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Scrimizzi v. Scrimizzi

Court of Appeals of Ohio, Twelfth District, Warren

July 8, 2019



          John D. Smith Co., LPA, Andrew P. Meier, for appellee

          The Law Offices of Jason A. Showen, LLC, Jason A. Showen, for appellant


          M. POWELL, J.

         {¶ 1} Appellant, Gregory Scrimizzi ("Husband"), appeals a decision of the Warren County Court of Common Pleas, Domestic Relations Division, denying his Civ.R. 60(B) motion regarding the allocation of a tax liability.

         {¶ 2} Husband and appellee, Diana Scrimizzi ("Wife"), were married in 1977. During their marriage, the parties were the sole shareholders of Scrimizzi Properties, Inc. Scrimizzi Properties is engaged in the business of purchasing, developing, leasing, and selling real property. The company is an S corporation and thus a "pass-through" entity whereby the income and losses of the business are passed through to the shareholders. Dupee v. Tracy, 85 Ohio St.3d 350, 351 (1999). An S corporation files an informational tax return and issues a K-1 form to its shareholders reflecting their share of the corporate income.[1] As a result, the shareholders pay federal income taxes on corporate earnings together with any individual taxable income they may have. Wolf v. Wolf, 12th Dist. Warren No. CA2008-03-045, 2009-Ohio-1845, ¶ 34.

         {¶ 3} Wife filed a divorce complaint in August 2015. In early 2017, the parties discovered there was a potential issue regarding the Scrimizzi Properties' 2015 original tax return. Specifically, on February 16, 2017, Husband received an email from Alan Duvall, the financial expert hired by Wife to assist her in the divorce proceedings. Duvall advised Husband that

it appears there was a miscommunication between [Husband] and the accountants, which resulted in an overstatement of bank debt by about $192, 000. As a result, it initially appears a tax return interest expense was overstated by $81, 000 and cleaning and maintenance expenses were overstated by one hundred and eleven. In conclusion, the Scrimizzi Properties 2015 tax return will most likely have to be amended to reverse the original $100, 000 loss and report an approximate $90, 000 tax income. Obviously back taxes will be due.

         {¶ 4} Soon thereafter, Husband spoke with Rebecca Clawson about Duvall's email. Clawson is a tax manager at the accounting firm Wulff and Associates. The record indicates she prepared Scrimizzi Properties' tax returns for several years until sometime in 2017 or 2018. Husband and his attorney subsequently met with Duvall on February 27, 2017. Duvall testified "there was a verbal explanation in depth into * * * the tax debt at that time." Husband testified he did not remember Duvall explaining what the issues were regarding the tax debt. Husband further received an email from Wulff and Associates regarding the tax issue on February 27, 2017.

         {¶ 5} A hearing on the parties' divorce was scheduled for March 6 and 7, 2017. However, on the first day of the hearing, the parties advised the trial court that they had reached "a full resolution of all of the issues before the Court." The parties' agreement was then read into the record, pending preparation of a divorce decree. In particular, the agreement provided that Husband was entitled to all assets and was responsible for "any and all debts associated with" Scrimizzi Properties, and that he "shall indemnify wife and hold her harmless as to any and all debts associated with the business." The agreement further provided that the parties were required to file their "2016 individual personal corporate taxes separate from one another," and that "each shall be totally responsible for any and all debt associated with the same[.]"

         {¶ 6} On May 5, 2017, Wulff and Associates prepared an amended 2015 tax return for Scrimizzi Properties and an accompanying amended 2015 joint tax return for the parties showing a $14, 689 tax liability. Having lost confidence in Wulff and Associates, Husband retained Larry Warner as his accountant. In the fall of 2017, Warner prepared an amended 2015 tax return for Scrimizzi Properties and an accompanying amended 2015 joint tax return for the parties showing a $10, 901 tax liability.

