#28541-a-DG
2019 S.D. 5
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
KATHRYN M. GREEN, Plaintiff and Appellee,
v.
SCOTTY J. GREEN, Defendant and Appellant.
****
APPEAL FROM THE CIRCUIT COURT OF
THE FIRST JUDICIAL CIRCUIT
UNION COUNTY, SOUTH DAKOTA
****
THE HONORABLE TAMI BERN
Judge
****
MICHELE LEWON of
Kollars & Lewon, PLC
Sioux City, Iowa Attorneys for plaintiff
and appellee.
REBECCA A. NELSON of
Rawlings, Ellwanger, Mohrhauser,
Nelson & Roe, LLP
Sioux City, Iowa Attorneys for defendant
and appellant.
****
CONSIDERED ON BRIEFS
ON NOVEMBER 12, 2018
OPINION FILED 01/09/19
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GILBERTSON, Chief Justice
[¶1.] Scotty J. Green (Scotty) appeals from a judgment and decree of divorce
from his wife Kathryn M. Green (Kathy). Scotty asserts the circuit court abused its
discretion in awarding attorney fees, calculating child support, and dividing
property. We affirm.
Facts and Procedural History
[¶2.] Kathy and Scotty were married November 21, 2003, in Elk Point.
During the marriage, Kathy and Scotty adopted two biological siblings, B.S.G. and
B.M.G., in Iowa. B.S.G. was born in 2002, and B.M.G. was born in 2003. Both
children were considered to have special needs because of their biological mother’s
drug use. Kathy and Scotty received an adoption subsidy for each child, which was
set to be paid monthly until the children reach the age of majority.
[¶3.] After living a short time in Scotty’s pre-marital home, the couple
purchased a home in Dakota Dunes on Sagebrush Pass. They later built another
home in Dakota Dunes on Bluestem Trail (marital home). During the marriage,
Kathy worked at HyVee in Sioux City, Iowa, as a pharmacy tech and later as a
personal shopper. At the time of trial, her wages were $19.25 per hour, and she
worked an average of 32 hours per week. Scotty was employed as the Director of
Operations for a McDonald’s franchise in Sioux City. After working in that position
for 30 years, Scotty was earning approximately $140,000 per year. In 2014, the
franchise was sold due to the owners’ divorce. Scotty had been approved by
McDonald’s to own his own restaurant but was not offered one at the time of the
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sale. As a result, Kathy and Scotty began to search for other franchise
opportunities.
[¶4.] Eventually, Scotty and Kathy and three other couples formed their
own limited liability company: OCSC, LLC. OCSC signed a franchise agreement to
own and operate an Old Chicago restaurant in Sioux City. Scotty and Kathy
invested $148,250 in OCSC between 2014 and 2017. Scotty was employed as an
owner-operator of the restaurant at a salary of $116,000 per year. As owners,
Kathy and Scotty were required to personally guarantee much of the OCSC debt,
including debt related to the franchise agreement, the lease, and operating loans.
[¶5.] During the marriage, the parties argued over spending money, OCSC,
and the proper way to raise their children. In October 2016, Scotty moved out of the
marital home. On October 5, 2016, Kathy filed for divorce. She also filed for a
protection order on October 13, 2016. A hearing was held on December 19, 2016,
and the circuit court dismissed the protection order. On January 6, 2017, the court
released a temporary order awarding the couple joint legal custody of the children.
Kathy was awarded primary physical custody, possession of the marital home,
$1,357 per month in child support, and $1,300 per month in spousal support.
[¶6.] In February 2017, Scotty was terminated from his position with OCSC
due to performance-based issues. Scotty’s employment agreement contained a non-
compete clause that prohibited him from working in another restaurant within a
250-mile radius for two years after termination. Despite Scotty’s termination, he
and Kathy retained their ownership interest in OCSC. In May 2017, Scotty found
new employment working at Home Depot at a wage of $16 per hour.
