In re Marriage of Johnson ( 1993 )

JUSTICE LUND

delivered the opinion of the court:

This appeal is from an August 27, 1992, order of the circuit court of Logan County denying respondent Larry Johnson’s petition to modify maintenance payments. While this domestic proceeding has previously been before this court (In re Marriage of Johnson (1991), 215 Ill. App. 3d 174, 574 N.E.2d 855), we now review only evidence relevant to the current petition to modify. To modify maintenance, Larry must show a substantial change in circumstances. 111. Rev. Stat. 1991, ch. 40, par. 510(a).

The marriage of respondent and petitioner Sheryl Johnson was dissolved in November 1989. Each received a half of what was at that time perceived to be a net worth of approximately $210,000. Sheryl’s $105,000 share was basically investments and a $55,000 12-year mortgage with 6% interest which called for monthly payments of $533.78 and encumbering the real estate received by Larry. She was awarded permanent maintenance of $500 per month. Larry received the only real estate, a 12-acre tract east of Lincoln, improved with a family residence and farm buildings used in a hog-raising operation. He also received aU equipment used in the operation, but assumed all debts of the parties plus Sheryl’s $55,000 second mortgage which, at the time of hearing, had been paid down to $48,000.

While Larry blames his current economic problems on a January 1991 disease resulting in the death of 260 to 265 pigs, the undercapitalization which resulted from the dissolution may be the more likely culprit.

Larry remarried and now lives with his present wife and three stepchildren in the residence on the 12 acres. The present wife has some income which is now supporting her, the children, and, in part, Larry. Larry has been a pork producer since 1964. He did do carpentry work for a total of five or six years, all prior to 1982. He has only a high school education.

In late winter of 1991 and spring of 1992, Production Credit Association (PCA), his major source of financing, determined to cut off financing. By that time, the pig loss in early 1991 had shown up in substantially lower hog sales. By the end of May 1992, PCA had notified all those buying pigs from Larry that PCA was exercising its security agreements and that all checks for livestock purchases were to be made payable to PCA and Larry.

We must recognize in this case that evidence of farm income has no relevance in determining present and future income. A livestock operation cannot be operated without sufficient capitalization or adequate credit — Larry has neither.

Counsel for Sheryl, in suggesting Larry has financial ability, placed emphasis on the 1990 construction of a $50,000 shed by Larry. PCA provided financing for this shed. The debt, then approximately $55,000 to $57,000, was paid off in March 1992 with funds from liquidation of hogs. There was evidence that the value of market livestock and breeding livestock in January 1992 was $92,000. The liquidation to pay the $55,000 to $57,000 would have substantially reduced the value but because feeding was still continuing, inventory value would increase — being decreased only by subsequent sales.

By May 1992, PCA was advancing funds only to pay for feed for the existing livestock. All credit from suppliers had been cut off. The approximate asset and liability picture at the time of the May 15, 1992, hearing was as follows:

ASSETS

12 acres with house and farm buildings $174,000

Personal items, household goods, et cetera 19,000

Machinery and vehicles 29,000

Livestock 54,000

Total $276,000

LIABILITIES

Farm Credit Service — farm mortgage $ 82,000

PCA — two loans secured by livestock or machinery 54,000

Magna Bank — lien on 1988 Chevrolet Blazer 5,000

Sheryl Johnson — judgment 11,000

Sheryl Johnson — second mortgage on 12 acres 48,000

Unsecured claims of various creditors 38,000

Total $238,000

Assets $276,000

Liabilities -238,000

Balance $ 38,000

More important than what appears to be the net worth is the absence of credit. PCA, the major creditor, determined that the operation would not “cash flow,” and this was without considering the $6,000-per-year maintenance payment. Larry could not buy pigs or feed, thus was unable to make income from the hog operation. This situation is typical of many undercapitalized farm operations which have gone by the wayside in the last 10 years.

Sheryl argues Larry can work as a carpenter or can run the hog operation for someone else. Larry testified that he last did carpentry work in 1981. He stated he had recently sought employment as a carpenter, but no such work was presently available. While he testified the hourly rate would be $8 per hour, when asked if any work was available he said, “Not yet. I’m waiting.” Farm labor hourly rates were “[f]ive to six dollars if they’re lucky.” To conclude that Larry will have sufficient income to pay maintenance, regardless of the serious financial reversal, is pure speculation.

Testimony as to the feeding operation established that Larry cannot, because of lack of collateral and credit, restart the business. The evidence of someone hiring him to run the operation is scanty and, in any case, would not free Larry from the responsibilities of maintaining the buildings and paying the mortgages.

What we have here is an unemployed, ex-pork-producing farmer faced with paying interest payments, unpaid farm bills, and maintenance. With no funds available to make payments, unpaid interest will result in constantly increasing indebtedness, as will the unpaid maintenance. There probably is only one way out — to liquidate as quickly as possible, hopefully paying off all debts. This solution also presents problems. The sale of farms, real estate, and equipment can result in depreciation recapture, thereby creating taxable income and taxable capital gains. (See 26 U.S.C. §1245 (1988).) This taxable income does not create additional value, only additional Federal income tax. This may well be a situation where an insolvent taxpayer owes tax, while having no funds available to pay the tax.

Another problem with erroneously denying modification is that maintenance cannot be discharged in bankruptcy. (In re Marriage of Porter (1992), 229 Ill. App. 3d 697, 699, 593 N.E.2d 1138, 1139; 11 U.S.C. §523(a)(5) (1988).) You have a man here without income and, by now, 12 months after May 1, 1992, probably without a net worth. You have the maintenance obligation increasing because funds are not available to make payments. Maintenance must be abated retroactive to the filing of Larry’s petition. Any other decision threatens to condemn Larry to lifelong insolvency. A substantial change in circumstances has been shown, and the case should be reversed and remanded with directions to enter an order to abate maintenance retroactive to filing of the petition to modify.

Our holding that the trial court’s decision was contrary to the manifest weight of the evidence is based upon the evidence actually presented to the trial court and the required conclusions therefrom. If there is a substantial change in Larry’s financial status in the future, such as a lucrative lease arrangement of the farm assets or in the nature of substantial employment, then Sheryl shall be able to seek restoration of maintenance benefits. See HI. Rev. Stat. 1991, ch. 40, par. 510(a).

Reversed and remanded with directions.

STEIGMANN, P.J., concurs.