What Impact Does “Depreciation” Have In Calculating Child Support?

In a decision filed February 27, 2007, the Court of Appeal of California reversed the orders of the trial court, wherein the court had included Respondent’s “depreciation” of his rental properties as an expense, in calculating his net income available for child support.

In the case of Asfaw v. Woldberhan, the parties had two minor children for whom child support was being sought. In an attachment to his income and expense declaration, father averred that the income derived from his rental properties was $384,000. From that sum, he subtracted $357,000 in expenses, including “depreciation” of $57,000. He thus claimed he had $27,000 of net income. The trial court found the declared business expenses, including the depreciation allocation were “legitimate and appropriate business expenses” and calculated his child support obligation to be $882 per month, based on his net income as reduced by those expenses.

Court ordered child support in the State of California is, for the most part, a creature of statute. The actual amount of child support to be paid by the higher earning parent is determined by a formula, the components of which require the computation of each parent’s annual gross income and annual net disposable income, as defined in Family Code sections 4058, and 4059.

The appellate court was faced with the following dilemma: Since rental income is expressly included as “annual gross income” under subdivision (a)(1) of section 4058 of the Family Code, and business operating expenditures are deductible under subdivision (a)(2), does depreciation of rental property constitute “expenditure required for the operation of father’s business?”

Considering the statutes individually, the appellate court concluded that although not dispositive, legislative history, legislative intent, and review of the varied treatment of depreciation in other states, tends to point toward disallowing depreciation as a deduction from income in calculating child support. The court therefore reversed the trial court’s decision and remanded the case back to the trial court with directions, among other things, to recalculate father’s child support obligation, denying any deduction from rental income for depreciation.

The above holding may not apply to all cases where depreciation is present. There are so many complexities in calculating child support. Whether you are the payor of child support or the payee, to ensure your rights are protected, your safest bet is to seek assistance from a family law attorney who knows what he or she is doing.