CAV: Retroactive support modification can’t cure arrearages

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The circuit court did not err in modifying a husband’s spousal support obligation from about $7,800 to $4,800 based on his ability to pay, but it also properly declined to make the modification retroactive.

Background

Husband and Wife married in 1989 and separated in 2015. They had three adult children and jointly owned a bed-and-breakfast inn. Husband owned interests in LLCs that operated four Williamsburg restaurants. He received a guaranteed monthly salary of $10,000 from one of the restaurants, plus an additional $530 every two weeks to pay taxes on his guaranteed salary.

The businesses paid about $52,000 per year for Husband’s premiums for life insurance and family health insurance and his health savings account. He also received periodic distributions from the restaurants to offset his tax liability arising from the restaurants’ reported taxable income. No distributions were made if it would deplete the operating and capital needs of that restaurant. The income reported on husband’s tax returns reflected taxable income from the restaurants, but it did not reflect his cash flow or the actual disposable funds available to him.

At the pendente lite hearing in October 2016, the circuit court ordered Husband to pay Wife $7,831 each month and to continue paying the mortgage and all utilities for the marital residence where Wife lived, as well as paying her car loan and insurance. These expenses totaled $5,888.

After amassing arrearages, Husband testified that he could not afford to pay the additional pendente lite support because he only had left about $4,600 per month after he paid wife’s housing and car expenses. He said that he had received a $150,000 distribution from one of the restaurants in 2016 to cover his tax liability, but that he did not expect to get any further distributions because the restaurants required the cash to operate. The circuit court found that Husband was not in contempt for failing to pay support, though it concluded it could not retroactively modify the support amount. It awarded an arrearage of $66,437.

Husband and Wife have both appealed.

Spousal support

The circuit court did not abuse its discretion in awarding the arrearage amount or in setting Wife’s permanent support award at $4,800 per month.

In setting the permanent support amount, the circuit court considered the factors set forth in Code § 20-107.1(E). It determined that Husband’s annual income was “roughly $250,000.” Wife contends that the figure should have been closer to $300,000.

The circuit court did not include the insurance premiums paid on husband’s behalf or the funding of his health savings account because Husband did not receive cash for these benefits. It considered evidence of Husband’s state and federal tax obligation based on the reported taxable income from the restaurants. It credited testimony from Husband’s business partner about the operating expenses and capital outlay of the restaurants, as well as the manner in which distributions to members of the companies were made. The circuit court stated that Husband did not “get the benefits of all the profits that [the restaurants] show on the books,” and that husband had “a serious cash-flow problem because of the way he is taxed.”

Wife’s annual income was $35,000. She claimed her monthly needs totaled over $12,000, including $800 for dining out, $300 for gas, and money for remodeling projects at the residence. The circuit court viewed Wife’s income and expense statement as “not particularly helpful” and noted that, during the marriage, the parties lived beyond their means to achieve a standard of living that they could not afford.

The circuit court determined the amount of the arrearage award to Wife before it addressed the amount of permanent spousal support. It was faced with the fact that although the marital estate was valued at over $1.1 million, the available liquid assets were approximately $7,000. The circuit court also considered the tax consequences to each party, but was attentive to Husband’s actual cash flow because his tax exposure distorted his true financial position.

Affirmed.

Tawes v. Everett, Record Nos. 1838-17-1 and 1839-17-1, July 10, 2018. CAV (Bumgardner), from Williamsburg Cir. Ct. (Maxfield). Robert L. Harris Jr. for Everett; Player B. Michelsen for Tawes. VLW No. 018-7-171, 7 pp.