What’s On Their Minds: Inclusion of Non-Monetary Employment Benefits in the Child Support Calculus. Jeffrey Morrow v. Sherri Becker

Update: on October 16, 2013, the Supreme Court handed down a merit decision in this case.  Read the analysis here.

On  June 11, 2013, the Supreme Court heard oral argument in the case of Jeffrey Morrow v. Sherri Becker, 2012-1674, and 2012-1898. The case was accepted on discretionary appeal and conflict certification and the two cases were consolidated. At issue is whether company benefits, such as a company car, are included as income for purposes of child support calculations if the benefits are not the result of self-employment or joint ownership of a business.

Case Background

Jeffrey Morrow is the non-custodial father of two children with Sherri Becker. The two never married. Morrow is the president of the Ohio College of Massotherapy (OCM), a non-profit corporation, and of OCM Online. In 2009, Morrow’s salary was substantially reduced from both organizations. He sought a reduction in his child support obligation.  The trial court, using a three year averaging, set his income at $143,000.  Included in that figure was $16,756 in non-monetary company benefits, including a use of a Lexus company car, car insurance, cell phone, and OSU football tickets. Morrow appealed the inclusion of the non-monetary benefits as part of his gross income.  Morrow argued non-monetary benefits could only be included when classified as “self-generated income” under R.C. 3119.01(C)(13); because he did not receive the benefits from self-employment or joint ownership of a partnership or of a closely held corporation, the provision did not apply and the benefits could not be included as gross income.

The Ninth District Court of Appeals affirmed the decision of the trial court. Read the oral argument preview of this case here.

At Oral Argument

Morrow’s Argument

Company benefits should be included as income only when the benefits stem from self-employment or where the parent has some ownership interest in the company providing the benefits.  Neither was the case here.  Morrow was the president—hence, an employee—of OCM. He has no ownership interest in OCM. As college president he gets a salary.  While he does have an ownership interest in OCM Online, it has never been an issue in this case that the benefits came other than from the college.  The “catch-all” provision of the child support calculation statute can only be used when there isn’t a more specific provision to be used.  In this case there is a specific provision that applies. R.C. 3119.01 (13), which defines self-generated income must be used, and would exclude the benefits in this case because they don’t come from self employment or an ownership interest in a business. The legislature could have included all company benefits as gross income, but it didn’t. It clearly intended to distinguish between benefits that come from an employer and benefits that come from an ownership interest. The statute in this case must be read strictly and literally.

Becker’s Argument

This is a statutory interpretation case that requires the inclusion of Morrow’s company benefits in the child support calculation, under the catch-all provision of the child support statute. Any benefit that provides a reduction in living expense and is significant should be counted toward gross income.

Morrow is asking the court to write a bright-line rule that benefits should only be included in gross income when they stem from self-employment or ownership interest in a business. Bright lines are dangerous in domestic cases. The General Assembly created a laundry list of items that are to be included in gross income.  It also has stated what gross income is not, and collateral benefits are not included in what income is not. It should be discretionary with the trial court whether or not to include company benefits as income, and should be done on a benefit by benefit basis.

The reality in this case is that Morrow, although technically an employee, has absolute control over the company. Because OCM is a non-profit corporation, there is no owner.  Morrow is president and has unlimited control over the board.

What Was on their Minds

Morrow’s Job

How many employees are there at OCM asked Justice French?

What is the relationship between OCM and OCM Online, asked Chief Justice O’Connor? Does the college share in the profits of OCM Online? Is Morrow’s role and level of control over this business a factor the Court should consider, akin to piercing of the corporate veil?

Those Lovely Perks

Is the car allowance taxable, asked the Chief? Would it make a difference if those benefits were strictly restricted to work-related use only?

Isn’t the entire package of benefits a benefit to the father in his daily life, asked Justice O’Neill? Why shouldn’t this be a part of the family’s package, paid for by others?

When a person has cash, that person can decide what to do with it, and modify one’s spending habits, but you can’t really do that when you have benefits, commented Justice Lanzinger.  Should that be a concern?

Top employees at most companies get all kinds of perks, mused Justice Pfeifer.  Should the Court put out an opinion that none of that counts as income?

