Opinion ID: 1773593
Heading Depth: 2
Heading Rank: 1

Heading: appellee's gross income

Text: Since the Kentucky Child Support Guidelines' [2] 1990 adoption, [3] Kentucky courts have, generally, determined parents' child support obligations using these guidelines, which create a rebuttable presumption that the appropriate child support obligation is that set forth in the guidelines table. [4] To apply the guidelines, a court must first determine the gross income of each party because [t]he child support obligation set forth in the child support guidelines table shall be divided between the parents in proportion to their combined monthly adjusted parental gross income. [5] For purposes of the guidelines, gross income is broadly defined: Gross income' includes income from any source, except as excluded in this subsection, and includes but is not limited to income from salaries, wages, retirement and pension funds, commissions, bonuses, dividends, severance pay, pensions, interest, trust income, annuities, capital gains, Social Security benefits, workers' compensation benefits, unemployment insurance benefits, disability insurance benefits, Supplemental Security Income (SSI), gifts, prizes, and alimony or maintenance received. Specifically excluded are benefits received from means-tested public assistance programs, including but not limited to public assistance as defined under Title IV-A of the Federal Social Security Act, and food stamps. [6] While [i]n most cases, gross income will be the actual gross income of each parent, [7] the guidelines make allowance: For income from self-employment, rent, royalties, proprietorship of a business, or joint ownership of a partnership or closely held corporation, 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. Specifically excluded from ordinary and necessary expenses for purposes of this guideline shall be investment tax credits or any other business expenses inappropriate for determining gross income for purposes of calculating child support. Income and expenses from self-employment or operation of a business shall be carefully reviewed to determine an appropriate level of gross income available to the parent to satisfy a child support obligation. In most cases, this amount will differ from a determination of business income for tax purposes. Expense reimbursement or in-kind payments received by a parent in the course of employment, self-employment, or operation of a business or personal use of business property or payments of expenses by a business, shall be counted as Income if they are significant and reduce personal living expenses such as a company or business car, free housing, reimbursed meals, or club dues. [8] In support of its holding that only documented income may be considered by a trial court in determining child support, the Court of Appeals relied upon subsection (f) of KRS 403.212(2): Income statements of the parents shall be verified by documentation of both current and past income. Suitable documentation shall include, but shall not be limited to, income tax returns, paystubs, employer statements, or receipts and expenses if self-employed. [9] Although this subsection undoubtedly requires verification by documentation of a party's income statement, [10] neither this subsection nor any other provision of the guidelines explicitly requires a party to file an income statement that establishes his or her gross income. [11] However, [n]o rule of statutory construction has been more definitely stated or more often repeated than the cardinal rule that significance and effect shall, if possible, be accorded to every part of the Act. [12] Additionally, [a]ll statutes of this state shall be liberally construed with a view to promote their objects and carry out the intent of the legislature[] .... [13] And, it is axiomatic that, when interpreting a provision of a statute, a court should not, if possible, adopt a construction that renders a provision meaningless or ineffectual [14] or interpret a provision in a manner that brings about an absurd or unreasonable result. [15] Accordingly, the construction of KRS 403.212(2)(f) requires us to consider not only that subsection, but the whole statutory scheme establishing the guidelines. With the guidelines' adoption, child support determinations shifted away from an expense-based process and toward an income-based process. [16] Accordingly, the determination of child support under guidelines focuses the process on income of the parties ..., [17] and therefore, an accurate application of a guideline depends upon obtaining precise income figures [18] because [o]nce accurate income figures are identified for the parties, application of guidelines is usually straightforward. [19] We therefore interpret KRS 403.212(2)(f) as a requirement that parties file fully-documented income statements in dissolution cases that present child custody issues. We find this requirement not only implicit in the language of KRS 403.212(2)(f), but also recognize that, as a practical matter, correct income figures are necessary for trial courts to apply the guidelines accurately. By filing properly documented income statements, parties can facilitate and expedite the resolution of child support issues and thereby reduce the need for expansive and time-and-expense-consuming discovery that would otherwise be necessary to ascertain the parties' incomes and to determine the proper amount of child support. [20] Although we interpret KRS 403.212(2)(f) as a requirement that parties file documented income statements, that statutory requirement does not mean that trial courts may consider only this documented income when determining child support. The Kentucky Child Support Guidelines are based on the Income Shares Model, [21] which, in turn, is based on the precept that the child should receive the same proportion of parental income that would have been received if the parents lived together. [22] To fully accomplish this result, income calculations for guideline purposes necessarily must include all income of the parents, both documented and undocumented, or as stated in the guidelines, `[i]ncome,' means actual gross income.... [23] In fact, the guidelines themselves recognize the possibility that all of a party's income may not be documented. For example, the guidelines define income to potential income, [24] and such income by its nature is not capable of being documented under KRS 403.212(2)(f). [25] The same is true with most non-taxable income and unreported income, especially cash income, because, with few exceptions, it is not possible to document such income. We thus conclude that, while child support, as a general rule, shall be based on the parties' documented income, a trial court may consider income not susceptible to documentation if such income is properly established by the evidence. In the present case, the trial court determined Appellee's gross income by inferring that she had additional income from gifts, her gambling, and ticket scalping from the court's conclusion that her lifestyle and property reflected an income greater than her W-2's and tax returns indicated. Certainly, these types of undocumented income, while not susceptible to documentation, are nevertheless income which, if proven, a trial court should consider when determining a party's gross income. As the Court of Appeals observed, however, the problem here is that the Appellant failed to prove sufficiently that Appellee actually received the undocumented income that the trial court imputed to her. Although KRS 403.212(2)(f) imposes a mandatory obligation on the parties to report and verify their income and earnings with documentation, if a party fails to comply with this obligation, the burden remains on the opposing party to prove such income and earnings. The trial court candidly stated that proof of this additional income was limited and speculative. We agree with the trial court's characterization, but would add the word insufficient. In support of the trial court's finding that Appellee's income approximately equaled Appellant's, Appellant posits that the trial court employed a net worth analysis akin to that utilized by the Internal Revenue Service to determine whether a taxpayer has reported all taxable income. For income tax purposes: The net worth method calculates income by determining a taxpayers's net worth at the beginning and end of a period. The difference is the increase in net worth. An increase in net worth, plus nondeductible expenditures (such as personal living expenses), less nontaxable receipts, may be considered taxable income. If the resulting figure for any year is substantially greater than the taxable income reported by the taxpayer for that year, the IRS claims the excess represents unreported taxable income. [26] Although a method similar to that described above may be appropriate to determine a party's income for the purpose of applying the guidelines, the record in this case does not contain any evidence, much less findings or calculations by the trial court, supporting the additional monthly income assigned to Appellee. Neither a windshield appraisal that Appellee's lifestyle and property reflected an income greater than her W-2's and tax returns indicated nor Appellant's bare allegations of additional income are sufficient to support the trial court's finding of additional income. Establishing a party's income through the net worth method requires additional, reasonably certain income figurese.g., the party's opening net worth. [27] [L]imited and speculative evidence will not suffice. For the reasons stated, we agree with the Court of Appeals that the trial court erroneously imputed additional monthly income to the Appellee, that the judgment must therefore be vacated in part and remanded for the trial court to reexamine the child support issue based upon the parties' documented income as set forth in the record.