In re Marriage of Britton, 2022 IL App (5th) 210065
An important issue in any child support case is the amount the person paying child support (“Payor Parent”) earns. In cases where the Payor Parent earns a stable salary and gets a W-2, this issue is straightforward. When the Payor Parent, however, is employed by a business he or she owns, their income is sometimes a much more complex issue. For example, the salary the Payor Parent was paid by the business, may not reflect their actual income. In Britton, the Fifth District addressed some of the issues that arise in a child support case when the Payor Parent owns and operates a business. It is also an example of how “winning” on appeal can sometimes actually represent a significant loss as a practical matter.
A. The Underlying Facts
The parties had two children during their marriage. A judgment dissolving their marriage was entered on April 25, 2012. In that judgment, Brent Britton was ordered to pay Kristi $200 per week in child support, which comes out to about $866 per month.
Brent owned and operated three companies: Britton Trucking, Inc., Britton’s Wrecker Service, Inc. and Britton Transportation Services, Inc. At the time they were divorced, Kristi owned 50% of the stock in these three companies. Under the judgment dissolving their marriage, Brent purchased Kristi’s stock interest for these companies under an installment payment plan.
About 5 ½ years later (in October 2017), Kristi filed a Petition to modify the child support Brent was paying. Kristi alleged that Brent’s income had increased during the intervening 5 ½ years and that the children’s living expenses had increased. In his response to Kristi’s Petition, Brent admitted that his income had, in fact, increased.
In late July 2019, Brent filed a financial affidavit, in which he stated that he earned $55,768 in 2018 and $21,750 from January 1, 2019 to July 26, 2019. Brent also addressed his expenses in the financial affidavit, and stated his expenses exceeded his income on a monthly basis by $2,594.31. Based on Brent’s financial affidavit, his expenses exceeded his income by approximately $31,000 per year.
Kristi did not agree with the income numbers Brent reported. In a document she submitted to the court in October 2019, Kristi claimed that Brent was earning $293,917 in 2016, $216,305 in 2017, and $176,569 in 2018, which is more than three times what Brent claimed he earned. Kristi argued that averaging Brent’s income over three years resulted in a gross monthly income for Brent of $19,077.
Shortly thereafter, Brent filed an amended financial affidavit in which he claimed that he earned $98,070 in 2018 and from January 1, 2019 to October 25, 2019 he had earned $73,495. Put differently, only three months after producing his initial financial affidavit, Brent significantly increased his 2018 income (from $55,768 to $98,070).
At the subsequent hearing on Kristi’s Petition, Brent testified that according to his tax returns, he earned the following amounts: $128,897 in 2016, $152,530 in 2017 and $87,976 in 2018. He also agreed that “based on his affidavit, he was spending $40,000 more than he was making.” Kristi later argued that Brent’s expenses exceeded his reported income by about $72,000 per year. Kristi argued that the circuit court should impute income to Brent, given that his expenses exceeded his reported income by such a large amount.
After the hearing, Kristi submitted a post-trial brief in which she claimed that Brent’s monthly net income was $15,263, or a net income of $183,156 annually. In his post-trial brief, Brent claimed his 2018 gross monthly income was only $7,636.78.
After the hearing, the Circuit Court stated that it was going to “permit the parties to brief the amount of imputed income and also arguments as to Section 179 deductions. . . . [T]his . . . ruling . . . is significant because I find the testimony of the respondent not credible as to his actual income and expenses.”
After this additional briefing, the Circuit Court concluded that Brent’s actual and imputed gross income was $14,529 per month, or $174,348 annually. The gross income number the Circuit Court settled on was consistent with the gross income number Kristi submitted to the court prior to the hearing.
The court subsequently set Brent’s child support numbers as follows: $1,538.26 from November 2017 to July 2019, $785.56 from August 2019 to August 2020, and $1,010.66 per month starting in September 2020. Under the Circuit Court’s order, Brent faced a modest increase in his child support obligation after September 2020 and a reduction in his child support obligation from August 2019 to August 2020.
