Before considering other items of income on defendant's 1986 tax return, we note evidence relating to other assets (the New York assets) held by Henry Granoff, defendant's father. When defendant was under 18 years of age, Henry Granoff sold his business and used the sales proceeds to establish trusts for his sons, including defendant. The trusts were terminated 10 to 20 years ago; the assets were then allocated between the sons. Defendant's father maintained complete control over the investment and management of the assets, and defendant had no access to the investments or income thereon. However, pursuant to tax laws, defendant was required to report interest, dividends and capital gains generated by these assets. Except insofar as necessary to pay the taxes on the income generated by the New York assets included in defendant's tax return, defendant did not receive any funds relating to these assets until 1985. At the time Mallis advised defendant to reduce his 1985 salary to $2,000, Mallis contacted Henry Granoff to determine whether he would distribute funds to defendant to replace the decrease in defendant's 1985 salary. Mallis testified that, while reluctant to part with any of the New York assets, Henry Granoff agreed to distribute $5,500 per month to defendant. At some time in 1985, Mallis negotiated with Henry Granoff to increase distributions to $7,000 per month and, at the time of trial, defendant continued to receive this monthly distribution. Plaintiff has characterized these distributions as an "allowance" from defendant's father, has noted that the taxes attributable to this "allowance" were paid by defendant's father, and the distributions were net of these taxes.
APPELLATE COURT OF ILLINOIS, SECOND DISTRICT
526 N.E.2d 189, 171 Ill. App. 3d 411, 122 Ill. Dec. 49 1988.IL.1017
Appeal from the Circuit Court of Kane County; the Hon. Barry E. Puklin, Judge, presiding.
JUSTICE NASH delivered the opinion of the court. REINHARD and WOODWARD, JJ., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE NASH
This case presents consolidated cross-appeals of judgments awarding plaintiff child support of $500 per month and attorney fees and costs of litigation of $11,103. Plaintiff, Betty Ivanyi, brought this action on July 8, 1986, pursuant to the Illinois Parentage Act of 1984 (Ill. Rev. Stat. 1985, ch. 40, par. 2501 et seq.) seeking a judgment finding that defendant, Paul Granoff, was the natural father of her child, Pamela, born in 1980; a child support award for Pamela; and, attorney fees and costs of litigation resulting from this action. Defendant admitted the paternity of the child, and the trial court entered orders relating to paternity, custody, visitation, child support and attorney fees. The court found that the statutory guidelines for child support contained in section 505(a) of the Illinois Marriage and Dissolution of Marriage Act (Dissolution Act) (Ill. Rev. Stat. 1985, ch. 40, par. 505(a)), as incorporated in section 14(a) of the Illinois Parentage Act of 1984 (Parentage Act) (Ill. Rev. Stat. 1985, ch. 40, par. 2514(a)), were not applicable to the case and awarded child support of $500 per month, an amount the court determined to be reasonable based on the evidence presented.
Plaintiff appeals, contending that (1) the trial court erred by failing to follow the child support guidelines contained in section 505(a) of the Dissolution Act; (2) section 14(a) of the Parentage Act violates the equal protection clause of the Federal Constitution if that section does not mandate the application of section 505(a) of the Dissolution Act; and (3) the child support award was an abuse of discretion because it was based on defendant's "spendable income" rather than his net income, as required by section 505(a) of the Dissolution Act. In his cross-appeal, defendant contends that the award of attorney fees and costs of litigation to plaintiff in the amount of $11,103, pursuant to section 17 of the Parentage Act (Ill. Rev. Stat. 1985, ch. 40, par. 2517), was an abuse of discretion.
The issue relating to attorney fees incurred by plaintiff to maintain the paternity action and the amount of child support were the only questions resolved by judicial determination as the parties had entered into a stipulation as to paternity, custody, visitation and related matters, and judgment was entered thereon.
