Yesterday, I spoke with a guy — a cop — who was dealt a harsh blow in a child support hearing. Three years ago he worked the night shift and was called in to testify in court during the days. The court-time was paid as overtime. That all changed when he went to day-shift: his court-time was simply a part of his day-shift duties, so he lost all his overtime. Two years passed, during which he fathered a child. At the time of the support hearing, he had at least fifty back-to-back-to-back paychecks (covering 24 months) showing his semi-monthly income was consistent (within a few bucks). At the hearing, however, the trial court averaged his income over the past three years — going back in time far enough to include one year when he had LOTS of overtime from his night-shift + court-time days.
Good decision, or bad? Should the cop ask for a reconsideration or maybe appeal it? Here’s what you need to know about determining child support using income averaging:
A Little Background:
Better Get It Right the First Time: First of all, we need to recognize that when we walk into a child support hearing, for the most part, we’re working without a net. If we do something wrong, the chances of a do-over are zero. If the court does something wrong, our chances are a little better, but not much. “The findings of a trial court as to income and the awarding of child support are within the discretion of the trial court and will not be disturbed on review absent an abuse of discretion.” In re: Marriage of Freesen, 655 N.E.2d 1144, 275 Ill.App.3d 97, 211 Ill.Dec. 761 (4th Dist., 1995).
The Schroeder Rule: Income Averaging Requires “Compelling Showing of Definitive Pattern of Economic Reversals:” In re: Marriage of Schroeder, 574 N.E.2d 834,215 Ill. App.3d 156,158 Ill.Dec. 721 (4th Dist., 1991). Mary Frances and Paul Shroeder divorced in 1989 with four minor children. The husband was the county coroner and in 1976 the couple bought a funeral home that he operated as a sole proprietor. The funeral home’s profits had increased each year and the 1988 profits were five times larger than in 1983. Not surprisingly, the business income plummeted once the divorce was filed. The business generated $102,000 and $112,000 income in the two years preceding the filing, but Paul nevertheless estimated his 1989 business income would amount to only $25,000. In determining his net income, the court averaged Paul’s business profits over six years (going back to 1983). The appellate court said “. . . it is apparent data six years old cannot reflect the current circumstances of the parties to enable the court to comport with (or deviate from) the guidelines . . . the use of income data going back six years violates the purpose of the Act to make reasonable provision for spouses and minor children during and after litigation.”
The Schroeder court laid down the rule for when we may invoke income averaging: “While it is appropriate to consider prior years’ documentation to ascertain income trends when future income is uncertain (In re Marriage of Butler (1982), 106 Ill.App.3d 831, 62 Ill.Dec. 535, 436 N.E.2d 561; In re Marriage of Reyna (1979), 78 Ill.App.3d 1010, 34 Ill.Dec. 818, 398 N.E.2d 641), we conclude deviations from reliable current income data require a compelling showing of a definitive pattern of economic reversals.” In re: Marriage of Schroeder, 574 N.E.2d 834,215 Ill. App.3d 156,158 Ill.Dec. 721 (4th Dist., 1991).
Use Good Data, Avoid Bad Data, and Three Years of Averaging is a Good Benchmark: In re: Marriage of Carpel, 597 N.E.2d 847 (1992) 232 Ill. App.3d 806, 173 Ill.Dec. 873 (4th Dist., 1992) is touted as a big-thing, income-averaging case but, really, it’s pretty tame. Ron and Susan Carpel had three kids and divorced in 1986. Thereafter, they fought like honey badgers about all kinds of things . . . including child support modifications. Ron had been a salaried attorney in Illinois with a regular paycheck in 1986 (the year the divorce was final) and part of 1987 with a gross income of about $156,000 and $172,000 in each of those years, respectively. Not too long after the divorce, he then spent a lot of time, effort and money setting up his own solo practice . . . in Florida! In 1988 (when he was just trying to start up a new practice in a new state), his income plummeted to $28,000. Things panned out for Ron, however, because he grossed $328,500, in 1989.
In 1990, the trial court was asked to modify child support, and did so, in March, 1991. At that time, the court had Ron’s salary information for 1986 and 1987, the terrible year of 1988, and the fantastic year of 1989. It did not, however, have any information for 1990 nor for the first few months of 1991. The court said in a memorandum opinion “Given the variable nature of [Ronald’s] professional income, taking an average of his income since entry of the [original] Judgment is the only equitable method for establishing income for purposes of calculating child support.”
The problem for the trial court was that it had such a paucity of data with which to work: two years of salary, one year of meaningless income from the year he started his solo practice, and a great year as a solo. Because the salary years and the low year (in which he started his practice) would drag down the mean, averaging from the date of the divorce would give an answer that wouldn’t accurately predict Ron’s anticipated income. That’s what the trial court did, though. Worse, the trial court seems to have goofed up its math. We’ll never know, because the judge didn’t show his work; he just presented the final dollar amount.
