[Cite as Larkin v. Larkin, 2014-Ohio-957.]




                            IN THE COURT OF APPEALS OF OHIO
                               SECOND APPELLATE DISTRICT
                                    GREENE COUNTY

 ALICE K. LARKIN                                 :
                                                 :     Appellate Case No. 2013-CA-54
          Plaintiff-Appellee                     :
                                                 :     Trial Court Case No. 2011-DR-226
 v.                                              :
                                                 :
 MICHAEL E. LARKIN                               :     (Civil Appeal from Common Pleas
                                                 :     (Court, Domestic Relations)
          Defendant-Appellant                    :
                                                 :
                                             ...........

                                             OPINION

                              Rendered on the 14th day of March, 2014.

                                             ...........

DAVID P. MESAROS, Atty. Reg. #0012725, and ADAM R. MESAROS, Atty. Reg. #0089828,
Mesaros Law Office, LLC, 7051 Clyo Road, Centerville, Ohio 45459
      Attorneys for Plaintiff-Appellee

PHILLIP L. BEARD, Atty. Reg. #0023197, 260 North Detroit Street, Xenia, Ohio 45385
      Attorney for Defendant-Appellant

                                             .............

HALL, J.,

        {¶ 1}     Michael Larkin appeals from the trial court’s September 11, 2013 judgment entry

and divorce decree that, among other things, awarded appellee Alice Larkin child and spousal
support and divided the parties’ assets and liabilities.

       {¶ 2}       Michael advances two assignments of error.1 First, he contends the trial court

erred in calculating his 2010 and 2011 income for purposes of child and spousal support. Second,

he claims the trial court erred in awarding Alice half of the money in a business operating

account on a certain day.

       {¶ 3}       The record reflects that the parties married in 1987 and separated in August 2010

when Michael left the marital home. They had five children together during the marriage. Two

were emancipated at the time of the final divorce hearing. A third was eighteen years old but still

in high school. The other two were minors.

       {¶ 4}       Around the time the parties separated, Michael created a limited liability

company known as Alleys on the River. Through this business, he purchased a bowling alley

from Alice’s brother, John Cavalaris, on a land contract. The purchase price for the bowling alley

was approximately $500,000. (April 15, 2013 Tr. at 74-75). In addition, Michael signed a

$100,000 promissory note for all business assets other than the real estate. (Jan. 2, 2013 Tr. at

28). The land contract provided for monthly payments of $4,076.47. The promissory note

required monthly payments of $769.15. (Id. at 30). Although the timing of Michael’s creation of

Alleys on the River and his bowling-alley purchase might appear odd given the parties’

contemporaneous separation, the deal appears to have been planned for some time. Alice testified

that she knew what Michael was doing and that the business had been in her family for quite a

while. (Id. at 136).

       {¶ 5}       A major issue at the final hearing concerned the financial performance of the

bowling alley and Michael’s income from operating it. Michael testified about his personal

         1
          For purposes of convenience and clarity, we will refer to the parties by their first names.
                                                                                                   3


financial situation, which he claimed was poor, and the financial status of the business, which

includes twenty-six operable bowling lanes, food service, and a bar. Michael’s certified public

accountant, Laura Hiler, also testified about the business’s financial affairs. She identified and

discussed numerous financial records, including balance sheets, profit-and-loss statements, and

federal tax returns. The trial court also heard financial testimony from Matthew Sorg, who was

appointed as a receiver for the business during the pendency of the divorce proceeding.

       {¶ 6}       Based on the evidence presented, the trial court made the following findings with

regard to Michael’s income from the business:

               The Defendant is the owner-proprietor of Alleys on the River, L.L.C.

       Defendant’s CPA, Laura Hiler, testified that his 2010 gross profits were

       $88,682.00. Defendant deducted $52,428.00 in depreciation and $393.00 for an

       employee’s truck expense. After the Court adds back the depreciation and the

       truck expense, it finds the Defendant’s 2010 income for child support purposes is

       $141,504.00. Ms. Hiler testified the 2011 gross receipts for the business are

       $713,534.00, with total expenses in the amount of $401,720.00. The Court adds

       back $78,725 in depreciation and $3,502.00 in truck expenses owned by an

       employee and finds the difference is $394,041.00, making the Defendant’s income

       for 2011 $394,041.00. The 2010 and 2011 incomes are averaged over two years.

       The Defendant’s two year average income is $267,772.50. This is the amount the

       Court will use to calculate the Defendant’s child support obligation.

(Doc. #90 at 3).

