Court Opinion

ID: 6324231
Source: CourtListenerOpinion
Date Created: 2022-03-17 15:13:05.10965+00
Date Added: 2024-06-11T09:21:50.306986
License: Public Domain

J-A21005-21

                                   2022 PA Super 48

    ROBERT A. SICHELSTIEL, JR.                 :   IN THE SUPERIOR COURT OF
                                               :        PENNSYLVANIA
                       Appellant               :
                                               :
                                               :
                v.                             :
                                               :
                                               :
    VICTORIA L. SICHELSTIEL                    :   No. 1804 EDA 2020

                  Appeal from the Order Entered July 27, 2020
      In the Court of Common Pleas of Montgomery County Civil Division at
                            No(s): No. 2003-05445

BEFORE:      KUNSELMAN, J., NICHOLS, J., and STEVENS, P.J.E.*

DISSENTING OPINION BY NICHOLS, J.:                      FILED MARCH 17, 2022

        I respectfully dissent because I disagree with the Majority and agree

with the trial court that Father did not present sufficient evidence at the

hearing to establish a lack of control over the decision to retain or distribute

earnings concerning flow-through income from his various business ventures.

I also disagree with the Majority that the trial court made improper credibility

determinations.

        Father challenges the child support obligation he was ordered to pay to

Mother, arguing that the “flow-through” income which he received from

various business ventures was retained by the businesses and should not have

counted towards his net income because, as a minority owner of the

businesses, he had no control over the decision to retain or distribute

earnings. I agree with the Majority that the trial court and all parties agreed
____________________________________________

*   Former Justice specially assigned to the Superior Court.
J-A21005-21

that Fennell v. Fennell, 753 A.2d 866 (Pa. Super. 2000) applies but

disagreed on the manner in which it should apply. Father argues that the

hearing officer did not make explicit credibility determinations and that the

trial court only inferred that the officer had made an adverse credibility finding

because of the ruling in Mother’s favor. The Majority agrees with Father’s

position and would reverse that portion of the trial court’s order.

      When evaluating a support order, this Court may only reverse where

the order could not be sustained on any valid ground, absent an abuse of

discretion. Silver v. Pinskey, 981 A.2d 284, 291 (Pa. Super. 2009) (en banc)

(citation omitted). The “credibility to be assigned the parties’ testimony and

supporting exhibits lies initially with the hearing officer and the trial court.”

Sirio v. Sirio, 951 A.2d 1188, 1195 (Pa. Super. 2008) (citation omitted). The

guidelines provide that child support must be based on the monthly net

income from all sources over at least a six month-average. Commonwealth

v. Hall, 80 A.3d 1204, 1216 (Pa. 2013); Pa.R.C.P. 1910.16-2.              Income

includes income derived from business and distributive shares of partnership

gross income. 23 Pa.C.S. § 4302.

      In Fennell, the mother sought child support from the father, who was

a minority shareholder of a Subchapter S corporation. Fennell, 753 A.2d at

867. The net effect is that the S corporation could avoid tax at the corporate

level by requiring its shareholders to pay tax on corporate earnings; thus, the

earnings were not distributed to Fennell, but retained by the majority

shareholders and reinvested in the company. Id. Although Fennell had to

                                      -2-
J-A21005-21

report the income on his personal tax return, he did not receive the profit in

cash for his personal use.     Id.   Nevertheless, the trial court found that

Fennell’s share of the corporate earnings was subject to child support

calculations.

      On appeal, this Court reversed, observing that “all benefits flowing from

corporate ownership must be considered in determining income available to

calculate a support obligation.” Id. at 868 (citations omitted). “[T]he owner

of a closely-held corporation cannot avoid a support obligation by sheltering

income that should be available for support by manipulating salary,

perquisites, corporate expenditures, and/or corporate distribution amounts.”

Id. “By the same token, however, we cannot attribute as income funds not

actually available to or received by the party.” Id.

      This Court concluded that because Fennell did not receive the

distributions and did not have the ability to control the company’s issuance of

its distributions nor the retention of its earnings, the corporate earnings should

not be considered income. Id. This did not create a presumption that the

earnings were per se to be excluded from income. Id. Such earnings were

to be considered for support only where the individual could control the

retention or disbursement of the funds, and only in those circumstances will

he bear the burden of proving that the actions were necessary to maintain or

preserve the business. Id.

      Judge Del Sole dissented, agreeing that in appropriate cases, retained

earnings may not be considered income for support, but that it is the burden

                                      -3-
J-A21005-21

of the party seeking the income exclusion to convince the court. Id. at 869.

