ATTORNEY FOR APPELLANT ATTORNEY FOR APPELLEE
Jim Brugh Derick W. Steele
Logansport, Indiana Kokomo, Indiana
In the
Indiana Supreme Court FILED
Aug 19 2008, 11:22 am
_________________________________
CLERK
No. 09S05-0803-CV-136 of the supreme court,
court of appeals and
tax court
MARLA K. YOUNG,
Appellant (Respondent Below),
v.
TIMOTHY S. YOUNG,
Appellee (Petitioner Below).
_________________________________
Appeal from the Cass Circuit Court, No. 09C01-0008-DR-93
The Honorable Julian L. Ridlen, Judge
_________________________________
On Petition To Transfer from the Indiana Court of Appeals, No. 09A05-0701-CV-52
_________________________________
August 19, 2008
Shepard, Chief Justice.
This appeal raises several important issues about child support. First, in a claim for
Parenting Time Credit under the Child Support Guidelines, the word “overnight” means
overnight and not something else. Second, business deductions taken by a spouse that may be
ordinary for tax purposes are not necessarily determinative for child support purposes. Third,
payments to a former spouse for division of property are not deductions for child support
purposes.
Facts and Procedural History
Marla and Timothy Young married in 1988 and subsequently had three children. In
August 2000, Timothy filed a petition for dissolution. In 2003, the trial court entered a decree of
dissolution, awarding the parties joint custody of the three children with physical custody of the
children awarded to Marla. It set Timothy’s parenting time as Tuesdays and Thursdays after
school until 7:30 p.m. and every other weekend, holiday, and vacation.
Because both parties were self-employed and their incomes were expected to vary before
stabilizing, the parties agreed that Timothy’s weekly child support obligation would be $150 for
two years and would then be recalculated based upon the parties’ income tax returns. In
September 2005, Marla requested that the court schedule a hearing for the purpose of such
recalculation. After a hearing, the trial court set Timothy’s revised weekly child support
obligation at $327.20. In calculating this amount, the court awarded Timothy parenting time
credit for 104 overnights, 52 of which were for actual overnight stays and 52 of which were for
the two additional evenings per week Timothy spent with the children. The court also deducted
the payments Timothy made to Marla as part of the parties’ property settlement from Timothy’s
income in calculating child support.
Marla appealed, arguing that evening visits did not qualify for parenting time credit and
that the property settlement payments should not have been deducted from Timothy’s income.
The Court of Appeals affirmed the trial court’s decision on both of these issues. Young v.
Young, 881 N.E.2d 1, 5-6, 9 (Ind. Ct. App. 2007).1 We granted transfer.
1
On appeal, Marla also argued that the trial court erred by imputing an income of $54,500 to her, averaging
Timothy’s 2004 and 2005 incomes in calculating his child support obligation, and crediting Timothy for the cost of
the children’s healthcare insurance premium. We summarily affirm the disposition of these issues as made by the
Court of Appeals. Ind. Appellate Rule 58(A).
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Standard of Review
A trial court’s calculation of child support is presumptively valid. Kondamuri v.
Kondamuri, 852 N.E.2d 939 (Ind. Ct. App. 2006). We will reverse a trial court’s decision in
child support matters only if it is clearly erroneous or contrary to law. Ind. Trial Rule 52(A);
McGinley-Ellis v. Ellis, 638 N.E.2d 1249 (Ind. 1994). A decision is clearly erroneous if it is
clearly against the logic and effect of the facts and circumstances that were before the trial court.
Id. at 1252. When a trial court enters formal findings, we observe the following regimen:
courts reviewing support orders contained in judgments entered under T.R. 52
are not at liberty simply to determine whether the facts and circumstances
contained in the record support the judgment. Rather the evidence must support
the specific findings made by the court which in turn must support the judgment
. . . . [I]f the findings and conclusions entered by the court, even when construed
most favorably toward the judgment, are clearly inconsistent with it, the decision
must be set aside regardless of whether there was evidence adduced at trial
which would have been sufficient to sustain the decision.
Id.
