1. Child Support, Custody, and Visitation_support_findings_determining income
A child support order was remanded for further findings on plaintiff's income where the
trial court based its amended order in January of 2003 on plaintiff's 2001 income. Although it
would have been difficult to compute plaintiff's 2002 income accurately in January of 2003 due
to the nature of his farming business, the necessary findings were not made.
2. Child Support, Custody, and Visitation_support_determining income_depreciation
The trial court erred in determining the self-employed ]plaintiff's income in a child
support action by treating all depreciation as accelerated and failing to exercise its discretion in
ruling on the deductibility of straight-line depreciation as a reasonable and necessary business
expense.
3. Child Support, Custody, and Visitation_support_allocation of medical expenses
Where a child support award was remanded on other grounds, the award of attorney fees
and the allocation of uninsured medical or dental expenses was remanded as well. The fact that
the Child Support Guidelines include a generalized, cursory instruction concerning how the court
“may” structure the responsibility for uninsured medical or dental expenses does not in any way
alter the trial court's discretion to apportion these expenses.
Wyrick, Robbins, Yates & Ponton, L.L.P., by K. Edward Greene
and Donald L. Beci, for plaintiff-appellant.
Tharrington Smith, L.L.P., by Lynn P. Burleson and Jill
Schnabel Jackson, for defendant-appellee.
CALABRIA, Judge.
Norwood Mark Holland (“plaintiff”) appeals from an amended
order entered 10 January 2003 directing him to pay permanent childsupport for his minor child, attorney's fees to the custodial
parent, Janice Martin Holland (“defendant”), and eighty percent of
the minor child's uninsured medical or dental expenses. Plaintiff
additionally appeals from a 3 March 2003 order denying his Rule 59
and Rule 60 motions pertaining to the trial court's 3 December 2002
child support order. We reverse and remand.
Plaintiff and defendant were married 21 December 1997,
separated 6 October 2000, and divorced 15 November 2001. One child
was born to the parties on 17 November 1998. On 17 January 2001,
plaintiff filed a complaint for, inter alia, child custody and
child support. In his first claim for relief, plaintiff alleged it
would be in the best interest of the minor child for the parties to
be awarded joint custody. Plaintiff further alleged that he and
defendant owed a duty of support to the minor child and were
capable of providing adequate support.
Defendant filed an answer and counterclaims on 23 January
2001, which included, inter alia, counterclaims for child custody,
child support, and reasonable attorney's fees. Approximately three
months later, the trial court entered a temporary child support
order requiring plaintiff to pay defendant $1,077.91 per month, but
declined to enter an order for child custody until the parties had
attended custody mediation, scheduled for May 2001.
On 16 October 2001, approximately five months after entry of
the temporary child support order, plaintiff filed a motion to
modify the order claiming the amount ordered was unreasonable and
requesting a determination by the trial court of a reasonable andfair amount of child support. On 15 November 2001, the parties
consented to custody and visitation. Pursuant to a consent order,
custody of the minor child was awarded to defendant; plaintiff was
awarded visitation privileges. This consent order did not include
any reference to plaintiff's previously filed motion to modify the
temporary child support, and
the record does not reflect whether
the trial court ever ruled on this motion.
A few months after the consent order for custody and
visitation, on 2 August and 27 September 2002, hearings were held
regarding child support. The trial court found plaintiff and
defendant were both employed. Plaintiff had been employed since
1988 as a farmer and managed his mother and father's farm as well
as his own farming operation. Defendant was employed as an
administrative assistant at a local church, earning a monthly net
income of approximately $1,600.00 with expenses in excess of her
monthly income. The trial court summarized plaintiff's 2001
farming activities, and its pertinent findings of fact focused on
his 2001 income and expenses. The trial court found, in pertinent
part, the following facts: (1) plaintiff's yearly gross income was
$99,376.00; (2) plaintiff deducted $65,006.00 for accelerated
depreciation expenses; (3) plaintiff's adjusted gross income was
$34,370.00; and (4) plaintiff was capable of providing child
support in the amount of $1,061.38 per month beginning 1 December
2002 and was also capable of paying reasonable attorney's fees.
