In re Marriage of Moorthy , 2015 IL App (1st) 132077 ( 2015 )

2015 IL App (1st) 132077
FIFTH DIVISION
March 13, 2015
No. 1-13-2077
In re MARRIAGE OF ) Appeal from the Circuit Court
) of Cook County.
DEEPALAKSHMI MOORTHY, )
)
Petitioner-Appellant, )
) No. 02D13868
and )
)
CHANNA MALLIK ARJUNA, ) The Honorable
) Naomi H. Schuster,
Respondent-Appellee. ) Judge, presiding.
_____________________________________________________________________________
PRESIDING JUSTICE PALMER delivered the judgment of the court, with opinion.
Justices Gordon and Reyes concurred in the judgment and opinion.
OPINION
¶1 In June 2003, the trial court entered a judgment dissolving the marriage of petitioner,
Deepalakshmi Moorthy, and respondent, Channa Mallik Arjuna. In May 2011, Moorthy filed a
petition to modify the amount of child support Arjuna paid for their daughter. Following an
evidentiary hearing, the trial court entered an order on May 29, 2013, in which it increased the
amount of child support based on Arjuna's current yearly salary, but the trial court held that
Arjuna’s proportionate share of the retained earnings from his majority-owned subchapter S
corporation should not be imputed to him for purposes of calculating his child support
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obligation. Moorthy appeals that order, contending that the proportionate share of the retained
corporate earnings should be included in Arjuna’s net income in calculating Arjuna's child
support obligation. We affirm.
¶2 I. BACKGROUND 1
¶3 The parties married in December 2000 and, as noted, had one child, Seema Lakshmi
Arjuna, born in March 2002. Moorthy filed a petition for dissolution of marriage on August 27,
2002. The parties do not dispute that the trial court entered a default judgment for dissolution of
marriage on June 5, 2003. It awarded sole custody of the minor to Moorthy and ordered Arjuna
to pay $480 in monthly child support based on 20% of his average net monthly income of $2,401
as an employee of Mahantech Corp. (Mahantech), a company located in West Virginia. The
parties were ordered to share equally any medical expenses not covered by Moorthy's insurance.
At the time, Arjuna lived in West Virginia and he continues to reside there, although he
subsequently remarried and has one child with his current wife, and a stepchild. Moorthy and
Seema have lived in metropolitan Chicago since the filing of the petition for dissolution.
¶4 On May 26, 2011, Moorthy filed a petition to increase child support pursuant to section
510 of the Illinois Marriage and Dissolution of Marriage Act (the Act) (750 ILCS 5/510 (West
2010)) asserting that a substantial change in circumstances occurred. In the petition, Moorthy
argued that, as eight years had passed since the judgment of dissolution was entered, the minor
child, who was now nine years old, had increased needs, and Arjuna's income had also increased.
1
Initially, we note that Arjuna requests that we strike Moorthy's statement of facts in her opening
brief as being argumentative and inaccurate. Illinois Supreme Court Rule 341(h)(6) requires that an
appellant's statement of facts provide a accurate and fair recitation of the pertinent facts without argument
or comment. Ill. S. Ct. R. 341(h)(6) (eff. Feb. 6, 2013). This court may strike a statement of facts where it
fails to comply with this rule. Szczesniak v. CJC Auto Parts, Inc., 2014 IL App (2d) 130636, ¶ 8. Having
reviewed Moorthy's statement of facts and the record and report of proceedings in this case, we do not
find that it contains any such egregious inaccuracies as to hinder our review or warrant the harsh sanction
of striking it. Hall v. Naper Gold Hospitality LLC, 2012 IL App (2d) 111151, ¶ 15.
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Moorthy requested that the court order Arjuna to pay increased child support, to pay half of the
medical insurance for the minor, and to pay a reasonable portion of Moorthy's daycare expenses.
Arjuna filed a response on July 8, 2011, and the parties engaged in discovery. An evidentiary
hearing was conducted on April 5, 2012, and May 22, 2012, at which Moorthy and Arjuna
testified.
¶5 A. Arjuna’s Testimony
¶6 Arjuna was called to testify by Moorthy as an adverse witness. Arjuna testified that he
lives in Charleston, West Virginia, with his current wife, their son, and a stepdaughter. In 2003,
when the dissolution judgment was entered, Arjuna earned a salary of approximately $45,000 as
an employee of Mahantech, which is a software consulting and networking services business.
Arjuna testified that Mahantech was incorporated in Delaware in 1997 or 1998, and a distant
relative, Gorli Hjrash, purchased the company from the original owners. Arjuna explained that
the company was losing money and was going to be shut down, but Arjuna decided to buy it so
that he could take over and run the corporation. He obtained 38% ownership in 2006. He did not
pay anything for the ownership share because the company "was completely negative" and about
to be shut down, and because he had been with Mahantech since 1999. In 2007, he acquired 91%
of Mahantech, with the remaining 9% owned by Hjrash. Arjuna paid $500 for the 91%. He also
testified that loans were taken out for the business, but he did not know whether he personally
guaranteed them. He testified that he believed it was less than $200,000, but this had since been
paid off.
¶7 Arjuna explained that because Mahantech is a subchapter S corporation, it does not pay
federal corporate taxes on its income. Instead, he receives a schedule K-1 form from the
company as one of the owners. His federal tax return for 2007 showed K-1 income of $108,433,
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but he testified that this amount was the K-1 income from Mahantech. He explained that this
amount was not money that he actually took home. He testified that the money "stays in the
company" and that "[t]he company paid the tax" under his name. Arjuna testified that an
accountant handles Mahantech's taxes. He indicated that his accountant calculates the taxes
owed from Mahantech's income and the taxes are paid by Mahantech but under Arjuna's name
since the subchapter S corporation does not pay taxes. He testified that his accountant logs on to
Mahantech's online account with the Internal Revenue Service (IRS) and inputs the amount of
money owed, and the money is paid out of Mahantech's bank account. Arjuna conceded that the
taxes owed for Mahantech's income were his liability and not the corporation's liability. He
testified that the "S corporation cannot pay the taxes. It has to be paid by the owner of the
corporation." Arjuna testified that he includes the corporation's K-1 income on his personal tax
return and the amount shown as total taxes owed on his tax return included the tax on
Mahantech's income. He testified that on his W-2 form, he received $50,000 in gross income and
he paid taxes on that as well. His individual tax return also showed that his wife had income of
$31,759 as a database administrator and income of $35,000 as a contractor for other companies.
She was previously employed by Mahantech, but she left when Arjuna bought the company
because he did not want family to be involved. However, she occasionally did some contract
work for the company.
¶8 Similarly, for 2008, Arjuna testified that his tax return showed that he earned a salary of
$50,000 with K-1 income of $91,071. Arjuna testified that the 2008 corporate tax return for
Mahantech showed business income of $102,000.
