loss of $124,033 for 2013 and divided by two to obtain an average
for the two years: $173,367. The circuit court then calculated the chart amount of child
support for a monthly income of $14,447, which is $2108, made retroactive to the June 9,
2014 filing of Troutman’s petition to modify. Noting that in the intervening time since the
filing of the petition, Troutman had paid $27,279, the circuit court ordered that the overage
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be amortized by subtracting $1000 per month from Troutman’s child-support payments.
Curry timely filed a notice of appeal.
We review child-support cases de novo on the record. Chitwood v. Chitwood, 2014 Ark.
182, 433 S.W.3d 245. Under our standard of review, we do not reverse a finding of fact by
the circuit court unless it is clearly erroneous. Id. We give due deference to the court’s
superior position to determine the credibility of the witnesses and the weight to be accorded
to their testimony. Id. However, we give no deference to a circuit court’s conclusion of law.
Id.
Curry first argues that the circuit court erred in finding that Troutman met his burden
of proving that there has been a material change of circumstances. She asserts that the circuit
court’s ruling is “flawed in three critical respects.” First, she asserts that the circuit court’s
“exclusive” reliance on Troutman’s reported individual income in 2012 and 2013 is contrary
to law. Second, the circuit court found a material change of circumstances despite a complete
absence of evidence regarding Troutman’s income for the first eleven months of 2014. Third,
the circuit court abused its discretion in employing a methodology for determining the
amount and sources of income that failed to take into account Troutman’s ability to
manipulate the distribution of Boulder’s retained earnings. We find merit in these arguments.
A party seeking modification of a child-support obligation has the burden of showing
a material change of circumstances sufficient to warrant the modification. Baber v. Baber, 2011
Ark. 40, 378 S.W.3d 699. Changed circumstances warranting an adjustment may include
remarriage of the parties, a minor reaching majority, relocation, change in custody, debts of
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the parties, ability to meet current and future obligations, and change in the income and
financial conditions of the parties. See Hall v. Hall, 2013 Ark. 330, 429 S.W.3d 219.
Moreover, under Arkansas Code Annotated section 9–14–107(a)(1) (Repl. 2015), a relatively
minor change in the payor’s income can constitute a material-change-in-circumstances. It
states:
A change in gross income of the payor in an amount equal to or more than twenty
percent (20%) or more than one hundred dollars ($100) per month shall constitute a
material change of circumstances sufficient to petition the court for modification of
child support according to the family support chart after appropriate deductions.
Ark. Code Ann. § 9-14-107(a)(1).
When a circuit court considers the issue of whether there has been a material change
in circumstances, it considers the facts that have changed or were not known by the court at
the time it entered the previous order. See Grable v. Grable, 307 Ark. 410, 821 S.W.2d 16
(1991). We consider the material changes that have occurred since the entry of the last order
so that a subsequent petition to increase or decrease support will not be res judicata. Clifford
v. Danner, 241 Ark. 440, 409 S.W.2d 314 (1966). In the case before us, Troutman only
presented evidence of his 2012 and 2013 income. We know from the 2012 support order
that no evidence of Troutman’s 2012 income was before the court because, in the order, the
circuit court declined to find Troutman in contempt for not providing that information.2
We are mindful that Troutman asserted at the hearing that he calculated his 2011
2
The dissent apparently fails to understand the importance of the changed-
circumstances doctrine. The doctrine strikes a balance between the need for finality in any
litigation and the equitable interest in properly supporting minor children.
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income in the same way that he was asking the circuit court to in his petition. We reiterate
that the 2012 support order reflected an agreement by the parties, not a calculation by the
circuit court.
The circuit court ignored this obvious failure of proof. Instead, as noted previously,
the circuit court calculated Troutman’s new support obligation based on his declaration of
income. This was clear error by the circuit court for two reasons. First, the circuit court
could not have determined whether Troutman’s income had changed since 2011 because no
direct evidence of Troutman’s 2011 income had ever been before the circuit court. Second,
the agreed order could not even be circumstantial evidence of Troutman’s 2011 income
because, according to Troutman’s own testimony, his calculations in 2012 were the same as
those he placed before the circuit court in 2014.
