Sandusky v. Sandusky

IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE FILED

September 22, 1999

BRENDA F. SANDUSKY )

) Cecil Crowson, Jr.

Plaintiff/Appellant, ) Appeal No. Appellate Court Clerk

) 01A01-9808-CH-00416

v. )

DANNY J. SANDUSKY ) Wayne County Chancery

) No. 7900

Defendant/Appellee. )

)

COURT OF APPEALS OF TENNESSEE

APPEAL FROM THE CHANCERY COURT

FOR WAYNE COUNTY

THE HONORABLE JIM T. HAMILTON PRESIDING

W.C. KEATON

102 NORTH COURT STREET

HOHENWALD, TENNESSEE 38462

ATTORNEY FOR PLAINTIFF/APPELLANT

JAMES Y. ROSS, SR.

102 PUBLIC SQUARE NORTH

WAYNESBORO, TENNESSEE 38485

ATTORNEY FOR DEFENDANT/APPELLEE

REVERSED AND REMANDED

PATRICIA J. COTTRELL, JUDGE

CONCUR:

CANTRELL, J.

KOCH, J.

OPINION

This post-divorce proceeding involves questions of child support,

payment of college expenses for a child over the age of majority, and payment

of attorney fees and costs. Brenda Sandusky ("Mother") brought the underlying

contempt action alleging her former husband, Danny Sandusky ("Father"), failed

to pay the previously ordered amount of child support. Father asserted a counter-

petition seeking a reduction in his child support payments. After several

hearings, the trial court substantially reduced Father's child support obligation,

ordered Father to pay the specific college expenses of his daughter, ordered

payment of child support arrearage at $100 per month, and declined to award

Mother attorney fees. Mother appealed this disposition. For the following

reasons, we reverse and remand.1

When the parties were divorced on April 18, 1988, on the ground of

irreconcilable differences, Father was the sole owner of Sandusky Trucking

Company and an independent timber contractor. At that time, the parties' two

children, a son and a daughter, were minors. The parties' Marital Dissolution

Agreement ("MDA") specifically addressed their care and support, granting

Mother physical custody while Father agreed to reimburse Mother for all

reasonable expenditures associated with the support and maintenance of the

children.

This arrangement gave rise to Mother's first contempt petition. It was

1

As a preliminary matter, we observe that less than the entire record below was

designated to be part of the record on appeal. See Tenn. R. App. P. 24 (a). Even so, Father

unsuccessfully objected to the extent of the record so designated, arguing that it should be

limited to only those issues raised in his July 1997 counter-petition for modification and

Mother's June 1997 contempt petition. Nevertheless, Father attached some additional,

uncertified documents to his brief. It should be noted that this court's review is limited to the

record presented to the trial court and designated for inclusion in the appellate record. See id.

No motion to supplement the record on appeal was filed. See Tenn. R. App. P. 24 (e).

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filed in January 1994, alleging that Father refused to reimburse Mother for more

than $15,000 in reasonable child care expenses. Father filed a counter-

complaint seeking modification of his child support obligation. After a hearing,

the trial court ordered Father to reimburse $10,000 of Mother's expenditures and

set his child support obligation at a definite monthly payment of $2,666.67.

This court affirmed the trial court's decision, including, specifically, the trial

court’s attributing to Mr. Sandusky’s income from the trucking company he had

transferred upon inadequate consideration to his father. Sandusky v. Sandusky,

Appeal No. 01-A-01-9605-CH-00209, 1996 WL 730288 (Tenn. App. December

20, 1996) (no Tenn. R. App. P. 11 application filed).

Mother filed a second successful petition for contempt for nonpayment

of child support in March 1996, resulting in a finding of contempt on April 22,

1996. In March 1997, Father was again held in contempt for failure to comply

with the 1996 order requiring him to pay child support. After noting that Father

had effectively stated in open court that he had no intention of complying with

the orders to pay the amounts he owed Mother, the court found him in contempt

and ordered him to pay $46,864.96 in arrearage.

