Bowes v. Bowes, 287 N.C. 163, 214 S.E.2d 40 (N.C., 1975)
Eula S. BOWES
Mellie Lewis BOWES.
Supreme Court of North Carolina.
May 6, 1975.
Gwyn, Gwyn & Morgan by Julius J. Gwyn, Reidsville, for plaintiff-appellant.
O’Connor & Speckhard by Donald K. Speckhard, Greensboro, for defendant-appellee.
The primary exception and assignment of error in the case at bar is based on the trial court’s Finding of Fact No. 5. In that finding, the court, as a basis for its award, found that ‘defendant has special skills and earning capacity as a grading contractor which enable him to earn an income in excess of $14,500.00 per year . . . and that since the defendant separated himself from the plaintiff in 1970 he has failed to exercise his reasonable capacity to earn because of a disregard of his marital obligation to provide reasonable support for his wife and minor child.’ The question presented by this assignment is whether there was sufficient evidence before the trial court to support an award based on earning capacity as opposed to actual earnings.
While it is true that an award of alimony may be based upon the supporting spouse’s ability to earn as distinguished from his actual income, the rule seems to be applied only when it appears from the record that there has been a deliberate attempt[287 N.C. 172] on the part of the supporting spouse to avoid his financial family responsibilities by refusing to seek or to accept gainful employment; by wilfully refusing to secure or take a job; by deliberately not applying himself to his business; by intentionally depressing his income to an artificial low; or by intentionally leaving his employment to go into another business. See, Annot., 1 A.L.R.3d 6, 47–49 (1965); 24 Am.Jur.2d, Divorce and Separation § 632 (1966); 27A C.J.S. Divorce § 233(3) (1959). Accord, Harris v. Harris, 258 N.C. 121, 128 S.E.2d 123 (1962); Conrad v. Conrad, 252 N.C. 412, 113 S.E.2d 912 (1960); Sguros v. Sguros, 252 N.C. 408, 114 S.E.2d 79 (1960); Davidson v. Davidson, 189 N.C. 625, 127 S.E. 682 (1925); Robinson v. Robinson, 10 N.C.App. 463, 179 S.E.2d 144 (1971). See also, G.S. § 50–16.5(a), which provides: ‘Alimony shall be in such amount as the circumstances render necessary, having due regard to the estates, earnings, Earning capacity, condition, accustomed standard of living of the parties, and other facts of the particular case.’ (Emphasis supplied.)
In Conrad v. Conrad, Supra, plaintiff-wife, who was seeking alimony without divorce, moved for alimony Pendente lite. The substance of the evidence concerning the husband’s ability to pay was that as an insurance salesman his net income during prior years had been $10,756.16 in 1956, $15,357.94 in 1957, $8,477.00 in 1958 and $3,916.43 for the first eight months of 1959. Defendant-husband explained his decline in income by a reduction in commissions paid by one of his largest accounts and an unfavorable
ruling by the local insurance board. It was not contended that defendant had assets other than his income capacity. The trial court found that defendant was capable of earning $16,000.00 a year and award plaintiff-wife $600.00 per month alimony Pendente lite and $1,000.00 attorney fees. This Court, in an opinion by Justice Rodman, reversed. Specifically, the Court stated:
‘The award should be based on the amount which defendant is earning when alimony is sought and the award made, if the husband is honestly engaged in a business to which he is properly adapted and is in fact seeking to operate his business profitably. Sguros v. Sguros, 252 N.C. 408, 114 S.E.2d 79.
‘To base an award on capacity to earn rather than actual earnings, there should be a finding based on evidence that the husband was failing to exercise his capacity to [287 N.C. 173] earn because of a disregard of his marital obligation to provide reasonable support for his wife. Davidson v. Davidson, Supra. There is no finding to that effect in this case.’ Id. 252 N.C. at 418, 113 S.E.2d at 916. (Emphasis supplied.)
In the Davidson case, cited in Conrad, the trial court had awarded alimony Pendente lite which exceeded the net income of the defendant. Although this Court, in an opinion by Justice Adams, conceded that the award may be based on the income capacity of the husband, it nonetheless reversed the trial court and remanded the case for additional evidence concerning the value of the husband’s ‘entire estate, and the net annual income that is or should be derived from his estate or labor.’ 189 N.C. at 627, 127 S.E. at 683.