I. Do Evening Visits Count Toward the Parenting Time Credit?
Indiana Child Support Guideline 3(G)(4) provides that trial courts “may grant the
noncustodial parent a credit toward his or her weekly child support obligation . . . based upon the
calculation from a Parenting Time Credit Worksheet.” In calculating Timothy’s child support
obligation, the trial court awarded Timothy parenting time credit for 104 overnights, 52 of which
were for actual overnight stays and 52 of which were for the two additional evenings per week
Timothy spends with the children from 3 p.m. until 7:30 p.m.
Marla argues that the Guidelines do not permit parenting time credit for non-overnight
visits. (Appellant’s Br. at 34.) Timothy argues that the trial court correctly awarded him this
parenting time credit because during the Tuesday and Thursday evening visits he performs
“overnight duties,” such as providing the children with transportation from school and to and
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from their activities, feeding them, doing homework with them, and returning them home for
bed. (Appellee’s Br. at 10.)
The Child Support Guidelines contain a formula for calculating parenting time credit
based upon the total number of “overnights” per year that the noncustodial parent spends with
the children. Child Supp. G. 6 Table PT. In explaining the term “overnight,” the commentary to
the guidelines provides that
[a]n overnight will not always translate into a twenty-four hour block of time
with all of the attendant costs and responsibilities. It should include, however,
the costs of feeding and transporting the child, attending to school work and the
like. Merely providing a child with a place to sleep in order to obtain a credit is
prohibited.
Child Supp. G. 6 cmt.
We take the gist of this comment to be that not all visits in which a child stays overnight
may qualify for the parenting time credit. Still, neither this comment nor any other portion of the
guidelines suggests that a visit may qualify as an overnight if the child does not physically stay
overnight with the noncustodial parent. If the able and careful drafters of the guidelines had
intended for non-overnight visits in which the noncustodial parent provides the children with
transportation from school and to and from their activities, feeds them, and does homework with
them to qualify for parenting time credit, the guidelines could have easily included those visits in
the formula.
The rationale behind the parenting time credit is that overnight visits with the
noncustodial parent may alter some of the financial burden of the custodial and noncustodial
parents in caring for the children. Because calculating the amount of financial burden alleviated
by an overnight visit is difficult, the guidelines provide a standardized parenting time credit
formula. Credit is not provided for evening visits because watching the children during study
hours typically does little to displace the relative parental burdens. Accordingly, the number of
visits a noncustodial parent receives parenting time credit for cannot exceed the number of visits
in which the children physically stay overnight with the parent.
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On the other hand, if after calculating the noncustodial parent’s child support obligation
the court concludes that in a particular case application of the guideline amount would be
unreasonable, unjust, or inappropriate, the court may deviate from that amount by entering a
written finding articulating the factual circumstances supporting that conclusion. Ind. Child
Support Rule 3. Noncustodial parents may be entitled to a deviation for non-overnight visits if
the facts and circumstances of the case warrant it. Such facts might include, for example, the
need to leave work early every day in order to pick the children up from school.
II. Business Deductions and Gross Income
Marla contends that the trial court erred by using the adjusted gross income figure from
Timothy’s tax returns without adding back any of the depreciation or other deductions taken for
tax purposes as his income for calculating child support. Timothy argues that it was within the
trial court’s discretion to use this amount.
Calculating gross income for the self-employed presents unique problems and calls for
careful review of expenses. Child Supp. G. 3(A) cmt. 2(a). Guideline 3(A)(2) addresses the
calculation of gross income for self-employed persons:
Weekly Gross Income from self-employment [or] operation of a business . . . is
defined as gross receipts minus ordinary and necessary expenses. In general,
these types of income and expenses from self-employment or operation of a
business should be carefully reviewed to restrict the deductions to reasonable
out-of-pocket expenditures necessary to produce income. These expenditures
may include a reasonable yearly deduction for necessary capital expenditures.
Weekly gross income from self-employment may differ from a determination of
business income for tax purposes.
Child Supp. G. 3(A)(2). The commentary to guideline 3(A) further provides that “[w]hile
income tax returns may be helpful in arriving at weekly gross income for a self-employed
person, the deductions allowed by the Guidelines may differ significantly from those allowed for
tax purposes.” Child Supp. G. 3(A) cmt. 2(a).
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Trial courts have discretion in determining which business expenses are deductible for
calculating the child support obligation of self-employed persons, but the court must engage in a
careful review of the facts and circumstances in making its determination. The adjusted gross
income from a party’s tax return is a useful point of reference, but the court must evaluate the
deductions taken in arriving at that figure.
