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Docket Number

Docket No. 266202.

Attorney(S)

Law Offices of Sullivan and Leavitt, P.C. (by Michael J. Leavitt and Derk A. Wilcox), for the defendant.

Judges

Jane E. Markey

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Smart Summary

Summary of Opinion: Katrina Stallworth v. Keith Stallworth, Docket No. 266202 (Mich. Ct. App. Apr. 17, 2007)

Factual and Procedural Background

This appeal arises from a divorce judgment entered September 15, 2004, in the Oakland Circuit Court, Family Division, before Judge Martha D. Anderson. Defendant (Keith Stallworth) appealed as of right. On appeal he contested the amount of child and spousal support awarded and the trial court's award of attorney fees to plaintiff (Katrina Stallworth).

At trial, the court considered the parties' reported incomes. Defendant reported a $2,500 monthly consulting fee but the trial court accepted testimony (from plaintiff and plaintiff's witnesses) that defendant had access to additional monies beyond that amount, kept large amounts of cash at home, received on-demand checks from a corporation he formerly owned, maintained a luxury lifestyle, owned six corporations, and had monthly expenses that exceeded his reported income. The trial court found that defendant's actual income exceeded the reported $2,500 and also imputed income to him based on prior employment, education, and physical and mental abilities. The trial court discounted the effect of defendant's criminal conviction as a reason to lower his income because the reduced income resulted from defendant's actions.

Plaintiff introduced a pay stub indicating bi-weekly earnings of $376, but on cross-examination she acknowledged that she usually received $440 plus tips, for approximately $480 bi-weekly. The trial court used the $376 figure in computing plaintiff's income.

The trial court awarded plaintiff $10,000 in attorney fees from stipulated total attorney fees of $18,500 each, finding plaintiff could not pay her attorney and that defendant earned more than double plaintiff's annual income. The Court of Appeals issued this opinion vacating in part, affirming in part, and remanding for further proceedings.

Legal Issues Presented

Whether the trial court properly imputed income to defendant when determining child and spousal support.
Whether the trial court erred in calculating plaintiff's income (use of bi-weekly earnings figure) for purposes of support calculations.
Whether the trial court properly computed child and spousal support obligations based on the imputed income.
Whether the trial court properly awarded attorney fees to plaintiff.

Arguments of the Parties

Appellant's (Defendant's) Arguments

The trial court improperly imputed income to him.
The trial court incorrectly calculated plaintiff's income (resulting in a 22% reduction of her annual income according to the appellant).
The trial court erred by computing his child and spousal support obligations based on the income imputed to him.
The trial court improperly awarded plaintiff attorney fees.

