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Trojan v. Trojan

Supreme Court of Rhode Island

June 3, 2019

Joel Trojan
v.
Denise Trojan.

          Providence County Family Court (P 14-484) John E. McCann, III Associate Justice.

          For Plaintiff: Laura E. Ruzzo, Esq. Jerry L. McIntyre, Esq.

          For Defendant: Patrick O'Connor, Esq.

          Present: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia, JJ.

          OPINION

          Francis X. Flaherty, Associate Justice.

         The defendant, Denise Trojan, appeals from a judgment of the Family Court ordering the plaintiff, Joel Trojan, to pay $1, 796 per month in child support for their minor child, Tiffany, who was born in July 2001.[1] Denise argues that the trial justice erred when he did not order Joel to pay interim and retroactive child support. Denise also contends that the trial justice erred in determining Joel's gross income for the purpose of calculating his child support obligation because the trial justice did not include income and distributions from an "S" corporation, of which Joel is the sole shareholder. This case came before this Court for oral argument pursuant to an order directing the parties to appear and show cause why the issues raised in this appeal should not summarily be decided. After hearing the arguments of counsel and examining the memoranda filed on behalf of the parties, we are of the opinion that cause has not been shown, and we proceed to decide the appeal at this time without further briefing or argument. For the reasons set forth in this opinion, we affirm in part and vacate in part the judgment of the Family Court.

         I

         Facts and Travel

         A

         The Underlying Divorce Proceeding

         The parties married in July 1990. In March 2014, Joel filed for divorce and alleged that there were irreconcilable differences which had led to the irremediable breakdown of the marriage. Denise thereafter filed a counterclaim for divorce, which sought, inter alia, child support for Tiffany. On December 16, 2015-the first day of trial-the parties entered into a consent order in which they agreed to the following: (1) joint custody of Tiffany, with physical placement with Denise; (2) that Joel would be awarded all reasonable rights of parenting time with Tiffany; (3) that the marital estate-after allocating for certain cash withdrawals that Denise previously had made-would be divided equally between the parties; and (4) that neither party would address the conduct or fault of the other in connection with the court's consideration of equitable distribution and alimony.

         On that same date, Denise was heard on a motion for temporary allowances, which she had filed just two weeks before, on November 30, 2015. Her counsel argued before the trial justice that, during the course of the divorce action, the parties had shared a joint marital account that Denise had been using to support herself and Tiffany. However, she alleged that the account had become depleted approximately one month before the trial began, and that Joel had stopped depositing money into it. Denise's counsel then represented to the trial justice that, based on her calculations, Joel was earning $1.8 million per year. Consequently, Denise asserted that she would be entitled to $16, 000 per month in child support pursuant to the child support guidelines worksheet and this Court's decision in Tamayo v. Arroyo, 15 A.3d 1031 (R.I. 2011).

         In response, Joel's counsel argued that there was "at least a million dollars" in the joint account, and that the parties had agreed to divide that account equally. As a result, according to Joel, Denise received $505, 000 from the joint marital account in late November, which was around the same time that she filed her motion for temporary allowances. Additionally, Joel argued that Denise's calculation of his earnings was incorrect because it reflected certain pass-through income that he received from Century Drywall, Inc. (Century), an S corporation of which he was the sole shareholder.[2] Joel also alleged that, after the joint marital account was equally divided, he offered to pay Denise half his monthly salary to support her and Tiffany. This amount, according to Denise's counsel, was approximately $7, 000 per month. Denise had rejected that offer, and chose to pursue child support in the amount of $16, 000 per month because, according to Denise, Joel was receiving distributions-in addition to a salary-from Century.

         The trial justice asked Denise's counsel whether Tiffany needed the amount of child support that she was requesting; Denise's counsel replied: "Well, the child doesn't need [$]16, 000 a month." The trial justice pointed out that some states have said it becomes "ludicrous" when an amount that high is requested for child support; he said that counsel could "negotiate with [Joel's counsel] if you'd like, concerning an interim payment; but, if you think this particular judge is going to award on an interim basis $16, 000 in child support on a monthly basis, you're sorely mistaken[.]" The trial justice questioned whether Denise was even in need of child support at that time, considering that, according to Joel's counsel, she had just received $505, 000 from the division of the joint marital account, and she was using those funds to support herself and Tiffany during the pendency of the divorce action.

