Appeal from Johnson District Court; STEVE LEBEN, judge.
1. The standard of review of a district court's order determining the amount of child support is whether the district court abused its discretion, while interpretation and application of the Kansas Child Support Guidelines are subject to unlimited review.
2 Use of child support guidelines is mandatory and failure to follow the guidelines is reversible error. Any deviation from the amount of child support determined by the use of the guidelines must be justified by written findings in the journal entry, and failure to make such written findings is reversible error.
3. A corporation having an election in effect under subchapter S of the Internal Revenue Code shall not be subject to Kansas income tax on corporations and the shareholders of such corporation shall include in their taxable income their proportional part of such corporation's federal taxable income, subject to the modifications set forth in K.S.A. 79-32,117, and amendments thereto, in the same manner and to the same extent as provided by the Internal Revenue Code. K.S.A. 79-32,139.
4. The determination of whether and to what extent to include subchapter S corporate earnings, profit, or distribution as income in computing child support obligations is highly fact sensitive.
5. In situations where the individual with the support obligation is able to control the retention and disbursement of funds from a subchapter S corporation, he or she has the burden of proving that such actions were necessary to maintain or preserve the business.
6. Factors a district court should consider when deciding what amount, if any, of a subchapter S corporation's income should be included when calculating child support include the past earnings history of the corporation, ownership share, and the shareholder's ability to control the distribution or retention of net profits in the business.
7. Under the facts of this case where the individual with the child support obligation was the 100% owner of the subchapter S corporation, the district court correctly computed the gross domestic income by including all of the subchapter S income plus business expenses which were found to have been improperly deducted.
8. When the combined income of the parties is in excess of the maximum contained in the Kansas Child Support Guidelines schedule, the "extended-income formula" may be utilized in calculating child support.
9. A district court may deviate from the presumptive amount of child support provided in the Kansas Child Support Guidelines only if it makes specific written findings explaining the deviation.
10. Under the facts of this case, the district court properly considered all relevant factors, including the overall financial condition of the parties and provided valid and sufficient written reasons for using the extended income formula in imposing a cap on the amount of child support to be ordered.
The opinion of the court was delivered by: Larson, J.
Before GREENE, P.J., McANANY, J., and LARSON, S.J.
In this appeal, Coni S. Leoni contends the district court improperly modified P. Daniel Leoni's monthly child support obligation over several years. We find no error in the decision reached by the court below and consequently affirm.
While the parties are familiar with the proceedings and evidence presented at an all-day hearing, we will summarize the history of this case and the facts as testified to and found by the trial court.
Coni Leoni and P. Daniel Leoni were married in May 1986 and divorced in April 1996. Three children were born of the marriage, Blake, d/o/b 04/26/87, Sean, d/o/b 03/20/90, and Joe, d/o/b 02/26/93. Blake was emancipated for child support purposes as of June 30, 2005.
Pursuant to the divorce decree, Daniel was ordered to pay $2,500 per month in child support for the three minor children. This amount was adjusted at times during the late 1990s but was set at the monthly sum of $3,677 as of March 2000.
In November 2001, Coni filed a motion to increase child support. In April 2003, Daniel filed a motion to decrease child support. Due to discovery disputes and other issues, the hearing on the two motions was not held until July 15, 2005. The two principals testified. Many exhibits, primarily income tax returns, were admitted into evidence. Both parties agree that the primary issue was the determination of the yearly income of both Coni and Daniel for child support purposes.
The evidence was centered around Daniel's involvement as owner, sole stockholder, and president of Corporate Sign, Inc., a subchapter S corporation. Corporate Sign has three employees, Daniel, Paula (Daniel's wife as of June 2001), and Linda (Daniel's sister).
Daniel testified extensively about his income as president of Corporate Sign and business expenses he claimed on his tax returns from 2001 to 2004. Daniel claimed some business expenses that the district court found were "neither primarily related to nor necessary for the production of income." These suspect business expenses which were estimated at $20,000 per year included the costs of dinners with his wife at which the two discussed business and country club dues of $3,900 per year. Otherwise, the district court found that Daniel's tax returns were not "materially inaccurate in any way other than overstating some business expenses."
Daniel also testified about the salary that Paula received as an employee of Corporate Sign. The district court found that "the uncontested evidence shows that [Paula's] income from the company is in line with the income she received in prior employment, her education and training, and her prior work experience."
Numerous exhibits were admitted at the hearing. These exhibits included Daniel's personal income tax returns from 1997 to 2004; Corporate Sign's tax returns from 1995 to 2004; Daniel's personal bank statements; and Corporate Sign's financial records. Since 2001, Daniel has filed joint tax returns with his wife, Paula.
Coni testified that after reviewing Daniel's personal income tax returns and Corporate Sign's tax returns, she believed that Daniel was deducting personal expenses as business expenses. Coni created Exhibit 39 which detailed her analysis of Daniel's actual income. The court admitted the first ...