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[¶7.] Also in February 2017, Kathy filed an application for order to show
cause as to why Scotty should not be held in contempt for failure to make timely
support payments. Scotty filed a resistance to the application. Kathy moved to
continue the hearing on the application for order to show cause and later moved to
dismiss the application on April 5, 2017, before a hearing was held. Kathy’s counsel
drafted a second application in May 2017 that was never filed. In March 2017,
Scotty filed an application for an emergency hearing and for the appointment of a
custody evaluator. Kathy filed a resistance to the application, and Scotty filed a
response, but the parties ultimately resolved the issue without a hearing. In July
2017, Scotty filed an application for modification of child support claiming a
downward change in income. A hearing was held on August 29, 2017, and the court
granted Scotty’s application.
[¶8.] Shortly before trial, Scotty and Kathy agreed to and signed a parenting
plan providing for joint legal custody and shared physical care of their children.
The parties agreed that the children would alternate weeks with the parties and be
exchanged on Sunday evenings. The circuit court adopted the parenting plan. All
other matters proceeded to a bench trial before the circuit court on November 16
and 30, 2017.
[¶9.] On January 26, 2018, the circuit court entered its findings of fact,
conclusions of law, and a judgment and decree of divorce granting the divorce to
Kathy on the grounds of irreconcilable differences. The court also ordered that: (1)
Scotty pay Kathy $25,000 in attorney fees; (2) Kathy receive the monthly adoption
subsidies from the State of Iowa in the amount of $523.50 for each child; (3) the
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parties divide credit card debt and that Scotty pay a $40,183.10 cash settlement;
and (4) each party pay any outstanding judgments against them not satisfied by the
sale of the marital home within one year of the date of the judgment and decree of
divorce. Scotty appeals the court’s decision raising the following issues for review:
1. Whether the circuit court abused its discretion in
awarding Kathy $25,000 in attorney fees.
2. Whether the circuit court erred and abused its discretion
in calculating child support and awarding adoption
subsidies to Kathy.
3. Whether the circuit court abused its discretion in dividing
the credit card debts of the parties and requiring Scotty to
pay a $40,183.10 cash property settlement.
4. Whether the circuit court abused its discretion in
requiring Scotty to pay any judgments against him not
covered by the sale of the house within twelve months
from the date of the judgment and decree of divorce.
Standard of Review
[¶10.] “We review a circuit court’s factual findings . . . under the clearly
erroneous standard of review.” Osdoba v. Kelley-Osdoba, 2018 S.D. 43, ¶ 9,
913 N.W.2d 496, 500 (quoting Terca v. Terca, 2008 S.D. 99, ¶ 18, 757 N.W.2d 319,
324). “We will overturn the circuit court’s findings of fact on appeal only when a
complete review of the evidence leaves this Court with a definite and firm conviction
that a mistake has been made.” Id. (quoting Miller v. Jacobsen, 2006 S.D. 33, ¶ 19,
714 N.W.2d 69, 76). We review a circuit court’s legal conclusions de novo. Huston v.
Martin, 2018 S.D. 73, ¶ 10, 919 N.W. 2d 356, 361.
[¶11.] In divorce actions, we review an award of attorney fees, determinations
as to child support, and determinations in the division of property for an abuse of
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discretion. Id. (attorney fees and division of property); Anderson v. Anderson,
2015 S.D. 28, ¶ 6, 864 N.W.2d 10, 14 (quoting Hill v. Hill, 2009 S.D. 18, ¶ 5,
763 N.W.2d 818, 822) (child support). “An abuse of discretion occurs when
discretion is exercised to an end or purpose not justified by, and clearly against,
reason and evidence.” Osdoba, 2018 S.D. 43, ¶ 10, 913 N.W.2d at 500 (quoting
Terca, 2008 S.D. 99, ¶ 18, 757 N.W.2d at 324).
Analysis & Decision
[¶12.] 1. Whether the circuit court abused its discretion in awarding
Kathy $25,000 in attorney fees.
[¶13.] It is well established that a circuit court must employ a two-step
analysis in making a discretionary decision to award attorney fees in divorce
actions under SDCL 15-17-18. Streier v. Pike, 2016 S.D. 71, ¶ 25, 886 N.W.2d 573,
581 (citations omitted).
