Mary A. McConnell Huger v. George Derbyshire Huger ( 1997 )


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  •                     COURT OF APPEALS OF VIRGINIA
    Present: Chief Judge Moon, Judges Fitzpatrick and Annunziata
    Argued at Charlottesville, Virginia
    MARY ANABEL McCONNELL HUGER
    MEMORANDUM OPINION * BY
    v.   Record No. 0303-96-3            JUDGE JOHANNA L. FITZPATRICK
    FEBRUARY 18, 1997
    GEORGE DERBYSHIRE HUGER
    FROM THE CIRCUIT COURT OF ROCKBRIDGE COUNTY
    George E. Honts, III, Judge
    Ellen M. Arthur (Ellen M. Arthur, P.C., on
    brief), for appellant.
    Thomas C. Spencer (Spencer & Filson, P.C., on
    brief), for appellee.
    On appeal from the trial court's decision granting George
    Derbyshire Huger a reduction in his monthly spousal support
    obligation, Mary Anabel Huger contends that the court erred in
    its determination of the husband's income for spousal support
    purposes.   For the following reasons, we find no error and affirm
    the judgment of the trial court.
    Throughout the history of this case, both Mary Anabel Huger
    (wife) and George Derbyshire Huger (husband) contested husband's
    spousal support obligation subsequent to the parties' divorce.
    Specifically at issue in the instant case is husband's income
    from various corporations.    Husband is the sole owner of the
    Subchapter S corporation Huger Distributing Company, and the
    *
    Pursuant to Code § 17-116.010, this opinion is not
    designated for publication.
    controlling shareholder of the C corporations Huger-Davidson Sale
    Corporation of Staunton and Huger-Davidson Sale Company. 1
    Following a modification of spousal support hearing
    requested by both parties, the trial court, by letter opinion
    dated April 12, 1994, initially denied husband's petition for a
    reduction and wife's petition for an increase of husband's
    spousal support obligation.   However, by letter opinion dated
    April 20, 1994, the court withdrew its initial opinion and
    granted husband's petition for a reduction.   The court determined
    husband's 1993 income to "approximate" $119,000 and ordered
    husband to pay spousal support to wife in the amount of $1,750
    per month.
    1
    "An eligible domestic corporation can avoid double taxation
    (once to the corporation and again to the shareholders) by
    electing to be treated as an S corporation under the rules of
    Subchapter S of the Internal Revenue Code.    In this way, the S
    corporation passes its items of income, loss, deduction, and
    credits through to its shareholders to be included on their
    separate returns." William R. Christian, Subchapter S Taxation
    § 35.01 (3d ed. 1996).
    The term "S corporation" means, with respect to any taxable
    year, a small business corporation for which an election under
    section 1362(a) is in effect for such year. The term "small
    business corporation" means a domestic corporation which is not
    an "ineligible corporation" and which does not have more than
    seventy-five shareholders, does not have as a shareholder a
    person (other than an estate, certain trusts, and certain
    organizations) who is not an individual, does not have a
    nonresident alien as a shareholder, and does not have more than
    one class of stock. See 
    26 U.S.C.A. § 1361
    (a) and (b).
    2
    The court issued yet another letter opinion on May 11, 1994,
    amending its previous opinion of April 20, 1994.   The court
    reiterated that a change in husband's circumstances "justifie[d]
    a decrease in spousal support" and ordered spousal support in the
    amount of $2,200 per month.   However, the court again revised its
    ruling by letter opinion dated August 15, 1994, and confirmed its
    previous order setting spousal support at $1,750 per month. 2    The
    court found in an order dated October 19, 1994:
    Upon consideration whereof, it is hereby
    ordered for the reasons set forth in this
    Court's Letter Opinion dated August 15, 1994
    and this Court's Letter Opinion dated April
    20, 1994, that the Petition of the [husband]
    for a reduction in spousal support is
    well-founded and that commencing with June 1,
    1994, the spousal support shall be the sum of
    $1,750 per month.
    This order was unappealed and became final.
    The court held another support modification hearing on
    November 22, 1995 at the husband's request for a reduction and at
    wife's later request for an increase.   Following the hearing, the
    court issued a letter opinion on December 1, 1995.   The court
    2
    The court, in its May 11, 1994 letter opinion, included
    $34,650 of investment income in its calculation of husband's
    income.   The court reversed this finding in its August 15, 1994
    letter, stating that it could "find no basis for adding $34,650
    to Derbyshire income figures.   To have done so was error and it
    is removed from consideration."