Susan appealed. By the time the appellate court got around to reversing the trial court’s opinion (in August, 1992) for bad math and not showing his work, it also noted that on remand, the trial court could ignore the bad-data years and would have the benefit of two more good-data years of Ron’s income as a solo PI lawyer that would be better predictors of Ron’s future income. The appellate court said:
In a case such as this, the trial court should consider the supporting parent’s previous income when trying to determine his prospective income. However, a court should not base its net income finding on the mere possibility of future financial resources (citations omitted), or on outdated data that no longer reflect prospective income (citations omitted). Here, the trial court on remand will have the benefit of being able to consider two more years (1990 and 1991) of Ronald’s self-employed income as reflected by his tax forms.
In re: Marriage of Carpel, 597 N.E.2d 847 (1992) 232 Ill. App.3d 806, 173 Ill.Dec. 873 (4th Dist., 1992)
Use Common Sense, But Always Use at Least Three Years of Data: In re: Marriage of Freesen, 655 N.E.2d 1144, 275 Ill.App.3d 97, 211 Ill.Dec. 761 (4th Dist., 1995): Debra and O.R. Freesen divorced in 1986 with four children. O.R. owned a road construction company and his income varied some — from $302,000 to $341,000 in the years leading up to the divorce. Things came to a head in 1993: one child had died in a car accident, both parties had remarried (maintenance ended) . . . and O.R’s income fell to $175,000 Debra sought an increase in support (retroactive to 1988 — five years retro, practically back to the date of the divorce) and O.R. sought a decrease.
The trial court modified support solely based on O.R.’s 1993 net income. After deducting some passive income, his net wound up at a hair over $100,000 — that amounts to less than 1/3 of what his income had averaged in the previous few years. Debra appealed and argued that the trial court should have used income averaging.
The appellate court agreed, saying:
“Income need not fluctuate wildly before it is appropriate for the trial court to consider prior years of income in determining prospective years of income. We also note that there is no iron-clad rule requiring a trial court to consider only the last three years of income in arriving at net income for child support purposes. At least the three prior years should be used to obtain an accurate income picture. Beyond that, however, it must be left to the discretion of the court, as facts will vary in each case. While a court should not base net income findings upon the mere possibility of future financial resources, neither should it rely upon outdated information which no longer reflects prospective income. (citations omitted) In most cases, going back beyond the current year in arriving at a net income figure will be confined largely to cases where the support-paying parent is self-employed. However, income averaging is not to be confined solely to such cases; it may be used in any case where appropriate.”
In re: Marriage of Freesen, 655 N.E.2d 1144, 275 Ill.App.3d 97, 211 Ill.Dec. 761 (4th Dist., 1995)
Ten Year’s Worth of Data is Okay: In re: Marriage of DiFatta, 714 N.E.2d 1092, 306 Ill. App.3d 656, 239 Ill.Dec. 795 (2d Dist., 1999). Lynda and Joseph DiFatta divorced in December, 1997. She was a homemaker, for the most part, and he was an electrician (formerly a truck driver, but switched careers during the marriage).
Joseph presented evidence at trial that his employment was very seasonal. He was paid by the hour so, rather than look at his income, he presented evidence of the hours worked. I think this might have been a nice tactic on his part and a missed objection on Lynda’s part: I suspect that some of his hours were worth a lot more than others — some were probably worth time-and-a-half wages and some may be been worth double-time wages. By getting the judge to look at his hours, instead of his income, Joe was able to cloak his increased income for overtime wages. Nice move, Joe. Bad error, Lynda. Joe showed that over ten years (TEN YEARS!), he worked from a low of 815 hours (1989 — presumably the third year of his career as an electrician — this was the year that the S&L crisis burst a real estate bubble that had been on the rise since ’84 — no wonder Joe had such low hours) to a high of 2,146 hours (1995 – the year the divorce case was started) per year. The appellate court simply said that in Joseph’s case, looking at ten years of “hours worked” was okay and not an abuse of discretion. Joe won the income averaging argument using a ten-year denominator. That’s a pretty big win, no matter how you slice it.
Personally, I think the court got this terribly wrong. First, to look only at hours and not income ignores the extra value of over-time hours (and the plain language of the statute). I think that, alone, could be an abuse of discretion. Second, it’s often the case that a workman will self-restrict his hours in the midst of a divorce case — we see this tactic all the time. So, to include a few years of prior income into an average offsets that phenomenon, somewhat. A tradesman’s career, however, sees him working fewer hours early on and increasing hours with experience. To go back so far in time that the calculation includes those early, lean years reduces the numerator and increases the denominator in the income average equation. Third, as a tradesman’s career develops, he tends to encounter more overtime opportunities. Looking at ten years of employment lumps together those lean, early years with the fat, later years. The divorce happened later in Joe’s career and the child support term would fall entirely into those later, fat years. To include the early, lean years in the calculation, again, reduces the numerator and increases the denominator, unreasonably lowering the average. In short, this ruling does exactly what Carpel said not to do. Carpel said to average with an eye toward predicting future income and not allow bad past year’s income to simply drag down the average. I think a three- or four-year average would have been a better approach.