First, the court must determine what constitutes a reasonable
attorney’s fee. This requires consideration of[:] (1) the amount
and value of the property involved[;] (2) the intricacy and
importance of the litigation[;] (3) the labor and time involved[;]
(4) the skill required to draw the pleadings and try the case[;] (5)
the discovery utilized[;] (6) whether there were complicated legal
problems[;] (7) the time required for the trial[;] and (8) whether
briefs were required. Second, it must determine the necessity
for such fee. That is, what portion of that fee, if any, should be
allowed as costs to be paid by the opposing party. This requires
consideration of the parties’ relative worth, income, liquidity,
and whether either party unreasonably increased the time spent
on the case.
Id. (quoting Nickles v. Nickles, 2015 S.D. 40, ¶ 34, 865 N.W.2d 142, 154).
[¶14.] Scotty concedes that the circuit court correctly decided the
reasonableness of the $25,000 attorney fee awarded to Kathy, but he claims the
court abused its discretion in finding that the award was necessary. As to the
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necessity of the fee, Scotty claims that the amount of property awarded to each
party was relatively the same due to Scotty’s responsibility for OCSC loan
guarantees and a potential increase in Kathy’s 401(k). He asserts that at the time
of trial, Kathy was earning a higher wage and that the circuit court improperly
relied on his higher earning capacity and speculative future income. Scotty also
maintains that Kathy has the immediate ability to pay her attorney fees because
she was awarded almost all liquid assets in the property settlement. Finally, Scotty
argues that even though he fell behind on child support due to an administrative
issue, Kathy unreasonably delayed the divorce trial by filing a contempt action
against him. Overall, Scotty believes these factors show that it was not necessary
for the circuit court to award Kathy attorney fees.
[¶15.] In its findings of fact and conclusions of law, the circuit court
considered all required factors in determining the necessity of the attorney fee
award. The court noted the following:
[Kathy] received property in an amount almost $38,000 less
than [Scotty]; the parties’ relative incomes are similar; [Scotty’s]
property award in regard to the Old Chicago interest is not
liquid, however, the [c]ourt finds [Scotty] will be able to pay
[Kathy’s] attorney fees with the proceeds from the imminent
sale of the marital residence; and the [c]ourt finds [Scotty]
unreasonably increased the amount spent on the case by virtue
of the contempt proceedings in this matter.
The circuit court’s findings were supported by evidence in the record, including
income, earning, and financial statements, partnership and real estate documents,
and testimony of the parties. The findings were therefore free of clear error. The
circuit court did not abuse its discretion in awarding attorney fees to Kathy.
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[¶16.] 2. Whether the circuit court erred and abused its discretion in
calculating child support and awarding adoption subsidies to
Kathy.
[¶17.] Scotty and Kathy received two monthly adoption subsidies from the
State of Iowa for their children in the amount of $523.50 each. The circuit court
awarded both subsidies to Kathy and included them as part of Kathy’s income in
the calculation of child support. Scotty first asserts that it was an abuse of
discretion for the court to count the adoption subsidies as part of Kathy’s income.
He also claims the circuit court abused its discretion by awarding both subsidies to
Kathy. He contends that the circuit court made no findings of fact regarding who
historically paid the children’s expenses or why it was equitable for Kathy to receive
both separate subsidies when the parties agreed to share physical custody of the
children.
[¶18.] We first note again that determinations of child support are reviewed
for an abuse of discretion. Hill, 2009 S.D. 18, ¶ 5, 763 N.W.2d at 822. However, the
precise question first presented here is whether either or both of the Iowa adoption
subsidies can be treated as part of Kathy’s income. This determination may affect a
circuit court’s award of child support to a party in a divorce action, but the
determination itself is a question of law. “SDCL 25-7-6.3 lists the sources of
‘monthly income’ that may be used to determine child support obligations.”
