Opinion ID: 1907293
Heading Depth: 2
Heading Rank: 3

Heading: Case Law Addressing Undistributed Business Income for Chapter 61 Purposes

Text: In Zipperer, the First District Court of Appeal held that a spouse's undistributed business income fell within the general definition of income set forth in section 61.046 and thus was properly considered by the trial court in awarding alimony. See 567 So.2d at 917. The First District rejected the argument that undistributed business income should not be considered income under chapter 61 because it was reported only for tax purposes and was not actually received by the payor spouse. See id. The First District noted that income is broadly defined in section 61.046 to include  any form of payment to an individual, regardless of source. Id. (quoting § 61.046(4), Fla. Stat.). Deeming the source of funds irrelevant under this section, the First District concluded that undistributed business income constitutes income for alimony purposes. In effect, the First District adopted a bright line rule that automatically treats undistributed business income as income attributable to a spouse under chapter 61. In Sohacki, the First District cited to Zipperer as a basis for reversing a trial court's order that denied a request for attorney's fees and child support modification on the basis that undistributed pass-through income from an S corporation could not be considered income under chapter 61. See 657 So.2d at 42. The First District remanded for reconsideration of these issues because the trial court apparently felt bound to accept the shareholder-spouse's undisputed testimony that he did not actually receive the full amount of pass-through income generated from his S corporation despite the fact that he claimed this amount on his individual federal income tax return. Id. The First District observed that Zipperer allows a trial court to consider undistributed business income as income within the meaning of chapter 61 despite a payor spouse's claim that the income was reported solely for tax purposes and was not actually received by the spouse. See id. The Third District has also considered whether undistributed pass-through income constitutes income for alimony and child support purposes. See Martinez, 761 So.2d at 434. Citing to Zipperer and Sohacki but without otherwise elaborating on its reasoning, the Third District held that the trial court did not err in attributing undistributed pass-through income to the shareholder-spouse as income. See id. at 435. [12] In McHugh v. McHugh, 702 So.2d 639, 642 (Fla. 4th DCA 1997), the Fourth District Court of Appeal concluded that undistributed pass-through income from an S corporation does not constitute income under chapter 61 where the shareholder-spouse was a minority shareholder and the income was retained for corporate purposes. The uncontradicted testimony was that the corporation retained the income for purposes of building the business and keeping it going. Id. at 641. However, the Fourth District pointed out that if undistributed pass-through income has been retained for noncorporate purposes, such as to reduce a shareholder-spouse's amount of income during dissolution, the trial court could consider it as income under chapter 61. See id. at 642 n. 1. Similarly, the Fifth District in the present case concluded that the determination whether undistributed pass-through income constitutes income under chapter 61 depends on the purpose for which the income has been retained. The Fifth District explained that an inflexible rule treating undistributed pass-through income of a shareholder-spouse as available income in marital dissolution proceedings is contrary to corporate governance: When a corporation has more than one shareholder, an officer/shareholder has a fiduciary duty to all shareholders. The corporation is not the personal piggy bank for any one shareholder simply because that shareholder may have a controlling interest in the corporation and is also the chief executive officer. Financial responsibilities to creditors and employees must be satisfied before distributions to shareholders take place if a corporation is to remain viable. Once the distributions are found to be possible, the distributions must be pro-rata in accordance with the percentage ownership of the capital stock of the corporation. Court ordered obligations in marital litigation should not place an ex-marital partner in the position of having to breach a corporate fiduciary obligation in order to avoid the possibility of a court finding that partner contemptuous. Zold, 880 So.2d at 781. However, the Fifth District added that if undistributed pass-through income has been retained for noncorporate purposes, the income should be considered available income under chapter 61. See id. at 782.