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J.A05039/00
2000 PA Super 166
PATRICIA A. FENNELL,
:
IN THE SUPERIOR COURT OF
Appellee
:
PENNSYLVANIA
:
v.
:
:
GEORGE C. FENNELL,
:
Appellant
:
No. 1219 WDA 1999
Appeal from the Order Entered June 23, 1999
In the Court of Common Pleas, Civil Division
Butler County, No. DRS- 22346
BEFORE: DEL SOLE, EAKIN and TODD, JJ.
OPINION BY TODD, J.:
Filed: June 1, 2000
¶1
George C. Fennell (Father) appeals the June 23, 1999 Order of the
Court of Common Pleas of Butler County setting the amount of his child
support obligation to Patricia A. Fennell (Mother) for the parties' two minor
children.1 Specifically, Father argues that the trial court erred in including
his proportional share of the retained earnings of a Subchapter S corporation
as income available for support. For the reasons that follow, we reverse that
portion of the trial court's order.
¶2
Father is the owner of 19% of Muscle Products Corporation ("Muscle
Products"). Muscle Products is incorporated as a Subchapter S corporation.

1 Appellant's Brief also raised issues pertaining to spousal support and
equitable distribution. As these issues are interlocutory absent a final
divorce decree, see Deasy v. Deasy, 730 A.2d 500, 502 (Pa. Super. 1999)
appeal denied, 2000 Pa. LEXIS 525 (Pa. March 3, 2000), Appellant's counsel
withdrew them at oral argument.

J.A05039/00
The other owners of the company are Appellant's brother, father and an
unrelated individual.
¶3
For tax year 1998, in addition to his salary, Father reported $23,863
as income from Muscle Products on the parties' joint tax return. The trial
court found that Father did not receive these funds in cash from Muscle
Products for his personal use during 1998. Instead, this amount
represented Father's proportional share of the corporation's retained
earnings. As a Subchapter S corporation, Muscle Products may elect "to
avoid tax at the corporate level and require the individual shareholders to
pay tax on corporate earnings whether or not distributed to the
shareholders." Attebury v. U.S., 430 F.2d 1162, 1163 n.2 (5th Cir. 1970).2
¶4
The trial court found that Muscle Products' "practice of retaining
earnings had been in place . . . prior to the parties' separation." (Trial Court
Opinion, 6/23/99, at 4.) The court further found that the decision to retain
earnings had been a "business decision," that Muscle Products had "retained
these earnings for investment purposes" (Trial Court Order, 7/16/99), and
that the company had used them to grow the business. (Trial Court Opinion,
6/23/99, at 7.) There was no finding in the present case that the retention

2 The trial court found that "the corporation did pay sums to [Father] to
provide for the payment of the income tax liability generated by the
Subchapter S income reporting on his individual income tax return." (Trial
Court Opinion, 6/23/99, at 4.)
- 2 -

J.A05039/00
of earnings in Muscle Products in any way constituted an effort to shield
income from Father's support obligation.
¶5
Nevertheless, the trial court held that the retained earnings "do
represent income available to [Father] for purposes of computing his on-
going obligation of support." (Id. at 6.) Thus, the court determined that
beginning January 1, 1999, Father's proportional share of the retained
earnings of Muscle Products would be deemed to be income available to
Father for support purposes. The court further determined that the retained
earnings figure from the parties' 1998 tax return would be used to estimate
Father's 1999 income in order to calculate his monthly support obligation.
(Id. at 7.)
¶6
Our standard of review in matters of support is whether the trial court
abused its discretion. Zullo v. Zullo, 531 Pa. 377, 380, 613 A.2d 544, 545
(1992). We may find an abuse of discretion only upon "proof of more than a
mere error in judgment." Simmons v. Simmons, 723 A.2d 221, 222 (Pa.
Super. 1998). Instead, such a finding requires clear and convincing
evidence "that the law was misapplied or overridden, or that the judgment
was manifestly unreasonable or based on bias, ill will, prejudice, or
partiality." Id. We are guided by the principle that a support award "must
be fair, non-confiscatory and attendant to the circumstances of the parties."
Calabrese v. Calabrese, 682 A.2d 393, 396 (Pa. Super. 1996) (citation
omitted).
- 3 -

J.A05039/00
¶7
It is well settled that "[i]n determining the financial responsibilities of
the parties to a dissolving marriage, the court looks to the actual disposable
income of the parties." Labar v. Labar, 557 Pa. 54, 59-60, 731 A.2d 1252,
1255 (1999) (quoting Cunningham v. Cunningham, 548 A.2d 611, 612-
613 (Pa. Super. 1989)). Moreover, the Pennsylvania Supreme Court has
adopted the reasoning often employed by this Court that such "income must
reflect actual available financial resources and not the oft-time fictional
financial picture" created by the application of federal tax laws. Id.
(citations omitted).
¶8
We have held repeatedly that deductions or losses reflected on
corporate books or individual tax returns are irrelevant to the calculation of
available income unless they reflect an actual reduction in available cash.
For example, in Heisey v. Heisey, 633 A.2d 211, 212 (Pa. Super. 1993),
we considered the calculation of the income of a sole owner of an
incorporated insurance business. We held that the trial court had erred in
deducting from income "a `loss' shown on the corporate federal income tax
return that has no relevance in determining actual cash available for
support." Id. Accord McAuliffe v. McAuliffe, 613 A.2d 20, 22 (Pa. Super.
1992) ("Depreciation and depletion expenses that are allowed under federal
income tax law will not automatically be deducted from gross income for the
purpose of determining support responsibilities."); Flory v. Flory, 527 A.2d
155, 157 (Pa. Super. 1987) (trial court erred by calculating father's income
- 4 -

