[Cite as Enyart v. Taylor,

.]

IN THE COURT OF APPEALS OF OHIO FOURTH APPELLATE DISTRICT LAWRENCE COUNTY

TINA R. ENYART, : : Plaintiff-Appellee, : : Case No. 13CA2 v. : : DECISION AND ERIC D. TAYLOR, : JUDGMENT ENTRY : Defendant-Appellant. : Released: 11/01/2013

APPEARANCES: Charles M. Johnstone, II and Sarah A. Stewart, Charleston, WV, for Appellant.

Brigham M. Anderson, Anderson & Anderson Co., L.P.A., Ironton, Ohio, for Appellee.

Hoover, J.:

{¶ 1} This is an appeal of a judgment from the Lawrence County Court of Common

Pleas ordering appellant Eric D. Taylor to reimburse appellee Tina R. Enyart $123,191. This

amount represented Ms. Enyart’s share of the K-1 tax liability resulting from the income of the

parties’ formerly jointly owned company, Tri-State Pipeline, Inc. For the reasons set forth

below, we affirm the judgment of the trial court.

{¶ 2} Appellant, Eric D. Taylor presents four assignments of error for review.

First Assignment of Error:

THE MAGISTRATE ERRED IN IMPLICITLY FINDING THE DATE

APPELLEE TRANSFERRED HER SHARES IN TRI-STATE PIPELINE,

INC. TO APPELLANT WAS DECEMBER 31, 2009.

Second Assignment of Error:

THE MAGISTRATE ERRED IN CONCLUDING APPELLEE SHOULD Lawrence App. No. 13CA2 2

NOT BE RESPONSIBLE FOR HER PRO-RATA SHARE OF TRI-STATE

PIPELINE, INC.’S INCOME FOR THE 2010 TAX YEAR.

Third Assignment of Error:

THE MAGISTRATE ERRED IN FINDING THAT APPELLEE WAS

ATTRIBUTED A DISBURSEMENT OF $500,000 FROM THE TRI-

STATE PIPELINE, INC. FOR THE 2010 TAX YEAR.

Fourth Assignment of Error:

THE MAGISTRATE ERRED IN FINDING APPELLEE PAID

PERSONAL INCOME TAX ON THE SALARY AMOUNT SHE

RECEIVED FROM TRI-STATE PIPELINE, INC. DURING THE 2010

TAX YEAR.

{¶ 3} Although Mr. Taylor sets out the above assignments of error, he structures his arguments

under “Statement of Issues Presented for Review.” Because Mr. Taylor’s arguments are

organized under these three issues (labeled A, B, and C) and not the four assignments of errors,

we will address these issues as appellant’s arguments:

A. THE TRIAL COURT ERRED IN ORDERING THAT APPELLANT

WAS LEGALLY RESPONSIBLE FOR THE TAX LIABILITY APPELLEE

INCURRED AS A RESULT OF HER SHAREHOLDER INTEREST IN TRI-

STATE PIPELINE, INC. DURING THE 2010 TAX YEAR.

B. THE TRIAL COURT ERRED IN AFFIRMING THE MAGISTRATE’S

MODIFICATION OF THE PARTIES’ SETTLEMENT AGREEMENT

REGARDING THE SALE AND PURCHASE OF TRI-STATE PIPELINE, INC. Lawrence App. No. 13CA2 3

C. THE TRIAL COURT ERRED IN AFFIRMING THE MAGISTRATE’S

CONCLUSION THAT APPELLEE’S K-1 TAX LIABILITY FOR THE 2010

TAX YEAR EQUALED $123,191.00.

I. Facts and Procedural History

{¶ 4} Appellant Eric D. Taylor and appellee Tina R. Enyart jointly incorporated Tri-

State Pipeline Inc. (“Tri-State”) in 2006. Tri-State was incorporated under the laws of Ohio as

an S Corporation. The married couple separated in early 2010. The trial court issued a final

divorce decree on February 24, 2011. When the parties first separated, they reached an

agreement for Mr. Taylor to buyout Ms. Enyart’s sixty percent ownership interest in Tri-State.

