MEMORANDUM DECISION Pursuant to Ind. Appellate Rule 65(D), this Memorandum Decision shall not be FILED regarded as precedent or cited before any Feb 15 2019, 8:35 am court except for the purpose of establishing CLERK the defense of res judicata, collateral Indiana Supreme Court Court of Appeals estoppel, or the law of the case. and Tax Court
ATTORNEY FOR APPELLANT ATTORNEY FOR APPELLEE L. Katherine Boren Thomas A. Massey Ziemer, Stayman, Weitzel & Shoulders, Massey Law Offices, LLC LLP Evansville, Indiana Evansville, Indiana
IN THE COURT OF APPEALS OF INDIANA
William Zausch, February 15, 2019 Appellant and Cross-Appellee, Court of Appeals Case No. 18A-DR-1380 v. Appeal from the Vanderburgh Superior Court Diana (Zausch) Schnakenburg, The Honorable Leslie C. Shively, Appellee and Cross-Appellant. Judge Trial Court Cause No. 82D04-0910-DR-1030
Brown, Judge.
Court of Appeals of Indiana | Memorandum Decision 18A-DR-1380 | February 15, 2019 Page 1 of 16 [1] William Zausch (“Father”) appeals the trial court’s order modifying his child
support obligation. On cross-appeal, Diana (Zausch) Schnakenburg (“Mother”)
claims the trial court erred in determining Father’s gross income. We affirm.
Facts and Procedural History
[2] In November 2010, the trial court entered a final decree dissolving the parties’
marriage. The decree provided that Mother would have primary physical
custody of the parties’ four children and that Father pay weekly child support of
$675. It provided that Father is the owner of his interest in Utility Pipe Sales of
Indiana, Inc. (“UPSI”) and Utility Pipe Sales Co., Inc. (“UPSC”), that he make
certain equalization payments to Mother, and that his equalization obligation
be secured by a pledge of his stock in UPSI and UPSC.
[3] On June 12, 2015, the court entered an order stating that Father had made a
quarterly income tax payment in January 2015 for tax year 2014 based upon his
estimate of his income being in excess of $400,000 for 2014; that Father had
submitted an affidavit to the court dated February 13, 2015, stating that his total
income and distributions for 2014 were $253,000; and finding “Father’s income
for 2014 to be $410,000 and, therefore, using the income figures for 2012
($483,479), 2013 ($276,085) and 2014 ($410,000) finds Father’s weekly income
to be $7,505.00 based upon the 2012, 2013 and 2014 income figures.”
Appellee’s Appendix Volume 2 at 18. The order provided that Father’s weekly
support obligation for the period of October 4, 2013, through December 26,
2014, was $910; that retroactive support was $15,275; and that support was “set
Court of Appeals of Indiana | Memorandum Decision 18A-DR-1380 | February 15, 2019 Page 2 of 16 at $798 per week commencing 1-2-15 based upon the Court’s 2-27-15 ruling
increasing Father’s parenting time.” Id. at 19.
[4] On May 17, 2017, Mother filed a petition to modify child support alleging that
Father’s income had significantly increased since the June 12, 2015 order, that
support based on the parties’ 2016 income was believed to be approximately
$1,500 per week, and that the modification should be made retroactive to the
date of the petition. On February 2, 2018, Father filed a petition to modify
physical custody requesting that the court grant him shared/joint physical
custody. On April 4, 2018, Mother filed a petition requesting that the court
increase Father’s support obligation and deny his request to modify custody.
[5] On April 10, 2018, the court held a hearing. Mother presented Father’s
affidavit stating that his income from all sources in 2014 was $253,598.57, and
a financial statement signed by Father on February 2, 2017, indicating that his
net worth was $4,186,281. Father agreed that the net worth figure was
accurate. His individual tax return for 2014 indicated that he had wages of
$132,165, income from partnerships and S corporations of $414,993, and
adjusted gross income of $547,158. His 2015 tax return indicated that he had
wages of $90,890, income from partnerships and S corporations of $497,340,
and adjusted gross income of $589,636. His tax return for 2016 indicated that
he had wages of $65,626, income from partnerships and S corporations of
$681,467, and adjusted gross income of $747,246. Finally, Father’s tax return
Court of Appeals of Indiana | Memorandum Decision 18A-DR-1380 | February 15, 2019 Page 3 of 16 for 2017 indicated that he had wages of $63,321, income from partnerships and
S corporations of $997,729, 1 and adjusted gross income of $1,054,214.