In this case, using the adjusted gross income from Timothy’s tax return for calculation of
his child support obligation was error on multiple grounds.
For example, Timothy’s adjusted gross income figure includes a deduction of over
$7,000 that Timothy invested in his retirement account. (App. at 239.) Contributions to
retirement accounts are usually a wise move, but they certainly do not qualify as an ordinary and
necessary business expense that should be deductible for determining child support.
Moreover, the adjusted gross income figure from Timothy’s tax returns also includes
deductions of over $24,000 for redemption of Marla’s interest in the partnership, which Marla
received as part of the parties’ property settlement. (Id. at 152-53.) Parties are not permitted to
deduct the amount their spouse received in the property settlement from their income for
calculating child support.
And further, in using the adjusted gross income figure from Timothy’s tax return in
calculating his child support, the court permitted the entirety of the depreciation Timothy
deducted on his tax returns to be deducted from his income for child support purposes with no
apparent consideration of whether the depreciation was appropriate or was overly accelerated for
favorable tax treatment. We examined this phenomenon in Glass v. Oeder, 716 N.E.2d 413, 417
(Ind. 1999), in which Justice Boehm wrote, “In general, we would assume that allowable
depreciation under methods designed to encourage investment may be overstated for child
support purposes.” Whereas the cost of capital can be an appropriate deduction, the trial court
must carefully review these deductions to ensure they are reasonable out-of-pocket expenditures
necessary to produce income. Child Supp. G. 3(A)(2).
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Accordingly, we remand this issue to the trial court for reconsideration as to which of
Timothy’s deductions were proper in calculating his income for child support purposes.
III. Are Payments Under a Property Settlement Included for Child Support
Calculations?
As part of the division of marital property, Timothy agreed to pay Marla maintenance of
$565,000 at 6.5% interest over fifteen years.2 The trial court deducted this yearly payment from
Timothy’s income in its child support computation. Marla argues that payments made pursuant
to marital property settlements should not be deductible for child support purposes.
The commentary to the guidelines address the issue of spousal maintenance and property
settlements in the context of payments made to a party’s former spouse (i.e., a former spouse
who is not the parent of the child whose support is being determined). The commentary to the
guidelines states:
The worksheet provides a deduction for spousal maintenance paid as a result of a
former marriage . . . . Caution should be taken to assure that any credit taken is
for maintenance and not for periodic payments as the result of a property
settlement . . . . No such deduction is given for amounts paid by an obligor as
the result of a property settlement resulting from a former marriage . . . .
Child Supp. G. 2 cmt.
We see no reason why payments made pursuant to a property settlement between the
parents of the child should be treated differently. Presumably, marital assets will be equitably
divided between the parties to a property settlement. If one party chooses to keep the entirety of
the physical assets by paying the other spouse for her share of the assets’ value, the party who
keeps the physical assets should not also be entitled to a deduction for the value of those assets
that is being paid to the spouse. Otherwise, the party would receive the benefit of both
possessing the assets and the deduction.
2
Neither party disputes that these payments are in lieu of a lump sum property distribution. (Appellant’s Br. at 6;
Appellee’s Br. at 1.)
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For example, if Father decides he wants to keep the marital sofa (or the family business,
for that matter) by paying Mother for half of its value, he should not be able thereafter to deduct
half the value of the sofa from his income in computing child support. Otherwise, father would
be double-dipping, receiving both the sofa (or the business) and the deduction.
In this case, Timothy decided to keep certain marital business assets by buying out
Marla’s share. The fact that he kept the business assets by paying her for her portion of the
businesses’ value over fifteen years does not entitle Timothy to a deduction for the payments.
The fact that the parties structured these payments as maintenance for tax purposes does not
affect this outcome. Presumably, both parties benefited from this tax treatment. Just as the
guidelines disallow deductions for payments made to former spouses as part of a property
settlement, even if those payments were classified as maintenance by the parties, so too do we
disallow deductions for property settlements made between a child’s parents. Accordingly,
Timothy is not entitled to a deduction for the payments he makes pursuant to the parties’ marital
property settlement when calculating his child support obligation.
Conclusion
We remand with direction to reexamine the child support order as respects these three
elements.
Dickson, Sullivan, Boehm, and Rucker, JJ., concur.
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