       {¶ 7}       Using the $267,772.50 figure as Michael’s income, the trial court calculated a
                                                                                                                                              4


child-support obligation of “$1932.54 per month for all three children.” (Id.). The trial court also

made a number of findings with regard to spousal support. In so doing, it apparently relied on the

$267,772.50 figure to find that Michael was “the financially advantaged spouse[.]” (Id. at 5).

After considering the pertinent statutory spousal support factors, the trial court awarded Alice

$2,970.08 per month for ten years. (Id. at 6).

         {¶ 8}        In his first assignment of error, Michael challenges the trial court’s finding that

his two-year average income is $267,772.50 for support purposes. He argues that this figure is

absurdly high because the trial court ignored ordinary and necessary operating expenses when

determining that his 2010 “gross profits” were $88,682.00. Michael contends the $88,682.00

figure actually represented gross income, not gross profits, and that operating expenses should

have been offset against the $88,682.00 figure.

         {¶ 9}        With regard to 2011, Michael does not dispute the trial court’s finding that the

“gross receipts” or total sales for the business were $713,534.00. Nor does he dispute the trial

court’s finding that he had operating expenses of $401,720.00 or its decision to add back into the

income a $78,725.00 depreciation deduction and a $3,502.00 deduction for an employee’s truck

expenses.2 Based on the foregoing computations, the trial court determined that Michael’s 2011

income was $394,041.00. He argues, however, that the trial court failed to deduct the cost of

goods sold in the amount of $320,650.00. Michael contends the proper analysis should have been

as follows: Gross receipts of $713,534.00 minus cost of goods sold in the amount of



            2
             Michael does not challenge the correctness of the trial court’s finding that for child-support computation purposes the business
 depreciation at issue could not be used to reduce the business’s income even though depreciation is deductible for income-tax purposes. See
 R.C. 3119.01(C)(9)(b) (“Except as specifically included in ‘ordinary and necessary expenses incurred in generating gross receipts’ by division
 (C)(9)(a) of this section, ‘ordinary and necessary expenses incurred in generating gross receipts’ does not include depreciation expenses and
                                                                                                                           5


$320,650.00, resulting in gross income of $392,884.00, minus business operating expenses of

$401.720.00 (with an addition back in of a $78,725.00 depreciation deduction and a $3,502.00

deduction for certain car and truck expenses), resulting in a 2011 net income of $73,391.00—not

the $394,041.00 the trial court found.

         {¶ 10} To clarify his analysis, Michael’s appellate brief includes the following chart

showing how he arrives at his claimed income:

                                                              2010                                 2011


  Gross Receipts                                              $159,884.00                          $713,534.00
  (Minus) Cost of Goods Sold                                  $71,365.00                           $320,650.00


  Gross Income                                                $88,682.00                           $392,884.00
  (Minus) Operating Expenses                                  $122,222.00                          $401,720.00


  (Add-back) Depreciation                                     $52,428.00                           $78,725.00


  (Add-back) Car and truck expenses                           $394.00                              $3,502.00


  Net Income                                                  $19,282.00                           $73,391.00

         {¶ 11} Based on our review of the record, including CPA Hiler’s testimony and

Michael’s tax returns, it appears that the trial court did fail to deduct from the business’s 2010

gross income the business’s operating expenses (excluding depreciation and the car and truck

expenses). Similarly, although the trial court made some deductions from the business’s 2011

gross receipts of $713,534.00, it failed to make any deduction for the cost of goods sold, which



 other noncash items that are allowed as deductions on any federal tax return of the parent or the parent’s business.”).
                                                                                                   6


was reported on a tax return to be $320,650.00. See Defendant’s Trial Exhibit D (2010 Schedule

C, Profit or Loss from Business); Defendant’s Trial Exhibit E (2011 Schedule C, Profit or Loss

from Business).

       {¶ 12} In opposition to Michael’s argument, Alice does not appear to dispute the trial

court’s failure to deduct operating expenses from the business’s 2010 gross income. Nor does she

appear to dispute the trial court’s failure to deduct the cost of goods sold from the business’s

2011 gross receipts of $713,534.00. Instead, Alice argues that the trial court had no obligation to

accept, in toto, the testimony of CPA Hiler or the expenses and costs listed in Michael’s 2010 and

2011 tax returns. Alice contends Michael’s testimony and bookkeeping were less than credible.

In essence, she argues that the trial court reasonably could have found his claimed expenses

unreliable and even purposefully false. Therefore, she argues that the trial court did not abuse its

discretion in failing to deduct the operating expenses and cost of goods sold from the business’s

2010 and 2011 income.