Appellee / Trial Evidence Supporting Plaintiff

Plaintiff and her witnesses testified that defendant kept large amounts of cash at his residence, received checks from a corporation he formerly owned, and maintained a lifestyle (luxury apartment and expenditures) inconsistent with the $2,500 monthly income he reported.
Plaintiff introduced a pay stub reflecting bi-weekly earnings of $376, but testified she usually earned about $480 bi-weekly (including tips), supporting a higher earnings figure than the pay stub alone reflected.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Peterson v. Peterson, 272 Mich App 511; 727 NW2d 393 (2006)	Statutory requirement that child support be ordered using the Michigan Child Support Formula (MCSF) unless deviation is justified and the trial court makes required findings in writing or on the record (MCL 552.605(2)).	Used to state that a trial court must presumptively follow the MCSF and that deviations require adequate written or on-the-record findings.
Burba v. Burba (After Remand), 461 Mich 637; 610 NW2d 873 (2000)	Requirement that the trial court make adequate record regarding mandatory statutory criteria for deviating from the MCSF.	Quoted to affirm the need for adequate findings when a court deviates from the MCSF; cited for standard of review de novo on determination within MCSF framework.
Beason v. Beason, 435 Mich 791; 460 NW2d 207 (1990)	Standards for reviewing factual findings for clear error; definition of clearly erroneous and burden on appellant.	Applied to review the trial court's factual findings about each party's income for clear error.
Borowsky v. Borowsky, 273 Mich App 666; 733 NW2d 71 (2007)	Review for abuse of discretion of trial court's discretionary rulings permitted by statute or the MCSF.	Used as the standard for reviewing discretionary rulings (such as awarding attorney fees) and cited in upholding the attorney-fee award as within a range of reasonable outcomes.
Maldonado v. Ford Motor Co., 476 Mich 372; 719 NW2d 809 (2006)	Definition/illustration of abuse of discretion: selecting an outcome not within the range of reasonable and principled outcomes.	Cited by Borowsky (and repeated in this opinion) to define abuse of discretion when reviewing discretionary rulings.
Ghidotti v. Barber, 459 Mich 189; 586 NW2d 883 (1998)	Permits imputing income based on unexercised ability to pay when supported by adequate fact-finding; principle of determining actual resources of each parent.	Applied to explain and justify the circumstances under which income may be imputed and to cite the requirement that imputation be supported by adequate fact-finding.
Olson v. Olson, 189 Mich App 620; 473 NW2d 772 (1991)	Trial court's discretion to impute income when a parent voluntarily reduces or eliminates income or voluntarily has an unexercised ability to earn.	Used to support the proposition that imputing income is permissible where voluntary reduction or unexercised ability is shown.
Draggoo v. Draggoo, 223 Mich App 415; 566 NW2d 642 (1997)	Trial court is in best position to assess witness credibility; appellate court will not second-guess credibility determinations.	Applied to uphold the trial court's credibility-based finding that defendant underreported or concealed income.
McLain v. McLain, 108 Mich App 166; 310 NW2d 316 (1981)	Authority for vacating support awards and remanding for recalculation of support when the income figures used were incorrect.	Invoked to support vacating the support awards and remanding for recalculation of the parties' incomes and defendant's support obligations.
Reed v. Reed, 265 Mich App 131; 693 NW2d 825 (2005)	Standard of review for attorney-fee awards: abuse of discretion for the award, clear error for factual findings, de novo for legal questions.	Applied to the appellate review of the trial court's attorney-fee award, providing the standard the Court of Appeals used in affirming that award.
Maake v. Maake, 200 Mich App 184; 503 NW2d 664 (1993)	Permits awarding necessary and reasonable attorney fees to enable a party to carry on or defend a divorce action.	Used to justify that an award of attorney fees may be appropriate to enable plaintiff to obtain a divorce and to support the trial court's award to plaintiff.

Court's Reasoning and Analysis

Standards of review and framework:

The court reiterated that child support must be determined by application of the Michigan Child Support Formula (MCSF) unless deviation is justified with adequate findings (MCL 552.605(2); Peterson; Burba).
The appellate court applies de novo review to whether the trial court properly reached its determination within the MCSF or statutory deviation criteria, while factual findings underlying child-support determinations are reviewed for clear error (Beason; MCR 2.613(C)). Discretionary rulings permitted by statute or the MCSF are reviewed for abuse of discretion (Borowsky; Maldonado).

Imputation of income:

The court examined the trial court's decision to both find that defendant's actual income exceeded his reported $2,500/month and to impute additional income based on prior employment, education, and physical and mental abilities. The panel found adequate factual bases in the record to sustain the finding that defendant earned more than he reported: testimony that defendant kept large amounts of cash, received checks on demand from a former corporation, maintained a luxury apartment and lifestyle, owned multiple corporations, and had monthly expenses that exceeded the reported income. The Court of Appeals concluded this credibility-driven finding was not clearly erroneous (citing Draggoo).

But the court identified an error in the trial court's reasoning:

The trial court relied on defendant's reduced income capacity that resulted from his criminal conviction as a basis to impute income. The appellate court held that use of the criminal conviction for that purpose was improper. Although the conviction resulted from voluntary actions, there was no evidence that the crimes were committed to reduce income; indeed, the crimes could be inferred to have been intended to increase income. Defendant's conviction and forced resignation produced an involuntary reduction in his ability to earn in politics. The Court of Appeals concluded that citing the criminal conviction as a voluntary lowering of income to impute income was "both illogical and legally unprecedented," and therefore improper.

