                    IN THE COURT OF APPEALS OF TENNESSEE
                        WESTERN SECTION AT NASHVILLE
                 ______________________________________________

STATE OF TENNESSEE ex rel.
                                                                        FILED
DANA INMAN RION,                                                    December 31, 1997
       Respondent-Appellee.                                        Cecil W. Crowson
                                                                 Appellate Court Clerk
Vs.                                                  No. 01A01-9704-CV-00194
                                                     Davidson Circuit No. 92D-94

PHILIP DURWARD RION,

      Petitioner-Appellant.
____________________________________________________________________________

                  FROM THE DAVIDSON COUNTY CIRCUIT COURT
                   THE HONORABLE MURIEL ROBINSON, JUDGE




                                  John G. Doak of Nashville
                                        For Appellant

                     John Knox Walkup, Attorney General and Reporter
                       Kimberly M. Frayn, Assistant Attorney General
                                      For Appellee




                              REVERSED AND REMANDED

                                       Opinion filed:




                                                             W. FRANK CRAWFORD,
                                                             PRESIDING JUDGE,W.S.

CONCUR:

DAVID R. FARMER, JUDGE

HEWITT P. TOMLIN, SENIOR JUDGE



       This is a child support case. Philip Rion appeals the order of the trial court which set

child support by imputing to ex-wife the average annual income for Tennessee families rather

than relying on ex-wife’s past earnings and actual earning potential.

       The parties were divorced in June, 1992. Mrs. Rion was awarded custody of all three
children of the marriage, and Mr. Rion was ordered to pay $269 per week for their support.

After quitting her job in Nashville, Mrs. Rion moved with the children to Texas. Her gross

income for 1994, the year before the move to Texas, was over $36,000. In April 1995, the

parties agreed to transfer custody of William Rion to Mr. Rion, and the court ordered the transfer

effective at the end of the school year. Mr. Rion was ordered to continue paying the full amount

of support until custody of William was transferred. Shortly after William moved back to

Nashville to be with his father, Mrs. Rion and the other two children returned to Nashville as

well. Mrs. Rion moved in with her former employer, but is not currently employed.

       In August 1996 (13 months after receiving custody of William), Mr. Rion petitioned the

court for child support from Mrs. Rion. Since Mrs. Rion was unemployed, the court, applying

the child support Guidelines, imputed income to her of $25,761. Ms. Rion’s support obligation

was set at $350 per month for the support of William. Mr. Rion’s support obligation for the

other two children was set at $1,170 per month based on income of $61,800. Mr. Rion was

ordered to pay the $820 per month difference to Mrs. Rion. The court calculated retroactive

support due from Mrs. Rion based on her actual total income of $17,500 for the years 1994 and

1995. The court set the total support arrearage owed by Mr. Rion at $12,488, but gave him a

credit of $3,000 for monies owed to him by Mrs. Rion for William’s support.

       On appeal, Mr. Rion asserts that the trial court incorrectly imputed the $25,761 earnings

amount to Mrs. Rion when evidence of her prior earnings shows a much greater earning

potential. He argues that Mrs. Rion is voluntarily unemployed and receives income in kind as

a result of her cohabitation with her former employer. Mr. Rion asserts that it was error for the

court not to consider her past earnings and true earning potential when calculating both future

and retroactive support.

       Since this case was tried by the court sitting without a jury, we review the case de novo

upon the record with a presumption of correctness of the findings of fact by the trial court.

Unless the evidence preponderates against the findings, we must affirm, absent error of law.

T.R.A.P. 13(d).

       Child support in Tennessee is statutorily governed by T.C.A. § 36-5-101 (1996). Section

36-5-101(e)(1) provides that “[i]n making its determination concerning the amount of support

of any minor child or children of the parties, the court shall apply as a rebuttable presumption

the child support guidelines as provided in this subsection.” The Guidelines referenced are


                                                2
promulgated by the Department of Human Services in chapter 1240-2-4 of the Official

Compilation of the Rules and Regulations of the State of Tennessee. The amount of the child

support award is based on a flat percentage of the obligor’s net income. “If an obligor is

willfully and voluntarily unemployed or underemployed, child support shall be calculated based

on a determination of potential income, as evidenced by education level and/or previous work

experience.” Tenn. Comp. R. & Regs. ch. 1240-2-4-.03(3)(d) (1994). See Herrera v. Herrera,

944 S.W.2d 379, 387 (Tenn. App. 1996). Furthermore:

               (e) When establishing an initial order and the obligor fails to
               produce evidence of income (such as tax returns for prior years,
               check stubs, or other information for determining current ability
               to support or ability to support in prior years), and the court has
               no other reliable evidence of the obligor’s income or income
               potential, gross income for the current and prior years should be
               determined by imputing annual income of $25,761. This figure
               represents an average of the median annual income for Tennessee
               families as provided by the 1990 U.S. Census of Income and
               Poverty data for Tennessee Counties.

Tenn. Comp. R. & Regs. ch. 1240-2-4-.03(3)(e) (1994).

       The plain language of these sections indicates that the median income amount is to be

used as a fall back only when the court “has no other reliable evidence of the obligor’s income

or income potential.” We believe that the Guidelines require the court to consider evidence of

income in prior years in order to calculate support in cases where the obligor is voluntarily

unemployed. When asked to consider evidence of 1994 earnings, the court stated:

               I have to be reasonable in these matters. My interpretation is a
               little different here. It is really an effort in futility for me to set
               child support on income of two years ago. Her lawyer made the
               statement that her potential is between 25 and 28 [thousand
               dollars], but she has no job at this point. So I am going to impute
               25 [thousand dollars]. You can take it up on appeal.