       {¶ 13} Although we do not necessarily disagree with Alice in theory, we find her

argument unpersuasive here. Under appropriate circumstances, we harbor no doubt that a trial

court could find claimed business expenses not credible and unworthy of belief. In the present

case, however, Michael’s 2010 and 2011 federal tax returns identify substantial operating

expenses and expenses for the cost of goods sold. In its judgment entry and divorce decree, the

trial court provided no explanation for disregarding those expenses and costs. Even if the trial

court believes, as Alice apparently does, that the claimed expenses and costs are unreliable or

exaggerated, we find it unlikely that none of them are valid. In any event, the listed expenses and

costs cannot simply be ignored without explanation. In our view, the trial court abused its
                                                                                                                                        7


discretion by failing to address the hundreds of thousands of dollars in business-related expenses

and costs reported in Michael’s 2010 and 2011 federal tax returns. Accordingly, we will sustain

his first assignment of error and remand the cause for the trial court to address the claimed

operating expenses and cost of goods sold. On remand, the trial court should either deduct those

expenses and costs from the business’s income or explain why some or all of them should not be

deducted.

        {¶ 14} In his second assignment of error, Michael challenges the trial court’s decision to

award Alice half of the funds in an Alleys on the River business operating account as of June 15,

2011.

        {¶ 15} The record reflects that the operating account had a balance of $19,156.78 on

June 15, 2011. (Jan. 2, 2013 Tr. at 148, 185). At the hearing, Michael testified that he used the

account to pay bills and other expenses. (April 15, 2013 Tr. at 32). His testimony also established

that the operating account balance fluctuated significantly. On June 15, 2011, the balance was

$19,156.78. On October 1, 2011, the balance was $8,230.03. On October 7, 2011, Michael

deposited $34,578.30 into the account. (Id. at 32-33).

        {¶ 16} On appeal, Michael claims the trial court erred in treating the business operating

account as the parties’ marital property and awarding Alice $9,578.39, which represents half of

the balance on June 15, 2011. Michael asserts that the operating account was an asset of Alleys

on the River, much like any other business asset or liability. Elsewhere in its decision, the trial

court awarded Michael the Alleys on the River business along with its assets and liabilities. The

trial court also found that the business had a value of negative $130,000.3 (Doc. #90 at 9). Under


         3
             The trial court accepted Michael’s testimony that the business was worth $500,000 and that he owed approximately $630,000 on
                                                                                                                                                8


these circumstances, Michael contends the trial court erred in treating a business asset, the

operating account, as personal marital funds. He also contends the trial court arbitrarily used the

June 15, 2011 operating account value when dividing the funds. In response, Alice maintains that

the trial court did not err in treating the operating account as marital property and awarding her

half of it. According to Alice, the trial court properly found that Michael used the account for

certain personal expenses. Therefore, she contends he had a burden to prove that the account

“was separate property.”

         {¶ 17} Contrary to Alice’s argument, we see no findings by the trial court about

Michael’s use of the operating account. The trial court also provided no explanation for awarding

Alice half of the money in the account beyond simply declaring that the account contained

marital funds.4 Nor did the trial court explain why it used the June 15, 2011 account value when

dividing the account. Without any elaboration about its decision, we believe the trial court abused

its discretion. Neither the trial court nor Alice has cited any evidence establishing that the

operating account contained marital funds on June 15, 2011. Absent evidence to support such a

conclusion, we see no reason why the money would not belong to the business rather than to the

parties personally. Accordingly, we will sustain Michael’s second assignment of error and

remand the cause to give the trial court an opportunity to explain its decision. On remand, the

trial court should either set forth how it concluded that the operating account balance on June 15,

2011 was marital property or award the entire operating account to Michael as it did the other


 it.
            4
              The record does reflect that on October 7, 2011 Michael deposited $34,578.30 into the operating account. (April 15, 2013 Tr. at
 33). To do so, he took the money from a marital account in his name. (Id.). We note, however, that the trial court separately awarded Alice
 half of the $34,578.30 that Michael deposited into the operating account. (Doc. #90 at 8).
                                                                                               9


business assets and liabilities.

        {¶ 18} Having sustained Michael’s two assignments of error, we reverse the trial court’s

judgment and remand the cause for further proceedings consistent with this opinion.

                                        .............



FROELICH, P.J., and DONOVAN, J., concur.



Copies mailed to:

David P. Mesaros
Adam R. Mesaros
Phillip L. Beard
Hon. Steven L. Hurley
