Depreciation refers to the loss in property value over time. This is commonly applied to property such as real estate and automobiles. It is also frequently applied to businesses, whose value or ability to bring in profit has lessened over the years. In a family law setting, depreciation refers more to business cost allocations rather than the value of property.
Courts need to factor in depreciation when calculating child support or spousal support. Depending on the court’s discretion, depreciation may or may not be accounted for when calculating a support order. In most cases, the existence of depreciation serves to lessen the total figure for the paying spouse’s income.
Therefore, if the paying spouse is able to claim depreciation as an expense, they will be required to pay less for child or spousal support. On the other hand, sometimes the court will “add back” the depreciation to the overall calculation of gross income. In cases where “add back” principles are applied, the paying party usually has to pay more, since their income figure will be higher.
In many jurisdictions, depreciation is automatically “added back” to the paying spouse’s income figure. As mentioned, this results in a higher income figure, and therefore, higher child support payments. While this may vary by jurisdiction, the standard practice of most courts is to add back depreciation into the income figure.
The reasoning behind such court decisions is that most courts don’t consider depreciation to be a “business expenditure” for support calculations. Thus, the paying parent can’t really use a depreciation claim to reduce the amount of income that can be available for child support.
While the add-back rule is almost automatically applied for child support calculations, the result is often the opposite when it comes to spousal support or alimony. In many cases involving spousal support, depreciation is not added back, resulting in lower payments in terms of spousal support.
Courts can sometimes apply two different standards for support: one for child support orders, and a different one for spousal support. This can become very complicated in cases where both child support and spousal support are at issue (which happens quite frequently).
Again, these determinations will vary on a case-by-case basis according to the needs of the spouses and children that may be involved. There is really no set rule when it comes to factoring in depreciation for child or spousal support. Courts have much discretion when it comes to formulating support awards.
Depreciation and support orders can get very complicated. This is because depreciation in a support award refers to business accounting principles, and not traditional IRS valuations. You should contact an experienced family lawyer for assistance if you need help with a child support or spousal support order. Your attorney will be able to advise you on the depreciation laws in your area, and can represent you during court proceedings.