APPEAL
FROM THE SALINE COUNTY CIRCUIT COURT [NO. 63CR-13-981]
HONORABLE DAVID GOODSON, JUDGE
Brett
D. Watson, Attorney at Law, PLLC, by: Brett D. Watson, for
appellant.
Jensen, Young & Houston, PLLC, by: Terence C. Jensen, for
appellee.
LARRYD. VAUGHT, JUDGE
Appellant
Brian Newton appeals the September 21, 2017 order entered by
the Saline County Circuit Court denying his motion to modify
child support. On appeal, Brian first argues that the circuit
court abused its discretion in excluding evidence of his 2015
income that he alleged was used by the circuit court in 2016
to calculate his base child-support obligation and that he
claims is required to prove a change in circumstances to
support his motion to modify child support. Brian also argues
that the circuit court clearly erred in denying his motion to
modify child support by ordering him to pay appellee Rebecca
Newton additional child support in the amount of 21 percent
of retained earnings that he claims were included in his 2015
income and had already been accounted for in his base
child-support obligation awarded by the circuit court in
2016. We reverse and remand.
There
were two hearings in this case relevant to this appeal. The
first hearing was Brian and Rebecca's divorce hearing,
which took place in February 2016. At this hearing, Gary Cox,
a certified public accountant, testified that he had been
preparing tax returns for Brian, Rebecca, and their companies
for the past nine or ten years. Cox stated that one of Brian
and Rebecca's companies was Newton Medical, Inc. (Newton
Medical), an S corporation. According to Cox, Newton
Medical's 2015 tax returns reflected retained earnings of
$66, 465 and that Brian and Rebecca throughout the course of
the year had received distributions from those earnings to
pay their household and personal living expenses.
At the
conclusion of the divorce hearing, the circuit court orally
granted the divorce, and Brian was ordered to purchase
Rebecca's interest in Newton Medical. With respect to
child support, the court stated that "[f]uture child
support will be paid monthly and will continue to be based
upon the amount, as has been done in the past, that as an
average over 12 months of what has been taken out for
personal use." Brian's counsel then reported to the
circuit court that Brian had been paying monthly child
support of $2, 012.67. The court responded:
I will add in - - because Mr. Newton has so much control over
his income - -and I don't really expect anything
underhanded, but I have to be careful. If there is a ten
percent change in that from year to year, there should
necessarily, in order for a modification of support, be some
type of justification for that to be able to be provided. And
to put that in a little bit more common English, if Mr.
Newton were to reduce his take-home pay by more than ten
percent, which would kick in the child support modification
provision of the law, and yet his overall business income
either went up or did not change by a very, very similar
amount, the Court would probably not even come close to
considering lowering child support.
Further, at the preparation of taxes each year, Mr. Newton
will provide Ms. Newton with a copy of his full tax return.
Both state and federal. During the time that both children
are of minority age from this point on - - obviously not
dealing with the money that's being divided equally - -
but from this point on, he will pay child support in the
amount of 21 percent after taxes of any retained earnings.
Thereafter,
on April 6, 2016, the circuit court entered a divorce decree.
Paragraph nine of the decree provides:
9. [Brian] shall pay [Rebecca] child support in the amount of
$2, 021.67 per month. In addition to the above amount,
[Brian] shall pay twenty-one percent (21%) of any excess
retained earnings, distributions, bonuses or other earnings
not otherwise taken as salary. . . . In setting support, the
Court has considered the income of [Brian's] business as
well as [Brian's] earning potential. The Court considers
this amount fair and equitable under the circumstances
present although it may represent a deviation from the
Arkansas Supreme Court Child Support Guidelines. A reduction
will only be considered if [Brian's] income and retained
earnings or other resources that may be considered as income
decrease by more than ten percent (10%) and is otherwise
justifiable under the circumstances. When considering an
increase in support [Brian's] net income and retained
earnings shall be considered.
Thereafter,
Brian paid Rebecca monthly child support of $2, 012.67. In
mid-2017, Brian provided his 2016 tax returns to Rebecca. The
returns reflected that Brian had a salary of $88, 500 and
retained earnings of $101, 833. When Rebecca requested that
Brian pay her 21 percent of the retained earnings as per
paragraph nine of the decree, Brian filed a motion to modify
child support. He alleged that his current child-support
obligation of $2, 021.67 should be increased to $2, 312.77
because his 2016 net income (salary plus retained earnings)
had increased. In response, Rebecca moved for contempt,
arguing that the circuit court in the decree ordered Brian to
pay additional child support of 21 percent of retained
earnings not otherwise taken as salary, which totaled $21,
384.93.
A
hearing was held on Brian's motion in August
2017.[1] Brian sought to introduce the testimony of
his accountant and two documents[2] to attempt to establish his
income basis for the $2, 012.67 child-support award set forth
in the decree. When Brian moved to introduce this evidence,
counsel for Rebecca objected. Her counsel argued that the
decree had been entered in April 2016 and that any question
as to the income basis for the child-support calculation in
the decree should have been raised and resolved before the
circuit court at that time or on appeal, but it ...