Court Opinion

ID: 4089837
Source: CourtListenerOpinion
Date Created: 2016-10-17 07:08:46.515496+00
Date Added: 2024-06-11T14:08:10.376024
License: Public Domain

STATE OF MICHIGAN

                           COURT OF APPEALS

JANINE MARIE EXLINE,                                                UNPUBLISHED
                                                                    October 13, 2016
               Plaintiff-Appellant,

v                                                                   No. 327797
                                                                    Oakland Circuit Court
                                                                    Family Division
JASON MICHAEL SILVER,                                               LC No. 2004-692277-DM

               Defendant-Appellee.

Before: FORT HOOD, P.J., and GLEICHER and O’BRIEN, JJ.

PER CURIAM.

        Several years after the parties to this case divorced, the defendant-father sought a
reduction of his child support obligation. The trial court accepted evidence that the father’s
income had dramatically decreased and significantly reduced the child support award. The
plaintiff-mother appeals. Although we find no issue with certain of the court’s findings, others
were made in error. Accordingly, we affirm in part but remand for further consideration.

                                       I. BACKGROUND

        Janine Exline and Jason Silver divorced in 2004. During the marriage, they had three
children, the youngest two of whom are still minors. The 2004 divorce judgment named Exline
as the children’s primary custodian, set a specific parenting time schedule, and awarded $3,200
each month in child support. In 2012, Silver agreed to increase his monthly payments to $3,600.

        In 2013, Silver filed circuit court motions to increase his parenting time and decrease his
child support obligation. In relation to his motion to decrease child support, Silver contended,
“Due to a significant down turn in the Defendant’s business, his income has been dramatically
decreased . . . .” Silver owns and operates Silver’s Jewelry & Loan (SJL), formerly Lou Silver
Diamond Broker, which he took over in 2010 after the death of his father. On September 11,
2013, Fifth Third Bank notified Silver that his company was in default on a loan and called in the
note. Silver was required to repay more than $637,000.1 Silver admits that before October 2013,

1
 Silver asserted that Fifth Third merely called in the loan because it no longer desired to work
with predominantly cash businesses. An October 10, 2013 letter from Fifth Third’s counsel,

                                                -1-
he earned between $300,000 and $500,000 annually, not including perks paid for by his
company.

        Following the Fifth Third loan recall, Silver searched for financing elsewhere. He
contends that he located Great Lakes Business Credit, L.L.C. (GLBC) through a bankruptcy
attorney. GLBC extended a line of credit and the loan agreement included a “salary limitations”
provision, stating “Borrower shall not allow the annual total of all salaries, bonuses, fringe
benefits, and all other compensation paid by Borrower to Jason M. Silver to exceed the sum of
$110,000.” This salary decrease was necessary to save his business, Silver contended, and
supported the reduction of his child support obligation.

        Exline objected to any reduction in child support. She challenged Silver’s unsupported
assertion that his business had experienced a downturn. She also questioned Silver’s claim to
poverty given the lavish lifestyle he continued to lead. In this regard, Exline posited that Silver
lived in a $1.2 million home on Orchard Lake and owned a rental house in Novi, owned two
boats and multiple high-end vehicles, purchased suites and season tickets for all the major
Detroit sports teams, and took several expensive vacations every year. Of particular concern to
Exline was Silver’s claim that he could not continue his level of support for his own children
when he paid tuition for his stepdaughter at Cranbrook.

        During the discovery process, Exline learned that Silver sold his Orchard Lake home for
$1.55 million, an alleged $600,000 gain. He then bought a spacious home for $575,000 in the
Palmer Park district of Detroit. With this move, Silver purchased annual memberships to the
Detroit Athletic Club and Detroit Golf Club. Exline emphasized Silver’s dishonesty throughout
this move, asserting that Silver claimed he would move into his Novi property, which had been
vacated by the tenant.

       Exline questioned Silver’s transfer of business income to relatives who were not
employed by the business. Specifically, SJL regularly transferred money to Silver’s second wife,
his mother, and sister. Silver claimed he only paid his wife so she could establish employment to
secure their new mortgage. His mother, Silver claimed, was entitled to $214,000 annually
pursuant to a severance agreement executed when he took over the family business in 2010.
Maintaining health insurance for his sister under the company policy was part of that deal.