After an April 1997 hearing, the court determined that Father still owed

$23,648.27 and again ordered him to pay the arrearage immediately. The court

found that Father had conveyed all of his interests in real property to his new

wife and to relatives. The court agreed that when the oldest child, who had

reached her majority, graduated from high school, Father’s child support

obligation would be reduced and ordered said reduction from $2,666.67 to

$1,750. The court also continued the case for later consideration of Father’s

petition to reduce child support payment, stating that if any reduction were later

granted, it would be applied retroactively.

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After the daughter graduated, instead of paying $1,750, Father began

paying $688 per month, which he asserted was 21% of his income. Mother then

sought contempt sanctions on the ground that Father was behind in his child

support payments.

When the daughter chose to attend Columbia State Community College

and Father limited his support to tuition, books and $600 per month in living

expenses, Mother added a claim that Father had breached the MDA, which

contained a provision obligating Father to pay the reasonable expenses

associated with the children's college educations.

In December 1997 and January 1998, the trial court held hearings on

the various outstanding issues. After the hearings, the court reduced Father's

child support payment from $1,750 to $865. The court ordered Father to pay for

tuition and books and $600 per month toward his daughter’s college education

pursuant to the MDA. The trial court permitted Father to pay his $6,372

arrearage in $100 per month payments. The court did not award any attorney

fees. After the trial court denied Mother's motion to alter and amend the

judgment, she commenced this appeal.

I.

Ordinarily our review of a trial court's findings of fact is de novo with

a presumption of correctness. Tenn. R. App. P. 13 (d). Here, the trial court made

no factual findings when disposing of this case, which leaves nothing to trigger

the presumption of correctness. See Archer v. Archer, 907 S.W.2d 412, 416

(Tenn. App. 1995). Accordingly, our review is plenary.

II.

The first issue arising from the order under appeal is whether the trial

court correctly determined the monthly amount of support due after May 1997.

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In April of 1997, the court recognized that Father’s support obligation would be

reduced as of the June 1997 payment, because the 18-year old daughter would

be graduating from high school, leaving only one minor child for whom child

support was due. Therefore, the court reduced Father’s monthly payment to

$1,750. This amount constituted 21% of Father’s net income as of the last order

setting support ($100,000). The court, however, delayed ruling on Father’s

pending motion to reduce the support on the basis of his reduced income, but

stated that if the court were to later reduce the amount of the award below

$1,750, Father would be given credit back to May of 1997. In the order under

appeal, the trial court reduced Father's monthly child support payments to $865.2

Mother argues that the evidence preponderates against the trial court's decision.

As the party seeking modification of the previous child support award,

Father had the burden of demonstrating that there existed a significant variance3

between the amount previously set and currently ordered and the amount which

would be due under the Child Support Guidelines based on current

circumstances. See Tenn. Code Ann. § 36-5-101(a)(1) (Supp. 1998); Turner v.

Turner, 919 S.W.2d 340, 342-343, 345 (Tenn. App. 1995).

Father asserted such a variance because his income had been reduced

since the prior setting of child support. He testified that his 1996 income, as

reflected in his W-2 form was $33,000. His salary from Sandusky Trucking

Company, of which he is the sole stockholder, was reduced in 1996. The record

does not include Father’s petition to modify child support. The transcript of the

2

The court made no finding regarding Father’s specific income. According to the

Guidelines, this figure would indicate a net annual income of $49,451.76 or a gross annual

income of $70,200. We can find no basis for the court’s implicit determination that Mr.

Sandusky’s net income had decreased by a little over 50%.

3

A significant variance is defined as “at least 15% if the current support is one hundred

dollars ($100.00) or greater per month”. Tenn. Comp. R. & Regs. ch. 1240-2-4-.02(3) (1994).

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hearing and the briefs, however, make it clear that Father’s argument that he is

entitled to a reduction is based solely on his reduced salary. Father’s salary from

his company was $50,000 in 1991, and at the time of entry of the previous order

of support, it was $41,600. It is now $31,800, and he receives $1,200 per year

from another position. Thus, his earned income has decreased only $8,600.

Father’s child support obligation was set by the court in October 1995.

