In The Court of Appeals Seventh District of Texas at Amarillo
No. 07-19-00016-CV
IN THE MATTER OF THE MARRIAGE OF JEFFERY R. TUTTLE AND LISSA RENEE TUTTLE AND IN THE INTEREST OF B.W.T., A MINOR CHILD
On Appeal from the 45th District Court Bexar County, Texas Trial Court No. 2017-CI-10119, Honorable Norma Gonzales, Presiding
May 4, 2020
OPINION Before QUINN, C.J., and PIRTLE and DOSS, JJ.
This appeal arises from the divorce of Jeffery R. Tuttle and Lissa Rene Tuttle.1 As
part of its final divorce decree, the trial court “confirmed” that Lissa owned as her separate
property a half interest in the Bexar County home. The home was bought during the
marriage with Jeffery’s separate property (i.e., inheritance), but its deed was placed in the
names of both Jeffery and Lissa. The trial court also ordered Jeffery to pay child support.
1 The record contains both an appellant’s brief filed by Kenneth W. Anderson as counsel for Jeffrey Tuttle and a reply brief filed by Jeffery R. Tuttle, pro se. Anderson having made an appearance on behalf of his client and not having withdrawn as legal counsel on behalf of Jeffery R. Tuttle, the latter’s effort to file a reply brief pro se constitutes impermissible hybrid representation. In re Barnes, No. 03-11-00647-CV, 2012 Tex. App. LEXIS 748, at *1–2 (Tex. App.—Austin Jan. 25, 2012, orig. proceeding) (mem. op.) (noting that pro se filings by a litigant with legal counsel who has not withdrawn is impermissible hybrid representation). Consequently, the reply brief will not be considered by the Court. In calculating the sum payable, the trial court considered as part of his net resources,
retained earnings held by a Subchapter S corporation that he owned. The two issues
before us concern whether the trial court accurately determined that Jeffery gave Lissa a
gift of a half interest in the Bexar County home and permissibly included retained earnings
in calculating his child support obligation. Jeffery contends that it erred in both respects.
We affirm in part and reverse in part.2
Issue One – Gift
Through his first issue, Jeffery asserts that the evidence is legally and factually
insufficient to support the trial court’s ruling that he “intended to make an inter vivos gift
to [Lissa] of a fifty percent (50%) interest in the Bexar County Residence” and “[a]t most,
. . . intended a gift cause [sic] mortis.” We overrule the issue.
The applicable standard of review is abused discretion. Knowlton v. Knowlton, No.
04-17-00257-CV, 2018 Tex. App. LEXIS 3408, at *5 (Tex. App.—San Antonio May 16,
2018, no pet.) (mem. op.). The standard overlaps with the traditional sufficiency of
evidence standards in family law cases. Id. Thus, the legal and factual sufficiency of the
evidence are not independent grounds of review but, rather, part of the abused discretion
analysis. Id. at *5–6. And when the burden of proof at trial is by clear and convincing
evidence, as it was here, we employ a higher standard in performing our legal and factual
sufficiency analysis. Id. at *6. Evidence is clear and convincing evidence when it
produces in the mind of the trier of fact a firm belief or conviction as to the truth of the
allegations sought to be established. Id. Yet, it need not be clear and unequivocal. Id.
2 Because this appeal was transferred from the Fourth Court of Appeals, we are obligated to apply its precedent when available in the event of a conflict between the precedents of that court and this Court. See TEX. R. APP. P. 41.3.
2 at *7. Finally, per the standard of review, we construe the evidence in a light most
favorable to the trial court’s judgment. Id.
Next, a gift involves a voluntary transfer of property to another made gratuitously
and without consideration. Id. at *7–8. It is established by the donee proving 1) the intent
to make a gift, 2) delivery of the property, and 3) its acceptance. Id. at *8. The principle
issue is the donor’s intent. Id. With that said, we turn to the record at bar.
No one denies that the Bexar County home was acquired during the community.
Nor do they question that Jeffery 1) used inheritance or separate property from his
deceased parents to buy it and 2) placed title to the home in both his and Lissa’s name.
Placing title to the realty in joint names under that circumstance created a rebuttable
presumption that he intended to give Lissa an undivided half interest in the home. See
Office of the AG v. Kalenkosky, No. 04-09-00762-CV, 2011 Tex. App. LEXIS 2939, at *9
(Tex. App.—San Antonio Apr. 20, 2011, no pet.) (mem. op.) (stating that “[w]hen a spouse
uses separate property to pay for property acquired during the marriage and takes title to
it in the names of both spouses, it is presumed that the purchasing spouse intended to
give the other spouse an undivided one-half interest in the property”). The presumption
can be rebutted, though, by evidence clearly establishing no intention to make a gift. Id.
