CALLAHAN v. BEDARD (2020)

MEMORANDUM AND ORDER PURSUANT TO RULE 23.0

The parties, who never married, are the parents of one child, born in 2008. In 2012, they entered into a stipulation, which was incorporated into a Probate and Family Court judgment, requiring the father to pay weekly child support in the amount of $550. In April 2015, the mother filed a complaint for modification seeking, among other things, an increase in child support. The father filed a counterclaim seeking a reduction in his child support obligation, alleging that his income had “significantly declined” since 2012.

Following a trial held over four days in 2017, the judge reduced the father's weekly child support payment to $180.³ The judge articulated two reasons for the reduction: (1) that the father's net worth had decreased since 2012; and (2) that although the father's income had actually increased since 2012, an application of the current Child Support Guidelines (guidelines) to the father's 2017 reported income (which reflected substantial business losses) resulted in a lower presumptive child support order than the amount agreed to by the parties in 2012.

The mother has appealed, and the father has cross-appealed, from the amended modification judgments. The mother's principal claim is that the father failed to meet his burden of demonstrating that a downward modification of child support was warranted. We agree, and reverse the portions of the judgments pertaining to child support. The case is remanded for the limited purpose of determining the amount of retroactive child support that the father is required to pay to the mother.

Background. We summarize the relevant facts found by the judge, supplementing them with undisputed evidence in the record, and reserving certain facts for later discussion. See Pierce v. Pierce, 455 Mass. 286, 288 (2009). In 2012, when the parties agreed that father would pay weekly child support in the amount of $550, the father (a real estate developer who owns multiple businesses)⁴ reported on his financial statement “negative” gross weekly income of $2,541.85 (comprising net rental income of $1,864.12, interest income of $6.46, and net losses from other businesses of $4,412.42).⁵

Five years later, at the modification trial, the father submitted a financial statement in which he reported gross weekly income of $1,314.44 (comprising net rental income of $5,943.44, interest income of $2, and net losses from other businesses of $4,631). This amount constituted an increase in his gross weekly income of $3,856.28.⁶ The judge nevertheless determined that there had been a material change in circumstances since 2012. This conclusion was based on the judge's finding that the father's personal liabilities had increased by over $150,000,⁷ while his assets had decreased by over $1 million (from $3,313,075 in 2012, to $2,242,833 in 2017).⁸ With respect to the father's claimed income for 2017, the mother argued that his substantial business losses were not properly justified and thus could not be deducted from his income for purposes of calculating child support. The judge, however, credited the father's claimed business expenses and used the father's reported gross weekly income of $1,314 to calculate a new weekly child support order of $180 under the then-current guidelines. The judge also reduced the father's child support obligation retroactively to September 2015, and credited him for $55,639 in overpaid child support, resulting in a net child support order of $60 per week.⁹

Discussion. We review a modification of child support for an abuse of discretion. See Wasson v. Wasson, 81 Mass. App. Ct. 574, 576 (2012).¹⁰ A child support order may be modified if (1) a “material and substantial change in circumstances has occurred” since the prior judgment (material change in circumstances standard), or if (2) “[t]here is an inconsistency between the amount of the existing order and the amount that would result from the application of the [current] guidelines” (inconsistency standard). 2018 Guidelines, § III(A). Neither of these bases for modification are supported by the record here.

1. Material change in circumstances standard. Here, the judge's ultimate finding of a material change in circumstances warranting a reduction in child support leaves us with “a definite and firm conviction that a mistake has been committed” (citation omitted). Millennium Equity Holdings, LLC v. Mahlowitz, 456 Mass. 627, 637 (2010). First, according to the judge's findings, the father's total net income substantially increased between 2012 and 2017.¹¹ Compare Schuler v. Schuler, 382 Mass. 366, 370–371 (1981) (“A substantial and permanent decrease in the income of the support provider is one of the material circumstances to be considered in a request for reduction of a support” obligation [emphasis added]). Second, although the judge found the father's net worth had declined since 2012 (through a combination of increased liabilities and decreased assets, the latter of which still exceeded $2.2 million), that fact alone does not constitute a material change in circumstances, because child support is calculated based on income, not net worth. See Emery v. Sturtevant, 91 Mass. App. Ct. 502, 508 (2017), quoting P.F. v. Department of Revenue, 90 Mass. App. Ct. 707, 709 (2016) (“Although the guidelines have been subject to periodic revision since their enactment, an essential premise has remained constant: that child support should be calculated as a percentage of parental income”). It is thus apparent from the judge's findings and the record that the father failed to meet his burden of demonstrating a material change in his financial circumstances sufficient to justify a downward modification of child support.¹²

