                  IN THE COURT OF APPEALS OF TENNESSEE
                             AT KNOXVILLE
                                  September 12, 2005 Session

              DONNA RENEE MORGAN v. JEFFRIE W. MORGAN

                       Appeal from the Circuit Court for McMinn County
                          No. 24983     Lawrence H. Puckett, Judge



                No. E2005-00305-COA-R3-CV - FILED DECEMBER 27, 2005


Donna Renee Morgan (“Mother”) filed a complaint for divorce from her husband of 11 years, Jeffrie
W. Morgan (“Father”). The trial court awarded Mother a divorce and designated her as the primary
residential parent of the parties’ minor child. In addition, the trial court divided the parties’ property
and awarded Mother alimony and child support, basing its child support award on an annual salary
for Father of $110,000. Father appeals, arguing that he should have been awarded primary
residential parent status and contending that the trial court erred in its determination of his annual
income. We affirm.

            Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
                                Affirmed; Case Remanded

CHARLES D. SUSANO , JR., J., delivered the opinion of the court, in which HERSCHEL P. FRANKS, P.J.,
and D. MICHAEL SWINEY , J., joined.

Scarlett Beaty Latham, Albany, Kentucky, for the appellant, Jeffrie W. Morgan.

Jimmy W. Bilbo, Cleveland, Tennessee, for the appellee, Donna Renee Morgan.

                                               OPINION

                                                    I.

     The parties were married on December 27, 1991. One child was born to their union, Madison
McKenzie Morgan (DOB: December 13, 1994).

      In 1992, Father formed Morgan Tool & Die, and six years later, he established Morgan Tool
& Automation, Inc. (“the Company”). The Company, which operates as an S corporation for federal
income tax purposes, builds machines which are used to manufacture component parts for the
automotive industry. At the time the Company was formed, Father, the Company’s president and
its lead engineer, was the majority shareholder, owning 99% of the Company’s stock, with Mother,
as secretary/treasurer, owning the remaining 1%.

        On February 18, 2003, Mother filed a complaint for divorce in the trial court. In addition to
the divorce, Mother sought, inter alia, alimony, attorney’s fees, and an equitable division of the
marital property. Father answered Mother’s complaint and filed a counterclaim for divorce.

        The trial court heard the case over three days in April and June of 2004. In order to
determine the fair market value of the Company for the purpose of the divorce, Father hired Ronald
E. Arnett, a CPA and certified valuation analyst. Mr. Arnett testified at trial as an expert witness for
Father. He testified extensively on the valuation report he prepared at Father’s behest. Among many
other things, his report indicated that, while Father drew a salary of $32,3381 in 2003, a reasonable
salary for the position occupied by him would be $110,000. Mr. Arnett arrived at this figure based
upon what he believed the Company would have to pay in order to hire a third-party to perform the
various functions now being handled by Father. The testimony at trial also revealed that Father
received distributions from the Company in 2003 totaling $68,259, for a total received income
associated with the Company of $100,597.

        At the conclusion of the divorce trial, the court announced its ruling from the bench,
awarding Mother an absolute divorce on the ground of inappropriate marital conduct and naming
Mother primary residential parent of the child. In addition, the trial court made a division of
property; awarded alimony to Mother; and ordered Father to pay Mother’s attorney’s fees and
expenses. With respect to child support, the trial court held that this obligation should be based upon
an annual gross income of $110,000. The court, in making this determination, relied on what Father
earned in 2003, “or what would have been a reasonable salary for him.” The court then ordered the
parties to mediate “shared parenting issues and child support.” The mediation resulted in Father
being obligated to pay Mother child support of $1,000 per month, on the following basis:

                 This amount is calculated as a result of Father having seventy-eight
                 (78) days over and above the standard eighty (80) days co-parenting
                 every year. The normal child support figure would [be] $1,383 per
                 month without a deviation. Considering the deviation, the support
                 should be $1,087 per month. However, in consideration of Father
                 carrying health insurance and covering all medical and dental
                 expenses not covered by any insurance in effect, the parties have
                 deviated further to $1,000 per month.

       The trial court entered its final judgment on October 4, 2004, incorporating its memorandum
opinion from the hearing, as well as the parenting plan agreed-to by the parties during mediation.
From this judgment, Father appeals.


        1
          W hile Mr. Arnett’s report actually indicates Father’s 2003 salary to be $32,650, Father’s 2003 income tax
return and W -2 show a salary of $32,338; we have chosen to rely on the latter figure.

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                                                  II.

       In this non-jury case, our review of the trial court’s factual findings is de novo; however, the
case comes to us accompanied by a presumption that those findings are correct – a presumption that
we must honor unless the evidence preponderates against the trial court’s factual findings. Tenn R.
App. P. 13(d); Musselman v. Acuff, 826 S.W.2d 920, 922 (Tenn. Ct. App. 1991). Our search for
the preponderance of the evidence is tempered by the principle that the trial court is in the best
position to assess the credibility of the witnesses; accordingly, such determinations are entitled to
great weight on appeal. Massengale v. Massengale, 915 S.W.2d 818, 819 (Tenn. Ct. App. 1995);
Bowman v. Bowman, 836 S.W.2d 563, 566, 567 (Tenn. Ct. App. 1991).

