Court Opinion

ID: 1077113
Source: CourtListenerOpinion
Date Created: 2013-10-09 20:21:42.890234+00
Date Added: 2024-06-11T15:12:19.775890
License: Public Domain

COURT OF APPEALS OF VIRGINIA

Present: Chief Judge Moon, Judges Fitzpatrick and Annunziata
Argued at Charlottesville, Virginia

MARY ANABEL McCONNELL HUGER
                                        MEMORANDUM OPINION * BY
v.   Record No. 0303-96-3            JUDGE JOHANNA L. FITZPATRICK
                                           FEBRUARY 18, 1997
GEORGE DERBYSHIRE HUGER

             FROM THE CIRCUIT COURT OF ROCKBRIDGE COUNTY
                     George E. Honts, III, Judge
            Ellen M. Arthur (Ellen M. Arthur, P.C., on
            brief), for appellant.

            Thomas C. Spencer (Spencer & Filson, P.C., on
            brief), for appellee.

     On appeal from the trial court's decision granting George

Derbyshire Huger a reduction in his monthly spousal support

obligation, Mary Anabel Huger contends that the court erred in

its determination of the husband's income for spousal support

purposes.   For the following reasons, we find no error and affirm

the judgment of the trial court.

     Throughout the history of this case, both Mary Anabel Huger

(wife) and George Derbyshire Huger (husband) contested husband's

spousal support obligation subsequent to the parties' divorce.

Specifically at issue in the instant case is husband's income

from various corporations.    Husband is the sole owner of the

Subchapter S corporation Huger Distributing Company, and the

     *
      Pursuant to Code § 17-116.010, this opinion is not

designated for publication.
controlling shareholder of the C corporations Huger-Davidson Sale

Corporation of Staunton and Huger-Davidson Sale Company. 1

     Following a modification of spousal support hearing

requested by both parties, the trial court, by letter opinion

dated April 12, 1994, initially denied husband's petition for a

reduction and wife's petition for an increase of husband's

spousal support obligation.   However, by letter opinion dated

April 20, 1994, the court withdrew its initial opinion and

granted husband's petition for a reduction.   The court determined

husband's 1993 income to "approximate" $119,000 and ordered

husband to pay spousal support to wife in the amount of $1,750

per month.

     1
      "An eligible domestic corporation can avoid double taxation

(once to the corporation and again to the shareholders) by

electing to be treated as an S corporation under the rules of

Subchapter S of the Internal Revenue Code.    In this way, the S

corporation passes its items of income, loss, deduction, and

credits through to its shareholders to be included on their

separate returns." William R. Christian, Subchapter S Taxation
§ 35.01 (3d ed. 1996).
     The term "S corporation" means, with respect to any taxable
year, a small business corporation for which an election under
section 1362(a) is in effect for such year. The term "small
business corporation" means a domestic corporation which is not
an "ineligible corporation" and which does not have more than
seventy-five shareholders, does not have as a shareholder a
person (other than an estate, certain trusts, and certain
organizations) who is not an individual, does not have a
nonresident alien as a shareholder, and does not have more than
one class of stock. See 26 U.S.C.A. § 1361(a) and (b).

                                 2
     The court issued yet another letter opinion on May 11, 1994,

amending its previous opinion of April 20, 1994.   The court

reiterated that a change in husband's circumstances "justifie[d]

a decrease in spousal support" and ordered spousal support in the

amount of $2,200 per month.   However, the court again revised its

ruling by letter opinion dated August 15, 1994, and confirmed its

previous order setting spousal support at $1,750 per month. 2    The

court found in an order dated October 19, 1994:
          Upon consideration whereof, it is hereby
          ordered for the reasons set forth in this
          Court's Letter Opinion dated August 15, 1994
          and this Court's Letter Opinion dated April
          20, 1994, that the Petition of the [husband]
          for a reduction in spousal support is
          well-founded and that commencing with June 1,
          1994, the spousal support shall be the sum of
          $1,750 per month.

This order was unappealed and became final.

     The court held another support modification hearing on

November 22, 1995 at the husband's request for a reduction and at

wife's later request for an increase.   Following the hearing, the

court issued a letter opinion on December 1, 1995.   The court

     2
      The court, in its May 11, 1994 letter opinion, included

$34,650 of investment income in its calculation of husband's

income.   The court reversed this finding in its August 15, 1994

letter, stating that it could "find no basis for adding $34,650

to Derbyshire income figures.   To have done so was error and it

is removed from consideration."

