Calculating Income for Child Support Calculations
The Arizona Court of Appeals ruled on how the trial court should interpret full-time employment within the Arizona Child Support Guidelines and how to apply the calculation of parent’s income to calculate a child support obligation in McNutt v. McNutt.
After the parties began living together, they had a daughter in 1995 and married the following year. The wife filed for dissolution of marriage in 1999. During their entire relationship, the husband worked as a caretaker for developmentally disabled clients at several residential facilities.
In 1993 or 1994, he started working eighty hours per week to enable the parties to purchase a home. Shortly after they separated, he reduced the number of hours he worked to sixty-four hours per week. Although he was still working sixty-four hours when the case was tried in 2000, he testified he wanted to further reduce the hours he worked to increase the quality of time spent with their daughter.
He testified he had not yet done so because he would have been unable to pay the full amount of the temporary family support order if he worked less than sixty-four hours per week. In addition to his salary, he also received monthly income from a rental property. However, he testified that he received no net income after paying the monthly mortgage and other expenses associated with that rental property.
The wife initially testified he received a net income from the property of $220.00 per month, but later admitted that figure simply reflected the difference between the rent payment and the mortgage and she did not know how much net income he actually received after paying other expenses. After taking the matter under advisement, the trial court ordered the father to pay $484.00 per month in child support, but did not allocate the federal tax exemption for the child.
Father appealed the trial court’s decision with the Court of Appeals. The court stated that the first step in determining the parents’ support obligation was to calculate each parent’s gross income. The Arizona Child Support Guidelines define gross income broadly as income from any source and any fluctuating income shall be annualized.
Income from any source which is not continuing or recurring would not necessarily be deemed gross income for child support purposes and it is generally not expected that a parent will earn income greater than what would be earned from full-time employment. Father contended that the court erred in using his eighty-hour workweek to determine his child support obligation because there is no common standard definition, other than a forty-hour workweek, that is generally associated with full-time employment.
He also asserted that any income earned from working more than that forty hours should be characterized as overtime income and excluded from the calculation of a parent’s gross income. He argued the Guidelines have implicitly adopted the approach of forty hours being recognized as full-time employment by citing a provision that states: “Seasonal, overtime, or fluctuating income shall be averaged. When income from a full-time job is consistent with income during the marriage, income earned as the result of overtime hours or a second job may be disregarded.”
Calculating Income For Child Support in Arizona | The Ruling
The appellate court, however, did not interpret the Guidelines as limiting full-time employment to forty hours. The Arizona justices were not persuaded by his claim that anything over forty hours per week is necessarily overtime because overtime is generally defined as time beyond an established limit or working hours in addition to those of a regular schedule.
Father’s regular schedule as of the trial was sixty-four hours, not forty. The justices added that the change in the definition of gross income permits an already fully-employed parent to work extra hours or a second job without thereby incurring an increased support obligation. But they did not believe the Guidelines entitled a parent who continued to work the same schedule as they consistently worked during the marriage to a decreased child support obligation.
The court continued by stating that the definition of gross income from self-employment in the Arizona Child Support Guidelines is clearly not limited by any artificial construct of a forty-hour workweek, nor could it be. The court asserted that if they accepted Father’s position and construed the Guidelines as imposing an hourly limitation on the amount of earned income generated from full-time employment, they would be fostering a situation in which children of parents with comparable gross incomes would receive inconsistent child support awards depending on the parent’s type of employment rather than ability to pay, a result unfair to both children and parents.
Also, the Arizona Court of Appeals disagreed with Father’s argument that the Guidelines now require the trial court to disregard all overtime wages when calculating gross income, regardless of the nature of the overtime. The justices believed the more likely intent of the Guidelines, one consistent with the concept of full-time employment, was to generally exclude only non-mandatory or voluntary overtime from gross income.
The Arizona Court of Appeals felt this would ensure the child support award is based on both parents’ regular incomes but leave to each parent the choice of working additional hours without exposing that parent to the “treadmill” effect of an ever-increasing child support obligation.