         {¶ 7} On May 15, 2017, consistent with the trial court's local rules, Husband filed a notice of presentation of entry, requesting that the trial court approve a proposed divorce decree and entry attached to the notice unless Wife filed objections to the proposed decree within 14 days. Wife timely filed objections to Husband's proposed decree and presented her own proposed divorce decree and entry. The trial court subsequently scheduled a hearing on Wife's objections for June 7, 2017. The record does not indicate whether the hearing was held.

         {¶ 8} On June 8, 2017, Husband filed a combined objection to the proposed final divorce decree and a motion for relief from judgment pursuant to Civ.R. 60(B)(1) and (2).[2]Husband claimed surprise at the 2015 tax liability and asserted that the tax liability constituted "newly discovered evidence." He further asserted that the tax liability "was not known, addressed or allocated on the record" on March 6, 2017, "nor was it ever disclosed and/or calculated by either party prior to the reading of the parties' agreement into the record on March 6, 2017." Consequently, Husband moved the trial court "to grant [him] Civ.R. 60(B) relief by addressing and equally allocating the outstanding newly discovered * * * 2015 personal debt owed by the parties[.]" Husband's motion included a notice of hearing set for July 10, 2017.

         {¶ 9} The combined objection/Civ.R. 60(B) motion reflects that before Husband filed his motion, the tax liability issue was discussed with the trial court which, in turn, "ha[d] instructed [Husband's] counsel to file any motion, relating to the [2015 tax liability], only after the filing of the Final Decree of Divorce in this matter." Husband's combined objection/Civ.R. 60(B) motion was plainly filed before the final divorce decree was journalized. On July 10, 2017, the date set for a pretrial hearing on Husband's Civ.R. 60(B) motion, the trial court scheduled a "MOTION HEARING" for October 12, 2017. The hearing was subsequently rescheduled twice by magistrate's orders and ultimately held on March 5, 2018.

         {¶ 10} The final divorce decree ("Decree") was journalized on June 12, 2017, prior to any rulings on Husband's combined objection/Civ.R. 60(B) motion. A notice of final appealable order was issued the same day. Husband did not appeal the Decree.

         {¶ 11} Consistent with the parties' agreement read into the record on March 6, 2017, Article 3 of the Decree allocated Scrimizzi Properties as follows:

Husband shall be entitled to retain the business Scrimizzi Properties Inc. along with any assets/debts/property associated with the same, free and clear of all claims of Wife. Husband shall be solely responsible for all debts associated with the same, including all tax debt, and shall hold Wife harmless and indemnify her on the same. Husband shall be solely entitled to any equity and/or income that may be associated with the same. Wife shall execute any documents necessary, if any, to remove her as an officer or otherwise from Scrimizzi Properties Inc., upon presentation of the same. The Court shall retain jurisdiction over this matter in order to effectuate the intent of the parties.

(Emphasis added.) We note that the provision allocating Scrimizzi Properties to Husband in Husband's proposed divorce decree was identical to the provision above, including the phrase "including all tax debt." By contrast, Wife's proposed divorce decree did not include the phrase "including all tax debt."

         {¶ 12} Article 5 of the Decree further provided, "The parties have no joint debts, other than those set forth above, and each party shall be solely responsible for any debt in their individual names, free and clear of any claims of the other."

         {¶ 13} Wife moved to dismiss Husband's combined objection/Civ.R. 60(B) motion, arguing that prior to March 6, 2017, "the parties were well aware there were past taxes due and owing, regardless of whether the exact amount was known," because they had received notice in February 2017 that the Scrimizzi Properties' 2015 original tax return had been incorrectly filed "resulting in the parties owing taxes, although an exact amount was not yet known." In a memorandum in opposition, Husband reiterated he was unaware of "any actual tax deficiency owed" regarding the 2015 tax liability. He further asserted that the Decree failed to address the 2015 tax liability and that unless the trial court addressed "this new tax debt, * * * the Final Decree is not a final order[.]"

         {¶ 14} A hearing on the parties' foregoing motions and various other motions was held before a magistrate on March 5, 2018. Husband sought an order that Wife be allocated half of the 2015 tax ...

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