[6] Father presented a spreadsheet as Exhibit K which was a summary of his
income for 2014 through 2017 based on the amounts reported to the IRS and
the amounts he actually received from his various companies. For each of the
four years, the summary included Father’s W-2 income and any income he
received from UPSC, UPSI, Indiana Precast, and Top Notch LLC, and for
each of the entities provided amounts for his tax liability, distributions,
distributions in excess of his tax liability, annual income, gross up per the
guidelines, 2 and actual gross income. According to the summary, Father’s total
actual gross income was $350,826 in 2014, $138,075 in 2015, $311,418 in 2016,
and $437,608 in 2017. For the year 2017, the summary provides a total income
of $1,061,050, tax liability of $412,145, distributions of $625,483, distributions
in excess of tax liability of $243,791, annual income of $364,105, gross up per
the guidelines of $385,028, and total actual gross income of $437,608. The
spreadsheet also included an actual income average for the three-year period of
2014 through 2016 of $266,773 and for the three-year period of 2015 through
2017 of $295,700. Father’s accountant testified, with respect to the income
from the companies listed on Father’s Exhibit K, that Father paid tax on the
1 Father reported income from UPSC, UPSI, Indiana Precast Inc, and Top Notch, LLC. 2 Father’s accountant indicated that the Indiana Child Support Guidelines consider gross income and that, in the “gross up” column, the distributions in excess of tax liability from each company were “gross[ed] up” using a tax factor taken from the commentary to the Guidelines. Transcript Volume II at 90.
Court of Appeals of Indiana | Memorandum Decision 18A-DR-1380 | February 15, 2019 Page 4 of 16 amounts listed and that the amounts represent Father’s share of the total
income of the listed companies. He testified that the entities are considered
flow-through entities for tax purposes, that none of the entities pay tax at the
corporate level, and that all the income is summarized and passed through to
the shareholders or members.
[7] Following the hearing, the parties submitted proposed orders. 3 Father’s
proposed order provided that his weekly support obligation would be $577.95
calculated using $5,687 as his weekly gross income. Mother’s proposed order
provided that Father’s 2017 taxable adjusted gross income was $1,054,214 and
that, based on his verified financial statements, his net worth increased from
nearly $1.8 million in June 2014 to almost $4.2 million in February 2017. A
financial statement signed by Father and dated June 9, 2014, indicates that
Father’s net worth at that time was $1,785,752.
[8] On May 16, 2018, the trial court entered Findings of Fact, Conclusions of Law
and Judgment, denying Father’s petition to modify physical custody. The court
found that Mother has income from her full-time employment as a teacher and
3 On appeal, Father filed a motion to strike arguing in part, with respect to Mother’s proposed order and the exhibits attached to it in the appellee’s appendix, that there is no indication Mother’s proposed order was filed with the trial court, that the proposed order appearing in the appellee’s appendix is not file-stamped and does not appear as an entry in the chronological case summary (“CCS”), and that the proposed order is not part of the record or properly cited by Mother. Mother filed a response stating that her April 30, 2018 e-filing of the proposed order was attached and that it is unknown why the e-filing is not reflected in the CCS, and the attached email indicated that the filing was submitted on April 30, 2018, and accepted by the clerk’s office on May 1, 2018. Father filed a reply stating that, although the attachments to Mother’s response appear to indicate that she attempted to electronically file her proposed order, the fact remains that the proposed order does not appear as a filing in the CCS. By separate order, we deny Father’s motion to strike.
Court of Appeals of Indiana | Memorandum Decision 18A-DR-1380 | February 15, 2019 Page 5 of 16 two part-time coaching positions, and from serving as a summer camp
counselor and has weekly gross income for child support calculation purposes
of $541. It found that Father receives W-2 wages as president of UPSC and
that he is a minority shareholder of three companies from which he receives
distributions: UPSC, of which he owns 23.255% of the shares; UPSI, of which
he owns 26.0335% of the shares; and Indiana Precast, Inc., of which he owns
23.6735% of the shares. The court found that Father is also a minority member
of Top Notch Holdings, LLC, from which he receives no distributions.
