Colley v. Colley
2014 Ark. App. 698
Ark. Ct. App.2014Background
- Kenneth Coleman Colley II, a self-employed homebuilder, divorced Audrey Hamilton Colley; dispute centered on appropriate method to calculate his income for child support.
- Colley reported low net income on recent tax returns ($15,589 in 2011; $22,524 in 2010) but testified that he needed about $72,000 net annually to cover household expenses and claimed higher historical earnings.
- The circuit court found Colley’s tax returns unreliable, credited his lifestyle and expenditures (travel, purchase of boat, ATVs, vehicles) as evidence he earned more, and set child support at $900/month based on an implied $6,000 net monthly income.
- Colley moved for reconsideration and for findings under Ark. R. Civ. P. 52(a); the court declined to alter its child-support ruling and incorporated its letter opinions into the divorce decree.
- On appeal, Colley argued the court failed to follow Administrative Order No. 10 and Tucker’s prescribed net-worth procedure when deeming tax returns unreliable and did not make required specific findings or properly calculate net worth.
Issues
| Issue | Plaintiff's Argument (Colley) | Defendant's Argument (Colley) | Held |
|---|---|---|---|
| Proper procedure when tax returns are unreliable under Admin. Order No. 10 | Court should not have ignored tax returns; must follow Tucker’s net-worth method with beginning/ending net worth and required factors | Court contends tax returns unreliable and may use net-worth/lifestyle evidence to determine expendable income | Court held the trial court erred by failing to fully apply the Tucker net-worth procedure and remanded for proper analysis |
| Allowance of depreciation and business deductions in support calc. | Depreciation and interest expense are valid business deductions and should be considered | Court treated tax returns as unreliable and did not methodically allow or disallow such items | Not reached on merits because remand required on primary procedural error |
| Credibility of taxpayer’s reported income versus lifestyle evidence | Colley: no substantial evidence supports $6,000/month finding; expenditures after separation and loans explain lifestyle purchases | Court: lifestyle and purchases demonstrate income exceeds reported amounts and tax returns are not credible | Court reversed — trial court’s reliance on lifestyle alone without Tucker analysis insufficient |
| Requirement for findings of fact under Ark. R. Civ. P. 52(a) | Colley: court failed to make the specific findings explaining why tax returns were unreliable or how net-worth calculation was performed | Court issued letter opinions but did not perform full Tucker analysis | Remanded because court did not make the specific, structured findings and calculations required when rejecting tax returns |
Key Cases Cited
- Cole v. Cole, 89 Ark. App. 134 (payor's expendable income may differ from taxable income)
- Chitwood v. Chitwood, 2014 Ark. 182 (no deference to trial court's conclusions of law)
- Tucker v. Office of Child Support Enforcement, 368 Ark. 481 (procedure for net-worth method: beginning/ending net worth and required factors)
- Wright v. Wright, 377 S.W.3d 369 (trial court may use net-worth method after making specific findings tax returns are unreliable)
- Williams v. Nesbitt, 234 S.W.3d 343 (caution against mechanically using tax documents when expendable income differs)