In its order, the trial court specifically stated that the child support award was

calculated as 32% of an income of $100,000, implicitly finding that amount to

be Father’s net income. Without determining the specific amount of Father’s

income, the trial court included Father’s admitted income, profits from Sandusky

Trucking Company and other income 4. On appeal, this court affirmed,

specifically holding that the solely-owned company’s income was attributable to

Mr. Sandusky. 5

In its 1996 opinion, this Court found that the trucking company had a

substantial net worth (the 1992 tax return showed the stockholder equity to be

$545,596) and had consistently paid Mr. Sandusky a salary of $40,000 to

$50,000 per year prior to 1995. Since his support obligation was originally set

on the basis of his salary and the income from his business available to him, we

must consider any decrease or offsetting increase in the business income. The

evidence at the hearing herein regarding Sandusky Trucking Company’s

4

A comparison of Father’s potentially income-producing assets at the time of the

original setting of child support with those at the time of the hearing on his petition to reduce

his support obligation reveals no significant change in those assets. Although Father had

transferred all the stock of Sandusky Trucking Company to his father for $1,000 at the time of

the original setting of the support amount, the court attributed income from that company to

Father. By the time of the hearing herein, ownership of the company had been transferred back

to Father. Similarly, Father testified that he had earlier transferred other assets, primarily real

estate, to his present wife and to relatives, and that those assets had been transferred back to

him before the hearing herein.

5

This Court held that Mr. Sandusky’s transfer to his father of all the stock of the

company for $1,000, was void to defeat the interest of his children in appropriate support.

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financial performance and Mr. Sandusky’s salary history is reflected in this table:

1992 1993 1994 1995 1996

Gross $833,169 $861,690 $910,630 $904,701 $1,211,260

Receipts

Gross $784,366 $765,562 $819,963 $763,359 $811,475

Profits

Total $799,356 $797,649 $843,479 $772,331 $815,006

Income

Taxable $79,281 $83,810 $127,128 $397 $8,594

Income

Total $572,275 $607,583 $759,264 $710,515 $814,209

Assets

Retained $449,923 $516,338 $596,875 $596,875 $603,604

Earnings

Salary $41,600 $41,600 $40,800 $40,800 $31,200

Sandusky Trucking Company continues to have substantial worth. Its

total assets in 1996 were $814,209, with $181,347 in debt. Significantly,

retained earnings have increased from approximately $450,000 in 1992 to over

$600,000 in 1996. Included in the expenses and deductions were claims for

depreciation: Sandusky Trucking Company claimed $68,947 in 1992-1993,

$79,522, in 1993-1994, $105,164 in 1994-1995 and $96,926 in 1995-1996.

Father testified that his company’s net taxable income and cash on hand

had decreased because, on advice from his accountant, he had acquired and

maintained assets and investment properties, such as equipment and tracts of

timber, in order to avoid or reduce corporate income taxes. His accountant

testified that this type of reduction of taxable corporate income is normal in the

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course of business.

Father’s accountant defined retained earnings as “a cumulative profit

figure that has not been paid out in dividends. The corporation has just retained

those earnings.” He also stated that Father could not spend the corporation’s

earnings unless the money was first paid to Father as salary or dividend, and then

it would be taxable to Father as personal income.

In Koch v. Koch, 874 S.W.2d 571 (Tenn. App. 1993), this Court

acknowledged the difficulty in establishing income for child support purposes,

of a self-employed sole owner of a business. In that case, however, the court

discounted the father’s assertions that he had no income from his business, where

the father stated he had made only capital withdrawals. The court looked at the

gross receipts, gross income and other figures relative to the business and noted

that the gross income in excess of $165,000 per year should provide a nice

income to the proprietor. Koch, 874 S.W.2d at 578.

Self-employment requires a different method of calculating an obligor

parent’s income for child support purposes. The Guidelines require the court to

consider all income of the obligor parent, and define gross income as including:

all income from any source (before taxes and other deductions), whether earned

or unearned . . . and includes income from self-employment. Income from self-

employment includes income from business operations and rental properties, etc.,

less reasonable expenses necessary to produce such income. Depreciation, home

offices, excessive promotional [sic], excessive travel, excessive car expenses,

or excessive personal expenses, etc., should not be considered reasonable

expenses.

