### IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE October 9, 2000 Se ssion
BOWDOIN GRAYSON SMITH v. GINGER LE E MARENCHIN SMITH Appeal from the Chancery Court for Smith County No. 5800 Charles K. Smith, Chancellor

No. M2000-01094-COA-R3-CV - Filed May 2, 2001

This is the secondappeal regar ding the setting

of the amount of the

father’s child

support obligation for four children. In the earlier appeal, this court remanded for a determination of the f ather’s actual net income and his cor

responding chil

d support obligation. On remand, the trial court in early 2000 basedits award of prospective support on an average o f father’s i ncome in 19 92 through 1995 and establishedthe father’s back support based on that figure. We find t

hat the prospecti

ve award should be set on the most current

income figures, but that an average of the most recent y ears is appropriate. We also find that the amount of back child support should be computed using actual income for the intervening years. Because the record does not contain sufficient information regarding challenged deductions from gross income for the years now at issue, we remand

for an evidentiary hearing on the father’s income in theyearssince the divorce in 1996, and a redetermination of both prospective and back support. We affirm the denial of prejudgment interest. Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed in Part, Vacated in Part, and Remanded

P ATRICIA J. C OTTRELL , J., delivered the op inion of the court,

in which B EN H. C ANTRELL , P. J., M.S., and W ILLI

AM B. C AIN , J., joined. James L. Weatherly, Jr., Nashville, Tennessee, for the appellant, Ging er Lee Marenchin Smith. Randy Wakefield, Carthage, Tennessee, for the appe llee, Bowdoin Grayson Smith.
OPINION These parties were divorced in April of 1996. They are both doctors and shared a medical practice, although the mother spent less time at her medical practice afte

r the birth of the p

arties’ children. At the time of

the divorce, the trial court established the father’s child support obligation for the parties’ four minor children, who were then all under the age of six, at $3,154 per month to be paid directl

y to the mother and an additional $2,000 per month to be paid into trust for the1 There is no dis pute tha t 46% is th

e correct percentag

e to be applied under the child support guidelines for f our children.

2 This delay was not att ributabl e to lack of dili gence on the part of the par

ties.In addit

ion to t he time s pent on appeal in th

is cou rt, t he Supre me Court initi

ally g ranted per

mission to appeal bu

t late r determi ned that such permi ssion had bee n improvid ently granted, a nd affirmed the opinion of the Cour t of Appea ls.
-2- children. The mother appealed the amount of child supp ort, arguing t

hat the trial cour

t improperly appliedthe child support gui deline s and failed to base the award on the father’s total net income. Smith v. Smith , 984 S.W.2d 606 (Tenn. Ct. App. 1997).

T his court agreed with the mother and remanded the case to the trial court “for the Tr i a l Court’s determination as to the father’s actual net income, and corresponding child support award.” Id . at 609. The trial court had not determined the father’s actual net income, concluding that it was
more than $6,250 per month. The trial court had ap pare ntly relied on Nash v. Mulle , 846 S.W.2d 803 (Tenn. 1993) and determined that it had discretion with regard to setting the amount of support for any net inco

me over $6,250, and although the court had also ordered the father to make payments of $500 per child per month into a trust for the education of the children, this court determined that the total amount to be paid by the father did not “approach 46% of husband’s rec ent incomes.”

In that appeal, this c

ourt determined th

at the provision of

the guidelines a

pplied in Nash had been repealed after the Nash decision, and that the Tennessee Supreme Court had since spoken to the issue of high-income obligor parents. We stated:

The only way

in which cases where income exceeds $6,250.00 are treated differently is that the support exceeding this category may be put in a

trust fund or other

fund in the child’s interest, instead of going directly to the custodial parent. Tenn. Comp R. & Regs. Ch. 12 40-2-4.04 (3). This ch ange in the rules appears to have addressed the Nash Court’s concern

that the custodial p

arent could

receive a windf

all to access for personal use. Indeed, the S upreme Court in a post-

Nash decision has indicated that there are very limited circumsta nces in which a downward deviation from the guidelines wou ld b e appropriate. See Jones v. Jones , 930 S.W.2d 541, 545 (Tenn. 1996).
Smith , 984 S.W.2d at 609.

We also directed, “If the Court assesses less tha

n a 46% rate ag

ainst all net income

, it must state its reason for deviating from the guidelines within the constraints of Jones. ” 1 Id. Upon the mother’s request, the trial court held a hearing on the order of remand, which began in December 1999 and concluded February 7, 20 00. Thus, almost four years had passed between the original order settingchild support and the hearing on remand. 2 At the first hearing on remand, the mother asked the trial court to determine the amount of the father’s obligation for each year since-3-

the date of divorce, April 1996, based upon his actual income in each of those years. The fathe r argued that the obligatio

n should be set using

facts that existed a

t th e time o f divorce. After discussion between the court and counsel, the trial court determined that it would set the father’s child support obligation on an average of his income from the yea rs 1992, 1993, 1994, and 1995. The trial court inter

preted this court

’s opinion remandi

ng the case as d

irecti ng it to determine the father’s actual net income at the time of the divorce.

The trial court also de

termined that it wou

ldadjust the father’s 1995 income by subtracting income received due to a contract for em ergency room services. Beca use that contract was eventually

discontinued, sometime after the date of the divorce decree, the court determined that the income from it was an aberration which should not be c

onsidered. The mo

ther also sought to have the court determine the father’s arrearage, the differ ence between the amou

nt he should

have paid basedon his income and the amount he actually paid since April 1996. The trial court required her to file a motion and stated it would consider the motion at the next hearing.

There was littl e real testi mony at this first hearing. The mother introduced copies of the father’s income tax returns for 19 96, 1997, and 1998 into evidence. Also introduced were the father’s tax returns for 1992, 1993, 1994, and 1995. At the close of the hearing, the court reiterated its position that it would consider only the income for 1992-1995, would average those years, and would set child suppo rt at 4 6% of that figur e. The trial cour

t ordered the fa

ther to have his accountant

prepare a statement of income for each of those yearsand asked the parties to report back whether they were able to reach ag reement on the figures to be used.