The trial court additionally found neither party requested a
deviation from the North Carolina Child Support Guidelines (the“Child Support Guidelines”). Based on these facts, the trial court
entered a child support order on 3 December 2002 ordering plaintiff
to pay: (1) child support in the amount of $1,061.38; (2) eighty
percent of the child's uninsured medical or dental expenses, with
defendant to pay the remaining twenty percent; and (3) $5,000.00 to
defendant as attorney's fees.
On 9 December 2002, plaintiff filed a motion for relief from
judgment, for amendment of the child support order, and for a new
trial based on the trial court's use of his 2001 tax return to
determine child support rather than his income at the time of the
hearing. On 10 January 2003, the trial court entered an amended
order. The trial court's findings of fact, conclusions of law, and
orders were identical to the prior order with the exception that
plaintiff was found to be capable of and ordered to provide child
support in the amount of $1,055.99 per month instead of $1,061.38.
Plaintiff asserts the trial court committed reversible error
by improperly determining his income because the trial court based
the child support order on defendant's 2001 tax return instead of
his income at the time the amended order was entered. We agree.
In pertinent part, N.C. Gen. Stat. § 50-13.4(c1) (2003)
states:
[T]he Conference of Chief District Judges
shall prescribe uniform statewide presumptive
guidelines for the computation of child
support obligations of each parent . . . and
shall develop criteria for determining when,
in a particular case, application of the
guidelines would be unjust or inappropriate. .
. . The purpose of the guidelines and
criteria shall be to ensure that payments
ordered for the support of a minor child arein such amount as to meet the reasonable needs
of the child . . . having due regard to the
estates, earnings, conditions, accustomed
standard of living of the child and the
parties, the child care and homemaker
contributions of each party, and other facts
of the particular case.
The Child Support Guidelines “apply as a rebuttable presumption in
all legal proceedings involving the child support obligation of a
parent . . . .” N.C. Child Support Guidelines, 2005 Ann. R. N.C.
47. We review a trial court's child support orders under an abuse
of discretion standard, Leary v. Leary, 152 N.C. App. 438, 441, 567
S.E.2d 834, 837 (2002), and failure to follow the Child Support
Guidelines without support of proper findings of fact constitutes
reversible error. Rose v. Rose, 108 N.C. App. 90, 93, 422 S.E.2d
446, 447 (1992).
Under the Child Support Guidelines, “[c]hild support
calculations . . . are based on the parents' current incomes at the
time the order is entered.” N.C. Child Support Guidelines 2005
Ann. R. N.C. 49 (emphasis added). While the Child Support
Guidelines provide that “[d]ocumentation of current income must be
supplemented with copies of the most recent tax return to provide
verification of earnings over a longer period[,]” id., this Court
has “established that child support obligations are ordinarily
determined by a party's actual income at the time the order is made
or modified.” Ellis v. Ellis, 126 N.C. App. 362, 364, 485 S.E.2d
82, 83 (1997) (emphasis added). “[T]he court must determine [the
parent's] gross income as of the time the child support order was
originally entered, not as of the time of remand nor on the basisof [the parent's] average monthly gross income over the years
preceding the original trial.” Lawrence v. Tise, 107 N.C. App.
140, 149, 419 S.E.2d 176, 182 (1992).
The trial court may deviate from this rule and consider “'a
party's capacity to earn income . . . if it is found that the party
deliberately depressed [his] income or otherwise acted in
deliberate disregard of the obligation to provide reasonable
support for [his] child' . . . [and] 'that [the party's] actions
which reduced his income were not taken in good faith.'” Ellis,
126 N.C. App. at 364, 485 S.E.2d at 83 (quoting Askew v. Askew, 119
N.C. App. 242, 244-45, 458 S.E.2d 217, 219 (1995)). Additionally,
after the trial court has determined the presumptive amount of
child support based on a parent's current income, “the trial court
may deviate from the presumptive amount if it determines that the
. . . amount 'would not meet or would exceed the reasonable needs
of the child considering the relative ability of each parent to
provide support or would otherwise be unjust or inappropriate.'”
