January 7, 2009
PATRICIA BEECH, PLAINTIFF-RESPONDENT,
BRIAN BEECH, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Burlington County, Docket No. FM-03-446-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued December 10, 2008
Before Judges Fisher and Baxter.
In this appeal, we consider the trial judge's manner of quantifying the amount of child support defendant Brian Beech was to pay plaintiff Patricia Beech. Because the parties' dispute regarding Brian's rental income, which informed the amount of child support, was not susceptible to resolution absent an evidentiary hearing, we vacate the child support order and remand for an evidentiary hearing.
The parties were married on a date not revealed by the record on appeal.*fn1 They have two children: a daughter born in 1990, and a son born in 1993. Patricia filed a complaint for divorce and, eventually, the parties entered into a handwritten property settlement agreement (PSA) on September 5, 2007. On that same day, the trial judge entered a final judgment of divorce.*fn2
The judgment of divorce and its subsequent amendment, however, did not fully dispose of all the issues raised in this action. In a section of the PSA labeled "Child Support and Related Issues," the parties stipulated the following:
Child support, tutoring expenses, life insurance, health insurance, unreimbursed health expenses to be agreed upon within 30 days or a post-judgment application shall be filed to [resolve] the issues. Relief retroactive to 9/5/07.
The parties failed to agree on a proper level of child support. Soon after entry of the amended judgment of divorce, Patricia moved for, among other things, an order that would fix Brian's child support obligation. In describing the sources of Brian's income, Patricia referred in her moving certification to the fact that Brian "runs a four-unit apartment rental complex" in Maple Shade. She attached an appraisal of that property and argued that the apartment complex is in a highly desirable town and location. It is my understanding that the property is only encumbered for approximately $50,000.00 and that [Brian's] mortgage payment on that property is minimal at best. Accordingly, on a thirty (30) year term mortgage, that mortgage payment should not be substantial by any capacity. However, what is substantial is [Brian's] ability to maintain a supplemental income as a result of his receipt of monthly rent on those units. The unit itself has four (4) spacious apartments. If those four (4) apartments were to rent, at the very conservative figure, of $1,000.00 per month, that is $4,000.00 per month in rental income. Over a twelve (12) month period, that equals out to nearly $48,000.00 in income. Recognizing appropriate expenses, I would only seek to have $30,000.00 of income added on to [Brian's] total income. As a result, [Brian's] annual income should be considered to be not less than $125,000 per year.
Patricia also asserted that she is a real estate agent and claimed, because the "market is dry" and "very much down this year," that she was only capable of earning $50,000 in 2007, which she argued was not "anywhere near" what Brian earned from the apartment complex.
Brian filed a cross-motion and submitted a certification in which he claimed he was disabled and had only earned "a fraction" of Patricia's $50,000 income that year. He responded to Patricia's argument about the apartment complex, asserting that one of the four units was "not habitable," because it had been "gutted"; he claimed he was physically unable, and did not have sufficient funds, to rehabilitate that unit. In addition, Brian disputed Patricia's contention that the units could collectively generate $4,000 per month in rent because the units were small one-bedroom apartments.*fn3 He averred that, at present, the three leased units generated monthly rents of $440, $525 and $675. Brian also claimed he has learned from experience that if I raise the rents too high, the tenants leave and then I have to rehabilitate the apartment. If the rents stay at this rate, then tenants stay and pay their rent. In the long run, I make more money [if I maintain the status quo] because I do not have any down time and do not have to spend money to rehabilitate the apartment.
On the return date of the cross-motions, the judge imposed on Brian an obligation to pay child support in the amount of $252 per week. The income attributed to Brian in this calculation consisted of his gross disability payments and an amount that equaled the gross rental receipts from the three rented apartment units. In response to defendant's argument that the apartment building did not yield positive returns due to operating costs and expenses,*fn4 the judge provided this analysis in her oral decision:
Well, I understand your argument, but he has received [$]1,640 a month. I believe I took that figure directly from his papers. And if anything, that's what I'm imputing to him.
