### IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE Novem ber 5, 2002

Session

LISA H. WADE v. WILLIAM HOWELL W

ADE, II
Direct Appeal from the Chancery Court for Montgom ery County No. 97-10-0166 Carol Catalano, Chancellor

No. M2002-00555-COA-R3-CV - Filed December 31, 2002

This appeal arises from a chang e in child support, increasing the Appellant’s mont hl y support obligation and awarding Appellee one half of a ll un-reimbursed me dical an d dental e xpenses wh

ile Appellant is in the military. Concerning c hild support, we affirm i n part, with modification, and

revers e and re

mand in pa

rt. Conce rning un -reimbur sed medic al and de ntal expen ses, we a

ffirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed in part

as Modified; Reversed in part; and Remanded

D AV ID R. F ARMER , J., de liver ed th e opi nion o f the

cour t, in w hich W. F RANK C RAWFORD , P.J., W.S., and A LAN E. H IGHERS , J., joined.

Gre gor y D. S mi th , C lar ksv il le, Ten nes see , fo r th e ap pel lan t, Wi ll iam How ell Wa de, II.
Debra A. Wall, Clarksville, Tennessee, for the appellee , Lisa H. Wade.

OPINION

Parties were married on December 18, 1982. Two children were born of the marriage. The parties were granted a divorce on the grounds of irrec oncilable differences on Februa ry 24, 1998. The Marital Dissolution Agreement (MDA) provided for joint custody, with Mother designated as primary

custodial parent. Father’s child support was set at $1,267.03, an a mount “equal to or exceeding” the Tennessee Guideline amount. The MDA provided that “when Husband’s income changes Wife shall rece ive a changed amount of child support, with the provision that the total payments of child support shall equal to thirty two per cent (32%) of Husband’s income.”
The MDA acknowledged that Fa ther was active duty

military. The MDA provided tha t Father was to keep the children enr olled for military health ca re benefits and provided for the equal division of uninsured medical benefits once Father le ft the military. The MDA wa s silent as to the treatment of uninsured medical expenses while Father r emained in the military.1 The trial cou rt spec ifically found that the H usba nd ha d und erpa id his child support obligat ion si nce 1998 based on the “H usband ’s testimony” that his income was a s follows:

1998 Gross Inc ome $5,100. 00 Ta xes W ithheld $4,358. 00 Net I ncome $4,358. 00 Child Sup por t Paid $1,267. 00 Child Support

Owed $1,390. 00

1999 Gross Inc ome $5,534. 26 Net I ncome $4,792. 00 Child Sup por t Paid $1,319. 80 Child Support

Owed $1,534. 00 Differe nce p er mo nth $214.20

2000 Gross Inc ome $[no amount shown] Net I ncome $4,976. 00 Child Sup por t Paid $1,267.00 for 6 months $1,330.00 for 6 months Child Support

Owed $1,590. 00 Differe nce p er mo nth $323.00 for 6 months $260.00 for 6 months

2001 (Gross annua l ea rni ng wi ll be $72,659. 04) Net mont

hly inc ome wil l be $5,313. 51 Child Sup por t Paid $1,364. 00 Child Support

Owed $1,703. 00 Differe nce p er mo nth $339.00 (con tinued ...)
-2- Mother sought arrearag e in child support in early De cember, 2000. She also sought payment of one- half the cost of the children’s extracurricular a ctivities and one-half the cost of the children’s uninsured medical expenses. Father answe red, admitting he had agreed to pay one half of the cost of extra-curricular activities, but deny ing he had agreed to pa

y one-half

of unreimburs ed medic al and de ntal expen ses while

in the milita

ry . Fathe r counte rclaime d for a c

redit for overpay

ment of child support, and also sought a downward deviation in his obligation based on time spent with the children.
At trial, Father’s military

