Opinion
No. 5-916 / 05-0440
Filed March 1, 2006
Appeal from the Iowa District Court for Appanoose County, Daniel P. Wilson, Judge.
The respondent appeals from the child support and attorney fee provisions of a district court modification decree. AFFIRMED.
John B. Martin, Bloomfield, for appellant.
Michael Brice, Oskaloosa, for appellee.
Considered by Zimmer, P.J., and Miller and Vaitheswaran, JJ.
Douglas Ruth appeals from the district court ruling that modified provisions of the decree dissolving his marriage to Luanne Ruth. Douglas asserts the court erred in calculating his income for child support purposes, and abused its discretion in awarding Luanne $1,000 in trial attorney fees. We affirm the district court.
I. Background Facts and Proceedings.
Douglas and Luanne were married in 1986. Two children were born to the marriage: Anthony in 1986, and Lacy in 1990. The parties' marriage was dissolved in 1991. In relevant part, the decree placed the children's physical care with Luanne and ordered Douglas to child support in the amount of $156 per month per child.
In 2001, following an administrative review, Douglas's child support obligation was reduced to a total obligation of seventy-five dollars per month. The reduction was affirmed by the district court, and Luanne appealed. This court affirmed the reduction, concluding that, while net worth is a factor to be considered in deviating from the child support guidelines, Douglas's net worth at that time neither justified nor required such a deviation. See In re Marriage of Ruth, No. 01-0995 (Iowa Ct. App. March 13, 2002).
In May 2004 Luanne filed an application for modification, seeking an increase in Douglas's child support obligation. At trial Douglas, a long-time farmer, conceded that his child support obligation should be increased. He offered child support guideline worksheets that indicated his total support obligation should be set at $176 per month. The worksheets utilized annual gross incomes of $16,000 for Luanne and $9,708 for Douglas. Douglas arrived at his annual gross income figure by adjusting the amount of depreciation deducted from farm income reported on his 2002 and 2003 tax returns. He eliminated his section 179 expense deductions and utilized a straight-line rather than an accelerated depreciation deduction. He then averaged the resulting income amounts.
Luanne also requested an amendment to the dissolution decree's health insurance provision, and further requested that the parties' obligations for post-secondary education expenses be established. Those matters were ruled on by the district court and are not at issue on appeal.
For purposes of fixing Douglas's child support obligation, the district court attributed a gross annual income to Douglas of at least $40,000. The court then determined that his child support obligation should be increased to $664 per month, to be reduced to $470 per month when only one child was eligible for support. In rejecting Douglas's income figure, the district court found it would be inequitable and a gross disservice to the children to strictly use . . . tax information to determine Douglas's child support obligation to Luanne for the two children. Using a straight-line depreciation method of calculating Douglas's farm depreciation expense would be inequitable under these circumstances.
Even if calculations based on the guidelines were incorrect, by this ruling, the court has determined that a deviation from the child support guidelines should be made because a failure to do so would result in an injustice to the children and would be inappropriate under these circumstances as shown by the evidence in the case. . . . [A]n adjustment is necessary to provide for the needs of the children and to do justice between the parties.
"Because of the difference in the income and net worth of the parties" the district court also ordered Douglas to pay $1,000 toward Luanne's trial attorney fees.
Douglas filed a motion to enlarge and amend pursuant to Iowa Rule of Civil Procedure 1.904(2) or, in the alternative, for a new trial. The court denied Douglas's rule 1.904(2) request, but did reopen the record for the receipt of additional evidence. Following hearing, the court declined to alter Douglas's child support obligation. Douglas appeals.
II. Scope and Standard of Review.
Our review of this matter is de novo. Iowa R. App. P. 6.4. We give weight to the fact findings of the district court, especially in determining the credibility of witnesses, but are not bound by them. Iowa R. App. P. 6.14(6)( g).
III. Child Support.
Douglas first contends the district court erred in assessing his child support obligation. Specifically, he contends that, in calculating his net income for child support purposes, the district court impermissibly disallowed deductions for straight-line depreciation of his farming equipment.
