I previously wrote here about the dissolution of marriage case between S.L.S. (Wife) and T.J.D. (Husband) and Wife’s appeal of the district court judge’s spousal maintenance and child support awards. In that case, the Colorado Court of Appeals held that the district court judge had incorrectly considered unrealized investment gains in a TD Ameritrade account awarded to Wife as part of the divorce case’s property division to be “gross income” for the calculation of maintenance and child support. The court of appeals also concluded that the district court incorrectly calculated Husband’s income as well.
At the permanent orders hearing in the district court, Husband–who received all of the rental properties in the divorce–presented evidence of each rental property’s rental rate and associated depreciation. Husband asked the district court judge to “include all depreciation for each property when determining his net monthly rental income,” while Wife argued that “the court should not consider any depreciation.” The district court judge found that “the depreciation in excess of the income [H]usband earned on the rentals would not be included in his income calculation but that all other depreciation would be allowed.”
The Colorado Court of Appeals disagreed. Colorado’s spousal maintenance and child support statutes identify income from rents as “income” for purposes of calculating maintenance and child support. According to these statutes, “‘gross income’ equals gross receipts minus ordinary and necessary expenses…required to produce such income.” C.R.S. § 14-10-114(8)(c)(III)(A) (spousal maintenance); C.R.S. § 14-10-115(5)(a)(III)(A) (child support). But the Colorado spousal maintenance and child support statutes both specifically exclude from ordinary and necessary expenses the “amounts allowable by the internal revenue service for the accelerated component of depreciation expenses…or any other expenses determined by the court to be inappropriate for determining gross income for purposes of calculating” maintenance and child support. C.R.S. § 14-10-114(8)(c)(III)(B) (spousal maintenance); C.R.S. § 14-10-115(5)(a)(III)(B) (child support) (emphasis added). Furthermore, ordinary and necessary expenses “do not include deductions for expenses in excess of income produced.” In re Marriage of Schaefer, 2022 COA 112, ¶ 28 (citing In re Marriage of Eaton, 894 P.2d 56, 60 (Colo. App. 1995)).
Distinguishing Between Depreciation and Accelerated Depreciation
Husband argued that the Colorado maintenance and child support statutes only exclude accelerated depreciation as an ordinary and necessary expense, not all forms of depreciation. After considering the “plain language” of the statutes, the Colorado Court of Appeals agreed.
“Depreciation” means “loss of value,” and “accelerated depreciation” means “depreciation of assets at a higher rate than that normally assigned to cover use and exhaustion.” The Colorado maintenance and child support statutes exclude only the accelerated component of depreciation expenses and do not mention whether all depreciation expenses should be excluded.
The statutes are silent as to whether all depreciation expenses should be excluded. If the [Colorado] legislature had intended to exclude all depreciation expenses from this calculation, it could have said so. We are not at liberty to read different terms into the plain language of these statutes.
In re Marriage of Schaefer, 2022 COA 112, ¶ 32 (emphasis in original).
The Colorado Court of Appeals sent S.L.S. and T.J.D.’s case back to the district court judge to “make factual findings concerning the type of the depreciation associated with [H]usband’s rentals (i.e., whether the depreciation is accelerated) before [the district court judge] concludes whether the depreciation is an ordinary and necessary expense.” Id., ¶ 34. The court of appeals further instructed the district court that it “may not include in [H]usband’s rental income calculation the depreciation that exceeds the rental income received.” Because the Colorado Court of Appeals directed the district court to recalculate Husband and Wife’s respective incomes, the district court will also have to enter new spousal maintenance and child support orders based on the revised calculations.