Opinion ID: 1401979
Heading Depth: 2
Heading Rank: 3

Heading: The Parties' Incomes Must Be Recalculated.

Text: We turn next to the trial court's awards of child support and maintenance. We agree with the Court of Appeals that those awards must be revisited. Both awards require consideration of the parties' incomes, and we share the Court of Appeals' concern that the incomes were incorrectly determined. KRS 403.212, the Child Support Guidelines statute, defines income as actual gross income of the parent if employed to full capacity or potential income if unemployed or underemployed. KRS 403.212(2)(a). Subsection (2)(c) of that statute provides that [f]or income from self-employment . . . or joint ownership of a partnership . . . gross income means gross receipts minus ordinary and necessary expenses required for self-employment or business operation. Straight-line depreciation, using Internal Revenue Service (IRS) guidelines, shall be the only allowable method of calculating depreciation expense in determining gross income. 26 U.S.C. § 179, a section of the United States Tax Code, permits business tax payers to take an expense deduction for certain capital items up to a fixed maximum per year. Otherwise the taxpayer would need to create a capital account for the items and gradually depreciate them. Accordingly, George has appropriately used section 179 expense deductions in calculating his income for federal income tax purposes. In determining George's income, the trial court relied on his federal adjusted gross income and ruled that the section 179 deductions were appropriate adjustments to gross receipts under KRS 403.212. We agree with the Court of Appeals that the trial court erred in this conclusion. On its face, section 179 provides an alternative to standard, straight line depreciation, which KRS 403.212(2)(c) expressly identifies as the only allowable method of calculating depreciation expense. On remand, therefore, George's income should be recalculated in accordance with the statutory limitation on depreciation.
The trial court also erred in determining Darlene's income. As noted above, the statute defines income as potential income if [the parent is] unemployed or underemployed. Darlene testified that while living in Boone County during the months leading up to the 2001 separation, she had worked four or five days per week for regular house cleaning customers. She earned, she estimated, between $300.00 and $375.00 per week. Her adjusted 2001 income for tax purposes, however, was only $8,565.00. At the time of the final hearing in November 2003, Darlene was earning less than $100.00 per week from two regular house cleaning jobs. She testified that since moving to Mason County in the summer of 2001 she had inquired about only two other cleaning positions, both of which offered substantially less than minimum wage. Her impression, she stated, was that few people in largely rural Mason County had any interest in hiring regular house cleaners and those who did were not prepared to pay them enough to make the work profitable. The trial court deemed Darlene underemployed and imputed income to her of $360.00 per week or more than $18,000.00 per year, nearly twice what Darlene had earned during any of the previous four years. KRS 403.212(2)(d) provides that [i]f a parent is voluntarily unemployed or underemployed, child support shall be calculated based on a determination of potential income . . . Potential income shall be determined based upon employment potential and probable earnings level based on the obligor's or obligee's recent work history, occupational qualifications, and prevailing job opportunities and earnings levels in the community. We agree with Darlene that the trial court's imputation of income did not take adequately into account prevailing job opportunities, which were apparently much less in Mason County than they had been in Boone County, or Darlene's very limited occupational qualifications. Darlene was over fifty years old; had not worked outside her home except as a part-time housecleaner for nearly twenty years; had been in special education classes for most of her schooling, which ended with the tenth grade; and had health problems. In these circumstances, the trial court abused its discretion by imputing to Darlene an income level well in excess of what she had achieved even when much younger and in better health. On remand, therefore, the trial court must redetermine both parties' incomes and recalculate child support accordingly. George's income may not be based on section 179 expense deductions, and income should not be imputed to Darlene without due consideration of all of the statutory factors.