__________________________________________________
Kim Farha
Boyce
A. Griffith
Charleston, West Virginia
Hamlin,
West Virginia
Attorney for Appellee,
Attorney
for the Appellant
West Virginia Department of
Health and Human Resources,
Child Support Enforcement Division
JUSTICE ALBRIGHT delivered the Opinion of the Court.
1. “In
reviewing challenges to findings made by a family law master that were also
adopted by a circuit court, a three-pronged standard of review is applied.
Under these circumstances, a final equitable distribution order is reviewed
under an abuse of discretion standard; the underlying factual findings are
reviewed under a clearly erroneous standard; and questions of law and statutory
interpretations are subject to a de novo review.” Syl.
Pt. 1, Burnside v. Burnside, 194 W. Va. 263, 460 S.E.2d 264 (1995). 3. “'Attributed income'
means income not actually earned by a parent, but which may be attributed
to the parent because he or she is unemployed, is not working full time, is
working below full earning capacity, or has non-performing or under-performing
assets. W.Va.Code, 48A-1A-3(a) [1997]. Attributed income consists of
moneys which a support obligor should have earned had he or she diligently
pursued reasonable employment opportunities, or reasonably utilized, applied,
or invested his or her assets.” Syl. Pt. 4, Porter v. Bego, 200
W.Va. 168, 488 S.E.2d 443 (1997).
Albright, Justice: Jeffrey Lynn Baker appeals
from the February 26, 2001, order of the Circuit Court of Kanawha County,
which directed him to pay past and current child support to Appellee, Denise
Jarvis Hannan. Appellant asserts error with regard to the lower court's decision
that income realized in connection with the exercise of certain stock options
was “gross income”
(See footnote 1) and with the attribution
of income to him at the annual rate of $40,000. Upon our review of these issues,
we determine that the lower court did not err by including income realized
from the exercise of certain stock options in calculating child support, but
that the circuit court did error with regard to the issue of attributed income.
Accordingly, we affirm in part, reverse in part, and remand for further proceedings
consistent with this opinion.
A hearing before the family
law master was held on August 28, 2000, for the purpose of taking testimony
from the parties relevant to the issue of child support. During the hearing,
Appellant was questioned about the fact that he had just lost his employment
with the McDonald's Corporation, with whom he had been employed for sixteen
years. While Appellant indicated at the hearing that he was in the process
of challenging his termination, he was apparently terminated for utilizing
company employees to perform personal tasks. In calculating the income
available for the determination of back-owed child support, the family law
master included income that resulted through Appellant's exercise of certain
stock options. For the years 1998 and 1999, the family law master included
as “gross income” to Appellant earnings that he received from the
exercise of stock options he owned in McDonald's corporate stock for those
respective years. For purposes of calculating Appellant's current child support
obligation, the family law master attributed income of $40,000 per year to
Appellant, although Appellant was unemployed at the time of the ruling.
Through its order of February 26, 2001, the circuit court adopted the recommendations
of the family law master. With regard to that ruling, Appellant challenges
both the inclusion of the stock option earnings in calculating his past child
support obligation and the attribution of income in calculating his current
child support obligation.
2. Income
realized through the exercise of a stock option falls within the definition
of “gross income” set forth in chapter 48A, now chapter 48, of the
West Virginia Code.
4. “A family law master
or circuit court may attribute income to a parent when there is evidence that
the parent has, without a justifiable reason, voluntarily acted to reduce his
or her income.” Syl. Pt. 4, in part, State ex rel. W.Va. DHHR v. Gibson,
207 W.Va. 594, 535 S.E.2d 193 (2000).
5. Absent a showing that a child
support obligor effectuated a dismissal from his/her place of employment for
the express purpose of avoiding or affecting child support payments, an involuntary
termination, including those that are for cause and which involve intentional
conduct, does not come within the statutory purview of voluntary action required
to invoke the specific provisions of West Virginia Code § 48A-1A-3(b) (1997)
(Repl. Vol. 1999) concerning attribution of income based on an obligor's prior
level of income.
