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Susan M. Heller v. John A. Heller

October 18, 2011

SUSAN M. HELLER, PLAINTIFF-APPELLEE,
v.
JOHN A. HELLER,
DEFENDANT-APPELLANT.



APPEAL from the Franklin County Court of Common Pleas, Division of Domestic Relations. (C.P.C. No. 04DR-09-3723)

The opinion of the court was delivered by: Bryant, P.J.

Cite as Heller v. Heller,

(REGULAR CALENDAR)

DECISION

{¶1} Defendant-appellant, John A. Heller, appeals from a judgment of the Franklin County Court of Common Pleas, Division of Domestic Relations, granting a divorce to him and plaintiff-appellee, Susan M. Heller, and awarding her spousal support in the amount of $18,000 per month, plus the cost of health insurance coverage. Because the trial court either erred in awarding spousal support contrary to the prior appellate decisions in this case, or abused its discretion in the amount of spousal support awarded, we reverse.

I. Facts and Procedural History

{¶2} Plaintiff and defendant were married on June 29, 1974. On September 27, 2004, plaintiff initiated this action for divorce; defendant responded with a counterclaim for divorce on October 28, 2004. Two children, born as issue of the marriage, were emancipated at the time the divorce proceedings were begun.

{¶3} Defendant holds a 39.5 percent interest in a Subchapter S corporation, H&S Forest Products, Inc., works for the corporation, and draws a salary from it. Heller v. Heller, 10th Dist. No. 07AP-871, 2008-Ohio-3296, ¶2 ("Heller I"). Among the issues presented in the divorce proceedings were the value of defendant's interest in H&S, the manner of distributing defendant's interest, a marital asset, between the parties, and the amount of spousal support. Heller I at ¶3.

{¶4} At trial, each party presented an expert to testify regarding the value of defendant's ownership interest in H&S. Id. at ¶10. "Both experts concurred that the capitalization of earnings model was the most appropriate method to determine the fair market value of this particular company." (Sept. 24, 2007 Judgment Entry-Decree of Divorce, 12.) The capitalization of earnings method "relies on the discounted cash flow (DCF) model" under which "[e]arnings projections, extrapolated from the company's accounting statements, are discounted using a capitalization rate (or multiplier) that takes into account the buyer's required risk-based rate of return and a factor for future growth." Heller I at ¶16, quoting 5 Law & Valuation, Financial Valuation in Legal Contexts, section 5.2.1, found at http://www.wfu.edu/palmitar/Law & Valuation/chapter%2 05/5-2-1.htm (last visited June 25, 2008).

{¶5} Utilizing that method to ascertain H&S's current value, defendant's expert analyzed past earnings data to determine earnings projections. He then added the owners' return on investment, or dividends, to obtain the " 'normalized income,' which is what a prospective buyer [could] expect as a return on his investment, but left out (or deducted) the amount paid to defendant and the other shareholders that is compensation related to their own day-to-day labor." Id. at ¶18.

{¶6} The expert explained that shareholders' compensation must be deducted "because a potential investor would have to pay these salaries, so they are not counted as part of the 'normalized income' or the return on the buyer's investment." Id. Defendant's expert thus reduced defendant's income to $300,000, with the remaining approximately $700,000 balance of the annual cash flow to defendant being characterized as ownership interest. See Defendant's Exhibit 35, page 17 (reflecting in defendant's expert's report that he deducted defendant's salary to determine the normalized earnings of the business and that "[t]he deduction was based on the 2006/2007 Executive Compensation Report, published by Compdata Surveys").

{¶7} In its September 24, 2007 judgment entry, the trial court adopted the conclusion of defendant's expert that, as of December 31, 2005, defendant's interest in H&S was valued at $700,018, and the court awarded all of defendant's shares in H&S to defendant. To achieve an equal division of marital property, the court awarded plaintiff other marital assets valued at $350,000. Heller I at ¶10. The trial court further noted that the only portion of defendant's income which was not the result of defendant's ownership interest in H&S was the $300,000 the expert assigned as defendant's annual income. Based on that number, the court determined an indefinite spousal support award of $8,000 per month was reasonable and appropriate. As additional spousal support, the court ordered defendant to pay plaintiff the cost of plaintiff's monthly health insurance coverage, as well as 20 percent of each payment of additional gross, or pre-tax, income H&S paid to defendant, payments the parties characterized in the trial as "bonus" income. (Sept. 24, 2007 Judgment Entry, 16.) The court retained jurisdiction to modify spousal support both as to term and amount. Id at 24.

{¶8} Defendant appealed from the trial court's decree, asserting the court impermissibly "double dipped" when it twice distributed his interest in H&S's future profits, once as a marital asset and again as part of an award of spousal support. In addressing the assigned error, Heller I stated "the evidence clearly indicates that the value assigned to defendant's interest in H&S did not include defendant's compensation for his daily labor, but did include his share of all of H&S's future excess earnings." Id. at ¶22. Noting R.C. 3105.171(C)(3) and 3105.18(A) required the trial court "to keep marital property division and spousal support separate," Heller I stated that "[t]rial courts may treat a spouse's future business profits either as a marital asset subject to division, or as a stream of income for spousal support purposes, but not both." Id. at ¶21, 23. Heller I accordingly determined the trial court improperly "double dipped" and abused its discretion when it both included defendant's interest in the future profits of H&S as a marital asset and also awarded plaintiff 20 percent of those dividends as spousal support, thus "drawing twice from the same well." Id. at ¶15, 19.

{¶9} Indeed, the trial court so read Heller I, as on remand the trial court stated that its "first blush" interpretation upon reading Heller I was that "none of defendant's income from H&S above the normalized earnings (i.e. above $300,000 in this case) [could] be considered in setting the award of spousal support." (Mar. 9, 2010 Judgment Entry, 2.) In reconsidering the matter, the trial court issued a judgment on March 9, 2010 in which it "decline[d] the opportunity to revisit its property division in the initial decree." (Mar. 9, 2010 Judgment Entry, 7.) After reviewing articles and case law that discussed the "double dip" issue, the trial court determined its original spousal support award complied with the statutory mandates of both R.C. 3105.171 and 3105.18, so the property division and spousal support award were fair, equitable and consistent with law. (Mar. 9, 2010 Judgment Entry, 24.)

{¶10} Defendant appealed from the trial court's March 9, 2010 judgment, asserting the trial court erred in failing to implement this court's decision in Heller I. Heller v. Heller, 10th Dist. No. 10AP-312, 2010-Ohio-6124, ¶7 ("Heller II"). Heller II notes Heller I "instructed the trial court to revise the award so that it did not contain a 'double dip,' and it was incumbent upon the trial court to do so." Id. at ¶9. Because the trial court again awarded plaintiff spousal support by means of the "double dip," Heller II sustained defendant's assignment of error, reversed the trial court's judgment, and remanded the matter to the trial court. Id. ¶9-10.

{ΒΆ11} On December 22, 2010, the court issued a judgment in response to Heller II, adopting the award of marital property from its prior decisions. The court, however, ordered that, "[c]ommencing October 1, 2007, defendant shall pay spousal support to plaintiff in the amount of $18,000 per month as an indefinite award of spousal support." (Dec. 22, 2010 Judgment Entry.) The court retained jurisdiction to modify the award and also stated that, as additional spousal support, defendant would pay the cost of ...


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