                IN THE COURT OF APPEALS OF TENNESSEE
                            AT NASHVILLE
                                 November 5, 2002 Session

                LISA H. WADE v. WILLIAM HOWELL WADE, II

              Direct Appeal from the Chancery Court for Montgomery County
                       No. 97-10-0166   Carol Catalano, Chancellor



                  No. M2002-00555-COA-R3-CV - Filed December 31, 2002


This appeal arises from a change in child support, increasing the Appellant’s monthly support
obligation and awarding Appellee one half of all un-reimbursed medical and dental expenses while
Appellant is in the military. Concerning child support, we affirm in part, with modification, and
reverse and remand in part. Concerning un-reimbursed medical and dental expenses, we affirm.

 Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed in part
                      as Modified; Reversed in part; and Remanded

DAVID R. FARMER , J., delivered the opinion of the court, in which W. FRANK CRAWFORD , P.J., W.S.,
and ALAN E. HIGHERS, J., joined.

Gregory D. Smith, Clarksville, Tennessee, for the appellant, William Howell Wade, II.

Debra A. Wall, Clarksville, Tennessee, for the appellee, Lisa H. Wade.

                                           OPINION

       Parties were married on December 18, 1982. Two children were born of the marriage.
The parties were granted a divorce on the grounds of irreconcilable differences on February 24,
1998. The Marital Dissolution Agreement (MDA) provided for joint custody, with Mother
designated as primary custodial parent. Father’s child support was set at $1,267.03, an amount
“equal to or exceeding” the Tennessee Guideline amount. The MDA provided that “when
Husband’s income changes Wife shall receive a changed amount of child support, with the
provision that the total payments of child support shall equal to thirty two per cent (32%) of
Husband’s income.”

        The MDA acknowledged that Father was active duty military. The MDA provided that
Father was to keep the children enrolled for military health care benefits and provided for the
equal division of uninsured medical benefits once Father left the military. The MDA was silent
as to the treatment of uninsured medical expenses while Father remained in the military.
        Mother sought arrearage in child support in early December, 2000. She also sought
payment of one-half the cost of the children’s extracurricular activities and one-half the cost of
the children’s uninsured medical expenses. Father answered, admitting he had agreed to pay one
half of the cost of extra-curricular activities, but denying he had agreed to pay one-half of un-
reimbursed medical and dental expenses while in the military. Father counterclaimed for a credit
for overpayment of child support, and also sought a downward deviation in his obligation based
on time spent with the children.

        At trial, Father’s military leave and earnings statement (LES) was introduced which
showed that for 2001 he grossed $6,054.92 per month, paid federal taxes of $474.22 per month,
social security withholdings of $267.19 per month, and medicare withholdings of $62.49 per
month. Notwithstanding the admission of the LES into evidence, the trial court apparently based
its award of $1,703.00 per month child support for 2001 on the Father’s testimony that his net
monthly income for that year was $5,313.51.1


         1
         The trial court specifically found that the H usband had und erpaid his child support obligation since 1998 based
on the “Husband ’s testimony” that his income was as follows:

         1998
         Gross Income                        $5,100.00
         Taxes W ithheld             $4,358.00
         Net Income                          $4,358.00
         Child Support Paid                  $1,267.00
         Child Support Owed                  $1,390.00

         1999
         Gross Income                         $5,534.26
         Net Income                           $4,792.00
         Child Support Paid                   $1,319.80
         Child Support Owed                   $1,534.00
         Difference p er mo nth               $214.20

         2000
         Gross Income                         $[no amount shown]
         Net Income                           $4,976.00
         Child Support Paid                   $1,267.00 for 6 months
                                              $1,330.00 for 6 months
         Child Support Owed                   $1,590.00
         Difference p er mo nth               $323.00 for 6 months
                                              $260.00 for 6 months

         2001
         (Gross annual earning will be $72,659.04)
         Net monthly income will be         $5,313.51
         Child Support Paid                 $1,364.00
         Child Support Owed                 $1,703.00
         Difference p er mo nth             $339.00
                                                                                                            (continued...)

                                                           -2-
        The MDA specifically provides that uninsured medical and dental costs will be split
between the parties upon Father leaving the military. The MDA makes no reference to the
treatment of such costs before the occurrence of Father leaving the service. The court found that,
despite this omission, Father was responsible for half of uninsured medical and dental expenses
while he was in the military.