¶9 In 2009, Arjuna’s tax return showed that he again received a salary of $50,000. He
testified that the 2009 corporate tax return for Mahantech showed ordinary business income of
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$129,634. Thus, $117,967 was attributed to Arjuna for his 91% share. Arjuna testified that on
his 2009 schedule K-1, it showed a nontaxable distribution of $211,077. Arjuna testified that
under state tax law in West Virginia, a company pays a 2% tax on any money in its bank account
as of the last business day of the year. Therefore, his accountant advised Arjuna to take the
money out of Mahantech's account on the last business day of the year, and then put the money
back into the account on the first business day of the next year in order to avoid paying this tax.
Arjuna explained that he obtained a cashier's check for the amount, he did not deposit it in his
own account or anywhere else, and he redeposited the same cashier’s check into the
corporation’s account on the first business day of the next year. Arjuna therefore held the
cashier's check in his possession for approximately 48 hours.
¶ 10 With respect to 2010, Arjuna testified that his K-1 income from Mahantech was
$117,281. The 2010 tax return for Mahantech showed ordinary business income of $129,119. As
in 2009, the 2010 return also showed a distribution of $116,000, and Arjuna testified that he
repeated the same action—taking out the amount in the Mahantech account at the end of the year
in a cashier's check and then redepositing the same check back into the corporate account in the
new year.
¶ 11 Arjuna testified that his W-2 form from 2011 showed that he received a salary of
$50,000. He testified that he was unsure whether he would receive the same salary in 2012
because business was down, and he would pay his employees before himself. A paystub from
March 31, 2012, showed he earned a monthly income of $4,166.67. He testified that in 2011,
Mahantech showed ordinary business income of only $25,429, which was significantly less than
in prior years. The schedule K-1 form for 2011 showed income attributed to him in the amount
of $21,105. Arjuna also testified that he went through the same procedure as in prior years in
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obtaining a cashier's check for the amount in Mahantech’s bank account on the last business day
of the year and redepositing the amount back into the account in the new year. He testified that
he believed that Mahantech's bank account had a balance of approximately $220,000 on the last
day of 2011.
¶ 12 Arjuna agreed that in the years 2007, 2008, 2009, and 2010, the corporation's earnings
were greater than its expenses. Arjuna testified that he has never taken any money out of
Mahantech other than for his salary and to pay taxes, except that in 2010, he took approximately
$7,000 out to buy a plane ticket to visit his family in India because of a family emergency and he
did not otherwise have the money to purchase the flight. He testified that the corporation
currently had no debt, but the company was in the negative when he became owner and he was
trying to make sure that all the corporation’s obligations were met.
¶ 13 He testified that his salary was decided by the owners when he bought the company.
When asked if he could increase his salary to $60,000, he testified that he could not because
Mahantech "needs the working capital. If I had to take the money from the payroll, I cannot. ***
It is a small company. Every penny counts in the company." He testified that with the $50,000
salary he receives, he was "living a very simple, I could say loyal [sic] middle class level of
living because I am devoting myself towards this to give a better life for my kids." He testified
that he does "have a lot of issues. I want this or that, but I have to sacrifice to make something
good for the family and the future."
¶ 14 Arjuna testified that Mahantech needed sufficient funds to support payroll and to pay
employee taxes, unemployment taxes, health benefits, business liability insurance, worker's
compensation insurance, business auto insurance, business theft insurance, and accounting and
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tax expenses. The various insurance policies that Mahantech required, such as worker’s
compensation insurance and business auto insurance, cost approximately $15,000 every year.
¶ 15 Arjuna testified that he had five salaried employees who work as programmers on-site
with clients to help with computer network problems. He testified that Mahantech had
approximately $50,000 to $60,000 in employee salary requirements per month. He provided the
following examples of current employee contracts to which Mahantech was bound: (1) a contract
for 2012 at a rate of $12,800 per month; (2) a contract with a 40-hour-per-week requirement and
a salary of $70,000; (3) a contract for $5,000 per month; (4) a contract to pay an employee
$12,809.55 per month; (5) a contract for $4,000 per month; (6) a contract for $61 per hour, plus
benefits; (7) a contract to pay an hourly rate of $75 per hour; and (8) a contract to pay $5,000 per
month, plus benefits. Arjuna testified that Mahantech had to pay the salaries for employees under
these contracts regardless of whether it had a project for them to work on. Arjuna did not have a
contract for himself as an employee; he was the only "at-will" employee.
¶ 16 With regard to Mahantech’s expenses and deductions as reflected on the corporation’s tax
returns, Arjuna testified that, in 2008, the gross sales for Mahantech totaled $1,512,738. The
company paid salaries and wages in the amount of $551,621. There was a deduction for
$517,829, which represented professional fees, accounting fees, legal fees, work visa expenses,
and consulting expenses. Mahantech’s employees were "H1B" employees who were in the
United States on work visas, and obtaining and maintaining these visas comprised a significant
expense to Mahantech. The legal expenses were incurred for managing the work visas and for
applying to a federal minority certification program. Mahantech also had to pay filing fees for
the work visas, which were $1,000 to $3,000 each time something had to be filed, such as when
an employee changed client locations. Mahantech also filed applications to sponsor all of its
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employees, except one, to obtain a three-year extension on their work visas, which last for six
years, and to obtain green card applications, which were approved. He testified that if Mahantech
is not able to find a project within a reasonable time period, it was the company's responsibility
to send the employee and his family back to his home country and pay travel and relocation
expenses. He denied that he could lay off his work visa employees if there was no work for them.
He testified, "I cannot lay them off. One thing, if I lay them off, I have to—the company has to
pay the money for that employee and that employee's spouse and everybody to send back to their
home country." Also, even if Mahantech was one day late in paying payroll, the employees could
report Arjuna to the immigration service as he would be violating federal regulations.
¶ 17 In addition, Arjuna testified that Mahantech paid a large amount of money for consulting
or contract work to another company for that company's employees to work on Mahantech's
projects with Mahantech's clients. Arjuna testified that he currently was not using any contract or
consultant labor. He testified that his clients prefer his permanent employees instead of contract
workers because they were more likely to stay for the duration of a project.
¶ 18 He testified that Mahantech currently had five contracts with other companies. He
testified that the clients typically pay Mahantech monthly; he sends an invoice at the end of the
month, and once billing rates are agreed on, the client takes 15 to 30 days to pay. He testified that
"[m]ost of the time I get paid on time," but sometimes a client delays payment, and in that case,
Mahantech still had to cover its payroll and other expenses while waiting to receive the client’s
payment. Arjuna testified that two contracts with customers would end in 2012 and that "this last
year was getting worse" and Mahantech "may end up negative" or with only a few thousand
dollars.
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¶ 19 Arjuna explained that Mahantech’s gross receipts decreased in 2011 because a few
contracts with one local company, Technology Solutions, ended in 2010. He testified that
Technology Solutions comprised 60% or more of Mahantech's business in 2010, but less than
5% of its business in 2011, and none of its business in 2012. Technology Solutions, in turn, did
business with a worker's compensation insurer, but the insurer's business decreased drastically
after a state-run provider entered the market.
¶ 20 Arjuna also testified that, in the interim between the hearing dates in this case, another
one of the five remaining contracts for Mahantech expired and was not renewed. Arjuna did not
yet have a new project for the employee who had worked on the project that ended, but
Mahantech had to continue paying him, and this money came from its retained earnings.
