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COURT OF APPEALS DECISION DATED AND RELEASED March 13, 1996 |
NOTICE |
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A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See § 808.10 and
Rule 809.62, Stats. |
This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official Reports. |
No. 95-1201
STATE
OF WISCONSIN IN COURT OF
APPEALS
DISTRICT II
In re the Marriage of:
CHARLES K. MC MANUS,
Petitioner-Appellant-
Cross Respondent,
v.
CAROLYNN S. MC MANUS,
Respondent-Respondent-
Cross Appellant.
APPEAL and CROSS-APPEAL
from orders of the circuit court for Waukesha County: CLAIR VOSS, Judge. Affirmed
in part and reversed in part.
Before Anderson, P.J.,
Brown and Snyder, JJ.
SNYDER, J. Charles
K. McManus appeals from a trial court order construing a marriage settlement
agreement. The court determined that
each month that Charles' income falls below a certain threshold, Carolynn S.
McManus is allowed to exercise an option to determine which of two possible
formulas will be used to calculate Charles' payment to her. Carolynn cross-appeals and contends that the
trial court erred: (1) when it
disallowed inclusion of Charles' interest income on money he had transferred
into accounts bearing his current wife's name, (2) in its determination as to
the method of accounting which should be utilized to calculate Charles' monthly
income, and (3) when it adopted Charles' proposed findings in its order.
We conclude that the
trial court's interpretation of the marriage settlement agreement was proper
and affirm the appeal. However, because
we conclude that the trial court erred in its determination of that portion of
Charles' interest income which should be included in calculating his total
income and in allowing him to utilize the accrual method of accounting, we
reverse the trial court on the cross-appeal.
Charles and Carolynn
were divorced in 1990. As part of the
divorce decree, and in lieu of other support, Charles and Carolynn entered into
a settlement agreement. Because of a
dispute over the calculation of certain payments which were part of the
agreement, Carolynn brought an action to enforce the agreement.
The trial court found
the language of the contract to be unambiguous. Based on this, the trial court determined that if Charles' income
fell below $17,500 per month when averaged over a six-month period, Carolynn
would be able to elect which of two methods would be used to calculate the
amount of Charles' payments due her.
This election would be allowed each month that Charles' income was below
the threshold average, and both the method of calculation and the resulting
payment could change from month to month.
The trial court also
found that investment income on money Charles had transferred into joint
accounts with his current wife, as well as money he placed solely in the name
of his current wife, were not to be included in calculating his income. The trial court then adopted two accounting
methods for determining the amount of Charles' payments: the accrual method for those payments made
prior to May 25, 1994, and the cash method to calculate payments made after
that date. The trial court also adopted
Charles' proposed findings and order.
Charles appeals the
trial court's interpretation of the “Section 71”[1]
language in the marriage settlement agreement.
Carolynn cross-appeals the trial court's findings with regard to the
calculation of Charles' earned income.
The issues in this case
require an interpretation of a written agreement. The interpretation of an unambiguous written document is a
question of law. Jacobs v.
Jacobs, 138 Wis.2d 19, 23, 405 N.W.2d 668, 669 (Ct. App. 1987). The construction of a contract requires this
court to ascertain the true intention of the parties as it is expressed in the
language of the agreement. Antuk
v. Antuk, 130 Wis.2d 340, 343, 387 N.W.2d 80, 81 (Ct. App. 1986). This court may determine questions of law
independently of the trial court and owes the trial court no deference. See Levy v. Levy, 130
Wis.2d 523, 529, 388 N.W.2d 170, 172-73 (1986).
The relevant portion of
the marriage settlement agreement reads as follows:
§71 PAYMENTS
9.
A. Cash Payments.
Husband shall pay cash payments to the wife as follows:
(1) $7,000 per month commencing April 1, 1990, on the first of each
month thereafter, payable until either party's death, or March 31, 2000,
whichever occurs first;
(2) $4,000 per month commencing April 1, 2000, on the first of each
month thereafter, payable until either party's death, or March 31, 2012,
whichever occurs first.
