Johnson v. Johnson

SALMON, J. Robert and Ann Johnson are the parents of three minor children. By a judgment of absolute divorce dated October 7, 2002, the Circuit Court for Baltimore County dissolved the Johnsons’ marriage and awarded custody of the three children to Mrs. Johnson. The court required Mr. Johnson to pay $1,860 per month in child support. The trial judge arrived at ⁶¹¹ the child support amount, inter alia, by determining that Mr. Johnson’s 2002 earnings would be $122,900.

In 2002, Mr. Johnson’s base salary was $80,000, but in addition he had dividend income of $1,500, plus a taxable bonus of $30,000 and a non-taxable “pension bonus” of $11,400. Mr. Johnson filed this timely appeal and raises two questions: 1. Did the trial court err in failing to incorporate into the judgment of absolute divorce the parties’ July 10, 2002, agreement in which the Johnsons agreed that child support should be calculated under the child support guidelines by using $90,000 as Mr. Johnson’s annual salary? 2. Did the court err or abuse its discretion by including the full amount of Mr. Johnson’s bonus income arising from his first year of employment as part of his actual income for child support purposes?

I. EVIDENCE PRESENTED AT THE HEARING TO DETERMINE CHILD SUPPORT A. Undisputed Facts Robert and Ann Johnson’s three children are Katherine, bom May 28, 1988, and twins, Thomas and Nicholas, bom January 13, 1991. The parties separated on February 13, 1997, and on that same date entered into a separation and marital property settlement agreement in which it was agreed that Mrs. Johnson was to have custody of the children and that Mr. Johnson would pay $1,250 per month to her as child support. Until 2000, Mr. Johnson worked for Robert H. Johnson & Associates, a corporation he owned. Mr. Johnson commenced employment with AGM Financial Services, Inc. (“AGM”), on November 15, 2000, as an underwriter.

His initial base salary was $75,000 per year. Bonuses, if any, were to be paid depending on (1) the profitability of AGM; (2) his job performance; and (3) the discretion of ⁶¹² AGM’s owner. At AGM, all bonuses are usually paid in February and are based on the prior year’s performance. According to his federal tax returns, Mr. Johnson’s annual earnings between 1997 and 2001 were: 1997 $ 95,726 1998 $ 68,675 1999 $102,333 2000 $ 90,223 2001 $116,295 In 2002, Mr. Johnson received a $5,000 raise in his base salary.

In addition, he received in February 2002 an incentive bonus of $30,000 and a “pension bonus” of $11,400, for a total 2002 bonus of $41,400. The bonuses were a reward for work performed for AGM in 2001. Mrs. Johnson is employed by Martin & Levasseur as a legal secretary. Her annual income in 2002 was $28,000.

The parties modified their child support agreement on July 10, 2002, by an addendum. The addendum provided: 2.A. BASE CHILD SUPPORT At the time of this Agreement Father’s gross monthly income is $7,500.00; Mother’s gross income is $2,333.00. Father provides health insurance for the children through his employment but currently is assessed no charge or wage deduction for those medical health benefits. For reasons set forth in the paragraphs that follow, the parties have determined that it is in the best interest of the children for work-related childcare expenses and other child related expenditures not to be included in the [child support] guidelines.

Accordingly, accounting from July 1, 2002, Father shall pay unto Mother the sum of $1,534.00 as base child support. Consistent with the provisions of the original Agreement dated February 13, 1997, and as permitted under the terms of the Revocable Trust Agreement of Robert H. Johnson dated July 30, 1997 (Section 2.C), the child support may be paid in its entirety from said trust at the direction and discretion of the Trustees ⁶¹³ thereunder. [1] Whatever payment method is employed, Father’s payment shall be paid to Mother no later than the first day of each month commencing with July 1, 2002 and every month thereafter. At the time the addendum was signed, Mrs. Johnson was unaware that her spouse had already received a $41,400 bonus in 2002. The Johnsons’ gross monthly incomes as represented in the amended agreement translated into annual incomes of $90,000 and $28,000, respectively.