Again, for purposes of child support guideline[s] it's considered income. And, you know, his argument with respect to what his expenses are is another issue. But they wouldn't be calculated as part of the child support guidelines.
As a result, the income the judge attributed to Brian, in fixing a child support obligation, included an amount of rental income that was precisely the same as the gross rents derived from the apartment complex.
Aggrieved by that determination and the resulting child support award included in the November 2, 2007 order, Brian moved for reconsideration. Brian argued that the judge should have considered his net rental income, not the gross, in calculating child support. In asserting that the net income was far less than the figure utilized by the judge in fixing child support, Brian delineated in his certification the expenses he allegedly incurred in operating the Maple Shade property:
A. PSEG [sic] budget plan of $159.00 per month. That equals $39.75 per week.
B. Water/Sewer is about $765.98 per quarter. That equals about $47.87 a week.
C. The mortgage amount is $1,072.34 per month. That is $268.08 [a week].
D. The insurance company has informed me that... I must replace the missing fascia board in the rear of the building, replace/repair the garage and install balusters on the rear steps.
Brian attached to his certification photocopies of bills reflecting some of these expenses. Without documentation, Brian claimed he also was required to make expenditures for lawn care ($600), snow and ice removal ($150 per occurrence), and leaf removal services ($150).
In response, Patricia argued that these expenses were irrelevant because the judge's adoption of $1,640 per month in rental income was not based upon Brian's actual gross rental income but was an "imputed" net figure. She also criticized Brian's failure to specify in his earlier motion papers the expenses incurred in the operation of the apartment complex.
The judge denied Brian's motion for reconsideration for reasons set forth in an oral decision. She indicated that the rental income used in calculating child support was imputed and that Brian had not provided anything new that would warrant reconsideration of her earlier determination. An order to that effect was entered on December 7, 2007.
Brian appealed, arguing among other things that the trial judge's calculation of child support was flawed either (a) because the trial judge mistakenly utilized the gross rental receipts, rather than the net, as required by the child support guidelines, or (b) because the trial judge imputed rental income to him without resolving the parties' factual disputes after an evidentiary hearing and without explaining how that particular imputed amount was derived. We agree that both these approaches were mistaken and, therefore, vacate the child support obligation contained in the November 2, 2007 order and remand for an evidentiary hearing.
We start with the premise that rental income is a source that may be used in calculating a child support obligation. Child Support Guidelines, Pressler, Current N.J. Court Rules, Appendix IX-B to R. 5:6A at 2326 (2008). The guidelines clearly mandate that it is the net rent that is to be included in the child support calculus, not the gross. Ibid. (declaring in the instructions to lines 1 through 5 that a source of income for calculating child support is rental income "minus ordinary and necessary expenses--see IRS Schedule E"). Certainly, the judge correctly recognized that Brian's rental income was a necessary component of his overall income in crafting an appropriate child support order. However, the child support order entered here appears to have been based on Brian's gross rental income. To the extent this is a proper interpretation of the judge's initial decision, it was erroneous and the child support order that it generated cannot stand.*fn5
Despite the judge's application of a figure that was identical to Brian's gross rental income in fixing the child support obligation, her two oral decisions also suggest that the judge may not have utilized a gross rental figure, which would be inconsistent with the child support guidelines, but that she instead imputed what she believed was a more reasonable net amount of rental income and concluded that the gross amount represented a fair imputed net amount. To the extent that we should understand the child support obligation as having been based upon the imputation of an amount of rental income,*fn6 we find such a determination was, at best, premature.
We do not question a family judge's authority, in calculating a proper support obligation, to impute an amount that differs from the actual amount of income when a determination has been made that the actual income does not represent a fair return on the investment. Indeed, it is not uncommon for a family judge to impute income when either an obligor or obligee is unemployed or underemployed, see Miller v. Miller, 160 N.J. 408, 422 (1999); Bonanno v. Bonanno, 4 N.J. 268, 275 (1950), or when an asset is not yielding a reasonable amount of income, see Miller, supra, 160 N.J. at 422-23; Stifler v. Stifler, 304 N.J. Super. 96, 101-02 (Ch. Div. 1997). See generally Caplan v. Caplan, 182 N.J. 250, 268-69 (2005); Bencivenga v. Bencivenga, 254 N.J. Super. 328, 331 (App. Div. 1992); Aronson v. Aronson, 245 N.J. Super. 354, 361 (App. Div. 1991). Such a determination, however, must be grounded on evidence in the record.