leave and earnings statement (L ES) was introduced which showed that for 2001 he grossed $6,054.92 per month, paid fe deral taxes of $474.22 per month, social security withholding s of $267.19 per month, and medicare withholdings of $62.49 per month. Notwithstanding the admission of the LES into evidence, the trial cour t apparently ba sed its award of $1,703.00 per month child support for 2001 on the Father’s testimony that his net monthly income for that y ear was $5,313.51. 11 (.. .cont inu ed) The record does not reflect how the sup port num bers were d etermined. O ur calculations, based on 32% of the Appellant’s net i ncome, result i n the foll owing obli gati on: 1998, $1,394. 56; 1999, $1,533. 44; 2000, $1,592. 32; 2001, $1,700. 32. We find it

int erest ing t

hat whi le Appell ee contends t hat Appell ant’ s oblig ation, per the M DA , is to be e xactly 32% of his net

income, n one of th ese numbers meet th at cri teri a.
-3- The MDA s pecific ally

providesthat unins ured med ical and dental c osts will be

split between the parties upon Father leaving the military. The MDA make s no reference to the treatme nt of such costs bef ore the o ccurre

nce of F ather le aving th

e servic e. The c ourt found that, despite this omission, Father was responsible for half of uninsured medical a nd dental expenses while he was in the military.
Appellan t submits two

(2) issue s for review, whi ch we re state as f ollows:

1. Did the Trial Court err in its calculation of Appellant’s child support obligat ion by basing s uch calc

ulation on

Appellan t’s actua l net inco me, in order to account for the tax free nature of a portion of Appellant’s income, as oppose d to apply

ing the c alculati on contained in the Tenness ee Child Support Gu

idelines?

2. Did the trial court err in ordering that uninsured medic al and dental

ex pe ns es be sp li t p ri or to th e o cc ur re nc e o f M r. Wa de le av in g t he mi li ta ry?

Standard of Review

Our review of a t

rial cou rt’s find ings of f act is de novo upon the record of the trial court. Such review is accompanied by a presumption of correctness, unless the evidence pr eponderates agains t such fin dings. T enn. R. Ap p. P. 13(d) ; Brooks v. Brooks , 992 S.W.2d 403,404 (Tenn. 1999). Questions of law are reviewed de novo , with no pr esumption

of corr ectness

. Nelson v. Wal-Mart Stores, Inc. , 8 S.W.3d 625, 628 (Tenn. 1999).
Modifica tion of Child Sup

port
Parents have an obligation to support their minor children. Tenn. Code Ann. § 34-1- 102. It is well established that this duty does not terminate with the divorce of the parents. Brooks v. Brooks , 61 S.W.2d 65 4 (Tenn. 1933). Th e extent of

this duty of suppor

t is the duty

to support

in a manner commensurate with the means and station in the life of the pa rents. State ex re l. Grant v. Progra is , 979 S .W.2 d 594, 601 (T enn. C t. App . 1997 ) (cit ing Brooks , 61 S.W.2d at 654). Further,
[u]pon petition f

or mo dificat ion of chi ld support obligat ions, tria l courts mu st increa se or decr

ease sup port oblig ations upo n a sh owing of a significant variance betweenthe amount of support provided in the child support guidelines and the amount of support

currently or

dered unless such variance was the result of a previous2 Th e trial co urt’s final ord er includ ed the followin g finding :
That by agree ment th e husband agr eed to pay 32% of his net inc ome as child support . . . which the parti es reco gnized . . . [as mee ting] or e xcee d[ing ] the T enne ssee C hild Su ppo rt Gu ideline s. Said divorce decr ee pr ovid ed tha t as Hu sban d’s in come increa sed so would his child su ppo rt oblig ation to 32% of his net

income. These matters are gove rned by pu re cont ract law . (Em pha sis add ed.)
Notwithstanding the provi sion cont ained i n the Fi nal Decree of Divorce th at “Husband shal l pay child support based upon Tennessee Depart ment of Human Servi ces Gui deli nes.

