No. 89-550 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1990 

IN RE THE MARRIAGE OF 

GAYLE ANN STEWART, 

Petitioner and Respondent, 

v. 

MICHAEL F. STEWART, 

Respondent and Appellant. 8. t; 

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APPEAL FROM: District Court of the First Judicial District, 

In and for the County of Lewis and Clark, 

The Honorable Jeffrey Sherlock, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

J. C. Weingartner, Helena, Montana 

For Respondent: 

Bard Middleton, Billings, Montana 

Filed: 

Submitted on Briefs: April 19, 1990 

Decided: May 30, 1990 * 

Clerk 
Justice William E. Hunt, Sr. delivered the Opinion of the Court. 

The husband, Michael F. Stewart, appeals the judgment of the 

District Court of the First Judicial District, Lewis and Clark 

County, in which the ~istrict Court chose to disregard the 

husband's previous business losses and depreciation losses in its 

modification of the husband's child support obligations. We 

affirm. 

The issues on appeal are: 

1) Whether the District Court erred in failing to consider 

the husband's 1985 and 1986 business losses in its calculation of 

the husband's 1987 disposable income. 

2) Whether the District Court erred in failing to consider 

the husband's 1987 and 1988 depreciation losses in its calculation 

of the husband's disposable income. 

The husband is a self-employed log home builder who operates 

a sole proprietorship called Mike's Mountain Homes in Lincoln, 

Montana. The wife, Gayle Ann Stewart, is an attorney. The parties 

were married in 1972. Two children were born of the marriage: 

Mandy and Melissa. At the time of the District Court's findings, 

Mandy was 11 years old and Melissa was 9 years old. The wife filed 

for legal separation on February 18, 1981 and the parties signed 

a separation, custody, support and property settlement agreement 

on June 12, 1981. The agreement set the husband's child support 

obligations at $50.00 per child per month for a total of $100.00 

per month. This agreement was incorporated into a decree of legal 

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separation on July 22, 1981, which was converted into a decree of 

dissolution on May 20, 1982. 

On March 16, 1989, the wife filed a motion for modification 

of child support. The wife's motion alleged that the husband's 

disposable income had increased substantially since the decree of 

dissolution and, therefore, the current rate of child support 

should also be equitablly raised. 

On August 9, 1989, a hearing was held on the wife's motion. 

On September 15, 1989, the court issued its findings of fact and 

conclusions of law and order. The husband was ordered to pay 

$1,200 retroactive child support. Further, these findings, 

conclusions, and order declared that there had been a substantial 

increase in the husband's disposable income since the original 

decree of dissolution was entered. As a result, it was equitable 

to raise the husband's monthly child support payments to $582.00, 

commencing one year after the date of entry of the order. In the 

interim, so that the husband could adjust his finances to meet this 

increase, child support was set at $300.00 per month. The court, 

in its determination of the husband's disposable income, 

disregarded certain business and depreciation losses shown in the 

husband's federal income tax returns. The husband appeals the 

court's decision to disregard these losses. 

A court may modify an existing decree of child support "upon 

a showing of changed circumstances so substantial and continuing 

as to make the terms unconscionable. Section 40-4-208 (2) (a) (i) , 

MCA. In this case, the District Court made such a determination 
based upon a comparison of the husband's previous child support 

obligation and his disposable income for the years 1987 and 1988 

as suggested by the Uniform District Court Rule on Child Support 

Guidelines. See Uniform District Court Rule on Child Support 

Guidelines, 227 Mont. 1, 44 St.Rep. 828 (1987), hereinafter 

referred to as Guidelines. The District Court's findings resulting 

from this comparison will not be disturbed unless there is a 

showing that the District Court clearly abused its discretion. See 

In Re the Marriage of Gray, 788 P.2d 909, 47 St.Rep. 552 (Mont. 

1990), and cases cited therein. 

The first issue on appeal is whether the District Court erred 

in failing to consider the husband's 1985 and 1986 business losses 

in its calculation of the husband's 1987 disposable income. 

The findings of the District Court state that, based upon the 

husband's 1987 tax returns, ''Mike [the husband] netted some $40,612 

on gross business sales of $143,419.'' In its conclusions, the 

court refused to deduct from this net amount some $30,000 of 

business losses that accrued in 1985 and 1986. It is with this 

conclusion that the husband takes issue. 

