Stacey D. Mulligan vs. Adrian J. Hohenwarter No. 2010-50828

Civil Action-Child Support-Exceptions-Pa.R.C.P. Rule 1910.27(b)-Complete Tax Returns-Redaction of Tax Return-Income of Third Party Spouse-Deviation from Guideline Amount-Self Employment Income-Motion for Protective Order

1. The Domestic Relations Master dismissed Defendant’s Petition for Modification of a Child Support Order that he filed on the basis that he realized a reduction in his self-employment income as a physician when Defendant refused to disclose a complete copy of his income tax return at the hearing. Defendant filed Exceptions to the Report and Recommendation of the Domestic Relations Master, asserting that the Domestic Relations Master erred in requiring him to produce his entire income tax return because it contains information about his spouse who is not a party to the proceedings and works for Defendant’s practice.

2. In reviewing a report of a domestic relations master, the court must give fullest consideration to the credibility findings of the domestic relations master, who was present to observe the demeanor of the witnesses and to hear their testimony. The report of the domestic relations master should not be lightly disregarded.

3. However, the report of the domestic relations master only is advisory, and the court is not bound by the conclusions drawn therein. When a transcribed record of the proceedings before the domestic relations master exists, the court must consider all of the evidence de novo and make an independent determination of the amount of support due and owing.

4. Pa.R.C.P. Rule 1910.27(b) requires that parties in support proceedings are required to present a true copy of their most recent Federal Income Tax Return[s], including W-2 statements, as filed, not the portions of the income tax return that a party unilaterally deems relevant.

5. Although the income of a third party spouse is not included in calculation of an obligor’s income, the income of a third party spouse is a relevant consideration as other income in the household, which may constitute a valid basis for deviation from the Guideline support amount pursuant to Pa.R.C.P. Rule 1910.16-5(b)(3).

6. In a support case, a business owner’s income cannot be defined completely by an income tax return, but neither can a business owner’s income be defined adequately without reference to an income tax return. While income tax returns can contain financial fictions, a small business owner’s tax return certainly is a valuable tool that should be used when assessing a small business owner’s income.

7. Plaintiff was not required to file a motion to compel in order to require Defendant to disclose a complete copy of his income tax return.

8. While there is no foreseeable scenario under which a support litigant may be permitted to redact information from his or her tax return, it would be the responsibility of the party seeking to preclude disclosure of a complete tax return to file a motion for protective order if preclusion of full disclosure of a complete tax return for some limited and unusual fact pattern would be sought.

9. The Domestic Relations Master properly denied Defendant’s Petition for Modification of a Child Support Order.

L.C.C.C.P. No. 2010-50828, Opinion by Bradford H. Charles, Judge, October 14, 2015.

Nichole Collins, Esquire, for Plaintiff

Scott Grenoble, Esquire, for Defendant

IN THE COURT OF COMMON PLEAS OF

LEBANON COUNTY, PENNSYLVANIA

CIVIL ACTION NO. 2010-5-0828

PACSES NO. 423113841

STACEY D. MULLIGAN, Plaintiff

ADRIAN J. HOHENWARTER, Defendant

ORDER OF COURT

AND NOW, to wit, this 14^th day of October, 2015, in accordance with the attached Opinion and upon consideration of the arguments submitted by both parties, oral argument and a perusal of the transcript, it is hereby Ordered and Decreed that the Exception filed by Adrian J. Hohenwarter are denied. The Exception filed by Stacey D. Mulligan is also denied. Our Order today is without prejudice to the ability of both parties to resubmit their requests for relief via a new Motion for Modification.

The temporary Order of Court, dated July 27, 2015, is MADE PERMANENT. [Full text of order not for publication]

BY THE COURT:

BRADFORD H. CHARLES, J.

APPEARANCES:

Nichole Collins, Esquire For Stacey D. Mulligan

SCARINGI & SCARINGI, P.C.

Scott Grenoble, Esquire For Adrian J. Hohenwarter

BUZGON DAVIS LAW OFFICES

OPINION BY CHARLES, J., October 14, 2015

Rules are meant to be followed. In this case, a Pennsylvania Rule of Court requires that every support litigant disclose his/her complete Federal Tax Returns “as filed.” Without seeking any relief via a Motion for Protective Order, Dr. Adrian J. Hohenwarter (hereafter “FATHER”) self-selected portions of his tax return that he was willing to disclose and he refused to provide other portions that he deemed “private.” As a result of FATHER’s intransigence, a Domestic Relations Master (“DRM”) dismissed the Motion for Reduction of Support that FATHER had filed. Because transparency is important in any support litigation, and because we cannot permit any litigant to self-determine what is or is not relevant, we will be affirming the decision of the DRM.

