Facts: Mother and Father had a child out of wedlock. Paternity was established, thereby requiring a determination of child support. The key issue was the determination of Father’s income, which was derived from several sources, including his minority interest in a trucking company and, according to Mother, his prolific gambling. At the hearing, Mother presented expert testimony from a certified public accountant who had examined many (but not all) of Father’s financial records. The CPA testified that, based on his review of Father’s incomplete financial records, Father’s gross annual income in 1999 was approximately $729,000. Father claimed his income was approximately $120,000. The key question was how to treat Father’s gambling proceeds. In 1999, Father had $1.25 million in gambling winnings, which Father claimed should be offset by $1.25 million in gambling losses, resulting in a net income of $0 from gambling. The trial court commented that “child support guidelines don’t say you deduct losses from winnings in gambling.” Accordingly, the trial court ruled that Father’s “attempt to use gambling losses to off-set income is not well-taken, and shall not be considered by the court.” Father appealed.
On Appeal: The Court of Appeals reversed the trial court.
Father argued the trial court erred in declining to offset his gambling winnings by his gambling losses in its calculation of his income for child support purposes.
The only previous case in Tennessee addressing this question is Thurman v. Thurman, an unreported case from 1995 where the Court of Appeals stated: “[Mother] insists that the court erred in excluding from the income of [Father] . . . gambling winnings. . . . We are of the opinion that this was not error. The gambling winnings were offset by corresponding losses. Therefore, there was no real income from gambling.”
Because of the lack of case law in Tennessee on this point, other than Thurman, the Court looked elsewhere for persuasive authority.
For purposes of federal income tax, income from gambling is included in the taxpayer’s income for tax purposes; however, to determine if the taxpayer derived income from his gambling activities, gambling losses may be deducted only to offset the gambling gains, and only to the extent of that year’s gambling gains. See I.R.C. § 165(d) (2000). . . .
[The Arkansas Supreme Court] observed that, in setting an obligor parent’s child support, the “ultimate objective” is to determine “the true disposable income of the child-support payor.” It then held:
For purposes of the instant case, the true expendable or disposable income can only be arrived at by crediting gambling losses only to the extent of winnings. We reverse the chancery court on this point and remand for further proceedings to prove gambling losses for the calendar years in question.
We are persuaded that the approach adopted by the Arkansas Supreme Court is a wise approach. Child support decisions are not intended to punish parents for behavior such as gambling; rather, the aim is to determine the true disposable income of the child-support payor. Therefore, we hold that, in determining Father’s gross income for child support purposes, his gambling losses may be applied to offset his gambling winnings, up to the amount of the winnings for the year in question, and the [trial court] erred in declining to consider proof of his gambling losses.
We note that, on remand, if Father’s provable gambling losses do not offset his gambling winnings for the pertinent time period, the [trial court] should also look to whether this is a dependable source of continued income on which to base a child support award. This Court has held that non-wage monies such as lottery winnings or inherited funds can be included as part of the obligor parent’s income for child support purposes, but cautioned:
[C]ourts setting child support ordinarily look not so much to the source of the income — whether inheritance, wages, or lottery winnings — as they look to the dependability of its continued receipt. . . .
Courts should be wary of increasing child support based on possible income that is merely speculative. . . . Instead, they should focus on “income regularly received by the obligor.”
Information provided by K.O. Herston, Tennessee Divorce Lawyer.