Because Mrs. Johnson (purportedly) earned 23.73% of the combined gross income, the agreement required Mr. Johnson to pay 76.27% of the child-related expenses and Mrs. Johnson to pay the remaining 23.73%. Mrs. Johnson, in August 2002, first became aware that Mr. Johnson had received a $41,400 bonus six months earlier. B. Testimony of Mr. Johnson In negotiating the addendum to the agreement, Mr. Johnson used the income figure of $7,500 per month ($90,000 annually) because he hoped for a future average bonus of $10,000 annually. He gave no indication as to how he arrived at the $10,000 per year estimate, nor did he say how much he anticipated receiving as a bonus for 2003.

Nevertheless, if the court did not accept his estimate of an average bonus of $10,000 per year, Mr. Johnson testified that he wanted the court to use only his $80,000 base salary in calculating his child support obligations. Mr. Johnson’s excuse for failing to disclose his 2002 bonus to Mrs. Johnson was that his bonus was not guaranteed for the future.

II

Appellant argues that the July 10, 2002, addendum was in the best interest of the children, and therefore, the trial judge ⁶¹⁴ erred in failing to incorporate the addendum into the judgment of divorce. In support of this argument, appellant contends: (1) based upon the circumstances of this case, a correct calculation of what he owed under the guidelines would result in the court assuming he earned only $80,000 per year, plus $1,500 in dividends; (2) because the calculation should be based on the $81,500 assumption, a “proper” guidelines calculation would result in his paying less money in child support than the amount he agreed to pay; and (3) it would be in the best interest of the children if child support were based on the higher amount agreed upon than the lower (albeit proper) amount required by the application of the guidelines. As can be seen, whether appellant’s argument has merit depends entirely on the validity of his major premise, i.e., that under the guidelines his $41,400 bonus should not have been considered. As will be shown in part III, infra, Mr. Johnson’s major premise fails.

III

Trial judges are obligated to use the child support guidelines to establish the amount of child support when the parties’ combined monthly income is $10,000 or less. Md.Code Ann., Fam. Law (“FL”) § 12-202 (2002); Smith v. Freeman, 149 Md.App. 1, 19 , 814 A.2d 65 (2002). When the income of the parties is above the $10,000 per month threshold, the trial judge may use discretion in establishing child support.

FL § 12-204(d). See also Smith, 149 Md.App. at 19 , 814 A.2d 65 . The Smith Court explained: When the chancellor exercises discretion with respect to child support in an above Guidelines case, he- or she “must balance the best interests and needs of the child with the parent’s financial ability to meet those needs.” Unkle v. Unkle, 305 Md. 587, 597 , 505 A.2d 849 (1986); see Collins [v. Collins], 144 Md.App. [395,] 443, 798 A.2d 1155 [(2002)]. Several factors are relevant in setting child support in an above Guidelines case.

They include the parties’ financial circumstances, Unkle, 305 Md. at 597 , 505 A.2d 849 , the ⁶¹⁵ “reasonable expenses of the child,” Voishan [v. Palma], 327 Md. [318,] 332, 609 A.2d 319 [(2002)], and the parties’ “ ‘station in life, their age and physical condition, and expenses in educating the child [ ].’ ” Id. at 329 , 609 A.2d 319 (citation omitted). We will not disturb the trial court’s discretionary determination as to an appropriate award of child support absent legal error or abuse of discretion. Ware v. Ware, 131 Md.App. 207, 240 , 748 A.2d 1031 (2000). Id. at 120 , 814 A.2d 65 .

Whether this is an “over guideline” case depends upon whether Mr. Johnson’s $41,400 bonus was properly considered part of his annual income. The methodology utilized in calculating child support was: The court determined that Mrs. Johnson earned $28,000 and Mr. Johnson earned $122,900 per year. That latter figure was calculated by determining the sum of the three figures: base salary—$80,000; dividends—$1,500; bonus—$41,400. Total yearly income for both spouses was $150,900—or $12,575 monthly.