¶ 21 Arjuna testified that in an effort to increase business, Mahantech became involved in a
federal program for economically and socially disadvantaged minority business owners called
section "8(a) certification," which designated federal money for awarding contracts to minority-
owned companies. It took him two years to obtain the certification. To qualify, the company was
required to be in business for more than three years, be profitable, and the majority owner of the
company was required to have a net worth of less than $250,000. Arjuna testified that to remain
in the program, he had to improve the business and infrastructure and possibly hire someone to
handle writing requests for proposals for the federal projects. The Small Business Administration
monitors the company; Arjuna must submit information quarterly and provide a yearly business
plan. The program also restricted Arjuna from taking out more than $200,000 or $250,000 as a
bonus or salary from the company. Arjuna incurred expenses attending conferences as part of the
federal program. Mahantech had not yet been awarded any federal contracts.
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¶ 22 When asked if, as the 91% owner, he was the one who makes decisions for Mahantech,
Arjuna testified that "according to the company bylaws, I still need to have my other partner to
come to a final decision." He testified that under the bylaws, he "cannot make 100 percent
decision. *** I need to consider the other partner." He testified that he "still need[s] to contact
him [Hjrash], and I need to talk and explain what I'm doing." When asked whether he could
outvote Hjrash if they had a disagreement, Arjuna answered, "Yes." However, upon subsequent
questioning by Moorthy's counsel, Arjuna denied that he was restricted in his ability to make
distributions to himself because of the minority shareholder. He testified, "Not the minority
shareholders. Obligations and—obligations of the business activity. Business needs the money to
support the employees."
¶ 23 Regarding his financial disclosure statement that he submitted in this case, Arjuna
testified that he had $169.47 left each month after paying all of his bills. Regarding Moorthy's
request that Arjuna contribute to Seema's health insurance, he testified that if it was possible to
add her to his wife's policy through her state employment, he did not have a problem including
her on the policy.
¶ 24 B. Moorthy’s Testimony
¶ 25 Moorthy testified that she was a software architect and had her own consulting company
called Kanvig Tech Solutions. She was the only employee. Moorthy testified that, as a single
mother, she needs a flexible work schedule and she tries to work 40 hours per week, but
sometimes she works less, and she could go two months without having a job or contract lined
up. Because she is raising Seema, she restricts herself to working only in the Chicago area.
¶ 26 Moorthy testified that Seema was 10 years old at the time and in fourth grade. Seema
attends a public school in Chicago and the school day ends at 1:45 p.m. Moorthy does not have
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family living close enough to her to assist with child care on a daily basis. As a result, Moorthy
has to find daycare for her between that time and 6 p.m. During the school year, she sends Seema
to daycare at the school, which costs approximately $450 to $500 per month. How much she
pays varies depending on how many school days or days off there are in a given month. For
example, Moorthy testified that she paid $387 for May 2012. Moorthy testified that when she is
not working, Seema still attends daycare because Moorthy pays for the school daycare ahead of
time, a job interview for Moorthy may arise, and Moorthy does not want to change Seema's
schedule.
¶ 27 When there is no school and during the summer, Seema goes to a different daycare or
Moorthy obtains a nanny. Every other summer, Seema stays with Moorthy's parents in India.
Moorthy testified that she paid the nanny she hired in the summer of 2011 a rate of $7 per hour,
and she took care of Seema 10 hours per day during the summer, which totaled $350 per week,
for approximately two months. Moorthy testified that the nanny usually charges $14 or $17 per
hour, but charged Moorthy less because she "knows my situation." Moorthy testified that during
Seema's previous spring break, she could not afford to pay for daycare, so she sent Seema to stay
with Moorthy's brother who lives in Michigan. Moorthy testified that since the petition to modify
support was filed, she has spent approximately $3,500 on school-provided daycare, and $6,000
for other, alternative daycare. However, Moorthy also later testified that her 2010 tax return
listed child care expenses in the amount of $2,492. Moorthy explained that this included only the
cost of school daycare. She conceded that her previous testimony that she paid $3,500 for school
daycare was erroneous.
¶ 28 In addition, Moorthy testified that Seema participates in the following classes or lessons:
(1) swimming ($100 per month); (2) Kumon classes in math and English ($195 per month); (3)
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chess ($300 per month); (4) Robot City ($300 per semester); (5) violin ($150 per semester); (6)
dance; (7) guitar ($150 per semester); and (8) kickball ($175 per semester). Moorthy explained
that her education in India was "totally different" than Seema's education in the United States,
"so I [Moorthy] feel like she's not up to the competency level that I was like—the country that
I'm coming from." Moorthy explained that she has "talked to other Indian families, like whatever
they are doing, that's what I will be usually doing with my daughter also." She testified that
Seema was doing fifth-grade subjects and she was in the gifted program at school, but "still she's
not challenged." Seema attends Kumon classes every Monday and Wednesday all year. The
classes for chess, robotics, and music are offered at the school and occur when Seema is at the
school daycare between 1:45 and 6 p.m., but Moorthy still has to pay the cost of the daycare in
addition to the cost of the classes. Moorthy testified that Seema's swimming, Kumon, and Indian
dance classes occur on the weekends or evenings, separate from school. Moorthy testified that
Seema has been doing these activities for many years and Moorthy has paid for them. When
asked if she contacted Arjuna before deciding to enroll Seema in all of these activities, Moorthy
responded, "No, I didn't because when I contacted, I mean the previous years, he had never
returned call to—like all I was asking him is to talk to her. He reject [sic] her—like completely
he reject her."
¶ 29 Moorthy also pays for health insurance for Seema, which costs $100 per month and
carries a $7,500 deductible, although she later testified that her financial disclosure statement
submitted in this case indicated that she pays $263 per month for Seema's health insurance.
¶ 30 Regarding her tax returns, Moorthy testified that in 2010, her company's gross receipts
were $128,600. She testified that her 2010 income including her W-2 and business income
totaled approximately $100,000. She received a salary of $30,000 on her W-2 form. With respect
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to the remaining amount of business income of $67,529, Moorthy testified that she invested it in
Seema and was trying to give her a better life. Moorthy testified that she believed her company
tax return for 2011, which was not yet prepared at the time of the hearing, would show income of
approximately $112,000.
¶ 31 Moorthy testified that she took the following deductions on her tax return: $49,895 for
automobile expenses for gas to traveling to different job sites in the Chicago area and for repairs;
$3,114 for medical insurance; deductions for telephone and Internet expenses in connection with
her business for her cellular telephone, home telephone, fax number, and Internet connection; a
deduction for utilities related to the use of her home office; and a deduction for officer health
insurance in the amount of $4,653, which she described as "my health insurance. Probably that
other insurance is just to do with the company."
¶ 32 Moorthy testified that in addition to the house she currently lives in with Seema, she also
owns a house in Lake in the Hills, Illinois, which she rents out at $1,075 per month, and it was
currently occupied. She testified that she has a mortgage on that house and pays $200 extra per
month for association fees. She also has a mortgage on the house in which she currently lives.
