Suzanne Monique Swilley Ely v. Kenneth Ray Ely

FILED
IN THE COURT OF APPEALS OF TENNESSEE
January 6, 1998
Cecil Crowson, Jr.
Appellate C ourt Clerk
SUZANNE MONIQUE SWILLEY ELY : KNOX CHANCERY
: CA No. 03A01-9707-CH-00255
Plaintiff-Appellee :
:
:
vs. : HON.FREDERICK D. McDONALD
: CHANCELLOR
:
:
KENNETH RAY ELY :
:
Defendant-Appellant : AFFIRMED AND DISMISSED
DAIL R. CANTRELL, WITH CANTRELL, PRATT & VARSALONA, OF CLINTON,
TENNESSEE, FOR APPELLANT
WM. STANTON MASSA, III, OF KNOXVILLE, TENNESSEE, FOR APPELLEE
O P I N I O N
Sanders, Sp.J.
The pivotal issue on this appeal is whether or not the
trial court erred in its calculation of the gross income of the
obligor for determining his child support obligation.
Our review is "de novo" on the record accompanied by a
presumption of correctness of the trial court's findings of fact
unless the evidence preponderates otherwise. TRAP Rule 13(d).
We find the evidence does not preponderate against the findings
of the trial court, and affirm for the reasons hereinafter
stated.
The Plaintiff-Appellee, Suzanne Ely (wife) and
Defendant-Appellant Kenneth Ely ( husband) were divorced in 1988.
The parties had two children, Monique aged seven and Christopher,
aged five at the time. The parties entered into a marital
dissolution agreement which provided, as pertinent, that the
husband purchase the wife's interest in a trucking business they
jointly owned and operated. The wife was awarded the custody of
the children, with visitation privileges of the husband, and he
was to pay $350 per month as child support and $1,200 per year
into a trust fund for the children until the youngest child
reached the age of 18 years. He was also to pay one-half of the
children's medical and dental expenses which were not covered by
insurance.
Following the divorce, the wife, on three occasions,
filed contempt proceedings against the husband for failure to
comply with the marital dissolution agreement, which had been
incorporated into the decree of divorce. The first contempt
petition was filed in October, 1989, the second was filed in
January, 1992, and the third one in 1995. Each of the petitions
alleged the husband had failed to pay the wife his share of the
medical expenses for the children. The third petition, however,
alleged, as pertinent, that there had been a material and
substantial change in circumstances since the divorce to justify
an increase in child support. The wife alleged the husband was
self-employed at the time of the divorce; he was the sole owner
of Ely Trucking Company and his business and income had increased
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in the interim. She alleged she was entitled to an increase over
and above the guidelines in that husband had vested with the
parties' children less than the amount provided by either the
guidelines or the final decree of divorce.
In his respective answers to wife's petitions, husband
did not deny his indebtedness to the wife but denied he should be
held in contempt. In his answer to the wife's petition for an
increase in child support, as pertinent, he said, "The respondent
neither admits or denies that there was been a material and
substantial change in circumstances such as to justify an
increase in child support since original order or that his income
has increased to any extent since that time...."
Each of the petitions filed by the wife was referred to
a referee of the chancey court for hearing, findings, and
recommendations. The referee held hearings and filed findings
and recommendations in the first two petitions, finding the
husband in contempt, recommending judgments in favor of the wife,
and the award of her attorney's fees. Decrees were entered by
the chancellor confirming the recommendations of the referee, and
these matters are not at issue on this appeal.
The referee held a hearing on the wife's third petition
for contempt and modification of child support in December, 1995.
He filed a findings and recommendations order in which, as
pertinent, he said that, based on the evidence and testimony of
the parties, he found the husband owed the wife $1,067.27 for
medical expenses. He found "...the respondent is self-employed
and has failed to comply with Rule 8 of the local rules of
practice for the Knox County Referee and thus petitioner is
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entitled to a continuance to allow time for discovery of
respondent's financial information." The order provided that all
other matters and issues raied by the wife be reserved until a
further hearing to be held on February 17, 1995. An order of
confirmation of referee's findings and recommendations was
entered by the chancellor.
The referee held a further hearing on February 27,
after which he filed findings and recommendations which, as
pertinent, held that the petition in contempt and the
modification of child support could not be held at that time and
set a hearing on those issues for April 22, 1996. He also
directed the husband to furnish at or before that hearing "his
1099's from tax years 1994 and 1995 showing his gross income for
those years, an itemization and documentation of all expenses and
adjustsments of his gross income."