Curry argues, and we agree, that Troutman’s calculations of his income for child-
support purposes do not properly account for Boulder’s retained earnings and other elements
of the money that Troutman had available to support his child, but were not taxable in 2011
under the Internal Revenue Code. As our court of appeals noted in Pannell v. Pannell, supra,
and Anderson v. Anderson, supra, Administrative Order No. 10 contemplates a more expansive
definition of income, that requires the circuit court to consider the retained earnings of a
closely held corporation. The rationale is sound. By focusing on the actual money available
to support a child, it prevents a payor from using the tax code to legally manipulate the
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amount of income to be considered for child-support purposes.3
This court has defined “income” as “any form of payment, periodic or otherwise, due
to an individual, regardless of source, including wages, salaries, commissions, bonuses,
workers’ compensation, disability, payments pursuant to a pension or retirement program, and
interest less” certain enumerated deductions. Hall, supra (quoting Ark. Sup. Ct. Admin.
Order No. 10(II)(a) (2011)). This intentionally broad definition is intended to encompass the
widest range of sources to effectuate this State’s policy to adequately support children. Id.
Our decision today is consonant with our previous recognition of nonperiodic monetary
judgments, monetary gifts, certificates of deposit, retirement payments, and even gambling
winnings, as income for purposes of determining child support. See Hall, supra.
Because we hold that the circuit court erred in finding a material change in
circumstances, and because Curry did not file a counterpetition for an increase in child
support, we need not address Curry’s second point regarding the method utilized by the
circuit court in calculating Troutman’s child-support obligation.
For the forgoing reasons, the circuit court’s 2014 order changing Troutman’s monthly
child support payments retroactive to the filing of his petition is reversed and dismissed.
3
For example, in the case before us, in 2013 Troutman claimed a loss for income tax
purposes of $122,487. This “loss” includes his $53,775 salary from Boulder. On Boulder’s
Form 1120S, Boulder’s 2013 income tax return, Troutman’s compensation appeared as an
expense, which contributed to its claimed loss of $171,892. In practical terms, regardless of
the tax treatment of his salary, Troutman had full use of his salary to live on. A similar analysis
could be applied to the depreciation Troutman claimed for his businesses. It was a proper tax
deduction, but did not directly translate into a loss of the net worth of the asset, and more
importantly, the income that Troutman had the benefit from.
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Reversed and dismissed; court of appeals opinion vacated.
Special Justices JERROLD JOHN SCHOLTENS and DAVID HOGUE join.
KEMP, C.J., and WOOD and WOMACK, JJ., dissent.
GOODSON and WYNNE, JJ., not participating.
JOHN DAN KEMP, Chief Justice, dissenting. I respectfully dissent. I believe the
circuit court correctly determined that Troutman experienced a material change in
circumstances as defined in Arkansas Code Annotated section 9-14-107(a)(1) (Repl. 2015).
I believe the circuit court correctly applied the provisions of Arkansas Supreme Court
Administrative Order No. 10 in determining Troutman’s income for child-support purposes.
I would affirm the circuit court.
SHAWN A. WOMACK, Justice, dissenting.
“Our new Constitution is now established, and has an appearance that promises permanency;
but in this world nothing can be said to be certain, except death and taxes.”
-Benjamin Franklin, 1789
We are all familiar with Benjamin Franklin’s famous quote about death and taxes. This
case offers a modern-day insight into both subjects. The part about taxes is obvious in the
discussions about income tax returns, definitions of income, accounting methods, retained
earnings, and so on. It is the death part of the quote that may not register with readers on the
first reading of the majority opinion. However, over time and application of this decision, it
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will become obvious that two things have died today at the hands of the majority. The first,
narrowly speaking, is Administrative Order No. 10 of this court for the purpose of defining
income of self-employed individuals. The second death comes in the broader concept of the
ability of circuit courts and litigants to rely on the plain, clear, and concise instructional
language given to them by orders of this court and applicable statutes. Both die an untimely
death by the blunt force administered to them in the majority opinion.
There are few areas in the law that provide guidance so clear as the relevant portion
of Administrative Order No. 10 where it specifies which line of the tax return to use in
determining income for self-employed payors or the relevant statute defining a material
change in circumstance on either a percentage basis or a specific dollar amount. The bizarre
reasoning of the majority opinion manages to find the trial court’s order clearly erroneous
when it in fact followed the specific guidance given to it by this court and the legislature. If
this court believes that Administrative Order No. 10 should be altered, this should be done
only after thorough review by the Supreme Court’s Committee on Child Support, which
allows practitioners, circuit judges, and lay people to participate in evaluating an amendment
of our administrative orders. To rewrite an administrative order because the majority does not
particularly like the facts of one case is cavalier and dangerous.
