Howe v. Howe

COURT OF APPEALS OF VIRGINIA

Present: Judges Elder, Lemons and Senior Judge Cole
Argued at Richmond, Virginia

WILLIAM F. HOWE, III
OPINION BY
v. Record No. 2968-97-2 JUDGE MARVIN F. COLE
JULY 6, 1999
SUSAN B. HOWE

FROM THE CIRCUIT COURT OF ALBEMARLE COUNTY
Paul M. Peatross, Jr., Judge

Ralph E. Main, Jr., for appellant.

John K. Taggart, III (Patricia D. McGraw;
Rachel L. Rust; Tremblay & Smith, LLP, on
brief), for appellee.

William F. Howe, III (father) appeals the trial judge's

determination of his monthly child support obligation. Father

contends the trial judge erred by: (1) granting Susan B. Howe's

(mother's) motion to reconsider the October 6, 1997 decree; (2)

denying father's motion to reconsider the November 12, 1997

decree; (3) including in father's income, for child support

calculation purposes, a $10,000 gift received by father from his

mother, which father used to discharge financial obligations

under the divorce decree; and (4) including in father's income,

for child support calculation purposes, the proceeds of father's

conversion of a life insurance policy. For the reasons that

follow, we affirm in part, reverse in part, and remand.
 Facts

Father and mother were divorced by decree of the Albemarle

County Circuit Court entered on November 22, 1996. The decree

provided in pertinent part: (1) Father and mother were given

joint legal custody of their two children; (2) father was to pay

child support based upon the guidelines set forth in Code

§ 20-108.2; (3) father's support obligation was to be modified

each year in accord with the guidelines; and (4) father was to

own a Northwest Mutual Life Insurance policy "as his sole and

separate estate subject to the provisions of paragraph 2(C) of

this decree."

The final divorce decree, under the heading of "Child

Support," paragraph 2(C), entitled "Life Insurance," further

provided that father was to maintain for the benefit of the

children the life insurance policy through Northwest Mutual

Life, which had a death benefit of $124,401. Father also agreed

"to take no action that would result in less than the face value

being payable at the time of his death . . . ."

I. and II.

Mother's Motion to Reconsider the October 6, 1997
Decree; Father's Motion to Reconsider the November 12,
1997 Decree

On March 1, 1997, father notified mother that he had

recalculated his child support obligation and that he was

decreasing child support payments by $307 per month. Mother

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disputed the recalculation, and she filed a show cause order

with the court on May 5, 1997. Father then filed a motion

requesting modification of his child support obligation,

contending that his income had changed and that mother had been

receiving income which she had not disclosed to father. Father

also asserted that the final divorce decree did not reflect the

final agreement of the parties concerning the applicability of

the term "earned income." He also argued that his child support

obligation should be recalculated in accordance with the child

support guidelines as interpreted by Frazer v. Frazer, 23 Va.

App. 358, 477 S.E.2d 290 (1996), a case which was decided after

the initial agreement between the parties had been reached.

Under this interpretation, father's spousal support payments to

mother would be added to mother's income and deducted from

father's income.

Mother argued that no triggering event had occurred which

required a recalculation of child support, but, if such an event

had occurred, the recalculation should not include the addition

of spousal support in mother's gross income, thereby keeping her

income at zero, as provided in the final divorce decree.

The trial judge held an ore tenus hearing on August 26,

1997. At that hearing, father testified that he had cashed in

the Northwest Mutual Life Insurance policy and had replaced it

with a policy of equal death benefit for the children. Father

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testified that he received $25,564 for the conversion, which he

used to purchase a house with his second wife.

Father also stated that, on December 20, 1996, he received

a $10,000 Christmas gift from his mother. He testified that he

used this money to pay marital debts and attorneys' fees as

directed by the trial judge in the divorce decree. Father

stated that, on April 4, 1997, he received a $10,000 loan from

his mother, which he used to finance his new house and which he

intended to repay.