The husband’s ability to pay arose in a different context in Sguros v. Sguros, Supra. Plaintiff-wife was seeking alimony without divorce and moved for alimony Pendente lite. Defendant-husband had a Ph.D. degree in bacteriology and at the time the action was instituted was employed as a tobacco research technician at an annual salary of $10,740.00. He had an additional income from a Naval Reserve unit of approximately $1,000.00 per year. At the time of the hearing, however, he had resigned from these positions and had accepted a professorship at an annual salary of $8,000.00. He filed an affidavit stating that the opportunities for advancement in his field were greater as a university teacher than as a research technician. The trial court awarded alimony Pendente lite based on an annual income of $11,800.00. On appeal, this Court, in an opinion by Justice Higgins, stated: ‘There is neither allegation nor evidence, nor finding his change of positions was otherwise than for the reason he assigns. Under the circumstances here disclosed, we hold he had the right, so long as he acted in good faith, to accept the professorship at Miami even though at a reduction in salary. The court should have fixed the monthly payments on the basis of a salary of $8,000.’ Id. 252 N.C. at 411, 114 S.E.2d at 82.
In the above cited cases the basic issue is the same, to wit: Is the husband, by reducing his income, primarily motivated by a desire to avoid his reasonable support obligations? In order to answer this question in the affirmative, and therefore base an award of alimony upon earning capacity as distinguished from actual earnings, the finder of fact must have before it sufficient evidence of the proscribed intent. ‘Intent being a mental attitude, it must ordinarily be proven, if proven at all, by circumstantial[287 N.C. 174] evidence, that is, by proving facts from which the fact sought to be proven may be inferred.’ State v. Murdock, 225 N.C. 224, 226, 34 S.E.2d 69, 70 (1945). See generally, Stansbury, N.C. Evidence (Brandis Revision) § 83, 257 fn. 78 (1973).
In the instant case, plaintiff-wife contends that the proscribed intent may be inferred from the following facts: (1) In March of 1970 defendant established a separate bedroom for himself in the marital home; (2) on 1 May 1970 defendant incorporated his grading business as M. L. Bowes Construction Company, Inc.; (3) on 29
March 1971 defendant gathered up his personal effects and moved out of the marital home; and (4) in 1969 (the year prior to incorporation) defendant’s net earnings were $16,086.12, while in 1970 (the year of incorporation) his net earnings were only $6,775.14. Plaintiff-wife argues that these facts are sufficient to establish a Prima facie case that defendant intentionally depressed his income, or the corporate income, to an artificial low. Plaintiff speculates that defendant has been able to accomplish this objective in one or more of the following ways: (1) He has intentionally fixed a low corporate salary for himself; (2) he has diverted corporate earnings elsewhere; (3) he has failed to make a good faith effort to increase corporate earnings.
Based on a close examination of the record, we believe there is insufficient evidence to support allegations one (1) and three (3). Plaintiff produced no evidence to refute the explanations given by defendant. However, as to allegation two (intentional diversion of corporate earnings) plaintiff offered the following evidence in support of her contention: (1) Defendant authorized a corporate ‘loan’ of $2,360.00 to his son, a vice-president and stockholder of the corporation, on 7 July 1973; and (2) defendant and his minor daughter, during the summer months of 1973, made a seven-day trip to the beach, a four-day trip to Canada, and a one-week trip to Las Vegas.
Although the above evidence appears to be inconsistent with defendant’s net corporate salary and with net corporate earnings (or losses) for the period 1970 to 1973, it is not sufficient to establish that defendant intentionally diverted corporate funds in disregard of his marital obligation to provide reasonable support. Of course, as to the $2,360.00 ‘loan’ to defendant’s son, an employee and vice-president of the firm, it is undisputed [287 N.C. 175] that this transaction involved corporate funds. However, defendant’s evidence indicated that the loan was made so his son could make the down payment on a home. Conceding that this transaction may raise an inference that defendant was diverting corporate funds in disregard of his marital obligation, it falls far short of establishing this as fact. Consequently, we conclude, based on the evidence in the record, that it is mere speculation to presume defendant authorized this transaction with the proscribed intent.
Plaintiff, apparently aware of this failure of proof, argues that she has nonetheless offered sufficient evidence to shift the burden of producing evidence to defendant. Specifically, she contends: ‘The plaintiff carries the burden of proof. But, after offering sufficient evidence to establish a Prima facie case in her favor, giving her the benefit of all reasonable inferences to be drawn therefrom, the risk of non-persuasion should shift to the defendant to offer explanation for his circumstances.’ Plaintiff cites Stansbury, N.C. Evidence (Brandis Revision) § 203 (1973), as authority for the above contention. Suffice it to say, the authority cited Clearly fails to support this contention.