         Nevertheless, the trial justice concluded that he was "not going to entertain a motion for temporary allowances in anticipation of the divorce hearing[, ]" that he was going to "hear it all at the same time[, ]" and that he would be willing to award child support retroactively if necessary. Thereafter, from January 2016 until final judgment entered in December 2016, Joel voluntarily paid Denise $2, 444 per month in child support.

         The divorce case was tried on the merits on various dates between December 2015 and July 2016. Relevant to this opinion, during the trial, Joel testified that Century originally had three shareholders: himself, his brother John Trojan, and his brother-in-law Michael Elliott. From January 2012 to December 2013, however, Joel purchased the interests of both John and Mr. Elliott, and he became the sole shareholder of Century. Joel also testified that he had received distributions from Century to pay off his personal note obligations to John and Mr. Elliott for their interests in the corporation.

         At the conclusion of the divorce trial, the parties entered into a marital settlement agreement in which they disposed of all of the marital assets and liabilities, "with the exception of child support and medical[.]" The trial justice reviewed and approved the marital settlement agreement. On August 19, 2016, a decision pending entry of final judgment was entered, which incorporated, but did not merge, the marital settlement agreement and continued the child support issue. Neither party sought review of that decision.

         B

         The Child Support Hearing

         Thereafter, on September 28, 2016, the parties reconvened for a hearing on the issue of child support. The trial justice heard testimony from Joel, Denise, and Justin Amico, CPA, who was the accountant for Century and who had prepared the parties' personal income tax returns in the past. Mr. Amico testified that, for the period December 31, 2013, through December 31, 2015, Century retained its excess revenues, thus increasing its stockholder equity. Specifically, Mr. Amico said that Century's total stockholder equity, as of December 31, 2014, was $7, 310, 276, and according to an "Equity Rollforward Sheet" that was introduced into evidence at the hearing, by the close of 2015, the stockholder equity had increased to $8, 361, 919. He also testified that, in 2015, Alliant Insurance Services, Inc., a bonding company, required that Century increase its equity to $10 million. Mr. Amico explained that, if Century failed to meet that requirement, the company "could be denied the ability to get a bond which could jeopardize the employment of the 500 to 700 men that Century Drywall employs." It was Mr. Amico's opinion that complying with such a requirement was a legitimate business interest because there was a risk that the company would not be able to secure bonds as it bid on future work if it was undercapitalized. It was therefore imperative, according to Mr. Amico, that Century retain as much of its working capital and equity as possible.

         Mr. Amico further testified that, with respect to 2015, Century had $2, 692, 793 in net income. Of that amount, $1, 641, 150 was distributed to Joel; he used those funds to pay for taxes on the corporation's net income, the note payment obligations to John and to Mr. Elliott, and a premium on his life insurance policy. Mr. Amico testified that the remainder of the corporation's 2015 net income, which was approximately $1 million, was retained by the corporation to increase its stockholder equity. It was Mr. Amico's opinion that the distributions that were made to Joel for tax liabilities, as well as the note payments for buying out former shareholders, did not inure to Joel's personal benefit. Moreover, Mr. Amico opined that he never detected any use of Century's revenues for any purpose other than the distributions as set forth in the balance sheet.

         The trial justice then asked Mr. Amico directly what the court should use to determine Joel's gross income, to which Mr. Amico replied: "His W-2 wages, his interest and dividends from his brokerage accounts, and any other rental income." After the court further inquired as to whether Century's distributions should be included in Joel's gross income, Mr. Amico specified that Century's profits were never distributed to enhance lifestyles and that, based on his experience with Century, including the distributions in Joel's gross income for child support purposes "would significantly enhance [Tiffany's] standard of living beyond what's been provided to date[.]" Mr. Amico further explained that, if Century began to distribute profits to Joel, thus making them available for his personal use, the bonding company might well reject Century's future bond requests because Century would be "too big and under-capitalized," which would force the company to shrink and would jeopardize the jobs of its workers.