Under the Guidelines, the primary focus for determining 

available income for paying child support is based upon a parent's 

disposable income rather than their taxable income. I1[I]t is the 

disposable income of the parent, and not their income tax returns 

alone, which must be considered by the Court.'' Gray, 788 P.2d at 

912, 47 St.Rep at 555, citing In Re the Marriage of Mitchell, 229 

Mont. 242, 746 P.2d 598 (1987). As a result, only a minimum 
number of exclusions are allowed from a parent's gross income. 

Guidelines, 227 Mont. at 7, 44 St.Rep. at 834. Included within 

this list of exclusions are legitimate business expenses. 

Guidelines, 227 Mont. at 7, 44 St.Rep. at 834. However, legitimate 

business expenses do not include those losses that exist primarily 

on paper and have little effect upon a parent's disposable income. 

See generally Schelmeske v. Veit, 390 N.W. 2d 309 (Minn. App. 1986) ; 

Vitalis v. vitalis, 363 N.W.2d 57 (Minn. Ct. App. 1985). 

In this case, it is evident that the husband's claimed 1985 

and 1986 business losses were merely paper losses. The record 

indicates that the husband's gross income has greatly increased 

from the time of dissolution. The husband's business generated 

gross sales of $143,419.00 in 1987 and $118,729.00 in 1988. His 

net profit for each of these years, before deductions, was 

$40,612.00 and $6,425.00 respectively. Additionally, the husband 

testified that his monthly expenses were about $2,900.00 per month 

but that he and his wife only earned approximately $845.00 per 

month which resulted in a difference of over $2,000.00 per month. 

Notwithstanding this shortfall, the husband testified that all debt 

payments were current. Such a situation indicates that the husband 

has more disposable income than appears from his tax returns. 

There is no indication that the District Court abused its 

discretion in not allowing the paper loss from previous years to 

be considered in the calculation of the husband's 1987 disposable 

income. 
The second issue on appeal is whether the ~istrict Court erred 

in failing to consider the husband's 1987 and 1988 depreciation 

losses in its calculation of the husband's disposable income. 

 his Court has previously decided that accelerated 

depreciation deductions are not an acceptable exclusion in the 

calculation of a parent's disposable income. Mitchell, 229 Mont. 

at 247, 746 P.2d at 602. Our decision in Mitchell was based upon 

the Colorado child support statute upon which our own Guidelines 

are based. Mitchell, 229 Mont. at 247, 746 P.2d at 602. The 

Colorado statute specifically states that 'ordinary and necessary 

expenses1 does not include amounts allowable by the internal 

revenue service for the accelerated component of depreciation 

expenses. . . Mitchell, 229 Mont. at 247, 746 P. 2d at 602, citing 

Section 14-10-115 (7) (a) (11) (B) , Colo. Rev. Stat. 

In addition to the support found in the Colorado statute, an 

analysis of the purpose of depreciation further supports the 

premise that depreciation is not an acceptable exclusion in 

calculating disposable income. Two types of depreciation are 

generally allowed by the Internal Revenue Service in the 

calculation of taxable income. These two types are straight line 

depreciation and accelerated depreciation. See Title 26, Section 

167 (b) , (1) (2) USCA. Both types of depreciation are permitted as 

a tax deduction to allow individuals to reqain their business 

expenditures. "There shall be allowed as a depreciation deduction 

a reasonable allowance for the exhaustion, wear and tear. . . (1) 
of property used in trade or business, or, (2) of property held for 

the production of income." Title 26, Section 167(a), USCA. 

Since the purpose of depreciation is to assist a person in 

resainins their expenditures, it does not follow that depreciation 

is a business expense for the calculation of disposable income 

under the Guidelines. Therefore, we uphold our previous decision 

in Mitchell and, in this case, conclude that the District Court did 

not abuse its discretion in disregarding the 1987 and 1988 

depreciation deductions claimed by the husband when calculating the 

husband's disposable income. 

Affirmed. 

Justice 

We Concur: A 

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Chief Justice// 

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Justices