The record fails to show a hearing was held on April 22
but shows a hearing was held on June 25. The record fails to
show the husband furnished his 1099's for 1994 and 1995 setting
out his gross income for those years or that he filed itemization
and documentation of all his expenses as previously ordered by
the referee.
Following the June 25 hearing the referee entered
findings and recommendations. As pertinent, he found "... upon
the testimony of the Respondent and of other nonparty
witnesses...the court finds that the petitioner's petition for
contempt and for modification of child support are well founded
and the best evidence of Respondent's income is loan
documentation for 1994 obtained from First American National Bank
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and entered into the record as exhibits, that Respondent's
credibillity is suspect, that the Respondent's gross income is
$160,000 per year...." He found the husband's monthly payments
should be $2,094 and all other issues should be reserved pending
husband's appeal to the court.
Following the entry of the referee's findings and
recommendations, the husband filed in the Chancery Court for Knox
County a request for appeal and hearing in that court on
referee's findings and recommendations of June 25. He said he
disagreed with the findings and recommendations of the referee
and they were not supported by the proof in the record. He
requested a hearing before the court and the entry of an
appropriate order after the hearing.
The wife also appealed from the findings and
recommendations of the referee on the February 27 hearing related
to certain relief sought by her which is not now at issue on this
appeal.
On December 6, the appeals of both parties were heard
by Chancellor McDonald, Chancellor for Part 1 for Knox County.
The chancellor found, based on the child support guidelines,
1240-2-4-.03 December, 1994, revised 3(a), and the husband's 1995
federal income tax return, which was filed as an exhibit in the
hearing, that the husband's gross income for 1995 was $132,064,
and he should pay $2,097 per month as child support for two
children. His monthly obligation, which was to begin from the
date of filing the petition for modification on December 6, 1996,
together with interest, would be a total of $26,374.26. A decree
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was entered in keeping with the court's findings and the husband
has appealed.
Since our review on appeal is "de novo" on the record
accompanied with a presumption of correctness of the trial
court's findings of fact unless the evidence presented on the
trial preponderates against such findings, we must look at the
record to determine whether the evidence supports the findings by
the court or preponderates against his findings.
Rule 26, TRAP, requires the appellant, in support of
his appeal, to timely file in the appellate court a transcript of
the proceedings in the trial court. Rule 24, TRAP, sets forth
what should be contained in the transcript which, in general,
includes all the evidence offered in the trial court together
with all the supporting exhibits. In the case before us, the
only thing contained in the record is a transcript of the
argument of counsel before the chancellor and one intelligible
exhibit, being a copy of the husband's 1040, 1995 tax return.
The Appellant, in his brief, as pertinent, states:
"The trial court's ruling required Mr. Ely to pay Twenty-five
Thousand, One Hundred Sixty-four Dollars ($25,164.00) in child
support each year. The only proof entered at trial were Mr.
Ely's tax record, (Exhibits 1 & 2, December 6, 1996), which
clearly show that his income for 1995 was a negative Eighteen
Thousand Four Hundred and Twenty-six Dollars ($18,426.00)
(Exhibit 2, December 6, 1996). Therefore, the Appellee did not
meet the burden of proof necessary to show a material change in
circumstances which would justify a change in child support."
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Also, there is nothing in the record to show what
evidence was before the referee for his determination of the
issues before him.
The Appellant's 1040 tax form for federal income taxes
for 1995 shows the Appellant had a total income in 1995 of
$732,022. His expenses of doing business plus his claimed
deductions for tax purposes exceeded his income by $18,426,
resulting in there being no taxable income, and a paper loss of
$18,426. Included, however, in the expenses and deductions was a
claim of depreciation for the year of $132,064.
The Tennessee guidelines for calculating child support
awards for self-employed obligors, as pertinent, provide:
Gross income shall include all income from any source
(before taxes and other deductions), whether earned or
unearned....Income from self-employment includes income
from business operations and rental properties, etc.,
less reasonable expenses necessary to produce such
income. Depreciation, home offices, excessive
promotional, excesssive travel, excessive car expenses,
or excessive personal expenses, etc., should not be
considered reasonable expenses. (Emphasis ours.)
Tenn.Comp.R. & Regs. 1240-2-4-.03(3)(a)(1994).