On October 6, 1997 the trial judge issued a letter opinion

and order, deciding the issues raised at the August 26, 1997

hearing. He rejected the argument that the divorce decree did

not reflect the parties' agreement but agreed that a

recalculation of father's monthly child support obligation was

in order based on our decision in Frazer. The trial judge,

therefore, recalculated mother’s income to include the amount of

spousal support paid her by father.

In a footnote in his letter opinion, the trial judge stated

that he did not include the gift money in father's income "since

the year of receipt was not given." The footnote further stated

that he did not include the amount of the insurance proceeds in

father's gross income "since the amount of the [insurance]

payment which is attributable to [father]'s gross income cannot

be determined."

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 On October 20, 1997, mother filed a motion for

reconsideration of the October 6, 1997 decision, again

requesting that the trial judge hold that the divorce agreement

governed the issues and that no circumstances had arisen

requiring recalculation of the monthly child support. Mother

requested, in the alternative, that the trial judge increase

father's gross income by the amount of the gifts he received

from his mother and the insurance proceeds. She requested that

the trial judge increase father's monthly child support

accordingly.

The trial judge granted the motion for reconsideration

without a hearing and vacated his October 6, 1997 decree. On

November 12, 1997, the trial judge issued another decree and

letter opinion. The judge found that he had erred in not

including the $10,000 gift from father's mother in the

calculation of father's gross income. The judge concluded that

he had properly excluded the $10,000 loan proceeds from father's

gross income. Therefore, the trial judge included in father's

gross income $10,000 of the $20,000 received by father from his

mother.

The trial judge also included the insurance proceeds of

$25,554 1 in father's 1997 gross income for child support

1
The amount of the insurance proceeds is either $25,564,
according to father's testimony, or $25,554 according to the
trial judge's letter opinion.

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calculations to be made on March 1, 1998. The judge then

recalculated father's new total monthly child support obligation

based on these findings. Father filed a motion to reconsider on

November 24, 1997. Apparently, the trial judge denied father's

motion, although the record contains no order addressing the

motion. Father appealed to this Court.

Father contends the trial judge erred in granting mother's

motion to reconsider his October 6, 1997 order and in vacating

that order. Rule 1:1 provides that "[a]ll final judgments,

orders, and decrees, irrespective of terms of court, shall

remain under the control of the trial court and subject to be

modified, vacated, or suspended for twenty-one days after the

date of entry, and no longer." By decree dated October 27,

1997, the trial judge granted mother's motion for

reconsideration and vacated the October 6, 1997 decree.

Therefore, the trial judge timely vacated the decree in

accordance with Rule 1:1. Further, whether to grant mother's

motion lay within the sound discretion of the trial judge. See

Code § 20-108; see also Morris v. Morris, 3 Va. App. 303, 307,

349 S.E.2d 661, 663 (1986). The trial judge did not abuse his

discretion in considering the motion.

Father also contends the trial judge erred in failing to

grant his motion to reconsider the November 12, 1997 decree.

Father sought the further opportunity to introduce evidence

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concerning the use of the gift money and the use of the

insurance payment. The record does not contain an order

indicating that the trial judge ruled on father's motion to

reconsider. We find, however, because of the view we take of

these issues, we need not address these issues further.

III. Gift Funds

The starting point for a trial court in
determining the monthly child support
obligation of a party is the amount as
computed by the schedule found in Code
§ 20-108.2(B). This amount is determined
according to a schedule that varies
according to the combined gross income of
the parties and the number of children
involved.

Richardson v. Richardson, 12 Va. App. 18, 21, 401 S.E.2d 894,

896 (1991). The Code establishes a rebuttable presumption that

the schedule is appropriate under the circumstances.

However, after determining the presumptive
amount of support according to the schedule,
the trial court may adjust the amount based
on the factors found in Code §§ 20-107.2 and
20-108.1. Deviations from the presumptive
support obligation must be supported by
written findings which state why the
application of the guidelines in the
particular case would be unjust or
inappropriate.

Id.

