Tennessee Father’s Income for Child Support Can Include Stock Sales

Tennessee child support law in Tennessee divorce & family law from the Tennessee Court of Appeals.

Alexander v. Alexander – Calculating Gross Income for Tennessee Child Support

This decision breaks down into clear categories a number of sources of income and expenses which may be considered for purposes of child support.

Donald James Alexander (the Father) and Carolyn Paxton Morrow (the Mother) were   married for 12.5 years and had two children, who were 11 and 10 at the time of the divorce decree in February 1995.   The Father was ordered to pay $2,194 per month in child support in 1995.   In 1997, the Mother filed for an increase in child support, claiming that there was a significant variance, according to the Tennessee Child Support Guidelines,  in the Father’s income to require an increase in child support.   According to Tennessee law, a modification may be made to the amount a non-custodial parent has to pay if there has been at least a 15% change in that individual’s gross income.

The Father had a college education and at the time of the divorce, he was involved in various business interests and was self-employed.   At the time of the divorce hearing, the Father testified that he was looking for new employment.   However, the Father  is the grandchild of the owner of McKee Foods, maker of Little Debbie Snack Cakes.  He traveled extensively, often with his children, owned a boat and a motor home and owned somewhere between 53,000 and 56,000 shares in McKee common stock.   In 1997, when the mother’s petition was filed for a change in child support, the stocks were valued at $71 per share.    The Mother moved to California following her remarriage, and enrolled in college.  At the time of the appeal, she was not employed but both she and her new husband received small stipends as students from the state of California.

The trial court ruled in 1998 that no change had occurred and denied the request.  The appeals court found in favor of the Mother.

Father’s Gross Income

The appeals court held that the Father’s gross income should be determined by averaging his income over several years, from 1995 through 1998.  The court disagreed with the  Father’s claim that income for years previous to the date of the petition should not be considered, holding that this rule is aimed at prohibiting retroactive modification and requiring a parent to pay back fees.  In the given case, the Mother petitioned for the modification to take place only from the time the decision was given.   A number of additional factors were used to determine the Father’s income over this period of time in order to determine whether or not there was a significant variance.

The Father’s income tax returns for 1995 through 1997 show that he owned a vehicle leasing business.  According to the Guidelines, depreciation is not a reasonable expense when calculating income from self-employment or business operations.  However, the trial court, and the appeal court held that a literal reading of this rule would be unfair in something like a leasing business where depreciation of a truck or tractor is a very real expense.  Both courts held that expenses for these vehicles were a real expense and deductions for a portion of the purchase price of the vehicles of the company represent a reasonable expense of that company.  However, both the appeals court and the trial court held that these losses were on paper only and were not actually paid by him.  Accordingly, losses from this company were not considered in determining his net income.

The Appeals court held that there were capital gains from stock that should be considered as income and rejected all of the Father’s arguments on this issue.   The Father claimed that the stocks sold were purchased in 1972, which would mean that the capital gain from the purchases would be spread over 23 years.  The court held that the stocks sold had been purchased only a few years earlier, and thus the capital gain was spread over a shorter period of time (between three and six years). The Appeals court did not accept the father’s claim that since he does not plan to sell any more of his McKee stock, the capital gains made on the sales should not be included in his income.  The court found evidence that the Father had, in the past, used the sale of stock to supplement his income several times, going back many years and therefore held that it should be included in determining his income.  Finally, the Appeals court partially agreed with the father regarding the rule that  a capital gain resulting from the sale of an asset to fund a division of property in a divorce should not be considered in calculating child support.   In 1995, the Father sold some McKee stock to pay alimony to the Mother.  The court ruled that this sale could not be considered a capital gain for the purpose of determining income.

One claim made by the Mother that the Appeals court rejected was that the Father’s opulent lifestyle should impact on the amount of support awarded.  The Guidelines allow valuable assets and resources to be considered for child support calculations if these seem inappropriate to the income claimed by the parent paying support.   The Mother argued that the Father’s lifestyle indicated great, hidden wealth.   In this case, both the trial court and the Appeals court found that the Father’s lifestyle was not opulent but appropriate to his declared income.

Changes to be made based on Variance in Income

The appellate court’s findings increased the Father’s income substantially enough to require that a modification be made to the existing child support obligation.  The court only determined the Father’s gross income and sent the case back to the trial court to determine the Father’s net income.

34 S.W.3d 456 (Tenn. Ct. App. 2000).

See original opinion for exact language.  Legal citations omitted.

Read Tennessee Child Support Answers to FAQ’s, for legal updates, news, analysis, and commentary, visit our Tennessee Family Law Blog and its Child Support category.  A Memphis child support attorney from the Miles Mason Family Law Group can help you with Tennessee child support issues including setting or modifying child support. To schedule your confidential consultation about Tennessee child support, call us today at (901) 683-1850.

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