Disclosure of Interest Key to Setting Support Level

By Attorney Gregg Herman
March 5, 2009

Last week, we summarized the Wisconsin Court of Appeals recent decision in Stevenson v. Stevenson,  No. 2007AP2143 (Wis. Ct. App. Feb. 4, 2009) (recommended for publication), which tells us in its first two sentences that a child support payor’s game of “cat and mouse” is finally over, with him getting caught.

This week, we’re going to examine the slightly “Itchy and Scratchy” issues and questions that arise from the opinion.

In the case, the Dist. II court held that at the time of the divorce, Jeffrey Stevenson had not fully disclosed his interest in several trusts. One of the trusts was a grantor trust; three were created by others. The court found that had Jeffrey disclosed his interests in the trusts, the trial court would have set child support at a drastically different level. Therefore, the appellate court affirmed the trial court order which reopened the judgment of divorce and ordered a retroactive adjustment to Jeffrey’s child support obligation.

The appellate court’s opening comment may have arisen from several sources.

First, Jeffery ignored discovery requests, requiring Tina to seek and secure a court order compelling discovery.

Second, he testified that he first “found out about” the trusts in 1994 or 1995, although he had already been receiving distributions from them for five to six years at that point.

Third, Jeffery’s story appears to have changed during the trial to fit the circumstances of the evidence – a technique which failed to impress either the trial court or the appellate court.

Finally, Jeffery testified at trial that his net worth was $17 million dollars, which makes a $512 per month child support order, well, let’s just say on the low side – to put it mildly.

While it is certainly justifiable for the court to have no sympathy for Jeffrey, the legal analysis by the court is somewhat suspect.

Both the trial and the appellate courts found that Jeffrey committed a fraud on the court by not revealing his interests in the trusts. Wisely, neither court relied on Wis. Stats. §806.07(2), since that statue contains a one-year statute of limitations to reopen a judgment based on fraud. Rather, both courts relied on the far broader provisions of the Family Code, specifically Wis. Stats. §767.27 (1995-96) which, helpfully for Tina, has no statute of limitations for nondisclosure of assets.

Questions Arise from the Decision

First, the appeals court cited heavily Grohmann v. Grohmann, 189 Wis.2d 532, 525 N.W.2d 261 (1995), which dealt with a grantor trust (Disclosure: I represented the mother in that case). Three of four trusts in Stevenson were not a grantor trusts.

In a list serv discussion, Attorney Patricia K. Ballman of Quarles & Brady LLP in Milwaukee (who represented the trust in the Grohmann) notes that the court in Stevenson decision held in paragraph 27 that “the grantor/nongrantor trust distinction, for purposes of child support obligation, is a distinction without a difference.” (Emphasis in original.) Ballman writes,

“[T]here is a distinction with a difference. The grantor owned the trust corpus when he created the grantor trust. So the income of the grantor trust is his income. The reason only distributed income of non-grantor trusts is income to the beneficiary is because s/he was not the owner of the corpus when the trust was created and thus the income is not his unless and until it is distributed to him.”
Does this decision mean that all income of a nongrantor trust is available for child support? If so, isn’t the Court of Appeals ignoring not only the reasoning in Grohmann, but the definition of gross income available for child support under DWD 40?

Second, where does Wisconsin statutes specifically require the disclosure of all income? Wis. Stats. §767.27 (1995-96) (currently, Wis. Stats. §767.127) never explicitly requires the disclosure of income. Although it is not clear from the decision, if Jeffrey’s interest is only as an income beneficiary of the trust, why did he violate the statute by not reporting such income?

Third, the remedy under Wis. Stats. §767.27 (1995-96) is a constructive trust including such terms “as the court may determine.” Since the appellate court clearly used this statute as a basis for relief, where was the constructive trust?

Fourth, since we still have the absurd rule against citing unpublished decisions, rather than run havoc with the laws of trusts and child support, given how infrequently payors of child support have $17 million of trust assets available to them, why is this case recommended for publication?

Fifth, did the trial and appellate courts engage in shortcuts to reach its desired result of punishing Jeffrey?

Just wondering.

This article originally appeared in the Wisconsin Law Journal.

Attorney Gregg Herman is a founding partner of Loeb & Herman S.C. in Milwaukee, WI. He practices family law exclusively, and can be reached via e-mail or by calling (414) 272-5632.