The court of appeals also examined the issue raised by Father’s objection to the trial court’s attribution of a greater amount of income to him than he was actually earning at the time of the trial. He had voluntarily reduced his work schedule from eighty hours per week to sixty-four hours approximately sixteen months before trial, but the court still attributed income to him based on his previous eighty-hour work schedule.
The appellate court felt that to do so, the trial court necessarily concluded that he was not working at his full earning capacity. Father again asserts that a parent who works forty hours per week is necessarily employed at their full earning capacity. The court examined past cases for precedent to decide if the trial court abused its discretion on this issue.
In Little v. Little, the Arizona Supreme Court adopted an “intermediate balancing test” for trial courts to apply when deciding whether to use actual income or earning capacity in making a child support determination when a non-custodial parent voluntarily reduces their income by terminating their employment.
Among the factors the trial court should consider are the financial impact on the children, the reasonableness of the parent’s decision, and whether the decision was made in good faith. In this case, Shane did not terminate his employment, but only reduced his work schedule and was still working sixty-four hours per week.
Although the Little balancing test is still applicable here, the court cautioned that trial courts generally should not attribute additional income to a parent that would require an extraordinary work regimen. Also, in the case of Marriage of Simpson, the California Supreme Court answered the question of whether earning capacity should, as a general matter, properly be measured by the work regimen engaged in by the supporting spouse during the marriage even if such a regimen was extraordinary, requiring excessive hours or an onerous work schedule.
The court concluded that the concept of earning capacity should be measured by the standard of an objectively reasonable work regimen rather than one requiring excessive hours. The determination of what constitutes a reasonable work regimen depends upon all relevant circumstances, including the choice of job available within a particular occupation, working hours, and working conditions.
Utilizing the precedent set by these cases, the appellate court decided that the trial court did not articulate any reasons for attributing sixteen additional hours to Father’s weekly schedule and the record revealed no reasonable basis for doing so. Therefore, they concluded that the trial court abused its discretion on this issue. It appears clear that the burden of proof of establishing whether it is appropriate to include works hours in excess of forty hours per week is on the parent asserting such a claim.
Father also argues that the trial court’s application of the Guidelines violated his due process and equal protection rights by infringing on his fundamental right to decide the terms of his own private employment and, therefore, how he utilizes his personal time. He cited no authority for his claim that he has a fundamental right to have his child support obligation based on a forty-hour workweek and the court knew of none.
The justices also stated Father was not treated differently from other divorced parents because in all cases, a parent’s actual, regular, and continuous income is the basis for the child support award. Thus, they ruled that his constitutional objections lacked merit.
Lastly, Father claimed the trial court abused its discretion by failing to allocate the federal tax exemption for his child. The court cited the Guidelines, which provide that in cases where the child support obligation is at least $1,200 per year, there “should” be an allocation of the federal tax exemptions applicable to the children that as closely as possible approximates the percentages of support being provided by each of the parents.
The appellate court concluded that, based on the intent of the Guidelines and the interest of parents in the allocation of the federal tax exemption, the word “should” as used in the Guidelines is mandatory rather than discretionary. Therefore, they ruled the trial court abused its discretion by failing to allocate the federal tax exemption and they directed the trial court to allocate the exemption on remand.
Determining the gross income of a non-custodial parent is essential to calculating their child support obligation. This case demonstrates a parent working overtime at their job can have that compensation attributed to them as part of their gross income.
The Arizona Child Support Guidelines do not limit full-time employment to forty hours per week and as long as said overtime is part of a regular schedule the court will use it as part of their calculation. However, if the parent changes their regular work schedule during or shortly before the proceedings, the court must be careful to not attribute too many or too little hours without a reasonable basis. Also, the court must allocate the federal tax exemption for any minor child to the parents if the court rules for a child support obligation of at least $1,200 per year.