IN THE INTEREST OF THE CHILDREN OF KNIGHT

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IN THE INTEREST OF THE CHILDREN OF KNIGHT

2014 OK CIV APP 2

317 P.3d 210

Case Number: 110544

Decided: 11/15/2013

Mandate Issued: 01/03/2014

DIVISION III

THE COURT OF CIVIL APPEALS OF THE STATE OF OKLAHOMA, DIVISION III

Cite as: 2014 OK CIV APP 2 , 317 P.3d 210

IN THE INTEREST OF THE CHILDREN OF:

SARA KNIGHT, Petitioner/Appellee,

v.

DAVID A. LINCOLN,

JR., Respondent/Appellant.

APPEAL FROM THE DISTRICT COURT OF

SEMINOLE COUNTY,

OKLAHOMA

HONORABLE GAYLA M. ARNOLD, TRIAL JUDGE

AFFIRMED AS MODIFIED

Preston Saul Draper, SWEENEY, SMITH, DRAPER & CHRISTOPHER, PLLC., Ada,

Oklahoma, for Petitioner/Appellee,

Mary R. Bundren, BUNDREN LAW FIRM, P.C.,

Tulsa, Oklahoma, for Respondent/Appellant,

Clay Pettis, Assistant District

Attorney, Wewoka, Oklahoma, for Minor Children.

BRIAN JACK GOREE, Judge:

¶1 Defendant/Appellant, David Lincoln (Father), seeks review of the trial

court's order awarding child support to Plaintiff/Appellee, Sara Knight

(Mother), for the support of their minor child. We hold the trial court erred as

a matter of law (1) in failing to deduct from Father's self-employment income

the ordinary and reasonable expenses necessary to produce the income, and (2) in

failing to deduct the corpus in determining the income from the sale of Father's

ranch. We modify the order to award $1,259.91 per month in child support and

determine the arrearage to be $45,526.83.

¶2 Mother brought this paternity action on March 12, 2010, seeking support

for the parties' then twelve-year-old daughter. Father appeared and acknowledged

paternity. The parties tried the remaining issues on November 4, 2011.

¶3 The trial court filed its journal entry of judgment on February 29, 2012,

making extensive findings of fact and conclusions of law. It found that the

parties had lived together with their child until October 2008, but since that

time the child had lived with Mother while Father had visitation but paid no

child support. The court made detailed findings as to Father's income for the

years 2006-2011, and then averaged the years 2008-2011 to impute annual income

of $198,006.20 to Father. For the purposes of determining child support, the

court found Father's gross monthly income was $16,500.52, and Mother's was

$1,953.00. In a separate order incorporated by reference, the trial court

directed Father to pay Mother $1,221.08 per month in child support plus medical

support of $102.35 per month, for a total monthly payment of $1,323.43. The

trial court determined Father owed Mother an arrearage of $47,622.12 for child

support from November 1, 2008 to February 10, 2012. The court also granted

Father standard visitation. Father appeals from this order.

¶4 Child support proceedings are of equitable cognizance. Merritt v.

Merritt , 2003 OK 68, ¶7 , 73 P.3d 878, 881 . In reviewing

equitable proceedings, we will affirm the trial court's decision unless the

record reveals some error of law or the decision is clearly against the weight

of the evidence. Guymer v. Guymer , 2011 OK CIV APP 4, ¶4 , 245 P.3d 638, 639 . We will review

discretionary determinations for abuse of that discretion. Broadwater v.

Courtney , 1991 OK 39, ¶7 , 809 P.2d 1310, 1312 . In an equity

case, whenever we determine that the trial court's decision is in error, "we

should, whenever possible, render the judgment which, in our opinion, the trial

court should have entered." Bond v. Bond , 1996 OK CIV APP 3, ¶18 , 916 P.2d 272, 276 .

I

¶5 Father's first two propositions of error challenge the trial court's

findings as to his income for child support computation purposes. A person who

is determined to be a child's father pursuant to the Uniform Parentage Act, 10 O.S. 2011 §§7700-101 to 7800, is

liable for the child's support and education. 10 O.S. Supp. 2012 §83(A). Pursuant

to 10 O.S. Supp. 2012 §83(D), the

amount of support must be set in accordance with the child support guidelines

(Guidelines) provided in 43 O.S.

2011 §118. In addition, the trial court must impose liability for support

for the five years preceding the filing of the action. 10 O.S. Supp. 2012 §83(C).