As the majority stated, this court reviews child-support orders de novo on the record,
and we will not reverse a finding of fact by the circuit court unless it is clearly erroneous. See,
e.g., Ward v. Doss, 361 Ark. 153, 158, 205 S.W.3d 767, 770 (2005). In reviewing a circuit
court’s findings, we give due deference to that court’s superior position to determine the
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credibility of the witnesses and the weight to be accorded to their testimony. Id. When the
amount of child support is at issue, we will not reverse the circuit court absent an abuse of
discretion. Id. In order to modify a child-support amount, the petitioning party must
demonstrate a material change in the payor’s circumstances. See, e.g., Hall v. Hall, 2013 Ark.
330, at 4–5, 429 S.W.3d 219, 222. We review a finding that there has been a material change
in circumstances for clear error. Id. Because I believe that the circuit court faithfully followed
the guidance of Administrative Order No. 10 and the text of the relevant statute in
determining that Troutman demonstrated a material change in circumstances, I must dissent
from the majority’s conclusion that the circuit court’s actions were clear error under our
deferential standards.
Troutman has paid child support continuously since the initial decree. His original
obligation was $762 per month, but this was increased twice due to the success of his
construction business. Troutman is the sole shareholder in Boulder Construction, an S
corporation. His first obligation increase was to $3,095 per month; the second was to $6,005
per month. This litigation stems from Troutman’s 2014 petition to modify the decree
downward due to an alleged material change in his circumstances.
The circuit court followed the guidance of Administrative Order No. 10 for self-
employed payors, looking at Troutman’s previous two income tax returns. His 2012 return
shows personal income of $717,137, while his 2013 return shows a loss of $171,892. Despite
his reported losses in 2013, the corporate returns from Boulder for that year indicate that
Troutman took a distribution of $554,745 from the company and that the company had
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$785,392 in deferred income during the year. The court considered expert testimony from
accountants representing both parties in the December 2014 hearing. Curry argued that the
distribution from the company, despite not appearing on Troutman’s personal income tax
return, should be considered income for the purposes of child-support calculation. Troutman
argued that the terms of Administrative Order No. 10 and the past practice in modifying his
own support obligation upward are consistent with averaging his personal income tax figures
without taking special notice of corporate distributions or deferred income.
The circuit court sided with Troutman’s arguments. It gave weight to the expert
testimony that any perceived inconsistency between Troutman’s reporting a loss in 2013
while simultaneously taking a substantial distribution was explained by standard accounting
practices for small construction companies. Any corporate distributions that Troutman
received the benefit from either (1) had been reported on prior tax returns and factored into
prior child-support payments or (2) would be reported on future tax returns when the
associated construction projects were completed and could be factored into future child-
support payments. The court set Troutman’s new payment at $2,108 and deducted $1,000
per month until he recouped the overpayment of support under the old figure, which he had
been paying since he filed his petition for modification.
On appeal, Curry argues that the circuit court clearly erred in finding that Troutman
proved a material change in circumstances sufficient to justify a modification of child support.
She contends that the trial court should have included the distribution that Troutman took
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and Boulder Construction’s deferred income in 2013 when calculating income under the
“intentionally broad” definition provided in Administrative Order No. 10(II).
Administrative Order No. 10, promulgated by this court pursuant to the authority
granted in Arkansas Code Annotated section 9-3-312, prescribes the method by which this
state’s courts determine child-support payments. The order provides family-support charts for
individuals who receive their income on regular weekly, biweekly, semimonthly, or monthly
bases. The charts specify a presumptively correct amount that courts should award as child
support from payors in each band of income. In recognition of the fact that not all income
streams conform to one of these lockstep pay periods, however, the order includes a section
for nonsalaried payors. Troutman’s circumstances are governed by the language concerning
self-employed payors, which states:
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.
Ark. Sup. Ct. Admin. Order No. 10(III)(c).
The order gives the circuit court discretion to deviate from the specified charts and
methods if it finds specific reasons why application as written would be contrary to the best
interests of the child. See Ark. Sup. Ct. Admin. Order No. 10(I), (V). The order’s specified
method is, however, presumptively correct absent such a finding. Here, the circuit court
applied the language for self-employed payors as written in the order. It weighed and accepted
accountant testimony that the “line 22” change in Troutman’s federal and state tax returns
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demonstrating net income in 2012 and net loss in 2013 represented the actual state of his
finances. Further, it accepted, after hearing extensive testimony and argumentation, that the
2013 distribution necessarily came from funds that either had been taxed or would be taxed
in the related project-completion year in accord with a common construction accounting
practice. Finally, it accepted Troutman’s argument that the quarterly estimates as
contemplated by the order would not be possible or helpful given his use of this project-
completion accounting practice and his loss in the prior year.