¶ 33 With respect to her financial disclosure statement submitted in this case, Moorthy
testified that it listed her monthly income as $7,350, which would include her salary and a
monthly distribution from her company's income. It listed expenses for utilities, telephone, and a
cleaning service for her home. She listed a $200 per-month expense for furniture and appliance
repair and replacement, which she explained represents such expenses as purchasing a new sofa
approximately every three years, painting her daughter's room, and purchasing her daughter a
new desk when she grows out of her old one. She also listed a $200 per-month expense for
repairs and maintenance to the property, and testified that, for example, it could be to fix pipes,
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or for maintenance or repair of the heat and electricity. She recently had to replace the
dishwasher. She listed $325 for gasoline in driving Seema to various classes. She listed a $50
expense for books because Seema "loves to read, so we'll be like buying some books for her all
the time." Moorthy listed a $150 expense for school lunches for Seema. She also listed $500 for
medical expenses and Moorthy explained that she set aside $500 a month for Seema's deductible
because of medical issues. Moorthy testified that her disclosure statement showed that she was
$3,910 "in the red" for each month. Moorthy explained that to cover this discrepancy, she "will
be pulling that from the company" instead of saving or reinvesting her company's income to
grow the business.
¶ 34 Following the hearing, Moorthy submitted a written memorandum in support of her
petition. She asserted that, as defined in section 505 of the Act (750 ILCS 5/505 (West 2010)),
"net income" should include Arjuna's proportionate share of Mahantech's retained earnings
because he had control over whether the corporation's earnings were distributed, he identified no
business purpose for not distributing the earnings, and he also took cashier's checks from
Mahantech at the end of each year, even though he did not cash them. Taking into account his
proportionate share of the retained earnings and his W-2 salary from 2007 through 2011,
Moorthy asserted that his average net income was $106,361 and his child support should be
$1,772.68 per month.
¶ 35 C. The Trial Court’s Ruling
¶ 36 The court issued a written opinion on May 29, 2013. The parties and trial court agreed
that there was no Illinois case directly on point regarding whether retained earnings of a closely
held corporation should be included in a supporting parent’s income. Based on cases cited by the
parties and the court from other jurisdictions, the trial court determined that the following factors
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were relevant in deciding whether the retained earnings of a closely held corporation constitute
income for purposes of calculating a parent's child support obligation: (1) whether the party was
the sole shareholder, (2) whether the party was manipulating income, (2) whether the retained
earnings were excessive, and (4) whether there was a legitimate business purpose for not
distributing the retained earnings. Reviewing the testimony, the trial court held that Arjuna was
the 91% shareholder, earned a salary of $50,000, lived a frugal lifestyle, and had not distributed
any earnings (other than for the plane ticket to India). The court found that the retained earnings
were necessary to meet the company’s payroll of six employees, overhead, immigration costs,
the section 8(a) certification program, and insurance policies that were required and necessary
for the company's stability. The court noted that the company lost a major contract, but was still
required to pay the salaries of its employees or pay to relocate an employee to his home country,
and this that testimony had not been challenged by Moorthy. In addition, the court held that
Arjuna owed a fiduciary obligation to the minority shareholder to act in the best interests of the
corporation. The court found that Arjuna had articulated a legitimate business purpose for not
distributing the earnings. The court found no evidence that Arjuna manipulated his income in
order to reduce his child support obligation, as his W-2 form reflected the same salary of $50,000
per year since 2007. The court specifically held that Arjuna "testified credibly that he is not
keeping the retained earnings in the company for any reason other than a legitimate business
purpose." The court noted that there was no testimony that the amount of retained earnings were
excessive. Based only on his W-2 wages of $50,000, the court determined Arjuna’s child support
obligation should increase to $643 per month, retroactive to the date of filing the petition. In
addition, the court held that Moorthy was to continue to be solely responsible for the costs of
daycare for Seema, as she was "in a far superior position to support the day care arrangements, as
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she deems necessary based upon her work schedule and the activity schedule that she has
selected [for] Seema without consultation with Arjuna." Lastly, the court determined that the
parties were to share the medical insurance costs for the minor equally and ordered Arjuna to pay
half of the medical insurance premiums for the minor child, retroactive to the date of filing the
petition.
¶ 37 II. ANALYSIS
¶ 38 Section 505(a) of the Act gives the trial court authority to order a parent to pay " 'an
amount reasonable and necessary for [the] support' of the child." Mayfield v. Mayfield, 2013 IL
114655, ¶ 16 (quoting 750 ILCS 5/505(a) (West 2010)). The court must first determine the
parties' income and then apportion that income to set the amount of child support paid by the
noncustodial parent. Id. A party's "net income" under the Act is defined broadly as the " 'total of
all income from all sources,' " minus various specified deductions. In re Marriage of Rogers, 213
Ill. 2d 129, 136-37 (2004) (quoting 750 ILCS 5/505(a)(3) (West 2002)). Although the Act does
not define "income," the supreme court in Rogers observed that it is defined in the dictionary as
" 'something that comes in as an increment or addition ***: a gain or recurrent benefit that is
usu[ally] measured in money ***: the value of goods and services received by an individual in a
given period of time.' " Id. at 136-37 (quoting Webster's Third New International Dictionary
1143 (1986)). In addition, it is also defined as " 'money or other form of payment that one
receives, usu[ually] periodically, from employment, business, investments, royalties, gifts and
the like.' " Id. at 137 (quoting Black's Law Dictionary 778 (8th ed. 2004)). As such, "income" for
purposes of child support determinations may include "a variety of payments [that] will qualify
as 'income' for purposes of section 505(a)(3) of the Act that would not be taxable as income
under the Internal Revenue Code," which is designed to achieve different purposes than the child
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support provisions of the Act. Id. Accordingly, income includes "gains and benefits that enhance
a noncustodial parent's wealth and facilitate that parent's ability to support a child or children,"
which are "normally linked to employment or self-employment, investments, royalties, and
gifts." Mayfield, 2013 IL 114655, ¶ 16 (citing In re Marriage of Rogers, 213 Ill. 2d at 136-37).
¶ 39 Having determined a party's net income based on these parameters, the court must then
determine the amount of child support; the guidelines provide that the minimum amount for one
child is "20% of the supporting party's net income." Mayfield, 2013 IL 114655, ¶ 17 (citing 750
ILCS 5/505(a)(1) (West 2010)). Section 505 "creates a rebuttable presumption [that] the
specified percentage of a noncustodial parent's income represents an appropriate child support
award." In re Marriage of Demattia, 302 Ill. App. 3d 390, 393 (1999).
¶ 40 Once initially set by the trial court, a party may seek to have the child support obligation
modified by showing a substantial change in circumstances pursuant to section 510 of the Act. In
re Marriage of Eberhardt, 387 Ill. App. 3d 226, 231 (2008) (citing 750 ILCS 5/510 (West
2006)). "The party seeking relief has the burden of showing a change in circumstances
substantial enough to warrant a change in support. [Citation.] A change in income is one of the
grounds for modification." Id. The relevant focus of this inquiry is " 'the parent's economic
situation at the time the child support calculations are made by the court.' " Id. (quoting In re
Marriage of Rogers, 213 Ill. 2d at 138). The rebuttable presumption that child support which
conforms to the guidelines is appropriate is also applicable in modification proceedings. In re
Marriage of Pratt, 2014 IL App (1st) 130465, ¶ 28.
