Facts: Mother and Father divorced in 2019 and are the parents of three Children. Their parenting plan gave Mother 225 residential days and Father 140 residential days. Father’s gross monthly income was set at $25,000, Mother’s at $2,441, and Father’s child-support obligation at $2,505 per month.

Mother petitioned to modify child support in 2022, alleging that Father’s income had increased enough to create a significant variance. Father was a founder and 50% owner of a marketing company serving funeral homes. His company distributions exceeded his taxable income in 2020, 2021, and 2022.

The company received Paycheck Protection Program (”PPP”) loans that were forgiven and treated as tax-free. Father’s share of the forgiven amounts was $121,617 in 2020 and $103,643 in 2021. The company also sold customer-relationship-management software for $400,000 in 2020, making Father’s share of the proceeds $200,000.

The trial court averaged Father’s income over 2020 through 2022 but excluded both the PPP loan forgiveness and the software-sale proceeds as aberrational, one-time receipts that could not be relied on as future income.

After including certain fringe benefits, the trial court set Father’s prospective monthly income at $40,806 and prospective child support at $3,509. The trial court also imputed $4,933.33 in monthly income to Mother, excluded her claimed summer childcare expenses, denied an upward deviation, and declined to award either party attorney’s fees.

On Appeal: The Court of Appeals vacated Father’s current and retroactive child-support obligations, reversed the denial of Mother’s attorney’s fees, affirmed the remaining rulings, and remanded for recalculation.

Tennessee’s Child Support Guidelines use an Income Shares Model and require gross income to include all income from any source, earned or unearned, before taxes and most other deductions. The nonexclusive examples include self-employment income and net capital gains, and self-employment income includes income from business operations and sales of goods or services, less ordinary and reasonable expenses necessary to produce the income. A capital gain from a single, isolated transaction remains income because the Guidelines include forms of income that are commonly nonrecurring.

When income varies, it must be averaged over a reasonable period suited to the case. The discretion to average variable income or prorate one-time income does not authorize a court to disregard an income source.

The Court of Appeals held that the trial court could account for the isolated nature of the PPP forgiveness and software sale through averaging or proration but could not exclude either source from Father’s gross income:

This reasoning is not aligned with our case law. In Moore v. Moore, the Tennessee Supreme Court held that “income from a single or ‘one-time’ capital gain” should have been considered when calculating a parent’s income for child support purposes, even when the income arose from “an isolated transaction.” …

Although the Guidelines specifically include capital gains and inheritance as sources of income, the Guidelines explicitly state that the list is non-exclusive, to-wit: courts “shall include all income from any source . . . whether earned or unearned[.]”

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As noted above, “sales of goods or services” are included in self-employment income under the Guidelines. This Court previously held that transactions involving software programs are transactions involving “goods.” Accordingly, the Guidelines specifically provide that the income Father received from the sale of the software should have been included in his income calculation. As to the PPP loan forgiveness, although there is no explicit provision designating same as income, we conclude that it should have been considered as such. As noted above, the Guidelines explicitly provide that courts “shall include all income from any source . . . whether earned or unearned” in income calculations. The PPP loan forgiveness income was unearned income that Father received. It matters not that these forms of income arose from isolated transactions.

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“Thus, while the Guidelines afford the court discretion to average variable income or prorate one-time income amounts . . . , it does not permit the court to merely disregard a source of income.”

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Thus, over $400,000.00 in income ($200,000.00 from the software sale and $225,260.00 from the PPP loan forgiveness) was excluded from Father’s gross income. This was error.

The tax treatment of the receipts did not control their child-support treatment. The PPP forgiveness was unearned income received by Father, and the software proceeds were self-employment income from the sale of goods. Their nonrecurring character affected how the income could be spread over time, not whether it counted. The Court of Appeals therefore directed the trial court to include both sources when recalculating current and retroactive support.

The Court reversed and remanded the case to the trial court to recalculate Father’s child support obligation.

K.O.’s Comment: A one-time receipt cannot be erased merely by calling it an aberration. The Guidelines require courts to include even an isolated capital gain, while this case applies that logic to forgiven PPP funds and proceeds from a software sale. The practical dispute should usually concern the reasonable averaging or proration period, not whether the money counts at all.

Source: Kilpatrick v. Kilpatrick (Tennessee Court of Appeals, Middle Section, September 25, 2026).

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