                                                 III.

                                                  A.

       Father raises two issues on appeal, which issues essentially present the following questions:

               1. Does the evidence preponderate against the trial court’s decision
               to name Mother the primary residential parent of the parties’ child?

               2. Does the evidence preponderate against the trial court’s
               determination, for the purpose of calculating child support, that
               Father has a gross annual income of $110,000?

By way of a separate issue, Mother seeks an award of her attorney’s fees and costs incurred in
defending this appeal.

                                                  B.

        Father first contends that the trial court erred in naming Mother as primary residential parent
of the parties’ minor child. In support of his argument, Father relies on testimony indicating, for a
variety of reasons, that he would be the more suitable primary residential parent for the child. In
addition, Father contends that the trial court erred in ordering the parties to mediate the issue of
parenting time and asserts that, at a minimum, he should have been awarded equal parenting time
with the child.

        A trial court has broad discretion regarding a custody determination. Brumit v. Brumit, 948
S.W.2d 739, 740 (Tenn. Ct. App. 1997); Varley v. Varley, 934 S.W.2d 659, 665 (Tenn. Ct. App.
1996); Marmino v. Marmino, 238 S.W.2d 105, 107 (Tenn. Ct. App. 1950). We will not disturb
such a determination unless the record reflects an “erroneous exercise of that discretion.” Mimms
v. Mimms, 780 S.W.2d 739, 744-45 (Tenn. Ct. App. 1989). “Absent some compelling reason
otherwise, considerable weight must be given to the judgment of a trial court in a divorce proceeding
in respect to the credibility of the parties and their suitability as custodians.” Id. at 744.


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       There are “[n]o hard and fast rules . . . for determining which custody and visitation
arrangement will best serve a child’s needs.” Gaskill v. Gaskill, 936 S.W.2d 626, 630 (Tenn. Ct.
App. 1996). A custody determination is “factually driven” and “requires the courts to carefully
weigh numerous considerations.” Id. The overriding consideration is the best interest of the child.
Id.

       In the instant case, the trial court, in reaching its custody decision, made the following
findings:

               But I do believe [Mother] has a credible basis for her feeling of fear
               and continued concern about threatening behavior by [Father]. I
               don’t like making that finding, but I do because I’ve observed
               [Father] in ths courtroom as he’s testified. And he appears in court
               to have, as I said, outstanding qualities, the work ethic that he’s
               displayed, the diligence to build the business, but he is – he’s very
               overbearing in his demeanor. And he’s combative and has been
               combative in his responses at times to simple questioning by
               adversary counsel and even by the Court. And I’ve had to note that.
               His position in this case that [Mother] would be entitled to nothing
               from the business in my view is unreasonable, has been unreasonable,
               but that attitude is consistent with what someone testified that he
               would just as soon see the mother of his child living on the street. It’s
               totally consistent with the position he’s taken in this case. It speaks
               volumes of his attitude toward his wife, the mother of his daughter.

               So I have to say this, that in this hostile attitude toward [Mother]
               there’s an old adage that said more is caught than taught. And I
               understand the child said, well, he doesn’t say bad things about my
               mom, but this attitude he has about [Mother] is bound and I believe
               is caught by the child and will be caught by the child. It certainly was
               displayed here in open court to this trial court. And so I think that’s
               a serious concern the Court has about [Father] and his relationship
               with his daughter. I will just say it’s very likely, much more likely
               that his attitude toward [Mother] would drive a wedge between
               [Mother] and the daughter than anything I’ve heard about [Mother’s]
               comments about [Father] would tend to alienate her from [Father].

               [Father] does have a very good relationship with his daughter and the
               daughter needs her father and she thrives in his company and
               presence. But it’s the determination of this Court that [Mother] is the
               more suitable person for primary residential parent and she’s awarded
               that status.



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         It is clear from the record that the trial court, having heard all of the testimony, assessed the
credibility of the witnesses and determined that it was in the child’s best interest to reside primarily
with Mother. As we have previously stated, it is the unique function of the trial court to assess
witness credibility, and, having found no abuse of discretion in that assessment, we decline to
overturn the lower court’s decision designating Mother as primary residential custodian.
Furthermore, we find no error in the trial court’s decision to order the parties to mediate the issue
of shared parenting time, nor do we find any error in the decision to award Father some 158 days of
visitation per year. Accordingly, we find that the evidence does not preponderate against the trial
court’s ruling on this issue. The trial court did not abuse its discretion on the issue of custody.

                                                        C.