¶ 41 In analyzing a trial court's determination on appeal, we are mindful that "modification of
a child support order lies within the trial court's discretion, and we will not disturb its decision
absent an abuse of discretion." In re Marriage of Heldebrandt, 301 Ill. App. 3d 265, 267 (1998).
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" 'The findings of the trial court as to net income and the award of child support are within its
sound discretion and will not be disturbed on appeal absent an abuse of discretion.' " In re
Marriage of Pratt, 2014 IL App (1st) 130465, ¶ 22 (quoting In re Marriage of Breitenfeldt, 362
Ill. App. 3d 668, 675 (2005)). The trial court abuses its discretion if "no reasonable person would
take the trial court's view." In re Marriage of Eberhardt, 387 Ill. App. 3d at 233. Further, we
"allow the trial court's factual conclusions to stand unless they are against the manifest weight of
the evidence." Id. " 'A judgment is against the manifest weight of the evidence only when an
opposite conclusion is apparent or when findings appear to be unreasonable, arbitrary, or not
based on evidence.' " Id. (quoting Bazydlo v. Volant, 164 Ill. 2d 207, 215 (1995)).
¶ 42 While Moorthy argues solely for a de novo standard of appellate review, this standard
applies only to issues of statutory interpretation and "when there are no factual or credibility
issues" and only questions of law remain. In re Marriage of Eberhardt, 387 Ill. App. 3d at 231
(citing In re Marriage of Crook, 211 Ill. 2d 437, 442 (2004), and In re Marriage of Rogers, 213
Ill. 2d at 136-137). Therefore, to the extent the trial court interpreted the Act and made rulings of
law, we review those portions of its decision de novo, but the trial court's determinations
regarding net income and child support will be reviewed under the more deferential abuse of
discretion standard.
¶ 43 Moorthy contends that the touchstone consideration of whether to include retained
subchapter S corporation earnings as income is whether the obligated party has control over the
distribution of the funds at issue. Moorthy highlights the fact that the allowable deductions or
exceptions from "net income" contained in section 505(3) all involve matters over which the
supporting party does not have control, such as mandatory retirement contributions, insurance
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premiums mandated by court order, and payments for debts previously incurred. 750 ILCS
5/505(3) (West 2010).
¶ 44 As explained in In re Marriage of Joynt, 375 Ill. App. 3d 817, 820-21 (2007):
"A subchapter S corporation is a pass-through entity utilized for federal
tax purposes. [Citation.] Unlike a subchapter C corporation, [a subchapter S
corporation] does not pay corporate-level taxes on its income. Instead, the
corporation's income is taxed directly to its shareholders based on their ownership of
corporate stock, whether or not the income is actually distributed to the shareholders.
See I.R.C. §§ 1361 through 1379 (2000) (defining and explaining subchapter S and
subchapter C corporations). A subchapter S corporation monitors its retained
corporate earnings using an account which is then used to determine each
shareholder's basis for taxed but undistributed corporate income. However, retained
earnings and profits of a subchapter S corporation are a corporate asset and remain
the corporation's property until severed from the other corporate assets and distributed
as dividends. [Citation.]"
¶ 45 As the parties and the trial court recognized, no Illinois case law directly on point exists
in this matter. The parties and the trial court relied on Illinois cases involving the related
questions of whether other types of income constitute "income" for child support purposes and
whether retained corporate earnings constitute marital property, which we review below. We
note that these cases are inapposite as they deal with the question of whether retained earnings
constitute marital property and not whether retained earnings should be imputed as income for
purposes of calculating child support. However, we discuss them below because they were cited
and discussed by the trial court and the parties for analogous purposes. We also review the cases
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cited by the parties and the trial court from foreign jurisdictions that analyzed whether retained
corporate earnings can be attributed to a parent for child support purposes.
¶ 46 A. Illinois Case Law—Retained Earnings and Marital Property
¶ 47 In the case of In re Marriage of Joynt, 375 Ill. App. 3d at 820, the Third District of the
Illinois Appellate Court held that the retained earnings of a closely held subchapter S corporation
in which the husband owned 33% of the stock constituted nonmarital property. The court
reasoned that the husband held a minority percentage of the shares, he was not a controlling
shareholder, and he could not have unilaterally declared a dividend. Id. Although the income was
taxed to the shareholder, the subchapter S corporation ultimately paid the taxes via year-end
payments to the husband. Id. at 821. Expert witness testimony indicated that the retained
earnings were used for corporate expenses, the husband’s compensation was “reasonable and
fair,” and there was no evidence to support that he used retained earnings to shelter marital
income. Id.
¶ 48 On the other hand, this court in In re Marriage of Lundahl, 396 Ill. App. 3d 495, 497
(2009), found that the retained earnings of the husband's subchapter S corporation constituted
marital property under the Act. The Lundahl court utilized the factors identified in Joynt in its
analysis, that is, the nature and extent of the spouse’s stock holdings, whether the spouse had the
authority to distribute the retained earnings, and the extent to which retained earnings were
considered in the value of the corporation. Id. at 503 (citing Joynt, 375 Ill. App. 3d at 819). The
court pointed out that, unlike in Joynt, the husband in Lundahl wholly owned the corporation and
was the sole shareholder and, therefore, could unilaterally declare dividends. Id. at 503. The
court held that the retained earnings therefore constituted the husband's income and were not
assets of the corporation. Id. Further, the court held that, unlike in Joynt, the company's earnings
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were not retained to pay expenses or used in connection with the corporation, and they were
taxed to the husband, who paid taxes on the earnings. Id. at 504.
¶ 49 B. Illinois Case Law—Net Income and Child Support
¶ 50 In the case of In re Marriage of Rogers, 213 Ill. 2d at 137-39, our supreme court
concluded that yearly gifts that the father obligor received from his parents constituted income
for purposes of calculating his child support obligation under the Act, even though such gifts
may not be forthcoming in subsequent years.
¶ 51 In the case of In re Marriage of McGrath, 2012 IL 112792, ¶ 14, our supreme court held
that net income did not include money that an obligor parent withdraws from a savings account
that was owned by the obligor.
¶ 52 This district concluded in In re Marriage of Baumgartner, 384 Ill. App. 3d 39, 52, 56-57
(2008), that the proceeds from the sale of the father obligor’s residence did not constitute income
for child support purposes because he used it to purchase a new residence and the sale was
necessitated by him losing his job and relocating to where he obtained employment.
¶ 53 The Second District of the Illinois Appellate Court held in Ivanyi v. Granoff, 171 Ill.
App. 3d 411, 421 (1988), that the father obligor's interest, dividends, and capital gains were not
part of his net income even though he reported them on his federal taxes because he did not
actually or constructively receive the income.
¶ 54 The Second District held in In re Marriage of Harmon, 210 Ill. App. 3d 92, 95-96 (1991),
overruled on other grounds in In re Marriage of Rogers, 213 Ill. 2d at 139, that the monthly
interest payments the mother obligor received should not be included in her net income for child
support purposes as they comprised her share of the marital assets and constituted passive
income not actually received, regardless of how they were reported for tax purposes. The court
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noted that the obligor mother had health problems and the father had adequate financial
resources to support the children alone. Id. at 97.
