On October 16, 2013, the Supreme Court of Ohio handed down a merit decision in Morrow v. Becker, 2013-Ohio-4542. In a 6-1 decision written by Justice Pfeifer, the Court held that it was not an abuse of discretion to include certain employer-paid benefits in gross income for the purposes of calculating child support obligation, even though the benefits were not the result of self employment or joint ownership of a business. Justice O’Donnell dissented. This case was argued June 11, 2013.
Appellant Jeffrey Morrow and Appellee Sherri Becker are the never married biological parents of two minor children. About two and half years after Morrow’s child support obligation was set, he moved for a modification of his support obligation. The magistrate found that no change in circumstances sufficient to warrant a modification had occurred. In making that determination, the magistrate included the value of a car, car insurance, cellphone and OSU football tickets as part of Morrow’s gross income. The trial court adopted the magistrate’s decision over Morrow’s objection.
The Ninth District Court of Appeals affirmed the decision of the trial court as to the car, the insurance and the cellphone, finding that Morrow would otherwise have had to pay for these benefits with his own funds. The appeals court determined the football tickets should not have been included, because their value did not accrue to Morrow, but also found inclusion of that benefit to be harmless error. The Supreme Court accepted the case on discretionary appeal and conflict certification and the two cases were consolidated. Read the oral argument preview here and the analysis of that argument here.
Key Statutes and Precedent
R.C. 3119.01(C)(7) defines “gross income” for the purpose of calculating child support as the total of all earned and unearned income, taxable or not, from all sources in a calendar year. Income includes salaries, including overtime and some bonuses, commissions, . . . and all other sources of income. Gross income also includes . . . self-generated income and potential cash flows from any source. The statute specifically states six benefits that are not to be included as gross income.
R.C. 3119.01(C)(13) defines self-generated income as receipts from self-employment, proprietorship in a business, joint ownership of a partnership or close corporation, and rents. Self-generated income includes expense reimbursements or in-kind payments received from self-employment, operating a business, or rents. Reimbursements of in-kind payments include a company car, free housing, reimbursed meals, and other benefits if the reimbursements are significant and reduce personal living expenses.
Merkel v. Merkel, 51 Ohio App.3d 110 (2nd Dist.1988). (failure to include free housing as part of gross income would be inequitable).
Standard of Review
It is well settled that child support issues are determined under an abuse of discretion standard. The high court found no abuse of discretion in the trial court’s decision upholding the magistrate’s inclusion of work-related benefits in the child support calculus.
Gross income, the starting point for child-support computation, is defined in R.C. 3119.01(C)(7) as “the total of all earned and unearned income from all sources during a calendar year.” Examples include commissions and dividends. A different part of the statute specifically excludes items from gross income, such as means tested government assistance and non-recurring income. The employer-paid benefits at issue in this case are not listed as specific examples in either category.
Morrow argued that the employer-paid benefits in this case can only be considered part of gross income if the recipient is self-employed, the proprietor of a business, or a joint owner of a partnership or closely held corporation. He arrives at this argument based on the statutory definition of gross income, which includes self-generated income, read in conjunction with R.C. 3119.01(C)(13), which includes in-kind items only in the context of self employment, proprietorship of a business, joint ownership of a partnership, or closely held corporation. Morrow thus argues that the legislature meant to exclude such items from gross income if they are received outside that context.
The Court simply found nothing to support Morrow’s position, noting by way of example the fact that self-generated income statutorily includes company cars.
The record in this case showed that Morrow did not have a car, car insurance or a cellphone other than the ones provided by his employer. If he hadn’t gotten them from his employer, he would have had to buy them himself. Thus, the Court agreed that the trial court was correct in including the value of his benefits in his gross income.
But not the Football Tickets
The Court found these to be different because Morrow did not receive the full benefit of the value of those tickets. They were given to him primarily to give out as gifts to others, not for his own use. But the Court agreed with the appeals court that if including the tickets was error (although it found no abuse of discretion on this point) it was harmless error because the value was such a de minimus percentage of Morrow’s gross income.
Conclusion and Holding
The trial court’s decision to include certain employer-paid benefits in Morrow’s gross income in determining whether a modification of his child support obligation was warranted was not an abuse of discretion.
Justice O’Donnell criticizes the majority for failing to distinguish between Morrow’s personal and business use of the contested in-kind items, noting that the IRS makes this distinction for tax reasons. He would find that the value of the company car and related insurance cost should have been excluded from income to the extent they were used for a business purpose. The cellphone should have been excluded entirely, even if it was used some of the time for personal use, consistent with tax policy on this point. O’Donnell cited an IRS notice that if an employer provides an employee with a cellphone primarily for noncompensatory business purposes, the value of the cellphone is excludable from the employee’s income as a “working condition fringe benefit” and the value of any personal use is also excludable from income as “a de minimis fringe benefit.”
None, although it is not clear why not. This one might have worked.
“Employer-paid benefits may be included as part of gross income in determining a child support obligation or modification even if the recipient of the benefits is not self-employed, the proprietor of a business, or a joint owner of a partnership or closely held corporation.”
At oral argument the justices seemed all wrapped up in the relationship of Morrow to the college that employed him as president and its online affiliate, and the amount of discretion afforded to the trial judge in deciding whether benefits were in or out. In the end, the opinion was simpler than the arguments, and just cut to the chase. The benefits Morrow got meant he didn’t have to shell out his own money for those things, so they should be included as gross income. A syllabus would have be useful in this case.