How important is private school to maintaining the accustomed standard of living that children of wealthy parents enjoy?
According to a recent decision by the North Carolina Court of Appeals, it’s pretty darn important.
In an absolute divorce case that the court described as one of first impression, the Court of Appeals upheld a lower court’s ruling that Craig Smith should be required to pick up the cost of sending his three daughters to Providence Day School in Charlotte as part of his child support obligations.
Those costs are not insignificant. Annual tuition at Providence Day School ranges from $16,950 for pre-K to $24,030 for sixth to 12th grades, according to the school’s website.
In an April 19 opinion, the Court of Appeals rejected Smith’s argument that the trial court erred by failing to make a ruling on whether his children have a reasonable need for private schooling that a public school cannot provide.
The Smith’s case is unusual because it involves individuals who earn a substantial combined income, meaning the normal guidelines for determining how much each spouse should pay in child support do not apply.
As a partner of PricewaterhouseCoopers, Craig Smith earned more than $522,000 in 2011, the year the trial court entered its initial child support order. Court records say his income has increased every year since then. Vera Smith’s income between 2007, when the couple separated, and 2011 fluctuated between $36,000 and $51,000. Together, the trial court found that the couple earned well more than the maximum gross income covered by North Carolina’s Child Support Guidelines, which top out at $300,000 annually or $25,000 monthly.
The Court of Appeals said the state’s case law has not previously addressed whether private school tuition could be included in a spouse’s child support obligations in non-guideline divorces. But because the guidelines do not apply, the Court of Appeals held that a trial court is not required to make findings that would typically be mandated under them.
“Instead, we hold that the trial court’s conclusion that private school is a reasonable need of the children is fully supported by the court’s findings of fact that private school is part of the children’s accustomed standard of living, that the parties are capable of paying the tuition, and that the parties have previously agreed that their children would be educated in private school,” said Judge Martha Geer, who authored the unanimous decision.
Family law attorneys in the state said the new standard set by the Court of Appeals could open the door to divorce litigants claiming any number of things contribute to a child’s standard of living. That could result in the wealthier parent paying significantly more than they would under the prior “reasonable need” standard.
“The Court of Appeals ruling could essentially make child support proceedings similar to alimony proceedings, where all kinds of stuff can be included,” said Fayetteville-based family law attorney Bryce Neier. “Does that mean a kid who was given a Maserati that the father tries to sell can argue it’s part of the life he’s grown accustomed to? Now, it will be up to a judge’s discretion to make that determination.”
Love on the rocks
Craig Smith and Vera Smith married in 1992 after meeting at work. At the time, both Smiths were working as certified public accountants at the same firm in New Orleans. They later moved to Houston after Craig Smith was hired by PricewaterhouseCoopers.
The couple had three children: Margaret, who is currently 20; Emilie, 17; and Lara, 14.
In 2003, the Smiths moved from Houston to Charlotte, so Craig Smith could continue to work his way toward becoming an equity partner at the accounting giant. Within a few years, he reached that goal, getting a substantial bump in pay in the process. His income went from about $150,000 in 2003 to over $500,000 in 2007. During the same period, Vera Smith’s income decreased from $80,000 to about $38,000, as she became the children’s primary caregiver.
Court records say that ever since the children began school, the Smiths shared a mutual desire to have them educated in private school. When they moved to Charlotte, the Smiths enrolled the three girls in Providence Day School.
But in 2007, the couple separated after Craig Smith allegedly discovered Vera Smith was having an affair.
At the time of the separation, Craig Smith began objecting to the children’s continued enrollment in Providence Day School. He also allegedly stopped contributing to the girls’ tuition, which forced Vera Smith to cover those costs out of the children’s Uniform Transfers to Minors Act accounts. In all, Vera Smith allegedly paid $53,810 and $49,804.18 out of the UTMA accounts to cover the girls’ tuition for the 2008-2009 and 2009-2010 school years, respectively. She allegedly used savings to pay the 2009-2010 tuition.
Craig Smith filed for absolute divorce on May 8, 2009. The trial court granted the divorce in September of that year.
On July 22, 2013, the trial court entered a final equitable distribution order that awarded Vera Smith an unequal distribution in her favor. The order was based on findings that included the value of Craig Smith’s PwC partnership interest at the time of the separation and the value of his retirement accounts with the firm.
The trial court also acknowledged that Vera Smith had inherited over $916,000 when her mother died in 2003. Vera Smith contributed those funds to the marriage, the trial court said.