The Department of Health and
Human Resources (“DHHR”), through its child support enforcement division,
filed an action in the circuit court, seeking both a determination of paternity
and child support. As a result of blood testing, Appellant
(See footnote 2) was adjudicated the father of Andrew J. D.,
(See footnote 3) who was born on August 19,
1995. The parties agreed that Appellant's child support obligation would be
retroactive to January 1, 1997.
In
syllabus point one of Burnside v. Burnside, 194 W. Va. 263, 460 S.E.2d
264 (1995), we announced the standard under which we review circuit court orders
that involve the adoption of findings by a family law master:
In reviewing
challenges to findings made by a family law master that were also adopted by
a circuit court, a three-pronged standard of review is applied. Under these
circumstances, a final equitable distribution order is reviewed under an abuse
of discretion standard; the underlying factual findings are reviewed under a
clearly erroneous standard; and questions of law and statutory interpretations
are subject to a de novo review.
Because the issues raised in this appeal involve either questions of law or
statutory interpretation, our review is de novo.
Appellant realized $86,778 in
connection with the exercise of stock options for 1998 and $47,620.58 for 1999.
These amounts reflect the gross amounts of the moneys realized through the exercise
of such stock options. Appellant was required to pay income tax on these funds,
and, as evidenced by his tax returns for these respective years, he did pay
taxes on the capital gains he realized through the exercise of the stock options.
Appellant urges this Court to view the moneys received through the exercise
of the stock options as outside the definition of “gross income”
and, therefore, beyond the reach of the child support formula.
See
W. Va. Code § 48A-1A-19(a) (1999).
As
with any issue of statutory interpretation, we look to the relevant and controlling
language.
(See footnote 4) Under
West Virginia Code § 48A-1A-19(a) , “gross income” is defined
to mean both “earned and unearned income.” It is further defined
to include, “[e]arnings in the form of salaries, wages, commissions,
fees, bonuses, profit sharing, tips and other income.” W.Va. Code §
48A-1A-19(b)(1)
. And, “[d]epending on the circumstances
of the particular case,” capital gains may also be viewed as “gross
income.” W.Va. Code § 48A-1A-19(c). While there are statutorily provided
exceptions to the definition of “gross income,” none of those exceptions
apply to the facts of this case. See W.Va. Code § 48A-1A-19(d).
Appellant's
argument that the stock option funds should not be viewed as income is predicated
on a theory that whether funds qualify as “gross income” is dependent
on whether they constitute recurrent income or whether the income is nonrecurrent
in nature. Claiming that the funds he realized from the stock options were nonrecurring,
Appellant urges this Court to look beyond the statutory definition of “gross
income” and find error in the lower court's inclusion of such funds in
the child support calculations.
While we appreciate the argument
advanced by Appellant, we simply have no basis in the law for viewing the stock
option income as beyond the reach of child support.
See W.Va. Code § 48A-1B-2 (1997) (Repl. Vol. 1999) (discussing how
child support calculation is reached); cf. Yost v. Unanue, 671 N.E.2d
1374, 1376 (Ohio Ct. App. 1996) (referencing statutory definition of “nonrecurring”
income in affirming lower court's decision not to modify child support since
parties were aware of stock option income at time of divorce). Contrary to Appellant's
representation that the determining factor concerning whether moneys realized
from stock option exercise is income is whether it is a one-time realization
of income, the authority upon which Appellant relies stands only for
the proposition that stock options, when exercised, are properly treated as
income for child support purposes, barring some statutory exclusion. See,
e.g., In re Marriage of Kerr, 91 Cal.Rptr.2d 374, 380 (Cal. Ct. App.
1999) (treating exercise of stock option as income); In re Marriage of Campbell,
905 P.2d 19, 20 (Colo. Ct. App. 1995) (holding that exercise of stock option is ordinary income for purposes of child support); Kenton
v. Kenton, 571 A.2d 778, 782-83 (Del. 1990) (analogizing stock option
income to bonus and viewing same as income); Yost, 671 N.E.2d at 1376
(identifying statutory definition of “nonrecurring” income under
Ohio law).
