Court Opinion

ID: 9713607
Source: CourtListenerOpinion
Date Created: 2023-08-26 05:18:43.242249+00
Date Added: 2024-06-11T18:23:19.549207
License: Public Domain

PRESIDING JUSTICE HOMER, specially concurring in part and dissenting in part: I believe the trial court erred in adding back all of Greg’s schedule F depreciation in determining his net income for purposes of child support. Therefore, I must respectfully dissent from that part of the majority’s opinion affirming the trial court on this issue. In computing Greg’s farm income the trial court disallowed his deductions for all schedule F depreciation. Citing section 505(a)(3)(h) of the Act, defining “net income” (750 ILCS 5/505(a)(3)(h) (West 1996)), the majority agreed with the trial judge, pointing out that “[njothing in the record demonstrates that the depreciation expenses claimed on his tax forms were utilized to repay an outstanding debt.” 297 Ill. App. 3d at 656. Such rigid adherence to the language of the statute is overly simplistic and ignores the basic and fundamental principles of accounting. “Income” is defined as the “[t]he true increase in amount of wealth which comes to a person during a stated period of time.” Black’s Law Dictionary 763 (6th ed. 1990). “Depreciation” means “spreading out the cost of a capital asset over its estimated useful life”; “decline in value of property caused by wear or obsolescence”; and “[cjonsistent, gradual process of estimating and allocating cost of capital investments over estimated useful life of asset in order to match cost against earnings.” Black’s Law Dictionary 441 (6th ed. 1990). Considering these generally accepted accounting principles, it is clear that depreciation expenses of deteriorating assets, such as farm machinery, can constitute reasonable and necessary expenses for the production of income. As has been observed elsewhere, section 505(a)(3) may work satisfactorily for employees who receive a paycheck, but it cannot be rigidly applied to determine the income of self-employed individuals. In re Marriage of Minear, 287 Ill. App. 3d 1073, 1086, 679 N.E.2d 856, 866 (1997) (Cook, J., dissenting), aff’d, 181 Ill. 2d 552 (1998); see also Gay, 279 Ill. App. 3d at 150-52, 664 N.E.2d at 95-96 (Cook, EJ., concurring in part and dissenting in part). Ours is not the first court to consider depreciation within the context of section 505(a)(3)(h), which provides a deduction from net income for “[expenditures for repayment of debts that represent reasonable and necessary expenses for the production of income.” 750 ILCS 5/505(a)(3)(h) (West 1996). Two other Illinois Appellate Court districts, reaching disparate conclusions, have also recently considered the question of whether depreciation constitutes such an expenditure. See Posey v. Tate, 275 Ill. App. 3d 822, 827, 656 N.E.2d 222, 226 (1st Dist. 1995) (holding that deduction of straight line depreciation is proper when shown to be a reasonable and necessary expense for the production of income); Minear, 287 Ill. App. 3d at 1076-77, 679 N.E.2d at 859-60 (4th Dist. 1997) (holding that depreciation is not an expenditure for the repayment of debt and therefore not deductible).1  The curious wording and limited context of section 505(a)(3)(h) provide little assistance in evaluating whether depreciation can be a proper deduction in a given situation. For that reason, we should avoid the strained analysis engaged in by other courts and instead apply generally accepted accounting principles to this issue. I would hold that depreciation expenses may be deducted to arrive at net income for purposes of the child support guidelines when (1) the cost of the capital asset has been shown to be a reasonable and necessary expenditure for the production of income, and (2) the claimed deduction reasonably represents the decline in the value of the asset caused by wear or obsolescence. Such a test would not place us at odds with the statute defining “net income,” since we would be holding that proper depreciation deductions are necessary to ascertain the amount of “income from all sources” in the first instance. See 750 ILCS 5/505(a)(3) (West 1996). For these reasons, I would reverse the trial court’s calculation of Greg’s net income and remand the cause for redetermination of child support.  In affirming the appellate court’s decision in Minear, our supreme court held that it was unnecessary to determine whether depreciation may in all cases be excluded in determining net income, because the appellant in that case failed to offer sufficient evidence to support his claimed depreciation deduction. In re Marriage of Minear, 181 Ill. 2d at 559-60.