¶ 55 The Second District also held in In re Marriage of Tegeler, 365 Ill. App. 3d 448, 458
(2006), that an annual loan the father obligor received for running his farm was not part of his
net income. The father's tax return showed itemized totals of expenses and his accounting books
contained detailed lists of expenses, which established a prima facie showing that the expenses
were legitimate, and the mother failed to rebut this. Id. at 456.
¶ 56 C. Foreign Jurisdictions–Retained Earnings and Child Support
¶ 57 Of particular usefulness to our analysis is In re Marriage of Brand, 44 P.3d 321 (Kan.
2002), from the Supreme Court of Kansas. 2 In Brand, the mother filed a motion to modify child
support, seeking to include in the father’s income distributions from several subchapter S
corporations of which the father was a minority shareholder. Id., at 323. The subchapter S
corporation only distributed the amount necessary each year to reimburse its shareholders for
their share of the corporation’s tax liability and the father could not declare a distribution
independently of the other shareholders. Id. at 324. The applicable state statute provided that a
parent’s income included regularly and periodically received income from any and all sources,
which included self-employment gross income after reasonable business expenses. Id. at 326.
The court noted that earnings of subchapter S corporations were owned by the corporation, not
the shareholders, and corporations were not required to distribute the income. Id. at 325. As a
matter of first impression, the court turned to cases from other jurisdictions, finding that most
courts do not rely solely on tax returns to determine the amount of income available for support
2
Although cases from foreign jurisdictions are not binding on this court, "comparable court decisions of
other jurisdictions ‘are persuasive authority and entitled to respect.' " Kostal v. Pinkus Dermatopathology
Laboratory, P.C., 357 Ill. App. 3d 381, 395 (2005) (quoting In re Marriage of Raski, 64 Ill. App. 3d 629, 633
(1978)). See Andrews v. Gonzalez, 2014 IL App (1st) 140342, ¶ 23.
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and that "[t]here is no presumption that an individual’s share of a Subchapter S corporation’s
income should be included as income for purposes of calculating child support. Individual
inquiry on a case-by-case basis is necessary to ensure that the appropriate amount of income is
considered 'received' ***." Id. at 328. In refusing to adopt a blanket rule regarding the inclusion
of retained earnings in calculating support, the Brand court observed that "[a] corporation must
sometimes necessarily retain profits, not everyone stands in a position to force distribution of a
corporation’s profits, and not all distributions to shareholders increase their ability to pay
support." Id. at 330. The court concluded that deciding how to characterize corporate earnings
and distributions and whether to deduct ordinary and necessary business expenses from those
earnings were both "highly fact specific" inquiries. Id. Of the many factors to consider, the
analysis should include the proportion of the shareholder’s ownership in the corporation, whether
the shareholder could control distribution or retention of the business’s profits, and the "past
earnings history of the corporation." Id. Significantly, "[i]n those cases where income can be
manipulated because of the ability to control distributions, heightened scrutiny should be
exercised." Id. The court held that, as a minority shareholder, the father was less able to control
retained earnings or distributions, and the mother failed to show that he manipulated corporate
assets or otherwise shielded his income to avoid child support obligations. Id. at 327-28, 330.
The evidence supported that he received disbursements only for the purpose of paying his share
of the corporation’s taxes, and this amount was consequently not available to pay child support.
Id. at 328. The court therefore found no abuse of discretion in the lower court’s determination
that retained earnings and distributions from the subchapter S corporation should not be included
in the father’s income for purposes of calculating child support. Id. at 330.
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¶ 58 In a similar case from the Supreme Court of Tennessee, Taylor v. Fezell, 158 S.W.3d
352, 355 (Tenn. 2005), the supporting parent was the sole shareholder and president of a
subchapter S corporation, which he converted to a C corporation after the divorce, thereby
eliminating pass-through taxation of the corporation’s income. The trial court calculated the
father’s modified child support obligation by imputing to him the retained earnings from the
company as a subchapter S corporation before the divorce, in addition to the wages he earned
after conversion of the corporation to a C corporation. Id. at 356. Similar to Illinois, the
Tennessee child support guidelines defined "gross income" as "all income from any source."
(Internal quotation marks omitted.) Id. at 357. For the self-employed, the child support
guidelines allowed a deduction for reasonable expenses required to produce the income. Id. at
358. As a matter of first impression, the court held:
"[F]or the retained earnings of a corporation to be imputed to the sole or majority
shareholder of a corporation, there must be a showing that those retained earnings are
excessive or that the income is actually being manipulated. This approach requires
trial courts to recognize the independent entity status of a corporation that is properly
run by its shareholders. This recognition will require child support determinations to
be based on the obligor’s actual income and benefits while protecting the corporate
entity’s existence and the development of capitalization necessary to meet its
legitimate business purposes." Id.
¶ 59 In determining whether retained earnings are excessive, the Taylor supreme court advised
that trial courts should examine the level of retained earnings from before the divorce as a
benchmark or baseline for future retained earnings or capitalization. Id. at 358. As an additional
component of this analysis, "[e]xpert testimony may be relevant to prove the level of retained
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earnings that are appropriate for the corporation to carry on its intended purpose, and the court
should consider post-divorce corporation activities, particularly any unexplained increases or
reductions of capitalization or retained earnings." Id. Further, the trial court should also "closely
examine personal expenses and economic benefits provided to the obligor by the corporation and
should include the value of those extraordinary benefits in the obligor’s income calculation." Id.
at 359. As there was no evidence in Taylor that the father manipulated his income or that the
retained earnings were excessive, the court held that it was error to include them in calculating
his child support obligation, although the trial court should have included the economic value of
the private use of his company car. Id.
¶ 60 In In re Marriage of Roth, 406 N.W.2d 77, 79 (Minn. Ct. App. 1987), the appellate court
in Minnesota held, without much explanation, that the trial court should have included profits
from the father’s closely held subchapter S corporation, of which the father was the sole officer
and shareholder, in calculating the father’s support obligation. The evidence showed that the
father charged significant personal expenses to the corporation and utilized corporate assets for
personal use. Id.
¶ 61 In In re Marriage of Merrill, 587 N.E.2d 188, 191 (Ind. Ct. App. 1992), the appellate
court in Indiana held that the trial court did not err in including one-half of the retained earnings
from the father’s closely held corporation in calculating his income for child support purposes.
The Indiana support guidelines provided that income from any source and income from
operating a business should be included. Id. Although the retained earnings were reinvested in
the business to cover inventory and bills and there was testimony regarding the declining
viability of the business, the court, with little analysis, held that the retained earnings should
nonetheless be attributed to the father and included in the child support calculation. Id.
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¶ 62 In Roberts v. Wright, 1994-NMCA-022, ¶ 9, 117 N.M. 294, 871 P.2d 390, the appellate
court in New Mexico held that the trial court properly refused to consider the mother’s corporate
earnings in calculating her support obligation. The mother reinvested one year’s sizeable
corporate earnings in her closely held corporation, which were significantly more than previous
years, because a government contract required her to purchase substantial inventory, the contract
was essential to the corporation’s success, and the market was highly competitive with declining
profits. Id. ¶ 4. The court held that the evidence established that the reinvestment of retained
earnings and the purchase of inventory were necessary to retain the important government
contract and continue to be profitable. Id. ¶ 9.
