In re Marriage of Sommerville, 2023

Tara Sommerville (the wife) appealed the economic provisions of her divorce decree from Jamie Sommerville (the husband). She contended the district court erred in determining the husband’s earning capacity and awarding child support and spousal support. She also contended the husband dissipated marital assets by incurring penalties and interest by failing to timely file the parties’ income taxes over a 10-year period. Finally, she challenged the division of marital property and debt.

The appellate court determined that the district court erred in determining the husband’s earning capacity and remanded for redetermination of child support and spousal support. “We also modify the amount and duration of the spousal support awarded to Tara.” The appellate court also confirmed that there was no dissipation of assets by the husband and affirmed the property-division aspects of the decree.

Facts.

The couple married in 1996, and Tara worked in human resources until 2009, then earned a master’s degree in mental health in 2012. She earned $47,297 per annum as a school counselor.

Jamie worked in construction, and he and Tara formed Sommerville Resources Inc., an S corp that performed commercial construction. Between 2015 and 2020, Jamie represented to different financial institutions that he earned $180,000. At trial, the husband indicated that Sommerville Resources was struggling as a result of COVID-19. The husband estimated that, if Sommerville Resources failed, he could earn about $70,000 per year. Their personal and corporate tax returns for 2008 to 2016 were prepared but never filed. Returns for 2018 and 2019 were filed, but no payments on their tax liabilities were made. They owed a significant amount of federal and state taxes including penalties and interest.

In the decree, the district court estimated the husband’s income at $70,000 per year for child support purposes. The district court also ordered the husband to pay spousal support for 10 years at $350 per month when two children were on support, $500 per month when one child is on support, and $1,200 thereafter.

Support awards.

Resolution of the support awards required a determination of the parties’ earnings. (In re Marriage of Wade) The wife challenged the district court’s determination of the husband’s income. It was complicated by his employment with Sommerville Resources. Although fluctuating, the district court determined that Sommerville Resources had been profitable and would be so in the future. Even before COVID-19, Sommerville Resources’ largest customer changed ownership and was providing less work. But the district court also said that the economy was recovering and commercial construction would increase.

However, the district court accepted the husband’s estimate of $70,000 per year income because “there is little other evidence of Jamie’s current income.” The wife challenged that, arguing the husband earned $180,000 per year. Income was to be determined by the most reliable evidence. (In re Marriage of Powell) Generally, the evidence came from completed tax returns. (In re Marriage of Hansen) However, that might not always be the case. “It is not uncommon for an owner to cover many normal personal living expenses through the corporation or to over-depreciate or undervalue inventory, all of which would decrease profits while increasing the owner’s standard of living or the actual value of the company’s assets.” (In re Marriage of Wiedemann) As the district court noted, there was little evidence of the husband’s recent earnings.

The husband testified that Sommerville Resources’ past earnings were not representative of his current earnings, claiming he needed to reinvent the business to assure its survival. In response to how he would make money if Sommerville Resources failed, he responded:

Q: If it doesn’t work given the pandemic and the commercial market, what will you do? 

A: Well, I don’t have a college degree, so I would probably become a superintendent or a general foreman or something for another company.

Q: And how much do you think you could earn if that were the case? 

A: Roughly $70,000.

He testified that he was willing to adopt $70,000 as income to be imputed to him for support determination purposes. The wife argued the district court erred in accepting this amount due to its stated concerns about the husband’s credibility noted in the decree as follows:

Jamie was evasive and less than forthcoming during his testimony concerning the finances of both SRI [*9] and the family. The court questions his credibility but in many instances, there was no other evidence presented. The court also finds it incredulous that Jamie did not disclose the couple’s tax liability exposure when applying for bank credit. His lack of candor with his bankers, attorneys and on cross examination hangs over his testimony.

The appellate court was unwilling to base his earnings on the husband’s speculative and unsubstantiated estimate of what he would make if Sommerville Resources failed. The wife determined the husband’s earnings at $180,000 per year based on “what he’s made in the past and his expenditures, what he’s paid himself and spent since the divorce has been going on.” She also cited credit applications the husband submitted over the years representing an annual income of $180,000. Still, here, evidence was insufficient on which to base a finding.

The best evidence came from Sommerville Resources’ tax returns, but they showed a considerable fluctuation in income with no identifiable trends. Although the records for the recent years were incomplete or nonexistent, the court was not required to base its determination on income on the most recent years. (In re Marriage of Hageria) For those who were self-employed, average income over a period of time might be the only equitable way to determine income for child support purposes. Using the prepared tax returns for 2008 through 2018, the husband earned a smoothed average of $142,763.

Turning to the spousal support, both parties challenged the amount and duration of that award. The wife argued she was unable to sustain her standard of living under the district court’s award. The husband argued the award should be reduced or eliminated, saying he cannot support his own lifestyle while paying child support and spousal support. “If this court affirms the spousal-support award, Jamie asks that the court modify the award to terminate on either party’s death or Tara’s remarriage.”

The appellate court recognized that the district court has “considerable latitude” in awarding spousal support. In awarding the wife spousal support, the district court noted the wife’s financial struggles during the pendency of this matter. The husband, on the other hand, was in a superior position financially. “An award of traditional spousal support is warranted under the factors set out in section 598.21A(1).” Because the parties had been married for 24 years, the wife was entitled to spousal support. “If possible, we fix support to allow both parties to continue their standard of living.”

Based on the parties relative monthly incomes and expenses, the appellate court modified the spousal support to $1,800 per month, terminating at the death of either party. The appellate court declined to terminate the spousal support upon the wife’s remarriage, but the husband can seek modification then and the wife “would bear the burden of showing ‘extant extraordinary circumstances that justify continuing the support.’”

Income tax and penalties.

The district court found the husband to be the owner of Sommerville Resources and the sole source of the family’s income in most of the years when taxes were not paid. The district court deemed the wife’s testimony that she was unaware that the taxes were not paid as “credible but naïve.” It found that the parties were jointly liable for the outstanding tax debt. The district court treated the liability as a marital debt.

The wife argued that the failure of the husband to pay the taxes amounted to a dissipation of marital assets. In identifying dissipation, the court considered the proximity of the expenditure to the separation, whether it was an expenditure typical to that made during the marriage, whether it benefited both parties, and the need for and amount of the expenditure.

Affirmed as modified and remanded. 

The appellate court declined to treat the husband’s failure to file tax returns and to pay the taxes as dissipation. It occurred over a 10-year period preceding the dissolution action. Nothing indicated that the failure benefited the husband to the exclusion of the wife. Both parties benefited, and the appellate court affirmed the decision of the district court.

The appellate court also affirmed the property division of the district court.

Dissents. There was one dissent from a portion of the decision, believing the modified spousal award as being too high, in part because alimony was no longer deductible.