[9] The court accepted the calculation of the actual gross income figure as set forth
in Father’s Exhibit K as the appropriate figure to utilize in calculating the
support obligation. It found that “Father’s tax returns and K-1’s . . . serve as
the basis for Father’s Exhibit ‘K.’” Appellant’s Appendix Volume 2 at 18. The
court concluded:
4. In determining the Father’s weekly child support obligations, the Court shall follow and adhere to the appellate court’s holding in Tebbe v. Tebbe, 815 N.E.2d 180, 184 (Ind. Ct. App. 2004)[, reh’g denied, trans. denied]. In Tebbe, the appellate court held that: “(1) undisbursed income of a minority shareholder in an S corporation should not be included in child support calculations unless the trial court finds that the corporation is being used to shield income, and (2) pass-through S corporation income that is merely disbursed to offset pass-through shareholder tax liability, and which does not increase the shareholder[’]s actual income, should not be included in child support calculations.” Id. (emphasis added).
5. Including pass-through income in a child support calculation is against the Indiana Child Support Guidelines, where such income is not disbursed or is disbursed for the purpose to avoid pass-through S corporation tax liability. Id.
Court of Appeals of Indiana | Memorandum Decision 18A-DR-1380 | February 15, 2019 Page 6 of 16 *****
7. The Court concludes, based upon the uncontroverted evidence supplied by the Father and his CPA tax accountant . . . that any income that was attributable to the Father by any of the companies in which he is a minority shareholder, (namely, Indiana Precast, Top Notch, UPSC, and UPSI) but which was not disbursed to him - as shown on his K-l statements - shall not be included for purposes of computing child support. See, Tebbe, supra.
8. Furthermore, to the extent that distributions were issued from any of the companies for the purpose of paying Father’s pass- through minority shareholder tax liability, those amounts too should not be included for purposes of calculating the Father’s child support obligation. See, Tebbe, supra.
9. The gross distributions that have been paid to the Father by any of the four (4) subject companies, over and above the shareholder tax liability for the same, should be included in the Father’s income for child support calculation purposes. Id.
10. Based on the findings made by the court, the court shall utilize Mother’s 2017 income and Father’s actual gross income for 2017 as set forth in Father’s exhibit “K”.
Id. at 21-22. The court stated: “Mother’s Verified Petition to Modify Child
Support is granted. Both Father’s income and economic circumstances have
significantly improved since the June 12, 2015 order.” Id. at 23. The court
found that Father’s weekly gross income is $8,415.15 based on his 2017 actual
gross income of $437,608 and that his new child support obligation is $926 per
week, which it made retroactive to May 19, 2017, resulting in $6,400 of
retroactive child support.
Court of Appeals of Indiana | Memorandum Decision 18A-DR-1380 | February 15, 2019 Page 7 of 16 Discussion
[10] On review, a trial court’s calculation of child support is presumptively valid.
Bogner v. Bogner, 29 N.E.3d 733, 738 (Ind. 2015). Upon the review of a
modification order, only evidence and reasonable inferences favorable to the
judgment are considered. Id. The order will be set aside only if clearly
erroneous. Id. Findings are clearly erroneous only when the record contains no
facts to support them either directly or by inference. Quillen v. Quillen, 671
N.E.2d 98, 102 (Ind. 1996). We give due regard to the trial court’s ability to
assess the credibility of witnesses. Menard, Inc. v. Dage-MTI, Inc., 726 N.E.2d
1206, 1210 (Ind. 2000), reh’g denied. We first consider whether the evidence
supports the factual findings, and then we consider whether the findings support
the judgment. Id.
[11] Ind. Code § 31-16-8-1 provides in part:
(a) Provisions of an order with respect to child support . . . may be modified or revoked.
