Depreciation as Income for Child Support and a Further Clarification on Attorney's Fees

Two days ago, the Court of Appeals released a lengthy published opinion in Riemer v Johnson, __ Mich App __; __ NW2d __ (August 18, 2015), that addressed many issues including custody, parenting time, child support, and attorney's fees. Two particular areas of interest were the Court of Appeals' discussion of the trial court’s decision not to include depreciation as part of a party's income for the calculation of child support and its clarification of the differences between MCR 3.206(C)(2) (domestic relations pleadings) attorney's fees and MCR 2.403(O) (case evaluation sanctions).

The defendant appealed the trial court's decision to exclude depreciation tax deductions taken by the plaintiff's LLCs as part of plaintiff's income for child support. The Court of Appeals cited MCSF 2.01(E)(4), noting that depreciation is in fact one of the deductions that the MCSF specifically lists as a tax deduction that should be included in a party's income for child support even though it is not included for tax purposes. The Court, however, further indicated that the MCSF requires these deductions to be included in a party's income for child support "unless they are consistent with the nature of the business or occupation." MCSF 2.01(E)(4)(e)(ii). The Court of Appeals affirmed the trial court's decision to exclude the depreciation deduction value from plaintiff's income because the defendant did not establish on the record that the depreciation was not consistent with the nature of the business or occupation. This decision demonstrates the necessity of a party actually providing evidence to support its claims under the MCSF.

Both parties appealed the trial court's award of attorney's fees. Only the defendant's appeal of the issues was substantively addressed. The Court of Appeals rejected the defendant's argument that the trial court erred by failing to follow the detailed procedure set forth in Smith v Khouri, 481 Mich 519, 530-31; 751 NW2d 472 (2008), for determination of the amount of fees to award. The Court of Appeals explained that the Smith v Khouri analysis was established to address the purpose of MCR 2.403(O) (case evaluation sanctions), which is "to encourage the parties to seriously consider the evaluation and provide financial penalties to the party that, as it develops, 'should' have accepted but did not." MCR 3.206(C)(2), however, awards attorney's fees based on need or to reimburse a party for another party’s violation of court orders. The Court of Appeals held that based on these different purposes the Smith v Khouri analysis, therefore, did not need to be followed for awards of attorney's fees under MCR 3.206(C)(2). The trial court relied on MRPC 1.5(A) and the factors set forth in Wood v Detroit Auto Inter-Ins Exch, 413 Mich 573, 588; 321 NW2d 653 (1982), to reach its decision on the amount of attorney's fees to award. The Court of Appeals affirmed the trial court's analysis, including its decision to only award fees for one of defendant's attorneys and to allocate fees based on the relative value of the parties' incomes.