¶6 There is a rebuttable presumption that the amount of the child support

award which would result from the application of the Guidelines is the correct

amount of child support to be awarded. 43 O.S. 2011 §118(A). Child support

is computed as a percentage of the combined gross income of both parents, and is

allocated to each parent according to the parent's percentage contribution to

the combined adjusted gross income. 43 O.S. 2011 §118D(A) and (C).

Gross income includes both earned income and passive income. §118B(A)(2) and

(3). 1 In

computing the gross income of the parents, the court may use whichever is the

most equitable of actual income, average income for the past three years,

minimum wage, or imputed income. 43

O.S. 2011 §118B(C)(1). In imputing income, the court may consider, among

other things, a parent's willful underemployment, the reliability of evidence of

income, the parent's past and present employment, the parent's education,

training, and ability to work, and the parent's lifestyle. §118B(D)(2). The

court shall include self-employment income and the value of fringe benefits that

significantly reduce personal living expenses in computing gross income.

§118B(E) and (F).

¶7 Father contends the trial court erred in imputing income in order to

determine his child support liability. The record in the present case contains

evidence from which the trial court could find that Father was willfully

underemployed. Father's testimony that his income was only $583.00 per month is

unreliable given other evidence in the record showing that his expenses exceeded

that amount yet he somehow paid them, and he had unexplained deposits to his

accounts. In addition, the record contains evidence that his lifestyle was

incongruent with his claimed income. For example, he paid cash for several

parcels of real property over the years, including $300,000.00 for the Denver

condominium in which he currently resides. The trial court imputed current

income to Father based on the average of Father's actual income for the previous

four years. Under these circumstances, we are unable to find any abuse of

discretion in the trial court's basis for imputation of income to Father.

¶8 However, some of the trial court's calculations as to Father's income are

affected by errors of law. Father contends the trial court erred in failing to

deduct any business expenses from his self-employment income. Some of Father's

income was self-employment income from his ranch operation and from rental

properties. For farm income, the trial court used the gross income that Father

reported to the Internal Revenue Service (IRS) on his Schedule F Profit or Loss

From Farming. Pursuant to 43 O.S.

2011 §118B(E)(1), "ordinary and reasonable expenses necessary to produce

such income" are deducted from self-employment income in arriving at gross

income. The determination of business income for tax purposes is not controlling

for the purposes of child support, and accelerated depreciation is expressly

excluded from reasonable expenses, while social security tax is specifically

included. 43 O.S. 2011

§118B(E)(2).

¶9 We have examined Father's Schedule F for the tax years 2008-2009 and

conclude that all listed expenditures except those for depreciation, dues, and

taxes are ordinary and reasonable expenses necessary to produce the farm income.

Therefore, we deduct farm expenses in the amount of $11,306.00 from Father's

2008 income and $10,358.00 from his 2009 income. Father's tax returns show he

paid no social security tax; therefore we make no adjustment for social security

tax.

¶10 Father also argues the trial court erred in failing to deduct expenses

from his rental income. The evidence regarding Father's income from his rental

properties came from his own exhibits. The expenses of generating rental income

are deductible from gross income for the purpose of child support. 43 O.S. 2011 §118B(E)(1). We find

all of Father's listed expenses are ordinary and reasonable expenses necessary

to produce the rental income except for State and Federal taxes. Therefore, we

deduct rental expenses of $1,755.00 for 2010 and $16,825.00 for 2011 2 from Father's

income for those years.

¶11 Father argues the trial court erred in attributing the proceeds of the

sale of his ranch to income, and in failing to deduct the cost basis from the

proceeds. The statutory language of 43 O.S. 2011 §118B(A)(1) is broadly

inclusive, defining "gross income" as "earned and passive income from any

source, except as excluded in this section." The statute lists types of earned

and passive income, but the lists are not exclusive. §118B(A)(1) and (2).

Whether net after tax gain from the sale of property is income for the purpose

of child support computation in Oklahoma appears to be a question of first

impression.

¶12 In Eisner v. Macomber , 252 U.S. 189 , 40 S.Ct. 189, 193 , 64 L.Ed.

521 (1920), the U.S. Supreme Court interpreted the meaning of "income" in the

Sixteenth Amendment, which authorized Congress to tax income. It examined the

meaning of the term in common usage and concluded that income was "the gain

derived from capital, from labor, or from both combined,... including profit

gained through a sale or conversion of capital assets." Id. , 252 U.S. at

207, 40 S.Ct. at 193. 3 Accordingly, capital gains are income for both

federal and state income tax purposes. 26 U.S.C. §61 (a)(3) and 68 O.S. 2011 §2353(10). Most states

that have considered the question classify realized capital gains as income for

the purpose of child support computation, including capital gain from the sale

of a residence. 4

¶13 We conclude that capital gains are properly included as income for the

purpose of child support calculation in Oklahoma. Capital gains have

historically been understood to constitute income and have not been excluded by

the statute. Therefore the trial court properly included Father's capital gains

from the sale of his real property in calculating his income.

