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In Bach, the Second District held that the trial court did not abuse its discretion by estimating the father's income based on other information in the record where the father was evasive, forgetful, kept poor business records and the trial court was therefore skeptical about his credibility.
Summary of this case from Cullimore v. CullimoreOpinion
C.A. Case No. 17497. T.C. Case No. 97-DR-85.
Rendered on the 10th day of September 10, 1999.
L. ANTHONY LUSH, Attorney for Plaintiff-Appellee.
JOSE M. LOPEZ, Attorney for Defendant-Appellant.
OPINION
This case is before us on the appeal of Robert Bach from a final judgment and decree of divorce issued on September 28, 1998. In support of his appeal, Bach raises the following assignments of error:
I. The trial court erred in its division of marital assets and liabilities.
II. The trial court erred in finding Appellant guilty of financial misconduct.
III. The trial court abused its discretion in imputing to Defendant an amount of income which is wholly unsupported by the evidence.
After considering the record and the applicable law, we find the assignments of error without merit, except for one issue raised in the first assignment of error. Consequently, the trial court's judgment is affirmed in part, and remanded solely for consideration of a single issue, as outlined below.
I
Robert and Kaye Bach were married on August 23, 1975, and were separated in January, 1997, after almost 22 years of marriage. During the marriage, Mrs. Bach was a homemaker and cared for the parties' son, Robert. Mr. Bach operated three businesses that he had started before the marriage: Bach's Body Shop, Bach's Auto Parts, and West Third Auto Sales. Most of the testimony at the divorce hearing centered on financial transactions related to these businesses and the value of various property acquired during the marriage. In the first assignment of error, Mr. Bach contends that the trial court's division of marital assets and liabilities was erroneous. In this regard, Bach's first claim is that the trial court's attitude was unreasonable and reflected the court's dislike for him. In particular, Bach focuses on the court's remark in the judgment entry that Mr. Bach was "forgetful, evasive, and sometimes combative with counsel." Additionally, Bach relies on the court's comments that Bach's business record-keeping was "shoddy" and that Bach's testimony lacked credibility, especially on financial matters.
For purposes of evaluating the trial court's division of assets, a reviewing court decides, after considering the totality of circumstances, whether the trial court abused its discretion. Helton v. Helton (1996), 114 Ohio App.3d 683, 685 (citations omitted). An abuse of discretion means "more than an error of law or judgment; it implies that the court's attitude is unreasonable, arbitrary or unconscionable." Blakemore v. Blakemore (1983), 5 Ohio St.3d 217, 219. After reading the transcript and record in this case, we find no evidence of an unreasonable attitude on the trial court's part. Concerning credibility, the trial court said in its judgment entry that Mr. Bach:
was forgetful, evasive, and sometimes combative with counsel, even his own. Defendant [Mr. Bach] kept business records of a quality that ranged from "shoddy" to "none." Defendant operated what was in part a cash business in which he collected and disbursed cash sums without adequate documentation. Despite the pendency of this case for nearly two years, defendant failed to produce documents critical to the evaluation of this business and to the conduct of trial. * * * Personal financial statements which he signed for purposes other than litigation prove far greater income and assets than he alleged during trial. He characterized his personal financial statements as "misstatements to the bank." * * * Defendant at trial attempted to convert his own financial statements, his own business records, his own financial disclosure affidavits, and his own tax returns.
The record more than amply supports the trial court's statements. The divorce action was filed in January, 1997, and a temporary support order, requiring Mr. Bach to pay support to his wife, was filed on February 13, 1997. During the year and a half that the divorce action was pending, Mrs. Bach had to file four motions to force payment of the temporary support. Mr. Bach was found in contempt twice by the court, on April 23, 1997, and November 11, 1997. On both occasions, thirty day jail sentences were imposed, but were suspended, contingent on the payment of support as ordered. Even after the second contempt finding, Mrs. Bach had to file another motion to show cause for non-payment of support on January 14, 1998, and a motion to impose sentence on July 14, 1998. Furthermore, at one of the divorce hearings held on April 2, 1998, Mr. Bach admittedly had not made the support payment required the previous day. When he was questioned about whether he intended to comply with the court's existing order to pay support, he responded by saying, "I want to see how things go on here, to be truthful." Mr. Bach also allowed health insurance for his wife, a cancer patient in remission, to lapse in October, 1997, allegedly because he could not afford to pay the premiums. This particular act was in violation of a court order of January 22, 1997, prohibiting him from canceling his wife's health insurance.