"There is a rebuttable presumption that the amount of child support which would result from the application of the guidelines is the correct amount of child support to be awarded." In re Marriage of Bergfeld, 465 N.W.2d 865, 869 (Iowa 1991). The supreme court has directed that "[t]he court shall not vary from the amount of child support which should result from the application of the guidelines without a written finding that the guidelines would be unjust or inappropriate." In re Marriage of Hansen, 465 N.W.2d 906, 910 (Iowa Ct.App. 1990); see also Iowa Code § 598.21(4)(a) (2003). The court may vary from the guidelines if it finds that (1) "[s]ubstantial injustice would result" to the parties or the children or (2) "[a]djustments are necessary to provide for the needs of the child[ren] and to do justice between the parties . . . under the special circumstances of the case. . . ." Iowa Ct. R. 9.11; see also Bergfeld, 465 N.W.2d at 869.
In defining "net monthly income," the guidelines do not provide for a deduction for depreciation. See Iowa Ct. R. 9.5. However, in In re Marriage of Gaer, 476 N.W.2d 324, 326 (Iowa 1991), our supreme court recognized that courts have flexibility to allow all or part of straight-line depreciation as a deduction from gross income, given a finding the guidelines would otherwise be unjust or inappropriate.
Gaer recognized that depreciation allows a business owner to accumulate funds for the eventual replacement of equipment, thereby providing the owner an "`opportunity to maintain and preserve that which makes his business possible. . . .'" Gaer, 476 N.W.2d at 328 (quoting Stoner v. Stoner, 307 A.2d 146, 152 (Conn. 1972)). However, it also recognized the economic reality of depreciation as "`a mere book figure which does not either reduce . . . actual dollar income . . . or involve an actual cash expenditure [but] represents additional [available] cash . . . by permitting substantial tax deductions and, ultimately, tax savings.'" Id. Accordingly, the supreme court concluded the decision of whether depreciation should be allowed must be left to a court's discretion "determined from all the circumstances including the amount of depreciation claimed and the property depreciated.'" Id.
Douglas's 2003 tax return showed gross farm income of $255,995 and expenses of $244,738, resulting in a net income of $11,257. His expenses for that year included a depreciation and section 179 expense deduction of $53,312. In setting Douglas's child support obligation, the district court appears to have disallowed the bulk of Douglas's depreciation deductions. Such a decision is consistent with the reality that Douglas has a cash flow which significantly exceeds his taxable farm income. In recent years this cash flow has been sufficient to allow Douglas to accumulate a significant net worth, make substantial principal payments on his debts, and build a new albeit encumbered home.
Douglas testified he made significant principal and interest payments in both 2002 and 2003. Based upon his testimony the district court concluded that he made $105,000 in principal payments in the year 2003, and paid a comparable amount toward principal in 2002. Neither party appears to take issue with this finding on appeal. The district court further concluded Douglas has a net worth of at least $302,000.
We recognize that depreciation deductions are a part of the cost of doing business. In re Marriage of Cossel, 487 N.W.2d 679, 682 (Iowa Ct.App. 1992). "However, our first consideration under these circumstances is not what is in the best interest of [Douglas], but what is in the best interest of his child[ren]." In re Marriage of McKenzie, ___ N.W.2d ___, ___ (Iowa 2006). Allowing Douglas a greater depreciation deduction would, as the district court concluded, result in a level of child support inadequate to meet the children's needs, and would create a substantial injustice between the parties. We accordingly affirm the district court's child support award.
IV. Attorney Fees.
Douglas asserts the district court erred in ordering him to pay $1,000 toward Luanne's attorney fees. Such awards are within the discretion of the district court, and should be made only if they are fair and reasonable in light of the parties' respective financial positions. In re Marriage of Grady-Woods, 577 N.W.2d 851, 854 (Iowa Ct.App. 1998). Given that Douglas's income and net worth are greater than Luanne's, we conclude the court did not abuse its discretion in ordering Douglas to pay a portion of Luanne's trial attorney fees.
Both parties request appellate attorney fees. Such an award is discretionary and is determined by assessing the needs of the requesting party, the opposing party's ability to pay, and whether the requesting party was forced to defend the appeal. Gaer, 476 N.W.2d at 330. We decline to award appellate attorney fees in this matter. Costs of appeal are assessed to Douglas.