¶ 63 D. Mahantech’s Retained Earnings
¶ 64 In the present case, the trial court considered whether Arjuna was the sole shareholder of
the subchapter S corporation, whether there was evidence that he was manipulating income to
reduce his support obligation, whether the corporation’s retained earnings were excessive, and
whether there was a legitimate business purpose for not distributing the retained earnings. Based
on our review of the above cases from Illinois and from other jurisdictions, we find no error of
law in the trial court’s approach. In re Marriage of Eberhardt, 387 Ill. App. 3d at 231. We find
that the well-reasoned decisions of Brand and Taylor best exemplify the correct approach, that is,
courts should engage in a case-by-case, fact-specific analysis to determine whether retained
earnings of a corporation should be imputed to the sole or majority shareholder for purposes of
calculating child support. In re Marriage of Brand, 44 P.3d at 328, 330; Taylor, 158 S.W.3d at
358. Relevant factors in this analysis include: (1) the extent of the obligor’s ownership share in
the corporation, (2) the obligor’s ability to decide whether corporate earnings should be retained
or distributed, (3) the corporation’s history of retained earnings and distributions, in comparison
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to post-divorce corporation activities, (4) whether the retained earnings are excessive, and (5)
whether there is evidence that income is actually being manipulated. In re Marriage of Brand, 44
P.3d at 330; Taylor, 158 S.W.3d at 358. As noted in Brand, heightened scrutiny is appropriate
when the obligor has the power to control distributions, but this, in itself, is not dispositive of
whether a subchapter S corporation’s retained earnings must be included in an obligor's income
when calculating child support. In re Marriage of Brand, 44 P.3d at 330. As both the Brand and
Taylor courts aptly observed, it is sometimes necessary for a corporation to retain profits in order
to secure its continued existence and appropriate capitalization to meet ongoing business
necessities. In re Marriage of Brand, 44 P.3d at 330; Taylor, 158 S.W.3d at 358. Indeed, it
would be unfair to the obligor to include in the calculations of income for child support the
retained earnings necessary for the continuing viability of a corporation and thus not available to
the obligor.
¶ 65 In addition, having reviewed the evidence presented at the hearing on Moorthy’s motion,
we find no abuse of discretion regarding the trial court’s conclusions as to Arjuna’s net income
and the child support determination. In re Marriage of Eberhardt, 387 Ill. App. 3d at 233. The
trial court’s factual findings were not against the manifest weight of the evidence. Id. at 233.
We note that there is no prior history of the subchapter S corporation's retained earnings
because Arjuna did not acquire Mahantech until after the divorce was finalized. While we
recognize that heightened scrutiny may be warranted where an individual has the ability to
control distributions (In re Marriage of Brand, 44 P.3d at 330), there was no evidence presented
that Arjuna was actually manipulating his income or refusing to declare distributions of
Mahantech’s income in order to avoid an increase in his child support obligation. Rather, the
evidence indicated that Arjuna obtained majority ownership of the corporation at a time when it
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was not financially successful and he was able to make it more profitable over the years. He
testified that the retained earnings must be reinvested in the company to ensure its continued
growth and to cover overhead expenses in the event of a business downturn. He continues to
draw the same salary of $50,000 per year. His testimony and tax returns outlined the various
expenses, including employee salaries, taxes, several types of necessary business insurance,
expenses related to the pursuit of federal government contracts through the section 8(a)
certification program, and significant amounts dedicated to the immigration and work visa
concerns of its employees. Although Mahantech’s earnings decreased significantly in 2011, we
note that this reduction had a legitimate explanation. Taylor, 158 S.W.3d at 358. Arjuna testified
that a few contracts which constituted 60% of Mahantech's business ended and had yet to be
replaced, causing a loss of income to the corporation. Further, one employee was without a
current project to work on, although Mahantech remained responsible for paying that employee’s
salary. In addition, Arjuna testified that although he was the majority shareholder, he owed a
duty to the minority shareholder and could not declare a distribution without considering the
other shareholder.
¶ 66 Significantly, Moorthy failed to offer any evidence or testimony to rebut Arjuna’s
evidence that the retained earnings were necessary and appropriate business actions and were not
excessive. Notably, Moorthy did not present the testimony of an accountant or other expert
regarding whether the level of retained earnings was in line with the corporation’s needs. As
noted in Taylor, 158 S.W.3d at 358, expert testimony may be helpful and relevant in establishing
"the level of retained earnings that are appropriate for the corporation to carry on its intended
purpose, and the court should consider post-divorce corporation activities, particularly any
unexplained increases or reductions of capitalization or retained earnings." See, e.g., In re
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Marriage of Joynt, 375 Ill. App. 3d at 818 (accountant testified about the retained earnings and
other financial information concerning the obligor's closely held subchapter S corporation).
Moorthy did not call an expert witness to present any evidence that Arjuna was manipulating his
income or that the retained earnings were excessive, and she did not otherwise provide evidence
through the examination of Arjuna or any other witness to rebut his testimony regarding
Mahantech's financial situation. Despite Moorthy's argument to the contrary, our case law
dictates that "[t]he party seeking relief has the burden of showing a change in circumstances
substantial enough to warrant a change in support." In re Marriage of Eberhardt, 387 Ill. App.
3d at 231.
¶ 67 Although Arjuna’s individual tax returns showed that he paid taxes on the portion of
Mahantech’s earnings that were attributable to him through the schedule K-1, his testimony
indicated that the money to pay these taxes came from Mahantech’s account, it was sent directly
to the taxing agency, and the amount was not distributed to Arjuna first. An equivalent situation
occurred in In re Marriage of Brand, 44 P.3d at 328, where the father received a distribution
from the corporation only for purposes of paying his share of the corporation’s taxes, and the
court held that this amount was not available to pay child support. We similarly conclude that the
amounts used to pay Arjuna's proportionate share of the taxes on Mahantech's earnings did not
constitute disbursements to him that should have been included in the child support calculation.