The parties did not agree on the father’s income for purposes of calculat ing child support. At the second hearing, the mother reiterated her

position that fathe

r was obligated

to pay child support based on his actual income. In addition, the mother objected to reduction of father’s gross income for losses he sus tained in investments or business ventures separate from his medical pr act ice. She argued that allowing those losses lowered the average and, bec ause the trial court projected the 1992-95 average into the years bey ond 1995, prolonged

the effect of

the losses even though those

investments actually made money in later years. The f ather’s accountant testified as to the father’s income for the four years in question. His figur es includ e d downward adjust ments from gross income for

the business losses

and for the 1995 in

come from the emergency room contract,which was $351,348. The figures also included depreciation deducted on the income tax returns but added back into the inc ome because the accountant concluded that the child support guidelines do not allow reduction of income for depreciation. The accountant presented a summary of his calculations in an exhi bit, which the court adopted, showing the father’s net income as follows:

Year Net Income

1992 $191,478 1993 $242,1223 The father’s 1999 income tax returns were not available when the hearings were held in this matter.
-4- 1994 $185,427 1995 $202,227

The average for those years was de ter mined t o be $205,314. The court applied the guidelines’ re quire d percentage of 46% and set the father’s child support obligation at $7,870 per month, with no ne of that amount r equired to be plac

ed in trust. In a

ddition to treating

this as th e amo untwhich should have been set in April 1996, and the amount due in every month since th e divorce, the court also ordered that this amount would be paid beginning in March 2000. The court then calculated the arrearage due the mother by subtracting the amount paid b y father since May 1996, pursuant to the original divorc e decree at $ 3, 154 per month in direct payments to the mother and $2,000 per month into the trust, from the amount due under the new calculations, and ordered the father to pay $130,358 in arrearage through F ebruary 2000. The trial court denied the mother’s request for pre- j udgment interest because “it was improper to punish the father who was not responsible for any

mistakes in calculating the child support.” The trial court awarded the mother $7,000 in attorney

’s fees, approxima

tely half he

r fees. I. Nature of Child Support Obligation

The mother’s first, and primary, argument in this appeal is that the trial court should have used the father’s actual income for the years 1996, 1997, 1998, in determining the father’s obligation for those years and s hould have used the average of his income for 1997 and 1998 in setting the amount which should ha v e been paid in 1999, 3 and in setting the father’s future child support obligation. Every parent is o bligated to support his or her children during their minority. Tenn. Code Ann. § 34-11-102. The obligations of pa rents to support, c

are for and nur

ture their childr

en are joint, andthe extent of their d

uty to support depends on their ability to provide that support. State ex rel. Grant v. Prograis , 979 S.W.2d 594, 600-601 (Tenn. Ct. App. 1997). If necessary, the courts may apportion the responsibility for support between the parents according to their re spective abilities to pr ovide support. Id. at 601. According ly, releva nt statutes and re

gulations gove

rning child support are intended “to

assure that child

ren receive sup

port reasonably

consistent

with their parent or parents’ financial resources.” State ex rel. Vaughn v. Kaatrude , 21 S.W.3d 244, 248-49 (Tenn. Ct. App. 2000).
When, as in

this case, a marr

iage is dissolved

, courts are auth

orized by sta

tute to provide for the future support

of minor children by fixing a definite amount to be paid on a specified regula r basis. Tenn. Code Ann. § 36-5-101 (a)(1) and (a)(2)(A). Further , court s are directed to apply the child suppo rt guidelines developed by the Department of Human Services in deter mining the amount of any such support. Tenn. Code Ann. § 36-5-101(e)(1). The child support g uidelines require a-5-

noncus todial pa rent to pay a support amount which is determined by “ a flat percentage of the obligor’s net

income.” Tenn. Co

mp. R. & Regs.ch. 1240-2-4-.03 (2). The applica ble percentag

e is determinedby the numbe r of children to

be supported. The

amount dictated by

the guidelines is

to be applied by th

e courts as a

rebuttable presumption of the correct amount of support. Tenn. Code Ann. § 36-5-101(e)(1).

In the most common situation, the guidel ines are applied in the context of establishing an award of prospective pa

yments, whether it is an initial award or a modification. That is, the court uses the guidelines to set the amount that the obligor parent will pay in the future unle

ss and until the amount is modified by court order or the obligation termin

ates. Because

the child will

receive prospective support based upon the court ’s determination of the obligor parent’s income, “[d]etermining the amount of the non-custodial parent’s inco me is the most important element of proof in a proceeding

to set child

support . . . and when considering requests for modification of an existing support obligation.” Turner v. Turner , 919 S.W.2d 340, 344 (Tenn. Ct. App. 1995).

In the case a

t hand, t he initial award was made at the time of divorce, in April 1996. However, that award was determined by this court to have been incorrectly calculated. On remand, the trial court

interpreted its du

ty to establis

h the support due at the time of the divorce, based on the father’s income at that time, even though four years had p assed. The court, placing itself in the position it would have been in April 1996, determined the father’s then-curren t inco me based on information which would have been available at that tim e, the fathe r’s income f rom 1992 th rough 1995, even though the f

ather’s actual

1996 income

was known at

the time of the hearing on remand. The court then determined thechild support due in each of the intervening years on the basis of its estimate of the father’s 1996 income, although information about the father’s actual income for each of tho se yea rs w as av ail abl e. Fi nal ly, the trial court set the father’s obligation for prospective support payme nts, to begin March 2000, based on its estimate of the father’s 1996 income, which was a product of averaging the father’s income in 1992-1995.

We agree that the trial court was require d to perform several tasks in order to resolve the issues presented by

the procedural p

osture of this

caseon remand. Our task is to review how the court determined the amount of support due, both prospectively at the time of the remand hearing andretrospectively for those ye ars when support was clearly due but was being paid in an incorrect amount. II. Prospective Child Support

We first address the award of prospective child support from March2000 forward. The court set the amount of that o

bligation on the ba

sis of the father’ s income

in 1992, 1993, 1994, and 1995. We find no basis for e

stablis h ing prospective support using income figures at least five y ears old.