    3
    determined, "[u]pon review of the evidence . . . including the
    current status of the parties and the historical data accumulated
    over the years," husband's income to be "$97,500 or $8,092 per
    month, down seventeen percent from the last review."   The court
    declined to consider "undistributed, after-tax retained [funds]
    in the Sub-Chapter S Corporation and liquid assets in the other
    corporations as being available as income to husband."    The court
    denied an increase in spousal support for wife and granted
    further reduction in husband's spousal support payments due to a
    change in his circumstances.   The court denied wife's motion to
    reconsider, and entered its final order on January 17, 1996,
    awarding wife spousal support in the amount of $1,250 per month.
    I.
    On appeal, wife argues three assignments of error in the
    trial court's determination of husband's income.   Wife first
    contends that the court erred in refusing to consider the
    retained earnings of husband's Subchapter S corporation as income
    to husband.   Wife argues that, for purposes of spousal support,
    the court should have included the retained earnings of husband's
    Subchapter S corporation in its calculation of husband's income. 3
    3
    "Retained earnings accounts contain any accumulated
    earnings and profits (E&P) of the corporation.   If the
    corporation has accumulated earnings and profits, it must
    maintain separate accounts for previously taxed income (PTI) and
    the accumulated adjustments account (AAA)."   Christian, supra, at
    4
    "The trial court's factual findings must be accorded great
    deference."    Gamer v. Gamer, 
    16 Va. App. 335
    , 345, 
    429 S.E.2d 618
    , 625 (1993).   "'The findings of a trial court after an ore
    tenus hearing should not be disturbed on appeal unless they are
    plainly wrong or without evidence to support them.'"      Street v.
    Street, Record No. 2363-95-4, slip. op. at 11 (Va. Ct. App. Jan
    21, 1997) (quoting Schweider v. Schweider, 
    243 Va. 245
    , 250, 
    415 S.E.2d 135
    , 138 (1992)).    "The weight to be given evidence and
    the resolution of conflicts in the evidence are for the fact
    finder.    We cannot disturb a chancellor's finding of fact so long
    as it is supported by credible evidence."      Gamer, 16 Va. App. at
    345, 
    429 S.E.2d at 625
     (citations omitted).
    The record demonstrates that the trial court considered the
    retained earnings of the Subchapter S corporation as income to
    the husband, but only as income in 1993, the year in which the
    income was earned.    At the November 22, 1995 hearing, the court
    referred to the S corporation's funds and classified it as
    "income that would be reflected in prior statements subject to
    prior hearings."     (Emphasis added).   Additionally, wife's expert
    Certified Public Accountant, Bruce Blyer, testified regarding
    husband's reported income.    He stated that husband's income from
    the S corporation was "properly reported" and that he "saw no
    evidence that [husband] did anything wrong."     Husband's 1994
    § 35.01.
    5
    Individual Income Tax Return reflects income of $22,557 from
    "[r]ental real estate, royalties, partnerships, S corporations,
    trusts, etc."   Lastly, the court's December 1, 1995 letter
    opinion also indicates that the court considered the Subchapter S
    corporation's earnings:
    [Wife] urges . . . the court to consider
    undistributed, after-tax [funds] retained in
    the Sub-Chapter S Corporation and liquid
    assets in the other corporations as being
    available as income to [husband]. . . .
    Finding none of the funds retained excessive
    in relation to the size of the various
    corporations, this court will not impose its
    judgment on what should be retained by the
    corporations over the sound judgment of
    managers, including [husband], of the
    corporations.
    Upon review of the evidence before me,
    including the current status of the parties
    and the historical data accumulated over the
    years, the Court finds: . . . [Husband's]
    income is determined to be $97,500, or $8,092
    per month, down seventeen percent from the
    last review.
    *   *   *    *    *    *    *
    [Wife] is not entitled to an increase in
    spousal support; [Husband] is entitled to a
    reduction in his spousal support payments due
    to a change in his circumstances.
    Accordingly, the court determines [wife]
    is entitled to spousal support in the sum of
    $1,250 per month.
    (Emphasis added).
    Thus, although the court did not specifically itemize the
    different sources of funds that comprised husband's total income,
    the testimony and the court's December 1, 1995 letter opinion
    6
    demonstrate the court's consideration of these funds, including
    "after-tax [funds] retained in the Sub-Chapter S Corporation."
    After evaluating the evidence, the court declined to include as
    income the Subchapter S corporation's retained earnings that had
    been considered earlier in establishing the amount of husband's
    income at the prior support hearings.   The court's calculation of
    husband's income is not plainly wrong or without evidence to
    support it. 4
    II.
    Additionally, wife argues that the trial court erred in
    failing to include in its calculation of husband's income loans
    from husband's Subchapter S corporation that he deposited into
    his personal account.   Wife contends that the loans husband
    4
    Husband does not dispute that retained earnings may be
    considered as income in a determination of spousal support.
