Hathcock v. Hathcock

2020 Ark. App. 236

599 S.W.3d 704

Stephen Allen HATHCOCK, Appellant

v.Tracy Young HATHCOCK (Now Smith), Appellee

No. CV-19-446

Court of Appeals of Arkansas, DIVISION II.

Opinion Delivered: April 15, 2020

Wagoner Law Firm, P.A., by: Jack Wagoner III, Little Rock, Bruce Tennant, and Carmen Mosley-Sims, for appellant.

LaCerra, Dickson, Hoover & Rogers, PLLC, by; Traci LaCerra, North Little Rock, for appellee.

PHILLIP T. WHITEAKER, Judge

Dr. Stephen Allen Hathcock appeals a Pulaski County Circuit Court order denying his amended motion to modify child support and challenges the circuit court's failure to strike appellee Tracy Young Hathcock's objections to his discovery requests and to compel discovery. We affirm the circuit court's decision on the discovery issue and reverse and remand on its denial of the amended motion to modify child support.

I. Relevant Facts and Procedural History

Stephen and Tracy were married in October 1994. Not long after Stephen and Tracy married, Stephen's grandmother, Mary Louise Hathcock, established the Mary L. Hathcock Revocable Trust (the Trust) in May of 1996 for the benefit of her two adult sons—Stephen's father, Alfred, and his uncle, Charles. She funded the Trust primarily with interests in farm and timber land.¹ The Trust also contained a spendthrift provision which provided:

3.6. Spendthrift Clause. To the extent permitted by law, no beneficiary of this Trust shall have the power to dispose of or to charge by way of anticipation any interest given, and all sums payable to any beneficiary shall be free and clear of his or her debts, contracts, disposition, pledges and anticipations, and shall not be taken or reached by any legal or equitable process in satisfaction thereof.

Mary died in September 1998. Alfred died approximately two weeks later, and under the terms of the Trust, was treated as though he had predeceased Mary. Alfred's share of the Trust then passed to Stephen and his sister, Lisa.

The Trust was administered primarily for the benefit of Charles. Each year, the third-party trustee ensured that Charles's needs were met; the Trust even allowed for the invasion of principal for Charles's support and maintenance. To the extent there were any funds remaining, the trustee could distribute those funds equally between Stephen and Lisa. On average, Stephen and Lisa each received approximately $10,000 a year in trust income.

In February 2004, Stephen and Tracy divorced. In the decree, they agreed that they would share joint legal custody of their two minor children, SH and CH, with Tracy retaining primary physical custody. They further agreed that Stephen would pay directly to Tracy $1000 a month in child support² and maintain a medical savings account for the medical and other health-related expenses of the children. We are unclear on the record before us if any income that Stephen received from the Trust was included in calculating the award of child support set forth in the divorce decree entered in 2004.

While the issues on appeal pertain to child support and discovery, Stephen's and Tracy's property awards from the divorce decree are relevant to the arguments on appeal. Each was awarded an interest in certain trusts as separate nonmarital property. Specifically, Tracy was awarded her interest in the Vivian C. Young Testamentary Trust, and Stephen was awarded his interest in the Mary L. Hathcock Revocable Trust and the Alfred B. Hathcock Insurance Trust.

The parties returned to court in the fall of 2009 after Stephen accepted a position at a hospital and moved to New Hampshire.³ In an August 2010 order, the court modified child support to $2,0003.60 a month based on Stephen's change of employment and improved financial situation. Additionally, the court ordered Stephen to pay Tracy as child support 21 percent of any net income he received over and above his regular salary and to provide her with his federal and state income tax returns, including all schedules, within ten days of the date the returns were mailed to the IRS or the state revenue authority.

Again, we are unclear on the record before us if the trust income received by Stephen was included in the court's 2010 order that he pay 21 percent of any net income received over and above his regular salary.⁴ Tracy obviously thought that it was included because she subsequently filed a motion for wage assignment arising from a disagreement as to the amount and timing of the trust-related child-support payments. In May 2012, Stephen and Tracy entered an agreed order that specifically addressed the payment of child support on disbursements Stephen received from the Mary L. Hathcock Revocable Trust. The order provided in pertinent part:

1. This Court orders the trustee of the Mary Louise Hathcock Revocable Trust ("Farm Trust") to send Tracy Young Smith's account at the Office of Child Support Enforcement an amount deducted from any disbursement made to Stephen Allen Hathcock calculated as follows. Subtract 33% of the disbursement amount from the amount disbursed to Stephen Hathcock (the "net amount"). (This is the approximate tax liability owed by [Stephen] for that disbursement ). Then pay to Tracy Young Smith's account at the Office of Child Support Enforcement, 21% of the net amount.

