Jennifer L. Graham
Michael J. Cheerva
Indianapolis, Indiana ATTORNEYS FOR APPELLEE
Gale M. Phelps
Jennifer L. Graham
Michael J. Cheerva
case also discusses the handling of depreciation in a self-employed business, imputed income
from a parent's other family sources, and potential income of an underemployed parent in
determining income for child support calculations.
(Ind. 1997) (citation omitted). A judgment is clearly erroneous if it applies the wrong legal
standard to properly found facts. Id.
against the salary he received from it. Glass is the sole owner of Cook & Glass. Although
the corporation is a separate legal entity, because subchapter S was elected, its income for
purposes of federal and Indiana taxation is attributable to Glass. If no salary had been paid
to Glass, the corporation's loss of $40,520 would have been a small profit. And if Glass
operated the business as a sole proprietorship rather than a wholly-owned subchapter S
corporation, the act of paying himself a salary would have generated no income distinct from
the profit of the proprietorship. Rather it would have been simply a withdrawal of capital
from the business. Otherwise stated, by paying himself a salary from Cook & Glass, Glass
did not increase his net worth at all; he simply moved that amount from one form to another.
For these reasons it is improper to treat the salary from Cook & Glass as income unless the
profit or loss, net after that salary, is also attributed to the sole shareholder. We do not
address whether the same considerations apply to a corporation not electing to be taxed
under subchapter S, or a less than wholly-owned corporation.
Depreciation presents a different issue. The trial court was correct in noting that depreciation, although properly calculated for tax purposes, may be overstated for purposes of determining income to measure child support. In general, we would assume that allowable depreciation under methods designed to encourage investment may be overstated for child support purposes. It does not follow, however, that capital must be infused into the business at the same rate in a given financial period to make the depreciation allowable. Some major capital items (a new roof, etc.,) occur infrequently and irregularly. Some types of machinery
replacement may be more frequent and predictable. The current Guidelines recognize that
these irregular events should not create fluctuations in support levels, but are nonetheless
properly considered in measuring the income of a self-employed person. The trial court has
broad discretion, but should have as a goal the direction of Guideline 3(A)(2) to measure a
reasonable yearly deduction for necessary capital expenditures. This anticipates smoothing
the year to year impact of capital outlays by allowing for a reasonable accrual-like process
for anticipated capital expenditures but does not allow depreciation as such.
C. Imputed Income from Family Support
Glass lives alone in his deceased father's house which is now owned in a trust whose beneficiaries are Glass and his siblings. His sister is the trustee. The house sits on a lake and Glass's siblings use the lake and the house at their discretion. Glass argues that the trial court's finding that he received $18,000 in imputed income by living in his family home without paying rent is not supported by the evidence. The Guidelines state that regular and continuing payments made by a family member, subsequent spouse, roommate or live-in friend that reduce the parent's costs for rent, utilities, or groceries, should be the basis for imputing income. Child Supp. G. 3(A) Commentary 2(e).
Glass' rent-free living arrangement provides him with a lower living cost that presumably frees up money for the support of his children and was a proper basis for the trial court to impute income. The trial court's apparent implicit findingSee footnote 1 that Glass received
$1,500 per month of imputed income as a result of this living arrangement seems reasonable
based on the description of the house. Although there appears to be no evidence from either
party of the actual value of this house or the cost of renting a similar home, the general
description of the house provided by Glass and Oeder is sufficient that the finding cannot be
said to be clearly erroneous.
Glass also argues that Oeder has imputed income from her spouse's contributions to their household. As with Glass' living arrangement, the contribution Oeder's spouse makes to their home presumably frees up money for the support of her children and is a proper fact that may be considered in calculating her income. See Gilpin v. Gilpin, 664 N.E.2d 766, 767 (Ind. Ct. App. 1996). Once again, however, the trial court found no imputed income from Oeder's spouse after balancing these factors and others including the reduced mortgage payment generated by Oeder's capital infusion to purchase the house. We cannot say that the sum of these findings was clearly erroneous.
D. Potential Income
Finally, Glass argues that the trial court ignored the fact that Oeder works less than twenty hours per week as evidence of potential income and thus erred in finding that Oeder's income was $81 per week. In 1996, Oeder earned an average of $139 per week for an average 16.4 hour week. In 1997, that fell to an average of $87 for an average 10.4 hour
week. The Guidelines provide that a trial court may include a parent's potential income in
weekly gross income if a parent is capable of earning more. Child Supp. G. 3A Commentary
2(c). One purpose of attributing potential income to a parent is to fairly allocate the support
obligation when one parent remarries and, because of the income of the new spouse, chooses
not be employed. Child Supp. G. 3(A) Commentary 2(c); Ullery v. Ullery, 605 N.E.2d 214,
215 (Ind. Ct. App. 1992). Moreover, the Commentary to the Guidelines suggests that [t]he
marriage of a parent to a spouse with sufficient affluence to obviate the necessity for the
parent to work may give rise to a situation where either potential income or imputed income
or both should be considered in arriving at gross income. Child Supp. G. 3(A) Commentary
2(e). At the same time, the Guidelines caution that the trial court must employ a great deal
of discretion in its potential income determination. Child Supp. G. 3(A) Commentary 2(c).
[D]iscretion must be exercised on an individual case basis to determine if it is fair under the
circumstances to attribute potential income to a particular nonworking or underemployed
custodial parent. Child Supp. G. 3(A) Commentary 2(d).
Although a parent's choice not to work over twenty hours is to be respected by the courts, the marriage of a parent to a spouse with sufficient affluence to obviate the necessity for the parent to work may give rise to a situation where the court should consider either potential income or imputed income or both. Child Supp. G. 3(A) Commentary 2(e). Nonetheless, the Guidelines require a trial court to include potential income only where a parent is voluntarily underemployed. Child Supp. G. 3(A)(3).
Here the trial court found that Oeder was not underemployed. Concl. of Law 6. This
conclusion is supported by the trial court's finding that Oeder's income was not decreased
as a result of her remarriage and that Oeder is earning more now than she has at any time
since the birth of Robert [17 years ago]. Child Supp. Finding of Fact 11. See also General
Findings of Fact 20 (Oeder is currently employed part-time at the Indiana Eye Clinic as a
medical assistant . . . . She works as many hours as are available for this job. [She] still
suffers from back pain and migraine headaches. [She] has never held a 40 hour full-time job
since the birth of Robert 17 years ago . . . .). Based on these findings, we cannot concluded
that the trial court's resolution was clearly erroneous.
Glass also contends that Oeder intentionally deprived herself of income by purchasing a house with the proceeds of a sale of stock that would have otherwise produced investment income. The trial court refused to include in Oeder's income the proceeds from the sale of assets she liquidated to purchase a home, or any imputed income from lost investment assets. The theory Glass advances may be correct in some cases, but it is highly fact sensitive whether the use of financial assets to purchase a non-income producing asset is merely an appropriate step to maintain a family's standard of living or represents a distortion of income potential requiring adjustment by the trial court. We cannot conclude that the trial court's resolution was clearly erroneous.
in part. The decision of the Court of Appeals with respect to the attorney fees issue is
summarily affirmed. Ind. Appellate Rule 11(B)(3). This case is remanded for proceedings
not inconsistent with this opinion.
SHEPARD, C.J., and DICKSON, SULLIVAN and SELBY, JJ., concur.
amount expressly attributed to imputed income from his living arrangement, we infer that the trial court attributed $18,000 per year or $1,500 per month. ($72,686 - $44, 779 - $9,907 = $18,000). If this inference is incorrect, the trial court can correct it on remand.
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