Specific calculation error regarding plaintiff:

On the evidence regarding plaintiff's income, the trial court used a $376 bi-weekly pay stub amount to compute plaintiff's income even though plaintiff admitted on cross-examination that she usually made $440 plus tips (approximately $480 bi-weekly). The appellate court found the trial court mistakenly used the $376 figure when it was undisputed that plaintiff actually earned about $480 bi-weekly, constituting a clear error in the factual calculation.

Resulting remedial action:

Because the trial court (1) improperly considered the criminal conviction as a factor to impute income to defendant and (2) miscalculated plaintiff's income, the appellate court concluded that the support awards were computed on erroneous income figures. Therefore, the court vacated the child and spousal support awards and remanded for recalculation of the parties' incomes and defendant's child and spousal support obligations should the trial court again conclude such support is appropriate (citing McLain).

Attorney fees:

The Court of Appeals reviewed the trial court's attorney-fee award for abuse of discretion (Reed). The trial court found awarding attorney fees necessary to enable plaintiff to obtain a divorce. The parties stipulated that each attorney was owed $18,500; plaintiff was awarded $10,000. The appellate court concluded plaintiff demonstrated an inability to pay (her yearly income was less than the fee owed) and that defendant earned more than double plaintiff's yearly income, showing his ability to contribute. Under those circumstances, the appellate court held that the attorney-fee award was within the range of reasonable and principled outcomes and therefore affirmed that portion of the judgment (Borowsky).

Holding and Implications

HOLDING: The Court of Appeals vacated in part, affirmed in part, and remanded for further proceedings consistent with the opinion.

Direct consequences for the parties:

The trial court's findings that defendant's actual income exceeded his reported income (based on credibility determinations and supporting testimony) were upheld in part, except that the court erred by using defendant's criminal conviction as a basis for imputing income.
Because the trial court also miscalculated plaintiff's income by using an incorrect bi-weekly earnings figure, the child and spousal support awards—having been based on erroneous income calculations—were vacated and the matter was remanded for recalculation of the parties' incomes and defendant's support obligations if support is to be awarded.
The trial court's award of $10,000 in attorney fees to plaintiff was affirmed as within the trial court's discretion.
The Court of Appeals did not retain jurisdiction.

Broader implications:

The opinion clarifies that a trial court should not impute income based on a criminal conviction that produces an involuntary reduction in earning capacity absent evidence the conviction was committed to reduce income; it emphasizes the need for appropriate fact-finding and accurate income calculations when applying the MCSF. The opinion does not purport to establish a novel legal rule beyond the reasoning applied to these facts.

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KATRINA STALLWORTH, Plaintiff-Appellee, v. KEITH STALLWORTH, Defendant-Appellant.

MARKEY, P.J.

Defendant appeals by right a divorce judgment entered on September 15, 2004. He contests the amount of the award of child and spousal support, as well as the awarding of attorney fees to plaintiff. We vacate in part, affirm in part, and remand for further proceedings.

Defendant argues that the trial court improperly imputed income to him. In fact, the trial court not only imputed income to defendant but also found that defendant had financial resources unaccounted for in his yearly income statements, so the court considered those financial resources when computing defendant's net income.

