In TN Child Support Retained Earnings Must Be Manipulated to Be Income

Tennessee law case summary on income determination. Absent a showing that the retained earnings were excessive or that an obligor was actually manipulating his or her income, the retained earnings of an S corporation should not be imputed as income to the sole or majority shareholder in calculating a child support obligation. Tennessee child support law from the Tennessee Court of Appeals.

Taylor v. Fezell – Tennessee child support case summary on retained earnings as income.

Douglas Fezell and Angela Daniels were married in 1986, and had two children. The couple divorced in 1999.  In their Marital Dissolution Agreement (MDA), Mrs. Fezell was designated as the primary residential custodian of the two minor children. The MDA also provided that Mr. Fezell was to have visitation time greater than the standard amount contemplated by the Tennessee Child Support Guidelines (guidelines).  In consideration of Mr. Fezell’s additional visitation and the establishment of a trust fund for the children, the parties agreed that Mr. Fezell would pay child support in the amount of $1,000 per month until July 31, 1999; after that it would increase to $1,300.  The MDA also provided a method to calculate Mr. Fezell’s contribution to the trust.

Mr. Fezell’s child support obligation was based, in part, on his income from Professional Vending Services (PVS).  At the time of the divorce, Mr. and Mrs. Fezell were the sole shareholders of the company, each owning a 50% interest.  The Fezells agreed in the MDA that Mr. Fezell would continue to run PVS as the sole shareholder and president, and that he would pay his ex-wife $310,000 in exchange for her half of the company.  Mr. Fezell completed the purchase of this stock and was the sole shareholder of the corporation at the time of the appeal to the Tennessee Supreme Court.

Tenn. Child Support on Business Owner’s Earnings Less Certain Expenses

Tennessee law case summary on income determination and deductions for income determination of a business owner under Tennessee divorce and family law from the Tennessee Court of Appeals.

Presson v. Presson – Tennessee Child Support Case Summary – forrestry services business

Michael and Joan Presson were married in September of 1974. They had one child.  Mr. Presson sued for divorce in 1991, and the Pressons entered into a Marital Dissolution Agreement (MDA) three days after the divorce complaint was filed.  The MDA set Mr. Presson’s monthly child support obligation at $700.  Mrs. Presson subsequently consulted two attorneys before retaining a third in an attempt to invalidate the MDA.  The parties entered into an Amended and Re-stated MDA in July 1991.  This second Agreement provided that Mr. Presson was to pay monthly child support of $800.

In June 1992, the Mrs. Presson filed a petition to set aside the final decree regarding the child support.  At an evidentiary hearing in the trial court.  Both parties presented expert testimony touching upon Mrs. Presson’s mental and emotional state during the period of negotiations leading up to the execution of the Amended and Restated MDA.  The trial court entered a nine page order on June 18, 1993, in which it denied the Mrs. Presson’s Petition to Set Aside Final Decree, but increased her child support entitlement to $1,000 per month plus $300 per month to be placed in an educational trust fund.

Self-employed Tenn. Father Held Earns $14,000 / Mo for Child Support

Tennessee law case summary on income determination for self-employed parents in Tennessee divorce and family law from the Tennessee Court of Appeals.

Norton v. Norton – Tennessee Child Support Case Summary – Income determination for self-employed child support obligors

Note: Although the Tennessee child support guidelines are significantly different today than at the time this case was issued, the discussion regarding income determination is a very helpful example of the types of issues that arise when dealing with self-employed business owners.

Lisa Norton appealed the trial court’s judgment increasing the child support obligation of  Max Norton from $400 per month to $1,200 per month; ordering Mr. Norton to contribute $300 per month to an educational trust fund for the Nortons’ minor child.  In considering Mrs. Norton’s petition to modify child support, the trial court found that Mr. Norton’s financial condition changed very little since 1988 when they agreed to a Marital Dissolution Agreement (MDA).  However, based primarily on Mr. Norton’s agreement to pay more child support, the trial court increased his monthly child support obligation to $1,200.  The Tennessee Court of Appeals vacated the trial court’s decision based on its conclusion that the trial court used the incorrect test for determining whether Mrs. Norton was entitled to the relief sought in her petition for modification.

TN Father Claimed Withdrawals From Capital Not Income Under Guidelines

Tennessee law case summary on income determination for self-employed obligor in Tennessee divorce and family law from the Tennessee Court of Appeals.

Koch v. Koch – Tennessee Child Support Case Summary – Father’s Claimed Depletion of Capital Account Held Income

Patsy Koch sued her husband Mark Koch for divorce and related relief.  Mr. Koch answered the complaint and filed a counter-claim for divorce and related relief.  The Kochs were married in September 1977 and had two minor children.  The marriage was stormy almost from the beginning—the Kochs were separated four times, including the last separation in March of 1990 that ended up in the divorce.  Mrs. Koch filed her complaint in March 1990, at which time she was seven months pregnant with their daughter.