Tise, 107 N.C. App. at 150, 419 S.E.2d at 182 (quoting N.C. Gen.
Stat. § 50-13.4(c)).
In the instant case, child support hearings were held on 2
August and 27 September 2002, and the trial court entered the child
support order on 3 December 2002. About six weeks later, on 10
January 2003, an amended order was entered. However, neither order
included findings concerning plaintiff's 2002 income. Rather, in
both orders, the trial court expressly based the child support
amount on plaintiff's 2001 income. Due to the nature ofplaintiff's farming business, and the fact that most of his crops
would have been harvested and sold in the late summer and fall, it
would have been difficult for the trial court to have computed
plaintiff's 2002 income with any degree of accuracy. While we
believe the trial court could have used plaintiff's 2001 income to
determine his income for purposes of computing his child support
obligation, the order fails to support this approach with the
necessary findings of fact. See generally Greer v. Greer, 101 N.C.
App. 351, 399 S.E.2d 399 (1991). Accordingly, we reverse and
remand the order for findings concerning plaintiff's 2002 income
and for the entry of a child support order on that basis.
Plaintiff also asserts the trial court erred in its method of
computing his income from his 2001 tax return. Since it is likely
to recur upon remand, we deem it necessary to address this issue.
The trial court's findings of fact 22, 23, and 24 read as
follows:
22. The plaintiff's 2001 US Individual Income
Tax Return indicated an adjusted gross income
of $34,370.00.
23. The plaintiff's 2001 US Individual Income
Tax Return indicated deductions for
accelerated depreciation expenses in the
amount of $65,006.00.
24. The plaintiff's yearly gross income for
the year 2001 is $99,376.00.
Plaintiff does not assign error to finding 22; therefore, it is
binding on appeal. Koufman v. Koufman, 330 N.C. 93, 97, 408 S.E.2d
729, 731 (1991). Plaintiff does assign error to findings 23 and
24. It is evident the trial court computed plaintiff's income by
adding the adjusted gross income of $34,370.00 to the deduction for
accelerated depreciation expenses of $65,006.00. All of the
figures for findings of fact 22 through 24 are derived from
plaintiff's 2001 federal income tax return, which the trial court
received into evidence. Plaintiff contends the trial court erred
in finding he had accelerated depreciation in the amount of
$65,006.00. We agree.
The Child Support Guidelines deal specifically with the
computation of income from self-employment or operation of a
business. This provision is applicable to the computation of
plaintiff's income since he was self-employed in the business of
farming.
(2) Income from self-employment or operation
of a business. Gross income from self-
employment, rent, royalties, proprietorship of
a business, or joint ownership of a
partnership or closely held corporation, is
defined as gross receipts minus ordinary and
necessary expenses required for self-
employment or business operation. Ordinary
and necessary business expenses do not include
amounts allowable by the Internal Revenue
Service for the accelerated component of
depreciation expenses, investment tax credits,
or any other business expenses determined by
the court to be inappropriate for determining
gross income. In general, income and expenses
from self-employment or operation of a
business should 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.
N.C. Child Support Guidelines, 2005 Ann. R. N.C. 49. Schedule F of plaintiff's 2001 tax return shows depreciation
of $64,234.00 and amortization of $772.00. Together these total
$65,006.00. The trial court found the entire amount of this total
to be accelerated depreciation. This finding is not supported by
the evidence. Straight-line depreciation is computed by taking the
purchase price of an asset and dividing it by the depreciable life
of the asset as determined by the Internal Revenue Code (“IRC”).
See generally 26 U.S.C. § 167 (2000); FPC v. Memphis Light, Gas &
Water Div., 411 U.S. 458, 460, 36 L. Ed. 2d 426, 430 n.1 (1973).
For certain assets, the IRC allows assets to be depreciated more
rapidly than straight-line depreciation. See generally 26 U.S.C.