         Appellant submits two (2) issues for review, which we restate as follows:

         1.       Did the Trial Court err in its calculation of Appellant’s child support
                  obligation by basing such calculation on Appellant’s actual net income, in
                  order to account for the tax free nature of a portion of Appellant’s income,
                  as opposed to applying the calculation contained in the Tennessee Child
                  Support Guidelines?

         2.       Did the trial court err in ordering that uninsured medical and dental
                  expenses be split prior to the occurrence of Mr. Wade leaving the military?

                                                Standard of Review

        Our review of a trial court’s findings of fact is de novo upon the record of the trial court.
Such review is accompanied by a presumption of correctness, unless the evidence preponderates
against such findings. Tenn. R. App. P. 13(d); Brooks v. Brooks, 992 S.W.2d 403,404 (Tenn.
1999). Questions of law are reviewed de novo, with no presumption of correctness. Nelson v.
Wal-Mart Stores, Inc., 8 S.W.3d 625, 628 (Tenn. 1999).

                                         Modification of Child Support

        Parents have an obligation to support their minor children. Tenn. Code Ann. § 34-1-102.
It is well established that this duty does not terminate with the divorce of the parents. Brooks v.
Brooks, 61 S.W.2d 654 (Tenn. 1933). The extent of this duty of support is the duty to support in
a manner commensurate with the means and station in the life of the parents. State ex rel. Grant
v. Prograis, 979 S.W.2d 594, 601 (Tenn. Ct. App. 1997) (citing Brooks, 61 S.W.2d at 654).
Further,

         [u]pon petition for modification of child support obligations, trial courts must
         increase or decrease support obligations upon a showing of a significant variance
         between the amount of support provided in the child support guidelines and the
         amount of support currently ordered unless such variance was the result of a previous

         1
         (...continued)
        The record does not reflect how the support num bers were d etermined. O ur calculations, based on 32% of the
Appellant’s net income, result in the following obligation: 1998, $1,394.56; 1999, $1,533.44; 2000, $1,592.32; 2001,
$1,700.32. We find it interesting that while Appellee contends that Appellant’s obligation, per the M DA , is to be exactly
32% of his net income, none of these numbers meet that criteria.

                                                           -3-
         court-ordered deviation and the circumstances causing the deviation have not
         changed.

Willis v. Willis, 62 S.W.3d 735, 738 (Tenn. Ct. App. 2001); Tenn. Code Ann. § 36-5-101(a)(1)
(Supp. 2002).

         A significant variance is defined as “at least 15% if the current support is one hundred
dollars ($100.00) or greater per month and at least fifteen dollars ($ 15.00) if the current support
is less than $ 100.00 per month.” Id.; Tenn. Comp. R. & Regs. ch.1240-2-4-.02(3) (2002).

        In the present case, Appellant takes issue with the trial court’s use of his “true” net
income to calculate his support obligation.2 The trial court, in justifying this approach, stated that
Appellant “failed to take into consideration . . . that as a member of the . . . military he does not
have as much money withheld from his pay as those in the private sector.” We do not believe
that the trial court erred in considering the non-taxable nature of portions of Appellant’s military
compensation in calculating Appellant’s child support obligation. We do, however, agree with
Appellant that merely using the net income of the Appellant, without applying the Guideline
calculations, was in error and resulted in an incorrect calculation of Appellant’s child support
obligation.3

        As a member of the military Appellant receives compensation for hi services in the form
of various pay and allowances. It is this characterization of Appellant’s compensation, as either
pay or an allowance, that determines Appellant’s tax liability for that portion of his income. See
26 U.S.C. § 134 (a)-(b)(1) (2002); 26 U.S.C. § 3121 (I)(2). In addition to his base pay, which is




         2
             The trial court’s final ord er includ ed the following finding:

         That by agreement the husband agreed to pay 32% of his net inc ome as child support . . . which the
         parties recognized . . . [as meeting] or e xceed[ing] the T ennessee C hild Suppo rt Guidelines. Said
         divorce decree provided that as Hu sband’s income increased so would his child su ppo rt obligation to
         32% of his net income. These matters are governed by pure contract law. (Emphasis add ed.)