        Another issue of hot debate was $380,000 secured by Silver from GLBC to purchase the
Detroit home. Silver ultimately secured a mortgage to buy the Detroit home instead. Silver kept
the $380,000 with the remainder of his GLBC loan in the business accounts. He then used the
proceeds of this Orchard Lake home sale to repay $380,000 to GLBC. As Silver used his
personal property (the proceeds from his home sale) instead of the borrowed $380,000 to repay
that portion of the loan, he contended that the business owed him $380,000. Therefore, Silver
claimed entitlement to use business funds to pay personal obligations without counting that

however, indicated that Silver’s company defaulted on the loan by failing to make its October
2013 payment and by “submitting financial statements of [SJL] for December 31, 2012 and
March 31, 2013 knowing that they contained misleading and materially inaccurate inventory
figures.”

                                                -2-
amount as income. Exline challenged Silver’s excessive use of his business to pay personal
liabilities, but he claimed they all fit within this $380,000.2

        After hearing two days of testimony and accepting multitudinous financial records from
the parties, the court entered an opinion and order on December 11, 2014. The court credited
Silver’s testimony that the $380,000 held by SJL was not his income, but was actually the
proceeds from the sale of his Orchard Lake home. Although such gains can be considered
income, the court declined to do so in this case because it did not count the $85,000 profit from
the sale of Exline’s Farmington home as part of her income.

        The court declined to consider the payments from SJL to Silver’s current wife and sister
as income imputed to him. The court implied that the payments to Mrs. Silver were withdrawn
from the $380,000 sale proceeds and noted that Silver had ceased payments to his sister and on
his sister’s behalf. The court further determined that Silver’s annual payments to his mother
should not be included in his income; these payments reimbursed Silver’s mother for her share of
the business that she transferred to her son.

        The court acknowledged that Silver owned a home in Novi for investment purposes and
generated an income of $800 each month from January to September 2014. The court accepted
Silver’s testimony, however, that his tenant had vacated the property and was no longer paying
rent. Accordingly, the court declined to count the rent as part of Silver’s income.

       Ultimately, the court ruled:

               The court acknowledges that Defendant Father’s income was previously
       substantially higher than it is currently and that the records reflect an equally
       lavish and expensive lifestyle. The court also acknowledges that Defendant
       Father’s expenditures from the balance of his $380,000 loan to the company—
       payments for suites at entertainment venues, a golf club membership, and his
       stepdaughter’s pricey private school education—have been quite irresponsible and
       have not benefitted his own children. However, Defendant Father is no longer in
       control of his own income and it is not foreseeable that his income will continue
       to fluctuate dramatically. Just as Defendant Father testified, his life and spending
       habits will need to change dramatically. The court finds that it is not proper to
       average Defendant Father’s income for the past three years for child support
       purposes pursuant to [Michigan Child Support Formula (MCSF)] 2.02(C). The
       court finds that Defendant Father’s income for child support purposes is
       $110,000.00 annually.

2
  With a motion filed after the order on appeal in this case, Exline presented an accounting that
revealed that SJL paid $554,986.03 in 2013 and $938,380.08 in 2014 for Silver’s personal
expenses. On remand, the circuit court must consider this evidence and determine whether these
amounts, which far exceed $380,000, should be counted as income.

                                               -3-
Based on this income level and the Friend of the Court (FOC) calculations, the court ordered
Silver to pay child support in the amount of $913.97 monthly for three children, $601.23 for two,
and $186.40 for one.

        Exline filed an unsuccessful motion for reconsideration in the circuit court. It appears
that she initially was resigned to her financial fate. According to several pleadings in the lower
court record, Silver stopped paying for the children’s school and extracurricular activities as
required by the divorce judgment, fell behind in his child support payments, and played fast and
loose with the parenting time order, as well as denying his children the right to participate in
extracurricular activities during his parenting time. Only then did Exline file her delayed
application for leave to appeal, which this Court granted. Exline v Silver, unpublished order of
the Court of Appeals, entered December 10, 2015 (Docket No 327797).

                                          II. ANALYSIS

         On appeal, Exline argues that the trial court erred in calculating Silver’s income for child
support purposes. “ ‘A trial court must presumptively follow the MCSF when determining the
child support obligation of parents,’ ” and “ ‘[t]his Court reviews de novo as a question of law
whether the trial court has properly applied the MCSF.’ ” Teran v Rittley, 313 Mich. App. 197;
882 NW2d 181 (2015), quoting Ewald v Ewald, 292 Mich. App. 706, 714; 810 NW2d 396 (2011).
We review the trial court’s factual findings for clear error and discretionary rulings for an abuse
of discretion. Id. “A finding is clearly erroneous if [this Court is] left with a definite and firm
conviction that a mistake has been made,” Cunningham v Cunningham, 289 Mich. App. 195, 200;
795 NW2d 826 (2010), and “[t]he trial court abuses its discretion when it ‘selects an outcome
that is outside the range of reasonable and principled outcomes.’ ” Teran, 313 Mich App at 197,
quoting Ewald, 292 Mich App at 714.