Though Jeffery denied intending to give Lissa half ownership of the home, the trial
court had before it other evidence. It included testimony that: 1) the two were reuniting
at the time the property was acquired; 2) Jeffery also bought Lissa a vehicle and titled it
in her name; 3) Jeffery wanted to “make things right” and said “[w]e were going to have a
home”; 4) Jeffery added Lissa to “accounts” from which she was previously excluded; 5)
Jeffery said he was “not going to leave you guys [i.e., Lissa and their son] without a home”;
3 6) Lissa “deserved this home and that he was happy that finally we were going to be a
family”; 7) Jeffery was “very emotional”; 8) Lissa selected the house, undertook the
repairs needed, and moved into it with their son; and 9) Jeffery had Lissa named as one
of the grantees.
Given that intent lies within one’s mind and same is not readily susceptible to
reading, our law has long recognized that it may be established through both direct or
circumstantial evidence. See Consol. Reinforcement, L.P. v. Cheraif, No. 04-18-00443-
CV, 2019 Tex. App. LEXIS 4371, at *5 (Tex. App.—San Antonio May 29, 2019, no pet.)
(mem. op.) (observing that intent, in that case fraudulent intent, may be inferred from
direct and circumstantial evidence). Even if we were to ignore the rebuttable presumption
erected by placing Lissa’s name on the deed, Jeffery’s act of placing it on the deed may
be considered circumstantial evidence of Jeffery’s intent. See Harrison v. Harrison, 321
S.W.3d 899, 903–04 (Tex. App.—Houston [14th Dist.] 2010, no pet.) (wherein the fact
that husband placed wife’s name on deed to one parcel while omitting it from another was
considered as evidence to support a finding of gift). That he had a donative mindset while
reuniting with Lissa is further circumstantially exemplified by his acquiring a car for her
and placing it in her name and naming her on “accounts” from which she was previously
omitted. Coupling that with the other bits of evidence itemized above provided the trial
court with basis to form a firm conviction and belief not only that he had the requisite intent
to make a gift but also that he delivered and she accepted the gift. So, upon construing
the evidence in a light most favorable to the trial court’s finding of a gift, we conclude that
its decision was not an instance of abused discretion.
4 Issue Two – Retained Earnings
Via the last issue before us, Jeffery contends that the trial court abused its
discretion when including “undistributed retained earnings from [his] Subchapter S
corporation in the calculations of [his] child support obligation.” In other words, he attacks
the amount of support the trial court ordered him to pay because it utilized an improper
criterion in arriving at the sum. The improper criterion was the inclusion of the
aforementioned retained earnings in the support equation. We sustain the issue.
The pertinent standard of review again is one of abused discretion. Smith v.
Hickman, No. 04-19-00182-CV, 2020 Tex. App. LEXIS 2457, at *3–4 (Tex. App.—San
Antonio Mar. 25, 2020, no pet. h.) (mem. op.) (stating that most of the appealable issues
in a family law case are evaluated under the abuse of discretion standard, be it the issue
of property division incident to divorce or partition, conservatorship, visitation, or child
support). That discretion may be abused when the trial court lacks sufficient evidence
upon which to exercise it. See id. at *5–6 (finding that “the trial court abused its discretion
on the issues of conservatorship, child support, and property division because it did not
have sufficient evidence upon which to exercise its discretion”).
Next, the Family Code requires a trial court to calculate “net resources” to
determine an obligor’s child support liability. TEX. FAM. CODE ANN. § 154.062(a) (West
Supp. 2019). The term “resources” is quite expansive. It includes 1) 100 percent of all
wage and salary income and other compensation for personal services, 2) interest,
dividends, and royalty income, 3) self-employment income, 4) net rental income, and 5)
all other income actually being received. Id. § 154.062(b)(1)–(5). Excluded, though, are
1) return of principal or capital, 2) accounts receivable, 3) benefits paid in accordance
5 with the Temporary Assistance for Needy Families program or another federal public
assistance program, and 4) payments for foster care of a child. Id. § 154.062(c)(1)–(4).
And to arrive at “net resources,” the trial court deducts 1) social security taxes, 2) federal
income tax, 3) state income tax, 4) union dues, 5) expenses for the cost of health
insurance, dental insurance, or cash medical support for the obligor’s child ordered by the
court, and 6) nondiscretionary retirement plan contributions, if the obligor pays no social
security taxes. Id. § 154.062(d)(1)–(6).