During an early hearing on support issues held before a magistrate on October 30, 1997, Mr. Bach said he did not have enough money to pay support. At that time, he said he had been paying his ongoing monthly obligations from a $88,000 settlement he had received. He even claimed his businesses had done so poorly that he could not pay himself any wages or rent from February to October, 1997. This was also the time period when Mr. Bach failed to pay health insurance premiums, thereby allowing the insurance to lapse (Mrs. Bach did not become aware of the lapse until about February, 1998).
In contrast to Mr. Bach's claims of poverty, the evidence at the divorce hearings indicated that during 1997, Mr. Bach spent almost $39,000 on an ex-wife, including the following amounts: $5,000 to move her to Dayton from Florida; $3,500 for her hospitalization and doctor bills; a $5,000 cash gift; $9,000 for an unspecified expense (Bach claimed he could not recall on what this amount had been spent); and $550 for airline flights for the ex-wife's daughter to visit Dayton. Additionally, Mr. Bach gave his ex-wife a $7,000 diamond ring, which he allegedly received in exchange for car repairs totaling $2,300. According to Mr. Bach, he financed these expenditures by selling "Corvette parts" he had collected before his marriage, some twenty-two years earlier. However, he was unable to present documentation of this at the hearing.
Moreover, although Mr. Bach received $88,000 in 1997 from the State of Ohio for an appropriation of some of his property, he could not account for how more than $7,000 of this money had been spent. Again, although Bach said he used the money to pay bills and to "get current" with the Internal Revenue Service, he did not provide documentation to verify his testimony. And finally, during the pendency of the divorce action, Bach was also able to deposit $30,000 to $40,000 a month in several different business accounts.
Without going into intricate detail about the testimony, which covered several days of hearings, we note that the record contains, besides the above facts, numerous examples of why the trial court would have questioned Mr. Bach's credibility. As just one example, Mr. Bach claimed he should receive a credit for $34,680 he had inherited and had spent on the marital premises. According to Mr. Bach, the money was spent on windows, a new roof, and a swimming pool. However, the swimming pool was built in 1981, and the money was not inherited until 1987. Moreover, while Mr. Bach claimed he had records to support his testimony about the inheritance and the amounts spent, he produced no such records at the hearing. As a further example, Mr. Bach said in financial statements to his bank that he owned cars and trucks valued at $499,000 in 1993, and at $550,000 in October, 1995. Other equipment, like a backhoe, forklift, front-loader, etc., was valued at $130,000. However, at trial, Mr. Bach testified that he had made misstatements to the bank. He said instead that his cars and trucks were worth $50,000 to $75,000 at most. Under the totality of the circumstances, the trial court was well-justified in disbelieving any or all of Bach's testimony. And, we must defer to the trial court's findings if supported by competent, credible evidence, since the trial court has the best chance to assess credibility. Gibson v. Gibson, (Mar. 26, 1996), Clark App. No. 95CA87, unreported (citations omitted).
The next argument in support of the first assignment of error is that the trial court improperly valued one of Mr. Bach's businesses (Bach's Body Shop) at $200,000. The court's estimate was based on the testimony of a court-appointed expert, who valued the business at this amount. In its entry, the court said that "[t]his value would have been higher by some $158,000 but the expert included in the calculation of value several loans to the corporation." Mr. Bach contends this statement was erroneous because the expert did not subtract the loans. Mr. Bach also believes the court should have accepted Bach's own testimony that the business was worth nothing.
A domestic relations court does not have to use a particular valuation method to decide the value of a marital asset. Zeefe v. Zeefe (1998), 125 Ohio App.3d 600, 612. In the present case, the court-appointed expert said his opinion was based on gross revenues of the body shop, which ranged, according to tax returns, between $300,000 and $387,000 per year. The expert also said he was aware of business loans in the amount of $85,000 and $73,000. However, he indicated these loans should not be subtracted from the value of the business because the valuation method he used was not assets-based.
Although the court's language could have been more precise in describing the expert's method, the court did follow the expert's approach by disregarding the loans. Thus, the court valued the business at $200,000 (consistent with the expert's opinion), and awarded Mr. Bach $80,000 as a pre-marital asset (consistent with Mr. Bach's testimony). We also note that Bach presented no documentation, other than tax returns, to support his own claim that the business had no value. Moreover, for the reasons mentioned earlier, the court did not abuse its discretion in disregarding Mr. Bach's opinion about value or in failing to value the business at zero because the tax returns showed a loss.