I. FACTS

Stacey D. Mulligan (hereafter “MOTHER”) and FATHER are the parents of two children who were born during their relatively brief marriage. The parties share equal physical custody of their children pursuant to our Order of February 9, 2015. FATHER is self-employed as a physician in Palmyra; his new wife works for him. MOTHER works for the Commonwealth.

FATHER filed a Petition for Modification on February 9, 2015, claiming his income had decreased. A hearing was conducted on July 2^nd at which two primary issues were disputed: (1) child support and (2) FATHER’s income. On August 8, 2013, the parties had agreed to leave child care reimbursement out of the child support calculation and deal with it separately. The arrangement has not worked, and neither party has reimbursed the other in several months.

FATHER testified that his income had decreased substantially. In support of this claim, he presented various documents, including an extensively redacted 2014 joint tax return. Lines 1 through 23 were redacted, as were lines 13, 22, 37-46, 56, 57, 63 and 72. A number of lines on schedules A and C were redacted. Forms 2441 (Child and Dependent Care Expenses), 8829 (Expenses of Business Use of Home), 4562 (Depreciation and Amortization) and the Federal Asset report were all substantially redacted. FATHER claimed that all of the redacted information related to his Wife’s income. However, there was a paucity of testimony as to whether FATHER’s wife, Marilyn Hohenwarter, has any employment or business income that is separate from FATHER’s medical practice and business.

On July 27, the DRM issued her Report and Recommendation. She noted that she was unable to determine FATHER’s actual income, and declared that it was inappropriate for FATHER to self-determine which portions of his tax return were irrelevant. The DRM believed that she should have been able to see the entire tax return in order to properly assess FATHER’s income. Because FATHER would not provide his entire tax return, the DRM, determined that he could not prove a decrease of income. Because FATHER was the party who filed for modification, the DRM dismissed FATHER’s Petition. FATHER and MOTHER both timely filed Exceptions.

II. SCOPE OF REVIEW

Our Superior Court has provided guidance with respect to the scope of review that we should ordinarily employ. In reviewing a DRM’s report, we must give “fullest consideration” to the credibility findings of the DRM, who was present to observe the demeanor of witnesses and hear their testimony. Schuback v. Schuback, 603 A.2d 194, 195-6 (Pa.Super. 1992); Dukmen v. Dukmen, 420 A.2d 667, 670 (Pa.Super. 1980). A DRM’s report should not be lightly disregarded. Pasternak v. Pasternak, 204 A.2d 290, 291 (Pa.Super. 1964). However, the DRM’s report is only advisory, and we are not bound by its conclusions. Id. When we have a transcribed record to review, we must consider all of the evidence de novo and make an independent determination of the amount of support due and owing. Id. (citing Rankin v. Rankin, 124 A.2d 689 (Pa.Super. 1956).

III. DISCUSSION

A. Redacted Tax Return

FATHER argues that it was error for the DRM to require production of his entire tax return because the return includes information regarding his spouse. FATHER points out that his wife is not a party to this action and has no obligation to support FATHER’s children. MOTHER argues that FATHER was in contempt of our February 10^th Order that required him to produce his “Tax Return, including W-2s, as filed“. (emphasis added)

Parties are required to present “a true copy of [their] most recent Federal Income Tax Return[s], including W-2s, as filed….” Pa.R.C.P. 1910.27(b)(emphasis added). This rule was promulgated by the Supreme Court of Pennsylvania, and, needless to say, the rule does not equivocate by saying “unless you feel portions are irrelevant”.

Furthermore, although the income of a third-party spouse does not count toward the obligor’s income, “other income in the household” is relevant because it can create a valid basis for deviation. Pa.R.C.P. 1910.16-5(b)(3). In J.P.D. v. W.E.D., 114 A.3d 887, 892 (Pa.Super. 2015) the Court upheld a deviation based on the income of the father’s new wife. On this basis, the Court concluded that it would be “hard-pressed…to find that the upward deviation does not allow for Father’s reasonable living expenses.” Id. The J.P.D Court’s reasoning applies to all cases, including this one.