         Joel was next to testify; he said that, just a month prior, he had paid Tiffany's school tuition bill, which was $21, 800. He also testified that, as part of the marital settlement agreement, he had just recently paid Denise the sum of $2 million. Further, before that payment, he had remitted $274, 000 to her for her interest in certain real estate, and $251, 048, representing half of the former couple's 2015 tax refund. Moreover, Joel testified that, under the terms of the recently signed marital settlement agreement, he was also obligated to make, and fully anticipated making, a payment to Denise for $180, 000 on October 1, 2016, as well as another payment of $10, 000 on that same date and every month thereafter for a period of 120 months. He confirmed that, in total, Denise had received $2, 725, 660 in cash from him, in addition to the interest she retained in various bank accounts, brokerage accounts, real estate, and other investments.

         Joel further testified that, after Denise filed her motion for temporary allowances, he had begun to make voluntary monthly child support payments to Denise in the amount of $2, 444 per month. That figure, according to Joel, was based on the 2014 wages that were included in his W-2 form, which was $299, 325, as well as $257 per month in taxable interest that he received on the joint marital account. With respect to 2015, Joel stated that his wages were $278, 344, or $23, 195 per month, plus $246 per month in taxable interest on the joint marital account. To compute Joel's gross income for child support purposes, the 2015 figures were used by Joel's counsel to complete a child support guideline worksheet that was introduced into evidence. In finalizing that worksheet, Joel also suggested that a four percent return could be expected on the $2, 725, 660 that had been transferred to Denise when the marital assets were distributed.[3] Based on that worksheet, Joel maintained that his child support obligation should be $1, 765 per month. He also testified that, prior to 2011, there were years where he had taken personal distributions from Century; however, he said that none of the distributions since that time had inured to his personal benefit.

         When Denise took the witness stand, she provided the court with an extensive list of expenses that she alleged were needed to maintain Tiffany's lifestyle. Included in those expenses were the following: $700 to $800 per month to spend at the mall and for other activities with her friends; $575 every four to six weeks for hair extension maintenance; over $200 per month for hair products; $275 per month on manicures, pedicures, and acrylic nails; $150 to $200 every two weeks on cosmetics; $150 to $200 per month on foot reflexology and massages; between $10, 000 to $11, 000 per year for vacations, including the cost of bringing one of Tiffany's friends along; $425 per month on clothing and shoes; and $150 per month for functions attended by Tiffany.

         On December 14, 2016, the trial justice rendered a bench decision. He first made note of the payments that Denise had received, as well as the payments that remained due to her as a result of the marital settlement agreement. The trial justice then found that Joel's gross salary for 2015 was $278, 344, and that he was the 100 percent shareholder of Century. Furthermore, he made a finding that Century's 2015 net income of $1, 051, 643 was retained by the corporation as working capital for a legitimate business reason, and that the retained earnings were not used to shield or manipulate Joel's income in an effort to reduce or avoid his child support obligation. In arriving at his conclusion, the trial justice relied upon the testimony that Mr. Amico had given at the child support hearing. He found that testimony to be "uncontradicted" and "very informative and quite credible[.]"

         He also found that Century's total distributions to Joel in 2015 did not inure to Joel's benefit and that they should not be included in Joel's gross income calculation for child support purposes. Specifically, the court held that the 2015 distribution to Joel in the amount of $1, 235, 846, which had been used to satisfy Century's tax obligations, was reported on Joel's income tax return because of the corporation's classification under Subchapter S of the Internal Revenue Code, and that Joel actually had received no portion of that distribution, nor had the distribution inured to his personal benefit in any way. The trial justice also found that a separate 2015 distribution to Joel that had been used to make payments on the promissory notes to the two former shareholders did not inure to Joel's benefit. Similarly, the trial justice held that Joel had not received any portion of another 2015 distribution to him that had been used to pay his life insurance premium. Finally, the trial justice determined that no profits from Century had been dispensed to enhance Joel's lifestyle since the year 2011.