One of the sta ted goals in the development of the guidelines was “[t]o ensure that when parentslive separately, the economic impact on the child( ren) is minimi zed and to the extent that either parent enjo

ys a hig her standard of living, the child(ren) share(s) in that higher standard.”-6-

Tenn. Comp. R. & Regs. 12 40-2-4-.02(2)(

e). Thus, courts a

re to set the amoun

t of prospective c

hild support so that children will receive support reasonably consistent with their parents’ resourc es and ability to provide support.

These goals ar

e best f ulfilled by us e of current, accurate information regarding the obligor parent’s income.

The guidelin

es specif ically recogni ze that the court needs reliable information regarding the “current ability to support” when establishing or modifyin

g a support order. Tenn. Comp. R. & Regs. 1240-2-4-.03(3)(e) and (f). Otherwise, there could be no reasonable

assurance that the children
are re ceivin g support commen surate with the pa

rent’s ability

to provide support.

Because child support is based on income, an award for future support, including a prospective modification, is necessarily based upon most recent actual income.
Therefore, we conclude tha t the amount of child support to be paid by the father prospectively from March 2000 should have been set based upon a determination of his income at the time of the hearing on remand, not on his income five to eight year s earlier.

The problem with

the trial court’s method

of setting prospe

ctive child suppor

t lay primar

ily in its use of outdated

income figures , not in its a veraging the f

ather’s variab

le income in order

to arrive at a reliable inc

ome figure. The child support guidelines provide that “the child support award is based on a flat percentage of th e obligor’s net income.” T enn. Comp. R. & Regs. ch. 12-2-4

- .03(2). Net income is defi ned as gross inc

ome, which is “all i

ncome from any

source,” minus ce

rtain specified deductions such as income tax and social security contributions. Tenn. Comp. R. & Reg s. ch. 1240-2-4-.03(3). Often, the determination of g ross income or net

income is based on a

relatively invariable income, such as a

salary. Whe

re, however, the

obligor parent’ s income is su bjectto variation, averaging is appropriate to determine net income for the pu rpose of cal culating child support. Alexander v. Alexander , 34 S.W.3d 456, 460 (Tenn. Ct. App. 2000).

The guidelines specifically allow averaging in determining gross income when establishing
a prospective award: “[v] ariable income such as commissions, bonuses, overtime pay, and dividends, etc., should be averaged and added to the obligor’s fixed salary .” Tenn. Comp. R. and Regs. 1240-2-4-.03(3)(b). Although that provision of the guidelines applies to variab le components of income, the reas

oning is just

as applicable to situations where a parent is self-employ

ed or whose total income is variable.

Another provision in

the guidelines authorizes averaging for establishing the obligation for past support. Under the heading “Criteria for Deviation from Guidelines,” the following directive is given:

In cases where the initial support is being set, a judgment must be entered to include
an a mount due for monthly support from the date of the child’s birth or date o f separationor date of abandonment whichever is appropriate, until the current support order is entered. This amount must be calculated based upon the guidelines using the-7-

average income of the obligor over the past two years and is presumed to be correct unless rebutted by either party. . . . Tenn. Comp. R. & Regs. ch. 1240-2-4-.04(1)(e). Referring to this provision, this court has stated:

While this provision does not mandate that trial courts averag e variable monthly incom

e from the past two years to determine gross income for current child support, it does reflect the legislative intent that when the exact

amount of gross in

come is not known a n average must be taken, and a per

iod of two ye

ars is an appropriate time period to average than income.

Brown v. Brown , No. 03A01-981 2-CV-0041 7, 1999 WL 552854 at *5 (Tenn. Ct. App. July 28, 1999) (no Tenn. R. App. P. 11 application filed).

Whileour courts have approved or endorsed a two year

period for purposes of averaging, see, e.g., Norton v. Norton , No. W1999-02176-COA-R3CV, 2000 WL 52819 at *7 (Tenn. Ct. App. Jan. 10, 2000) (no Tenn. R. App. P. 11 application filed), other time periods have also been used. See, e.g., Siegel v. Siegel , No. 02A01-9708-CH-00198, 1999 WL 135090 at *6 (Tenn. Ct. App. March 5, 1999) (no Tenn. R. App. P. 11 application filed) (“Based on the entire record, it appears that Husband’s earnings for the entire twelve months of 1996 best refle ct his income and earn

ing capacity for the purpose of de

termining child su

pport and alimony

.”); Alexander , 34 S.W.3d at 4 60 (f our yearsincome averaged). The time period to be used lies within the discretion of the trial court based upon the facts of the situation.

The guidelines themselves do not prescribe how variable

income should be averaged. Therefore, it is left to the courts to de termine on a case-by -case basis the m

ost appropriate way to average fluctua ting income.

Hanselman v. Hanselman , No. M1998-00919-COA-R3-CV, 2001 WL 252792 at *3 (Tenn. Ct. App. March15, 2001). However, periods of one year or longe r have been con sis ten tly a pproved or applieddepending on

the circumstances. Id . at *4 (determining that averages of short duration are generally inappropriate, and listing cases approving averaging over more than one year) ; see also Brown , 1999 WL 552854 at *6 (author of concurring o pinion expresses view that the two-year average approach may not be appr opriate in all cases.)

The father in this case is self-employed primarily as a physician, a

nd his yearl

yincome is subject to variation. Therefore, we see no error in establishing his current income by averag

ing his income from the two yea

r s prior to the establishment of the prospective award, as asserted by the mother. However, we also see no necessity for choosing two y ears rather

than some other period

of4 On remand, the trial court did not determinethat deviation from the guideli nes was justified, and

that i s not an issue in this app eal. See Tenn. Code Ann. § 36-5-101(e)(1) (providi ng the require

ment that t

he trial court make a written finding that the applicat ion of the child suppo rt guidelines wo uld be unjust or inapprop riate in that particular case as a prerequisite to rebutting t he presumption that the guidelines provide the appropriate amount of support).
5 The fact tha t this case was rem anded fo r determina tion of the father’s actua l net income and corresponding child support award, but the remand hearing was not held until f our years after the

divorce, cr eated a pr oblematic procedural situa

tion. On appeal th

e fathe r argues that t he tria l court was correc

t is s ettin g back support

on the basis of projected income and maintains that the mother could havefiled, during the in tervening yea rs, a petition to modify the child support obligat

