Appeal from the Circuit Court of McHenry County. No. 89--D--691. Honorable Sharon L. Prather, Judge, Presiding.
The Honorable Justice Thomas delivered the opinion of the court: Inglis and Bowman, JJ., concur.
The opinion of the court was delivered by: Thomas
The Honorable Justice THOMAS delivered the opinion of the court:
The respondent, Sandra Pylawka, filed a petition to increase the child support obligation of the petitioner, George Pylawka, to an amount equal to 25% of his net income. The trial court denied the petition finding that Sandra failed to show that a substantial change in circumstances had occurred which is necessary to modify a child support order. Sandra appeals, contending that the trial court erred in: (1) finding that a substantial change in circumstances had not occurred or, in the alternative, that a showing of a substantial change in circumstances was necessary under the facts presented; (2) calculating George's net income when it excluded a sizeable tax refund from consideration; (3) considering certain evidence that was not subject to cross-examination and in failing to admit evidence about flood damage to her residence; and (4) failing to order George to pay her attorney fees.
The record shows that the parties were married on September 26, 1975, and divorced on January 9, 1992. The judgment of dissolution incorporated by reference a settlement agreement reached by the parties. Pursuant to that agreement, Sandra was awarded custody of the parties' two teenage daughters. She was also awarded the marital residence where she currently resides. The judgment provided that George pay child support of $1,200 per month and maintenance of $2,500 per month. It further provided that George's maintenance payments were to be deductible for income tax purposes.
At the time of the divorce, Sandra suffered from an asthmatic condition and was unemployed. At the time of the hearing on her petition to increase child support, she was still suffering from asthma and unemployed. Her total income of $3,700 per month coming from child support and maintenance payments remained constant. Her affidavits of expenses indicated that her household expenses had increased from $5,407 in 1991 to $6,635 in 1994. She identified medical insurance of $466 per month and car insurance for one of her daughters as two major areas of increase.
George was employed as a pilot for United Airlines at the time of the divorce and is currently employed there. George has remarried and currently lives with his spouse and her two children. In 1991, his gross income was $145,314, while his net income was approximately $96,000. The trial court calculated George's gross income in 1994 as $157,565 and his net income as $95,576. According to George's tax returns, he was entitled to a State and Federal tax refund of only $2,152 for the 1991 tax year, but for the 1994 tax year, he was entitled to a refund of $24,005. George owned an apartment building at the time of the divorce which he continues to own. In 1991, he claimed a passive activity loss of $1,562 on the apartment building, while in 1994, he claimed a passive activity loss of $11,218 on the building. The trial court did not include George's $24,005 refund in calculating his net income for 1994. In that regard, the court stated that George's tax refund was due primarily to his ability to deduct the maintenance payments he made to Sandra.
On appeal, Sandra initially contends that a substantial change in circumstances occurred and that the court erred in not considering George's tax refund as part of his net income.
Section 510(a) of the Illinois Marriage and Dissolution of Marriage Act (the Act) provides that a child support judgment can be modified only upon a showing of "substantial change" in circumstances. (750 ILCS 5/510(a) (West 1994).) To satisfy this burden, the petitioning party must show that the supporting spouse has an increased ability to pay and the child receiving support has increased needs. ( In re Marriage of Boyden (1987), 164 Ill. App. 3d 385, 387, 115 Ill. Dec. 458, 517 N.E.2d 1144.) An increase in the child's needs can be presumed on the basis that the child has grown older and the cost of living has risen. (People ex rel. Stokely v. Goodenow (1991), 221 Ill. App. 3d 802, 805, 164 Ill. Dec. 548, 583 N.E.2d 102.) After the threshold question of whether a substantial change in circumstances has occurred is answered, then and only then may the court determine the amount of the increase in child support. In re Marriage of Heil (1992), 233 Ill. App. 3d 888, 890, 174 Ill. Dec. 622, 599 N.E.2d 168.
When considering whether to modify child support payments, trial courts may consider the statutory guidelines set forth in section 505 of the Act (750 ILCS 5/505 (West 1994)). ( In re Marriage of Riegel (1993), 242 Ill. App. 3d 496, 499, 183 Ill. Dec. 168, 611 N.E.2d 21.) One of the guidelines states that when two children are involved, the supporting party should pay at least 25% of his net income for support, unless the court finds a reason to deviate from the guidelines. ( In re Marriage of Riegel, 242 Ill. App. 3d at 499.) If a court orders a lower award than provided for by the guidelines, the court must consider all the relevant factors set forth in section 505(a)(2) (750 ILCS 5/505(a)(2) (West 1994). (In re Paternity of Perry (1994), 260 Ill. App. 3d 374, 378, 198 Ill. Dec. 227, 632 N.E.2d 286.) If the court deviates from the guidelines, it shall make express findings as to its reason for doing so. 750 ILCS 5/505(a)(2) (West 1992); In re Paternity of Perry, 260 Ill. App. 3d at 378.
Initially, we note that the proper calculation of net income and the issue of whether a substantial change in circumstances has occurred are two distinct questions. For the reasons that follow, we find that a tax refund attributable to maintenance payments made to the former spouse before the court is to be considered part of "net income" under the Act. However, we agree with the trial court that a tax refund attributable entirely to such maintenance would not constitute a substantial change in circumstances.
In the instant case, the trial court found that George's net income in 1994 had not increased from 1991. In so finding, the court correctly refused to deduct passive activity investment loss from George's net income. (See In re Marriage of Partney (1991), 212 Ill. App. 3d 586, 590-91, 156 Ill. Dec. 679, 571 N.E.2d 266.) However, the court also refused to add to its net income calculation the $24,005 tax refund that George received in 1994. The refund was apparently due in part to George's ability to deduct $11,218 in 1994 as a loss on the apartment building, which was an increase from the $1,562 he was able to deduct in 1991 for the same building. George admitted that the increased deduction was due to a change in the tax code. The trial court did not differentiate between the amount of the refund attributable to the apartment building and the amount attributable to the maintenance. The court simply found that the refund was primarily due to George's ability to deduct maintenance.
The court rationalized its approach by stating that to include that amount in its calculation of "net income" would be "double dipping." We disagree.
Section 505(a)(3) of the Act defines "net income" as the total of all income from all sources, minus the following deductions: Federal and State income tax (properly calculated withholding or estimated payments), social security (FICA) payments, mandatory retirement contributions, union dues, dependent and individual health care insurance premiums, prior support or maintenance obligations, debt repayments reasonable and necessary to produce income, medical expenses necessary to preserve life or health, and other reasonable expenditures for the benefit of the child and other parent, exclusive of gifts. (750 ILCS 5/505(a)(3) (West 1994); In re Marriage of Carpel (1992), 232 Ill. App. 3d 806, 816, 173 Ill. Dec. 873, 597 N.E.2d 847.) It is the statutory definition that is to be used to determine net income and not the Internal Revenue Code. (See In re Marriage of Partney, 212 Ill. App. 3d at 592-93.) The proper method of computing net income is to calculate the amount of Federal and State income tax which a person actually pays by taking into consideration the disparity that may exist between the amount of tax withheld, as reflected on a W-2 form, and the tax eventually paid. ( In re Marriage of Werner (1986), 144 Ill. App. 3d 263, 266, 98 Ill. Dec. 178, 493 N.E.2d 1199.) Thus, ...