Domestic Diversions

Tax-free income

The Michigan Court of Appeals published Peterson v Peterson (October 24, 2006, Case No. 260591), holding that for child support purposes, depreciation is income without an offsetting tax adjustment.

Judge Murphy writes (excerpt):
Plaintiff appeals by leave granted the trial court order adopting the Friend of the Court (FOC) recommendation concerning defendant’s child support obligation. The issue presented to us is whether the trial court, in the context of calculating defendant’s child support obligation, erred in deducting taxes from defendant’s income. These taxes were not actually incurred by defendant but theoretically would have been incurred had defendant not been entitled to a depreciation allowance in preparing his income tax returns. This depreciation allowance indisputably could not be deducted from income when examining the parties’ income levels relative to child support. Because the Michigan Child Support Formula Manual (West, 2001 – rev ed) (MCSF Manual) does not allow deductions for theoretical taxes, as opposed to taxes actually incurred, on income received by a parent, and because limiting deductions to taxes actually incurred is not unjust or inappropriate, the trial court erred in its child support calculation, and we reverse and remand.

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