Mr. Taylor began to make buyout payments to Ms. Enyart in April 2010. Shortly thereafter, both

parties sought legal representation and began to renegotiate an agreement. Sometime after

October 2010 the characterization of the payments for the ownership interest changed from

“buyout payments” to “salary payments.” This change in characterization of the payments was

in response to concerns of Tri- State’s CPA that payroll taxes were not being withheld.

{¶ 5} Eventually, the parties reached an agreement regarding all issues in the divorce.

The agreement included the resolution of the issues regarding Tri-State. This agreement was set

forth in the Final Divorce Decree as follows:

The parties are joint owners of Tri-State Pipeline, Inc., an Ohio corporation. By

agreement of the parties, it is herby ORDERED, ADJUDGED AND DECREED

that the Defendant, Eric D. Taylor, purchase the stock currently owned by Tina R

Enyart in Tri-State Pipeline, Inc. Tina R. Enyart owns 60% of said stock. The

defendant will purchase said stock for the sum of $1,100,000.00. Defendant

agrees to pay the sum of $275,000.00 in cash by December 31, 2010 for said Lawrence App. No. 13CA2 4

stock. The remainder will be paid weekly in installments of $3,846.15 until such

time as it has been paid in full. The Defendant shall be solely responsible for

any indebtedness of the company, holding Plaintiff harmless. (Emphasis added).

Plaintiff shall sign all documents to further effectuate this agreement.

{¶ 6} Ms. Enyart then filed two post-decree motions on separate dates. In April 2012,

Ms. Enyart filed a Motion in Contempt, alleging that Mr. Taylor was behind in his payments and

currently owed her $19,230. In May 2012, Ms. Enyart filed a Motion for Reimbursement,

praying for an order requiring Mr. Taylor to reimburse her in the amount of $123,191 for her

2010 K-1 tax liability from Tri-State. According to Ms. Enyart, the K-1 tax liability consisted of

$90,568 in federal taxes, $15,126 in Ohio taxes, and $17,497 in West Virginia taxes. A hearing

in front of a Magistrate was scheduled for September 20, 2012. Mr. Taylor, Ms. Enyart, Aaron

Heighton, and Lori McDonald testified at the hearing. Mr. Heighton is a CPA who was

employed by Ms. Enyart. Ms. McDonald is a CPA working for Tri-State.

{¶ 7} Mr. Heighton testified that a K-1 is similar to a W-2 except a K-1 is for income

from a business. Since Tri-State is an S Corporation, the income and expenses of the corporation

are passed through to the shareholders. He testified that, as is common practice with S

Corporations, he would at least expect to see distributions for the equivalent of the personal tax

liabilities reflected on the K-1. According to his testimony, it is standard practice for companies

that utilized “pass-through” taxation to pay the personal tax obligations of its shareholders. Mr.

Heighton also testified that he expected K-1 income for Ms. Enyart only through February 22,

2010, based upon the agreement the parties made after initial separation. According to Mr.

Heighton, he understood that beginning February 2010, Ms. Enyart was to have no further Lawrence App. No. 13CA2 5

involvement with Tri-State; however, pursuant to the agreement of the parties, he did expect her

to still receive a salary.

{¶ 8} Ms. McDonald, who had been Tri-State’s CPA since 2006, similarly testified that

she expected Ms. Enyart to receive a two-month K-1 pursuant to the initial February 2010

buyout agreement. Then, these expectations changed at the end of December 2010 with the new

settlement agreement and a buyout date of December 31, 2010. According to Ms. McDonald’s

own calculations, the Ohio portion of the tax related to the K-1 should not exist because Tri-State

conducted no business in Ohio in 2010. Therefore, Ms. McDonald testified that the $15,126

Ohio tax figure should not be included in the K-1. Based upon her own estimation, appellee’s K-

1 for 2010 should have been “roughly like thirty eight thousand dollars related to the K-1.”

