                                  Illinois Official Reports

                                          Appellate Court



                         In re Marriage of Marsh, 2013 IL App (2d) 130423




Appellate Court              In re MARRIAGE OF SUSANNE MARSH, Petitioner-Appellant,
Caption                      and THOMAS MARSH, Respondent-Appellee.


District & No.               Second District
                             Docket No. 2-13-0423


Filed                        December 26, 2013



Held                         The money respondent received from the sale of stock that was gifted
(Note: This syllabus         to him by petitioner’s father during the parties’ marriage was not
constitutes no part of the   “income” for purposes of respondent’s child support obligation, since
opinion of the court but     the stock was sold at a “loss” and no gain or profit resulted, and,
has been prepared by the     further, the trial court properly denied the rule to show cause petitioner
Reporter of Decisions        filed against respondent alleging that he failed to comply with his
for the convenience of       child support obligation with regard to the “additional income” he
the reader.)                 allegedly received from the sale of the stock.



Decision Under               Appeal from the Circuit Court of McHenry County, No. 11-DV-1069;
Review                       the Hon. Mark R. Gerhardt, Judge, presiding.


Judgment                     Affirmed.


Counsel on                   Tamara A. Marshall, of Zanck, Coen, Wright & Saladin, P.C., of
Appeal                       Crystal Lake, for appellant.

                             Jay K. Filler, Jr., of Filler & Associates, of Marengo, for appellee.
     Panel                   JUSTICE HUDSON delivered the judgment of the court, with
                             opinion.
                             Justices Birkett and Spence concurred in the judgment and opinion.



                                            OPINION

¶1         Petitioner, Susanne Marsh, filed a petition for a rule to show cause and for attorney fees
       against respondent, Thomas Marsh, claiming that respondent failed to comply with his child
       support obligations. The trial court denied the petition, and petitioner timely appealed. The
       sole issue on appeal is whether money received by respondent from the postdissolution sale
       of certain shares of stock that he owned prior to the dissolution constitutes “income” for
       purposes of child support under section 505(a)(3) of the Illinois Marriage and Dissolution of
       Marriage Act (the Act) (750 ILCS 5/505(a)(3) (West 2012)). We find that it does not, and
       thus we affirm.

¶2                                       I. BACKGROUND
¶3         On July 23, 2012, the 24-year marriage of petitioner and respondent was dissolved. At
       the time of dissolution, the parties had three children, one of whom was a minor. The
       judgment of dissolution incorporated the parties’ marital settlement agreement (MSA). The
       MSA provided, inter alia, that respondent would retain ownership of “[h]is shares owned in
       Wisted’s Supermarket.” (There was an identical provision for petitioner to retain ownership
       of “[h]er shares owned in Wisted’s Supermarket.”) In addition, the MSA included the
       following provisions concerning child support:
                  “A. [Respondent] shall pay to [petitioner], as and for the support of the minor
              child ***, the sum of $731 per month commencing April[ ] 2012. [Respondent’s]
              child support payments will be offset against [petitioner’s] maintenance payments
              ***. As a result of this offset, the amount to actually be withheld from [respondent’s]
              paycheck shall be $231 per month.
                  B. In addition to the specific dollar amount in paragraph one of this order, and
              also retroactive to include April of 2012, [respondent] shall pay 20% of all additional
              income, every three months, and shall provide [petitioner] income records sufficient
              to determine and enforce the percentage amount of such additional support.”
¶4         On February 7, 2013, petitioner filed a petition for a rule to show cause and for attorney
       fees. According to the petition, on December 28, 2012, respondent received $275,000 in
       income from the sale of his shares of Wisted’s stock and failed to pay petitioner 20% of that
       income as required. Petitioner attached an affidavit, in which she averred the following:


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                 “2. During the course of our marriage, my father gave [respondent] and me shares
             of stock in Wisted’s Supermarket Inc.
                 3. The transfer of these shares to me and [respondent] was a gift and Wisted’s
             Supermarkets, Inc. paid for all personal income tax obligations that [respondent] and I
             incurred as a result of our ownership of the stock. In addition, depending on the
             profitability of the company, [respondent] and I have received stock distributions in
             addition to the funds to cover taxes.”
¶5       On March 27, 2013, respondent filed his response to the petition. According to
     respondent, because he sold the stock at a “loss,” he did not receive any income that would
     be subject to the child support provisions in the MSA. 1 Respondent attached to his response a
     copy of the stock sale agreement and an affidavit from Barbara Glanz, a certified public
     accountant who had worked for Wisted’s Supermarket, Inc., and the parties for many years.
     According to Glanz’s affidavit, the cost basis of respondent’s 131 shares of Wisted’s stock
     through December 31, 2011, was $282,079. She further averred the following:
                 “5. That said cost basis was computed utilizing the cost basis of the stock at the
             time it was gifted to [respondent] and then adjusting the basis yearly by the amount of
             net income or loss distributions of Wisted’s Supermarket, Inc. ([p]roportionate to the
             number of shares owned by [respondent] in relation to the total number outstanding)
             since the date of the gift and through December 31, 2011.
                 6. That the 2012 tax return for Wisted’s Supermarket, Inc. has not yet been
             completed, but based on my review of preliminary reports, there will be additional
             income for the year 2012. If that, in fact, is the case, then the basis for the stock will
             be greater than $282,079.00.
                 7. That the reason that the income/loss impacts the basis of the stock is that, the
             shareholders[’] proportionate share of those earnings/losses [is] passed through to
             them by a K-1, as this [is] a sub-chapter S corporation. The shareholder than [sic]
             pays the income taxes on these earnings even though the earnings have not been
             distributed. The increasing of the basis of the stock is a proper accounting procedure
             to prevent double taxation of the same earnings.
                 8. That subject to the adjustment for the year 2012, when preparing [respondent’s]
             tax return, I will utilize the sum of $282,079.00 for the cost basis of the stock, and
             since the sales price was $275,000.00, the return will reflect a loss of the stock.”
¶6       At the hearing on the petition, neither party presented evidence. After hearing counsel’s
     arguments, the trial court agreed with respondent that there was no increase in “wealth” and
     denied the petition.



         1
         He also filed a counterpetition for a reduction of child support on the basis that he suffered a loss
     when he sold the stock. When the court denied petitioner’s petition, respondent withdrew his
     counterpetition. It is not at issue on appeal.

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¶7        Petitioner timely appealed.

¶8                                             II. ANALYSIS
¶9          We first address our standard of review. Generally, the trial court’s net income
       determination and child support award lie within its discretion. In re Marriage of Deem, 328
       Ill. App. 3d 453, 457 (2002). However, here, petitioner challenges the court’s interpretation
       of what constitutes “income” pursuant to section 505(a)(3) of the Act. 2 The interpretation of
       the term “income” under section 505(a)(3) of the Act is a question of law, which we review
       de novo. In re Marriage of McGrath, 2012 IL 112792, ¶ 10; In re Marriage of Rogers, 213 Ill.
       2d 129, 135-36 (2004). Although respondent claimed in his brief that an abuse-of-discretion
       standard applied, he conceded at oral argument that the appropriate standard is de novo.
¶ 10        We turn now to the merits. The question is whether the proceeds from respondent’s sale
       of stock are income for purposes of child support. Section 505(a)(3) of the Act defines “net
       income” as “the total of all income from all sources” minus several enumerated deductions.
       750 ILCS 5/505(a)(3) (West 2012). The Act does not define “income” for purposes of child
       support. In such cases, courts give undefined words their plain and ordinary meaning. See
       Rogers, 213 Ill. 2d at 136.
¶ 11        In Rogers, the supreme court discussed the plain and ordinary meaning of the term
       “income”:
                    “As the word itself suggests, ‘income’ is simply ‘something that comes in as an
                increment or addition ***: a gain or recurrent benefit that is usu[ually] [sic] measured
                in money ***: the value of goods and services received by an individual in a given
                period of time.’ Webster’s Third New International Dictionary 1143 (1986). It has
                likewise been defined as ‘[t]he money or other form of payment that one receives,
                usu[ually] [sic] periodically, from employment, business, investments, royalties, gifts
                and the like.’ Black’s Law Dictionary 778 (8th ed. 2004).” Rogers, 213 Ill. 2d at
                136-37.
       Illinois courts have also defined “income” as “ ‘ “a gain or profit” [citation] and is “ordinarily
       understood to be a return on the investment of labor or capital, thereby increasing the wealth
       of the recipient” [citations].’ ” In re Marriage of Worrall, 334 Ill. App. 3d 550, 553-54 (2002)
       (quoting Villanueva v. O’Gara, 282 Ill. App. 3d 147, 150 (1996)).
¶ 12        Petitioner argues that, when respondent sold the stock, he received “new” money that he
       did not already have and thus realized a gain. Respondent argues that there was no gain,
       because he “simply converted the stock he was awarded to cash, and that cash was income
       already owned.”
¶ 13        Our supreme court’s decision in McGrath is instructive. There, the trial court included
       funds that the unemployed father regularly withdrew from his savings account in its
       calculation of net income for child support purposes. McGrath, 2012 IL 112792, ¶ 10. In so
       doing, the trial court relied, in part, on In re Marriage of Lindman, 356 Ill. App. 3d 462