    However, he contends that this income was considered previously
    by the trial court in setting his earlier support obligation of
    $2,750.
    At the November 22, 1995 hearing, husband's counsel
    represented to the court, "[W]e agree that the Sub-S corporation
    certainly has a value in its assets. But as Your Honor knows
    . . . that income is entered -- is put on [husband's] 1040,
    whether it comes through on a W-2 or comes through on a Schedule
    E." Wife's counsel argued that the retained earnings of the
    S corporation, as "an asset or a resource that is liquid, it
    certainly is available to him as income." However, the trial
    court agreed with husband's argument: "Not as income. It's
    available . . . . We stipulate that it's an asset. He could
    liquidate the corporation and get money out of it. It is not,
    however, income in any way, shape, or form, by anybody's
    testimony."
    7
    received in 1994 and 1995 must be considered income, alleging
    that these loans were used for husband's personal expenses.
    However, as decided above, the record supports the trial court's
    determination of husband's income.
    At the November 22, 1995 hearing, Blyer testified that
    according to his examination of the records regarding the
    Subchapter S corporation, all the S corporation's income was
    reported on husband's personal tax return.   Blyer further stated
    that he found no intercompany transfers of funds between the
    Subchapter S corporation and the C corporations.    Finally, Blyer
    testified that he found nothing that was reported incorrectly on
    husband's corporate tax returns or on his individual tax returns.
    Husband acknowledged that he deposited additional funds in
    his personal checking account including one deposit of
    approximately $80,000, which was a loan he took from the
    Subchapter S corporation.   He testified that the purpose of this
    loan was to pay a mortgage on rental property.    The evidence
    established that the loan was reflected by a "note receivable to
    stockholder" and by other indicia of husband's obligation to
    repay.   The court specifically determined that this money was
    from the Subchapter S corporation, and was not present income,
    but rather "income that would be reflected in prior statements
    subject to prior hearings."   (Emphasis added).    For the reasons
    stated above, we cannot say that the trial court abused its
    discretion or was plainly wrong in excluding the loans contested
    8
    by wife from its calculation of husband's present income.
    III.
    Lastly, wife argues that the trial court erred in failing to
    impute income to husband as a "matter of fact," because husband
    deposited funds in his personal checking account exceeding his
    reported income.   Wife contends that funds in excess of husband's
    reported income of $97,500 passed through husband's personal
    checking account and that these funds should have been included
    in the court's determination of husband's income.
    "'[A] trial court may impute income based on evidence of
    recent past earnings.'"   Stubblebine v. Stubblebine, 
    22 Va. App. 703
    , 709, 
    473 S.E.2d 72
    , 74 (1996) (quoting Brody v. Brody, 
    16 Va. App. 647
    , 651, 
    432 S.E.2d 20
    , 22 (1993)).    "In deciding
    whether to impute income, the court 'must look to current
    circumstances and what the circumstances will be "within the
    immediate or reasonably foreseeable future."'"    Theismann v.
    Theismann, 
    22 Va. App. 557
    , 573, 
    471 S.E.2d 809
    , 816-17, aff'd,
    ___ Va. App. ___, ___ S.E.2d ___ (1996) (en banc) (quoting
    Srinivasan v. Srinivasan, 
    10 Va. App. 728
    , 735, 
    396 S.E.2d 675
    ,
    679 (1990)).   Trial courts must exercise their discretion in
    determining whether income should therefore be imputed.     See,
    e.g., Reece v. Reece, 
    22 Va. App. 368
    , 376, 
    470 S.E.2d 148
    , 152
    (1996).
    Witness credibility determinations rest within the
    chancellor's sound discretion and will not be disturbed on appeal
    9
    absent plain error or an abuse of discretion.   See Goodyear Tire
    & Rubber Co. v. Pierce, 
    5 Va. App. 374
    , 381, 
    363 S.E.2d 433
    , 437
    (1987).   Where the chancellor is confronted with conflicting
    testimony from interested witnesses on each side of the case, it
    is in his province alone, as fact finder, to assess the
    credibility of the witnesses and the probative value to be given
    their testimony.   See Richardson v. Richardson, 
    242 Va. 242
    , 246,
    
    409 S.E.2d 148
    , 151 (1991).   We will reverse a chancellor's
    factual determinations based on ore tenus evidence only if they
    are plainly wrong or without evidence to support them.    
    Id.
    Thus, the trial court had discretion to believe or
    disbelieve husband's explanation for these deposits.   The trial
    court accepted husband's testimony regarding the deposits into
    his personal account as being loans and not income, and
    determined that husband's testimony was credible.    The evidence
    presented in this case supports the trial court's decision not to
    impute income, and this decision was not clearly wrong or an
    abuse of discretion.
    Affirmed.
    10