(b) Except as provided in section 2 of this chapter, and subject to subsection (d), modification may be made only:
(1) upon a showing of changed circumstances so substantial and continuing as to make the terms unreasonable; or
(2) upon a showing that:
(A) a party has been ordered to pay an amount in child support that differs by more than twenty percent (20%) from the amount that would be ordered by applying the child support guidelines; and
Court of Appeals of Indiana | Memorandum Decision 18A-DR-1380 | February 15, 2019 Page 8 of 16 (B) the order requested to be modified or revoked was issued at least twelve (12) months before the petition requesting modification was filed.
[12] Father argues that “[t]he only changed circumstance is [his] increased income,
but that change in income resulted in less than a twenty percent increase in [his]
support obligation” and that the court’s modification was improper under Ind.
Code § 31-16-8-1. Appellant’s Brief at 10-11. He cites MacLafferty v.
MacLafferty, 829 N.E.2d 938 (Ind. 2005), and asserts that Mother did not argue
and the court did not find that any other factors converged with his increase in
income to create a change in circumstances so substantial and continuing as to
make the prior order unreasonable. He also argues that the court abused its
discretion in making its modification retroactive, there is no indication that he
engaged in dilatory conduct, and that the court relied on his 2017 income in
modifying support which was not available until the end of 2017 and could not
have formed the basis for Mother’s initial petition which referenced his 2016
income.
[13] Mother responds that, in modifying Father’s support obligation, the court found
that both his income and his economic circumstances have significantly
improved since the court’s previous order and that the court’s findings are
supported by the increase in Father’s income and the increase of his net worth
to nearly $4.2 million. She argues that income, net worth, assets, and access to
credit are separate relevant factors in determining child support and that
Indiana courts have the authority to consider the financial circumstances and
Court of Appeals of Indiana | Memorandum Decision 18A-DR-1380 | February 15, 2019 Page 9 of 16 net worth of parents in addition to their incomes in calculating support. She
also argues the court did not abuse its discretion in awarding $6,400 in
[14] Further, Mother argues on cross-appeal that the court erred in determining
Father’s weekly gross income. Specifically, she argues that Father’s 2017 tax
return showed an adjusted gross income of $1,054,214, that the court
determined Father’s 2014 gross income was $410,000, and that it was error for
the court to inconsistently and for the first time dramatically reduce Father’s
income and apply a Tebbe reduction. In reply, Father states that the court
excluded undisbursed pass-through income and disbursements made solely to
offset pass-through tax liabilities in calculating his gross income in accordance
with Tebbe and that, regardless of whether the prior support orders were based
on an accurate calculation of his gross income, the court did not abuse its
discretion in accurately calculating his gross income at this time.
A. Father’s Gross Income
[15] We first address Mother’s claim that the trial court erred in determining
Father’s gross income. Indiana Child Support Guideline 3A(1) provides in part
that “weekly gross income” is defined “as actual weekly gross income of the
parent if employed to full capacity” and “includes income from any source,
except as excluded below, and includes, but is not limited to, income from
salaries, wages, commissions, bonuses, overtime, partnership distributions,
dividends, severance pay, pensions, interest, trust income, annuities, capital
Court of Appeals of Indiana | Memorandum Decision 18A-DR-1380 | February 15, 2019 Page 10 of 16 gains, . . . gifts, [and] inheritance . . . .” In Tebbe, this court observed that
Indiana’s child support guidelines are based upon the premise that children
should receive the same portion of parental income that they would have
received had their parents’ marriage remained intact and held: “Disregarding
undisbursed pass-through income or a disbursement that only compensates a
shareholder for the consequences of pass-through S-corporation tax liability is
consistent with the Guidelines.” 815 N.E.2d at 183-184. We further held that
“(1) undisbursed pass-through income of a minority shareholder in an S-
corporation should not be included in child support calculations unless the trial
court finds that the corporation is being used to shield income” and “(2) pass-
through S-corporation income that is merely disbursed to offset pass-through
shareholder tax liability, and which does not increase the shareholder’s actual
income, should not be included in child support calculations.” Id. at 184.