Tenn. Comp. R. & Regs. ch. 1240-2-4-.03 (3)(a) (1994).

A self-employment situation where an obligor spouse or parent can

control the salary he or she receives may raise issues requiring the court to

examine “whether the potential exists for the obligor to manipulate his reported

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income either by failing to aggressively solicit business or by inflating his

expenses, thereby minimizing his income." Beem v. Beem, No. 02A01-9511-CV-

00252, 1996 WL 6364491 at *4 (Tenn. App. Nov. 5, 1996) (no Tenn. R. App.

P. 11 application filed). Another way to manipulate reported income is to pay

a lower salary and not pay dividends, allowing the corporation to accumulate as

retained earnings profits which would otherwise be distributed as dividends to

the sole shareholder.

Where a business is solely owned, the company’s accumulation of

retained earnings can be considered in determining the income available to the

sole shareholder who has set his or her own salary. See Higgs v. Higgs, No.

01A01-9702-CV-0057, 1997 WL 691530 at * 3 (Tenn. App. Nov. 7, 1997) (no

Tenn. R. App. P. 11 application filed) (in arguing his alimony obligation should

be reduced, husband relied upon his salary, ignoring the fact that the retained

earning of his corporation were available to him); Needham v. Needham, No.

03A01-9706-GS-00221, 1997 WL 789953 at * 7 (Tenn. App. Dec. 23, 1997)

(perm. app. denied June 22, 1998) (in determining whether husband’s solely

owned company’s value had increased, the court observed that had husband paid

himself dividends and larger salary, they would have been marital property).

The financial condition of Sandusky Trucking Company is such that it

could pay its sole shareholder a larger salary or issue dividends. Father’s

explanation for lowering his own salary was that he now needed additional help

with some of the labor involved in his business. No explanation was given for

the lack of dividend income.

We are unconvinced that Father’s reduced salary from the company he

owns demonstrates an actual reduction in income justifying a decrease in his

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child support obligation. An obligor parent cannot avoid a support obligation by

simply arranging a smaller salary while a solely-owned business prospers.

Further, Mr. Sandusky’s business decision to increase his company’s inventory

and assets resulted in the lowering of the company’s taxable income. While he

was certainly free to make those decisions as a business owner, that action, the

retention of earnings, and the lowering of his salary resulted in understating his

personal income. When, however, the money which would have been available

to him as personal income is considered, we are unable to find a reduction in his

income. See Craft v. Craft, No. 01A01-9609-CH-00417, 1997 WL 122809 at *

3-4 (Tenn. App. March 19, 1997) (no Tenn. R. App. P. 11 application filed).

This court and the trial court have previously determined that the

potential income from Sandusky Trucking Company is properly considered in

determining Mr. Sandusky’s income for purposes of setting child support. In

light of the financial condition of that company, as compared to its condition

when the award was originally set, we find no justification for the reduction of

Father's child support obligation and reverse that decision. Child support shall

remain at the amount set in the April 1997 order, $1,750 per month. Arrearage

shall be calculated from April 1997 and must be paid within thirty (30) days of

the entry date of this opinion. The interest rate set in Tenn. Code Ann. § 36-5-

101(a)(5) shall apply to the arrearage accruing between April 1997 and the

January 28, 1998 order modifying the child support. The trial court's order

permitting Father to pay $6,371 in arrearage arising after April 1997 in $100

monthly installments is vacated.

In light of this disposition, we need not reach Mother's contention that

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depreciation was improperly included in Father's income.6 But see Tenn. Comp.

R. & Regs. ch. 1240-2-4-.03 (3)(a) (providing that depreciation is not a

permissible deduction when calculating the gross income of self-employed

individuals for child support purposes); accord Burchfield v. Nave, No. 03A01-

9308-JV-00271, 1994 WL 13374 (Tenn. App. January 21, 1994) (Tenn. R .App.

P. 11 application denied). Our decision also obviates the need to address the

issues relating to the propriety of reducing child support while Father was in

contempt, the propriety of allowing Father to pay the arrearage at the monthly

rate of $100 and the amount of interest owed.