{¶ 9} On cross-examination, Ms. McDonald was asked about the past practice of Tri-

State concerning the K-1 tax liabilities of Mr. Taylor and Ms. Enyart. The transcript reads as

follows:

Q. [Appellee’s attorney] Okay, so in 2009 you issue these K1’s. You issue one to

each of them cause they both own the company.

A. [Ms. McDonald] Sure.

Q. [Appellee’s attorney] And based upon the K1, just upon the K1 that you issued

to her you had to issue her a check for a hundred thousand to cover the taxes?

A. [Ms. McDonald] I did not issue her a check.

Q. [Appellee’s attorney] Okay, who did you issue a check for?

A. [Ms. McDonald] There was a payroll check written through Tri-State Pipeline.

They didn’t get any of the net proceeds. It was all for taxes.

Q. [Appellee’s attorney] All money went where? Lawrence App. No. 13CA2 6

A. [Ms. McDonald] Um, part of it went to the federal government and part of it

went to the State of West Virginia.

…

Q. [Appellee’s attorney] I understand. But the taxes that were paid…just so the

court understands the practice of 2009, the taxes that were paid did not come out

of their personal accounts?

A. [Ms. McDonald] That’s correct for the K1 only. The W2 they had

withholdings.

…

Q. [Appellee’s attorney] We compartmentalizing this. [sic] We are only talking

about the K1. So…

A. [Ms. McDonald] That’s was the practice, that’s was the practice. [sic]

Q. [Appellee’s attorney] Was that the practice in 2009?

A. [Ms. McDonald] Yes.

Q. [Appellee’s attorney] Was that the practice in 2008?

A. Yes.

Ms. McDonald also testified that appellant owed $38,731 for the 2010 tax year. Tri-State

distributed the money to Mr. Taylor to cover that amount.

{¶ 10} On September 25, 2012, the Magistrate made the following findings of fact

pertinent to this appeal:

3. Thereafter, the plaintiff [appellee] did not receive any disbursements or

compensation from the company other than her salary of $207,034.00, of which

she paid her personal income taxes on; Lawrence App. No. 13CA2 7

4. In 2011, the plaintiff received a K1 attributing a disbursement of $500,00.00

[sic] to her from the business and accrued a tax liability in the amount of

$123,191.00;

5. Two CPAs testified at trial and indicated that it was common practice for the

company to issue disbursements to cover the K-1 law [sic] liability for the

recipients of the disbursements;

6. The company issued a disbursement in 2011 to the defendant to cover his K1

tax liability;

The Magistrate ruled that Mr. Taylor should reimburse Ms. Enyart the amount of $123,191,

based upon the past practice of the company to reimburse the K-1 tax liability. Shortly

thereafter, the appellant filed objections to that decision and another hearing in front of the trial

court was scheduled for January 9, 2013.

{¶ 11} On January 16, 2013, the trial court issued a decision adopting the Magistrate’s

findings and affirming the judgment ordering appellant to reimburse appellee. Appellant timely

filed this appeal.

II. Applicable Law and Standard of Review

{¶ 12} Once a court has made an equitable property division, it has no jurisdiction to

modify its decision. Martin v. Howard, 4th Dist. Lawrence No. 07CA27,

, ¶ 7

citing R.C. 3105.171(I); Pierron v. Pierron, 4th Dist. Scioto Nos. 07CA3153 & 07CA3159,

. However, a court retains jurisdiction to “ ‘clarify and construe its original

property division so as to effectuate its judgment.’ ” Knapp v. Knapp, 4th Dist. Lawrence No.