. . .” t he propos it ion that

thi s matt er is one governed by co ntract law is incorr ect, for “[w ]hen the husba nd an d wife c ontra ct with resp ect to the leg al du ty of child su ppo rt, upon approval of that contract, the agreement of the parties becomes merg ed in to the decre e and loses its contract ual nature .” Penland v. Penl and , 521 S.W.2d 222, 224 (Tenn. 1975). Moreover, “[ t]he f act that an agreement

by the parti es
was incorporated in the decree, does not divest the Court of it s statutory powers to make subsequent orders where circums tances warrant .” State ex rel . Wrzes niews ki v. Mill

er , 77 S.W .3d 195, 197 (Tenn. Ct. App. 2001 ) (citi ng Do ty v. Do ty , 260 S.W .2d 411, 413 (Tenn. Ct. App. 1952 )).

3 “[ Te nn. Code. Ann. § 36-5-101] pro vides that t he guidelines promulgated herein shall be applied as a rebu ttable presu mptio n in child supp ort ca ses. . . .” T enn. C omp . R. & Reg s. ch.12 40-2 -4-.01 (3) (2 002 ) (emp hasis added).
-4- court-ordered

deviation and the circumstances causing the de viation have not changed.

Willis v. Wil

lis , 62 S.W.3d 735, 738 (Tenn. Ct. App. 2001); Tenn. Code Ann. § 36-5-101(a)(1) (Supp. 2002).
A significant variance is defined as “ at least 15% if the current support is one hundred dollars ($100.00) or greater per month and at least fifteen dollars ($ 15.00) if the current support is less than $ 100.00 per month.” Id. ; Tenn. Comp. R. & Regs. ch.1240-2-4-.02(3) (2002).
In the present case , Appellant takes issue with the trial court’s use of his “true” net income to calculate his support obligation. 2 The trial court, in justifying this approach, stated that Appellant “failed to take into consideration . . . that as a member of the . . . military he does not have as much money

withheld from his pay as those in the pr ivate sector.” We do not believe that the trial court erred in considering the non-ta xable nature of portions of Appellant’s military compensa tion in ca lculating Appellan t’s child s upport obl

igation . We do, how ever, a gree with Appellant that merely using the net income of the Appellant, without apply ing the Guideline calculations, was in error and resulted in an incorr ect calculation of Appellant’s child support obligation. 3
As a member of the military Appellant receives compensation for hi services in the f orm of various pay a

nd allowances. It is this characterization of Appellant’s compensation, as either pay or an a

llowance, that determines Appellant’s tax liability for that portion of his income. See 26 U.S.C. § 1 34 (a)- (b)(1) (2002); 2 6 U.S.C. § 31 21 (I )(2). I n addition

to his base

pay , which is4 Form erly referred to as B asic Allowanc e for Qua rters (BA Q), and referred to as such in the Guidelines.

5 Basic All owance for Su bsistence.
-5- subject to both federal income tax and FICA, Appellant receives BAH, 4 which is an allowance for housing, 37 U .S.C. § 403 ( 2002), a nd BAS, 5 an allowance for food. 37 U.S.C. § 402. Neither of these allowances are subject to federal income tax, or FICA. 26 U.S.C. § 134 (a)- (b)(1) (2002); 2 6 U.S.C. § 31 21(I )(2). Ap pellant a lso rece ives Flig ht Pay , which is s ubject to federal income tax, but not FICA. Id. Military members a

re well a ware tha t these no n-taxable pay and all owa nce s “c an c ons titu

te l arg e porti ons of a

sol die r’s

. . . tota

l inc ome .” M ajor Ma

rk J. Connor, Resolving Child Support Issues Beyond the Scope of AR 608-99 , 132 Mil. L. Rev. 67, 78 (1991). In the present c ase, they r epresent 28.8% of Appellant’s monthly gross income. How to treat this portion of Appellant’s compensation, for the purpose of determining Appellant’s child support obligation under the Tennessee Child Support Guidelines, is the real issue presented in this case, and appears to be one of first impression.
The Tennessee Child Support Guidelines have the force of la w, Jahn v. Jahn , 932 S.W.2d 939, 9 43 (Tenn . Ct. App. 1 996), an d when ruling on ma tters of c hild suppor

t, the cou rt is instructed to follow these guidelines as promulgated by the Tennessee Department of Human Service s. Tenn. Co de Ann. § 3 6-5-101( e)(2) ( Supp. 1999) ; Herrera v . Herrera , 944 S.W.2d 379, 386 (Tenn. Ct. App. 1996). Appellant argues that, under the G uidelines, a service member with a gross income of $6,054.92, a sizable portion of which is nontaxable, should have the same chi ld support

obligat ion as an individual

with the sa

me gros s income, all of whi ch is taxable. We do not agree.