III.

Mother maintains that the trial court erred in its calculation of Father's

obligation for his daughter's college education. Father responds that the trial

court properly construed the MDA in his favor, applying a reasonableness

standard which more accurately reflected the parties' intent than the actual

language of the agreement.

In the MDA, Father undertook voluntary contractual obligations to

support the children's education. See Penland v. Penland, 521 S.W.2d 222, 224-

225 (Tenn. 1975). The pertinent provisions of the MDA stated:

In the event that any or all of the parties' children should

desire to attend college or vocational school upon his or her

graduation from high school, the husband agrees to provide

a (4) four year college or vocational education for that child.

The expenses to be paid by the husband toward the college

or vocational education for each child shall include, but not

be limited to, tuition, room, board, fees, clothing, medical

and dental expenses, transportation to and from school,

books, supplies and a reasonable spending allowance. Each

child shall have the right after consultation with both parents,

to select the college or vocational institution he or she desires

to attend.

6

As set out earlier, Sandusky Trucking reported significant depreciation on its tax

returns.

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Father’s agreement to pay his children’s college expenses is

enforceable and, as with other contracts, will be enforced in accordance with its

terms. See Haas v. Haas, No. 02-A-01-9604-CV-00073, 1997 WL 194852 at *3

(Tenn. App. April 22, 1988) (no Tenn. R .App. P. 11 application filed). There is

no ambiguity in the terms of this agreement. Therefore, the courts will enforce

Father’s agreement to pay tuition, room, board, fees, clothing, medical and dental

expenses, transportation to and from school, books, supplies, and a reasonable

spending allowance. The only real issue, then, is the reasonable cost of those

items.

Both the daughter and the Vice President for Student Services at the

daughter's college testified as to the expenses involved in attending Columbia

State Community College. The daughter testified that her actual monthly

expenses during five months of attending college were $1,287.47 not including

her car payment, housing, or health or car insurance, all of which were provided

by Mother. Mother also paid for medical expenses not covered by insurance and

$50 per week spending money. The daughter's expenses included utilities,

phone, clothing and personal items, and spending money. The daughter testified

that Father paid $581 to cover tuition for one semester, paid a total of $290.52

for books, and gave her a used computer. She stated that Sandusky Trucking

Company wrote her a check in the amount of $300.

The vice president of the college testified that the predicted two-

semester (9-month) budget7 for an average in-state independent student was

$11,511, which included tuition, fees, books, supplies, room, board, clothing,

personal expenses, and transportation costs. The figure for attending without a

7

This is the budget submitted by Columbia State Community College to the U.S.

Department of Education.

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summer break was $14,414. The two-semester figure breaks down to

approximately $1,153 per month, excluding tuition. Tuition and fees were $1,132

for two semesters at the time of the hearing.

Father testified that, in addition to paying for tuition and books, he was

willing to make monthly payments of $500. The trial court set Father's

obligation for daughter's living expenses at $600 per month, in addition to tuition

and books. We are unable to find evidence in the record to support that figure

or for the conclusion that that amount was sufficient to cover the daughter's

expenses. See Tenn. R. App. P. 13(d).

We therefore reverse the trial court's decision on Father's obligations

regarding his daughter's college education. We find the figures presented by the

Vice President of Columbia State Community College to be reasonable. See

Moore v. Moore, 603 S.W.2d 736, 739 (Tenn. App. 1980). Father is therefore

ordered to pay the daughter's tuition, including fees, when it is due, and in the

amount billed by the college. In addition, Father is ordered to pay $1,153 per

month (which figure includes the allowance for books) in expenses for two

semesters (9 months) each year for a four year education, so long as she attends

college full time. We do not interpret Father’s agreement to include expenses for

attending year-round.

IV.

Mother maintains the trial court abused its discretion by failing to order

Father to pay her attorney fees. Father responds that the ruling was proper

because Mother presented no evidence that she was unable to pay them.