ion based on the fa

ther’s i ncreased income. That a rgument ignores

the fact t

hat this court had determinedthat the amou nt originally set by the trial court was i ncorrect and had remanded for determination of the correct amount. Therefore, the mother had already taken the procedural steps necessary to have the amount of support calcula ted; further,

she was enti

tled to have t

he correct amount set and had no reason t o ask for a m odification o f a correct amount which was then unknown. The other side of the mother’s quandary is demonstr

ated by a r

uling of the trial court. Between the first and second hearing on remand the mother filed a petition to increase chi ld support asking that the court grant an increase for 1997 based on 1996's actual income, an increase f or 1998 based on 1997's actual income, and an in cre ase for 1 999 bas ed o n 19 98's actual income.The mother’s counsel explained that

this moti

on was based on comments ma de by the court at t he fir st hear ing on rema

nd. The tri

al court concluded t

hat it could not retroactively increase the supportamount beyond the date the petition was fil ed in early 2000, a correct statement of the general rule. Tenn. C ode Ann . § 36-5-10 1(a)(5). T hus, th e mother h ad no rea son to requ est an increase while anticipating that t

he support

would be est

ablishe d i n the corre ct amount, but was precluded from reque sting such an increase retro actively when sh e learned tha t the suppor t for the intervenin g years was to b e set on outd ated figures.
-8- time that the facts of this case may indicat

e is more likely

to accurately reflect the father’s cur rent ability to pay

prospective supp

ort.

III. Bac

k Child Support

We turn now to the trial court ’s c alculation of bac k support. The fat

her’s obligatio

n to provide support was establishedby court ord er in April of 1996, and the law in effect requir

ed him to pay support at 46% of his actual net income. Accordingly, this court’s opinion remanding the case directed the trial court to determine the father’s actual net income and to set the child support at 46% thereof. We interpret our e arlier ruling in

this case as aff

irming the childr

en’s right to suppo rt, computedunder the guidelines at 46% of the father’s actual net

income, unless the trial court made the requisite finding that deviation from the guidelines was appropriate. 4

For the years between

the initial entry of the order obligating the father to pay child support until the order on rema

nd, we can find no

basis for ignoring actual

income and establishing support
on outdated projections of income. 5 The amount of the father’s obligation for past years should be determined using

actual income fig

ures.
In Anderton v. Anderton , 988 S.W.2d 675 (Tenn. Ct. App. 1998), this court vacated the trial court’s child support award and remanded for the second time for calculation o f t he appropriate6 This conclusi on was reac

hed by applying certain “s traightf orward principles :” that i ncome can be determined by ascertaining either t he gross or net income according to the directives of t he guidelines; that t

he guidelines require that variable in

come such as bonuses and commis sions should be av eraged and add ed to the ob ligor paren t’s fixed salary; that courts are to calculate the requir ed amount of support using the percentages in the guidelines applied to the relevant income; and that generally, t he resulting amount is t he parent’s child support obligation, absent a finding by the court that a deviat ion is warranted. Fi

nally, we recognized that

the guideli

nes as they existed when t he order was fir

st entered recognized alternative arrangements for weal thy parents with a net monthly income in excess

of $6,250, which i

ncluded payment of some p ortion of the su pport ob ligation into a trust fo r the child’s ben efit. Anderton , 988 S.W.2d at 680-81.
-9- amount of support, having reached the conclusion “that Mr. Anderton’s child support obligation has been seriously miscalculated from the beginning.” 6 Id . We then stated:

The amount of child support required by the guidelines is

presu mpti vely co rrect . In the absence of any definitive written findings by the trial court setting forth cogent
reasons to deviate from the guidelines, Mr. A

nderton’s child

support obligation since June 1995 should have be en consistent with

the preceding

discussion. Since it

was not, Mr. Anderton’s current child support obligation and

the arrearage must again be determinedby the trial court. Unless the trial court finds reasons for deviating from the guidelines, it should set Mr. Anderton’ s curren t child support oblig ation in accordance

with the child suppo

rt guidelines.

It should then recalculate the amount of the arrearag

e consistent with Mr

. Anderton’s actual net income during the relevant period

s using the formul

a required by

the guidelines.

Id . at 681-82 (citations omitted) (emphasis added).

Like the Anderton court, we conclude that the father’s child su

pport obligation i

n this case has been miscalculated from the date of divorce, as determinedin our opinion in the e arlier appeal. To the extent the father

has paid amounts since the date of divorce which are substantially less than the amount

he should have paid, he owes back child supp ort. The way to d etermine th e arrearage is to recalculat e the c orrect amount for each of the years since the divorc e decree and subtract the father’s actual payments. The trial court performed this calculation, but used the father’s 1992-1995 average in determining th

e amounts which sho

uldhave been paid, in effect using a projection for the father’s income for 1996, 1997, and 1998. Like the A nderton court, we conclude that the correct amount for those years is determined by using the obligor parent’s actual income.

This approach

is the same as that used in cases where, although the oblig ation to support a child existed from the chi

ld’s birth, an orde

r establis hing the paternity of the child and setting prospective and past support is not entered until a number of years aft er the birth. For

example, in Sta t e ex rel. Vaughn v. Kaatrude , the biological f ather was unawa

re he had a child

until the state Department

of Human Services, on behalf of the mother, initiated procee dings to establish

paternity andto obtain past and future child support when the child was fifteen years old. Wh

en blood tests confirmed

he was the child’s biological father, Mr. Kaatrude indicated his willingness to pay support pro spe cti vel y. This court affirmed the trial court ’s determination that he shoul d also pay c

hild7 The Springs court reco gnized the d istinction betwe en prosp ective child sup port and b ack child support i n

paternity cases, relying on Kirchner v. Pri tchett , No. 01A01-9503-J V-00092, 1995 WL 714279 (Tenn. Ct. App. December 6, 1995) (

no Tenn . R. Ap

p. P. 11 petit

ion fi led). Back child s

upport in

paterni ty case s is not

required to be set in strict accord ance with the g uidelines. “T hat is not to say that a trial court, in the exercise of i ts broad but sound discretion, could not award child s upport back to the date of the child’ s birth in

an amount calcul

ated in str

ict adherence to the f ormula set f orth i n Tenn. Comp. R. & Regs., ch. 12 40-2-4-.03 .” Springs , 976 S.W.2d at 656.No such disc retion applies in this case; the chi ld support herei

n, both prospect

ive and back support, must be set in compliance with the guidelines.
-10- support going back to the birth of the child. 21 S.W.3d at 248. In explaining the reasons for an award of back support, this court stated:

Mr. Kaatrude’s duty

to provide support e

xisted during all tho

se years, a

nd his l ac k of financial assistanceduring that time either required Ms. Vaughn to shoulder more than her shareof t he s upp ort res pon sib ili ty or , mo re l ike ly, caused the child to get by with less. An award of back child support fills this gap.