Code § 20-108.2(C) defines gross income as

income from all sources, and shall include,
but not be limited to, income from salaries,
wages, commission, royalties, bonuses,
dividends, severance pay, pensions,
interest, trust income, annuities, capital

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 gains, social security benefits except as
listed [elsewhere], workers' compensation
benefits, unemployment insurance benefits,
disability insurance benefits, veterans'
benefits, spousal support, rental income,
gifts, prizes or awards.

Clearly, the statute defines gifts as income. Father

argues that, because the December 20, 1996 $10,000 gift was used

to discharge financial obligations created by the divorce

decree, the gift money should not be counted as part of his

gross income for purposes of child support calculations.

Father also argues that three factors listed in Code

§ 20-108.1(B) rebut the presumption that the amount of child

support is correct and support the finding that application of

the child support guidelines would be "unjust or inappropriate."

Two of the factors reference "obligations" and "marital debt." 2

However, assuming arguendo that father used the gift

proceeds to discharge such "obligations" and "marital debt,"

father's use of the gift proceeds is irrelevant to the

characterization of the gift as part of father's "gross income."

These obligations and debts were distributed in a presumably

equitable manner under the initial divorce decree, and this

2
Father cites Code § 20-108.1(B)(11): "Earning capacity,
obligations and needs, and financial resources of each parent,"
arguing that the divorce decree obligations are obligations
within the meaning of the statute. He also cites Code
§ 20-108.1(B)(14): "Provisions made with regard to the marital
property under Code § 20-107.3," arguing that, to the extent the
gift discharged marital debt, it satisfies the provisions
respecting marital property under Code § 20-107.3.

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distribution cannot be relitigated under the guise that

additional income was used for their discharge. To permit debts

assigned in the final divorce decree to be declared a reason for

decreasing the child support amount would be tantamount to

retroactively modifying the final support decree, which

Code § 20-108 specifically proscribes.

Father also argues that the $10,000 gift was not part of a

regular or ongoing gift program. Therefore, because future

child support payments would be based on income father will not

be receiving in the future, the trial judge should not have

included it in the basis for determining father's child support

payments.

In Frazer, 23 Va. App. at 378, 477 S.E.2d at 299-300, we

stated: "Under Code § 20-108.2(C), gross income includes 'all

income from all sources,' and unless specifically excluded, any

income from any source is subject to inclusion." We held that,

because Code § 20-108.2(C) "does not specifically exclude

voluntary contributions to retirement plans from the definition

of gross income," the contributions should be included in gross

income for child support purposes. Frazer, 23 Va. App. at 378,

477 S.E.2d at 300.

Further, Code § 20-108.2(C) specifically states that gifts

are to be included in gross income, and father admits that the

$10,000 he received on December 20, 1996 was a gift. Therefore,

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the trial judge correctly included the gift proceeds in father's

gross income. Once the presumptive amount of child support was

calculated, the trial judge could have made a "downward

deviation" from the presumptive amount of child support, to the

extent that Code § 20-108.1 factors indicate that the award

would be "unjust or inappropriate." See id.

Moreover, when determining child support, the emphasis

should be on including, not excluding, income especially where

including the income more accurately reflects a parent's

economic condition and financial circumstances for that year.

Father can seek a modification in child support payments for the

next year, if and when his income no longer includes such gift

proceeds. Indeed, it is the payor parent's obligation to seek

modification when a change in circumstances occurs. The trial

judge is not required to speculate as to what the circumstances

may be in the future. "The statutory scheme provided by the

General Assembly does not contemplate automatic changes or

escalator clauses." Keyser v. Keyser, 2 Va. App. 459, 461-62,

345 S.E.2d 12, 14 (1986). "'Determination of support awards

must be based on contemporary circumstances and modified in the

future as changes in circumstances occur.'" Solomond v. Ball,

22 Va. App. 385, 392, 470 S.E.2d 157, 160 (1996) (citation

omitted). Accordingly, we find that the trial judge did not

abuse his discretion in including the $10,000 gift proceeds in

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father's gross income for the purposes of calculating father's

monthly child support obligation.

IV. Life Insurance Policy Proceeds

Father contends the trial judge erred in including the

proceeds from the Northwest Mutual life insurance policy in the

amount of $25,564 in his gross income for child support

calculation purposes under the guidelines.