....
C. The parties contractually
agree that in the event the husband's total income is less than $17,500 per
month, on average for a six month period, the payments in paragraph 9.A.(1) and
9.A.(2) shall be adjusted as follows:
(1) Paragraph 9.A.(1) payments shall be adjusted down to either 40% of
husband's gross earned income, not to exceed the amount specified in paragraph
9.A.(1), or at the sole option of the wife, to an amount sufficient to equate
wife's total income to 45% of the combined total income of husband and wife,
not to exceed $7,000 per month.
(2) Paragraph 9.A.(2) payments shall be
adjusted down to either 40% of husband's gross earned income, not to exceed the
amount specified in paragraph 9.A.(2), or at the sole option of the wife, to an
amount sufficient to equate wife's total income to 45% of the combined total
income of husband and wife, not to exceed $4,000 per month.
Charles
contends that a plain reading of this agreement supports his position that once
his averaged income falls below the threshold figure, para. 9.C. is triggered
and supersedes para. 9.A. According to
Charles, Carolynn is then allowed a one-time election of the method of
calculation and that formula will then be followed for the duration of the
agreement.
Carolynn argues, and the
trial court found, that the calculation is to be made each month
pursuant to para. 9.C. If the six-month
average is less than $17,500, Carolynn alone chooses the option for that month,
logically the option which will yield an amount as close as possible to the
maximum payment allowed by the contract.[2]
The trial court
determined that “[t]he flexibility of the Section 71 payments [is] to allow
relief if something unforeseen should happen to Charles' ability to pay.” As the court noted, “Charles has a long term
obligation and to interpret the contract as Charles suggests would allow him to
decrease his income at any one point and undermine the entire agreement.” The court also found that Section 71 para.
9.C. overrides para. 9.A., only in an individual month in which Charles'
six-month average is less than $17,500.
Our independent review
of the language in the settlement agreement leads us to conclude that the trial
court properly construed the contract.
Charles agreed to definite payments for twenty-two years after the
divorce. Included in that agreement is
protection for Charles should his monthly income decrease substantially.[3] Under such circumstances, Carolynn may
receive less than the maximum contracted for amount, but is protected by the
unilateral right to choose the most advantageous formula for calculating
Charles' payments. The intention of the
settlement agreement was to provide Carolynn with predetermined monthly
payments, with built-in protection for Charles. The trial court's construction of the agreement upheld this
intention, and we affirm.
Carolynn cross-appeals
the trial court's determination of what is to be included in Charles' monthly
income and how this figure is calculated from month to month. The agreement states that the calculations
are to be based upon Charles' “total income.”
Charles contends that because he has remarried and his cash assets
reside in jointly titled accounts, only one-half of the investment income is
included in the “total income” calculation.[4] The trial court upheld this when it ruled
that “[e]arnings on money held in the name of Charles' present wife, whether in
an individual account or her 50% ownership share of a joint account is [sic]
not assessable to the Section 71 payments.”
We disagree.
Charles entered into the
marriage settlement agreement before he remarried. In the contract, he agreed to make certain payments to
Carolynn. While the payments would
never exceed the agreed-upon “cap,”[5]
each monthly payment was based on Charles' total income. Total income is money derived from Charles'
earnings—both earned income and investment income.
In this case, Charles
enjoys a significant source of investment income. While the interest and principal of these holdings belong to
Charles, and the agreement places no restriction on his right to access and use
these funds, all of the interest earned from the corpus is countable in
Charles' total income. His current
marital status has no effect on his previous contractual obligations; his
attempt to divest himself of one-half of the principal and the resulting stream
of income is not proper. The interest
income is new income each month and it must be included in Charles' total
income. Therefore, we reverse that part
of the order.