The Guide

lines def ine gro ss income

as follow s:

Gross income shall include all income from an y s ource (before taxes and other deductions), whether

earned or unear ned, and includesbut is not li mited to, the fol l owing: wages , salarie s, commissi ons, bonus es, over time pay ments, dividends,

severance pay , pensions , intere st, trust income, an nuities, c apital g ains, benefits received from the Soc ial Secu rity Administra

tion, i.e. , Title I

I Soc ial Secur

ity benefits, workers compensat ion benefits whether temporary or permanent, judgment s recovered for per sonal i njuries, unemploy ment insur

ance be nefits, g ifts, prize s, lot tery winnings, alimony or maintena nce, and income from self-employ ment

. Inc ome from

self-employment

includes income from business operations and rental propert ies, etc ., less reasonable expenses necessary to produce such income. Deprec iation, ho me offices, excessive promotional, excessive travel, excessive car expenses, or excess ive pers onal expen ses, etc ., should notbe consid

ered re asonable expenses. “In kind” remunera tion must also be imputed as income, i.e., f ringe6 BAQ (Basic Allowance for Quarters) is now referred to as BAH (Basic Allowance for Housing).

-6- benefits such as a

company car, the value of on-base lo d ging and meals in lieu of BAQ 6 and BAS for a military member, etc.
Tenn. Comp. R. & Regs. ch. 1240-2-4-.03(3)(a)(2002) (emphasis added).

It is clear from the Guidelines tha t Appellant’s nontaxable pay and a llowances are to be included in figur ing gr oss income . Howeve

r, if one consider s only

the amoun

t receiv ed for these nontaxable

allowanc es as gr

oss income , and then

applies th

e Guideline calculations u sed to arrive at net income, a monetary award results that does not fairly represent the obligor’s true net income. In the case of

a military member, a

pplying the Guide

line calculations based on actual gross income results in a figure that re flects their net income minus an allowance for taxes which they have not ha

d to pay. Such a re sult runs afoul of the stated “Purposes and Premises”of the Child Support Guidelines; specifically, “[t]o ensure that when par ents live separately , the economic impact on

the child (ren) isminimized a nd to the e

xtent that e

ither pa rent enj oysa higher standard of living, the child(re n) share(s) in that higher standard.”Tenn. Comp. R. & Regs. ch. 1240-2 -4-.02( 2)(e). This anoma ly r esults fr om the fa ct that wh ile these nontaxable entitlements are clearly

gross income, they

are also net income because no taxes are take n from them. For a service member, the pre- tax amount of such an allowance is equal to the post-tax amount received, as opposed to the majority of workers who pay

taxes on all of their income. Unless the nontaxable nature of such pay and allowances is accounted for in the Guideline calculati ons, t

he in crea sed ta

ke ho me pa

y t hat th e ser vice membe r enj oy s, as a res ult of

the taxfree nature of a portion of their income, will not inure to the be nefit of their children.
Fortunately, the

Guidelines provide a means to account for such non-taxable pay and allowances, whereby