          Notwithstanding the provision contained in the Final Decree of Divorce that “Husband shall pay child support
based upon Tennessee Department of Human Services Guidelines. . . .” the proposition that this matter is one governed
by contract law is incorrect, for “[w ]hen the husba nd and wife contract with resp ect to the legal duty of child suppo rt,
upon approval of that contract, the agreement of the parties becomes merged into the decree and loses its contractual
nature.” Penland v. Penland, 521 S.W.2d 222, 224 (Tenn. 1975). Moreover, “[t]he fact that an agreement by the parties
was incorporated in the decree, does not divest the Court of its statutory powers to make subsequent orders where
circumstances warrant.” State ex rel. Wrzesniewski v. Miller, 77 S.W .3d 195, 197 (Tenn. Ct. App. 2001 ) (citing Do ty
v. Do ty, 260 S.W .2d 411, 413 (Tenn. Ct. App. 1952 )).

         3
          “[Tenn. Code. Ann. § 36-5-101] pro vides that the guidelines promulgated herein shall be applied as a
rebuttable presumptio n in child supp ort cases. . . .” Tenn. C omp . R. & Regs. ch.12 40-2 -4-.01(3) (2 002 ) (emp hasis
added).

                                                              -4-
subject to both federal income tax and FICA, Appellant receives BAH,4 which is an allowance
for housing, 37 U.S.C. § 403 (2002), and BAS,5 an allowance for food. 37 U.S.C. § 402.
Neither of these allowances are subject to federal income tax, or FICA. 26 U.S.C. § 134 (a)-
(b)(1) (2002); 26 U.S.C. § 3121(I)(2). Appellant also receives Flight Pay, which is subject to
federal income tax, but not FICA. Id. Military members are well aware that these non-taxable
pay and allowances “can constitute large portions of a soldier’s . . . total income.” Major Mark J.
Connor, Resolving Child Support Issues Beyond the Scope of AR 608-99, 132 Mil. L. Rev. 67,
78 (1991). In the present case, they represent 28.8% of Appellant’s monthly gross income. How
to treat this portion of Appellant’s compensation, for the purpose of determining Appellant’s
child support obligation under the Tennessee Child Support Guidelines, is the real issue
presented in this case, and appears to be one of first impression.

        The Tennessee Child Support Guidelines have the force of law, Jahn v. Jahn, 932
S.W.2d 939, 943 (Tenn. Ct. App. 1996), and when ruling on matters of child support, the court is
instructed to follow these guidelines as promulgated by the Tennessee Department of Human
Services. Tenn. Code Ann. § 36-5-101(e)(2) (Supp. 1999); Herrera v. Herrera, 944 S.W.2d
379, 386 (Tenn. Ct. App. 1996). Appellant argues that, under the Guidelines, a service member
with a gross income of $6,054.92, a sizable portion of which is nontaxable, should have the
same child support obligation as an individual with the same gross income, all of which is
taxable. We do not agree.

       The Guidelines define gross income as follows:

       Gross income shall include all income from any source (before taxes and other
       deductions), whether earned or unearned, and includes but is not limited to, the
       following: wages, salaries, commissions, bonuses, overtime payments, dividends,
       severance pay, pensions, interest, trust income, annuities, capital gains, benefits
       received from the Social Security Administration, i.e., Title II Social Security
       benefits, workers compensation benefits whether temporary or permanent, judgments
       recovered for personal injuries, unemployment insurance benefits, gifts, prizes,
       lottery winnings, alimony or maintenance, and income from self-employment.
       Income from self-employment includes income from business operations and rental
       properties, etc., less reasonable expenses necessary to produce such income.
       Depreciation, home offices, excessive promotional, excessive travel, excessive car
       expenses, or excessive personal expenses, etc., should not be considered reasonable
       expenses. “In kind” remuneration must also be imputed as income, i.e., fringe




       4
           Formerly referred to as B asic Allowanc e for Qua rters (BAQ), and referred to as such in the Guidelines.

       5
           Basic Allowance for Subsistence.

                                                          -5-
       benefits such as a company car, the value of on-base lodging and meals in lieu of
       BAQ6 and BAS for a military member, etc.

Tenn. Comp. R. & Regs. ch. 1240-2-4-.03(3)(a) (2002) (emphasis added).