Carolynn also contends
that the trial court erred when it allowed Charles to use the accrual method of
accounting. The marriage settlement
agreement does not address the accounting method which should be utilized to
determine Charles' monthly income, although it plainly requires a monthly
determination of Charles' total income. Charles argues that the accrual method
is acceptable, while Carolynn submits that the cash method is more
appropriate. The accrual method
recognizes income when it is earned, while the cash method recognizes income
when it is received. Both are
recognized methods of accounting.
An appropriate valuation
methodology is committed to the trial court's discretion. Sharon v. Sharon, 178 Wis.2d
481, 489, 504 N.W.2d 415, 419 (Ct. App. 1993).
The exercise of discretion is not the same as unfettered decision
making. Hartung v. Hartung,
102 Wis.2d 58, 66, 306 N.W.2d 16, 20 (1981).
The trial court's decision must be the result of a rational process,
chosen for the purpose of achieving a reasoned and reasonable
determination. See id.
After finding that the
marriage settlement agreement did not specify whether the cash or accrual
method would be utilized, the court ordered that all future monthly accountings
would be on the basis of the cash method.
The court acknowledged that “logistically, it is easier for all parties
to see and compute these figures when the cash or payments are actually
received. ... When the money is
actually received by an individual, then and only at that time does the
obligation to make payments attach.”
The court, however, allowed the accrual method of accounting to be
utilized in determining Charles' past obligations.
We disagree with the
trial court's utilization of the accrual method for determining Charles' past
monthly income. We surmise that the
trial court failed to recognize the impact of utilizing the accrual method of accounting
under this contract. The agreement
specified that Charles' total income was always to be averaged over the past
six-month period, an arrangement which recognized the variability in Charles'
month-to-month income statements.
While both the cash and
accrual methods are based on sound accounting principles, the two experts who
testified stated that under these facts, the cash method was the appropriate
method to employ. The differences
between the two methods of accounting become clear when considering the following
transaction.
In February 1991,
Charles sold some stock on an installment basis. He received a note, the terms of which provided for a portion of
the capital gains and interest to be received each February in a lump sum,
through February 1995. Under the
accrual method of accounting, the capital gains would be recognized in its
entirety in February 1991, at which time his income was over the threshold
amount and the parties were operating under para. 9.A. of the agreement. Although Charles continued to receive a
substantial lump sum payment for four additional years, this income, under the
accrual method, would never again be included in calculating Carolynn's
payments. Under the cash method of
accounting, Charles' once-yearly payment from the note would be included in his
income every February and used to calculate his six-month income average.
We conclude that while
the trial court correctly determined that the cash method of accounting was the
appropriate method to use in all future calculations, it erred when it accepted
use of the accrual method for determining past income. By including a “rolling horizon” and the
method of averaging Charles' income over a six-month period, the agreement
contemplates the variability which has, in fact, occurred. Adopting the accrual method allowed Charles
to avoid having a substantial stream of income included in his total income and
was a misuse of discretion.
Consequently, we reverse the trial court's determination that the
accrual method of accounting could validly be employed under this agreement.
Finally, Carolynn
contends that the trial court erred when it adopted Charles' proposed findings
and order when these were contrary to the court's decision. Because of the reversal on the other issues,
this contention is moot. A matter is
moot if a determination sought cannot have a practical effect on an existing
controversy. City of Racine v.
J-T Enters. of Am., 64 Wis.2d 691, 700, 221 N.W.2d 869, 874 (1974).
Costs are denied to both
parties.
By the Court.—Orders
affirmed in part and reversed in part.
Not recommended for
publication in the official reports.
[2] For example, if Charles had a total income for one month of $15,556 and Carolynn had no income that month, Carolynn could elect to receive 45% of the total income and would receive a payment of $7000. However, if Carolynn had other income totaling $2000, she could then elect the 40% option and receive $6222 from Charles. Carolynn would never receive more from Charles than the maximum allowed under the contract.