Accelerated Depreciation of Self-Employed Parents in Support Decisions

In Oregon, child support rulings are based on several factors, including the income of both parents. When dealing with the income of self-employed parents, the rules for calculating income state that “accelerated” depreciation of business assets should be added back into the parent’s income. A recent case provides some guidance as to how to prove how much depreciation was accelerated.

In a divorce case, the wife earned $4,200/month from her job. The husband was self-employed, owning a one-third interest in what appears to be a family farming business. The last year before trial, the business reported income of $70,000 and depreciation of about $232,000. The wife wanted the $232,000 added back to business income to calculate the husband’s income.

Both parties had accountants testify. Neither, however, gave any opinion of how much of the depreciation was accelerated. The wife’s accountant testified the entire figure should be added, without breaking it down. The husband’s accountant testified that the depreciation was “normal” and “regular,” and disagreed with the wife’s accountant that it should be added to business income.

The judge decided that nobody had proven how much of the depreciation was accelerated, so he did not add it. Instead, he found that the husband’s monthly income was $5,000, and, using Oregon’s standard procedure for calculating support, awarded child support of $1,002/month. He also declined to award the wife spousal support as she had requested because the parties’ income was reasonably similar.

The Court of Appeals approved the trial judge’s ruling. It reviewed the judge’s written ruling and determined that the judge had understood he needed to add back accelerated depreciation but that he had fairly decided there was no proof how much of the depreciation was accelerated.

If you are dealing with the income of a self-employed parent in a child support situation, and there is significant depreciation claimed, you should prepare to show how much depreciation is accelerated. This will usually require an accountant’s opinion, but you should make sure the accountant you use is prepared to explain the amount they state is accelerated. Simply stating that all depreciation should be added will not do. This means that you should discuss the need to hire the accountant with your lawyer at the beginning.

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