There’s an old joke about a business executive who wants to fill an accounting position and asks each applicant, “How much is two plus two?” The job goes to the candidate whose answer is, “How much do you want it to be?”

Accounting rules sometimes leave room for interpretation. But when it comes to calculating a parent’s obligation to provide child support, what courts care about is real dollars, not what’s on a balance sheet or tax return.

That’s the lesson of a case recently decided by the California Court of Appeal (In re Marriage of Hein.)

Martin and Jessica Hein divorced in 2004. Physical and legal custody of their two minor daughters was divided equally, and neither parent paid child support.

In 2014, Jessica asked the family court to order Martin to pay child support and attorney’s fees. The court issued its ruling three years later (by which time the daughters were no longer minors.)

Based on its calculation of Martin’s income, the court said, the ability of the two parents to support the children was roughly equal, so there were no grounds for it to revise its order or to justify an award of attorney fees.

Jessica was a Ph.D. in physical therapy, and at the time was working three days a week as a self-employed physical therapist, earning about $9,000 a month.

Martin’s financial situation was more complicated. Through several interconnected corporations, he owned and operated ranches on 110 acres, managed over 6,000 acres for other landowners, and was a commercial pilot.

His various businesses generated annual revenues of well over $4 million, and had assets of nearly $3.4 million and retained earnings (profits accumulated from prior years) of over $1.7 million.

But on their tax returns, Martin’s businesses each year recorded deductions for depreciation ranging from $700,000 to nearly $1 million. (Depreciation is a non-cash expense intended to reflect the presumed reduction in the value of an asset, such as a building or piece of equipment, due to wear and tear.)

As a result of depreciation and other expenses, Martin’s business showed modest taxable net profits – a loss of nearly $50,000 one year, zero profits another year, and profits of less than $153,000 in a third year examined by the court.

Martin’s income was only about $7,700 per month, according to his personal tax returns – well under what Jessica earned from her part-time work.

Jessica said Martin’s hefty non-cash deductions for depreciation, and the complex relationships among his corporations, created an unrealistic picture of his actual ability to provide child support.

The trial court rejected this argument. It said federal tax returns, which taxpayers sign under penalty of perjury, are presumed to be correct. Jessica had the burden of proving them incorrect, it said, and to challenge the business expenses reported by Martin’s companies.

Jessica appealed the trial court’s ruling.

The appellate court took a very different view of the dispute. It noted that state law requires child support to be determined based on the “total net monthly disposable income of both parties.”

If one of the parents operates a business, that disposable income may reflect “expenditures required for the operation of the business,” such as rent, employees’ wages, supplies, and other costs.

But “depreciation is a fictional loss that, in the real world, represents tax savings and, therefore, additional cash available to the parent to meet child support obligations.”

A parent’s “principal obligation is to support his or her minor children according to his or her circumstances and ability to pay,” the appellate justices said.

It would be counter to public policy to allow a child to receive “less financial support from a party who is permitted under tax laws and accounting principles to take a deduction that does not reduce funds available for support.”

The justices also said the trial court erred in saying that Jessica had the burden of proving Martin’s tax returns and corporate accounting were incorrect.

“He is the party with knowledge of, and access to, the information” that was in dispute, they said, so public policy and fairness require that he bear the burden of justifying his business expenses as they affect his income and ability to provide child support.

The justices reversed the decision of the lower court, remanded the case for further hearings, and awarded Jessica her costs on appeal.

By Kayla Horacek