Facts: When the Mother and Father divorced, Father was ordered to pay $800 per month in child support for their two children.
Five years later, Father’s child support obligation was reviewed because the children’s day care expense had ended.
Father, a self-employed car salesman, argued his income had decreased. Father submitted his federal tax returns in support of this proposition.
Mother contended Father’s income should be measured by the amounts of money he deposited annually into his personal bank account, which was significantly greater than the income shown on his tax returns.
The trial court ruled Father’s current income should be set based on the average of the total deposits to his personal bank account for the three years preceding the hearing. The trial court questioned father’s testimony regarding his income because his bank deposits were sufficiently greater than his reported income or profit. Although Father’s income had declined even under the trial court’s formulation, Father’s child support obligation increased to $1017 per month.
On Appeal: The Court of Appeals affirmed the trial court.
The Tennessee Child Support Guidelines, when applied to an obligor whose income is derived from a salary and an occasional bonus or dividend, yield an easily quantitated child support amount. Once the obligor’s income has been determined and the Child Support Guidelines have been applied, the calculation of child support is made with certainty, predictability, and precision.
Although achieving such precision is possible when calculating the child support owed by a salaried obligor, the calculation is much more difficult and much less precise when the obligor is self-employed. The Child Support Guidelines therefore provide a different method for calculating a self-employed obligor’s income. In the self-employed obligor’s situation, the guidelines require the trial court to consider all income of the obligor parent, reduced only by reasonable expenses to produce the income. Income from self-employment includes income from business operations and rental properties, etc., less reasonable expenses necessary to produce such income.
These self-employment guidelines are fashioned in such a way as to authorize the trial court to address the potential of a self-employed obligor to manipulate income for the purpose of avoiding payment of child support. Courts have recognized that a self-employed obligor has the opportunity to manipulate his reported income by either failing to aggressively solicit business or by inflating his expenses, thereby minimizing his income.
After reviewing the record, the Court concluded:
[I]n the case at bar, Father sought to rely exclusively on his federal tax returns to demonstrate the proper amount of his income. Mother, on the other hand, sought to rely on Father’s bank records to establish his income because the amount of the deposits to his personal bank account greatly exceeded the amount of his reported income. Although Father generally testified that some deposits to his personal account were not income from his business, such as amounts he borrowed from his business line of credit and amounts he repaid to himself for loans he made to the business, he produced no documentary evidence to support his contentions. Father failed to provide specific dollar amounts regarding deposits that he claimed were not income. Therefore, based on the proof presented to the trial court, we conclude that the court did not err in utilizing the amount of Father’s deposits in determining his income for child support purposes.
The trial court’s ruling on this issue was affirmed.
K.O.’s Comment: This outcome is consistent with several other cases where the Court of Appeals affirmed the trial court’s use of deposits to an obligor’s bank account as the best evidence of the obligor’s actual income for child support purposes when the bank account deposits greatly exceeded the obligor’s reported income or profit from a business.
Information provided by K.O. Herston: Knoxville, Tennessee Divorce and Family Law Attorney.