2. Inconsistency standard. It is also apparent that the father failed to meet his burden of demonstrating that he was entitled to a modification under the inconsistency standard (i.e., the inconsistency between the amount of the 2012 child support order and the amount resulting from an application of the current guidelines to his 2017 income). See 2018 Guidelines, § III(A)(1). See also Morales v. Morales, 464 Mass. 507, 511-512 (2013) (inconsistency standard creates rebuttable presumption of modification). The inconsistency standard only applies in cases where the parties' combined available income is under the $250,000 guidelines threshold. See id. at 510 n.4. Although the father's reported gross weekly income of $1,314 fell under the $250,000 threshold, the father arrived at that amount by offsetting his substantial net rental income ($5,943 per week) with sizeable losses from his other businesses. Before deducting such losses, however, the father was obligated to present sufficient evidence to allow the judge to “determine whether [his] claimed business deductions [we]re reasonable and necessary to the production of income, without regard to whether those deductions may be claimed for Federal or State income tax purposes.” Whelan v. Whelan, 74 Mass. App. Ct. 616, 626–627 (2009). See 2018 Child Support Guidelines, § I(C) (“Income from self-employment, rent, ․ [or] proprietorship of a business, ․ is defined as gross receipts minus ordinary and necessary expenses required to produce income. In general, income and expenses from self-employment or operation of a business should be carefully reviewed to determine the appropriate level of gross income available to the parent to satisfy a child support obligation. In many cases, this amount will differ from a determination of business income for tax purposes”). The judge made no findings indicating that the father's claimed business losses were reasonable and necessary to the production of income.¹³ See Whelan, supra. To the contrary, the judge found that the father “acknowledge[d] having a couple of businesses which carry a loss and which, if the businesses were closed, would result in additional gross income to [him],” but that “[n]o credible testimony was given to determine whether or not it is reasonable in the circumstances for [the] [f]ather to maintain the operation of these businesses.” In short, the judge was unable to make a determination under Whelan, because the father failed to meet his burden of demonstrating that his business losses were reasonable and necessary to the production of income.¹⁴ Accordingly, those losses should not have been deducted from the father's income for purposes of calculating his child support obligation.¹⁵ Without those losses, the father's net rental income far exceeds the $250,000 guidelines threshold. The father therefore failed to demonstrate that he was entitled to a downward modification of child support under either the inconsistency standard or the material change in circumstances standard.

3. The father's cross appeal. The father's sole argument in his cross appeal is that the judge abused her discretion in misinterpreting § II(K) of the guidelines when declining to consider the father's support obligations to his two other children.

Section II(K) of the guidelines provides that, “[w]hen ․ a modification of an existing order is sought for a child covered by the order in the case under consideration, a hypothetical amount of child support for a child with whom the parent resides but for whom no child support order exists shall be deducted from the gross income of the parent. The parent seeking the deduction must provide sufficient proof of the legal obligation to support the child and of the gross income of that child's other parent.” 2018 Guidelines, § II(K)(3). However, “[o]bligations to a subsequent family ․ should not be considered a reason to decrease an existing order.” 2018 Guidelines, § II(K)(4).

The father acknowledges in his brief that § II(K)(4) “means that a parent should not seek a modification solely for the reason that the parent has another child to support.” He argues, however, that if another independent ground for downward modification exists, the payor's support obligations to other children should be considered. As we have previously discussed supra, the father failed to meet his burden of demonstrating that a downward modification was warranted. Accordingly, the father's cross appeal fails for the very reason articulated in his brief, that if “no other circumstances have changed, then the drafters of the Child Support Guidelines did not want a parent having a new child to support to use this as the sole reason to seek a reduction in the amount of child support being paid.” Moreover, it is not clear on this record that deducting hypothetical support obligations for other children from the father's income would have actually resulted in a lower child support order. As we previously discussed, the father failed to prove that his 2017 income fell below the $250,000 guidelines threshold, thus any “ ‘hypothetical’ support order could be fully satisfied from the father's excess income above [$250,000],” and “[t]he father's financial circumstances were such that no downward adjustment to [the instant child] support order was necessary to ensure his ability adequately and equitably to support all three of his children.” Department of Revenue v. Mason M., 439 Mass. 665, 672 (2003).¹⁶

Conclusion. Paragraphs seven and eight of the amended judgments dated September 20, 2019, as of August 8, 2018, are reversed. The case is remanded for the limited purpose of calculating the amount of retroactive child support owed to the mother for the period of September 9, 2015, to the present. The judge shall determine the appropriate manner for the father to repay the arrears. The remaining provisions of the amended modification judgments are affirmed.¹⁷

So ordered.