J.A05039/00
based on income reported on tax return alone; "[f]ederal income tax law
permits deductions that may not reduce a parent's disposable income").
¶9
We have held as well that all benefits flowing from corporate
ownership must be considered in determining income available to calculate a
support obligation. In Heisey, we stated that even if not received by the
support obligor as cash, "personal perquisites, such as entertainment and
personal automobile expenses, paid by a party's business must be included
in income for purpose of calculating support." Heisey, 633 A.2d at 212.
Accord Calabrese, 682 A.2d at 396 ("It is clear that automobile expenses
paid by a company for the payor spouse are properly included in the
determination of the payor's available income.").
¶10 Our jurisprudence is clear, therefore, that the owner of a closely-held
corporation cannot avoid a support obligation by sheltering income that
should be available for support by manipulating salary, perquisites,
corporate expenditures, and/or corporate distribution amounts. By the same
token, however, we cannot attribute as income funds not actually available
to or received by the party.
¶11 In Labar, the Pennsylvania Supreme Court stated that "[i]t would be
untenable to argue that proceeds of a loan made to a corporation for the
exclusive purpose of making capital expenditures should instead be
disbursed as income to the two principal shareholders of the corporation."
Labar, 557 Pa. at 62, 731 A.2d at 1256. Similarly, in Calabrese, this Court
- 5 -

J.A05039/00
affirmed the trial court's calculation of the gross income of a 50% owner of a
corporation. Calabrese, 682 A.2d at 396. Although the calculation
represented a decrease from prior years, we upheld the trial court's
determination that it "fairly represent[ed] Husband's current earning
capacity" because it was based on the amount set as his maximum annual
salary in a loan agreement between the corporation and a bank. Id. at 399.
¶12 In the present case, the trial court determined that Father did not
have a controlling interest in Muscle Products. As a minority shareholder,
Father could not control whether the net profits of the business would be
retained or distributed. The trial court further determined that retaining
earnings had been a long-standing practice of the corporation and that the
decision to retain earnings had been a business decision. The trial court did
not find, and we see no evidence of record to support an inference, that
Muscle Products retained these funds instead of distributing them in an effort
to shield income from Father's support obligations. Accordingly, we hold
that the trial court erred in considering Father's annual share of the retained
earnings of Muscle Products as income available to Father for purposes of
calculating his child support obligation.
¶13 Our holding herein does not create a presumption that corporate
retained earnings per se are to be excluded from available income for
- 6 -

J.A05039/00
purposes of support calculations.3 Indeed, in situations where the individual
with the support obligation is able to control the retention or disbursement
of funds by the corporation, he or she still will bear the burden of proving
that such actions were "necessary to maintain or preserve" the business.
See McAuliffe, 613 A.2d at 23. In the present case, however, Father has
shown that he indeed did not control the ability to retain or disburse
earnings and our analysis may end there.
¶14 Accordingly, we reverse the Order entered June 23, 1999 in the Court
of Common Pleas of Butler County as to the calculation of Father's income
available for child support and remand the matter for recalculation
consistent with this Opinion.
¶15 Order reversed in part. Jurisdiction relinquished.
¶16 Judge Del Sole files a dissenting statement.

3 The trial court in the present case correctly notes in its opinion that the
trial court in Roher v. Roher, 715 A.2d 463 (Pa. Super. 1998), determined
that the retained earnings of a family business should be considered as
income available for support, apparently to both parties. See id. at 464.
This aspect of the trial court's decision in Rohrer, however, was not before
this Court on appeal. Therefore, this Court did not have occasion to rule on
the propriety of the trial court's decision.
- 7 -

J. A05039/00
2000 PA Super 166
PATRICIA A FENELL,
:
IN THE SUPERIOR COURT OF
:
PENNSYLVANIA
Appellee
:
:
v.
:
:
GEORGE C. FENNELL,
:
:
Appellant
:
No. 1219 WDA 1999
Appeal from the Order entered June 23, 1999
in the Court of Common Pleas, Civil Division
Butler County, No. DRS-22346
BEFORE: DEL SOLE, EAKIN and TODD, JJ.
DISSENTING STATEMENT BY DEL SOLE, J.:
¶1
I dissent and would affirm on the basis of the trial court's analysis.
The trial judge in her opinion, concluded that "the defendant did not offer
any evidence or exhibits to provide the court with information from the
Subchapter S return or the Schedule K 1." Therefore, the court attributed
the retained earnings to the defendant as income for support purposes.
¶2
While I agree with the Majority that in appropriate cases, retained
earnings may not be considered income for support, it is the burden of the
party seeking exclusion to convince the court. Since the court was not
persuaded, I would affirm.