                                  3
determined, "[u]pon review of the evidence . . . including the

current status of the parties and the historical data accumulated

over the years," husband's income to be "$97,500 or $8,092 per

month, down seventeen percent from the last review."   The court

declined to consider "undistributed, after-tax retained [funds]

in the Sub-Chapter S Corporation and liquid assets in the other

corporations as being available as income to husband."    The court

denied an increase in spousal support for wife and granted

further reduction in husband's spousal support payments due to a

change in his circumstances.   The court denied wife's motion to

reconsider, and entered its final order on January 17, 1996,

awarding wife spousal support in the amount of $1,250 per month.
     I.

     On appeal, wife argues three assignments of error in the

trial court's determination of husband's income.   Wife first

contends that the court erred in refusing to consider the

retained earnings of husband's Subchapter S corporation as income

to husband.   Wife argues that, for purposes of spousal support,

the court should have included the retained earnings of husband's

Subchapter S corporation in its calculation of husband's income. 3

     3
      "Retained earnings accounts contain any accumulated

earnings and profits (E&P) of the corporation.   If the

corporation has accumulated earnings and profits, it must

maintain separate accounts for previously taxed income (PTI) and

the accumulated adjustments account (AAA)."   Christian, supra, at

                                 4
     "The trial court's factual findings must be accorded great

deference."    Gamer v. Gamer, 16 Va. App. 335, 345, 429 S.E.2d

618, 625 (1993).   "'The findings of a trial court after an ore

tenus hearing should not be disturbed on appeal unless they are

plainly wrong or without evidence to support them.'"      Street v.

Street, Record No. 2363-95-4, slip. op. at 11 (Va. Ct. App. Jan

21, 1997) (quoting Schweider v. Schweider, 243 Va. 245, 250, 415

S.E.2d 135, 138 (1992)).    "The weight to be given evidence and

the resolution of conflicts in the evidence are for the fact

finder.    We cannot disturb a chancellor's finding of fact so long

as it is supported by credible evidence."      Gamer, 16 Va. App. at

345, 429 S.E.2d at 625 (citations omitted).

     The record demonstrates that the trial court considered the

retained earnings of the Subchapter S corporation as income to

the husband, but only as income in 1993, the year in which the

income was earned.    At the November 22, 1995 hearing, the court

referred to the S corporation's funds and classified it as

"income that would be reflected in prior statements subject to
prior hearings."     (Emphasis added).   Additionally, wife's expert

Certified Public Accountant, Bruce Blyer, testified regarding

husband's reported income.    He stated that husband's income from

the S corporation was "properly reported" and that he "saw no

evidence that [husband] did anything wrong."     Husband's 1994

§ 35.01.

                                   5
Individual Income Tax Return reflects income of $22,557 from

"[r]ental real estate, royalties, partnerships, S corporations,

trusts, etc."   Lastly, the court's December 1, 1995 letter

opinion also indicates that the court considered the Subchapter S

corporation's earnings:
               [Wife] urges . . . the court to consider
          undistributed, after-tax [funds] retained in
          the Sub-Chapter S Corporation and liquid
          assets in the other corporations as being
          available as income to [husband]. . . .
          Finding none of the funds retained excessive
          in relation to the size of the various
          corporations, this court will not impose its
          judgment on what should be retained by the
          corporations over the sound judgment of
          managers, including [husband], of the
          corporations.
               Upon review of the evidence before me,
          including the current status of the parties
          and the historical data accumulated over the
          years, the Court finds: . . . [Husband's]
          income is determined to be $97,500, or $8,092
          per month, down seventeen percent from the
          last review.

                    *   *   *    *    *    *    *

               [Wife] is not entitled to an increase in
          spousal support; [Husband] is entitled to a
          reduction in his spousal support payments due
          to a change in his circumstances.

               Accordingly, the court determines [wife]
          is entitled to spousal support in the sum of
          $1,250 per month.

(Emphasis added).

     Thus, although the court did not specifically itemize the

different sources of funds that comprised husband's total income,

the testimony and the court's December 1, 1995 letter opinion

                                 6
demonstrate the court's consideration of these funds, including

"after-tax [funds] retained in the Sub-Chapter S Corporation."

After evaluating the evidence, the court declined to include as

income the Subchapter S corporation's retained earnings that had

been considered earlier in establishing the amount of husband's

income at the prior support hearings.   The court's calculation of

husband's income is not plainly wrong or without evidence to

support it. 4
                                II.

     Additionally, wife argues that the trial court erred in

failing to include in its calculation of husband's income loans

from husband's Subchapter S corporation that he deposited into

his personal account.   Wife contends that the loans husband

     4
      Husband does not dispute that retained earnings may be

considered as income in a determination of spousal support.