Mr. Koch graduated from college in 1980 with a Bachelors Degree in Engineering Technology, but after graduation he purchased an interest in a small corporation with a $10,000 loan from his mother. Due to financial difficulties, the corporation ceased doing business in December of 1988; at that time Mr. Koch assumed some of the corporation’s liabilities and work in progress, and began doing business as a sole proprietorship under the name of Commercial Painting Company.

TN Trucking Co Owner Denied Deduction Buying Trucks for Child Support

Tennessee law case summary on income determination and deductions for depreciation for capital expenditures in Tennessee divorce and family law from the Tennessee Court of Appeals.

Ely v. Ely – Tennessee Child Support Case Summary – Trucking Company Owner

Suzanne  and Kenneth Ely were divorced in 1988. They entered into a marital dissolution agreement (MDA) which provided that Mr. Ely would purchase the wife’s interest in a trucking business they jointly owned and operated.

After the divorce, Mrs. Ely filed contempt proceedings on three separate occasions against Mr. Ely for failure to comply with the MDA.  Each of the three petitions alleged Mr. Ely had failed to pay his share of the medical expenses for the children, but the third petition also alleged that there had been a material and substantial change in circumstances since the divorce which justified an increase in Mr. Ely’s child support.  Mrs. Ely claimed that he was self-employed at the time of the divorce as the sole owner of Ely Trucking Company.  His business and income increased since that time. Mrs. Ely alleged she was entitled to an increase over and above the guidelines due to the fact that Mr. Ely had vested with the parties’ children less than the amount provided by either the guidelines or the final decree of divorce.

TN Considers Deductions for Captial Expenses for Self-Employed Obligor

Tennessee law case summary on child support in Tennessee divorce and family law from the Tennessee Court of Appeals dealing with deductions from income for captial expenses and depreciation for self-employed business owners.

Tennessee considers deductions from income for captial expenses and depreciation for self-employed business owners.

Kimble v. Kimble – Tennessee child support laws

Nina and Michael Kimble were married in 1985 and divorced in 1992.  When they married, Mrs. Kimble had a son from a previous marriage, and Mr. Kimble had a daughter.  Mr. Kimble adopted the son, but his ex-wife did not adopt the daughter.  The divorce decree incorporated the terms of a marital dissolution agreement (MDA) which provided that Mr. Kimble would pay child support of $250 monthly for 24 months.  At the end of that time, the trial court stated that it would not be necessary for Mrs. Kimble to show a material change of circumstances when petitioning for an increase in child support, because Mr. Kimble had begun a new business and his income was uncertain at the time of the decree.

Tennessee Child Support Income Not to Include Corp’s Retained Earnings

Tennessee law case summary on reasonable retained earnings not included in income for child support in Tennessee divorce and family law from the Tennessee Court of Appeals.

Piper v. Andrews, 1997 WL 772127 (Tenn.Ct. App., 1997).

Barbara Andrews Piper and Donald Andrews divorced in 1989.  Mrs. Andrews was awarded custody of the couple’s two minor children.  Mr. Andrews was ordered to pay $600 a month in child support.  Mr. Andrews now lives in Texas, and Mrs. Andrews lives in Tennessee.  Mrs. Andrews sought an increase in child support based on her ex-husband’s income from a closely-held corporation of which he was the sole shareholder.  In addition, Mr. Andrews’s visitation was less than the standard under the child support guidelines.

Since the divorce, Mr. Andrews had become the sole shareholder of a closely held corporation.  Mrs. Andrews argued that because all of the corporation’s income would inevitably go to Mr. Andrews, the trial court should set child support based on his increased salary and compensation package, as well as the corporation’s annual income.  The trial court held a hearing on the petition. It heard testimony regarding Mr. Andrews’s income from both parties as well as expert testimony from CPAs for both parties.  The trial court granted Mrs. Andrews increase in an amount of child support, but it was less than the she was seeking.

Self-employed Adjustments to Income Under the Tennessee Child Support Guidelines

Self-employed Parent’s Adjustments to Gross Income Under the Tennessee Child Support Guidelines

Self-employed Parent’s Adjustments to Gross Income Under the Tennessee Child Support Guidelines

Under the Tennessee child support guidelines, the calculation gets tricky when determining income for self-employed parents, . If the Rules below do not make absolute sense to you, it doesn’t to most lawyers, too.  Certified Public Accountants (CPAs) can help.

Self-Employment Income in Tennessee Child Support Guidelines

Self-employment income in Tennessee Child Support Guidelines is one of the most difficult provisions to understand. The ins and outs are infinite. Tax returns, financial statements, depreciation schedules, and general ledgers are all source records which need review.  Often, lawyers engage forensic accountants to pour over them and provide their expert opinions. Details matter.  With self-employed parents, often there is a great deal of money at stake with both in child support and spousal support issues.  Forensic accountants can provide a great of assistance.