          2
           The parties do not suggest that “income,” as used in the MSA, should be defined differently.
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       (2005), wherein we held that individual retirement account disbursements could be included
       in net income under section 505 of the Act. McGrath, 2012 IL 112792, ¶ 6. The father
       appealed, and the First District affirmed the trial court’s decision. Finding the Act’s
       definition of net income to be “expansive,” the First District found that “ ‘[a]n unemployed
       parent who lives off regularly liquidated assets is not absolved of his child support
       obligation.’ ” Id. ¶ 8 (quoting In re Marriage of McGrath, 2011 IL App (1st) 102119, ¶ 11).
       The case moved on to the supreme court.
¶ 14       The supreme court, noting that the Act did not define income, relied on the definitions of
       income set out in Rogers. Id. ¶ 14. The court found that the money did not fit any of those
       definitions. Id. The court explained:
               “The money in the account already belongs to the account’s owner, and simply
               withdrawing it does not represent a gain or benefit to the owner. The money is not
               coming in as an increment or addition, and the account owner is not ‘receiving’ the
               money because it already belongs to him.” Id.
       The court acknowledged the lower courts’ concerns that the child support amount generated
       by the unemployed father’s actual net income was inadequate, particularly where the
       evidence established that he had considerable assets and was withdrawing over $8,000 from
       his savings account every month. Id. ¶ 16. However, the court pointed out that, if application
       of the statutory guidelines generates an amount that the trial court considers inappropriate,
       the Act allows for the trial court to make a finding to that effect and adjust the amount
       accordingly. Id. ¶ 18.
¶ 15       The question, here, is whether respondent’s stock was analogous to the savings account
       in McGrath. Petitioner seeks to distinguish McGrath by arguing that, “[u]nlike in McGrath,
       where pre-existing funds were being withdrawn from a savings account, the [respondent] in
       this case did receive money that he did not previously have (or pay child support from), as a
       gain or increment in addition to funds he had before he sold his gifted shares of stock.”
       (Emphasis in original.) However, the fact that, at the time of dissolution, the asset was in the
       form of stock rather than money is a distinction without a difference, because the stock was a
       liquid asset, readily converted into cash. Thus, the mere conversion of the stock to money did
       not result in a gain for respondent. The cash proceeds simply took the place of the shares of
       stock. See In re Marriage of Anderson, 405 Ill. App. 3d 1129, 1135 (2010) (proceeds from
       reverse stock split not income where the cash proceeds took the place of the former shares of
       stock). Further, the fact that respondent had been gifted the shares is of no consequence.
       Whether the shares were gifted or purchased, respondent received the shares prior to the
       dissolution and was the owner at the time of dissolution.
¶ 16       Petitioner’s reliance on In re Marriage of Colangelo, 355 Ill. App. 3d 383 (2005), does
       not warrant a different conclusion. In Colangelo, we held that distributions from vested stock
       options should be included in the calculation of net income under section 505(a)(3) of the
       Act. Id. at 392. There, at the time of dissolution, the trial court allocated unvested stock
       options to the father as marital property. Id. at 385. The stock options subsequently became
       vested and were distributed. Id. at 386. The mother filed a petition for a rule to show cause,
       arguing that the additional shares were income of which the father owed 20% for child
                                                   -5-
       support but refused to pay. Id. The trial court denied the petition, and the mother appealed.
       Id. at 387. On appeal, the father maintained that to count the stock distributions as income
       would amount to double-counting the value of the asset, because the unvested stock options
       had previously been distributed to him as marital property. Id. at 389. We found that the trial
       court should have considered the father’s stock distributions as income for child support
       purposes. Id. We stated: “Because the unvested stock options transformed into a realized
       distribution, it would seem that the distribution is not marital property being counted as
       income, but instead the fruits of the marital property.” Id.
¶ 17       We fail to see how Colangelo supports petitioner’s position. There is clearly a difference
       between owning unvested stock options (incapable of being exercised) and shares of stock
       that are readily capable of being converted into cash. Certainly, as this court noted, when the
       stock options vested and resulted in stock distributions, there was a gain. Id. at 392. Here,
       unlike in Colangelo, there was no gain. Indeed, the evidence established that respondent sold
       the shares at a loss.
¶ 18       In sum, based on the above, we find that respondent’s postdissolution sale of certain
       shares of stock that he owned prior to the dissolution, from which sale no gain or profit was
       realized, did not constitute “income” for purposes of child support under section 505(a)(3) of
       the Act.

¶ 19                                   III. CONCLUSION
¶ 20      The judgment of the circuit court of McHenry County is affirmed.

¶ 21      Affirmed.




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