         Father next contends that the trial court erred in finding and holding that his gross income
for the purpose of calculating percentage child support going forward was $110,000 per year. Father
strenuously argues that there is no evidence, from an historical perspective, that he has ever received
an annual salary in the range found by the trial court. He urges us to find that his practice of
“plowing” earnings back into the Company rather than taking them out as salary was a reasonable
business decision on his part.

        Father argues that the trial court failed to properly apply the holding of the Supreme Court
in the case of Taylor v. Fezell, 158 S.W.3d 352 (Tenn. 2005) to the facts of the case at bar. Because
Taylor involves an S corporation,2 as does the instant case, we turn to that case as a prelude to our
discussion of the issue now under consideration.

        In Taylor, the Supreme Court rejected a suggestion that the retained earnings of an S
corporation should automatically be imputed to a sole or majority shareholder of such a corporation
for the purpose of calculating his or her percentage child support obligation under the child support
guidelines. Id. at 357. The High Court held as follows:

                 We conclude that absent a showing that the retained earnings are
                 excessive or that an obligor is actually manipulating his or her
                 income, the retained earnings of an S corporation should not be

         2
          An S corporation is an entity recognized under the federal income tax code. The Supreme Court in Taylor
discussed how the income of such a corporation is treated for tax purposes:

                 An S corporation’s income passes through that corporate entity to the individual
                 shareholders in proportion to their respective stock ownership. This passing
                 through of income takes place for federal income tax purposes, regardless of
                 whether the earnings of the corporation are retained to enhance the corporation’s
                 capital position. Thus, the shareholders of an S corporation are required to pay
                 taxes on their apportioned shares of the corporation’s earnings, regardless of the
                 actual sums they are paid.

Id. at 355-56.

                                                        -5-
                 imputed as income to the sole or majority shareholder in calculating
                 a child support obligation.

Id. at 354-55.

        Taylor is inapposite. The trial court in the instant case did not impute the retained earnings
of the Company to Father. Rather, as the trial court stated, his selection of the $110,000 figure was
“based [up]on [Father’s] last year’s [i.e., 2003] earnings or what would have been a reasonable salary
for him last year.” The evidence does not preponderate against the trial court’s finding with respect
to the gross income figure of $110,000.

         Father’s 2003 income tax return reflects a salary from the Company of $32,338. He also paid
federal income tax on $127,298, a figure that is reflected on his personal tax return as “[r]ental real
estate, royalties, partnerships, S corporations, trusts, etc.” It is obvious that this figure relates, at
least in part, to the net income of $126,588 reflected on the Company’s tax return. Taylor teaches
that the figure of $126,588 cannot be imputed to Father in the absence of a “showing that those
retained earnings are excessive or that the income is actually being manipulated.” Id. at 358.
However, it is not correct to assert that the trial court in the instant case imputed the $126,588 figure
to Father. It did not. Rather, it added to Father’s salary of $32,338, not the $126,588 figure, but
rather another very significant entry on the Company’s tax return. On page 3 of the Company’s
return prepared by its CPA, the Company reflected that it distributed “[t]otal property distributions
(including cash)” of $68,259. It is clear from the testimony of the expert witness – who was himself
a CPA – presented by Father that this entry means that, of the Company’s earnings, the amount of
$68,259 or thereabouts was distributed to Father, the 99% shareholder of the Company. When this
figure is added to Father’s salary of $32,338, we are left with a gross received income figure to
Father of $100,597.

        There is other testimony in the record bearing upon the subject at hand. In 2003, the
Company paid personal attorney’s fees for Father of $12,143. The Company also paid for Father’s
and the child’s dental treatment in the amount of $2,212.50 in the same year. It is also clear from
the record that there were some child support, alimony, and expert witness fees paid directly out of
the funds of the Company. In this connection, it should be noted that the Company’s tax return
reflects, as of December 31, 2003, “[l]oans to shareholders” of $18,128.

        As a part of the testimony of Father’s expert witness pertaining to the subject of the value of
the business, the expert opined that if an outside person had to be hired to operate the business, i.e.,
take the place of Father, he or she could reasonably expect a salary of $110,000 and that, from his
analysis of the Company, it would have been financially able to pay this salary.

        When all of this evidence is considered, we are unable to say that the evidence preponderates
against the trial court’s establishment of a $110,000 figure as Father’s annual gross income.




                                                  -6-
                                                 D.

        Mother seeks an award of her attorney’s fees incurred on this appeal. We find that she is
entitled to such an award and therefore remand this case to the trial court for a determination of a
reasonable fee. See D v. K, 917 S.W.2d 682, 687 (Tenn. Ct. App. 1995) (awarding reasonable
attorney fees upon petition for rehearing and remanding to trial court for a determination of said
fees).

                                                IV.

        The judgment of the trial court is affirmed. This case is remanded to the circuit court for
such further proceedings as may be necessary, consistent with this opinion, and for the collection of
costs assessed below, all pursuant to applicable law. Costs on appeal are taxed to the appellant,
Jeffrie W. Morgan.



                                                      _______________________________
                                                      CHARLES D. SUSANO, JR., JUDGE




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