Crawford v. Schulte, 2013 S.D. 28, ¶ 9, 829 N.W.2d 155, 157. SDCL 25-7-6.3
provides:
The monthly net income of each parent shall be determined by
the parent’s gross income less allowable deductions, as set forth
in this chapter. The monthly gross income of each parent
includes amounts received from the following sources:
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(1) Compensation paid to an employee for personal
services, whether salary, wages, commissions, bonus, or
otherwise designated;
(2) Self-employment income including gain, profit, or loss
from a business, farm, or profession;
(3) Periodic payments from pensions or retirement
programs, including social security or veteran’s benefits,
disability payments, or insurance contracts;
(4) Interest, dividends, rentals, royalties, or other gain
derived from investment of capital assets;
(5) Gain or loss from the sale, trade, or conversion of
capital assets;
(6) Unemployment insurance benefits;
(7) Worker’s compensation benefits; and
(8) Benefits in lieu of compensation including military pay
allowances.
Overtime wages, commissions, and bonuses may be excluded if
the compensation is not a regular and recurring source of
income for the parent. Income derived from seasonal
employment shall be annualized to determine a monthly
average income.
We have previously held that this list is non-exhaustive and that other types of
income may be included to calculate child support. See Crawford, 2013 S.D. 28, ¶¶
10–11, 829 N.W.2d 1at 158 (concluding that a lump sum inheritance, not included
in the list in SDCL 25-7-6.3, could be considered income for child support purposes).
[¶19.] Though we have never addressed adoption subsidies as income for the
purposes of child support, the payments fit the character of other types of income
listed in SDCL 25-7-6.3. The payments are certain to be received monthly and will
be paid continually at the current amount until each of Scotty and Kathy’s children
reach the age of majority. This makes the adoption subsidies much like the
“[p]eriodic payments” listed in the statute. SDCL 25-7-6.3. The subsidies also
extend for a longer time than other shorter-term benefits or payments such as
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unemployment insurance or worker’s compensation. Id. Because the list in SDCL
25-7-6.3 is non-exhaustive and because the adoption subsidies are a benefit that is
certain to be received monthly—much like the other forms of income listed in the
statute—we cannot say that the circuit court erred in counting the subsidies as part
of Kathy’s income.
[¶20.] Scotty also claims that the circuit court abused its discretion by
awarding both adoption subsidies to Kathy. He claims that because the couple
share in the physical care of the children, it would have been more equitable for
each party to receive one subsidy. In its findings of fact, the court recognized
several items of significance in relation to the award of both subsidies to Kathy. It
considered the parties’ agreement for joint physical custody and bound the parties
to the terms of the agreement. The court noted that all child support obligations
were based on the parties’ relative incomes (including the adoption subsidies). The
court found that the parties were similarly situated in terms of their income and
financial situations and decided, based on the facts before it, to award the subsidies
to Kathy. It also required Kathy to pay Scotty $151.42 per month in child support
and required Kathy to pay 59% of all the children’s medical expenses not covered by
health insurance. The court’s findings were based on the record and support the
award of both adoption subsidies to Kathy. The findings are free of clear error, and
there was no abuse of discretion.
[¶21.] 3. Whether the circuit court abused its discretion in dividing the
credit card debts of the parties and requiring Scotty to pay a
$40,183.10 cash property settlement.
[¶22.] “South Dakota is an all property state, meaning all property of the
divorcing parties is subject to equitable division by the circuit court, regardless of
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title or origin.” Ahrendt v. Chamberlain, 2018 S.D. 31, ¶ 10, 910 N.W.2d 913, 918
(quoting Halbersma v. Halbersma, 2009 S.D. 98, ¶ 9, 775 N.W.2d 210, 214). “The
court has broad discretion in classifying property as marital or nonmarital.” Id.
“The circuit court [should] not [] become entangled in the semantics of marital
versus nonmarital property.” Id. (quoting Halbersma, 2009 S.D. 98, ¶ 10,
775 N.W.2d at 215). Further, “[w]hen a circuit court divides property, ‘the law does
not require perfection that would approach a mathematical certainty.’” MacKaben
v. MacKaben, 2015 S.D. 86, ¶ 33, 871 N.W.2d 617, 628 (quoting Pellegrin v.
Pellegrin, 1998 S.D. 19, ¶ 24, 574 N.W.2d 644, 649).
Factors to consider when classifying and dividing property include:
(1) the duration of the marriage; (2) the value of the property
owned by the parties; (3) the ages of the parties; (4) the health of
the parties; (5) the competency of the parties to earn a living; (6)
the contribution of each party to the accumulation of the
property; and (7) the income-producing capacity of the parties’
assets.