However, he contends that this income was considered previously

by the trial court in setting his earlier support obligation of

$2,750.
     At the November 22, 1995 hearing, husband's counsel
represented to the court, "[W]e agree that the Sub-S corporation
certainly has a value in its assets. But as Your Honor knows
 . . . that income is entered -- is put on [husband's] 1040,
whether it comes through on a W-2 or comes through on a Schedule
E." Wife's counsel argued that the retained earnings of the
 S corporation, as "an asset or a resource that is liquid, it
certainly is available to him as income." However, the trial
court agreed with husband's argument: "Not as income. It's
available . . . . We stipulate that it's an asset. He could
liquidate the corporation and get money out of it. It is not,
however, income in any way, shape, or form, by anybody's
testimony."

                                 7
received in 1994 and 1995 must be considered income, alleging

that these loans were used for husband's personal expenses.

However, as decided above, the record supports the trial court's

determination of husband's income.

     At the November 22, 1995 hearing, Blyer testified that

according to his examination of the records regarding the

Subchapter S corporation, all the S corporation's income was

reported on husband's personal tax return.   Blyer further stated

that he found no intercompany transfers of funds between the

Subchapter S corporation and the C corporations.    Finally, Blyer

testified that he found nothing that was reported incorrectly on

husband's corporate tax returns or on his individual tax returns.

     Husband acknowledged that he deposited additional funds in

his personal checking account including one deposit of

approximately $80,000, which was a loan he took from the

Subchapter S corporation.   He testified that the purpose of this

loan was to pay a mortgage on rental property.    The evidence

established that the loan was reflected by a "note receivable to

stockholder" and by other indicia of husband's obligation to

repay.   The court specifically determined that this money was

from the Subchapter S corporation, and was not present income,

but rather "income that would be reflected in prior statements
subject to prior hearings."   (Emphasis added).    For the reasons

stated above, we cannot say that the trial court abused its

discretion or was plainly wrong in excluding the loans contested

                                 8
by wife from its calculation of husband's present income.
                               III.

     Lastly, wife argues that the trial court erred in failing to

impute income to husband as a "matter of fact," because husband

deposited funds in his personal checking account exceeding his

reported income.   Wife contends that funds in excess of husband's

reported income of $97,500 passed through husband's personal

checking account and that these funds should have been included

in the court's determination of husband's income.
     "'[A] trial court may impute income based on evidence of

recent past earnings.'"   Stubblebine v. Stubblebine, 22 Va. App.

703, 709, 473 S.E.2d 72, 74 (1996) (quoting Brody v. Brody, 16

Va. App. 647, 651, 432 S.E.2d 20, 22 (1993)).    "In deciding

whether to impute income, the court 'must look to current

circumstances and what the circumstances will be "within the

immediate or reasonably foreseeable future."'"    Theismann v.

Theismann, 22 Va. App. 557, 573, 471 S.E.2d 809, 816-17, aff'd,

___ Va. App. ___, ___ S.E.2d ___ (1996) (en banc) (quoting
Srinivasan v. Srinivasan, 10 Va. App. 728, 735, 396 S.E.2d 675,

679 (1990)).   Trial courts must exercise their discretion in

determining whether income should therefore be imputed.     See,

e.g., Reece v. Reece, 22 Va. App. 368, 376, 470 S.E.2d 148, 152

(1996).

     Witness credibility determinations rest within the

chancellor's sound discretion and will not be disturbed on appeal

                                 9
absent plain error or an abuse of discretion.   See Goodyear Tire

& Rubber Co. v. Pierce, 5 Va. App. 374, 381, 363 S.E.2d 433, 437

(1987).   Where the chancellor is confronted with conflicting

testimony from interested witnesses on each side of the case, it

is in his province alone, as fact finder, to assess the

credibility of the witnesses and the probative value to be given

their testimony.   See Richardson v. Richardson, 242 Va. 242, 246,

409 S.E.2d 148, 151 (1991).   We will reverse a chancellor's

factual determinations based on ore tenus evidence only if they
are plainly wrong or without evidence to support them.    Id.

     Thus, the trial court had discretion to believe or

disbelieve husband's explanation for these deposits.   The trial

court accepted husband's testimony regarding the deposits into

his personal account as being loans and not income, and

determined that husband's testimony was credible.    The evidence

presented in this case supports the trial court's decision not to

impute income, and this decision was not clearly wrong or an

abuse of discretion.
                                         Affirmed.

                                10