July 20, 2016 – It seems that every year since the Wisconsin Supreme Court decided Frisch v. Henrichs1 there is at least one court of appeals case dealing with the issue of retroactive revisions in support based upon a parties’ failure to provide financial information after a divorce or paternity order. Most recently for example, there is the unpublished, but citable for persuasive value, case of Calo v. Calo2 (filed May 13, 2015), which confirms a finding of contempt against a payor for failing to provide tax returns. His argument that his wife did not provide her tax returns, nor request his, fell on deaf ears.
For the most part, revisions of support can only be made prospectively from the date of filing a motion.3 However, when a payor fails to comply with an order requiring exchange of financial information, the court can go back in history and make retroactive adjustments to support. The results can be extreme, both in terms of the legal issues involved and the potential effect on the payor.
Wis. Stat. section 767.54 requires that in a support case, the court shall require the parties “annually to exchange financial information.” Failure to do so subjects a party to a contempt action.
Gregg Herman is a family law attorney with Loeb & Herman S.C. His primary office is in Milwaukee. Gregg is the co-editor of the System Book for Family Law, published by the State Bar of Wisconsin PINNACLE® and is a former chair of the State Bar and American Bar Association family law sections. Follow Gregg’s opinions on his family law blog.
Usually, this financial information is in the form of tax returns. The retroactive effect arises where the payor’s income has increased substantially, but no financial information was timely provided. The support recipient then has the ability to argue that, to remedy the contempt, the payor should be ordered to pay the amount of child support that would have been ordered had the recipient received the required financial information timely.
The legal issue regarding contempt is a simple one. Either the financial information was provided or it was not. Under Calo (and other cases), there is no excuse for not providing it. So the finding of contempt should be an easy one. There is a clear order, a failure to comply, and compliance was clearly within the payor’s ability, as it is easy to send tax returns.
The more difficult issue is the proper remedy. Going back to the past and trying to ascertain what support would have been ordered had the recipient brought an action requires a number of assumptions by the trial court. Still, since the problem could have been easily avoided by the payor by simply providing the required financial information, most courts, one would think, would have little sympathy for the payor.
Since the statute requiring annual exchange is vague as to the type of information or dates, certain drafting specifics are essential to do a good job representing a client. First, there should be a date for the exchange of financial information, which would usually be no later than April 15 of each year for a full copy of the tax return. However, that would mean that the financial information is as much as 15 ½ months old. Therefore, the lawyer for the recipient should try to require the payor to provide all the underlying income information, such as W-2s, K-1s, and 1099s, no later than Jan. 31 of each year and then a full copy of the tax returns when filed. Second, since some parties file tax returns after April 15, the recipient’s lawyer should request that all information used to prepare the tax returns be provided by April 15 – whether the returns are prepared or not – with a complete copy of the returns to be provided when filed.
Further, practitioners should take into account that if a party remarries, the new spouse may not be pleased with disclosing his or her income annually to the ex-spouse. Therefore, a provision can be included that if a party remarries, rather than providing the full tax return, that party may provide all income information, such as 1099s, W-2s, K-1s, in lieu of the tax return.
Finally, set a termination date for providing this information, which usually is emancipation of the youngest child, the end of maintenance, or whichever is later.
The payor can easily avoid the potentially damaging results of a contempt. In today’s world, most tax returns are electronically filed, and just about everyone under the age of 99 has email. So all that a payor needs to do is to simply tell his or her accountant, after filing the tax return electronically each year, to email the tax return to the payor’s ex-spouse. Sending such an email costs nothing and has the effect of insulating the payor from the risk of the court ordering retroactive support.
Any time such huge risks can be avoided by such simple steps, it only makes sense to do so. Of course, the payor takes the risk that the recipient will bring an action to modify support, but that risk is well worth the benefit as any modification will only be for the future, not back to the past.
1 Frisch v. Henrichs, 2007 WI 102, 304 Wis.2d 1, 736 N.W. 2d 85.
2 Calo v. Calo, 2014 AP 2267.
3 Wis. Stat. § 767.59(1)(m).