Trial Court Wrongly Imputed Overtime Income When Modifying Child Support

In this child-support modification case, the trial court erroneously imputed potential overtime income to the father based on overtime work that he had declined, the Michigan Court of Appeals has ruled.

The defendant-father in Olivero v Olivero (Docket No. 348747) worked at the Michigan Department of Corrections (MDOC). He had routinely worked overtime but stopped doing so because of the stress it caused.

When recommending a modification to the defendant’s child-support obligation, the Friend of the Court (FOC) imputed overtime pay to the defendant. The defendant objected, asserting that he no longer worked overtime hours. The Washtenaw County Circuit Court adopted the FOC’s recommendation imputing overtime income to the defendant.

The Court of Appeals reversed, holding that the Michigan Child Support Formula (MCSF) Manual prohibits the imputation of overtime income.

“The trial court improperly failed to comply with the plain language of the MCSF Manual,” the Court of Appeals said, noting the trial court also did not make the findings necessary to allow a deviation from the MCSF.

Judges Mark J. Cavanagh, Stephen L. Borrello and Jonathan Tukel were on the Court of Appeals panel that issued the unpublished opinion.

Child Support Modification

The plaintiff and the defendant have two children. The parties divorced in May 2017. The judgement of divorce incorporated a Uniform Child Support Order requiring the defendant to pay support of $1,000 per month.

In October 2017, the plaintiff filed a motion to modify child support based on a change in the parenting-time schedule. The trial court referred the matter to the FOC. The FOC recommended the defendant pay child support of $1,424 per month pursuant to the MCSF. When calculating this amount, the FOC indicated the defendant was employed, worked 40 hours per week at a rate of $26.53 per hour and earned overtime pay that varied in amount during each pay period.

The defendant objected to the FOC’s recommendation. Among other things, he argued the FOC miscalculated his overtime. According to the defendant, he no longer worked overtime and was earning a lower income. He also sought a modification in parenting time.

The trial court referred the matter to the FOC, which recommended the defendant pay child support of $1,189 per month, pursuant to the MCSF. In addition to noting the defendant worked 40 hours per week for the MDOC, the FOC said the defendant had submitted his 2017 W-2 indicating that his annual income was $75,368.76. The FOC stated the plaintiff had obtained employment as a teacher assistant at a daycare, working 40 hours per week at a rate of $11 per hour. The FOC also recommended the defendant’s parenting time be expanded to include overnights.

The trial court entered an order adopting the FOC recommendation. The order did not say the child support constituted a deviation from the MCSF. The defendant objected, asserting his child support was miscalculated based on his 2017 income that included overtime pay, even though he would earn $20,000 less in 2018 than he did in 2017.

At an evidentiary hearing, the defendant testified that he was not working overtime in 2018 and that he used to work “a lot and lot and lot of overtime” to help pay household bills. He testified that he was tired of working overtime because the MDOC was a stressful environment and that he wanted to focus more on his family. The defendant stated that his annual income was $50,366 without overtime, based on his standard hourly rate. He also argued that, under the MCSF, the overtime income he had previously earned should not be imputed to him now.

The trial court adopted the FOC recommendation with respect to both child support and parenting time. The trial court said: “The Court finds [the defendant’s] testimony potentially disingenuous. Defendant has two families and any decision to reduce income makes no sense. Coupling this stated decision to spend more time with family with his wife’s claim of indigency further baffles the Court and is difficult to believe. The Court can only conclude that this voluntary reduction in income is to spite Plaintiff and/or to reduce his support obligation.”

The defendant filed a motion for reconsideration, claiming the trial court improperly imputed potential overtime income to him and failed to make necessary findings of fact to support the child support determination. He argued that his child support obligation should have been based on an annual income of $58,366. The trial court denied the motion.

No Overtime Imputation

On appeal, the defendant asserted the trial court erroneously imputed potential overtime earnings to him as income when he had not been working overtime during 2018. Alternatively, he argued the trial court erroneously failed to adhere to the requirements for deviating from the MCSF.

The Court of Appeals began its analysis by noting the MCSF Manual says that “‘[i]ncome includes … overtime pay … from all employers or as a result of any employment …’ … Such income is determined on the basis of ‘[a]ctual earnings for overtime.’ … The MCSF Manual also permits income that a parent could potentially earn to be imputed to the parent under some circumstances. Specifically, ‘[w]hen a parent is voluntarily unemployed or underemployed, or has an unexercised ability to earn, income includes the potential income that parent could earn, subject to that parent’s actual ability.’ … ‘The amount of potential income imputed should be sufficient to bring that parent’s income up to the level it would have been if the parent had not reduced or waived income.’ … However, ‘[t]he amount of potential income imputed should (1) not exceed the level it would have been if there was no reduction in income, (2) not be based on more than a 40 hour work week, and (3) not include potential overtime or shift premiums.’ … (emphasis added).”

Moreover, imputation is inappropriate where an individual is employed full time “but has chosen to cease working additional hours (such as leaving a second job or refusing overtime),” the Court of Appeals observed.

Here, the FOC calculated the defendant’s child support obligation in its final recommendation based on his 2017 W-2, which indicated the defendant’s annual income was $75,368.76. “The FOC also noted that defendant reported working 40 hours per week at a rate of $26.53 per hour,” the Court of Appeals wrote. “Defendant testified at the evidentiary hearing that although he had previously worked a significant amount of overtime, he was no longer working overtime in 2018. Defendant argued that his annual income without overtime was substantially less - approximately $20,000 - than what he had earned in 2017. … The trial court acknowledged that defendant’s previous income ‘in the $70,000 range’ was the result of working overtime, that defendant had testified that he was no longer working overtime, and that defendant worked 40 hours per week at a rate of $26.53 per hour. The trial court apparently conceded that defendant’s income in 2018 was lower than what he had earned in 2017 as a result of defendant’s decision to refrain from working overtime.”

By adopting the FOC’s calculation based on an annual income that included overtime pay, the trial court “imputed potential overtime pay to defendant that he had not earned,” the Court of Appeals stated. “The trial court thereby committed legal error by misapplying the MCSF: because defendant was undisputedly still working full-time for his employer but had simply chosen to cease working overtime, the trial court was prohibited from imputing potential income to defendant on the basis of overtime that he had voluntarily declined. 2017 MCSF 2.01(G)(1). There is nothing in §2.01(G) that makes a parent’s reasons for declining overtime relevant to the imputation analysis. The trial court improperly failed to comply with the plain language of the MCSF Manual.”

The Court of Appeals continued, “[E]ven if the trial court’s order could be construed as a deviation from the MCSF, as opposed to imputing income, the trial court still erred. MCL 552.605(2), in general terms, requires a court to ‘order child support in an amount determined by application of the child support formula developed by the state friend of the court bureau’ except, as relevant to the instant case, that the ‘court may enter an order that deviates from the formula if the court determines from the facts of the case that application of the child support formula would be unjust or inappropriate and sets forth in writing or on the record all of the following: (a) The child support amount determined by application of the child support formula. (b) How the child support order deviates from the child support formula. (c) The value of property or other support awarded instead of the payment of child support, if applicable. (d) The reasons why application of the child support formula would be unjust or inappropriate in the case.’”

In this case, the trial court failed to make all these necessary findings, the Court of Appeals held.

“Therefore,” the Court of Appeals concluded, “to the extent the trial court’s child support determination could be considered a deviation from the MCSF, the trial court erred. … Accordingly, we vacate the order for child support and remand this case to the trial court for further proceedings not inconsistent with this opinion.”