        Parents have a duty to support their minor children, MCL 722.3, and a trial court must
strictly comply with the requirements of the MCSF in calculating the parents’ support
obligations unless it “determines from the facts of the case that application of the child support
formula would be unjust or inappropriate . . . ,” MCL 552.605(2). “A trial court has the statutory
power to modify child support orders upon a showing by the petitioning party of a change in
circumstances justifying modification.” Sayre v Sayre, 129 Mich. App. 249, 251-252; 341 NW2d
491 (1983). In modifying a support agreement, the trial court considers “all relevant factors,”
including the child’s needs and the parents’ ability to pay support. Id.

       The first step in making any child support determination “is to ascertain each parent’s net
income by considering all sources of income.” Stallworth v Stallworth, 275 Mich. App. 282, 284;
738 NW2d 264 (2007). This is generally accomplished “by ascertaining ‘the actual resources of
each parent.’ ” Id., quoting MCL 552.519(3)(a)(vi). “The objective of determining net income is
to establish, as accurately as possible, how much money a parent should have available for
support.” 2013 MCSF 2.01(B). Further, the MCSF indicates that “[a]ll relevant aspects of a
parent’s financial status are open for consideration when determining support,” 2013 MCSF
2.01(B), and a parent’s income calculated using the MCSF “will not be the same as that person’s
take home pay, net taxable income, or similar terms that describe income for other purposes,”
2013 MCSF 2.01(A).

                                                -4-
                                     A. RENTAL INCOME

        As noted, the trial court declined to consider the nine months of rent payments collected
by Silver from his Novi property as income. This was clear error. The MCSF broadly defines
“income” to include “[e]arnings generated . . . from rentals.” 2013 MCSF 2.01(C)(2). See
Borowsky v Borowsky, 273 Mich. App. 666, 675; 733 NW2d 71 (2007) (finding the defendant’s
rental income “constitute[d] income for purposes of the child support formula”). Testimony
established that Silver earned approximately $800 monthly profit on his Novi rental property
through September 2014. The tenant’s holdover and failure to pay rent beyond September was
not cause to exclude this income source completely. As Silver’s child support was modified
effective October 1, 2013, these profits earned in 2014 should have been considered income. To
remedy this error, the trial court must reconsider Silver’s 2014 income on remand.

        However, Silver has since sold the property and therefore will no longer earn income
from this source. Accordingly, going forward, rent will not be an income source to include in
child support calculations. But the proceeds from the sale of the rental property may.

        Although the MCSF does not directly address profits from the sale of property, 2013
MCSF 2.01(C)(9) defines income to include “[a]ny money or income due or owed by another
individual, source of income, government or other legal entity.” 2013 MCSF 2.01(C)(9); see
also MCL 552.602(n)(iii) (income includes “[a]n amount of money that is due to an individual as
a debt of another individual . . . .”). “Thus, gains from the sale of property fall within the broad
definition of ‘income’ provided in” the MCSF. Borowsky, 273 Mich App at 680 (emphasis
added) (holding that language identical to that found in 2013 MCSF 2.01(C)(9) included gains
from the sale of property). A one-time sale may create a “distorted impression” of a party’s
income, however. Borowsky, 273 Mich App at 681 n 8. In any event, on remand, the trial court
must consider the profit from the sale of Silver’s Novi rental property and determine the
propriety of including those proceeds as income.

                             B. PAYMENTS TO CHERYL SILVER

       Exline also challenges the trial court’s refusal to include in Silver’s income the $214,000
annual payments made to Silver’s mother, Cheryl Silver, by SJL. The MCSF recognizes that it
can be “difficult[] . . . determining the income for self-employed individuals.” 2013 MCSF
2.01(E)(1). To assist the courts, the MCSF identifies categories of compensation that the trial
court should “[p]ay special attention to.” 2013 MCSF 2.01(E)(4). Pertinent to this challenge,
2013 MCSF 2.01(E)(4)(c) provides:

       Redirected income, or amounts treated by the business or company as if the
       redirected amounts were something other than the parent’s income. Amounts
       include, but are not limited to:

                                              * * *

              (ii) Payments made to friends or relatives of the parent. If the business
       cannot demonstrate that the payments are equivalent to a fair market value
       payment for the work or services the friend or relative actually performs, include
       any amount that exceeds the fair market value as the parent’s income.
                                                -5-
        SJL has paid Cheryl $214,000 annually since 2011 and is required to continue these
annual payments for ten years. Silver cannot claim that these payments represent a fair market
value for work presently performed by Cheryl; Cheryl no longer works for the company.
However, Silver, as well as his company’s attorney and accountant, provided reasonable
explanations for this payment arrangement. First, when Lou Silver died, Cheryl transferred the
80% share of the company she and her husband owned to her son. This was a gift but it came
with strings. In exchange for the shares, Silver was required to care for his mother financially.
As Cheryl had worked for the company for several decades, this financial arrangement was
categorized as a severance agreement. Second, Lou and Cheryl had placed personal assets into
the company to ensure its success. This included a $1,000,000 cash infusion. The $214,000
annual payments to Cheryl also recognized the need to repay this debt.