Specifically, both Mr. Bach's opinion and the loss shown on the tax returns were properly viewed with some skepticism. In this regard, Mrs. Bach, who had helped in the business during most of 1996, testified that the majority of customers paid cash and that substantial amounts of cash were generated. In fact, she estimated Mr. Bach's income at about $200,000 per year, based on what she knew he had paid himself and what payments came across the desk when she worked at the body shop. By contrast, Mr. Bach said the body shop was not a cash business, and he estimated the percentage of cash customers as less than 20%. He generally reported only about $26,000 in wages on his income tax returns, and the corporate returns showed a loss. In fact, for the year after the divorce was filed, Mr. Bach's W-2 showed wages of only $7,000, despite the fact that he was working 75-80 hours a week. Again, this testimony of Mr. Bach lacks credibility and we find no error in the trial court's decision on the value of the body shop.
As a third point in support of the first assignment of error, Mr. Bach says the trial court erred in valuing a second business, West Third Auto Sales. Through this business, Mr. Bach bought and rebuilt cars, and then resold them. The primary assets of West Third Auto Sales were autos and trucks, which Mr. Bach valued at amounts ranging from $499,000 to more than $550,000 in pre-divorce bank financial statements. As was mentioned above, Mr. Bach testified that he had misled the bank. His trial testimony also was that the listed value did not take into consideration what he paid for the cars and trucks or what it would cost to fix them. His estimate of their current value was $50,000 — $75,000 total for all vehicles, but again, no documentation was offered to support his testimony. Based on the evidence and Mr. Bach's lack of credibility, the trial court could have justifiably assessed the value at the amounts listed in the bank statements. However, the court reduced the value by a significant percentage for exaggeration, and found the value of the vehicles to be $225,000. We cannot say the trial court erred in this finding, in view of Mr. Bach's representation of value on numerous financial documents prepared before the divorce action was filed. Mr. Bach's next argument is that the trial court erred in valuing the marital premises. In this regard, Bach claims the trial court failed to credit him with two sums — $29,000 of premarital funds and $34,160 from an inheritance. Allegedly, these funds were used to improve the marital premises. As we noted above, Mr. Bach submitted no documentation to support his claims about payments that he made using separate funds. Therefore, the trial court did not have to accept Mr. Bach's statements and did not err in failing to credit him for payments he failed to prove.
The final point raised in connection with the division of assets is the award to Mrs. Bach of the cash surrender value of various life insurance annuities, in the total amount of $95,515. Mr. Bach contends this award was an abuse of discretion because these annuities were the parties' only retirement savings. He also argues that cashing in the annuities will result in a severe penalty. In the context of distribution of pension or retirement benefits, the Ohio Supreme Court has said that "the trial court must apply its discretion based upon the circumstances of the case, the status of the parties, the nature, terms and conditions of the pension or retirement plan, and the reasonableness of the result." Hoyt v. Hoyt (1990), 53 Ohio St.3d 177. Applying these criteria in the present case, we cannot find that the trial court's attitude was unreasonable, arbitrary, or unconscionable. First of all, these annuities, although perhaps intended for retirement, were not, strictly speaking, a pension or retirement plan. Second, the penalty (the amount of which was never discussed), would likely be borne by the party cashing in the annuity. Third, while both parties were nearing possible retirement age, Mrs. Bach had not been employed outside the home for about twenty years, and did not possess significant marketable skills that would allow her to amass retirement funds. By contrast, Mr. Bach retained all three businesses and had the ability to generate substantial income. And, although Mr. Bach testified otherwise, the trial court clearly believed that Mr. Bach's businesses were far more profitable than Mr. Bach would admit. As we stressed, the trial court was in a better position than we are to assess the credibility of the parties. Finally, we also note that Mr. Bach received substantial marital assets, in the amount of about $442,592. Consequently, we find no abuse of discretion in the award of the annuities to Mrs. Bach.
As a further point, Mr. Bach claims that the trial court erred in assessing liabilities because the trial court only ordered Mrs. Bach to pay one marital debt, while requiring Mr. Bach to pay $12,931. While this is true, the trial court compensated for this by awarding Mr. Bach a proportionately larger share of assets. Again, we find no abuse of discretion in this regard, taking into consideration the standards we are required to apply for abuse of discretion.