Schroeder Distinguished: In re: Marriage of Ellies, 618 N.E.2d 934, 248 Ill.App.3d 1052, 188 Ill.Dec. 362 (1st Dist., 1993): James Elies filed for divorce from Elizabeth in May, 1990. Within a month, Elizabeth was seeking temporary child support. The hearing for temporary support was protracted, interim orders were entered from time to time, and a ruling wasn’t made until September, 1991. The numbers reported in the appellate opinion don’t add up, but the evidence adduced at a January, 1991 hearing showed that James was then paid $500 / week + bonus, had a lot of income from investments put in his name by his parents, would not receive a bonus in 1991, and the parties stipulated that his income from employment in previous years had been:
Net Salary Net Bonus Total Net
1988 $22,110 $ 25,230 $47,340
1989 $10,051 $ 66,100 $76,151
1990 $22,546 $ 22,975 $45,521
1991 $26,000 $ 0 $26,000
N0te that Jame’s income was on the upswing . . . until the divorce seemed imminent. James received his last-ever bonus the month before the case was filed. Weird, huh? Not when you learn that James’s employer was his own father. The trial court concluded that “James, with the collusion of his father, Erwin Elies, manipulated his 1991 income to show a drastic reduction.” To give you an even more nuanced flavor of the case, also in 1991, when his father stopped his bonuses, James’s mother pitched in to help make up for the lost income by helping James buy an $18,000 Porsche with the vanity license plate “JIM E.”
The court ignored the 1991 figures and averaged James’s income over the three preceding years. The court came up with a annual gross income average of $71,249 and used that to set temporary child support and maintenance at $1,500 per month. James objected to the use of income averaging. The appellate court rebuffed him, saying
“[u]nder these circumstances, the averaging method employed by the trial court was a reasonable means of determining James’ current income . . . .
. . .
We decline to follow the rigid approach to income averaging expressed by the court in Schroeder, which would permit income averaging only when a “definitive pattern of economic reversals” over several years is shown, (Schroeder, 215 Ill.App.3d at 161, 158 Ill.Dec. at 724, 574 N.E.2d at 837). For the reasons stated and under the circumstances presented in this case, we find that the manner in which James’ 1991 income was calculated was proper.”
In re: Marriage of Ellies, 618 N.E.2d 934, 940-41, 248 Ill.App.3d 1052, 188 Ill.Dec. 362 (1st Dist., 1993).
Schroeder Rejected, Elies Followed: In re: Marriage of S. D. and N. D.: 2012 Ill. App. (1st.) No. 1-10-1876 is a fairly straight-forward case as far as income averaging is concerned, but I include it here to show the court’s apprehension about invoking the Schroeder Rule. The parties divorced in January, 2005. N’s gross income over the preceding three years averaged $973,836. The kids lived with S (mom) and she received from N $20,000 per month as unallocated maintenance and support. Payments were anticipated to continue at that amount for five years, at which time both children would have emancipated and the award could be reviewed. Two years later, however, N’s three-year-running-average gross income (2006, 2007, and 2008) had fallen to about $685,700 — a drop of almost 30% from the $973,836 (I don’t know how, but the trial court calculated this as a 24% decrease). N sought and won a reduction in the payments from $20,000 to $14,500 per month (27.5%) on a temporary basis until a complete hearing could be had. The average is important: although yearly income numbers are not reported in the opinion, it says “although his income decreased from 2006 to 2007, it rose from 2006 to 2008.” Id., at ¶43. By the middle of 2009 — when the trial court was concluding the full hearing — N reported that he’d be lucky to get his gross for the year above the Mendoza line ($200,000). The final trial court ruling reduced S’s award even further. S appealed.
Among her claims, S argued that the trial court should not have averaged N’s income for 2006, 2007, and 2008 because, under the Schroeder rule, N could not show a “definitive pattern of economic reversal.” Remember, although his income for each of 2006, 2007, and 2008 was way, way below his income at the time of the divorce, he actually had an increase from 2006 to 2008. Thus, the pattern of “economic reversals” was broken. Under Schroeder, no pattern of economic reversals means “no income averaging allowed.”
The First District rejected S’s argument, saying:
“She argues that the income data did not show a “definitive pattern of economic reversal” justifying the use of income averaging. As support she cites In re: Marriage of Schroeder, 215 Ill.App.3d 156 (1991). . . . [The fourth district appellate court] concluded that income averaging should only be used if a “definitive pattern of economic reversals” over several years is shown. Id. . . . In In re: Marriage of Elies, 248 Ill.App.3d 1052 (1993) the first district appellate court found that using the income average from the past three years was an appropriate method for determining available income for maintenance and support. Furthermore, it disagreed with Schroeder‘s conclusion that income averaging should only be used if a definitive pattern of economic reversals over several years is shown. Id. We choose to follow Elies and find that the trial court did not err in utilizing income averaging to determine N.D.’s available income for maintenance.”
Conclusion: When you income average, always show your work (Carpel). Average with an eye toward predicting future income, not dragging down the average with bad past year’s income (Carpel). When you average income, use at least three years of data (Freesen). Feel free to ignore the Carpel rule (look tothe future) and try to expand the denominator if it plays to your advantage (Difatta). Ignore the Shroeder rule and use Elies as your guide.
IllinoisFamilyLaw 