With this definition of Troutman’s income in mind, resolution of the legal issues in this
case should be straightforward. The material change in circumstances required to modify a
child-support order is a creature of statute. Arkansas Code Annotated section 9-14-107(a)(1)
(Repl. 2015) defines as material a “change in gross income of the payor in an amount equal
to or more than twenty percent (20%) or more than one hundred dollars ($100) per month.”
The circuit court did not clearly err in finding that Troutman’s tax returns showing a change
from an income of $717,137 to a loss of $171,892 represents a change in gross income of
more than $100 per month. Indeed, even if the circuit court had accepted Curry’s arguments
and had included some or all of the distribution that Troutman took from his company or
deferred corporate income in the calculation, the exceedingly modest statutory requirement
for demonstrating a material change in circumstances would have been met. The majority
asserts that the circuit court overlooked a “failure of proof” because of purported gaps in
Troutman’s presentation of 2011 income data. Even if the majority’s characterization of the
2011 information is correct, it would be irrelevant here. It is uncontested that the circuit court
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had 2012 and 2013 returns before it. Given the huge disparity in income between those two
years, the circuit court was certainly entitled to determine that a material change in
circumstances had occurred.
Finally, the majority adopts Curry’s characterization of Anderson v. Anderson, 60 Ark.
App. 221, 963 S.W.2d 604 (1998), and Pannell v. Pannell, 64 Ark. App. 262, 981 S.W.2d 531
(1998), as standing for the proposition that Administrative Order No. 10 “requires the circuit
court to consider the retained earnings of a closely held corporation” to prevent “a payor from
using the tax code to legally manipulate the amount of income to be considered for child-
support purposes.” This is a deeply misleading characterization of those cases.
First, as a procedural matter, both cited cases are instances in which an appellate court
affirmed chancery court decisions grounded in the results of fact-intensive inquiries into the
payor’s financial state. In Pannell, for instance, the chancellor opted to include retained
corporate income in calculating a child-support obligation when the record indicated that the
payor arguing for a lower payment was simultaneously using company funds to purchase
luxury cars, $100,000 worth of racehorses, and an airplane for his personal use. See Pannell,
64 Ark. App. at 265, 981 S.W.2d at 532. Including retained corporate income may well make
sense in a case where the circuit court fears the sort of bad-faith manipulation contemplated
by the majority. Finding such manipulation, however, is best left to the circuit court, and no
such finding was made in this case. In fact, not only did the trial court not make a finding of
manipulation that would trigger use of its discretion to deviate, but the testimony makes clear
that the accounting method used by Troutman was selected at the inception of the business
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and remained unchanged throughout the life of the company. If anything, this gives a strong
indication that no manipulation took place.
Second, it is impossible to reconcile the majority’s legal summary of the precedents
with Anderson. In that case, the court of appeals affirmed a chancery court decision that in fact
excluded retained income from an S corporation from the child-support calculation. See
Anderson, 60 Ark. App. at 228–29, 963 S.W.2d at 608. Even though the chancery court
considered the retained earnings to be income within the definition of Administrative Order
No. 10, it wrote that the “plaintiff has rebutted the presumption that the amount reflected by
the child support chart after including income from retained earnings is the just amount of
child support to order in this particular case.” Id. The chancellor merely declined to permit
the payor to deduct from his child-support calculation the income tax he had paid on retained
earnings. Since the chancellor excluded the income from the calculation, giving the payor
credit for the taxes paid on it would be a windfall. Id. Put simply, there is no ironclad rule that
the circuit court must include retained corporate income in child-support calculations. Pannell
and Anderson stand only for the discretion of circuit courts to make that inclusion if the
circumstances warrant it.
The circuit court in this case fulfilled its duty precisely as contemplated by
Administrative Order No. 10. I would find no clear error in its decision to follow the
prescribed method for self-employed payors of looking at Troutman’s previous two years’ tax
returns to calculate income for the purposes of child support. Further, any interpretation of
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the circumstances supports the circuit court’s conclusion that Troutman experienced a
material change in circumstances for the purposes of the statutory definition.
I dissent.
WOOD, J., joins in this dissent.
Taylor Law Partners, LLP, by: William B. Putman, for appellant.
Cullen & Co., PLLC, by: Tim Cullen, for appellee.
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