§ 168 (2000); Memphis Light, 411 U.S. at 460, 36 L. Ed. 2d at 430
n.1. In this case, plaintiff's farm equipment was depreciated
under a 150% declining-balance method, an accelerated method of
depreciation. The accelerated component of depreciation is the
difference between the 150% declining-balance depreciation and
straight-line depreciation in a given year. It is not the entire
amount of depreciation, as found by the trial court.
This is best illustrated by using an example from plaintiff's
depreciation schedule, which was part of plaintiff's 2001 tax
return. This schedule shows a Taylor Tobacco Combine purchased on
15 January 1999 having a depreciable life of five years and a cost
basis of $22,250.00. The annual straight-line depreciation for
this item would have been $4,450.00. Plaintiff claimed a
depreciation deduction of $4,673.00 on his 2001 tax return. Of
this amount, only $223.00 would be attributable to the accelerated-depreciation component, not the full $4,673.00. It should be noted
that for most of the equipment shown on the depreciation schedule,
the depreciation claimed by plaintiff for his 2001 taxes was less
than the amount of straight-line depreciation.
In Tise, this Court held that under the Child Support
Guidelines accelerated depreciation was not allowed as a deduction
from a parent's business income. Tise, 107 N.C. App. at 147, 419
S.E.2d at 181. Regarding straight-line depreciation, Tise holds
that “the approach more consistent with our Guidelines is to vest
the trial court with the discretion to deduct from a parent's
monthly gross income the amount of straight line depreciation
allowed by the Internal Revenue Code.” Id.
The trial court erred in treating all depreciation as
accelerated depreciation and failed to exercise its discretion in
ruling on the deductibility of the straight-line depreciation as a
reasonable and necessary business expense. Upon remand, the trial
court should compute plaintiff's income in accordance with the
Child Support Guidelines and this Court's decision in Lawrence v.
Tise.
Having reversed and remanded the trial court's award of child
support, we also set aside the award of attorney's fees and the
trial court's allocation of uninsured medical or dental expenses.
On remand, the trial court, upon request, shall reconsider these
issues and will have the benefit of the 2002 Child Support
Guidelines effective 1 October 2002, which added the following
provision concerning uninsured medical or dental expenses: The court may order that uninsured medical or
dental expenses in excess of $100 per year or
other uninsured health care costs (including
reasonable and necessary costs related to
orthodontia, dental care, asthma treatments,
physical therapy, treatment of chronic health
problems, and counseling or psychiatric
therapy for diagnosed mental disorders) be
paid by the parents in proportion to their
respective incomes.
N.C. Child Support Guidelines, 2005 Ann. R. N.C. 50 (emphasis
added).
The fact that the Child Support Guidelines now include a
generalized, cursory instruction concerning how the court “may”
structure the responsibility for these uninsured expenses does not
in any way alter the trial court's discretion to apportion these
expenses, described and applied in Tise, 107 N.C. App. at 150, 419
S.E.2d at 183. Because the Child Support Guidelines neither
require the trial courts to follow a certain formula nor prescribe
what the trial courts “should” or “must” do in this regard, it
follows that when the trial court does not allocate uninsured
medical or dental expenses consistent with the parents' “respective
incomes” as revealed by the child support worksheets, such an
allocation would not constitute a “deviation” from the Guidelines
that would have to be supported by findings as to why application
of the Guidelines would be “unjust or inappropriate.” See N.C.
Gen. Stat. § 50-13.4(c) (2003). Given the wide discretion afforded
our trial courts in matters concerning the allocation of uninsured
medical or dental expenses, then, such decisions cannot be
disturbed on appeal absent a manifest abuse of discretion. Additionally, “[o]n remand, the trial court shall rely upon
the existing record, but may in its sole discretion receive such
further evidence and further argument from the parties as it deems
necessary and appropriate to comply with the instant opinion.”
Heath v. Heath, 132 N.C. App. 36, 38, 509 S.E.2d 804, 805 (1999).
We reverse and remand the trial court's amended order, and
therefore, we need not address plaintiff's remaining arguments.
Reversed and remanded.
Judges STEELMAN and LEVINSON concur.
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