The following year, the trial court issued a permanent custody order that gave both Smiths equal custody of their children on a week-on-week-off basis.
In a separate 2014 decision, the trial court ordered Craig Smith to pay $4,000 each month in child support going forward and $95,520.65 in retroactive child support to cover the period between the date of separation through June 30, 2009.
Over Craig Smith’s objections, the trial court also held that he was “solely responsible” for the girls’ private school tuition and expenses, though Vera Smith was required to reimburse him for a portion of the cost.
Craig Smith was ordered to repay his ex-wife $116,409 for the tuition she paid between 2007 and 2010.
Craig Smith appealed the trial court’s orders, arguing that prior case law requires judges to make findings of fact on a child’s specific needs, including their health or disabilities. Judges are also required, he said, to determine whether a public school can meet those needs before they can award the expense of private school tuition.
But the Court of Appeals said all of the cases cited by Craig Smith involved couples whose income fell within the Child Support Guidelines. Those precedents do not apply to high-income cases, the appeals court said. Additionally, the court said the cases cited by Craig Smith involved parents who did not mutually agree to enroll their children in private school.
“Thus, the mutual intent of both parents to educate their children in private school, together with their children’s actual enrollment, is a consideration in determining the ‘accustomed standard of living’ of the parties,” Geer said.
That said, the Court of Appeals came down in Craig Smith’s favor on other key questions raised on appeal.
The court upheld the permanent custody order giving him equal custody of the Smiths’ children. The three-judge panel also found that the trial court erred in issuing findings with regard to the equitable distribution of the couple’s marital assets, as well as in its calculation of how much Craig Smith owed in child support.
When setting those amounts, the Court of Appeals determined that the trial court failed to factor in a $1.25 million inheritance Vera Smith received when her father died, other than to make “vague allusions” to non-retirement assets and accounts. The trial court’s calculation was based on the value of her mother’s estate alone, the appeals court said.
“There are a number of issues regarding her inherited estate—including monthly distributions and tax implications—that impact defendant’s ability to immediately utilize this estate to pay her children’s monthly expenses,” Geer said.
The Court of Appeals reversed the child support and equitable distribution orders and remanded those issues to the trial court for additional findings of fact.
Despite the Court of Appeals’ decision to remand some aspects of the case, Vera Smith’s attorneys are counting Geer’s decision as a win.
William Sitton, a solo practitioner in Charlotte representing Vera Smith, said the issue of private school tuition comes up often in divorce proceedings. But to date the precedent set by North Carolina’s appellate courts has been limited to cases where the Child Support Guidelines apply, he said.
“It was surprising that this issue had never been decided before,” Sitton said. “More than 100,000 children in North Carolina attend private schools. We feel the court got it right and that this precedent will be useful to parents of private school children going forward.”
Andrew Brendle of Hull and Chandler in Charlotte, who is also representing Vera Smith, said the Court of Appeals set a reasonable standard for determining when private school tuition should be included in an award of child support.
Brendle noted that in a separate opinion, the Court of Appeals denied Craig Smith’s motion to stay enforcement of the permanent child support order and upheld the order holding him in contempt for failing to pay the children’s private school tuition.
But Brendle acknowledged that the Court of Appeals opinion in his client’s case could be used in future non-guideline divorces where a parent wants their former spouse to cover expenses that go beyond tuition in order to maintain a child’s standard of living.
“I think people are probably going to take that approach,” Brendle said. “I don’t think it’s what the court wants or intended, but I could see people doing that.”
Meanwhile, Craig Smith’s attorney, John Paul Tsahakis of James, McElroy and Diehl in Charlotte, said he disagrees with the notion that the case is one of first impression.
“There are a lot of issues in this decision, including those of custody and equitable distribution. There is a lot of meat on this bone,” Tsahakis said. “We think there is already precedent, including non-guideline cases, standing for the proposition that before a court can compel a parent to fund private school for their children, he or she must show a specialized or particular need warranting private school education. They must also show that the public school where a child is zoned cannot meet that particularized or specialized need.”
Tsahakis said his client is still evaluating Geer’s opinion and has not made a decision about whether to seek N.C. Supreme Court review.
The 47-page opinion is Smith v. Smith (Lawyers Weekly No. 011-143-16). An opinion digest is available online at nclawyersweekly.com.
Follow Jeff Jeffrey on Twitter at @NCLWJeffrey.