COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 67920 : LAUREL S. CALDWELL NKA SMITH : : : JOURNAL ENTRY Plaintiff-Appellee : : and -vs- : : OPINION JAMES S. CALDWELL : : : Defendant-Appellant : : : DATE OF ANNOUNCEMENT OF DECISION: FEBRUARY 1, 1996 CHARACTER OF PROCEEDING: Civil appeal from the Domestic Relations Division of the Common Pleas Court Case No. D-174937 JUDGMENT: Affirmed in Part, Reversed in Part. DATE OF JOURNALIZATION: __________________________ APPEARANCES: For Plaintiff-Appellee: For Defendant-Appellant: CLIFTON JONES, ESQ. HERBERT R. WHITING, ESQ. 38040 Euclid Avenue Landerwood South Plaza #10 Willoughby, Ohio 44094 30650 Pinetree Road Pepper Pike, Ohio 44124 - 2 - KARPINSKI, J.: Plaintiff-appellee, Laurel S. Caldwell, and defendant- appellant, James S. Caldwell, were married on May 25, 1980. The marriage was terminated in 1987 by a Separation Agreement, which was incorporated as part of the divorce decree. Laurel Caldwell was awarded custody of the three minor children. This action arose from James Caldwell's motion to terminate alimony, which motion was granted because both parties have remarried. As part of the action, the referee determined the amount of support arrearages owed to Laurel Caldwell. The trial court adopted the referee's report over the objections of James Caldwell. All the objections by James Caldwell concerned amounts of income the referee found to be attributable to James Caldwell according to the Separation Agreement. Generally, the Agreement provided that Laurel Caldwell was to receive 50 percent of James Caldwell's net income. The agreement specifically provides in pertinent part as follows: Husband shall pay to Wife, as alimony and for her support and maintenance, an amount each month which together with the amount of child support paid hereunder will equal fifty (50%) per cent of Husband's net income. The term net income for the purpose of this agreement shall be defined as his gross income less all taxes including social security taxes and further less reasonable business expenses which are necessary to further his business. It is acknowledged by the parties hereto that Husband receives an expense reimbursement in the current amount of $300.00 per Month which is used for business expenses and will not be considered to be a part of the gross earning of the Husband. The deletion from Husbands [sic] gross shall equal the actual amount of expenses incurred by Husband and Wife may request verification of the expenses and - 3 - if same is not produced the deduction will be disallowed. In the event of a dispute the IRS definitions will not be binding on the Court but rather equitable principals are to be used to determine the net income hereunder. James Caldwell raises five assignments of error. These assignments all challenge the trial court's determination as to alimony arrearages. In reviewing the trial court's decision, we must apply an abuse of discretion standard. Booth v. Booth (1989), 44 Ohio St.3d 142. In Booth, at 144, the court stated as follows: In general, when reviewing the propriety of a trial court's determination in a domestic relations case, this court has always applied the "abuse of discretion" standard. This has been true in cases reviewing an order relating to alimony, see Blakemore v. Blakemore (1983), 5 Ohio St.3d 217, 5 OBR 481, 450 N.E.2d 1140; a division of the marital property, see Martin v. Martin (1985), 18 Ohio St.3d 292, 18 OBR 342, 480 N.E.2d 1112; or a custody proceeding, see Miller v. Miller (1988), 37 Ohio St.3d 71, 523 N.E. 2d 846. Since it is axiomatic that a trial court must have discretion to do what is equitable upon the facts and circumstances of each case, see Cherry v. Cherry (1981), 66 Ohio St.2d 348, 355, 20 O.O.3d 318, 322, 421 N.E.2d 1293, 1299, it necessarily follows that a trial court's decision in domestic relations matters should not be disturbed on appeal unless the decision involves more than an error of judgment. *** As this court has held many times, an " 'abuse of discretion' *** implies that the court's attitude is unreasonable, arbitrary or unconscionable. ***" See, e.g., Blakemore, supra, at 219, 5 OBR at 482, 450 N.E.2d at 1142. In short, the trial court's decisions regarding support arrearages will be upheld unless the trial court abused its discretion. James Caldwell's first assignment states as follows: I. THE TRIAL COURT COMMITTED PREJUDICIAL ERROR WHEN IT FOUND, HELD AND ORDERED THAT THE CORPUS OF A 401K FUND HELD BY APPELLANT AS TRUSTEE BECAME PERSONAL INCOME TO - 4 - HIM WHEN HE WITHDREW IT FROM THE 401K FUND AND REINVESTED IT IN US BONDS WHICH HE CONTINUED TO HOLD AND ADMINISTER AS TRUSTEE FOR THE BENEFICIARIES OF THE TRUST (i.e.