Imputing Income: A Georgia Case Study
Pablo Franco v. Cheryl Eagle, 864 S.E.2d 675 (Georgia Court of Appeals, October 20, 2021)
By Elizabeth Ciccone, Partner, Advisory Services
In July of 2001, Pablo Franco (“Franco”) and Cheryl Eagle (“Eagle” and together with Franco, the “Parties”) were married. Prior to their separation in September of 2017, they had three sons. Franco filed for divorce in March of 2018. Many issues were resolved in mediation but, as so often happens in cases with financial issues, the Parties were unable to agree to:
- The calculation of Franco’s income;
- Child support; and
- The division of certain real property.
This Georgia-based case highlights an issue that occurs frequently in many states and jurisdictions. What is the proper basis for determination as to income — actual income or imputed income — and when does this basis change?
In the case at hand, Franco reported gross monthly actual income of $4,333 on his financial affidavit, equating to approximately $52,000 annually, while Eagle requested the trial court impute Franco’s income to $16,528 per month, or just under $200,000 annually. With the disparity in Franco’s reported income and Eagle’s requested imputed income, the determination of income quickly became a central issue in the case.
The governing Georgia statutes include definitions of income from all sources, whether earned or unearned, the consideration of business income, and how and when imputed income is includible in gross income. Specifically, the statute outlines all the typical sources of income, and says that self-employment income should be defined as gross receipts less ordinary and reasonable expenses required for self-employment or business operations. The statute includes the caveat that, “…income and expenses from self-employment or operation of a business…be carefully reviewed…to determine an appropriate level of gross income available to the parent…Generally, this amount will differ from a determination of business income for tax purposes.”
As for imputed income, in Georgia gross income may be imputed “…if a parent fails to produce reliable evidence of income, such as tax returns for prior years, check stubs, or other information for determining current ability to pay…and the court or the jury has no other reliable evidence of the parent’s income or income potential.”
In this case, the trial court found Eagle properly served Franco with discovery requests to which he failed to respond in that he produced only a portion of same. The court also found that Franco’s own testimony conflicted with documents he produced, and that his evidence about his income and transactions involving property within his control was inadequate. Furthermore, Franco had commingled his personal and business accounts, tapping the combined account for personal use. Ultimately, the trial court imputed Franco’s monthly income to $10,000, or approximately $120,000 per year.
In his appeal, Franco argued he did produce the forms of income outlined in the statute, including tax returns, 1099s, and bank statements, and that those materials represented reliable evidence. The court dismissed this argument, stating that production of evidence mentioned as examples of reliable evidence in the statute does not prohibit a court from imputing income. Furthermore, the court specifically cited the definition of self-employment or business income, noting that “generally, this amount [the income available to a parent] will differ from a determination of business income for tax purposes.” Thus, the statute by its very nature says the documentation Franco provided could be insufficient for determining gross income.
The trial court’s decision was affirmed. While it might sound cut and dry, this case brings to mind a multitude of questions. What production would have been sufficient in the discovery process to, in fact, base gross income on actual earnings versus imputed earnings? Would Franco’s cooperation at the beginning and full disclosure of documents have led to a different finding? What factors should be utilized in imputing income? How would this set of facts be treated in a different state or jurisdiction?