¶1 Defendant/Appellant, David Lincoln (Father), seeks review of the trial
court's order awarding child support to Plaintiff/Appellee, Sara Knight
(Mother), for the support of their minor child. We hold the trial court erred as
a matter of law (1) in failing to deduct from Father's self-employment income
the ordinary and reasonable expenses necessary to produce the income, and (2) in
failing to deduct the corpus in determining the income from the sale of Father's
ranch. We modify the order to award $1,259.91 per month in child support and
determine the arrearage to be $45,526.83.
¶2 Mother brought this paternity action on March 12, 2010, seeking support
for the parties' then twelve-year-old daughter. Father appeared and acknowledged
paternity. The parties tried the remaining issues on November 4, 2011.
¶3 The trial court filed its journal entry of judgment on February 29, 2012,
making extensive findings of fact and conclusions of law. It found that the
parties had lived together with their child until October 2008, but since that
time the child had lived with Mother while Father had visitation but paid no
child support. The court made detailed findings as to Father's income for the
years 2006-2011, and then averaged the years 2008-2011 to impute annual income
of $198,006.20 to Father. For the purposes of determining child support, the
court found Father's gross monthly income was $16,500.52, and Mother's was
$1,953.00. In a separate order incorporated by reference, the trial court
directed Father to pay Mother $1,221.08 per month in child support plus medical
support of $102.35 per month, for a total monthly payment of $1,323.43. The
trial court determined Father owed Mother an arrearage of $47,622.12 for child
support from November 1, 2008 to February 10, 2012. The court also granted
Father standard visitation. Father appeals from this order.
¶4 Child support proceedings are of equitable cognizance. Merritt v.
Merritt, 2003 OK 68, ¶7, 73 P.3d 878, 881. In reviewing
equitable proceedings, we will affirm the trial court's decision unless the
record reveals some error of law or the decision is clearly against the weight
of the evidence. Guymer v. Guymer, 2011 OK CIV APP 4, ¶4, 245 P.3d 638, 639. We will review
discretionary determinations for abuse of that discretion. Broadwater v.
Courtney, 1991 OK 39, ¶7, 809 P.2d 1310, 1312. In an equity
case, whenever we determine that the trial court's decision is in error, "we
should, whenever possible, render the judgment which, in our opinion, the trial
court should have entered." Bond v. Bond, 1996 OK CIV APP 3, ¶18, 916 P.2d 272, 276.
I
¶5 Father's first two propositions of error challenge the trial court's
findings as to his income for child support computation purposes. A person who
is determined to be a child's father pursuant to the Uniform Parentage Act, 10 O.S. 2011 §§7700-101 to 7800, is
liable for the child's support and education. 10 O.S. Supp. 2012 §83(A). Pursuant
to 10 O.S. Supp. 2012 §83(D), the
amount of support must be set in accordance with the child support guidelines
(Guidelines) provided in 43 O.S.
2011 §118. In addition, the trial court must impose liability for support
for the five years preceding the filing of the action. 10 O.S. Supp. 2012 §83(C).
¶6 There is a rebuttable presumption that the amount of the child support
award which would result from the application of the Guidelines is the correct
amount of child support to be awarded. 43 O.S. 2011 §118(A). Child support
is computed as a percentage of the combined gross income of both parents, and is
allocated to each parent according to the parent's percentage contribution to
the combined adjusted gross income. 43 O.S. 2011 §118D(A) and (C).
Gross income includes both earned income and passive income. §118B(A)(2) and
(3).1 In
computing the gross income of the parents, the court may use whichever is the
most equitable of actual income, average income for the past three years,
minimum wage, or imputed income. 43
O.S. 2011 §118B(C)(1). In imputing income, the court may consider, among
other things, a parent's willful underemployment, the reliability of evidence of
income, the parent's past and present employment, the parent's education,
training, and ability to work, and the parent's lifestyle. §118B(D)(2). The
court shall include self-employment income and the value of fringe benefits that
significantly reduce personal living expenses in computing gross income.
§118B(E) and (F).
¶7 Father contends the trial court erred in imputing income in order to
determine his child support liability. The record in the present case contains
evidence from which the trial court could find that Father was willfully
underemployed. Father's testimony that his income was only $583.00 per month is
unreliable given other evidence in the record showing that his expenses exceeded
that amount yet he somehow paid them, and he had unexplained deposits to his
accounts. In addition, the record contains evidence that his lifestyle was
incongruent with his claimed income. For example, he paid cash for several
parcels of real property over the years, including $300,000.00 for the Denver
condominium in which he currently resides. The trial court imputed current
income to Father based on the average of Father's actual income for the previous
four years. Under these circumstances, we are unable to find any abuse of
discretion in the trial court's basis for imputation of income to Father.
¶8 However, some of the trial court's calculations as to Father's income are
affected by errors of law. Father contends the trial court erred in failing to
deduct any business expenses from his self-employment income. Some of Father's
income was self-employment income from his ranch operation and from rental
properties. For farm income, the trial court used the gross income that Father
reported to the Internal Revenue Service (IRS) on his Schedule F Profit or Loss
From Farming. Pursuant to 43 O.S.
