COVID-19 UPDATE: Woodruff Family Law Group Remains Open and Operational - More Information Click Here.
Published on:

Court’s Costly Confusion Over Profits and Expenses

Devine v. Devine, (No. COA19-913) (unpublished)

Here in Greensboro, business owners are not immune to unhappy marriages. Divorces can be long and complicated messes, especially when the fortunes of the family rest upon the fortunes of the business. Child support and alimony are based partly on the income and expenses of the parties going through divorce. In the case below, we discuss how one court, which presumably lacked business experience, incorrectly calculated a party’s income.

  • Facts: Plaintiff Husband and Defendant Wife separated on July 2017. Plaintiff was a business owner. In November, Plaintiff filed claims for child custody and support. Joint legal custody was granted by the court with primary physical custody to the defendant. Defendant then filed a motion for child support and alimony. At the hearing, evidence of Plaintiff’s income was shown by past years tax returns, past expenses for business, past personal expenses (including purchasing dirt bikes for his children, a 4-wheeler, a motorcycle and BMW, tattoos, motorcycle apparel, and a gym membership), and past bank balances. After a hearing, the judge calculated Plaintiff’s gross monthly income to $5,900.00. Plaintiff appealed.
  • Issue: Did the trial court err in calculating Plaintiff’s gross monthly income?
  • Holding:
  • Rationale: Review of child support and alimony is based in abuse of discretion. Plaintiff argued first that the trial court failed to make findings on his current income, and in using his past income, failed to give a reason for why they did not attempt to determine his current income. Current income at the time the Order is made is acceptable, and when a court is unable or unwilling to use current income, it must make specific findings as to the past income and a reason for not using the current. Plaintiff next argued that the court failed to calculate his business net profit. As part of his business, Plaintiff must buy supplies and materials for his client’s projects. He is reimbursed for his expenses by the client. The amount for such expenses in 2016 was $26,834.00 as reported on his tax return. The determination that it is not an expense and that it should be added to his profits was an error on the part of the trial court.
  • Lessons and Observations:
  1. A trial court must use the current income, as of the date of the Order, to determine child support and alimony awards. A court cannot solely rely on past tax returns, bank statements, purchases, and income statements.
  2. Show your work: Remember back in elementary school when, even when you knew 10 + 11 = 21, you had to write out the arithmetic? Same rule applies the court. If the court must use past income data, it must write the reason for doing so, as well as writing down how each piece of evidence was factored in arriving at an amount.
  3. A business owner whose income is determined on the success of a venture cannot have past years successes used as a projection of current income, unless the court has reason to distrust or discredit actual income, and even then the court must explain why and how it arrived at a number for gross income. Business matters are difficult for laypersons to understand and, as illustrated by this case, can be difficult for the court to understand. Having an attorney on your side with business acumen and experience with divorce proceedings of business owners is extremely valuable, and it could obtain a better outcome without the need for an appeal.