Finding
no basis for excluding stock option income, we find that income realized through
the exercise of a stock option falls within the definition of “gross
income” set forth in chapter 48A, now chapter 48, of the West Virginia
Code. See W.Va. Code §§ 48A-1A-19; 48-1-228. Accordingly,
we hold that the lower court was correct in including the income realized
by Appellant through his stock option exercises in 1998 and 1999 as “gross
income” for child support purposes. With regard to future cases involving
stock option income, we encourage the parties to promptly introduce evidence
of such income to avoid the need for modification proceedings. The issue of attributed
income is entirely a legislative creation. Under West Virginia Code §
48A-1A-3 (1997) (Repl. Vol. 1999),
(See footnote 5) attribution of income is
expressly permitted based on an obligor's prior level of income when
the individual:
As tempting as it may have been
to the family law master and the lower court to come within the provisions of
section 3(b), we cannot view an involuntary dismissal, barring some evidence
that the dismissal was effectuated for the express purpose of avoiding or affecting
child support, as a statutory parallel to the actions specified in section 3(b)(1).
(See footnote 6)
See W.Va. Code § 48A-1A-3(b)(1). That provision anticipates
voluntary action; in this case, the events with regard to the dismissal of Appellant
appear without question to be involuntary. Accordingly, we hold that absent
a showing that a child support obligor effectuated a dismissal from his/her
place of employment for the express purpose of avoiding or affecting child support
payments, an involuntary termination, including those that are for cause and
which involve intentional conduct, does not come within the statutory purview
of voluntary action required to invoke the specific provisions of West Virginia
Code § 48A-1A- 3(b) concerning attribution of income based on an obligor's
prior level of income. In this case, the lower court clearly erred in attributing
income at the level of $40,000
(See footnote 7) because the necessary statutory
elements for relying on Appellant's prior level of income were not established.
See id.
Although the parties have
not suggested that any error was made in calculating the amount of child support
that Appellant owes for the years 1998 and 1999 beyond the inclusion of the
income realized through the exercise of the stock options in those respective
years, we authorize the lower court to revisit those child support calculations
for the express purpose of determining whether Appellant made any additional
income in the nature of investment income upon his receipt of those stock
option funds in those years or in subsequent years. In such event, those funds
realized as a direct result of the stock option income would properly be considered as income under the definition of “gross
income” set forth in West Virginia Code § 48A-1A-19. Based on the foregoing,
the decision of the Circuit Court of Kanawha County is affirmed as to the
inclusion of stock option income in the calculation of “gross income”
for child support purposes; reversed as to the attribution of income based
on Appellant's former income; and this matter is remanded for further proceedings
consistent with this opinion. Affirmed
in part;
We discussed the concept of
attributed income in syllabus point four of Porter v. Bego, 200 W.Va.
168, 488 S.E.2d 443 (1997):
“Attributed
income” means income not actually earned by a parent, but which may be
attributed to the parent because he or she is unemployed, is not working full
time, is working below full earning capacity, or has non-performing or under-performing
assets. W.Va.Code, 48A-1A-3(a) [1997]. Attributed income consists of
moneys which a support obligor should have earned had he or she diligently pursued reasonable employment opportunities, or reasonably utilized,
applied, or invested his or her assets.
We explained in syllabus point four of State ex rel. W.Va. DHHR v. Gibson,
207 W.Va. 594, 535 S.E.2d 193 (2000), that “[a] family law master or
circuit court may attribute income to a parent when there is evidence that
the parent has, without a justifiable reason, voluntarily acted to reduce
his or her income.” Id. at 595, 535 S.E.2d at 194, syl. pt. 4,
in part.
(1) Voluntarily leaves employment
or voluntarily alters his or her pattern of employment
so as to be unemployed, underemployed or employed below full earning capacity;
(2) is able to work and is available for full-time work for which he or she
is fitted by prior training or experience; and (3) is not seeking employment
in the manner that a reasonably prudent person in his or her circumstances
would do[.]
W.Va. Code 48A-1A-3(b). In setting the level of attributed income in this
case for purposes of current child support, the trial court viewed Appellant's
involuntary termination as the legal equivalent of a voluntary act, apparently
based on its conclusion that Appellant's actions underlying the dismissal
involved intentional misconduct.
Reversed
in part; and
Remanded
with Directions.
Footnote: 1