Tenn. Code Ann. § 36-5-103(c) provides:

The plaintiff spouse may recover from the defendant spouse, and the spouse or

other person to whom the custody of the child, or children, is awarded may

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recover from the other spouse reasonable attorney fees incurred in enforcing any

decree for alimony and/or child support, or in regard to any suit or action

concerning the adjudication of the custody or the change of custody of any child,

or children, of the parties, both upon the original divorce hearing and at any

subsequent hearing, which fees may be fixed and allowed by the court, before

whom such action or proceeding is pending, in the discretion of such court.

With the adoption of this statute, awards for legal expenses in support

proceedings have become "familiar and almost commonplace" despite some

inconsistencies in their apportionment. Sherrod v. Wix, 849 S.W.2d 780, 785

(Tenn. App. 1992).

In addressing attorney fees, the trial court's sole finding was "that each

party pay their respective attorney fees, each being equally capable of paying

their attorney fees." However, “ability to pay should not be the controlling

consideration with regard to awards for legal expenses in . . . support

proceedings . . . The purpose of these awards is to protect the children's, not the

custodial parent's, legal remedies . . . Accordingly, requiring parents who

precipitate . . . support proceedings to underwrite the costs if their claims are

ultimately found to be unwarranted is appropriate as a matter of policy.” Id.; see

Tenn. R. App. P. 13(d).

Father's conduct in refusing to pay the court-ordered amount of child

support precipitated these proceedings. In contravention of a court order that he

pay $1,750 per month, Father unilaterally determined that his payment should be

lower and only paid $688 per month. Mother has prevailed on the dispositive

issues presented in this appeal -- the decision to reduce Father's child support

payment and on the calculation of the daughter's college expenses. We believe

it is appropriate for Father to pay Mother's legal fees incurred in pursuing this

matter. On remand, the trial court will determine the appropriate reasonable

amounts. We also believe Mother is entitled to such fees on appeal as the

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prevailing party, said fees to be set by the trial court. See Robertson v.

Robertson, No. 03A01-9711-CV-00511, 1998 WL 783339 at * 8 (Tenn. App.

November 9, 1998) (Tenn. R. App. P. 11 application pending).

In summary, we reverse the trial court's decisions reducing the amount

of Mr. Sandusky's child support obligation, calculating the amount of college

expenses due the daughter, and declining to award Mother attorney fees. This

case is remanded for proceedings consistent with this opinion. Costs of this

appeal shall be taxed to Mr. Sandusky for which execution may issue.

_______________________________

PATRICIA J. COTTRELL, JUDGE

CONCUR:

________________________________________

BEN H. CANTRELL, PRESIDING JUDGE (M.S)

________________________________________

WILLIAM C. KOCH, JR., JUDGE

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The record shows that the trial court held Father in contempt on March

24, 1997 for failure to pay child support found due and owing by the court. The

trial court ordered Father to pay $48,231.63 in arrearage by March 24, 1997 or

be incarcerated. At that hearing, Father stated he had no intention of complying

with the trial court's orders. (TR. 53)

The record before this court further shows that Father owed $23,648.27

in arrearage on April 23, 1997 and had conveyed all his real estate holdings to

his new wife and siblings. (TR. 57) The trial court again held Father in

contempt and ordered him to pay the arrearage or be placed in custody. The fact

that Father was not incarcerated during the December 8, 1997 and January 12,

1998 hearings indicates that he purged himself of the contempt by paying his

initial arrearage in child support.

While Father's unilateral decision to defy the court's order to pay the

full $1750 per month certainly supports a finding of contempt8, the trial court

did not choose to impose that sanction. Compare Mackey v. Cumerlato, 1997

WL 15084, * 4 (August 4, 1987); see also Ball v. Ball, No. 02A01-9709-GS-

00239, 1999 WL (Tenn. App. February 25, 1999). The well-established rule

providing trial courts with broad discretion on whether to impose contempt

sanctions precludes us from finding that that decision constituted an abuse of

discretion. See Robinson v. Air Draulics Engineering Co., 377 S.W.2d 908,

912, 214 Tenn. 30, 37, (1964).

8

Father's decision to pay less than the court-ordered amount of child support created

a new arrearage which the trial court addressed in its January 28, 1998 order.

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