05CA2,

, quoting McKinley v. McKinley, 4th Dist. Athens No. 99CA52,

(Jun. 27, 2000) *4. Although a trial court has broad discretion to clarify the Lawrence App. No. 13CA2 8

terms of its previous decree, the court ‘may not vary from, enlarge, or diminish the relief

embodied in the final decree.’ ” Pontious v. Pontious, 4th Dist. Ross No. 10CA3157, 2011-

Ohio-40, ¶ 11, quoting

. This court previously noted in Pierron at ¶ 7:

These rules are based upon the fact a settlement agreement constitutes a binding

contract. See Davis v. Davis (2000) Pike App. No. 99CA630, unreported, quoting

Walther v. Walther (1995),

,

. Thus,

when interpreting a divorce decree that incorporates such an agreement, courts

must apply the general rules of contract interpretation. Plymale v. Wolford,

Jackson App. No. 05CA5,

; McKown v. McKown (1995)

Highland App. No. 94CA866, unreported (applying the same standard of review

and rules of interpretation to divorce decrees and dissolution decrees). In essence,

a court may construe an ambiguous decree, but it must enforce an unambiguous

one as it is written. Parsons v. Parsons (1997), Jackson App. No. 96CA791,

unreported.

{¶ 13} “The initial determination of whether an ambiguity exists presents an abstract

legal question, which we review on a de novo basis.”

, citing

. If we

determine that an ambiguity exists, we then must afford the trial court discretion to clarify the

intent of the agreement.

Where no ambiguity exists, the trial court and this Court are required

to apply it as written.

{¶ 14} We have previously explained that “[c]ontractual terms are ambiguous if the

meaning of the terms cannot be deciphered from reading the entire contract or if the terms are

reasonably susceptible of more than one interpretation.” Lewis v. Mathes,

,

,

(4th Dist.) “However, mere silence on an issue or a Lawrence App. No. 13CA2 9

failure to address it does not create an ambiguity where none otherwise exists.”

,

citing

see also Thomas v. Thomas, 10th Dist. Franklin No. 00AP-541,

, *5 (“[T]he divorce decree is not ambiguous because the trial court failed to award the

defendant interest on her pension distribution when it could have done so.”).

III. Analysis

{¶ 15} Mr. Taylor’s first argument is that the trial court erred in ruling that he is legally

responsible for the tax liability Ms. Enyart incurred as a result of her shareholder interest in Tri-

State during the 2010 tax year. He bases his argument on Ohio S Corporation law that the profits

of an S Corporation are taxed as personal income to the shareholders, regardless of whether or

not the company issued distributions. Therefore, Mr. Taylor argues that Ms. Enyart is

responsible for paying tax on her pro-rata share of Tri-State’s 2010 income.

{¶ 16} In his second argument, Mr. Taylor contends that the trial court altered the

settlement agreement regarding the sale and purchase of Tri-State Pipeline, Inc. Mr. Taylor

states that the tax liabilities were not discussed during settlement; and therefore, the trial court

could not have addressed the tax liabilities after the Divorce Decree was issued. On the other

hand, Ms. Enyart contends that the trial court was effectuating the provision in the Divorce

Decree stating that “[t]he Defendant [appellant] shall be solely responsible for any indebtedness

of the company, holding Plaintiff [appellee] harmless.” We will address appellant’s first and

second arguments together.

{¶ 17} Our court must resolve the issue whether or not the trial court acted properly and

within its power when it ordered Mr. Taylor to reimburse Ms. Enyart the $123,191. When

determining this issue, we must be mindful of the law regarding the structure of an Ohio S

Corporation. “[A]n S Corporation is considered a “flow-through” entity whereby the income and Lawrence App. No. 13CA2 10

losses of the business are nontaxable to the corporation but instead flow through to the individual

shareholders.” Dupee v. Tracy,

,

(1999). “Items of

income, loss, deduction, and credit are then passed through to the shareholders on a pro rata basis

and are added to or subtracted from each shareholder’s gross income.” Ardire v. Tracy,

,

(1997), fn. 1, citing Section 1366, Title 26, U.S.Code.

{¶ 18} “ ‘Subchapter S of the Internal Revenue Code (Section 1361 et seq., Title 26,

U.S.Code) permits the owners of qualifying corporations to elect a special tax status under which

the corporation and its shareholders receive conduit-type taxation that is comparable to

partnership taxation.’ ” Lovell v. Levin,

,

,

(2007), quoting

. “For tax purposes, a Subchapter S corporation

differs significantly from a normal corporation in that the profits generated through the S

corporation are taxed as personal income to the shareholders. The taxable income of an S

corporation is computed essentially as if the corporation were an individual.”