The burden of proof was on the plaintiff throughout the case. Defendant was under no legal duty to offer any explanation as to any of plaintiff’s evidence (although we note he elected to do so). In fact, based on our examination of the evidence in this record, we are of the opinion that plaintiff has failed to make out a Prima facie case for the award of alimony based on earning capacity. If plaintiff’s allegations are true, as she contends, then she should have produced evidence in support thereof by employing the procedures provided for in Rules 34 and 45(c) of the North Carolina Rules of Civil Procedure. These discovery rules would have allowed her to examine and to produce at trial any pertinent corporate records supportive of her allegations. This, however, she did not do. Also, we note that plaintiff failed to subpoena defendant’s corporate accountant and to examine him as an adverse witness pursuant to Rules 43(b) and 45(a) of the North Carolina Rules of Civil Procedure.
These discovery rules provided plaintiff with an adequate means of developing the type of evidence she needed in this case. We fail to discern any unusual hardship an implementation of these rules would require.
[287 N.C. 176] In her brief, plaintiff states that ‘(i)f the Court of Appeals is correct, nothing short of the defendant’s confession or other admission will serve as acceptable evidence.’ This contention has no merit whatsoever. Plaintiff could and most definitely should have used the discovery rules herein cited. Having failed to do so, she cannot now assert that only a confession or other admission was the only way she could have made out her case.
Defendant contended on appeal to the Court of Appeals that the trial court did not give due consideration to the earnings of both parties in determining its award of alimony. See, G.S. § 50–16.5(a), Supra. The Court of Appeals agreed. Since this cause must be remanded for further proceedings, it is not necessary for us to fully discuss this assignment of error. Suffice it to say, it is clear that the wife’s earnings must be taken into account. See, e.g., Sayland v. Sayland, 267 N.C. 378, 148 S.E.2d 218 (1966).
For the reasons herein stated, the judgment of the Court of Appeals is
HUSKINS, Justice (dissenting).
The evidence shows that defendant’s adjusted gross income in 1968 was $14,608.24 and in 1969 was $16,086.12. For the calendar year 1970 his adjusted gross income fell to $6,775.14. What is the explanation for this drastic reduction?
In March of 1970 defendant established a separate bedroom for himself and on 29 March 1971 completed the abandonment of his wife by moving out of the marital home and taking his personal effects with him.
Following the incorporation of his business on 1 May 1970, defendant placed himself on a weekly salary of $156.58. He now contends that sum represents his actual earnings and that any award of alimony to his wife must be based thereon, taking into account the separate earnings of his wife. On the other hand, plaintiff contends defendant has intentionally depressed his income to avoid his obligations to her and that the trial tribunal was justified in basing an award on defendant’s earning capacity rather than on the meager earnings he acknowledges.
[287 N.C. 177] No satisfactory explanation appears in the record for defendant’s drastic drop in income following the incorporation of his business. The majority blames the wife for having failed to utilize the discovery procedures provided in Rules 34 and 45(c) of the Rules of Civil Procedure. The majority says these discovery rules ‘would have allowed her to examine and produce at trial any pertinent corporate records supportive of her allegations. This, however, she did not do.’ I view the matter differnetly.
In my view the evidence adduced by the plaintiff was sufficient to support a finding, nothing else appearing, that defendant had incorporated his business for the purpose of intentionally depressing his income to an artificial low and was hiding behind the corporate structure to avoid his financial responsibilities to his wife. If he desired to avoid such findings and an award based on his demonstrated earning capacity prior to incorporation, the onus was on him to come forward with his corporate records, tax returns, receipted bills, and other pertinent documentary evidence, and negate plaintiff’s prima facie showing. In light of the fact that all such records are in defendant’s possession, it is unrealistic, and I think contrary to law, to require plaintiff to pierce defendant’s corporate smoke screen by use of discovery procedures. If the records in his possession show what he says they show, it is no trouble for him to produce them in court. His failure to do so suggests rather strongly that plaintiff’s position is correct.
The majority decision permits defendant to abandon his wife with impunity and then
requires her to ascertain, at her peril, his true earnings as revealed by his corporate records. I would let him conceal that truth at His peril.
For the reasons stated I respectfully dissent.
SHARP, C.J., joins in this dissenting opinion.