        It is clear from the Guidelines that Appellant’s nontaxable pay and allowances are to be
included in figuring gross income. However, if one considers only the amount received for these
nontaxable allowances as gross income, and then applies the Guideline calculations used to
arrive at net income, a monetary award results that does not fairly represent the obligor’s true net
income. In the case of a military member, applying the Guideline calculations based on actual
gross income results in a figure that reflects their net income minus an allowance for taxes which
they have not had to pay. Such a result runs afoul of the stated “Purposes and Premises”of the
Child Support Guidelines; specifically, “[t]o ensure that when parents live separately, the
economic impact on the child(ren) is minimized and to the extent that either parent enjoys a
higher standard of living, the child(ren) share(s) in that higher standard.” Tenn. Comp. R. &
Regs. ch. 1240-2-4-.02(2)(e). This anomaly results from the fact that while these nontaxable
entitlements are clearly gross income, they are also net income because no taxes are taken from
them. For a service member, the pre-tax amount of such an allowance is equal to the post-tax
amount received, as opposed to the majority of workers who pay taxes on all of their income.
Unless the nontaxable nature of such pay and allowances is accounted for in the Guideline
calculations, the increased take home pay that the service member enjoys, as a result of the tax-
free nature of a portion of their income, will not inure to the benefit of their children.

          Fortunately, the Guidelines provide a means to account for such non-taxable pay and
allowances, whereby “the soldier’s income [can] be adjusted upward to account for the increased
value of nontaxable income.” Major Mark J. Connor, supra, at 78. The Guidelines specifically
mandate that “‘[i]n kind’ remuneration must also be imputed as income, i.e., fringe benefits such
as . . . the value of on-base lodging and meals in lieu of [BAH] and BAS for a military member,
etc.” Tenn. Comp. R. & Regs. ch. 1240-2-4-.03(3)(a) (2002) (emphasis added). We view the
nontaxable nature of certain military pay and allowances to be a “fringe benefit” falling squarely
within the purview of this section of the Guidelines. Accordingly, where a military member
receives pay or allowances which are not subject to taxation, an amount must be imputed on top
of the amount actually received in calculating Gross Income for purposes of calculating the
service member’s child support obligation under the Guidelines. The amount to be imputed to
the nontaxable portion of the service member’s pay should be the amount necessary to raise the
gross income to a level such that, when the Guideline deductions are taken to figure net income,
the resulting net pay is equal to the original amount of the pay or allowance. We stress that this
is not a deviation from the Guidelines and, as such, the trial court need not “make[] a written or
specific finding on the record that the application of the guidelines would be unjust or
inappropriate in a particular case[]” where they are imputing income to a service member in
accordance with this opinion. Tenn. Comp. R. & Regs. ch. 1240-2-4-.01(2).


       6
           BAQ (Basic Allowance for Quarters) is now referred to as BAH (Basic Allowance for Housing).

                                                      -6-
         Appellant’s February, 2001 LES lists his income as follows:

        Base Pay             $4,309.50 (subject to both Federal Income Tax and FICA)
        BAS                  $160.42 (NOT subject to Federal Income Tax or FICA)
        BAH                  $745.00 (NOT subject to Federal Income Tax or FICA)
        Fly Pay              $840.00 (subject to Federal Income Tax but NOT FICA)

        A correct calculation of Appellant’s child support obligation for the year 20017 requires
applying the aforementioned imputation of gross income to the Appellant’s nontaxable pay and
entitlements for that period. This gives Appellant a pre-imputation gross income of $6,054.92,
and post-imputation gross income of approximately $6,650.00, calculated as follows:
Base Pay + (Fly Pay x 1.0765) (to account for nonpayment of FICA) = $5,213.76 imputed gross.
Taking this $5,213.76 gross, and rounding down8 to $5,200, results in a net income of $3,746.41
per the child support guidelines chart. Adding to this net amount the $160.42 BAS and $745.00
BAH received by Appellant results in a net income of $4,651.83, which rounds up to a net
income of $4,652.00. Under the Guidelines, this net income corresponds to a gross income of
approximately $6,650.00. Thus, Appellant’s imputed gross income, for child support purposes,
is $6,650.00 per month. The Guidelines support obligation applicable to this gross income, for
two children, is $1,490.00 per month. Applying the Guideline calculations without imputing
gross income (i.e., on $6,054.92) would result in Appellant’s child support obligation being
$1,366.00 per month. Thus, properly accounting for the nontaxable nature of Appellant’s pay
and allowances results in an increase in his obligation of $124.00 per month. Such a result
comports with the “Purposes and Premises” of the Guidelines.