Id.

With regard to

the proper amount of back child support in Kaatrude , we vacated the $50,000 award ordered by the

trial court because there was no evidence introduced at trial which established that the amount of th

e award bore a “

traceable relation to Mr. Kaatrude’s actual ability to support his son from 1981 to 1996.” Id. at 249. Determining tha

t the record did no

t allow us to do comple

te justice, we remanded the case to the trial court to calculate the father’s back child support using the guidelines,

with specific instructions that the parties should be per mitt ed to present evidence concerning the father’s earnings for the relevant ye ars. “Based on this evidence, the . . .court should then determine Mr. Kaatrude’s back child support obligation for each y ear based on the gu ideline percentage applicable to that particular ye ar.” Id . at 250.
Sim ila rly, in State Dep’t of Human Servs. v. Springs , 976 S.W.2d 654 (Tenn. Ct. App. 1997), we affirmed

the trial court’s award of back child support in a paternity action. The amount of the award was calculated by apply ing the guidelines in

structions to the fa

ther’s gross mon

thly income dur ing t he yea rs f rom the chi ld’ s bi rth unt il h is m ajo rit y. 7 Id . at 655.

In the case before us, the

obligation to provide support has existed since the divorce, but the amount of the obligation

has not been corr

ectly set, a

nd the amount o

f back suppor t cannot be determineduntil that is done. The situation is similar enough to the cases involving calculation of back support in late-discovered paternity cases for us to use those ca ses for additional guidance.
Therefore, we concludethat the amount of back child support owed by the father should have been calculated using

his actual income for each of the years since the divorc e, proof of which was available at the time of the remand hearing.8 For example, in 1994 the f ather clai

med losses of $81,389 fr om JAPOP Productions; in 1995 he claimed deductions of $73,287 for JAPOP Productions and $37,171 from T iff Arnold Paving.
-11- IV. Determin

ation of Inco

me
The mother also objects to the trial court’s calculation of in come because of the exclusion of income in 1995 from an emergency room services contract and the allowance of deductions for various business or

investmentlosses during the years used in the averaging to arrive at the father’s income. Because the court used an average income which allowedthese exclusions and deductions to set support for l ater y ears, the mother argues that the effect of these improper calculations was
exace rbated. Our determination that back support should be based on actual income for the intervening years renders some of these objections moot.

The actual income for 1996, for example, will include any amounts earned f rom th e emergency

services contract, beca

use it clearly f alls within the gui

delines’ definiti

on of gross income, “all income from any source . . ., whether earned or unearned, and includes . . . income from self-e mployment.” Tenn. Comp. R. & Reg s. ch. 1240-2-4-. 03(3)(a). The t rial court’s con

cerns a bou t the fairness

of se tting child support on an income amount that included earnings from a contract which no longer existed at the time of t he hearing, as well as mother’s objections to the effect on subsequent

payments by averag

ing in an amount which excluded that income, are eliminated by our determination on th

e method for settin

g the amount of ba

ck support.
However, the issues raised by mother regarding allowable de ductions from gros s income, while moo t as to pre-1996 income, must be considered in the context of determining the father’s
a ctual income for 1996 through the present for purposes of setting the amount of back as we ll a s prospective support. In the years 1992 through 1995, the fa ther claimed onhis tax returns various los ses from business ventures or investments other than his medical practice. 8 The tri al cour t allowedthese same

deductions from income, except for depreciation, in determining the father’s actual income. Because the father’s tax returns for 1997 and 1998 reflect similar deductions from gross income, the issues surrounding the consideration of losses from secondary business ventures remain.

The mother’s pr oo f includes a calculation of father’s net income (total income minus specified allowa

ble deductions) f

or each of the y

ears in question a

s follows:

Year Monthly Yearly

Net Income Net Income
1996 23,676.71 284,120.52

1997 31,063.97 372,767.649 The mother’s cal culations do not

challenge any

business expenses from the medical practice as un

reasonable, and she has appropriatel y added in the depreci

ation deduction c

laimed on the tax returns. “Income from self -employment includes income

from business operations and rental properties, et c., less reasonable expenses necessary to produce such income. Deprec iation, home offices, excessiv e travel, exces sive car exp enses, or exc essive perso nal expense s, should not be considered reasonable expenses.” Tenn. Comp. R. & Regs. 124 0-2-4-.03(3)(a).
-12- 1998 21,173.43 254,081.16

A closer examination of the mother’s calculations demonstrates the continuing existence of the issues she raised regarding allowability, for

child support purpo

ses, of various los ses allowable fo r income tax purposes. In her calculations for 1997, the mother included the father ’s self

employment

income from his medical practice, as shown on his tax return, but did not subtract the depreciationall owe d by t ax law but not allowed by the child support guidelines, which made the father’s self-employment income $459,688. 9 To this she added wages, as shown on the tax return, of $79,710 from the medical practice and $4,747 from

Tiff Arnold Paving. She also added $65,406 in investment income. That amount is the sum of three lines on the father’s 1 040: capital gai ns, dividends, and interest. These amounts totaled $609,551, which the mother treated as the father’s gross income. From that amount she deducted allowable incom e tax, FICA, and Me

dicare pay ments, arriving at a total net income for that year of $372,767, or $31,063.97 per month.