[16] Here, the total “actual gross income” in the spreadsheet admitted as Father’s
Exhibit K did not include the income attributable to Father due to his interests
in the identified companies but not distributed to him or distributions which
were made to him to merely offset his tax liability. The trial court heard the
testimony of Father’s accountant and admitted Father’s 2017 tax documents,
including Form 1040 and Schedule K-1 for each of the companies, which
reflected Father’s income and the amounts distributed to him. Based upon the
record and in light of Tebbe, we do not find persuasive Mother’s arguments that
the court erred in determining Father’s weekly gross income for child support
purposes.
Court of Appeals of Indiana | Memorandum Decision 18A-DR-1380 | February 15, 2019 Page 11 of 16 B. Modification
[17] We next turn to the trial court’s modification of Father’s support obligation
from $798 per week to $926 per week. In MacLafferty, the father requested that
his support obligation be decreased because the mother had obtained full-time
employment and her income had increased. 829 N.E.2d at 939. According to
the trial court, the mother’s income had increased from $324 per week to $709,
and the father’s income had increased from $2,287 per week to $2,407. Id. The
trial court reduced the father’s support obligation by fourteen percent. Id. The
Indiana Supreme Court discussed Ind. Code § 31-16-8-1 and stated:
In addition to providing a bright-line test for a parent who seeks modification solely on grounds of change in income, it seems to us that, as a practical matter, the Legislature has effectively established a bifurcated standard for modification, Subsection (2) covering situations where a parent seeks modification solely on grounds of change in income and Subsection (1) covering all other situations (including situations alleging a change in income and one or more other changes). It is true that, as a matter of pure logic, a parent could seek modification solely on grounds of change in income under Subsection (1)—indeed, Father does so here. But we do not believe that the Legislature would consider a change in circumstances standing alone (i.e., without any other change in circumstances) that would change one parent’s child-support payment by less than 20% to be “so substantial and continuing as to make the terms [of the prior order] unreasonable.” Indeed, it is hard to see the reason the Legislature would have enacted subsection (2) at all if a parent could receive a modification under Subsection (1) where the only changed circumstance alleged would change one parent’s payment by less than 20%.
Nevertheless, we do not hold that a modification may never be made . . . under subsection (1) where the changed circumstance
Court of Appeals of Indiana | Memorandum Decision 18A-DR-1380 | February 15, 2019 Page 12 of 16 alleged is a change in one parent’s income that only changes one parent’s payment by less than 20%. There may be situations where a variety of factors converge to make such a modification permissible under the terms of the statute. While we do not find this case to be such a situation, we do not foreclose such a possibility.
Id. at 942. The Court found that, while the mother’s weekly income increased
by $375 as a result of becoming employed full-time and the father’s weekly
income increased by $120, the mother’s income was still quite modest
compared to the father’s, and the Court held that the change alleged was not so
substantial as to render the terms of the prior order unreasonable. Id. The
Court further stated that the proposition “that changes in the relative financial
resources of both parents alone may be sufficient to modify a child support
order,” id. (citing Harris v. Harris, 800 N.E.2d 930, 938 (Ind. Ct. App. 2003),
trans. denied), is true only when the changes are so substantial and continuing as
to render the terms of the prior support order unreasonable. Id. at 943.
[18] It is well-established that Indiana courts have the authority to consider the
financial circumstances and net worth of parents in addition to their incomes
when calculating child support. Gardner v. Yrttima, 743 N.E.2d 353, 358 (Ind.
Ct. App. 2001) (citing Garrod v. Garrod, 655 N.E.2d 336, 338-339 (Ind. 1995)
(rejecting the father’s claim the trial court unfairly relied on his net worth in
figuring support)). In Gardner, this Court held that an inheritance may amount
to a substantial and continuing change in circumstances sufficient to trigger a
modification of a child support order and noted that an inheritance may change
a non-custodial parent’s ability to pay support or increase the parent’s overall Court of Appeals of Indiana | Memorandum Decision 18A-DR-1380 | February 15, 2019 Page 13 of 16 standard of living. 743 N.E.2d at 358-359. See also Zakrowski v. Zakrowski, 594
N.E.2d 821, 822-824 (Ind. Ct. App. 1992) (holding trial courts “may properly
consider the parents’ total financial circumstances, including net worth, access
to credit and available financial flexibility” in modifying child support orders);
Merrill v. Merrill, 587 N.E.2d 188, 190 (Ind. Ct. App. 1992) (holding “[e]vidence
of a parent’s net worth and assets are relevant subjects of inquiry in a
proceeding to establish or modify child support”) (citing Green v. Green, 447
N.E.2d 605, 609 (Ind. Ct. App. 1983) (holding the financial condition of each
parent is a statutory factor which must be considered when awarding child
support and evidence of a parent’s net worth and assets are relevant subjects of
inquiry in a proceeding to establish or modify child support), reh’g denied, trans.