2011 §118B(E)(1), "ordinary and reasonable expenses necessary to produce
such income" are deducted from self-employment income in arriving at gross
income. The determination of business income for tax purposes is not controlling
for the purposes of child support, and accelerated depreciation is expressly
excluded from reasonable expenses, while social security tax is specifically
included. 43 O.S. 2011
§118B(E)(2).
¶9 We have examined Father's Schedule F for the tax years 2008-2009 and
conclude that all listed expenditures except those for depreciation, dues, and
taxes are ordinary and reasonable expenses necessary to produce the farm income.
Therefore, we deduct farm expenses in the amount of $11,306.00 from Father's
2008 income and $10,358.00 from his 2009 income. Father's tax returns show he
paid no social security tax; therefore we make no adjustment for social security
tax.
¶10 Father also argues the trial court erred in failing to deduct expenses
from his rental income. The evidence regarding Father's income from his rental
properties came from his own exhibits. The expenses of generating rental income
are deductible from gross income for the purpose of child support. 43 O.S. 2011 §118B(E)(1). We find
all of Father's listed expenses are ordinary and reasonable expenses necessary
to produce the rental income except for State and Federal taxes. Therefore, we
deduct rental expenses of $1,755.00 for 2010 and $16,825.00 for 20112 from Father's
income for those years.
¶11 Father argues the trial court erred in attributing the proceeds of the
sale of his ranch to income, and in failing to deduct the cost basis from the
proceeds. The statutory language of 43 O.S. 2011 §118B(A)(1) is broadly
inclusive, defining "gross income" as "earned and passive income from any
source, except as excluded in this section." The statute lists types of earned
and passive income, but the lists are not exclusive. §118B(A)(1) and (2).
Whether net after tax gain from the sale of property is income for the purpose
of child support computation in Oklahoma appears to be a question of first
impression.
¶12 In Eisner v. Macomber, 252 U.S. 189, 40 S.Ct. 189, 193, 64 L.Ed.
521 (1920), the U.S. Supreme Court interpreted the meaning of "income" in the
Sixteenth Amendment, which authorized Congress to tax income. It examined the
meaning of the term in common usage and concluded that income was "the gain
derived from capital, from labor, or from both combined,... including profit
gained through a sale or conversion of capital assets." Id., 252 U.S. at
207, 40 S.Ct. at 193.3 Accordingly, capital gains are income for both
federal and state income tax purposes. 26 U.S.C. §61(a)(3) and 68 O.S. 2011 §2353(10). Most states
that have considered the question classify realized capital gains as income for
the purpose of child support computation, including capital gain from the sale
of a residence.4
¶13 We conclude that capital gains are properly included as income for the
purpose of child support calculation in Oklahoma. Capital gains have
historically been understood to constitute income and have not been excluded by
the statute. Therefore the trial court properly included Father's capital gains
from the sale of his real property in calculating his income.
¶14 The gain from the sale or exchange of capital is the profit from
the transaction. Eisner v. Macomber, 252 U.S. at 207, 40 S.Ct. at 193.
The return of the corpus or principal is not income. Thomas v. Thomas, 1996 OK CIV APP 151, ¶9, 932 P.2d 54, 55. Therefore, the
corpus should be deducted from the net sale proceeds in order to determine the
amount of the gain. The trial court in the present case properly ruled that the
corpus should be deducted but, as Mother acknowledges, failed to subtract the
ranch corpus in performing its calculations. Therefore, we deduct $154,500.00
attributable to the ranch corpus from Father's income for 2010.
¶15 We do not find any merit in Father's other contentions challenging the
determination of his income. Father contends the proceeds of the sale of his
homestead and his ranch were not income because he reinvested the proceeds in
income-producing property. Father cites no authority for this proposition and
therefore we will not consider it. However, we will consider the effect of the
reinvestment of homestead proceeds in another homestead because the Oklahoma
Constitution, Art. 12, §2, protects the homestead from forced sale for the
payment of debts.
¶16 The exemption extends to the proceeds of the voluntary sale of the
homestead which are in good faith intended to be invested in another homestead.
Field v. Goat, 1918 OK
315, ¶3, 173 P. 364, 365.
Although profits from the sale of a homestead are generally exempt from
attachment by creditors, it does not follow that such profits can never be
counted as income in the calculation of a parent's child support obligation. The
purpose of the homestead exemption is to protect the family in its occupancy of
the home from the improvidence and demands of creditors. Burrows v.
Burrows, 1994 OK 129, ¶12, 886 P.2d 984, 989. As a matter of
public policy, the homestead exemption may not be used to avoid supporting the
children it was created to protect. Id. at ¶15. The record in this case
shows that Father chose to become cash poor and property rich. He may not use
that condition to avoid child support. Under these circumstances, the trial
court did not err in including the proceeds of the voluntary sale of the
homestead as income for the purpose of calculating child support.