¶14 The gain from the sale or exchange of capital is the profit from

the transaction. Eisner v. Macomber , 252 U.S. at 207, 40 S.Ct. at 193.

The return of the corpus or principal is not income. Thomas v. Thomas , 1996 OK CIV APP 151, ¶9 , 932 P.2d 54, 55 . Therefore, the

corpus should be deducted from the net sale proceeds in order to determine the

amount of the gain. The trial court in the present case properly ruled that the

corpus should be deducted but, as Mother acknowledges, failed to subtract the

ranch corpus in performing its calculations. Therefore, we deduct $154,500.00

attributable to the ranch corpus from Father's income for 2010.

¶15 We do not find any merit in Father's other contentions challenging the

determination of his income. Father contends the proceeds of the sale of his

homestead and his ranch were not income because he reinvested the proceeds in

income-producing property. Father cites no authority for this proposition and

therefore we will not consider it. However, we will consider the effect of the

reinvestment of homestead proceeds in another homestead because the Oklahoma

Constitution, Art. 12, §2, protects the homestead from forced sale for the

payment of debts.

¶16 The exemption extends to the proceeds of the voluntary sale of the

homestead which are in good faith intended to be invested in another homestead.

Field v. Goat , 1918 OK

315, ¶3 , 173 P. 364, 365 .

Although profits from the sale of a homestead are generally exempt from

attachment by creditors, it does not follow that such profits can never be

counted as income in the calculation of a parent's child support obligation. The

purpose of the homestead exemption is to protect the family in its occupancy of

the home from the improvidence and demands of creditors. Burrows v.

Burrows , 1994 OK 129, ¶12 , 886 P.2d 984, 989 . As a matter of

public policy, the homestead exemption may not be used to avoid supporting the

children it was created to protect. Id. at ¶15. The record in this case

shows that Father chose to become cash poor and property rich. He may not use

that condition to avoid child support. Under these circumstances, the trial

court did not err in including the proceeds of the voluntary sale of the

homestead as income for the purpose of calculating child support.

¶17 Father contends the trial court erred in failing to deduct the proceeds

from the sale of personal property from the ranch proceeds. He points to no

evidence separating the price of any personal property from the sales price of

the ranch, and separating the cost of the personal property from that of the

ranch. Therefore he has failed to show the trial court's findings were against

the clear weight of the evidence.

¶18 Father next contends the trial court imputed income from dog boarding and

training and livestock sales twice. The evidence was conflicting as to whether

he received dog fees from clients other than his father. Where there is

conflicting testimony, "[t]he trial court is entitled to choose which testimony

to believe as the judge has the advantage over this Court in observing the

behavior and demeanor of the witnesses." Mueggenborg v. Walling , 1992 OK 121, ¶7 , 836 P.2d 112, 114 . The livestock

income he asserts was imputed twice took place in 2006. The trial court did not

consider this year in calculating Father's income. We will not consider errors

"which, if changed, would not affect the result." Mortgage Bond Co. v.

Stephens , 1937 OK 612, ¶20 ,

74 P.2d 361, 367 .

¶19 Father next argues the trial court erred in including amounts he received

from his parents as his income, asserting the amounts were loans. The Guidelines

specifically include gifts as passive income. 43 O.S. 2001 §118B(A)(3)(l). The

record is devoid of evidence Father made any payments to his parents on any

loans. The trial court's finding that Father's parents made gifts of money is

not against the clear weight of the evidence.

¶20 Father argues the trial court should not have included unemployment

benefits and wages because he no longer receives them. He also argues the trial

court should not have included deposits to his bank accounts from unknown and

unexplained sources. As discussed above, the trial court did not abuse its

discretion in imputing income to Father based on Father's willful

underemployment. The inclusion of past unemployment benefits, wages, and

unexplained deposits are appropriate ways of imputing income under the

circumstances. We find no abuse of discretion.

¶21 Based on our modifications to Father's income for the years 2008-2011, we

find Father's total income for those four years was $595,177.81. His average

yearly income was $148,794.45 and his average monthly income was $12,399.54. The

parties' combined income is $14,352.54. Pursuant to the Guidelines, the total

support amount for one child is $1,346.00. Father's percentage share of the

income is 86%, which makes his share of the child support equal to $1,157.56.