-THE PARTIES' CHILDREN). SAID FINDING, HOLDING AND ORDER WERE CONTRARY TO LAW AND THE MANIFEST WEIGHT OF THE EVIDENCE AND AN ABUSE OF THE TRIAL COURT'S DISCRETION. In the first assignment, James Caldwell argues that the lower court erred by finding that the funds withdrawn from James Caldwell's 401(K) retirement fund are income to James Caldwell and thus increase the amount of alimony owed to Laurel Caldwell. At the time of the agreement the parties agreed that James Caldwell's 401(K) retirement fund with a balance of $8,000.00 was to be held in trust for the education of the children beyond the high school level. James Caldwell contends that the money removed from the 401(K) was reinvested in U.S. Savings bonds for the children and should not have been attributed as income to him. James Caldwell's argument is without merit. He did not produce any proof that U.S. bonds were actually bought. Laura Caldwell argues that the IRS determined that the money from the 401(K) was income to James and taxed him on the money. While we are not bound by the IRS rulings, this court, seeing no evidence of any U.S. Bonds, agrees that the money removed from the 401(K) 1 account was income. A trial court does not abuse its 1 Treating this liquidation as income, however, will not resolve another problem: James apparently violated the agreement to provide that the funds in the 401(K) were to be held in trust for the benefit of the children. We do not address the effect of this apparent violation. Any claims regarding the children's interest in the trust funds should be raised for the first time in the trial court. - 5 - discretion in adopting a referee's report if no evidence is presented to the contrary. Harbeitner v. Harbeitner (1994), 94 Ohio App.3d 485. Accordingly, the trial court did not abuse its discretion in finding the proceeds were income to defendant. James Caldwell's second assignment of error states as follows: II. THE TRIAL COURT COMMITTED PREJUDICIAL ERROR WHEN IT FOUND, HELD AND ORDERED THAT 1989 AND 1990 INCOME TAX DEFICIENCIES FOUND AND ASSESSED BY THE IRS AND PAID BY APPELLANT IN 1989 AND 1990 WERE NOT TAXES WITHIN THE MEANING OF THE TERM AS USED IN THE SEPARATION AGREEMENT. SAID FINDING, HOLDING AND ORDER WERE CONTRARY TO LAW AND THE MANIFEST WEIGHT OF THE EVIDENCE AND AN ABUSE OF THE TRIAL COURT'S DISCRETION. In this second assignment, James Caldwell argues that he 2 should have been allowed to deduct $7,398.55 from his income, because this figure represents amounts he paid to the IRS in 1989 and 1990 to correct deficiencies in his income tax. James Caldwell contends that the separation agreement provides that 50 percent of his net income constitutes James Caldwell's alimony obligation and argues that the agreement defines net income as gross income less all taxes. Under this definition, James argues that his tax deficiency payments should be deducted from his gross income. This argument is without merit. James Caldwell admits that $2,000.00 of the $5,291.00 1989 payment was a penalty. Tax penalties are not taxes. State ex rel. Outcalt, Pros. Atty. v. 2 This sum is comprised of three payments to the IRS: $5,291.12 in 1989, and in 1990 two payments of $1,373.00 and $734.43. - 6 - Guckenberger, County Auditor (1938), 134 Ohio St. 457. Therefore, $2,000.00 of the 1989 payment was correctly not deducted from husband's gross income. Second, the evidence establishes that the three payments to the I.R.S. were for the tax year 1986. The $5,291.12 check to the I.R.S. indicates that it is for the tax year 1986. Additionally, James Caldwell testified that all three payments were for tax deficiencies from 1986. (Tr.89 ln.21, Tr.91 ln.2.) A joint tax return was filed for 1986. In the Separation Agreement, James Caldwell specifically agreed to indemnify wife from any obligation resulting from the 1986 and 1987 tax returns. Item VII of the Separation Agreement states as follows: The parties agree to file joint tax returns for the years 1986 and 1987 at the option of Husband. Husband will indemnify Wife from any obligation on said returns. Husband shall take all the children as exemptions if he is current in his child support payments. This provision makes it clear that the parties intended that the wife should not assume any tax obligation from the 1986 return. Therefore, the husband's payment of the deficiencies from 1986 will not be counted against the money Laurel Caldwell receives as spousal support. Accordingly, this assignment of error is overruled. James Caldwell's third assignment of error states as follows: III. THE TRIAL COURT COMMITTED PREJUDICIAL ERROR WHEN IT FOUND, HELD AND ORDERED THAT CHILDREN'S MEDICAL AND DENTAL EXPENSES PAID BY THE APPELLANT WERE NOT "CHILD SUPPORT" WITHIN THE MEANING OF THE TERM AS USED IN THE SEPARATION AGREEMENT. SAID FINDING, HOLDING AND ORDER - 7 - WERE CONTRARY TO LAW AND THE MANIFEST WEIGHT OF THE EVIDENCE AND AN ABUSE OF THE TRIAL COURT'S DISCRETION. In this assignment, James argues that the trial court erred by not deducting from his gross income money spent on the children for medical and dental expenses. The parties defined alimony as follows: Husband shall pay to Wife, as alimony and for her support and maintenance, an amount each month