The Statute

Doesn’t it clearly say that a person must be the owner of the business in order to have the benefits included in income, asked Chief Justice O’Connor?

Justice Pfeifer asked Becker’s counsel this key question of the day:

“The sum and substance of the statutory scheme is if you are not self-employed, the judge looks at each benefit and makes the call, but if you are self-employed they are included by definition as gross income?”

Answer-yes

Where in the statute does it say that in order to be included as gross income, benefits must reduce personal expenses, asked Justice Lanzinger?  Benefits in and of themselves are not defined within the statute? (correct, said Becker’s counsel). In another key question of the day, she asked, “so we must interpolate where exactly the trial judge has the discretion and whether benefits are in or out?”

If Morrow were to receive a house used solely for business purposes, that could not be included as gross income under Morrow’s reading of the statute, asked Justice French?

The Catch-All Provision

Has any other court added company benefits to the catch-all provision, asked Justice Lanzinger?

Equity

Why is it equitable to distinguish between benefits that come  from an employer and benefits that came from an employee, Justice French asked Morrow’s counsel when he argued that it was.

Isn’t this an easy policy to understand, Justice O’Neill asked, commenting that if one parent is self employed, “that parent can say my salary is $1 per year and by the way I get a Jaguar, a mansion and a yacht?”

Standard of Review

Was Morrow asking for a bright-line rule that a trial court can never include these things, or that it was just an abuse of discretion in this case, asked Justice French?

How it Looks from the Bleachers

To Professor Bettman

While Morrow has a strong argument based on literal statutory construction, which draws a clear distinction between income from self employment or business ownership, and employee benefits, and this crowd isn’t one to re-write legislation, there appears to be some wiggle room in the interstices here. A majority seemed clearly offended by the notion that one parent should get a bunch of employment benefits that don’t go toward the child support calculation in any way.  I think they are going to find some room for discretion in the trial court here, quite possibly going with Justice Pfeifer’s suggestion that for those who are not self-employed or business owners, the judge should make a decision benefit by benefit, which would also mean an affirmance in this case.  The Court could also use the catch-all provision of the statute to capture these in-kind benefits.

Another observation—I would have expected some significant involvement from Justice
Kennedy in this case, as this was her field before coming onto the Court. But she said nothing at all, which I hope is not going to become a personal hallmark.

To Student Contributor Rebecca Campell

 The primary focus of the justices’ questioning analyzed the need for a bright line rule versus judicial discretion in determining gross income. During Morrow’s initial argument, counsel made a valiant effort in support of establishing that the statute clearly defines a bright line where in-kind benefits should be included in gross income (when the parent is an owner of the business) through hypothetical benefits analogous to Morrow’s situation, however the argument lost steam during rebuttal when Justice French tweaked the hypothetical benefits in question to include a house paid for by the employer. At that point, Morrow’s counsel was forced to admit that there are some cases where judicial discretion is necessary.

From the beginning, questions from Justices O’Neill, French, and Pfeifer searched for answers indicating support for Becker’s position favoring judicial discretion.  Justice O’Neill even went so far at one point as to give Becker’s counsel assistance from the bench by offering a statement declaring that the legislative intent of the statute is prevention of unfair control of a parent over his or her income which allows a decrease of child support payments through income/benefit manipulation. Justice O’Donnell focused on the determination of income outside of the benefit scheme, and whether or not Becker’s income also changed during the time period in question. The questions of Chief Justice O’Connor and Justice Lanzinger appeared slightly to favor Morrow over Becker. The Chief questioned whether control of the income and benefits should be a factor the Court focuses on, while Justice Lanzinger’s questions focused on the argument that the General Assembly would not distinguish between benefits of the employed and benefits of the self-employed without reason.

Overall, this issue may cause a split in the Court, with the majority opinion favoring Becker’s argument and allowing the continuation of judicial discretion in the trial courts. A dissent could come from Justice Lanzinger, supporting the Morrow’s argument for strict application of the inclusion of in-kind benefits only when the parent fits into the self-employment category as defined by the statute.

 

 

 

 

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