         With respect to Denise's original request for an order on interim child support, the trial justice summarized the proceedings as follows:

"[T]here was some confusion at the time this case initiated relative to a request for temporary orders, as there had not been one earlier, in that the parties had apparently accomplished that by some type of payment of moneys through an account that they both had control over; but, in any event, the Defendant, in fact, filed a motion for temporary allowances, wherein child support was requested on November 30 of 2015. Plaintiff, in fact, filed an objection thereto, and a hearing was held on both the motion and objection back in December, almost exactly to the date, December 16th, 2015. A consent order was filed, but there there [sic] was no child support obligation set forth in that order because of the prior practice of * * * the parties * * *; however, the Court notes for the record that the Plaintiff has been paying the sum of $2, 444 per month in child support, pursuant to a Guideline prepared by Plaintiff's counsel, at least since January of this particular year."

         The trial justice also found that there had been no evidence submitted that would indicate that Tiffany had any financial resources other than from her parents, that the parties' standard of living "was sustained for the most part solely by [Joel's] wages and the parties' taxable interest received on investments[, ]" and that there was no evidence that Tiffany's lifestyle had changed since the parties separated in 2013. Moreover, the court found that the "number of expenses introduced by [Denise] relative to the minor child" were "not only incredulous, but outrageous in some fashion, concerning hair extensions, acrylic nails, foot reflexology, the clothing amount per month, and a number of other expenses."[4] The trial justice also found that a majority of Joel's assets were not liquid, as opposed to Denise's assets, which Joel was paying to her in cash.

         The trial justice then found that, based on Joel's 2015 tax returns, Joel's income consisted of the following: "$23, 195 per month in wages and $246 per month in taxable interest from various moneys that were in a joint Schwab account, for a total of $23, 441" per month. He calculated Denise's gross income to be $6, 750 per month, which was based on a three percent rate of return on Denise's share of the marital estate.[5]

         Final judgment was entered on December 19, 2016, and an order summarizing the factual findings of the trial justice's decision was entered on December 28, 2016. On that same day, Denise timely appealed the December 19, 2016 judgment.[6]

         II

         Standard of Review

         At the outset, we will address an argument raised by Denise in her Rule 12(A) Statement regarding the applicable standard of review. She argues that the trial justice's "misinterpretation and disregard of the formula set forth in the R.I. Child Support Guidelines is a question of law subject to de novo review by this Court." We disagree. It is axiomatic that "[q]uestions of law in an appeal from the Family Court * * * are reviewed de novo." Vieira v. Hussein-Vieira, 150 A.3d 611, 615-16 (R.I. 2016) (quoting Palin v. Palin, 41 A.3d 248, 253 (R.I. 2012)). However, in Vieira, the plaintiff claimed, inter alia, that the trial justice erred in calculating his child support obligation by not considering the child support guidelines because an appropriate worksheet was not filed during the course of the divorce proceedings. Id. at 618. We reviewed the trial justice's determination-his failure to consider the child support guidelines-under an abuse of discretion standard. Id. The same holds true here with respect to all the arguments made by Denise in this appeal.

         "General Laws 1956 § 15-5-16.2(a) provides that the Family Court shall order either or both parents owing a duty of support to a child to pay an amount based upon a formula and guidelines adopted by an administrative order of the Family Court." Vieira, 150 A.3d at 618 (brackets omitted) (quoting Waters v. Magee, 877 A.2d 658, 665 (R.I. 2005); see § 15-5-16.2(a). "Moreover, 'we consistently have held that § 15-5-16.2, in conjunction with the support guidelines, requires the trial justice to review the worksheet to determine the base level of child support that the noncustodial parent is required to pay.'" Id. (brackets omitted) (quoting Cardinale v. Cardinale, 889 A.2d 210, 221 (R.I. 2006)). "It is well established that the appropriate award of child support is to be determined by the trial justice in his or her sound discretion, and we shall not disturb such a determination on review absent a clear abuse of that discretion." Tamayo, 15 A.3d at 1035 (quoting Mattera v. Mattera, 669 A.2d 538, 542 (R.I. 1996)).

         III

...


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