       It is precisely because Mrs. Rion has remained voluntarily unemployed for over two

years that the court must resort to evidence of income from more than two years ago. If such

evidence were ignored, an obligor could remain unemployed or underemployed while being

assured that no more than $25,761 could be imputed to her. We believe ignoring this evidence

is contrary to the plain language of the Guidelines and could potentially lead to the precise result

that this section of the Guidelines is designed to avoid.

       This Court addressed a similar situation in the case of Garfinkel v. Garfinkel, 945

S.W.2d 744 (Tenn. App. 1996). When the parties met in the early 1980's, Mr. Garfinkel held

a Master’s degree in Physics and earned approximately $40,000 per year in that field. Prior to


                                                 3
the marriage, Mr. Garfinkel quit his job and began living off income from several rental

properties that he owned. Mrs. Garfinkel filed for a divorce in 1992. The trial court awarded

custody of the minor children to Wife and set child support based on Mr. Garfinkel’s potential

earned income as well as his actual rental income. This Court affirmed, holding that when

setting child support “the trial court in this case correctly considered Husband’s educational

background and earnings prior to his decision to discontinue employment.” Id. at 748.

       In Garfinkel, the court properly relied on evidence of Husband’s income from more than

ten years earlier. We hold that in the case before us the trial court should not have disregarded

evidence presented regarding Mrs. Rion’s previous income. We also note that the Guidelines

provide that “[v]ariable income such as commissions, bonuses, overtime pay, dividends, etc.,

should be averaged and added to the obligor’s fixed salary.” Tenn. Comp. R. & Regs. ch 1240-

2-4-.03(3)(b) (1994). Therefore, bonuses received, or potentially to be received, by Mrs. Rion

are proper for consideration by the court when setting prospective support.

       Mr. Rion also seeks past support for William beginning in July 1995 when custody was

transferred to Mr. Rion. The Guidelines provide that:

               In cases where initial support is being set, a judgment must be
               entered to include an amount due for monthly support from the
               date of the child’s birth or date of separation or date of
               abandonment whichever is appropriate, until the current support
               order is entered. This amount must be calculated based upon the
               guidelines using the average income of the obligor over the past
               two years and is presumed to be correct unless rebutted by either
               party. An amount should be included in the order to reduce the
               arrears judgment on a monthly basis within a reasonable time.

Tenn. Comp. R. & Regs. ch 1240-2-4-.04(1)(e) (1994) (emphasis added). In its order of

November 12, 1996, the trial court addressed the amount of retroactive child support due to Mr.

Rion for William’s support:

               3. Retroactive child support due the [Respondent] from the
               [Petitioner] from July 1995 shall be based on the Petitioner’s
               actual income for 1995 and 1996, which amounts to $17,500 for
               said two year period. Child support based on this income will
               result in a credit of $3,000.00 against child support due the
               Petitioner.

Retroactive support due Mr. Rion was thus awarded based upon Mrs. Rion’s average income for

the two year period of only $8,750 per year. We hold the evidence preponderates against the

trial court’s finding of income, or income potential, for the two year period in question. On

remand, the trial court is instructed to examine evidence of her education and prior earnings to

determine Mrs. Rion’s true income potential and award retroactive support accordingly.

                                               4
       Mr. Rion also asserts that the court should have considered the financial benefit received

by Mrs. Rion as a result of her cohabitation with Peter Markham, her former employer, as either

some sort of a “gift” or income “in kind.” While it is true that gifts and income in kind are to

be included in the calculation of gross income, Tenn. R. & Regs. ch 1240-2-4-.03(3)(a), there

is no evidence that Mrs. Rion is receiving a place to live as any sort of remuneration for services

rendered that would justify attributing the benefit as income in kind. Furthermore, we cannot

say that the benefit amounts to a gift. If we were to hold otherwise, courts, applying the same

logic, could impute to an obligor’s income a portion of his rent or mortgage payment if it was

made in part by the new spouse of the obligor. We do not think that is what the drafters of the

Code and Guidelines had in mind.

       On remand, the trial court is instructed to consider Mrs. Rion’s previous work experience

and educational background in determining her potential income and calculating future support

in accordance with the Guidelines. This potential income should also be used to calculate

retroactive support back to July of 1995 when Mr. Rion took custody of William, and should

serve to reduce the arrearage owed to Mrs. Rion accordingly. However, if the court finds that

application of the Guidelines would be unjust and inappropriate in this particular case, then the

court shall state Mrs. Rion’s potential income, the amount of support that would have been

ordered under the Guidelines, as well as a justification for the variance from the Guidelines. See

T.C.A. § 36-5-101(e)(1) (1996).

       For the foregoing reasons the judgment of the trial court is reversed and the case is

remanded for further proceedings in accordance with this opinion. The child support orders

currently in effect remain valid until further order of the trial court. Costs of the appeal are

assessed against the appellee.

                                                       _________________________________
                                                       W. FRANK CRAWFORD,
                                                       PRESIDING JUDGE, W.S.
CONCUR:

____________________________________
DAVID R. FARMER, JUDGE
____________________________________
HEWITT P. TOMLIN, JR.
SENIOR JUDGE




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