2. When [Stephen] files his annual income tax return if [Stephen] has overpaid child support attributable to the Farm Trust disbursement he will notify [Tracy] of the overpaid amount with accompanying proof of overpayment and [Tracy] will promptly reimburse [Stephen] for such overpaid amount. If [Stephen] has underpaid child support attributable to the Farm Trust disbursement, [Stephen] will promptly pay [Tracy] the amount of underpayment with accompanying proof of underpayment.

(Emphasis added.) After the entry of the May 2012 order, Stephen paid Tracy child support on the income he received from the Mary L. Hathcock Revocable Trust.

In 2014, Stephen returned to Arkansas from New Hampshire. In March 2015, Stephen filed a motion to reduce child support on the basis of the reduction of his salary commensurate with the relocation back to Arkansas. While that motion was pending before the court, Stephen's uncle, Charles, died.⁵ His death triggered the termination of the Trust. The trustee began the process of dissolving the Trust, including adjusting the values of the trust assets to their date-of-death value. Lisa, Stephen's sister, continued to get distributions from the Trust.⁶ Stephen did not.

On December 2, 2015, Stephen filed an amended motion to reduce child support requesting the court to declare that funds inherited from the Trust were not "disbursements" from the Trust and therefore were not subject to the 21 percent child-support provision of the May 2012 agreed order. In the alternative, Stephen requested that if the funds were declared disbursements under the May 2012 agreed order, the agreed order be modified so as to prevent a windfall over and above the reasonable needs of the children.

On December 3, 2015, the circuit court entered an agreed order concerning Stephen's March 2015 motion to modify. In accordance with the parties’ agreement, the court in the agreed order directed Stephen to pay $14,994.96 in arrearages, plus medical bills and attorneys’ fees, and modified the May 2012 child-support order to $1,891 a month. The court reserved and did not rule on the issues contained in the December amended motion.

The parties engaged in lengthy and protracted discovery, including the retention of expert witnesses by both sides. Stephen objected to Tracy's responses to his requests for interrogatories, alleging that her "boilerplate" and "general" objections and her reservation of rights to each of his discovery requests were improper and prevented him from ascertaining the true nature of her objections and made it difficult to ascertain whether all requested information had been properly produced. The circuit court ultimately overruled Stephen's objections and denied his motion to compel.

The court conducted a hearing on the motion to amend in April 2018, hearing testimony and receiving evidence from Stephen, Tracy, Cheryl Shuffield—Stephen's expert, and Steve Shroeder—Tracy's expert. The parties also filed posttrial briefs in which significant attention was paid to the definition of "disbursement" as contemplated in the 2012 agreed order.

Stephen asserted that the parties intended for the term disbursement to encompass only distributions of income he received from the Trust, not distributions of corpus. He pointed to the testimony of his expert that the term "disbursement" has a specific meaning in accounting parlance, that it designates a "cash payment," and that a distribution of property would not constitute a disbursement. Thus, the court should strictly construe the terms of the 2012 agreed order to exclude disbursements made to him upon the dissolution of the Trust and from his inheritance from the estate of his uncle Charles Hathcock. Alternatively, Stephen argued that if the court disagreed, the award should be modified to prevent a windfall over and above the reasonable needs of the children.

Tracy argued that the 2012 agreed order was an independent contract between her and Stephen that could not be modified by the court. She disagreed with Stephen and argued that the 2012 agreed order applied to disbursements of any kind, whether it be income, corpus, or inheritance, which was contemplated by the parties’ independent contract. She pointed to the testimony of her expert that disbursements included all moneys transferred out of the Trust to the beneficiaries, whether in cash or in kind. She also argued that the 2012 order did not state that the disbursements had to be taxable income or cash disbursements. Concerning the alternative argument, Tracy took the position that the 2012 order did not indicate that it was subject to the reasonable needs of the children. If the court did consider the reasonable needs of the children, she argued...