¶17 Father contends the trial court erred in failing to deduct the proceeds
from the sale of personal property from the ranch proceeds. He points to no
evidence separating the price of any personal property from the sales price of
the ranch, and separating the cost of the personal property from that of the
ranch. Therefore he has failed to show the trial court's findings were against
the clear weight of the evidence.
¶18 Father next contends the trial court imputed income from dog boarding and
training and livestock sales twice. The evidence was conflicting as to whether
he received dog fees from clients other than his father. Where there is
conflicting testimony, "[t]he trial court is entitled to choose which testimony
to believe as the judge has the advantage over this Court in observing the
behavior and demeanor of the witnesses." Mueggenborg v. Walling, 1992 OK 121, ¶7, 836 P.2d 112, 114. The livestock
income he asserts was imputed twice took place in 2006. The trial court did not
consider this year in calculating Father's income. We will not consider errors
"which, if changed, would not affect the result." Mortgage Bond Co. v.
Stephens, 1937 OK 612, ¶20,
74 P.2d 361, 367.
¶19 Father next argues the trial court erred in including amounts he received
from his parents as his income, asserting the amounts were loans. The Guidelines
specifically include gifts as passive income. 43 O.S. 2001 §118B(A)(3)(l). The
record is devoid of evidence Father made any payments to his parents on any
loans. The trial court's finding that Father's parents made gifts of money is
not against the clear weight of the evidence.
¶20 Father argues the trial court should not have included unemployment
benefits and wages because he no longer receives them. He also argues the trial
court should not have included deposits to his bank accounts from unknown and
unexplained sources. As discussed above, the trial court did not abuse its
discretion in imputing income to Father based on Father's willful
underemployment. The inclusion of past unemployment benefits, wages, and
unexplained deposits are appropriate ways of imputing income under the
circumstances. We find no abuse of discretion.
¶21 Based on our modifications to Father's income for the years 2008-2011, we
find Father's total income for those four years was $595,177.81. His average
yearly income was $148,794.45 and his average monthly income was $12,399.54. The
parties' combined income is $14,352.54. Pursuant to the Guidelines, the total
support amount for one child is $1,346.00. Father's percentage share of the
income is 86%, which makes his share of the child support equal to $1,157.56.
With the cash medical amount of $102.35 added in, his monthly obligation is
$1,259.91. The amount of the arrearage is $45,526.83 plus interest as provided
in the trial court's order.
II
¶22 Father's third proposition is the trial court erred in concluding that
Father owes $47,622.12 in child support arrearage. He argues the trial court
failed to consider that the child, as well as Mother's child from a previous
relationship, spent the entire day at his home while Mother was working, and
Father provided them three meals a day and clothing from 2008 to 2010. Father
failed to provide any documentation of his expenditures, and Mother controverted
his testimony. The trial court was entitled to choose which evidence to believe.
Its refusal to apply a set-off for Father's care of the children is not against
the clear weight of the evidence. We do, however, modify the amount of the
arrearage based on our findings in Part I above.
III
¶23 Father's fourth proposition is the trial court erred in ordering standard
visitation. He argues standard visitation is inappropriate because he lives in
Colorado. At trial, he testified as follows:
Q I assume you have no objection to being awarded standard
visitation?
A I would hope that would be awarded. We are still very close and very
close to [Mother]. I can't believe that would not be the
case.
¶24 Father makes no showing he made his objection to standard visitation
known to the trial court. Issues not properly presented to the trial court will
not be heard for the first time on appeal. Oklahoma Dep't of Sec. ex rel.
Faught v. Wilcox, 2011 OK
82, ¶17, 267 P.3d 106,
110.
IV
¶25 Father's next proposition is the trial court erred when it deviated from
the Guidelines by failing to state any reason for deviating from the statutory
cap of $15,000.00 in monthly income. The child support order reflects that the
trial court did apply the cap. However, based on our modification of the
findings as to Father's income, the parties' combined monthly income no longer
exceeds the cap. We have calculated child support without deviating from the
Guidelines.
V
¶26 Father's last proposition is the trial court erred by adopting Mother's
proposed findings and conclusions in total as its order. Father argues the trial
court failed to carefully review the evidence and determine an appropriate
amount of gross income, and failed to provide a copy of the journal entry to
Father to review prior to entry.
¶27 The trial court has broad discretion in directing the manner in which a
journal entry is prepared, including directing counsel for one party to prepare
a draft. 12 O.S. 2011 §696.2(A).
Only the trial court needs to sign the order. 12 O.S. 2011 §696.3. The parties'
approval is not required. §696.3(A)(3). In the present case, Mother submitted
comprehensive proposed findings of fact and conclusions of law, while Father
submitted a document stating whether he viewed Mother's proposed findings to be
true or false. Father's submission could not have been used as a draft order.
Under these circumstances, we are unable to find any abuse of discretion.
¶28 For the foregoing reasons, the trial court's order is modified to award
Mother $1,259.91 per month in child support, plus an arrearage of $45,526.83.
The order is AFFIRMED AS MODIFIED.
HETHERINGTON, P.J., and MITCHELL, J., concur.