With the cash medical amount of $102.35 added in, his monthly obligation is

$1,259.91. The amount of the arrearage is $45,526.83 plus interest as provided

in the trial court's order.

II

¶22 Father's third proposition is the trial court erred in concluding that

Father owes $47,622.12 in child support arrearage. He argues the trial court

failed to consider that the child, as well as Mother's child from a previous

relationship, spent the entire day at his home while Mother was working, and

Father provided them three meals a day and clothing from 2008 to 2010. Father

failed to provide any documentation of his expenditures, and Mother controverted

his testimony. The trial court was entitled to choose which evidence to believe.

Its refusal to apply a set-off for Father's care of the children is not against

the clear weight of the evidence. We do, however, modify the amount of the

arrearage based on our findings in Part I above.

III

¶23 Father's fourth proposition is the trial court erred in ordering standard

visitation. He argues standard visitation is inappropriate because he lives in

Colorado. At trial, he testified as follows:

Q I assume you have no objection to being awarded standard

visitation?

A I would hope that would be awarded. We are still very close and very

close to [Mother]. I can't believe that would not be the

case.

¶24 Father makes no showing he made his objection to standard visitation

known to the trial court. Issues not properly presented to the trial court will

not be heard for the first time on appeal. Oklahoma Dep't of Sec. ex rel.

Faught v. Wilcox , 2011 OK

82, ¶17 , 267 P.3d 106,

110 .

IV

¶25 Father's next proposition is the trial court erred when it deviated from

the Guidelines by failing to state any reason for deviating from the statutory

cap of $15,000.00 in monthly income. The child support order reflects that the

trial court did apply the cap. However, based on our modification of the

findings as to Father's income, the parties' combined monthly income no longer

exceeds the cap. We have calculated child support without deviating from the

Guidelines.

V

¶26 Father's last proposition is the trial court erred by adopting Mother's

proposed findings and conclusions in total as its order. Father argues the trial

court failed to carefully review the evidence and determine an appropriate

amount of gross income, and failed to provide a copy of the journal entry to

Father to review prior to entry.

¶27 The trial court has broad discretion in directing the manner in which a

journal entry is prepared, including directing counsel for one party to prepare

a draft. 12 O.S. 2011 §696.2(A).

Only the trial court needs to sign the order. 12 O.S. 2011 §696.3. The parties'

approval is not required. §696.3(A)(3). In the present case, Mother submitted

comprehensive proposed findings of fact and conclusions of law, while Father

submitted a document stating whether he viewed Mother's proposed findings to be

true or false. Father's submission could not have been used as a draft order.

Under these circumstances, we are unable to find any abuse of discretion.

¶28 For the foregoing reasons, the trial court's order is modified to award

Mother $1,259.91 per month in child support, plus an arrearage of $45,526.83.

The order is AFFIRMED AS MODIFIED.

HETHERINGTON, P.J., and MITCHELL, J., concur.

FOOTNOTES

1

§118B(A)(2) and (3) provide:

2. "Earned income" is defined as income received

from labor or the sale of goods or services and includes, but is not limited to,

income from:

a. salaries,

b. wages,

c. tips

d. commissions,

e.

bonuses,

f. severance pay, and

g. military pay, including hostile fire or

imminent danger pay, combat pay, family separation pay, or hardship duty

location pay; and

3. "Passive income" is defined as all other income and includes, but is not

limited to, income from:

a. dividends,

b. pensions,

c. rent,

d.

interest income,

e. trust income,

f. support alimony being received from

someone other than the other parent in this case,

g. annuities,

h. social

security benefits,

i. workers' compensation benefits,

j. unemployment

insurance benefits

k. disability insurance benefits,

l. gifts,

m.

prizes,

n. gambling winnings,

o. lottery winnings, and

p.

royalties.

2 For

2010, the trial court found Father received $2,995.00 in gross rental income

from the Josephine Street, No. 103 property. According to Father's exhibit, this

property rented for $599.00 per month. Therefore the gross rental income

received represents five months worth of rental income from the property. We

find the allowable amount of expenses for the property to be $351.00 (total

expenses of $413.00 minus $62.00 in State and Federal taxes) per month for five

months, which equals $1,755.00.