In this case, father reduced his monthly child support

payment to mother. Mother filed a petition for a show cause

order stating father "has arbitrarily modified [child] support,

and refused to provide [mother] with documentation of reduced

income." The trial court issued a show cause order ordering

father to appear in court on August 26, 1997 to show cause why

he should not be punished for contempt for failure to abide by

the divorce decree.

Father filed a motion prior to the hearing date, stating

that he received his annual bonus and this changed circumstance

triggered recalculation of child support. He also alleged that

mother was receiving income in addition to spousal and child

support, which she was not disclosing. Therefore, father asked

for a recalculation of child support.

At the August 26, 1997 hearing on the show cause order and

the motion for modification, mother called father to testify

concerning his income. He testified as follows:

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 Mother's Attorney:

Now, sir, going through certain bank records
that you have provided by discovery in this
case, I find a deposit into your account in
May of 1997 of $25,564. Do you know where
that came from?

Father:

That came from -- as you recall, Your Honor,
when you distributed the assets in our case,
I was to retain ownership of my insurance
policy. And so that my wife and I could
purchase a house for our kids, I cashed that
in, replaced that with this policy
(indicating), in the amount of $25,000, and
took the cash gain from that, which was an
asset, just like going to the bank and
taking money out.

After the hearing, both sides presented legal memoranda on

the issues. Mother initially argued that child support should

not be recalculated. In the alternative, mother argued that the

computation should include father's "current income, this year's

bonus and the monetary gifts from his parents." She did not ask

the court to include the insurance proceeds.

On October 6, 1997, the trial judge issued its letter

opinion with the footnote stating that he was not including the

insurance payment in father's income because "the amount of the

payment which is attributable to [father]'s gross income cannot

be determined."

Mother filed a motion to reconsider, again arguing that no

changes in circumstances had occurred which would justify a

modification in child support. However, mother then quoted the

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trial judge's footnote and stated that father had testified that

he received $25,554 from the insurance policy. At this point,

mother for the first time asked the judge to add the insurance

money into father's gross income.

The trial judge vacated the October 6, 1997 order, and, on

November 12, 1997, issued a new letter opinion in which he

reversed his decision and added in the $25,554 insurance

proceeds in father's 1997 gross income. Father then filed a

motion for reconsideration and an opportunity to present

evidence on the issues. In view of the way the issue arose,

that is, the trial judge first raised the question of

apportioning the life insurance proceeds in his first letter

opinion, father should have been permitted to present further

evidence on the issue. However, mother was the party who asked

that the insurance proceeds be added into father's income. The

burden of proof was on mother to show how much of the insurance

proceeds was income because she asked the trial court to include

the proceeds in father's income. Mother failed to show what

portion of the $25,554 was a return on capital as opposed to a

gain. Thus, because the property was father's separate property

to begin with, and, because mother failed to show what, if any,

portion of the $24,554 was income under the statute, then none

of the insurance proceeds should have been added into father's

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gross income. There is no evidence in the record to show any

increase in the value of the policy.

Income under Code § 20-108.2 "applies to income, not to

capital recoupment. This conclusion is supported by the

definition of income set forth in Code § 20-108.2(C). Although

that definition includes 'capital gains,' capital gains are by

their nature profits, not returns of capital." Whitaker v.

Colbert, 18 Va. App. 202, 204-05, 442 S.E.2d 429, 431 (1994).

See also Smith v. Smith, 18 Va. App. 427, 434-35, 444 S.E.2d

269, 274 (1994) ("If husband has realized any capital gains

since the court last received evidence on this matter, wife is

free to request a modification of the award based on a change in

circumstances.").

For the foregoing reasons, we affirm the trial judge's

ruling that the gift proceeds were part of father's gross income

for purposes of child support calculations. We reverse the

trial judge's decision that the life insurance proceeds were

properly included in father's gross income for purposes of child

support calculation. We remand for recalculation of child

support consistent with this opinion, based on the evidence

already in the record.

Affirmed in part,
reversed in part,
and remanded.

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