Specifically, he noted that the trial judge had appropriately concluded that

Fennell did not offer evidence or exhibits to provide the court with information

from the Subchapter S return or the K-1 schedule. Id.

      My interpretation of Fennell and its dissent is that the majority

concluded it was not creating a per se rule that flow-through earnings were to

be excluded from income, but that only where the individual could “control the

retention or disbursement of the funds by the corporation,” will he “bear the

burden of proving that such actions were necessary to maintain or preserve

the business.”   Fennell, 753 A.2d at 868 (formatting altered).       Thus, the

burden remains on the party appealing the support order to show that the

earnings should be excluded from income.          In Fennell, Judge Del Sole

concluded that Fennell had not met his burden; similarly, I conclude that

Father did not meet his burden in the instant case.

      The Majority notes that the hearing officer’s report did not contain

factual or credibility findings; there was no other testimonial evidence

suggesting that the hearing officer had concerns with Father’s testimony or

evidence; and the testimony was not contested by Mother. Maj. Op. at 11.

The Majority goes on to observe that “[t]here was no inquiry at all into Father’s

ability to control whether his various businesses issued distributions, or

whether it was the businesses’ standing practice to retain earnings.” Id. at

11-12. The Majority concludes that Father corroborated his testimony with

documentation, containing “K-1 Schedules showing Father’s ownership share

                                      -4-
J-A21005-21

of the business, the flowthrough income for each business, and whether that

business issued a distribution.” Id. at 12.

       However, I agree with the trial court that Father did not corroborate his

testimony with the appropriate documentation. At the time of the proceeding

before the hearing officer, Father was unable to provide the K-1 schedules as

evidence.1 The hearing officer expressed concern that Father’s tax return did

not include the total for distributions of K-1 income and did not specifically

indicate the distributions were only made to reimburse income taxes on the

distributions. Trial Ct. Op. at 3; N.T. at 25-26. Father provided a letter from

his accountant explaining that the distributions were to reimburse Father for

the income taxes on taxable income received but not distributed, the trial

court and hearing officer did not find that information useful because it was

not apparent on the actual tax return. Trial Ct. Op. at 3-4; N.T. at 25-26; Ex.

D-5. Finally, the trial court averred that the schedules were not submitted as

of the time of its decision. Trial Ct. Op. at 3 n.11. Although the K-1’s were

submitted as Exhibit B to Father’s brief along with his exceptions, the court

noted that the “attachments did not indicate” how the income was only being

distributed for the purposes of paying taxes. Trial Ct. Op. at 6.

____________________________________________

1At the hearing before the hearing officer, there was some discussion that the
K-1’s would be submitted following the hearing as Exhibit D-6, but in its
opinion, the trial court averred that “upon review, it does not appear that
Father’s K-1’s were ever supplemented to the record.” Trial Ct. Op., 3/30/21,
at 3 n.11; N.T., 11/29/19, at 23.

                                           -5-
J-A21005-21

       The trial court reviewed Father’s attachments to his exceptions—the K-

1 documentation—and determined that it did not indicate how the income was

distributed solely for the purposes of paying taxes, and specifically, that it did

not address the degree of Father’s control over distributions. The trial court

also found that the documentation did not confirm a longstanding practice of

retaining earnings or whether distributions similar to the amount being

diverted would be forthcoming to Father in the future. Order, 7/27/20, at ¶

15 n.4.

       Although the Majority finds that “nothing in the record indicates Father

had control” over the corporate earnings, my interpretation of Fennell is that

it was Father’s burden to develop the record and to affirmatively show that he

had no control over the earnings. Fennell, 753 A.2d at 869. On this record,

Father did not meet his burden of proof before the hearing examiner nor the

trial court, by failing to provide sufficient evidence and exhibits to show that

the flow-through proceeds should be excluded from his income. Accordingly,

I respectfully dissent, and would affirm the trial court’s order.2 Id.

____________________________________________

2 With respect to Father’s second and third issues, to the extent that the
Majority concludes that the hearing officer and trial court made improper
credibility determinations, I disagree.     See, e.g., Maj. Op. at 11-12.
Moreover, as discussed above, the underlying decision was not based on a
credibility determination but upon Father’s failure to present adequate
evidence to show that he did not have control over the income distribution.
Concerning Father’s final issue, because I discern no error in the trial court’s
calculation and as there was no deviation, I would not reach this issue or
speculate on a possible deviation.

                                           -6-