denied); Ind. Code § 31-16-6-1 (relevant factors to consider in ordering child
support include the financial resources of the parents).
[19] Unlike MacLafferty, where the increases in the parties’ incomes did not result in
substantial change to their relative financial resources, the evidence in this case
demonstrates a substantial and continuing change in the financial resources of
the parties relative to each other and supports the court’s modification.
According to Father’s June 2014 financial statement, his net worth at that time
was $1,785,752, and the statement included values of $361,836 for his interest
in UPSC, $820,908 for his interest in UPSI, and $23,450 for his interest in Top
Notch Holdings. According to Father’s February 2, 2017 financial statement,
his net worth had increased to $4,186,281, and the 2017 statement included
values of $948,703 for his interest in UPSC, $2,371,254 for his interest in UPSI,
Court of Appeals of Indiana | Memorandum Decision 18A-DR-1380 | February 15, 2019 Page 14 of 16 $229,398 for his interest in Top Notch Holdings, and $711,587 for his interest in
Indiana Precast. 4 The court was able to consider the evidence, including
Father’s tax documents and summary with respect to the income attributable to
him as a shareholder and member and the amounts distributed and not
distributed to him, in concluding that his economic circumstances had
significantly improved since June 2015.
[20] Based upon the record, we conclude that the trial court’s modification of
Father’s weekly child support obligation from $798 to $926 was not clearly
erroneous. See Harris, 800 N.E.2d at 938 (holding change in the parties’
financial situation resulted in substantial and continuous change supporting
modification of child support where the father’s new compensation package
consisted of a base salary of $325,000, monthly car allowance of $750, and
potential bonus of $162,500, and father had received a $800,000 settlement
from his previous employer); see also Kirchoff v. Kirchoff, 619 N.E.2d 592, 595-
596 (Ind. Ct. App. 1993) (finding substantial and continuing changed
circumstances where the mother had become employed full-time significantly
increasing her seasonal income, the father’s income had significantly decreased,
and only one of three children remained in the mother’s custody), disapproved on
other grounds by Merritt v. Merritt, 693 N.E.2d 1320, 1324 n.4 (Ind. Ct. App.
1998).
4 The 2017 statement also included, under a heading for liabilities, an “[u]nfunded college tuition expense (estimated) per divorce decree” of $500,000.
Court of Appeals of Indiana | Memorandum Decision 18A-DR-1380 | February 15, 2019 Page 15 of 16 C. Arrearage
[21] The trial court made its modification order retroactive to May 19, 2017, and
found Father owes $6,400 of retroactive child support. The trial court has the
discretionary power to make a modification for child support relate back as
early as the date the petition to modify is filed. Goodman v. Goodman, 94 N.E.3d
733, 750 (Ind. Ct. App. 2018), reh’g denied, trans. denied. The record reveals that
Mother filed a petition to modify child support on May 17, 2017, that Father
filed a petition to modify custody on February 2, 2018, and that Mother filed a
petition requesting that the court modify child support and deny Father’s
request for custody on April 4, 2018. The parties presented evidence at the
April 2018 hearing related to their requests. The court was able to consider
evidence of Father’s business interests and his income, including his income in
2014 through 2017, the sources of his income, and the change in his income
over time. Under the circumstances, we cannot say that the trial court abused
its discretion in determining the date the modified support order would take
effect and in ordering Father to pay $6,400 in retroactive support.
[22] For the foregoing reasons, we affirm the trial court’s ruling.
[23] Affirmed.
Bailey, J., and Bradford, J., concur.
Court of Appeals of Indiana | Memorandum Decision 18A-DR-1380 | February 15, 2019 Page 16 of 16