Missing from the itemizations above is mention of retained earnings of a
Subchapter S corporation. This may be because corporate retained earnings, though
taxable as personal income, remain corporate assets owned by the corporation, not the
corporate shareholder. Dyer v. Dyer, No. 03-16-00753-CV, 2018 Tex. App. LEXIS 4380,
at *15 n.6 (Tex. App.—Austin June 15, 2018, no pet.). They are not subject to division
between spouses upon divorce. Id.; Thomas v. Thomas, 738 S.W.2d 342, 344 (Tex.
App.—Houston [1st Dist.] 1987, writ denied) (stating that “[c]ourts in community property
states have unanimously held that corporate earnings remained corporate property until
distributed and, therefore, were not divisible on divorce”). And, though dividends paid a
shareholder may be income for purposes of a § 154.062(b) calculation, a corporation’s
earnings or surplus funds normally do not constitute a dividend while retained by the
entity. LeGrand-Brock v. Brock, 246 S.W.3d 318, 322 (Tex. App.—Beaumont 2008, pet.
denied). Though analogy from this law would appear dispositive of the issue before us,
not all is as it seems.
Our research uncovered no Texas authority expressly covering the topic here. Nor
did the parties cite us to any. However, neighboring jurisdictions have spoken on the
6 matter. For instance, the court in In re Marriage of Brand, 273 Kan. 346, 44 P.3d 321
(2002), observed that “[c]ourts have been reluctant, for policy reasons, to allow a blanket
rule that retained earnings of a Subchapter S corporation are not income to be considered
when calculating support.” Id. at 328. According to Brand, such an immutable rule “would
encourage shareholders to retain earnings in favor of their own long-term financial
interests without regard for the need [to] support” their children. Id. The Brand court was
not alone in so observing.
The intermediate appellate court in Williams v. Williams, 74 Ohio App.3d 838, 600
N.E.2d 739 (4th Dist.1991), likewise concluded that retained earnings may be a
component of the child support equation. It did so given the potential for gross inequity
in allowing a parent “to sit upon his assets, hide behind the shield of corporate business
decisions, and prevent his children from enjoying the standard of living they would have
enjoyed had the marriage continued.” Id. at 743. Similar policy concerns also induced
the New Mexico Court of Appeals to caution district courts to “be careful to avoid allowing
the shareholder-spouse to manipulate salary, corporate distributions, and retained
earning[s] to his or her unfair advantage, thereby substantially skewing one’s support
obligations.” Clark v. Clark, 2014-NMCA-030, ¶ 14, 320 P.3d 991, 2013 N.M. App. LEXIS
74. The Clark court also noted that “[t]he potential for manipulation is . . . much greater
where the shareholder-spouse is a sole or majority shareholder of the corporation and,
by virtue of his ownership and control, has authority to dictate all corporate distributions.”
Id.
Indeed, the concerns about abuse, inequity, and manipulation by a parent of his
assets and income has led to the apparent development of a general rule. It recognizes
7 the potential of including retained earnings of a business. That is, it neither demands
their inclusion or exclusion when calculating a parent’s child support obligation. Instead,
it leaves the circumstances of each case to determine the outcome. Circumstances or
indicia affecting the decision encompass, among other things: 1) the extent of the parent’s
ownership share in the business/corporation; 2) the parent’s ability to decide whether
corporate earnings should be retained or distributed; 3) corporate history regarding the
retention or distribution of earnings; 4) the financial and operational needs of the
corporation; 5) the excessiveness of the earnings retained when compared to the entity’s
financial and operational needs; and 6) the existence of evidence indicating the parent
has engaged in actual manipulation of retained earnings. In re Marriage of Moorthy, 2015
IL App. 1st) 132077, 390 Ill. Dec. 672, 29 N.E.3d 604, 622; accord In re Soesbe, No. 2-
19-0716, 2020 IL App. Unpub. LEXIS 584, at *11–12 (IL App. [2d Dist.] April 9, 2020)
(order) (alluding to child support questions and mentioning those indicia when deciding
whether to treat undistributed partnership earnings as income for calculating child
support); Tuckman v. Tuckman, 308 Conn. 194, 211–12, 61 A.3d 449, 458–59 (2013)
(noting relevant factors to include 1) the parent’s level of control over corporate
distributions, 2) the corporation’s legitimate business interests and needs, and 3)
evidence of an attempt to shield income by means of retained earnings); J.S. v. C.C., 454
Mass. 652, 663–64, 912 N.E.2d 933, 942–43 (2009) (noting the same); In re Marriage of
Brand, 44 P.3d at 330 (stating that “[s]ome . . . factors include past earnings history of the
corporation, ownership share, . . . the shareholder’s ability to control distribution or
retention of the net profits of the business [and further noting that] . . . . In those cases
where income can be manipulated because of the ability to control distributions,
8 heightened scrutiny should be exercised”). The purpose of earlier distributions is another
relevant consideration. See Bornhorst v. Bornhorst, 28 Neb. App. 182, 2020 Neb. App.