        The trial court credited this testimony and declined to count these amounts in Silver’s
income. 2013 MCSF 1.01(B) generally requires trial courts to “order child support in the
amount determined by applying this formula.” The formula permits a court to deviate as
provided in MCL 552.605.3 2013 MCSF 1.01(B) also provides, “Unless rebutted by facts in a
specific case, the law presumes that this formula . . . sets appropriate levels of support.”
Similarly, 2013 MCSF 1.04(A) states, “When applying the formula would lead to an unjust or
inappropriate result, the court may exercise its discretion, and, on a case-by-case basis, deviate
from the formula and determine a more appropriate support amount.” Here, the court deviated
from a single instruction in the formula for calculating a party’s income. The court determined
that even though Cheryl was not currently working for the sums she received from SJL, these
payments were a legitimate company expense that should not be imputed to Silver. We discern
no abuse of discretion or erroneous factual conclusion underlying the court’s decision.

3
    MCL 552.605(2) provides, in relevant part:
         The court may enter an order that deviates from the formula if the court
         determines from the facts of the case that application of the child support formula
         would be unjust or inappropriate and sets forth in writing or on the record all of
         the following:

            (a) The child support amount determined by application of the child support
         formula.

            (b) How the child support order deviates from the child support formula.

            (c) The value of property or other support awarded instead of the payment of
         child support, if applicable.

             (d) The reasons why application of the child support formula would be unjust
         or inappropriate in the case.

                                                 -6-
                             C. PAYMENTS TO ELLORY SILVER

        Exline also challenges payments made to Silver’s second wife, which were counted as
salary in SJL’s books. Ellory never worked for SJL nor had she loaned the company money.
Rather, Silver directed these payments to Ellory for his personal benefit—to create an income
stream to Ellory so she could secure a mortgage for the couple’s Detroit home. At the hearing,
Silver claimed that SJL had recently stopped making these payments to Ellory as they were no
longer permitted under the GLBC loan agreement. The court credited this testimony and
declined to include these amounts in Silver’s income. Documentation presented with post-
hearing motions reveals that at least four more payments were made to Ellory after the hearing,
impeaching Silver’s testimony. On remand, the court must reconsider whether these payments
have continued and if so, calculate them as an income source pursuant to 2013 MCSF
2.01(E)(c)(ii).4

                                           C. $380,000

        Exline challenges the trial court’s determination that SJL owed $380,000 to Silver and
that he was therefore permitted to withdraw up to $380,000 from the company’s funds without
counting it as income. Exline contends that “there [were] actually two sets of $380,000 at issue.”
First and foremost, we reject that proposition. Silver presented evidence and sufficiently
explained the trail of these funds and established that SJL retained $380,000 that Silver had used
personal funds to repay.5

        Underlying this issue, however, is a deeper problem. The trial court declined to impute
as income several liabilities paid by SJL on Silver’s behalf, finding that these funds flowed from
the $380,000 loan. These included cellular phone bills, automobile expenses, sports tickets,
credit card bills, legal fees, and private school tuition paid on Silver’s behalf through SJL. 2013
MCSF 2.01(D) includes as income “the market value of perquisites (perks) received as goods,
services, or other noncash benefit for which the parent did not pay, if they reduce personal
expenses, and have significant value or are received regularly.” 2013 MCSF 2.01(D)(1) provides
a nonexclusive list of examples of perks that should be counted as income: “housing, meals, or
room and board, personal use of a company business vehicle or mileage reimbursement[.]” 2013
MCSF 2.01(E)(b) further provides in relation to business owners that “gifts, free admission to
entertainment, or personal use of business property” should be considered income.

       Had Silver limited his use of company funds for his personal use to $380,000, we would
find no fault in the trial court’s resolution of this issue. However, Exline has presented evidence

4
  There is no record indication that JSL continued to pay a salary to and health benefits for
Silver’s sister. Accordingly, we discern no reason to overturn the trial court’s decision not to
include these amounts in Silver’s income.
5
  Although the $380,000 may be characterized as gains following a home sale, which can be
imputed as income pursuant to 2013 MCSF 2.01(C)(9), the court decided to even the playing
field and exclude the gains of both parties from the sales of their primary residences.

