As you learned in the CFL course, corporate distributions are among the forms of income that go into child support. The recent Rhode Island Supreme Court case of Trojan vs. Trojan touched on the issue of whether to include them.
Trial Court Decision
The Trojans married in 1990, and had a daughter, Tiffany, in 2001. In 2014, Joel filed for divorce, claiming irreconcilable differences. His wife, Denise, filed a counterclaim and sought child support.
In 2015, the couple entered into a consent order in which they agreed to the following:
- Joint custody, though Tiffany would live with Denise
- Joel would be awarded all reasonable rights of parenting time with Tiffany
- After allocating certain cash withdrawals Denise made earlier, they would equally divide the marital estate
- Neither party would address the conduct or fault of the other in connection with the court’s consideration of equitable distribution and alimony
The trial court ordered Joel to pay $1,796 per month in child support. Denise appealed, claiming that the court erred in not ordering him to pay interim and back child support. She also believed that the court failed to properly calculate Joel’s gross income in determining his child support obligation. She felt the judge didn’t include income and distributions from his “S” corporation, Century Drywall.
Rhode Island Supreme Court Ruling
The appeals court affirmed in part and vacated or removed in part the family court’s judgment.
It decided that the lower court was correct in declining to award child support while the divorce proceeding was pending because at the time, Denise used the funds from a joint marital account to support herself. This money was divided equally between the couple and amounted to about $505,000. Afterward, Joel agreed to pay $2,444 in child support monthly while the divorce was pending.
The ruling pointed out that section 15-5-16.2 of the law states that a child support obligation shall be calculated based on the family court’s formula and guidelines.
It continued that if, after calculating support based on the court established formula and guidelines, the court finds the order “would be inequitable to the child or to either parent, the court shall make findings of fact and shall order” a child support obligation “reasonable or necessary for the child’s support after considering certain factors.” Among the factors the court considered were Tiffany’s standard of living before the divorce, her emotional and educational needs, her financial resources and those of her parents.
Gross income, per the child support guidelines, includes salaries, wages, bonuses, gifts, social security benefits, and “all other forms of earned/unearned income,” excluding means-tested public assistance. It also covers business income defined as gross receipts minus ordinary and necessary expenses.
Denise argued that the trial court failed to include some income sources in calculating Joel’s child support obligation. The appellate court agreed that the family court should have considered the S-corporation distributions Joel used to pay personal debts in acquiring sole ownership of his company as part of his gross income under the child support guidelines.
The court also agreed that a $61,375 distribution from Century Drywall to pay a life insurance premium should have been included as income in the child support obligation.
In the process, the appeals court vacated the child support obligation decision, and ordered the trial court to recalculate the child support to include the additional income.
“However, we note that, after the trial justice includes the stock buyout distribution and insurance premium as part of Joel’s gross income, the trial justice ‘may then deviate from the worksheet guidelines ‘only if he or she finds that the recommended child support order would be inequitable to the child or to either parent.’’ Vieira, 150 A.3d at 618 (brackets and deletion omitted) (quoting
Cardinale, 889 A.2d at 221). We also reiterate that the child support order must reflect ‘an amount reasonable or necessary for the child’s support[.]’ Section 15-5-16.2(a).”
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Justia Law. (2019). Trojan v. Trojan. [online] Available at: https://law.justia.com/cases/rhode-island/supreme-court/2019/17-123.html [Accessed 19 Aug. 2019].