¶ 68 In addition, we do not find that Arjuna took a "disbursement" from Mahantech’s retained
earnings or otherwise received income for child support calculation purposes when he obtained a
cashier’s check at the end of every year for the amount in Mahantech’s bank account. Arjuna
clarified that he did this at the advice of his accountant in order to avoid paying a state tax on the
funds in the corporate bank account. He testified that he never deposited the cashier’s checks into
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his individual account, and each year he redeposited the cashier’s checks into Mahantech’s
account on the first business day in the new year. Accordingly, the only evidence before the trial
court was the testimony of Arjuna that he did not actually "receive" the income. As a result, we
cannot find that the K-1 income can be used for purposes of calculating his child support
obligation. See In re Marriage of Rogers, 213 Ill. 2d at 136-37 (noting that the dictionary
definition of "income" includes money that is received by the individual). 3
¶ 69 Moorthy contends that the trial court improperly curtailed her inquiry into Arjuna's
testimony about the immigration expenses Mahantech was required to cover in the event that it
terminated an employee. According to the report of proceedings, her attorney was questioning
Arjuna regarding his testimony that if he laid off any of his foreign workers, Mahantech would
be responsible for paying that employee's and his family's expenses to return to their home
country. When counsel asked whether it was actually true that Mahantech was required to pay
for relocation, Arjuna responded, "It is true. They can file a case against me with immigration to
put me—make my life miserable." Counsel then stated, "If I were to show you the immigration
regulations—," but Arjuna's attorney objected based on relevance. The trial court sustained the
objection and voiced concern that "we're getting into issues of law that you're trying to inquire
about. He just testified as to what his understanding is, and you're certainly free to call other
3
We recognize that this procedure utilized on the advice of Arjuna's accountant, the paying out of
the balance of the available funds at the end of every year and redeposit of those funds, raises several
questions. First, from an accounting standpoint, it may be argued that since a check was issued and then
redeposited, this could be considered a distribution and then a loan back to the corporation. However,
while the record reflects that this was done on the advice of Arjuna's accountant in order to avoid West
Virginia taxation, the record is devoid of any evidence as to how this transaction was characterized on the
corporate books and records. Further, it is unclear from the testimony in the record as to whether 100% of
the funds available at the end of the calendar year were distributed to Arjuna or whether 91% was
distributed to him and 9% to the other shareholder and then redeposited. However, we do not find that
these questions impact our decision herein. As noted above, the trial court did not err in characterizing the
funds left in the corporation as retained earnings and that this procedure utilized to avoid West Virginia
taxes did not result in the receipt of "income" for the purposes of child support calculations. See In re
Marriage of Rogers, 213 Ill. 2d at 136-137.
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witnesses if you want to rebut that testimony, but his testimony is to what he understands to be
his expense. That stands as that. I'll hear from other witness—." We find no error in the trial
court's ruling as Arjuna was testifying to the facts of his case according to his own
understanding, he is not a lawyer, and he was not presenting expert legal testimony regarding
immigration regulations. The trial court did not improperly curtail Moorthy's inquiry; rather, it
specifically stated that it was willing to hear testimony from other witnesses to rebut Arjuna's
testimony. Whether to follow up by presenting other witnesses or evidence, as the trial court
suggested, was a decision for Moorthy's counsel. Further, it is noteworthy that Arjuna was
extensively cross-examined regarding Mahantech's business expenditures. In any event, even if it
was an abuse of discretion to curtail the cross-examination in this way, it was on a small point
and was therefore harmless. Lastly, in the absence of an offer of proof as to the excluded
testimony, we must consider this issue to be waived.
¶ 70 Having determined that the trial court did not abuse its discretion in determining Arjuna's
child support obligation, we need not address Moorthy's related contention that the court should
resort to income averaging to calculate his obligation. See In re Marriage of Nelson, 297 Ill.
App. 3d 651, 655 (1998) (where the obligor's income fluctuates, it is appropriate, although not
mandatory, for the court to average the obligor's net income over consecutive years). The
evidence showed that Arjuna's income has been the same since 2007 through the time the
petition was filed, that is, a salary of $50,000 per year. The trial court therefore determined that
his monthly support obligation was $643, based on that constant figure.
¶ 71 E. Child Care Costs
¶ 72 Moorthy also contends on appeal that the trial court erred in denying her request for
contribution to expenses for daycare and educational and extracurricular activities. Arjuna argues
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that in Moorthy's petition in the trial court, she asked only for a contribution to daycare expenses,
but not any extracurricular expenses. A party forfeits an issue on appeal where she fails to raise it
before the trial court. In re Aaliyah L.H., 2013 IL App (2d) 120414, ¶ 21 (citing Einstein v.
Nijim, 358 Ill. App. 3d 263, 275 (2005)). However, although Moorthy's petition filed in the trial
court made a generic request for contribution to daycare expenses, without specifically
mentioning extracurricular activities, Moorthy testified extensively regarding the various
extracurricular and educational expenses and the trial court's ruling considered these other costs.
¶ 73 A trial court's determination whether to order the supporting parent to contribute toward
daycare costs, in addition to paying the statutorily mandated child support amount, is reviewed
for an abuse of discretion on appeal. In re Aaliyah L.H., 2013 IL App (2d) 120414, ¶ 19 (citing
In re Marriage of Serna, 172 Ill. App. 3d 1051, 1054 (1988)). The statute authorizes a trial court
to order the supporting parent to pay an amount in excess of the guidelines. In re Marriage of
Serna, 172 Ill. App. 3d at 1054 (citing Ill. Rev. Stat. 1987, ch. 40, ¶ 505(a) (now 750 ILCS 5/505
(West 2012)). "The Serna court held, in addition to the statutory child support amount under
section 505 ***, the trial court has discretion to also order the noncustodial parent to pay half of
the daycare expenses and other reasonable expenses." In re Marriage of Carlson-Urbanczyk,
2013 IL App (3d) 120731, ¶ 15 (citing In re Marriage of Serna, 172 Ill. App. 3d at 1054). In In
re Marriage of Carlson-Urbanczyk, the court held that any amount above the statutorily provided
amount "represents an upward deviation from the statutory amount that must be supported by the
record." Id. (citing In re Marriage of Demattia, 302 Ill. App. 3d at 394).
¶ 74 We note that Moorthy provides no citation to any controlling statutory authority or case
law to support her contentions on appeal. " 'A court of review is entitled to have the issues
clearly defined and to be cited pertinent authority.' " Lake County Grading Co. v. Village of
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Antioch, 2014 IL 115805, ¶ 36 (quoting People ex rel. Illinois Department of Labor v. E.R.H.
Enterprises, Inc., 2013 IL 115106, ¶ 56). A party fails to fulfill the requirements of Illinois
Supreme Court Rule 341(h)(7) (eff. Feb. 6, 2013) if she does not present argument along with
citations to relevant supporting authority. Lake County, 2014 IL 115805, ¶ 36. As a result, we
find that Moorthy has forfeited these contentions on appeal. Id.
¶ 75 Even if we were to address the issue of daycare expenses despite Moorthy's having
forfeited it, we would nevertheless conclude that, based on the evidence presented at the hearing,
there was no abuse of discretion. The trial court held that Moorthy "shall continue to be solely
responsible for the daycare arrangements" of the minor and that "Moorthy's Petition as it relates
to the daycare expenses is denied." The order goes on to note that "Moorthy is in a far superior
position to support the daycare arrangements, as she deems necessary based upon her work
schedule and the activity schedule that she has selected by [sic] Seema without consultation with
Arjuna." The trial court's decision not to depart from the guidelines and order Arjuna to pay any
additional amounts toward daycare was reasonable when considering both his limited income
and Moorthy's income from her company, and it was not an abuse of discretion.
¶ 76 III. CONCLUSION
¶ 77 Based on the above analysis, we conclude that the trial court did not abuse its discretion
when it excluded from its child support calculations Arjuna’s proportionate share of the retained
earnings from Mahantech. The trial court also did not abuse its discretion in denying Moorthy's
request for an additional amount for daycare expenses.
¶ 78 Affirmed.
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