Income in divorce is not the same as with the IRS

People typically think of income in terms of how the IRS defines income, even when it comes to divorce. This makes sense because we deal with income and IRS on an annual basis (except certain notable celebrities) while we deal with divorce, if at all, only once (again with certain celebrities excepted). However, they are not defined exactly the same.

In the recently released Kentucky Supreme Court case, Gripshover v. Gripshover, (2005-SC-000729-DG & 2006-SC-000258-DG)(Feb. 21, 2008)(to be published), , one particular difference is illuminated. The IRS provides for certain business expenses to be fully depreciated (expensed) in the year of the expense rather than depreciated over time. 26 USC Sec. 179. The Gripshover Court held that KRS 403.212 provides only for straight line depreciation. This means that the IRS reported income will often be lower than the income used for determining child support in divorce cases where a business owner is one of the spouses.

It also means that the days of relying on a business owner’s 1040 with the various self-employment schedules to show income is gone. CPA’s will be needed who understand the difference definition of income in divorce in order to determine child support.