A Divorce Court Need Not Accept Tax Returns Provided by a Party if the Presumption of Correctness is Rebutted

After a divorce proceeding father was ordered by the divorce court to pay child support of $350 per month. The Ventura County Department of Child Support Services filed a motion for modification of child support. Father’s child support payments were modified to $1,789 a month and father’s family law attorney appealed.

Father executed an Income and Expense declaration where he claimed his average net monthly rental property income was $417.32 and his monthly self-employment income was $1,297.60. However, father had signed a uniform residential loan application in 2002, which claimed that father had a monthly net income of $3,117.80 and a monthly employment income of $11,830. Also, the application stated father’s assets were $2,661,900 including real estate valued at $2,525,000 and that his net worth was $1,317,558. Mother testified that her monthly income was approximately $2,600 per month, which included teacher’s disability and unemployment benefits.

The family law court determined that both mother and father had intentionally misrepresented their respective incomes and expenses. The family law court found mother had deposited an average of $6,000 per month into her bank account and determined her annual income to be $72,000 annually. Whereas the family law court found the father’s monthly income to be  $27,996.80, with additional rental income of $13,049, totaling to $27,996.80 per month. Thus, the family law court relied on the father’s uniform residential loan application, instead of father’s taxes, to determine his income and increased the monthly child support payments from $350 to $1,789. Father’s family law lawyer appealed.

The appellate Court upheld the child support modification order. Father’s family law lawyer argued that the family law court should have accepted his income tax returns to determine the appropriate child support payments. The Court stated, tax returns are presumptively correct because a parent’s gross income is stated under penalty of perjury, thus tax returns are a core component of determining support awards under the guideline formula. However, the Court found that the presumed correctness of recent tax returns may be rebutted by a “statement of income on a loan application… where the parent owns his own business.” A spouse who owns a successful business may structure income and payments to depress their income and create detriment to the child.

Here, the Court found there were significant discrepancies between the father’s provided tax return, loan applications, his income and expenses declaration, and his testimony. Thus the family law court was not required to accept his tax returns in determining the amount of support father was responsible to pay. The Court concluded the family law court was not required to accept that father’s monthly income amounted to $417. The father’s family law attorney claimed that it was unfair to include gross rental property income as income without deducting expenses. The Court disagreed and stated any unfairness is occasioned by father’s perjury because the reported numbers “just didn’t add up.” Further, agreeing with mother’s family law attorney, the Court explained that family law courts have the discretion to “impute income to a parent based on earning capacity.” Thus, the Court upheld the family law court’s determination and upward modification of child support because the Court could credit father’s indication of gross income and disregard his indication of expenses necessary to service the properties.

In re Marriage of Calcaterra and Badakhsh (2005) 132 Cal. App. 4th 28