A determination that income should be imputed to Brian required a finding that Brian had, without just cause, accepted lesser rents on the property than were reasonable. See, e.g., Caplan, supra, 182 N.J. at 268-69; Dorfman v. Dorfman, 315 N.J. Super. 511, 516 (App. Div. 1998). Here, Brian asserted that he believed the raising of the rents on the units represented a precipitous course because it would prompt his tenants to depart and, to obtain new tenants, significant costs in rehabilitating the property would be required. In short, Brian argued that it was more financially advantageous to leave the status quo unchanged. We cannot say, as the judge appears to have assumed, that Brian's business plan with respect to the Maple Shade property was unreasonable. It suffices to say that a clear understanding of the legitimacy of Brian's position or Patricia's contrary claim could not be obtained absent a closer examination by way of an evidentiary hearing.
Moreover, even if the judge correctly determined that the circumstances warranted a rejection of Brian's actual net rental income as a proper basis for calculating child support and required the imputation of a greater amount, the judge suggested no sound basis for the particular amount of income imputed. In reaching her conclusion that the actual gross amount represented a reasonable net rental income for this property, the judge would appear to have either rejected as legitimate all the actual expenses set forth in Schedule E, or concluded that the rents charged to the tenants should have been greatly increased. Because, in his motion for reconsideration, Brian provided further evidence of the legitimacy of many of the expenses referenced in Schedule E, we conclude that the judge mistakenly rejected out-of-hand the validity of those expenses. And, to the extent the judge assumed the validity of those expenses, but concluded that the rents charged should have been so greatly increased as to render the actual gross rents the equivalent of a fair net rental income, we find no factual basis in the record; in adopting that approach, the judge must have relied on the bald conclusions asserted by Patricia in her certification. As we have observed, Brian provided a colorable reason why he deemed it inadvisable to raise the rents. The judge was not free to simply reject Brian's assertion and adopt all Patricia's contentions about the apartment complex without resolving the parties' factual disputes after conducting an evidentiary hearing. See Johnson v. Johnson, 390 N.J. Super. 269, 275 (App. Div. 2007); Tretola v. Tretola, 389 N.J. Super. 15, 20-21 (App. Div. 2006); Fusco v. Fusco, 186 N.J. Super. 321, 329 (App. Div. 1982).
We fully understand the heavy caseload that family judges are required to shoulder--a circumstance that often suggests the desirability of ad hoc resolutions of disputed fact questions. And we appreciate the judge's attempt to ascertain a fair level of child support in a less-than-perfect manner in order to spare the parties the further expense of an evidentiary hearing. However, despite the best of intentions evident in this record, we cannot endorse the judge's imputation of income here.
We do not mean to suggest that every factual dispute raised in the Family Part necessarily requires an evidentiary hearing. See Hand v. Hand, 391 N.J. Super. 102, 111-12 (App. Div. 2007); Barblock v. Barblock, 383 N.J. Super. 114, 123 (App. Div.), certif. denied, 187 N.J. 81 (2006); Pfeiffer v. Ilson, 318 N.J. Super. 13, 14 (App. Div. 1999). But, here, the judge simply chose to conclude, without a sufficient factual foundation, that the actual net rental income constituted an under-utilization of the property and that a reasonable net rental income on the apartment building was the actual gross rental income.*fn7
Such determinations cannot be made in the face of competing factual contentions. There being a genuine factual dispute about whether the property was being reasonably operated, the judge should have conducted an evidentiary hearing rather than attempt to reach a fair resolution through her own analysis of the competing certifications, no matter how well-intended.*fn8
For these reasons, we vacate that part of the November 2, 2007 order that fixed the child support obligation in question and remand for an evidentiary hearing in conformity with this opinion. We do not retain jurisdiction.