For 2011, the expenses allowed for each property are as follows:

Hale Parkway, No. 2F - $2,076.00 (total expenses of $4,836.00 minus $684.00

in State and Federal taxes, times Father's 50% interest);

Josephine Street, No. 103 - $4,212.00 (total expenses of $4,956.00 minus

$744.00 in State and Federal taxes);

Josephine Street, No. 209 - $5,371.00 (total expenses of $6,229.00 minus

$858.00 in State and Federal taxes);

Asbury, No. 104 - $5,166.00 (total expenses of $6,246.00 minus $1,080.00 in

State and Federal taxes).

3 The

Supreme Court later viewed its holding in Eisner as too narrow, but

useful in distinguishing gain from capital. C.I.R. v. Glenshaw Glass Co. ,

348 U.S. 426, 431 , 75 S.Ct. 473, 476 , 99 L.Ed. 483 (1955).

4

E.g., Longtine v. Yeado , 1997 ND 166 , 567 N.W.2d 819, 823 ("Capital gains

from the house and the profits from the auction sale constitute 'income from any

source, in any form, ... [including] capital gains' under the broad definition

of gross income."); Moore v. Moore , 254 S.W.3d 357, 360 (Tenn. 2007) ("We

now hold that under the Child Support Guidelines all capital gains, including

those from an isolated transaction, should be considered in calculating gross

income for the purpose of setting child support."); Wellborn v. Wellborn ,

100 So. 3d 1122, 1128 (Ala. Civ. App. 2012) ("[W]e conclude that the trial court

erred by failing to include income from capital gains in the calculation of the

father's gross income."); In re Marriage of Zisch , 967 P.2d 199, 202

(Colo. Ct. App. 1998) ([T]he court should initially include the amount of the

gain as a component of the recipient's gross income for the year in which the

gain was received."); and Clary v. Clary , 54 S.W.3d 568, 574 (Ky. Ct.

App. 2001) ("[W]e affirm the trial court's order to the extent that James'

portion of the capital gain on the sale of his farm was included in his gross

income, but reverse its decision to prorate the amount over his work-life

expectancy.").

Citationizer © Summary of Documents Citing This Document Cite

Name

Level

None Found.

Citationizer: Table of Authority Cite

Name

Level

Oklahoma Court of Civil Appeals Cases

Cite Name Level

1996 OK CIV APP 3 , 916 P.2d 272 , 67 OBJ 1611, Bond v. Bond Discussed

2011 OK CIV APP 4 , 245 P.3d 638 , GUYMER v. GUYMER Discussed

1996 OK CIV APP 151 , 932 P.2d 54 , 68 OBJ 335, THOMAS v. THOMAS Discussed

Oklahoma Supreme Court Cases

Cite Name Level

1991 OK 39 , 809 P.2d 1310 , 62 OBJ 1311, Broadwater v. Courtney Discussed

1992 OK 121 , 836 P.2d 112 , 63 OBJ 2315, Mueggenborg v. Walling Discussed

1937 OK 612 , 74 P.2d 361 , 181 Okla. 419 , MORTGAGE BOND CO. v. STEPHENS Discussed

1994 OK 129 , 886 P.2d 984 , 65 OBJ 3967, Burrows v. Burrows Discussed

1918 OK 315 , 173 P. 364 , 70 Okla. 113 , FIELD v. GOAT Discussed

2003 OK 68 , 73 P.3d 878 , MERRITT v. MERRITT Discussed

2011 OK 82 , 267 P.3d 106 , DEPT. OF SECURITIES ex rel. FAUGHT v. WILCOX Discussed

Title 10. Children

Cite Name Level

10 O.S. 7700 -101, Short Title Cited

10 O.S. 83 , Mother and Father's Liability to Support and Educate Child - Expenses Discussed at Length

Title 12. Civil Procedure

Cite Name Level

12 O.S. 696 .2, Judgment, Decree or Appealable Order to be Written - Preparation of Written Documents - Filing - Mailing - Effect Cited

12 O.S. 696 .3, Judgments, Decrees and Appealable Orders That are Filed Should Contain the Following Cited

Title 43. Marriage

Cite Name Level

43 O.S. 118 , Child Support Guidelines Discussed

43 O.S. 118B, Gross Income, Inclusions and Exclusions - Imputed Income - Income from Self-Employment - Social Security Title II Benefits Discussed at Length

43 O.S. 118D, Computation of Child Support Obligation - Percentage of Combined Gross Income of Both Parents - Computation for Each Parent Required - Transportation Expenses - Support Order - Summary Form - Social Security Numbers Required Cited

Title 68. Revenue and Taxation

Cite Name Level

68 O.S. 2353 , Definitions Cited