The chancellor very reluctantly held that this
provision mandates the addition of the full amount of the
expenses claimed as "depreciation" on the husband's tax return to
his gross income, stating: "So what I'm going to do is take his
tax return, add back the depreciation, and then set the support
in accordance with the Guidelines, and I think it's absolutely
and utterly wrong, and then you can take an appeal from that.
.... And I mean, I wish you well because I don't like to have to
enforce unfair, grossly unfair laws like this."
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The 1040 tax return fails to show what the claimed
depreciation is for, nor was any proof offered before the
chancellor, and there is none in the entire record, which we can
consider which would establish the Appellant was entitled to
claim his depreciation even if it were not expressly excluded
under the child support guidelines.
Since the guidelines for fixing child support for an
obligor who is self employed define gross income as "income from
business operations...less reasonable expenses necessary to
produce such income," then specifically provide
"Depreciation...should not be considered reasonable expenses,"
based on the evidience, or lack thereof, we find the court had no
alternative but to disallow the depreciation claimed as a
deductable expense.
Appellant argues that a substantial amount of the total
he claimed as "depreciation" on his federal tax return was
actually the capital expense of purchasing trucks for his
business. According to Appellant, the Internal Revenue Service
does not allow him to deduct as an expense the cost of purchasing
a truck in one lump sum, but rather makes him spread out the cost
of the truck over its useful life, which expense is classified as
"depreciation" for income tax purposes. Thus, he argues, it is
unfair to disallow him to deduct a substantial capital expense of
his busines, the purchase of trucks which are obviously necessary
for the operation of a trucking business, only because he is
required to classify this capital expense as "depreciation" for
income tax purposes. To do so results in the inequitable result
which requires him to pay child support based on a calculation of
"gross income" which he does not really have.
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We recognize the equitable principles in Appellaant's
argument and it is apparent from the transcript of the record
before the chancellor that he agreed with the argument in
principle but he had no alternative under the provisions of the
child support guidelines or the evidence in the record.
It is a well-settled rule of evidence in this
jurisdiction that "the burden of proof rests upon him who
affirms, not upon him who denies." Gibson's Suite in Chancery,
Fifth Edition § 451; Galbreath v. Nolan, 429 S.W.2d 447, 450
(Tnn.App.1967) 58 Tenn.App. 260.
Under the guidelines, the trial court would not have
been at liberty to deduct any expenditure claimed as a deduction
unless it was shown to be "reasonable expenses necessary to
produce such income" for the business. On the trial of the case,
there was no effort made by the Appellant to show that any of his
expenditures were reasonable or necessary to produce the income
for the business. Absent such a showing, how can it be said the
court was in error in failing to treat the uenexplained
depreciation so as to be allowed as capital expenditures? We
think the question answers itself.
The Appellant also states in his brief, as pertinent:
"Neither the Tennessee Legislature nor the Child Support
Guidelines promulgated by the Child Welfare Department, have seen
fit to either expressly exclude or authorize a deduction for
capital expenditures. The standard that has been followed by
this Honorable Court has been to leave it to the discretion of
the trial court to determine when and if said expenditures are
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"reasonable." Citing the unreported case of Kimble v. Kimble, 21
Tenn. 35-7 (Tenn.App.1996).
The issue of whether or not the trial court should have
considered depreciation claimed for tax purposes as a reasonable
and necessary expenditure was not an issue on the trial of the
case and has been raied for the first time on appeal, which the
Appelllant is not at liberty to do. Airline Construction, Inc.
v. Barr, et al., 807 S.W.2d 247 (Tenn.App.1990); Atkins v.
Kirkpatrick, et al., 823 S.W.2d 547 (Tenn.App.1991); Simpson v.
Frontier Community Credit Union, 810 S.W.2d 147 (Tenn.1991.)
In the case of Foley v. Dayton Bank & Trust, 696 S.W.2d
356 (Tenn.App.1985), this court, in addressing the consideration
of an issue raised for the first time on appeal, quoted with
approval, at 359, as follows: "The jurisdiction of the Court of
Appeals is appellate only, T.C.A. § 16-4-108 (1980) and it should
consider only such matters as were acted upon by the trial
court." See Irvin v. Binkley, 577 S.W.2d 677 (Tenn.App.1979).
The decree of the chancellor is affirmed and the appeal
is dismissed. The cost of this appeal is taxed to the Appellant.
__________________________
Clifford E. Sanders, Sp.J.
CONCUR:
___________________________
Houston M. Goddard, P.J.
___________________________
Herschel P. Franks, J.
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