“the soldier’s income [can] be adjusted upward to account for the inc reased value of nontaxable income.” Major Mark J. Connor, supra , at 78. The Guide lines spe cifically mandate that “‘[i]n kind’ remuneration must also be imputed as income, i.e., fringe benefits such as . . . the value of on-base lodging a nd meals in lieu of [BAH] and BAS for a military member, etc.” Tenn. Comp. R. & Regs. ch. 1240-2-4-.03(3) (a) (2002) (emphasis added). We view the nontaxable

nature o f certa

in military

pay and allow ances to

be a “fr inge be nefit” f alling s quarely within the purview of this section of the Guidelines. Accordingly , where a military member receives pay

or allowances which are not subject to taxation, an amount must be imputed on top of the amount actually r

eceived in calculating Gross I ncome for purposes of calculating the service member’ s child sup

port oblig ation unde

r the Guid

elines. T he amount

to be imputed to the nontaxable portion of the service member’s pay should be the amount necessary to raise the gross income to a level such that, when the Guideline deductions are taken to figure net income, the resulting ne

t pay is equal to

the original amou

nt of the p ay

or allowa

nce. We st

ress tha t this is not a deviation from the Guidelines and, as such, the trial court need not “make [] a written or specific finding on the record that the applica tion of the guidelines would be unjust or inapprop riate in a particular cas e[]” wher

e they are impu ting inc ome to a se

rvice me mber in accordance with this opinion. Tenn. Comp. R. & Regs. ch. 1240-2-4- .01(2).7 The se calcul ations are based on t he Guideli ne fi gures appl icable for th e year 2 001

. See W. W AL TON G ARRETT , D I VORCE , A LI MONY AND C HI LD C USTO DY , A PP II (2002).

8 This is done only to aid in cal culation, and shoul d not be construed as prohibiting i nterpolation.

-7- Appellan t’s Febr uary , 2001 L

ES lists his income as f

ollows:
Base Pay $4,309.50 (subject to both Federal I ncome Tax and FICA) BAS $160.42 (NOT subject to Federal I ncome Tax or FICA) BAH $745.00 (NOT subject to Federal I ncome Tax or FICA) Fly Pay $840.00 (subject to Federal I ncome Tax but NOT FICA)
A correct calculation of Appellant’s child support obliga tion for the yea

r 2001 7 requires applying the

aforementioned imputation of gross income to the Appellant’s nontaxable pay and entitlements for that period. This gives Appellant a pre-imputation gr oss income of $6,054.92, and post- imputation

gross income of a

pproximate

ly $ 6,650.00, calcula

ted as fo llows: Base Pay + (Fly Pay

x 1.0765) (to account for nonpay ment of FICA) = $5,213.76 imputed g ross. Taking this $5,213.76 gross, and rounding down 8 to $5,200, results in a net income of $3,746.41 per the child support guidelines chart. Adding to this net amount the $160.42 B AS and $745.00 BAH received by

Appellant results in a net income of $4,651.83, which rounds up to a net income of $4,652.00. Under the Guidelines, this net income corresponds to a g ross income of approxima

tely $6,650.00 . Thus, Ap

pellant’ s imputed g

ross inco me, for c

hild suppor

t purpose s, is $6,650.00 per month. The Guidelines support obligation applicable to this gross income, for two children, is $1,490.00 per month. Applying the Guideline calculations without imputing gross income ( i.e., on $6,054.92) would result in Appellant’s child support obligation being $1,366.00 per month. Thus, properly a ccounting for the nontaxable nature of Appellant’s pa y and allow ances r

esults in a n increa se in his ob ligation of $124.0 0 per mont

h. Such a r

esult comports with the “Purposes and Premises” of the Guidelines.
“In cases involving c

hild support, upon application of either party , the court shall decree an increase or decrea se of such allowance when there is found to be a significant variance, as defined in the child support guidelines . . . between the g uidelines and the amount of support currently or

dered . . . .” Tenn. Code Ann. § 36-5-101(a)( 1) (Supp. 2002). “[A] significant variance shall be at least 15% if the curre nt support is one hundred dollars ($100.00) or greater per month . . . .” Tenn. Comp. R. & Regs. ch. 1240-2-4-.02(3) ( 2002). Appellant was ordered to pay $1,267.03 per month in child support prior to the a ction seeking modification. The obligat ion impose d under th

e guide lines, pr operly consider ing his imp

uted gr oss income , is $1,490.00 per month. This represents an increase of $222.97 pe r month, or a 17.6% increase. This meets the statutory definition of significant change thereby warranting an increase d award of child support to Appellee for the year 2001. This increase is to be effective from the time the petition for modification was filed. Tenn. Code Ann. § 36-5-101(a)(5) ( Supp. 2002).9 The trial cou rt reach ed this c onc lusion a fter stating tha t “the Co urt is unab le to sp ecifically ca lculate the child