                                                -7-
that Silver may have used over $900,000 of SJL’s funds for his personal use in 2014 alone, and
more than $500,000 in 2013. On remand, the trial court must carefully consider the parties’
evidence of Silver’s spending habits to ascertain whether Silver used his control over SJL “to
arrange compensation to reduce the amount visible to others looking for common forms of
income,” 2013 MCSF 2.01(E)(1)(c), and calculate Silver’s true income accordingly.

             D. HISTORICAL VERSUS ANTICIPATED EARNING APPROACH

        Finally, Exline challenges the trial court’s decision to calculate only Silver’s income from
2014 after accepting Silver’s testimony that his income had been drastically reduced by his
agreement with GLBC to save his company. Generally, “[w]here income varies considerably
year-to-year due to the nature of the parent’s work,” as in this case, courts must “use three years’
information to determine that parent’s income.” 2013 MCSF 2.02(B). And in relation to parents
who own their own business, the trial court must carefully examine “whether unnecessary
reductions in salaries, fees, or distributed profits have occurred by comparing amounts and rates
to historical patterns.” 2013 MCSF 2.01(E)(4)(d). “Unless the business can demonstrate
legitimate reasons for a substantial reduction in the percentage of [the parent’s] distributed
profits” or salary, the court should “use a three-year average to determine the amount to include
as a parent’s income.” 2013 MCSF 2.01(E)(4)(d)(i) and (ii).

       We discern no error in the trial court’s decision not to average Silver’s income over a
three-year period. Silver presented the GLBC loan agreement capping his annual income, perks
and fringe benefits at $110,000. This limitation will be in place for the remainder of the
children’s minorities.

        Exline argues that the court should have imputed a higher income or used the three-year
average method because Silver was forced to refinance when Fifth Third Bank accelerated its
loan after SJL inflated its inventory by approximately $1,000,000, suggesting some kind of
fraud. Silver testified, and the trial court apparently accepted, that his struggles with Fifth Third
began many months before the default letter stating this reason for ending the loan relationship.
Silver testified that the banking industry no longer desires to work with pawn shops and other
similar businesses for various reasons. As a result, Fifth Third Bank reorganized SJL’s loan and
increased his monthly payments from $9,000 to $64,000 in the spring of 2013. When SJL could
not keep pace with this new schedule, Fifth-Third found additional reasons to hold it in default.

       Silver testified that he could not find another bank to refinance the Fifth Third
indebtedness. He consulted with a bankruptcy attorney who recommended GLBC. As a lender
that deals with companies in financial distress, GLBC placed many conditions on its loan. In
addition to Silver’s salary cap, GLBC officers examine SJL’s records on a monthly basis.

        Based on this evidence, the trial court could determine that Silver did not reduce
compensation “to hide income.” 2013 MCSF 2.01(E)(d). He was forced to reduce his income
from approximately $400,000 to $110,000 annually. We “must defer to the special ability of the
trial court to judge the credibility of witnesses,” In re White, 303 Mich. App. 701, 711; 846 NW2d
61 (2014), and therefore find no error in the trial court’s decision to focus on Silver’s anticipated
2014 income rather than employing a “historical approach.”

                                                -8-
         Moreover, we note “while the MCSF ultimately seeks to discover what monies a parent
‘has available’ and should have available as income, 2013 MCSF 2.01(B) and (E)(2), it does not
mandate the pursuit of one reasonable business model over another.” Diez v Davey, 307 Mich
App 366, 383; 861 NW2d 323 (2014). “[A]s a general proposition, the management of a
corporation, or any business, obviously involves some exercise of business judgment, and there
is no indication in the MCSF that its drafters intended to interfere with this business judgment.”
Id. (citation omitted). As such, we discern no ground to impute income based on Silver’s alleged
lack of business acumen.

       In summation, the trial court erred in failing to consider Silver’s rental profits and
payments made to Ellory Silver in calculating his income for 2014. Moreover, additional
evidence has come to light impeaching Silver’s testimony at the fall 2014 trial. Accordingly, on
remand, the trial court is directed to reconsider Silver’s income in 2014, and up to the present,
and modify Silver’s child support obligation accordingly.

       We affirm in part but remand for recalculation of child support under the MCSF and
consistent with this opinion. We do not retain jurisdiction.

                                                            /s/ Karen M. Fort Hood
                                                            /s/ Elizabeth L. Gleicher
                                                            /s/ Colleen A. O'Brien

                                               -9-