In re Marriage of Moorthy, 2015 IL App (1st) 132077

1) Case citation and parties
- In re Marriage of Moorthy, 2015 IL App (1st) 132077 (Ill. App. Ct., 1st Dist., May 13/Filed Mar. 13, 2015).
- Petitioner-Appellant: Deepalakshmi Moorthy. Respondent-Appellee: Channa Mallik Arjuna.

2) Key legal issues
- Whether the trial court erred by refusing to include (impute) respondent’s proportionate share of retained earnings from his majority-owned S corporation (Mahantech) in calculating his net income for child‑support modification under the Illinois Marriage and Dissolution of Marriage Act.
- Whether the trial court’s factual finding (refusing to impute) was against the manifest weight of the evidence.

3) Holding/outcome
- Affirmed. The appellate court upheld the trial court’s modification order increasing child support based on Arjuna’s current salary, but affirmed the court’s refusal to impute the corporation’s retained earnings to his net income for child‑support purposes.

4) Significant legal reasoning (concise)
- The court reviewed the evidentiary record and deferentially applied the manifest‑weight standard to the trial court’s credibility and factual findings. Arjuna’s testimony and corporate records showed: (a) Mahantech is an S corporation whose profits pass through on K‑1s but funds largely remained in the business; (b) distributions were not routinely taken apart from salary and a few limited transfers (e.g., a short‑term cashier’s check maneuver to avoid a state tax); (c) the business had legitimate ongoing payroll, contractual obligations, insurance, and working‑capital needs; and (d) Arjuna did not actually receive the large sums reflected on K‑1s as cash available for personal use.
- The court distinguished between pass‑through taxable income and actual cash available for personal spending: imputation requires evidence that corporate earnings were actually available and used (or readily available) for the owner’s personal benefit. Given the record, the trial court reasonably concluded the retained earnings were not personal income available to support increased child support.

5) Practice implications
- For petitioners seeking imputation from an S‑corporation owner, develop a detailed record showing cash distributions, bank withdrawals, personal use of corporate funds, lack of legitimate business needs, corporate minutes/owner actions authorizing distributions, and tax returns juxtaposed with corporate bank statements. Use forensic/accounting experts to trace K‑1 income to actual cash flow.
- For defense, emphasize corporate formalities, working‑capital needs, contractual obligations, and absence of distributions; show that K‑1 pass‑through tax liability does not equal cash available to the owner.
- Trial courts will defer to credibility findings; absent clear proof funds were effectively available for personal use, courts may decline to impute retained corporate earnings when calculating child support.