At trial, Sherwin Mallis, defendant's tax accountant, was called as an expert witness by both parties. Plaintiff did not call any other expert witness. Mallis had prepared defendant's Federal tax returns for the years 1980 through 1986, and the returns were admitted into evidence showing defendant's gross wages as follows:
1980 $77,500 68,000 82,500
Defendant, a pediatrician, was paid these wages by Pediatrics Associates, S.C., his wholly owned professional corporation. The corporation had also paid him gross wages of $5,000 and $25,000 in April 1987 and May 1987, and no testimony was presented as to any anticipated wages he would receive for the remainder of 1987. Mallis testified that the decision to decrease defendant's salary in 1985 was made in December 1984 and was not motivated by this paternity action. Mallis testified that because defendant's corporation had tax credit carry forwards, and any wages paid to defendant would have been taxed at a rate of 50%, a decision was made to decrease defendant's salary to $2,000 in 1985. Mallis also stated that he advised defendant to maintain his $2,000 salary level in 1986 because of extraordinary expenses contemplated by the corporation, including the addition of another doctor and the relocation of defendant's office. Defendant testified that he was in the process of moving one of his offices to a space double that of the old office, the capital costs of expansion were approximately $37,000, and he was in the process of expanding another office which required the purchase of additional equipment.
Defendant's 1986 tax return also showed interest and dividend income of $137,270, and he testified that a substantial portion of this income related to the New York assets. Plaintiff's counsel attempted to question Mallis regarding the basis for including the interest and dividend income in defendant's return, and, in response to counsel's questions, Mallis testified that defendant had not received the income, either actually or constructively; tax law merely required inclusion.
In 1986, defendant reported a net capital gain of $141,064 which was attributable to the sale of New York assets. Mallis testified that Henry Granoff decided to sell a substantial amount of assets in 1986 because the maximum tax on capital gains was increasing from 20% to 28% effective January 1, 1987. Defendant's returns for the periods 1980 through 1985 indicated net capital gains substantially lower than the gains reported in 1986.
Excluding defendant's wages of $2,000, and the interest, dividend and capital gain income reported on his 1986 Federal tax return, defendant reported a net loss, principally due to net partnership losses, of $17,634. Defendant's reported 1986 gross income was $262,600. While other testimony relative to defendant's income and financial position was given at trial, a detailed recitation of such testimony would only unduly lengthen this opinion. In summary, plaintiff attempted to elicit testimony to establish that defendant derived benefits from his medical practice which were "in the nature of income," and not reported on his individual income tax return; some of the business expenses of defendant's corporation were extravagant and defendant derived a direct benefit from these expenses; and loans received by defendant from his corporation were equivalent to income.
Defendant also testified that he had maintenance and child support obligations from a prior marriage requiring him to pay maintenance of $1,250 per month, child support of $250 per month for each of his two children until age 18, medical and college expenses of his children, and various other items. Defendant's eldest daughter was 18 years of age or over at the time of trial and attending college at a cost of $12,000 per year. Defendant discontinued his child support payments for his younger daughter when she moved in with him on a full-time basis, and he assumed responsibility for her financial support; he testified to the expenses he incurs to support this child. Plaintiff argues in her brief that defendant's total annual maintenance and child support obligations are approximately $33,432, but the trial court approximated these obligations to be $48,000. Plaintiff's brief does not specify the expenses considered in arriving at maintenance and support obligations of $33,432, but we note that it does not refer to defendant's expenses attributable to housing his younger daughter.
Plaintiff testified that, while she worked a full-time and a part time job through either 1984 or 1985, her current employment was only part time, and she earned gross wages, based on her most recent pay check, of $584.43 for a two-week period. Plaintiff's pay stub as of June 20, 1984, showed gross wages and taxes to date of $5,930.10 and $1,069.73, respectively. Plaintiff also testified that she received child support for her two children from a prior marriage in the total amount of $400 per month. Plaintiff's rent and utilities for her household totaled $730 per month, and she estimated that she spent $175 per month for Pamela's meals, school lunches and swimming lessons. Pamela is enrolled in tutoring lessons at a cost of $230 per month but defendant pays for these lessons. Plaintiff testified that she had $323 in her checking and saving accounts and owned no stocks or bonds.
The trial court entered an order awarding plaintiff, retroactive to June 1, 1987, child support in the amount of $500 per month, finding:
"B. The statutory guidelines contained in Illinois Revised Statutes, ch. 40, § 505(a), as incorporated in Illinois Revised Statutes, ch. 40, ...