{¶ 19} Mr. Taylor argues that the divorce decree is not ambiguous; and therefore, the

trial court cannot modify it pursuant to R.C. 3105.171 (“A division or disbursement of property

or a distributive award made under this section is not subject to future modification by the court

except upon the express written consent or agreement to the modification by both spouses.”).

Ms. Enyart claims that the trial court did not modify the divorce decree but instead followed the

clause: “The Defendant [appellant] shall be solely responsible for any indebtedness of the

company.” Ms. Enyart states that the K-1 tax liability is commonly and has been historically a

debt of the company and has never been paid by the individual owners.

{¶ 20} The first step in our analysis is to decide, using a de novo standard of review,

whether or not the decree is ambiguous, specifically, the following sentence: “The Defendant Lawrence App. No. 13CA2 11

[appellant] shall be solely responsible for any indebtedness of the company.”

. The trial court did not mention in its analysis whether the divorce decree was ambiguous or

unambiguous. However, because the trial court relied upon the past practices of the parties when

making its decision, the trial court implicitly found the divorce decree to be ambiguous.

{¶ 21} Clearly, the intent of the parties was that Mr. Taylor would be solely responsible

for the indebtedness of the company, holding Ms. Enyart harmless. Tri-State had always paid the

K-1 tax liabilities of the shareholders. In addition, Ms. Enyart did not receive a distribution of

the monies which generated the tax liability. The only monies received by Ms. Enyart from the

company in 2010 were the salary payments.

{¶ 22} Even though Mr. Taylor claims that the divorce decree is not ambiguous, he

actually presents this court with a different interpretation of the terms. Although the divorce

decree states that Mr. Taylor “shall be solely responsible for any indebtedness of the company,”

Mr. Taylor contends that he is not responsible for the K-1 tax liability as it is not a debt of the

company; instead Mr. Taylor believes that the tax liability is an individual debt to be borne by

Ms. Enyart. We find the sentence at issue to be ambiguous, as its terms are reasonably

susceptible of more than one interpretation. Since we determine that an ambiguity exists, we

must review the interpretative decision by the trial court with an abuse of discretion standard.

.

{¶ 23} This case presents a difficult question for this Court. It is clear from the testimony

at the trial court and in the parties’ arguments that the K-1 tax liabilities were never discussed in

mediation or in discussions leading to the settlement agreement. According to Ohio S

Corporation law, the profits and therefore debt of the company belong to the individuals, not the

corporation. This is a unique feature of the S Corporation, that the individuals are taxed as if in a Lawrence App. No. 13CA2 12

traditional partnership. So while technically the IRS correctly held Ms. Enyart responsible for

her portion of the K-1 tax liability as a 60% owner throughout 2010, this would be the first time

she would have to pay those taxes out of her personal finances. Historically, the practice of the

company was to supply Mr. Taylor and Ms. Enyart with funds to pay their individual K-1 tax

liability, either through a disbursement or payroll check.

{¶ 24} When Ms. Enyart filed her Motion for Reimbursement, her intent was not to

modify the decree, but to seek the repayment of K-1 tax liability. This had been a practice of the

company; and in the context of the decree, this placed clear responsibility of the debts of the

company on Mr. Taylor. It would seem conflicting to treat her differently now.

{¶ 25} While the trial court “has broad discretion in clarifying the terms of its previous

decree”, it may not “vary from, enlarge, or diminish the relief embodied in the final decree.”

Pontious,

. The trial court awarded $123,191 in order to effectuate the

divorce decree. The divorce decree holds Mr. Taylor responsible for the debts of the company.

In addition, Mr. Taylor is also ordered to hold Ms. Enyart harmless from the debts of the

company. By the testimony of two CPAs, the trial court discovered that the practice of the

company had been to cover the personal K-1 tax liability of its two owners, Mr. Taylor and Ms.

Enyart. We find the trial court’s decision, holding Mr. Taylor responsible to pay Ms. Enyart’s

K-1 tax liability consistent with the divorce decree and the former practice of the company.