The final matter raised in connection with the first assignment of error is that the trial court erred by including the passive appreciation of Mr. Bach's separate property in marital assets. This appreciation resulted from a $7,500 increase in value of two parcels of property on which Mr. Bach operated his businesses. In Middendorf v. Middendorf (1998), 82 Ohio St.3d 397, the Ohio Supreme Court said that:
when either spouse makes a labor, money, or in-kind contribution that causes an increase in the value of separate property, that increase in value is deemed marital property. * * * R.C. 3105.171(A)(3)(a)(iii) requires only an expenditure or effort by either spouse. Thus, * * * an increase in the value of separate property due to either spouse's efforts is marital property.
Id. at 400. After reviewing the facts in the case, the court in Middendorf found that an increase in the value of a business was due to the husband's efforts during the marriage, and was, therefore, marital property. However, the item in question in that case was the business itself, which prospered due to management decisions, not as a result of uncontrollable matters like market fluctuation. In comparison, the present case involves real property, which can appreciate based on market conditions, without the expenditure of effort by an owner. On the other hand, the value may not increase, and may even decline if the owner does not properly maintain the property.
Because the increases in the value of Bach's real property were stipulated and because the evidence at trial did not reveal the cause of the increases, we cannot determine whether they should be deemed "marital" or "separate," as those terms have been construed by the Ohio Supreme Court. For the same reasons, the trial court did not have enough information to evaluate this matter. Accordingly, this portion only of the first assignment of error must be sustained. This case will be remanded to the trial court for presentation of evidence solely on the issue of whether the $7,500 appreciation in property values was attributable to the efforts of Mr. Bach or was due to other factors, like market fluctuation in property values.
Based on the preceding analysis, the first assignment of error is sustained, but only to the extent just discussed. In all other respects, the first assignment of error is overruled.
II
In the second assignment of error, Mr. Bach contends that the trial court erred in finding him guilty of financial misconduct. Under R.C. 3105.171(E)(3), the court may compensate an offended spouse with a distributive award or with a greater share of marital property if the other spouse has engaged in financial misconduct. In this context, the trial court made specific factual findings about Mr. Bach's financial misconduct, and noted that:
[i]n addition, despite the best professional efforts of experienced trial counsel on his behalf, defendant violated the court's restraining orders, ignored the court's support orders, wasted the marital estate, thwarted the discovery process, and mislead [sic] the court-appointed expert.
Based on our discussion of the first assignment of error, we find the trial court's findings and decision well-supported by the record. Concerning the financial misconduct award itself, the court stressed that while the full amount of damage could not be determined due to Mr. Bach's lack of financial records, the minimum amount was $39,000 (or about the amount of money Mr. Bach spent on his ex-wife during the time he allowed health insurance to lapse and was held in contempt for failing to pay temporary support). Accordingly, the trial court awarded Mrs. Bach an additional $19,500 from Mr. Bach's share of the marital assets.
Mr. Bach believes the trial court erred in making a financial misconduct award because Mrs. Bach failed to prove that he either profited from the alleged misconduct or that he interfered with the distribution of marital assets. While Mr. Bach concedes an inference of wrong-doing may have arisen from the timing of his actions, he contends that any such presumption disappeared when he offered evidence that the property he received and the property he disposed of was not marital property. For example, in his appellate brief, Mr. Bach admits he spent about $25,450 on his ex-wife during the pendency of the divorce action, i.e., during the same time he violated court orders. The evidence allegedly dissipating the inference of wrong-doing is Mr. Bach's own testimony that this money was obtained through the sale of Corvette parts he had accumulated more than twenty-two years earlier. The problem, however, with this argument is that it requires one to assume that Mr. Bach was truthful about his financial dealings. It also requires an assumption of facts not in evidence, i.e., Mr. Bach did not produce documentation to support his claims. Specifically, receipts for Bach's purchase of the parts and for their later sale could have been produced, and may have gone a long way in convincing the trial court of the validity of Bach's claim. However, no such receipts were offered. And, as we stressed above, the record is replete with evidence that casts doubt on Mr. Bach's credibility about financial matters.
In the present case, the marital estate was valued at about $885,184, and the trial court divided the estate equally. With the additional $19,500 financial misconduct award, Mrs. Bach's share amounted to about 52% of the estate versus about 48% for Mr. Bach. We find no abuse of discretion in these percentages. Compare, Winkler v. Winkler (1997), 117 Ohio App.3d 247 (award of 57% of marital estate to offended spouse and 43% to spouse guilty of financial misconduct was not an abuse of discretion). The court in Winkler also emphasized that the offending spouse could not reasonably expect a more detailed breakdown of the estate in view of his "contemptuous conduct and disregard for rules of discovery throughout * * * [the] proceedings." Id. at 252. The same could be said here.
