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