Defense counsel argues that MOTHER should have had to file a motion to compel in order to obtain the entire tax return. This argument is disingenuous. Not only did our Order of February 10^th Order require FATHER to produce his “Tax Return, including W-2s, as filed”, but we also granted limited discovery in this case. On June 1, 2015, we issued an Order giving both sides leave to conduct discovery, limited to 10 documents and 20 interrogatories. One of the documents MOTHER requested was a “complete, unredacted copy of [FATHER’s] 2014 tax return including all schedules and attachments”. Inter. & Req. pg. 8. On June 30, 2015, a mere two days before the hearing, FATHER provided an incomplete tax return. Nevertheless Defense counsel insists that MOTHER should have filed a motion to compel in order to obtain the documents she had already requested. We could not disagree more strongly.

Permitting support litigants to self-proclaim what is relevant and what is not would set a dangerous precedent. In many situations, we perceive that such a policy would lead to shenanigans by obligors who have a vested interest in seeking to minimize their income and assets. We are not blind to the fact that the Pennsylvania Support Guidelines are predicated primarily upon income. If the Support Order generated by application of the Guidelines is to be perceived as fair, there must be transparency with respect to the income of both parties. Adopting FATHER’s position would promote gamesmanship rather than transparency.

As we issue this Opinion, we can think of no scenario under which we would permit any litigant to redact information from tax returns. While we fully understand that tax returns can be manipulated and are not the definitive barometer of an individual’s income, they are nevertheless important . . . and they are signed subject to criminal penalties that would flow if falsification is attempted. In a recent case, we stated:

In a child support case, a business owner’s income cannot be completely defined by a tax return, but neither can it be adequately defined without reference to one…Tax returns do contain “financial fictions” such as depreciation expense that reduce taxable income below actual cash income. On the other hand, tax returns also contain a wealth of information regarding revenue, cost of goods sold, expenses, etc., the accuracy of which is subject to criminal penalties under federal tax law. While not controlling, a small business owner’s tax return is certainly a valuable tool that should be used…when assessing a small business owner’s income.

See, Yassine v. Atalla, C.P.Leb.Co. No. 2007-5-0871 (Feb. 1, 2011).

With the above being said, we have been presiding over Domestic Relations Court long enough to “never say never.” We concede that there may be some limited and unusual fact-pattern in which income generated within a support litigant’s household could be deemed privileged and private. In such a case, it must be the responsibility of the party seeking to preclude disclosure to file a Motion for Protective order. The general rule – the “default” position if you will – requires full and transparent disclosure of all household income. If an exception to this “default” rule exists, it must be pursued via a Motion for Protective Order filed by the party seeking to prevent disclosure.

In this case, a specific Rule of Civil Procedure requires disclosure of a party’s complete Federal Income Tax Return “as filed…” FATHER never filed a Motion for Protective Order and submitted his self-redacted tax return two days prior to the hearing before the DRM. Under these circumstances, the DRM had no choice but to deny FATHER’s claim for relief. We wholeheartedly endorse the decision of the DRM given the circumstances that were presented to her. FATHER’s exception will therefore be denied.

B. Child Support

MOTHER also filed an Exception, alleging it was error for the DRM to fail to consider her request for the inclusion of child care expenses in the support calculation. She argues that the DRM could have made findings of fact specifically pertaining to child support modification.

While child-care is currently handled on an out-of-court basis, the arrangement is clearly not working out. MOTHER is correct in her assertion that parties cannot contract away child support, and while we admire MOTHER’s concern for judicial economy, this matter is simply not before the Court, as we are dismissing FATHER’s Petition to Modify without prejudice to his ability to re-file. When and if he does, or next time there is a review hearing, the DRM should consider the inclusion of child support in the support calculation. We are simply not at the procedural posture at which it would be feasible to do so now.

1) We certainly do not accuse FATHER of any manipulative shenanigans. However, we note that FATHER’s current wife, Marilyn, works for his medical practice. It would be relatively easy for FATHER to divert some of his income to his wife in the form of “salary” or a “bonus.” Without full transparency, it would be impossible to discern whether FATHER’s wife is being paid a fair wage or whether her income is inflated in order to artificially lower FATHER’s income available for child support.