        “In cases involving child support, upon application of either party, the court shall decree
an increase or decrease of such allowance when there is found to be a significant variance, as
defined in the child support guidelines . . . between the guidelines and the amount of support
currently ordered . . . .” Tenn. Code Ann. § 36-5-101(a)(1) (Supp. 2002). “[A] significant
variance shall be at least 15% if the current support is one hundred dollars ($100.00) or greater
per month . . . .” Tenn. Comp. R. & Regs. ch. 1240-2-4-.02(3) (2002). Appellant was ordered to
pay $1,267.03 per month in child support prior to the action seeking modification. The
obligation imposed under the guidelines, properly considering his imputed gross income, is
$1,490.00 per month. This represents an increase of $222.97 per month, or a 17.6% increase.
This meets the statutory definition of significant change thereby warranting an increased award
of child support to Appellee for the year 2001. This increase is to be effective from the time the
petition for modification was filed. Tenn. Code Ann. § 36-5-101(a)(5) (Supp. 2002).




        7
          These calculations are based on the Guideline figures applicable for the year 2 001 . See W . W A LT O N
G ARRETT , D IVORCE , A L IM O N Y A N D C H IL D C U S T OD Y , A PP II (2002).

        8
            This is done only to aid in calculation, and should not be construed as prohibiting interpolation.

                                                            -7-
        Based on Appellant’s testimony that “he will receive a considerable raise in . . . 2002 of
approximately $1000.00 per month . . . .” the trial court set the amount of support for 2002 at
$2,020.00 per month.9 The award for the year 2002, however, was not determined according to
the formula set out above. Accordingly, the award for 2002 is reversed and remanded. On
remand, the trial court will have to determine if, properly applying the guidelines as set out above
(to include imputed income) a significant increase (i.e., 15%) exists between the Appellant’s
calculated support obligation, based on his 2002 income, and the $1,490.00 obligation currently
imposed upon him. If such a significant increase exists, then Appellant’s obligation for 2002
shall be adjusted accordingly.

                                            Uncovered Medical Expenses

       Appellant alleges that the chancellor erred by ordering that uninsured medical and dental
expenses be split prior to the occurrence of Mr. Wade leaving the military. This contention is
without merit.

        A marital dissolution agreement is a contract. Johnson v. Johnson, 37 S.W.3d 892, 896
(Tenn. 2001). However, as previously discussed, “[w]hen the husband and wife contract with
respect to the legal duty of child support, upon approval of that contract, the agreement of the
parties becomes merged into the decree and loses its contractual nature.” Penland v. Penland,
521 S.W.2d 222, 224 (Tenn. 1975) (emphasis added). “[T]he reason for stripping the agreement
of the parties of its contractual nature is the continuing statutory power of the Court to modify its
terms when changed circumstances justify.” Id. “If the child support provision of the contract
did not merge into the decree and lose its contractual nature, any subsequent modification of
child support payments by the trial court would be violative of the constitutional prohibition
against the impairment of contractual obligations.” Blackburn v. Blackburn, 526 S.W.2d 463,
465 (Tenn. 1975). The Tennessee Code provides that “[t]he necessity to provide for the child’s
health care needs shall also be a basis for modification of the amount of the order, regardless of
whether a modification in the amount of child support is necessary.” Tenn. Code Ann. § 36-5-
101(a)(1) (Supp. 2002). The Code further provides that “[t]he court . . . may order either party to
pay all, or each party to pay a pro rata share of, the health care costs not paid by insurance
proceeds.” Id. § 36-5-101(f)(1). The decision to award such expenses is discretionary. See Ray
v. Ray, No. 02A01-9404-CV-00078, 1995 Tenn. App. LEXIS 395 at *15 (Tenn. Ct. App. June
13, 1995) (no perm. app. filed). In the present case, the trial court concluded that the MDA was
silent as to how such expenses were to be treated during Appellant’s military career.
Accordingly, the trial court properly exercised its discretion in employing its “continuing
statutory power” to modify the apportionment of such expenses between the parties.




         9
           The trial court reach ed this conclusion after stating that “the Co urt is unab le to specifically ca lculate the child
supp ort ob ligation fo r the year 2002 . . . .”

                                                               -8-
                                           Conclusion

        For the reasons set forth above, we affirm the trial courts award of increased child
support, as modified, for the year 2001. We reverse the order of the child support award for the
year 2002, and remand for calculations consistent with this opinion to determine if an increase is
warranted from the modified 2001 amount. Further, we affirm the trial courts finding that
Appellant is responsible for one-half of un-reimbursed medical and dental expenses while still in
the military. We tax the costs of this appeal equally to Appellee, Lisa H. Wade, and Appellant,
William Howell Wade, II, and his surety for which execution, if necessary, may issue.



                                                     ___________________________________
                                                     DAVID R. FARMER, JUDGE




                                               -9-