The Michigan Legislature has required that when a court orders child support as part of a divorce judgment, "the court shall order child support in an amount determined by application of the child support formula developed by the state friend of the court bureau" unless to do so would be "unjust or inappropriate" and the trial court makes certain specified findings "in writing or on the record. . . ." MCL 552.605(2); Peterson v Peterson, 272 Mich App 511, 516-517; 727 NW2d 393 (2006). Thus, a trial court must presumptively follow the Michigan Child Support Formula (MCSF). If the court deviates, it must make an adequate record regarding the mandatory statutory criteria for doing so. Burba v Burba (After Remand), 461 Mich 637, 644-646; 610 NW2d 873 (2000). We review de novo whether a trial court properly reached its determination within the framework of the MCSF or the statutory deviation criteria. Id. at 647; Peterson, supra at 516. We review for clear error, however, the trial court's factual findings underlying its determination of a child-support award. MCR 2.613(C); Beason v Beason, 435 Mich 791, 804-805; 460 NW2d 207 (1990). A finding is clearly erroneous if this Court, on all the evidence, is left with a definite and firm conviction that a mistake was made; the appellant bears the burden of showing that a mistake was made. Id. We review for an abuse of discretion a trial court's discretionary rulings that are permitted by statute or the MCSF. Borowsky v Borowsky, 273 Mich App 666, 672; 733 NW2d 71 (2007). "An abuse of discretion occurs when a court selects an outcome that is not within the range of reasonable and principled outcomes." Id., citing Maldonado v Ford Motor Co, 476 Mich 372, 388; 719 NW2d 809 (2006).

According to the 2004 Michigan Child Support Formula Manual, the first step in determining a child-support award is to ascertain each parent's net income by considering all sources of income. 2004 MCSF 2. In general, this is determined by ascertaining "the actual resources of each parent." MCL 552.519(3)(a)(vi); Ghidotti v Barber, 459 Mich 189, 198; 586 NW2d 883 (1998). But longstanding Michigan caselaw permits a court to impute income to a parent on the basis of the parent's unexercised ability to pay when supported by adequate fact-finding that the parent has an actual ability and likelihood of earning the imputed income. Id. at 198-199. Consistent with this caselaw, the MCSF grants a court the discretion to impute income to a parent, 2004 MCSF 2.10(B), which the manual defines as "treating a party as having income or resources that the individual does not actually have." 2004 MCSF 2.10(A). "This usually occurs in cases where there is a voluntarily [sic] reduction of income or a voluntary unexercised ability to earn." Id.

In this case, the trial court accepted testimony from plaintiff and plaintiffs witnesses that defendant earned or had access to monies other than his reported $2,500 a month consulting fee. This was a factual determination that defendant's actual income was higher than what defendant reported to the court. The trial court also imputed income to defendant on the basis of his prior employment, education, and physical and mental abilities. The trial court recognized that defendant's criminal conviction adversely affected defendant's income, but discounted this factor because the lowered income was the result of defendant's own actions. The crux of our difficulty in reviewing the trial court's ruling is that it did not specify how much higher it found defendant's actual income to be than what defendant claimed, or how much income it was imputing to defendant.

Defendant's career as an elected officeholder ended after a criminal conviction, but he continued to be self-employed in a number of business endeavors.

We recognize that in the case of a self-employed businessman such as defendant, a fine line may exist between these two categories. The MCSF also recognizes the special difficulties inherent in ascertaining the actual income of self-employed persons "because persons who have significant control over the form and manner of their own compensation may be able to arrange that compensation so as to be able to minimize the amount visible to friends of the court and others." 2004 MCSF 2.11(A).

In regard to the trial court's finding that defendant earned more than he reported, plaintiff presented testimony that defendant kept large amounts of cash at his residence and that he received checks on demand from a corporation that he formerly owned. In addition, defendant's lifestyle indicated an income far greater than the one he claimed he earned. Defendant lived in a luxury apartment and, in general, maintained the lifestyle that the parties enjoyed while they were married. Defendant's monthly expenses greatly exceeded his purported monthly income. Also, defendant testified that he still owned six corporations. The trial court reasonably deduced that defendant derives additional income that he did not report. Accordingly, we find that the trial court did not commit clear error by finding that defendant's net monthly income exceeds $2,500 a month. The trial court was in the best position to evaluate the credibility of the witnesses, and we will not second-guess the trial court's determination that defendant presented a less than credible accounting of his finances. See Draggoo v Draggoo, 223 Mich App 415, 429; 566 NW2d 642 (1997).