Brent appealed the Circuit Court’s order.
B. The Fifth District’s Decision
The Fifth District affirmed the Circuit Court’s decision to impute income to Brent, but vacated the Circuit Court’s finding as to Brent’s gross income and the child support calculations. The Fifth District pointed out that the Circuit Court did not explain how it determined that Brent’s monthly gross income was $14,529. Given the many different income numbers presented by both parties, the Fifth District concluded that it could not determine, based on the record before it, how the Circuit Court could have produced that number. As a result, it stated that “we decline to affirm the trial court’s finding.” In other words, the Fifth District did not find that the $14,529 monthly income number was actually incorrect.
The Fifth District did provide guidance to the Circuit Court on what it should do going forward. First, the Fifth District rejected the apparent use by the Circuit Court of Brent’s expenses as a basis to impute income. The Fifth District expressly held that the Circuit Court needed to determine an imputed income amount from Brent’s “earning capacity, not his spending habits.”
While Brent listed in his financial affidavit expenses that exceeded his income, Kristie did not provide evidence showing that Brent’ business was paying for these expenses or that Brent had access to a secret source of income. The Fifth District would not allow an inference that Brent’s having identified expenses above his reported income proved that he actually had income to cover those expenses. While Brent did not resolve the discrepancy between his reported expenses and reported income, the Fifth District did not believe that Brent had this burden.
While Brent successfully challenged Kristi’s effort to have income imputed to Brent from his expenses, it appears that Brent suffered a significant reverse when the Fifth District held that any net income earned by Brent’s businesses could get imputed to him as income. Here, the Fifth District focused on more than $300,000 in business expenses that Brent’s business classified as accelerated depreciation (The “Declining Balance” method of depreciation). The Fifth District held, as a matter of law, that accelerated depreciation is not a recognized business expense when calculating child support. As a result, the Circuit Court could impute the more than $300,000 in such expenses as income to Brent.
The Fifth District then directed the Circuit Court to consider the “remaining nonaccelerated depreciation” in order to determine if these expenses should not be treated as actual expenses and, thereby, increasing further the net income earned by Brent’s business.
C. Concluding Thoughts
The Fifth District’s decision is yet another example of how broadly courts will define personal net income when calculating child support. In Britton, the Fifth District held that the Circuit Court could impute to Brent net income earned by Brent’s businesses, even though Kristi did not present evidence that those businesses actually paid those sums to Brent. This ruling shows the unwillingness of courts to let private business owners park money in the business in order to reduce their child support burden.
The decision in Britton also shows the limitations of relying too heavily on a financial affidavit. Kristi tried to build her case concerning imputed income on the discrepancy between the expenses Brent identified in his financial affidavit and the income he reported. While such a discrepancy certainly raised questions concerning Brent’s actual income, the Fifth District rejected any suggestion that the Circuit Court could impute income from that discrepancy alone.
Finally, knowing when to cut your losses in litigation is crucial. The child support amounts the Circuit Court settled on, were not significantly more than what Brent paid before Kristi filed her Petition to Modify (excluding the 19-month period between November 2017 to July 2019 when Brent was ordered to pay $1,538.26 in child support). It is hard to tell how adding more than $300,000 to Brent’s income will impact the child support calculations, but it could very well result in a higher net income for Brent than the Circuit Court initially calculated. If this happens, Brent’s getting the Circuit Court’s child support order vacated would constitute a pyrrhic victory.
As evidenced by the case discussed, determining the appropriate child support payment amount is complex. When the payer parent is a business owner, that determination becomes even more difficult to navigate. That is why enlisting the help of an experienced Chicago child support attorney is essential. At The Law Offices of George M. Sanders, we will work together with you to determine the appropriate level of child support needed in your case based on your specific circumstances. We have the knowledge and skills required to help you with the financial issues involved in child support matters. Contact us today.