As a final point, Mr. Bach claims Mrs. Bach also was guilty of financial misconduct because she took a small sum from a savings account (between $250 and $500) and cashed some of Mr. Bach's checks (about $2,468) at the time she left home. Additionally, Mrs. Bach cashed in a life insurance policy on her own life in the amount of about $7,000. According to Mrs. Bach, she used the money to pay a $5,000 retainer for her legal expenses and for living expenses, because obtaining temporary support took some time. Furthermore, Mrs. Bach was unable to work due to doctor's orders, and, therefore, had no viable source of income. The trial court awarded the insurance policy to Mrs. Bach as part of her share of the marital estate and did not find that she was guilty of misconduct. In light of our review of the record and the circumstances of this case, we find no abuse of discretion by the trial court in this regard.
Based on the preceding analysis, the second assignment of error is overruled.
III
In the final assignment of error, Mr. Bach contends that the trial court abused its discretion in imputing an amount of income to him that is not supported by the evidence. Again, our review of this issue is limited to deciding if the trial court acted in an unreasonable, arbitrary, or unconscionable manner. Graham v. Graham (1994), 98 Ohio App.3d 396, 399.
Generally, income is imputed where a party either earned a certain amount of income or earned no income at all, but is held accountable for the amount that could have been earned if an effort had been made. See, e.g., Petrusch v. Petrusch (Mar. 17, 1997), Montgomery App. No. 15960, unreported, and Donese v. Donese (Apr. 10, 1998), Greene App. No. 97-CA-70, unreported. In the present case, Mr. Bach's 1995 tax return showed an income of $48,600, including rental income and depreciation. Bach contends that figure should have been used, instead of $85,250, which included an amount imputed by the court. The court's basis for imputing income was not that Mr. Bach could have earned more with effort. Instead, the court focused on the fact that Bach's income could only be estimated. In view of the court's reservations about Bach's credibility in financial matters and concealment of income, this was not an unreasonable finding. To determine Bach's income, the court relied on the affidavit of expenses filed by Bach in the divorce action on January 28, 1997, which showed living expenses of $50,200 annually and an additional $16,000 paid annually toward credit obligations. Based on these amounts, and using a conservative tax rate of 25%, the court found that Mr. Bach would have to earn $85,250 annually to meet his actual claimed obligations. Additionally, the court noted that Bach had claimed a net worth of 1.5 million in 1995, generated almost entirely from his own efforts.
After deciding the amount of Mr. Bach's estimated income, the court reviewed many other factors, including the duration of the marriage, the ages and relative health of the parties, current living expenses, lack of employment experience of the wife, and so on. The court then ordered spousal support to Mrs. Bach in the amount of $2,000 per month until further order of the court. This amount, after addition of rental income and deduction for income taxes, would provide Mrs. Bach with about $21,000 annually to live on. By contrast, Mr. Bach would have an annual income of about $46,100 after deduction of estimated taxes and spousal support.
We find no abuse of discretion on the trial court's part. We note that the court could have chosen to believe Mrs. Bach's estimate of her husband's average income, i.e., $200,000 annually. In that event, the spousal support amount could have been much larger. Instead, the court used the figures supplied by Mr. Bach and logically estimated what Bach's annual income would be. This was a reasonable approach.
In light of the preceding discussion, the third assignment of error is without merit and is overruled.
Having found Mr. Bach's arguments without merit, we affirm the judgment of the trial court, except that portion which classifies the appreciation in the property values of parcels of real estate at 5520 West Third Street and 5997 West Third Street ($7,500 total) as marital property. Accordingly, this case is affirmed in part, reversed in part, and remanded to the trial court for presentation of evidence solely on the issue of whether the $7,500 appreciation in property values was attributable to the efforts of the parties or was due to other factors, like market fluctuation in property values. Costs are assessed against Appellant.
FAIN, J., and KERNS, J., concur.
(Honorable Joseph D. Kerns, Retired from the Court of Appeals, Second Appellate District, Sitting by Assignment of the Chief Justice of the Supreme Court of Ohio).
Copies mailed to:
L. Anthony Lush
Jose M. Lopez
Hon. V. Michael Brigner