Under the guidelines, the maximum monetary guideline child support for parents who earn $10,000 per month and have three minor children is $2,026. Because the parties earned $2,575 per month more than the $10,000 guideline maximum, the court increased the total child support obligation by 10% of $2,575.00. This meant the total obligation was $2,283.50 ($2,026 + 257.50) of which Mr. Johnson was to pay 81.45% or $1,860. Appellant’s only criticism of the above methodology is the inclusion of the $41,400 bonus into the formula.

Maryland law is clear that, “[wjhen a court calculates a parent’s financial obligations under the child support guidelines, the central factual issue is the ‘actual adjusted income’ of each party, and the court must consider the ‘actual income of a parent, if the parent is employed to full capacity,’.... ” Reuter v. Reuter, 102 Md.App. 212, 221 , 649 A.2d 24 (1994) (quoting FL § 12-201 (b)(1)). The term “actual income” includes “bonuses.” See FL § 12-201(3)(iv). Despite the clear language of the statute, Mr. Johnson contends that the court erred in including his bonus as part of ⁶¹⁶ his “actual income.” Appellant contends that bonuses such as the one he received in 2002 should be disregarded in all “above guideline cases” and in all cases where the parental incomes are less than $10,000 per month. According to appellant, his bonus should have been disregarded because it is too speculative as to what bonus, if any, he will receive in the future.

In support of this position, Mr. Johnson relies on Kelly v. Kelly, 341 Ark. 596 , 19 S.W.3d 1 (2000), and Brown v. Brown, 119 Md.App. 289 , 705 A.2d 7 (1998). The defendant in Kelly , James E. Kelly, III, M.D., accepted a job paying $522,000 annually plus a bonus. 19 S.W.3d at 2 . His bonus was based on a complicated formula, viz: “The bonus amount shall be fifty percent (50%) of collections above a bonus threshold amount which shall equal physician’s base salary plus Practice Site costs. Bonus compensation shall be pro-rated for any partial year.

During the term of the Agreement Hospital and Physician will review the on-going practice site expenses as they relate to the calculation of the Bonus Percentage. Adjustments to the Bonus Percentage and Bonus Threshold will be made in accordance with the actual practice site experience”. Id. at 3. (Quoting Dr.Kelly’s agreement with his employer).

After the parties separated, Mrs. Kelly filed for divorce and asked for child support based on Dr. Kelly’s salary plus bonus. Id. Ultimately, the Kellys agreed that Dr. Kelly would pay $6,000 per month child support. Id.

The parties, however, asked the court to resolve the issue of what additional child support, if any, Mrs. Kelly should receive from Dr. Kelly’s annual bonus. Id. At trial, Dr. Kelly testified that he had not received a bonus, and was unsure when a bonus might be paid or how much it might be. He indicated that the uncertainty came from the nature of the calculation formula, which included the business costs associated with his practice.

He believed those costs would include the startup costs for practice, and that it would take an indefinite amount of time to build a practice. Id. The chancellor set Dr. Kelly’s child support at $6,000 per month plus 25% of the net of any bonus he received. Id.

The ⁶¹⁷ Supreme Court of Arkansas reversed because the court’s child support order violated an Administrative Order in that it did not “establish a sum certain dollar amount.” Id. at 4. In Arkansas, child support orders are governed by Section VII of Administrative Rule 10. Id. Under Rule 10, bonuses are considered income.

The Arkansas Supreme Court said in Kelly : Calculating support from bonus income, like other forms of income, should be based upon a proper showing of past earnings and demonstrated future ability. For instance, with regard to self-employed payors, support is calculated based upon the previous year’s federal and state income-tax returns and the quarterly estimates for the current year. Also, the court shall consider the amount the payor is capable of