Reversed in part and remanded; affirmed in part

FOOTNOTES

3.   Amended modification judgments were entered two years later in 2019. It appears that the two-year delay is attributable, in part, to motions for postjudgment relief filed by the parties in 2018.

4.   The father earns positive net rental income from various rental properties, and owns a number of other closely-held businesses that he claims to operate at a loss (including a travel agency specializing in trips to Cuba, a Texas partnership, and various entities involved in the sale of real estate).

5.   The guidelines worksheet prepared by the father, and filed with the court on August 6, 2012, omitted his business losses and used only his net rental income of $1,864 per week to calculate child support. The worksheet showed a presumptive child support order of $260 per week; however, the parties ultimately agreed to an upward deviation of $550.

6.   The father's June 2017 financial statement listed net rental income of approximately $5,943 per week (based on annual gross rents of $532,642 and expenses of $223,583), and net business losses of approximately $4,631 per week (based on annual combined gross business receipts of $1,149,972 and business expenses of $1,388,928).

7.   The father reported total liabilities of $437,135 in 2012, and $603,288 in 2017, consisting almost entirely of credit card debt and lines of credit (with total weekly payments of $4,045 in 2017). Although the judge found that the “[f]ather relies heavily on the use of credit cards to fund his businesses,” the judge did not indicate whether any of the credit card debt listed among his personal liabilities was incurred in connection with his business ventures.

8.   The $2,242,833 total asset figure for 2017 credited by the judge consisted largely of the father's real estate holdings. The judge found that the father's other business interests have an “undetermined value,” as reported on his June 2017 financial statement.

9.   The $55,639 credit was applied in weekly installments of $120, against the father's new child support obligation of $180, leaving a net weekly order of $60.

10.   “[A] judge's discretionary decision constitutes an abuse of discretion where we conclude the judge made ‘a clear error of judgment in weighing’ the factors relevant to the decision ․ such that the decision falls outside the range of reasonable alternatives” (citation omitted). L.L. v. Commonwealth, 470 Mass. 169, 185 n.27 (2014).

11.   Although the father's reported gross weekly income from all sources (including net rental income and losses from other businesses) increased by $3,856.29 between 2012 and 2017, the increase is even more significant when comparing only his net rental income, which increased by $4,079.32 per week during that time frame (from $1,864.12 in 2012, to $5,943.44 in 2017).

12.   The judge's additional findings regarding the parties' financial circumstances do not lend support to the father's position. For instance, the judge found that the mother's weekly expenses of $845 “are significantly higher” than her weekly attributed income of $220, and that she “relies on [her husband's] support and [the] [f]ather's child support payments to meet her expenses and support [the child].” The judge found the mother to have “limited” assets of $233,536, and “significant liabilities, including credit card debt, personal loans, and attorneys' fees” totaling $58,673.96. With respect to the father's personal weekly expenses, the judge found that they had decreased from $6,982 in 2012, to $5,106 in 2017.

13.   Although the judge found that the father “was generally credible regarding his current income and business expenses,” she did not make any specific findings reflecting the level of scrutiny required by Whelan and the guidelines. The need for such scrutiny is clearly apparent, where, as here, the payor is seeking a reduction in his support obligation on the basis of his decision to operate several business ventures at a significant loss despite his demonstrated ability to earn substantial income from another source. See Schuler, 382 Mass. at 376 (support payor's voluntary decision to earn less income in pursuit of speculative business venture ordinarily will not justify reduction in support, especially where payor has substantial assets). The judge also found that the father's businesses pay for a number of his personal expenses and those of his wife and grandmother, but that the personal expenses “[were] not deducted for income tax purposes nor could [they] be quantified with any certainty.”

14.   We note the obvious personal financial benefits to the father in maintaining businesses that consistently lose money, including the reduction of his overall taxable income and the payment of numerous personal expenses by his businesses. See 2018 Guidelines, § I(D) (“payment of personal expenses by a business in the course of employment, self-employment, or operation of a business may be included as income if such payments are significant and reduce personal living expenses,” and “[i]n circumstances where the Court finds that a parent has unreported income, the Court may adjust the amount of income upward by a reasonable percentage to take into account the absence of income taxes that normally would be due and payable on the unreported income”). See also Crowe v. Fong, 45 Mass. App. Ct. 673, 680-681 (1998) (imputation of income proper where support payor receives economic benefits reducing ordinary, out-of-pocket expenditures).

15.   Indeed, it appears that the parties excluded the father's business losses from his income when calculating child support in 2012.

16.   To the extent that we do not address the parties' other contentions, they “have not been overlooked. We find nothing in them that requires discussion.” Commonwealth v. Domanski, 332 Mass. 66, 78 (1954).

17.   The mother's request for the father to share the appellate transcription costs is denied.