In her calculations of

the father’s g

ross income for 19

97, the mother did no

t deduct certain losses claimed on his tax return, specifically: $151,928 in losses from partnerships and subchapter S corporations (described in the return as a nonpassive loss from an “S” corp oration, Bulldog Productions)

and $29,054 in investment interest expense (including disallowed expense from 1996), which amount was claimed as part of the father’s itemized deductionsand reduced his taxabl e income. The parties disputed the appropriateness of similar deductions with regard to the father’s 1992 - 1995 income; thus, those disputes appear to remain with regard to 1996 and later.

The mother’s basic argument is that the father’s primary

employment is as a physician and that his net self-employment income from that activity should not be reduc ed by losses sustained in other activities, such as the paving company and the productions company

. A review of Tennessee casesinvolving second ary busines s ventures or inves tments reveals few hardand fast rules, but some guiding principles useful for analysis of a particular f act situation
can be gleaned. In a

recent case, Alexander v. Alexander , this court refused to allow deduction from gross income, whichcame from a n umber of other sou rces, for losses

sustained in a busin

ess enterprise , stating: Bythe same t oken, w

e also a gree w ith the trial c ourt th at the n et loss es fro m DJA Leasing should not be utilized to reduc e Fat her’s other sour ces of income in determining his net income under the Guidelines. Thereis no proof in the record that Father was requ ired to “go into his pocket” to cover these losses. They are pape r losses only - - losses that enabled Father to shelter other sources of income f rom-13-

federalincome tax. Accor dingly, Fa

ther’s net “losse

s” fr om the o

perat ion of D JA Leasing ca

nnot be considere

d in determining h

is net income to set c

hild support.

Alexander , 34 S.W.3d at 462.

Whilethe quoted language in A lexander impl ies a different result if the losses were more than “paper losses” or taxshelters, but resultedin an actual decrease in the parent’s income, other language in that opinion sugg ests that the guid

elines provide the

appropriate g

uidance on this

issue. The Alexande r court, wh en discussing how to convert gross income to net income, noted that because the leasing busin

ess atissue resulted in net losses rather than net income, there was no selfemployment income and, therefore, Tenn. Comp. R. & Regs., ch. 1240-2-4-.03(4)’s instructions for calculation of reductions from gross income for the obligor’s FICA tax on income from selfemployment had no applicability. Id . at 465.

The language of the guidelines’ definition of gross income als

o uses the term “ income from self-employment,”and the guidelines make no reference to l osses from self-e

mployment. Th

is treatment by the guidelines appare ntly formed the basis of this court’s holding in Humphrey v. O’Conner , No. 01A01-9502-PB-0006, 1995 WL 428679 (Tenn. Ct. App. July 21, 1995) (perm. app. deniedNov. 20, 1995), whe rein the obligor

parent sought to

reduce her inc

ome from salary for her regular job by losses on rental prope rty. Without discussion, this court noted that the guidelines contain no provision for decreasing gross earning

s by business

losses and affirmed the trial court’s award of child support based upon the salary unreduced by outside business losses. Id . at *7-8.

The same result was reached, but pa r tly on different grounds, in Howard v. Howard , No. 03A01-9811-CV-00374, 1999 WL 427596 (Tenn. Ct. App. June 25, 1999) (no Tenn. R. App. P. 11 application filed). In that case, the obligor parent’s primary occupation was as an employee of an insurance company, from which he earned approximately $89,000, and he had other sources of income. For tax purposes, he claimed a business loss of $3 2,762 from a sole p roprietorship spo

rts card business. That business had earned a gross profit of $48,300, but the parent claimed expenses of $81,000, including a salary to his wife. The trial court refused to deduct the business loss from the father’s other

income, finding t

he father’s gr

oss income to

be roughly $95,000. We stated, “The Trial Court then found that the father realized

no income as a self

-employed i

ndividual, becau

se his claimedexpenses exceeded his income from the business.” Id. at *2. However, t his court affirmed the trial court’s finding on a slightly different basis, that the father ha d failed to prove the claimed expenses were reasonable. Id

. Two other cases,

relied upon by

the parties, should be examined. In Kimble v. Kimble , No. 02A01-9503-CV-00049, 1996 WL 445272 (Tenn. Ct. App. Aug. 8, 1996) (no Tenn. R. App. P. 11 application filed), this court considered whether capital expenditures may be used to reducethe gross inco me of a self-employed obligor parent, and concluded that the tria l court has discretiont o determine whethe r such expenditures are “reasonable expenses to produce such income” under Tenn. Comp. R. & R

egs. ch. 1420-2-4 -.03(3). 1996 WL

445272 at *5. We are not convinced that10 Base d upon the record before us, we are unable to determine whether the father’ s involvement in the

compa nies for which h e has claimed losses amo unts to self-emp loyment or sh ould be c onsidered investments. We do note, however, that

the father

has paid self

-employment ta

x only on his earnings fr om his medical pract

ice, a fact considered significant in Alexander, 34 S.W.3d at 465.

11 This court recognized exceptions to this general st atement where the facts indicate t he interest expenses are not reason able or nec essary. Norton , 2000 WL 52819 at *7 n. 6.
-14- this holding has any direct applicability to the issues pre sentedin this case, because the mother does not object to any expenses associated with the father’s medical practice, and because Kimble does not deal with more than one source of self-employment income. 10 However, in Kimble , this court relied upon cases from other jurisdictions in establishing principles which provide some guidance in our analysi

s: first, that any business expenses must have been incurred in an activity intendedto produce income; seco nd, tha t th ose exp ens es m ust hav e bee n rea son abl e, o rdi nary, or necessary; and third, that such expenses be actual cash or out-of pocket ex penditure s. Id . at *3- 4. C onv ers ely, wh ere e xpenditures are appropriately characterized as “investments” which be nefit the obligor parent, or are merely non-cash or paper losses for tax deduc

tion purposes, they

are not allowable

as reasonable expenses to bededucted from self-employment income. Id. The trial court is charged, in the first instanc

e, with making the

necessary

factual determi

nations.

