In re Marriage of Perlenfein – Divorce – Child Support
In re Marriage of Perlenfein, 316 Or. 16, 848 P.2d 604 (1993).
NATURE OF THE CASE: This family law case involved a dispute over whether certain income is subject to child support obligations.
FACTS: Mr. Perlenfein is a manager and minority shareholder of closely held corporation Albany Rental, Inc. H receives a salary of $2,000 per monthly and owns 27.5% of the shares. His mother owns 45.5% of the shares and his brothers own 25% and 2% respectively. Albany Rental is a subchapter S corporation and its profits are treated as income to the shareholders for federal income tax purposes. The shareholders also receive credit against the income for accelerated depreciation. To meet federal income tax liability standards, the shareholders receive annual dividends sufficient to pay the taxes owed. All other profits of the corporation are retained for reinvestment. Ms. Perlenfein is the sole proprietor of an incorporated accounting business and receives a salary of $2,000 per month. All other profits are retained by the corporation.
W and H divorced in 1988. W was granted custody of their two minor children and H was ordered to pay $250 per month in support. W moved for modification of that amount contending that Albany’s profits and accelerated depreciation credits in the amount of $4,792 per month should be used to calculate gross income for the purposes of child support obligations. The court attributed an additional $2,000 in gross income from those sources and ordered support in the amount of $778 per month. H appealed and W cross appealed and the appeals court held that in order for such income to be attributable for child support there must be either some right to receive the income or the ability to control its distribution. The appeals court then determined that H’s extra hidden income could not be used but that W’s income could be used as she was the sole shareholder of her corporation. W appealed.
ISSUE: Is undistributed income of a closely held corporation that is attributed to a minority shareholder for income tax purposes also accountable for child support obligations?
RULE OF LAW: Yes. Undistributed income of a closely held corporation that is attributed to a minority shareholder for income tax purposes is also accountable for child support obligations.
HOLDING AND DECISION: H contends that the result would be unfair for any parent in his position if gross income is not limited to available income. We disagree as any parent has the ability to rebut the presumptions of the schedule to ensure that the court arrives at a just or appropriate amount of child support.
With respect to the portion of income related to ownership of a closely held corporation, the gross income of the parent is the parent’s proportionate share of the corporation’s gross receipts minus costs of goods sold minus ordinary and necessary expenses required for business operations. If the parent then presents evidence that the gross income thus calculated is not actually available to the parent, the trial court can then find the presumptive amount of support derived from that gross income is rebutted in whole or in part. Under these facts, we conclude that H presented evidence that could support rebuttal findings under the statute. The trial court did not account for this evidence.
DISPOSITION: Reversed and remanded. The decision of the Court of Appeals with respect to W’s gross income is affirmed.