Still, we determine that the trial court used an improper factor when imputing income to defendant. When deciding whether to impute income to an individual, a trial court must consider the following factors: employment experience, educational level, physical and mental disabilities, whether the parties' children reside in the individual's home, availability of employment, wage rates, special skills and training, and whether the individual can actually earn the imputed income. 2004 MCSF 2.10(E); Ghidotti, supra at 199. A trial court has the discretion to impute income when a parent voluntarily reduces or eliminates income or when it finds that the parent has a voluntarily unexercised ability to earn. 2004 MCSF 2.10(A) and (B); Olson v Olson, 189 Mich App 620, 622; 473 NW2d 772 (1991).

Here, the trial court improperly relied on defendant's reduced income capacity that resulted from his past criminal activities to impute income to him. The court opined that it "[was] not inclined to reward Defendant for his actions by lowering his financial obligations to support his family." Although it is true that defendant's criminal actions were voluntary, there is no evidence that defendant committed any crimes with the intent to reduce his income. Indeed, given the nature of the crimes, it could be inferred that defendant was attempting to increase his income. Defendant's criminal conviction bars him from earning a living in politics, at least now, because he was forced to resign from his most recent, elected position. Defendant's resignation resulted in an involuntary reduction in his income. Although it is true that defendant obviously knew he was committing crimes and did so voluntarily, he has been punished for those crimes. To now cite his criminal conviction as a voluntary lowering of his income in an effort to thwart child and spousal support is both illogical and legally unprecedented. We cannot do so, and must conclude that it was improper for the trial court to have done so. Therefore, we hold that the trial court improperly used defendant's conviction as a reason for imputing income to him.

Defendant next argues that the trial court incorrectly calculated plaintiffs income and thereby erroneously reduced her annual income by 22 percent. We agree.

Again, we review a trial court's factual findings for clear error. Beason, supra at 804-805. Plaintiff introduced her most recent pay stub as evidence of her net income. The pay stub reflected bi-weekly earnings of $376. On cross-examination, however, plaintiff admitted that she usually made $440, plus tips, every two weeks for a total of approximately $480. On this record, the trial court mistakenly used the $376 figure to compute plaintiffs income when it was undisputed that plaintiff actually earned $480 bi-weekly.

Defendant also argues that the trial court erred by computing his child and spousal support obligations on the basis of the income imputed to him. Considering that the trial court erred in its calculation of the parties' incomes, we vacate the support awards and remand this matter to the court for the purposes of recalculating the parties' incomes and defendant's child and spousal support obligations should the court again conclude that plaintiff is entitled to such support. McLain v McLain, 108 Mich App 166, 168; 310 NW2d 316 (1981).

Finally, defendant argues that the trial court improperly awarded plaintiff attorney fees. This Court reviews a trial court's grant of attorney fees for an abuse of discretion. Reed v Reed, 265 Mich App 131, 164; 693 NW2d 825 (2005). Findings of fact on which the trial court bases an award of attorney fees are reviewed for clear error; questions of law are reviewed de novo. Id.

Necessary and reasonable attorney fees may be awarded to enable a party to carry on or defend a divorce action. Maake v Maake, 200 Mich App 184, 189; 503 NW2d 664 (1993). In the present case, the trial court decided that awarding plaintiff attorney fees was necessary to enable her to obtain a divorce. The parties stipulated that each attorney was owed $18,500. Plaintiff was awarded $10,000 in attorney fees. Because plaintiffs yearly income is less than the amount she owed her attorney, she sufficiently demonstrated her inability to pay her attorney fees. Furthermore, defendant earns more than double what plaintiff earns in a year, which demonstrated his ability to contribute to plaintiffs attorney fees. Under these circumstances, the trial court's ruling was within the range of reasonable and principled outcomes. Borowsky, supra.

We vacate in part, affirm in part, and remand for further proceedings consistent with this opinion. We do not retain jurisdiction.

STALLWORTH v. STALLWORTH