LEXIS 122, at *45–46 (Neb. Ct. App. Apr. 14, 2020) (holding that distributions made to a
shareholder of a sub S corporation should not be included as income at least for those
portions of the distribution intended to offset the shareholder’s personal tax liability on his
or her proportionate share of the S corporation’s pass-through earnings). We find these
authorities and rationale underlying their rule quite persuasive.
It is indisputable that Texas imposes a legal duty upon parents to financially
support their children. Ochsner v. Ochsner, 517 S.W.3d 717, 724 (Tex. 2016) (explaining
that child support is a duty owed by the parent to a child, not a debt owed to a parent).
Similarly indisputable is that assets and the desire to preserve them may induce reputable
parents to do irreputable things to the detriment of children. We view the rule espoused
in Brand and its many progeny as an acceptable means to foster a child’s well-being,
further the duty of support, and minimize potentially adverse consequences when a
parent’s focus turns to preserving assets as opposed to caring for offspring.
The corporate fiction should not be available as a guise for parents to artificially
reduce net resources when it comes time to calculate their support obligation. Indeed,
our own legislature has taken steps to minimize such ruses. This is exemplified by it
permitting a trial court to consider (in the child support equation) earning potential as
opposed to actual earnings when a parent engages in intentional unemployment or
underemployment. See TEX. FAM. CODE ANN. § 154.066(a) (stating that if the “actual
income of the obligor is significantly less than what the obligor could earn because of
intentional unemployment or underemployment, the court may apply the support
9 guidelines to the earning potential of the obligor”). If nothing else, that statute
encompasses both Texas policy requiring parents to support their children and prohibiting
parents from engaging in means to shirk that obligation. In reality, assessing whether
retained earnings should be included in the support equation differs little from assessing
a parent’s earning potential. Both contemplate assessment of whether the parent
manipulated circumstances in a way that impacts his or her duty of support.
Thus, we hold that retained earnings may be included in the child support equation.
Yet, inclusion is not automatic given the corporate fiction, the corporation’s ownership of
the asset, and the need to perpetuate healthy businesses to foster our economic
existence. Instead, the decision turns upon assessment of relevant indicia, which include
those listed above and all others that may be pertinent. The totality of those indicia, not
simply one, is determinative; and, the aim in considering them is to determine whether
retained earnings are truly part of the parent’s income for purposes of child support just
as they are for purposes of personal income tax calculations.
Here, the retained earnings considered by the trial court in its net resources’
calculation were assets of Jeffery’s Sub-S corporation. They amounted to $55,000. At
the time of trial, the corporation had four employees, but Jeffery was its sole shareholder
and officer. As such, he controlled corporate funds and made the decision whether to
distribute retained earnings to himself or maintain them for corporate use. To paraphrase
Steve Miller, it was his choice whether to “take the money and run.”3 Yet, little else
appears of record, such as 1) the financial needs of the entity and its operational goals,
2) whether earnings were historically distributed or retained, 3) the amount of earnings, if
3 STEVE MILLER BAND, Take the Money and Run, on FLY LIKE AN EAGLE (Capitol Records 1976).
10 any, previously distributed and the reason for their distribution, 4) the excessiveness of
the retained earnings when compared to corporate needs, and 5) evidence of
manipulation and like information. Without evidence touching upon those matters, the
trial court found itself with a rather limited pool of data upon which to exercise its
discretion. Indeed, one can reasonably interpret its decision as being founded simply
upon the fact that Jeffery had control over his corporation and the power to decide
whether earnings should be retained or distributed. That, in and of itself, ignores the law
that the corporation actually owns the earnings. Sustaining the trial court’s decision upon
such a limited evidential foundation would be tantamount to adopting the immutable rule
all jurisdictions strive to avoid.
Like the holding in Smith v. Hickman, we too conclude that the trial court abused
its discretion here given the inadequate information before it upon which to exercise that
discretion. So too do we find the error to be harmful given that the child support obligation
imposed on Jeffery clearly factored into the equation the retained earnings of the
Subchapter S corporation. Consequently, we sustain issue two.
The trial court’s final judgment is reversed to the extent it imposed upon Jeffery
the monthly child support obligation of $1,100. The issue of his child support is remanded
for further proceedings. In all other things, the final judgment is affirmed.
Brian Quinn Chief Justice