Determining guideline child support has always been a challenge when one of the parents is self-employed. Most self-employed parents will understate their real income by showing as many business deductions as possible either in their schedule C if they are a sole proprietor or in their Form 1120S if they are an S Corporation. The California Court of Appeal case of In re Marriage of Rodriguez (2018) 23 Cal.App.5th 625 established a key principle regarding child support calculations. The court ruled that trial courts have the authority to reject non-credible business deductions claimed by a self-employed parent when determining their income for child support purposes.
In Rodriguez, a self-employed father sought to deduct depreciation on his vehicle from his gross income when calculating his child support obligation. The trial court, however, denied this deduction, finding it did not constitute a legitimate business expense. The father appealed this decision. The Court of Appeal affirmed the trial court's decision. They reasoned that California Family Code Section 4058(a)(2) allows deductions for "expenditures required for the operation of the business." Depreciation, which reflects a decline in an asset's value over time, was not considered an actual "expenditure" but rather a bookkeeping method. This case holds significant weight for child support determinations in California. It empowers courts to scrutinize deductions claimed by self-employed parents to ensure a more accurate reflection of their true earning capacity. This protects the custodial parent and children from potentially lower child support payments due to inflated business expenses. Often, small businesses will include a lot of perquisites in its business deductions that needs to be adjusted and backed out to reflect the true net income of the business.
Self-employed parents in California should be mindful of this ruling. When calculating their income for child support purposes, they should focus on legitimate and verifiable business expenses. Depreciation deductions may be challenged, and alternative methods to account for vehicle expenses might be necessary. By understanding the Income and expenses surrounding child support calculations, parents can ensure their children receive the financial support they deserve
Please note that this article is not legal advice and is not intended as legal advice. The article is intended to provide only general, non-specific legal information. This article is not intended to cover all the issues related to the topic discussed. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. This article does create any attorney client relationship between you and the Law Offices of Kenneth U. Reyes, APC. This article is not a solicitation.
Attorney Kenneth Ursua Reyes is a Board-Certified Family Law Specialist. He was President of the Philippine American Bar Association. He is a member of both the Family law section and Immigration law section of the Los Angeles County Bar Association. He is a graduate of Southwestern University Law School in Los Angeles and California State University, San Bernardino School of Business Administration. He has extensive CPA experience prior to law practice. LAW OFFICES OF KENNETH U. REYES, APC is located at 3699 Wilshire Blvd., Suite 700, Los Angeles, CA, 90010. Tel. (213) 388-1611 or e-mail kenneth@kenreyeslaw.com or visit our website at Kenreyeslaw.com