Fin all y, in Norton v. Norton , No. 02A01-9901-CH0030, 2000 WL 52819, this court held that interest payments on

loans to acquire capital for the obligor’s bus

iness were gen

erally 11 allowable deductions from

self-employment income “because they represent out-of-pocket expenses that are
never recouped by the obligor.” Id. at *7. Norton involved an oblig or parent with sev

eral businesses, andnothin g in the opinio n indicates that he had a primary occupation or business. See also McDuffee v. McDuffee , No. 90DR-896, 1993 WL 339302 at *6 (Tenn. Ct. App. Sept. 8, 1993) (no Tenn. R. App. P. 11 application filed) (this court treated obligor parent’s self-employment ventures collectively for determining net income.)
Where, h owe ver, as in this case, an obligor parent has a primary occ upation or profession which pr ovides the primary source of income, we find no basis in the guidelines for a llowing deduction of losses from

other business ventures from that primary income. The guidelines include in gross income “[i]ncome from self-employment.” Thus, where self-employment

activities produce in come, after deduction

of “reasonable

expenses necessa

ry to produc

e such income,” th

at i ncom e is includable as g

ross income. The guidelines do not expressly address how to treat losses from selfem plo ym ent

activities where the reasonable deductions exceed the income. However, we do not find any basis in the guidelines for deducting lo sses from one self-employment enterprise from the incomeo f another unrelated and successful source of income from a primary profession o r occupation. Similarly, wh ile income

from investments, “whether earned or unearned” is

includable in gross income, we find no basis in the guidelines for reducing gross income by investment losses1 2 The disti nction be

tween sel

f-employ

ment and ot

her type s of busi

ness vent

ures, s uch as in

vestment , is not always clear, and, in the case before us no evidence ex ists from which we can determine whether the losses and deductions at issue were the result of self-employment or investment. While the guidelines recogn ize allo wable deductions from s elf-employm ent i ncome for reasonable ex penses necessary

to produce income, no such lang uage exists regarding investment

s. With regard to bus

iness vent

ures that are second ary to a primary profes sion or source of income, however, we think t

he dist incti on makes no di

fferen ce: loss es in vol untary busines s ventur

es not related to or necessary to the income-producing primary occupation generally sho uld not b e used to reduce gross income from the primary source of inc ome.

13 We have previously h eld that because the child s upport guideli

nes embody a rebuttable presumption that the custodial parent is entit led to receive financial support f rom the noncustodial parent, once the custodial parent proves custody, the burden

of going forwa rd with proo f relating to incom e may shift. Kirchne r v. Pritchett , 1995 WL 714279 at *3. In that case, d espite disco very attempts by the mother, the evidence at trial regard ing the father’s past income and expenses was sketchy at b est. Although our opinion was based on a situation where the noncustodia l parent, who wa

s most able to pr

ovide inf ormation on his income, wa

s unable or unwi

lling t o produce satisfactory evi dence, the following rationale also applies in other situations:

If the noncustodi

al parent has not a

lready s ubmitte d proof of

his or her income, the custodial parent (continued ...)
-15- which exceed invest

ment income. 12 Where an obligor parent has the ability through a primary occupation or profession to pr oduce income

which will provide his or her children with support, as
a general rule,

any losses th

ey sustain in

voluntary ou

tside business vent

ures cannot be us

ed to reducethe sup por t ob lig ati on. Spe cif ic f act ual sit uat ion s ma y jus tif y d eparture from this general principle.

D ecisions from other jurisdictions are in accord with this general approach. See, e .g. , Wilhelm v. Wilhelm , 543 N.W.2d 488, 491 (N.D. 1996) (obligor’s losses as a rodeo rider could not be used to decrease his income from his salary at his regular job, because the rodeoventure was an avocati on); Me yer v. Meyer , No. A-93-579, 1995 WL 676409 at *4 (Neb. App. Nov. 14, 1995) (losses from obligor’s health food business could not be used to reduce income from military pay because the business was a future investment, not intended to be a primary source of income, and obligor continuedthe venture although it was operating at a loss). As one court has observed, “Either parent may freel

y engag e in entreprene

urial endeavors , but thes e excursions will not relieve them of their parental obligations.” Meyer , 1995 WL 676409 at * 4 (citing Dworak v. Fugit , 1 Neb. App. 332, 495 N.W.2d 47 (1992) ); see also Koch v. Koch , 714 So.2d 63, 66-67 (L a. App. 4 Cir 1998) (obligor parent cannot rely on his voluntary investment choices to reduce his support obligation).

The mother takes the position that the record before us is sufficien t to al low this court to perform the necessary

calcula tions to establish the father’s support obligations, prospectively and retrospectively. We are unable to agree.

The mother has prese

nted evidence of the father’s income for 1996, 1997, and 1998. Therefore, the burden shifted to the father to dispute her calculations or present evidence relevant to the determinati

on of his i ncome under the g uidelines. 13 The father pre sented no evidenc

e to13 (...continue d) may present evid ence of the no ncustodial p arent’s income obtained during di scovery, as we ll as other evidence of the need for more support than t he guidelines

require. Thereafte r, the burde n shifts to the noncustodial

parent t o dispute the custodial parent’s evidence, to present proof of other factors affecting the amoun t of suppor t, or to demo nstrate why th e t rial court should depart from the guidelines.

Id. (citations omitted).

14 We note that an obligor has th e burden of demo nstrating that a challenged business de duction is a re asonable expense necessary

to produce income. Norton , 2000 WL 52819 at *5. Si milarl y, on rema

nd, the father will

have the burden of establishing the allowab ility for child support purposes of any red uctions in gross income he claims.

15 This court may remand ca ses where we deter

mine that

complete j ustice

cannot be

done on appeal and where the record indicates that m ore satisfactor y evidence c an be pre sented on r emand. Kaatrude , 21 S.W .3d at 250

.

16 At the Februa

ry 2000 heari

ng, the father ’s tax

return for 199 9 was no t availabl e, and apparently

no other evidenc e of his 1999 income co uld be pro duced a t that time. Presu mably it would be availab le for any hearing o n remand, and informat

ion on his 2000 income may al so be available.
-16- challenge the calculations submitted by mother because he

submitted no evidence at all regarding the yearsafter 1995. Based on the trial court’s earlier ruling, the father’s accountant testified about various aspects of the father’s income and tax returns for 1992-1995, but not about any later years. T h us, the record befo

re us does not inclu

de any of th

e kind of factual

information need

ed to determine which, if any, of the claimed deductions or losses should be allowed.