Ahrendt, 2018 S.D. 31, ¶ 10, 910 N.W.2d at 918 (quoting Terca, 2008 S.D. 99, ¶ 20,
757 N.W.2d at 325).
[¶23.] Scotty claims that the majority of Kathy’s credit card debt should have
been categorized as nonmarital debt “because her profligacy and financial neglect
created enormous credit card balances and the majority of the debt was incurred
post-separation.” He points to Kathy’s testimony where she claimed the parties’
credit card debt at the time of trial was $89,000. Scotty maintains that the parties’
credit card debt was only approximately $8,784.62 before the parties separated.
Scotty argues that Kathy should have been held solely responsible for the additional
credit card debt she incurred after the date of separation.
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[¶24.] The circuit court made its findings of fact regarding marital and
nonmarital debt in consideration of the parties’ financial situation as a whole. The
court found that Scotty had a significantly greater earning capacity than Kathy.
Even though Scotty was still bound under the terms of a non-compete agreement at
the time the decree or divorce was entered, the court reasoned that Scotty would
eventually be able to return to earning a higher income. The court acknowledged
that Kathy had accrued significant debt during the pendency of the divorce
proceedings and that she was not a great money manager. However, the circuit
court balanced that finding with the fact that Scotty had failed to submit court-
ordered mortgage and child support payments, which caused “Kathy to incur
further debt to provide those necessities” post-separation. The court also noted that
“[m]aintenance of the parties’ largest asset, the marital home, was almost
exclusively Kathy’s burden during the pendency of this action.”
[¶25.] The court’s findings regarding post-separation debt in this matter were
well-reasoned, supported by evidence in the record, and justified the court’s decision
to divide the credit card debt equally among the parties. The court did not abuse its
discretion.
[¶26.] 4. Whether the circuit court abused its discretion in requiring
Scotty to pay any judgments against him not covered by the sale
of the house within twelve months from the date of the judgment
and decree of divorce.
[¶27.] The circuit court ordered that any amount owed by the parties not
covered by the sale of the marital home would be due one year from the entry of the
judgment and decree of divorce. Scotty asserts that it was improper for the court to
rely on proceeds from the sale of the marital home because, at the time the decree
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was entered, the sale of the home had not closed and the court did not know what
each party would receive in proceeds from the sale. Scotty later moved for the court
to supplement the record with a check and closing disclosure for the sale of the
marital home. The court granted the motion. The documents show that proceeds
from the sale of the home amounted to $162,593.97, leaving each party with
proceeds of approximately $81,296.99. The judgments against Scotty totaled
$102,207.19. Subtracting the sale proceeds, Scotty notes that he still has
$20,910.21 in outstanding judgments against him. He claims that with an income
of $2,284 per month, no other liquid assets, and $30,000 in outstanding attorney
fees, he will not be able to satisfy the judgment by one year from the date of the
decree of divorce.
[¶28.] The circuit court’s decision as to the one-year deadline for payment
was based on reason. The circuit court was not required to give Scotty a year to pay
the judgments against him but did so anyway. The one-year deadline applied to
Kathy as well. As to the division of property, the court noted a “disparity between
the parties’ competency to earn a living. At a minimum, [Scotty] has an earning
capacity of twice that of [Kathy].” The court acknowledged that, at the time the
decree was entered, Scotty was precluded from working in his preferred field of
employment due to the non-compete provision of his former employment agreement.
However, the court noted that over the course of a year from the date of the decree,
the terms of the non-compete would end, and Scotty would return to a much higher
earning potential and be able to cover the remaining judgments against him. These
findings were free of clear error, and the circuit court did not abuse its discretion.
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Conclusion
[¶29.] The circuit court did not abuse its discretion in awarding attorney fees,
calculating child support, or dividing marital property. We affirm.
[¶30.] KERN and SALTER, Justices, and ELSHERE, Circuit Court Judge,
concur.
[¶31.] ELSHERE, Circuit Court Judge, sitting for JENSEN, Justice,
disqualified.
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