Accordingly, we overrule Mr. Taylor’s first and second arguments.

{¶ 26} In his third argument, Mr. Taylor states that the trial court erred in affirming the

Magistrate’s conclusion that Ms. Enyart’s tax liability for the 2010 tax year equaled $123,191.

He explains that because no federal or state withholdings were made for the payments appellee

received in 2010, Ms. Enyart grossly under withheld for that year. He also states that no Lawrence App. No. 13CA2 13

evidence was presented that demonstrated Tri-State maintained a practice of absorbing W-2 tax

liability. Appellee responds that she submitted evidence of what she paid in taxes based upon

the K-1 she received in 2010. She states that Mr. Heighton explained in detail her tax liabilities

amounted to $123,191 in federal and state taxes on 2010 company profit she never received.

{¶ 27} We will not reverse the amount of a judgment pursuant to a divorce decree absent

an abuse of discretion. See e.g. Elliott v. Elliott, 4th Dist. Ross No. 05CA2823,

. An abuse of discretion connotes more than a mere error in judgment; it implies that the

court’s attitude is arbitrary, unreasonable or conscionable. Masters v. Masters,

,

(1994). The amount of the award is a question of fact; we may not freely

substitute our judgment for that of the trial court. In re Jane Doe I,

,

(1991).

{¶ 28} Mr. Heighton, Ms. Taylor’s CPA, testified that appellee’s ordinary income on her

2010 K-1 was $500,383. This amount represents the sixty percent share of Tri-State’s profit

attributed to appellee. After a deduction of $250,000, appellee had a taxable income of

$250.383. Mr. Heighton testified appellee paid taxes in the amounts of: $90,568 in federal taxes,

$15,126 in Ohio taxes, and $17,497 in West Virginia taxes. In conclusion, Mr. Heighton

testified to preparing appellee’s taxes and she paid a total of $123,191.

{¶ 29} Tri-State’s CPA Ms. McDonald testified that, in 2010, Tri-State performed all of

its work in West Virginia so there is no reason the company would be responsible for appellee’s

Ohio tax liability. Ms. McDonald testified that appellee under withheld in 2010 due to the

reclassification of the payments she received from appellant. Therefore, according to Ms.

McDonald appellee received a high tax bill for 2010. Lawrence App. No. 13CA2 14

{¶ 30} This Court did not receive any exhibits when the record was transmitted in this

case. The only evidence we have regarding the amount of K-1 tax liability is the testimony from

both CPAs. Mr. Heighton prepared Ms. Enyart's K-1 tax return and had actual knowledge of the

taxes paid; whereas, Ms. McDonald gave an estimate of the tax liability without ever seeing Ms.

Enyart's tax return. The amount Ms. Enyart owed in K-1 tax liability is a question of fact,

answered only by evaluating the testimony of both CPAs. This court defers to the trial court in

resolving a question of fact such as this one. The trial court viewed the testimony of both parties

and any exhibits submitted at the hearings. Therefore, we give deference to the trial court’s

findings because no evidence persuades us to disturb its decision. We overrule appellant’s third

argument and affirm the trial court’s finding that appellee accrued a tax liability of $123,191.

IV. Conclusion

{¶ 31} Appellant’s arguments and assignments of error are overruled. Therefore, we

affirm the trial court’s decision that ordered appellant to reimburse appellee the sum of $123,191.

JUDGMENT AFFIRMED. Lawrence App. No. 13CA2 15

JUDGMENT ENTRY

It is ordered that the JUDGMENT IS AFFIRMED. Appellant shall pay the costs herein taxed.

The Court finds there were reasonable grounds for this appeal.

It is ordered that a special mandate issue out of this Court directing the Lawrence County Court of Common Pleas to carry this judgment into execution.

A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure.

Harsha, J. & Abele, J.: Concur in Judgment and Opinion.

For the Court

By: Marie Hoover, Judge

NOTICE TO COUNSEL

Pursuant to Local Rule No. 14, this document constitutes a final judgment entry and the time period for further appeal commences from the date of filing with the clerk.