Whilethe father did

notprovide such proof herein, we do not think he should be precluded from doing so. He acted in conformance with the trial court’s ruling that it would set the support obligation on the basis of 1992-1995 income and the directive that his accountant prepare thefigures for those years. Therefore, we think the father should have the opportunity to present evidence to challenge the income figur es propounded by

the mother and to

advocate for the exclusion of items includ ed by the mother in her calcula tions. 14 Thus, we decline to set the father’s child support amounts on the basis of the moth er’s unchalleng

ed calculations.

Further, we ar

e unable, with

only the unexplained tax retu

rns appearing

in the record, to m

ake the necessa

ry determin

ations on the inclusion or exclusion of specific items from the calculation of the father’s gross or net income for child support purpo ses. Therefore, we must remand this case to the trial court for the taking of evidencerelevant to determination of the fat her’s in come for each o f the year

s relevant to prospective and

back support. 15

On remand, the trial court shall set the prospective child support on the basis of the father’s actual recent income, which may be determined by averaging his income in the number of years determinedby the trial c

ourt to be the most

appropriate for predicting future income, but no more than four. The cour

t shall include in the average the most recent y

ear for which in

formation is available. 16 The gross income for each yea r shall be determi

ned by the c

ourt, after proo

f, in accordance

w ith the pri nciples set out above regarding losses and deductions from secondary-17-

business or investment activities and in accordance with the guidelines. Net income shall b e determined by

the formula set ou

t in the guideline

s.
Back child support shall

be determined by

calculating the

child support d

ue based on the father’s actual income for 1996, 1997, 1998, 19

99, and 2000 and sub

tracting there

from the amounts actually paid by the father during those y ears. The mother is entitled to an award of the difference as back child supp

ort. V. Prejudgment I nterest
The mother ne

xtargues that the

trial court should h

ave granted he

r request for prejudgment interest on the arreara

ge, or back ch

ild support. She argues that since the arrearage was calculate d using the father’s ac

countant’s testimo

ny, the fath

er cannot in goo

d fait h argue that the amount is incorrect or that he was not obligated to pay on the basis of a correct dete rmination of his net income. She also argues that the trial court mistakenly considered an awa rd of prejudg ment interest to be punitive in nature.

The relevant statute

provides that prejudgment interest “may be awarded by courts or juries in accordance with the principles of equity . . .” Tenn. Code Ann. § 47-14-123. Where the amount of an obligation is certain, or can be ascertained by a proper accounting, and the obligation is not disputed on reasonable g

rounds, courts may allow prejudgment interest, because loss of use of funds by the oblig

ee is the result of

the failure to pa

y an obliga

tion according

to its terms, and interest

is the usual means of c ompen sating for this loss of use. Mitchell v. Mitch ell , 876 S.W.2d 830, 832 (Te nn
. 1994). The decision whether to award prejudgment interest is within the discretion of the trial court. Spencer v. A-1 Crane Service, Inc. 880 S.W.2d 938, 944 ( Tenn. 1994 ); Brandt v. Bib Enterprises, Ltd. , 986 S.W.2d 586, 595 (Tenn. Ct. A pp. 1998). The sam

e standard applie

s to past child support obligatio

ns. Silverstein

v. Rice , No. W1999-01336-COA-R3-CV, 2000 WL 33146933 at *5 (Tenn. Ct. App. Oct. 20, 2000) (perm. app. denied Apr. 9, 2001).

A party seek

ing tohave a lower court’s holding overturned on the basis of abuse of discretion undertakes a heavy burden. The abuse of discretion standard is intended to con strain appell ate review and implie

s “less intense ap

pellate review and, therefore, less likelihood of reversal.” BIF
v. Service Constr. Co. , No. 87-136-II, 1988 WL 7240 9 at *2 (Tenn. Ct. App. July 13, 1988) (no Tenn. R. App. P. 11 application filed). As a general principle, an appellate court will not reverse a decision that lies within the d iscretion of the tr

ial court unless it a

ffirmatively

appears that the lower court’s decision was against logic or reasoning and caused injustice to the complaining party

. Ballard v. Herzke , 924 S.W.2d 652, 661 (Tenn. 1996). The fact that a decision is discr

etionary w

ith
a trial court necessarily implies that the trial court has a choice of alternati ves among a range of acceptable

ones; the reviewing court’s job is to determine whether the trial court’s decision is within the range of acceptable alternatives, given the applicable leg al principl es a nd the evidence in the
case. “While we will set aside a discretionary decision if it rests on an inadequate evidentiary foundation or if it is contrary to the governing law, we will not substitute our judgment for that of-18-

the trial court mere

ly because

we might have chosen another alternative.” Kaatrude , 21 S.W.3d at 248.

In the case before us, the father has paid child support in the amount initially set by the trial court. This court found that amount to be incorrect, but remanded for determination of the correct amount. Under the facts of this case, we d

o not find that it was

inequitable for th

e trial court to refuse to grant the mothe

r prejudgment i

nter est, and, therefore, find that the court’s decision was within the range

of acceptable a

lternatives. We af

firm the denial of

prejudgment inte

rest.
VI. Conclusion

Based on the reasoning set out above, we vacate the trial court’s award of child support and hold that prospective child support should be set using the most current income information and that the back child su

pport shou ld be computed using actual income figures for each y ear since 1996. Because the record does not contain all the evidence necessary for this court to calculate the father’s actual net income, we must remand the case for the trial court to take such evidence as is necessary andto establish the father’s prospective support obligation, f rom the date of the order on remand, andto establish the father’s back support obligation , up to the date of the or der on remand, in accordance

with the instructions in this opinion. The father shall continue to pay child support in the amount set by the trial court, $7,870 per month, until the order on remand is entered. The court’s denial of prejudgment interest is affirmed.

The case is remanded

for such further proceedings as may be nec

essary, co nsistent with this opin ion. The costs of this appeal are taxed to the Appellant, Bowdoin Grayson Smith, f or whic h
exe cut ion may i ssu e ifnece ssa ry.

___________________________________ PATRICIA J. COTTRELL, JUDGE \