which together with the amount of child support paid hereunder will equal fifty (50%) per cent of Husband's net income. Under the heading of child support, the parties agreed as follows: Husband shall pay to Wife, for the support, maintenance and welfare of the children of the marriage the sum of one hundred three ($103.00) Dollars per child per week as well as all necessary medical and dental expenses including hospitalization insurance. This obligation shall continue until the child is emancipated, reaches majority (18 years of age) or dies. The support payments hereunder shall be paid through the bureau of support and poundage charges are to be paid by Husband. As this passage shows, the parties agreed that alimony plus child support will equal 50 percent of gross income. In other words, to calculate alimony, child support is to be deducted from the amount generated by 50 percent of James' income. From the parties' reference to medical and dental expenses under the heading of child support it is apparent that they intended to consider these expenses as child support. This interpretation is consistent with Ohio law, which recognizes that medical and dental expenses shall be considered when computing child support. See R.C. 3113.215(B)(5)(f); Pournaras v. Pournaras (Apr. 8, 1993), Cuyahoga App. No. 62285, unreported. We thus conclude - 8 - that the medical and dental expenses should have been considered part of child support. Under the formula of the separation agreement, the more paid in child support, the less paid in alimony. Therefore, the father's alimony payments should be reduced by the $6,310.60 in medical and dental expenses. Accordingly, this assignment of error is well taken. James Caldwell's fourth and fifth assignments of error state as follows: IV. THE TRIAL COURT COMMITTED PREJUDICIAL ERROR WHEN IT FOUND, HELD AND ORDERED THAT A FIXED $300.00 EXPENSE ALLOWANCE PAID EACH MONTH TO APPELLANT BY HIS EMPLOYER WAS "GROSS INCOME" TO HIM IN DISREGARD OF A PROVISION OF THE PARTIES' SEPARATION AGREEMENT STATING THAT: It is acknowledged by the parties hereto that Husband receives an expense reimbursement in the current amount of $300.00 per month which is used for business expenses and will not be considered to be a part of the gross earnings of the Husband. SAID FINDING, HOLDING AND ORDER WERE CONTRARY TO LAW AND THE MANIFEST WEIGHT OF THE EVIDENCE AND AN ABUSE OF THE TRIAL COURT'S DISCRETION. V. THE TRIAL COURT COMMITTED PREJUDICIAL ERROR WHEN IT FOUND, HELD AND ORDERED THAT BUSINESS EXPENSES NOT DEDUCTIBLE AS SUCH UNDER IRS RULES WERE NOT DEDUCTIBLE FROM APPELLANT'S GROSS INCOME WHEN COMPUTING ALIMONY. SAID FINDING, HOLDING AND ORDER WERE CONTRARY TO LAW AND THE MANIFEST WEIGHT OF THE EVIDENCE AND AN ABUSE OF THE TRIAL COURT'S DISCRETION. In these two assignments, James argues that he should have been allowed to deduct business expenses totaling $15,334.70 from his gross income. This argument is without merit. The language of the separation agreement specifically states that if the husband wants to deduct business expenses the wife can request verification of the expenses and if verification is not produced, - 9 - the deduction will be disallowed. Regarding these expenses, the referee found as follows: The referee further finds that as to interpretation of reasonable business expenses necessary to further Defendant's business, the Referee finds that since [sic] IRS definitions are not binding on the Court and Plaintiff's testimony was that she repeatedly requested itemization and verification of expenses [sic] that Defendant did not include business expenses (Form 2106) [sic] his IRS returns [sic] nor did he provide verification to Plaintiff as maintained in the divorce decree, that business expenses will not be considered as a deduction from gross income for purposes of determining alimony. This finding is supported by evidence in the record. Testimony by Laurel Caldwell stated that she repeatedly requested this documentation which was never provided by James. The trial court did not abuse its discretion by not allowing James Caldwell to deduct business expenses from his gross income. Accordingly this assignment of error is overruled. Judgment affirmed in part and reversed in part. - 10 - It is ordered that appellee and appellant share the costs herein taxed. The court finds there were reasonable grounds for this appeal. It is ordered that a special mandate issue out of this court directing the Domestic Relations Division of the Common Pleas Court to carry this judgment into execution. A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure. NAHRA, P.J., and O'DONNELL, J., CONCUR. DIANE KARPINSKI JUDGE N.B. This entry is made pursuant to the third sentence of Rule 22(D), Ohio Rules of Appellate Procedure. This is an announcement of decision (see Rule 26). Ten (10) days from the date hereof this document will be stamped to indicate journalization, at which time it will become the judgment and .