supp ort ob ligation fo r the yea r 20 02 . . . .”
-8- Based on Appellant’s testimony that “he will receive a considerable r aise in . . . 2002 of approximately $1000.00 per month . . . .” the trial cour t set the amount of support for 2002 at $2,020.00 per month. 9 The awa rd for the y ear 2002 , howeve r, was no t determined acc ording t o the formula set out above. Accordingly , the award for 2002 is reversed and r emanded. On remand, the trial court will have to determine if, properly applying the

guidelines as set out above (to include imputed income) a significant increase ( i.e. , 15%) exists between the Appellant’s calcula ted suppor

t obliga tion, based on his 200 2 income, and the $1 ,490.00 ob ligation curren tly imposed upon him. If such a significa nt increase exists, then Appellant’s obligation for 2002 shall be adjusted accordingly

. Uncovered Medical Expenses
Appellant alleges that the chancellor e rred by or dering that uninsured medical and dental expenses b e split pri or to the o ccurre nce of Mr . Wade lea

ving the military . This con

tention is without merit.
A marital dissolution agreement is a contract. Johnson v. Johnson , 37 S.W.3d 892, 896 (Tenn. 2 001). How ever, a s previou sly discusse d, “[w]hen t

he husba nd and wif

e contra ct with respect to the legal d

uty of chil

d support , upon approval of that contract, the agr eement of the parties becomes merged into the decr ee and loses its contractual nature.” Penland v. Penland
, 521 S.W.2d 222, 224 (Tenn. 1975) (emphasis added). “[T]he reason for stripping the ag reement of the pa rties of its contra

ctual na ture is the continuin g statut

ory power of the Court t

o modify its terms when changed circumstanc es justify.” Id. “If the child support provision of the contra ct did not merge into the decree and lose its contrac tual nature, any

subsequent modification of child support payments by the trial court would be violative of the constitutional prohibition against the impairment of contractual obliga tions.” Blackburn v

. Blackburn , 526 S.W.2d 463, 465 (Tenn. 1975). The Tennessee Code provides that “[t]he necessity to provide for the child’s health care needs shall also be a basis for modifica tion of the amount of the order, regardle ss of whether a modification in the amount of child support is necessary .” Tenn. Code Ann. § 36-5- 101(a)( 1) (Supp. 2002). Th e Code fu rther pr ovides tha

t “[t]he cou

rt . . . may

order e ither pa rty to pay all, or ea

ch party to pay

a pro rata share of, the health ca re costs not paid by insuranc e proceeds.” Id. § 36-5-101(f)(1). The decision to award suc h expenses is discretionary. See Ray v. Ray , No. 02A01-9404-CV-00078, 1995 Tenn. App. LEX IS 395 at *15 (Tenn. Ct. App. June 13, 1995) ( no perm. app. filed ). In the present ca se, the trial court concluded that the MDA was silent as to how such expenses were to be treated during A ppellant’s military car

eer. Accordingly , the trial court properly exercised its discretion in employing its “c ontinuing statutory power”to modify the apportionment of such e xpenses between the parties.-9- Conclusion

For the r easons se t forth ab ove, we a

ffirm the trial cou rts awar d of incr eased child support, as modified, for the y ear 2001. We reverse the order of the child support award for the ye ar 2002, and rema

nd for ca lculation s consiste

nt with this o

pinion to de

termine i f an incr

ease is warranted from the modified 2001 amount. Further, we affirm the trial courts finding that Appellan t is respon sible for

one-half of un-r

eimburse d medica

l and dent al expense s while still in the militar

y. We tax the cos ts of this a

ppeal eq ually to Appellee, Li sa H. Wade , and Appe llant, William Howell Wade, II, a nd his surety for which e

xecution, if necessary , may issue.

___________________________________ DAVID R. FARMER, JUDGE