[co-author: Jacob Schrader - Summer Associate]

In Iowa, child and spousal support (alimony) amounts are mainly determined by each party’s income. But income is not the whole story. Parties may deduct certain qualified expenses, resulting in a lower income amount used in the support calculations. This could result in a spouse receiving more or paying less in support than if no deductions were used. Common deductions are child health care costs, other support obligations, and business expenses. But in some cases, depreciation can also be deducted from a party’s income.

What is depreciation in divorce?

Depreciation is the loss in the value of an item due to age or use. In accounting, some money that is set aside to replace the depreciated item is not counted as income, because it is needed to purchase the item’s replacement. Iowa courts allow the deduction of expenses reasonably necessary to maintain a business from an individual’s estimated income in the child and/or spousal support calculation. In 2013, the Iowa Supreme Court held the deduction of depreciation for farming expenses was proper as a necessary business expense.

The Court noted that while depreciation may be calculated in several different ways, Iowa courts strongly prefer straight-line depreciation. But a potential payee should be aware of the different ways depreciation is calculated as there could be scenarios where an alternative method is more equitable. Family law courts are courts of equity, and as such should seek to reach the most equitable result.

Straight-Line Depreciation

Straight-line depreciation is the simplest way to calculate depreciation. Simply divide the value of the asset by the number of years estimated to be in its useful life and subtract that value from the current value of the asset.
For example, the depreciation schedule for an asset that is currently worth $10,000 and has five years of useful life left (and $0 of salvage value) would look like:

Double-Declining Depreciation

However, many assets, like a new car, depreciate greatly at first, and then more slowly. To convey this type of depreciation more accurately, accelerated depreciation formulas have been developed. A common accelerated depreciation method is the double declining balance depreciation method.

Double declining balance depreciation seeks to reflect the accelerated depreciation of some assets. To calculate one takes the starting book value divided by the years of useful life, times two. That gives you the depreciation expense for the year. Next, subtract the expense from the starting value to give the starting book value for the next year. And repeat for each year of the useful life. It should look like:

Units of Production

A third way to calculate depreciation does not focus on years at all—instead, it focuses on the amount of use of an item. A new car depreciates every year, but that is partially because of the miles it is driven. Use drives depreciation more than time in many cases. Units of production depreciation seek to reflect this by depreciating an asset in direct proportion to how much it is used as a percentage of its useful life.

Imagine an asset is expected to be useful for 100,000 units of production (UOP) with a starting value of $10,000 and no scrap value. That depreciation schedule could look like this:

Bottom Line

Depreciation in child or spousal support proceedings affects people engaging in business activities such as farmers and business owners. Depreciation expenses have the potential to substantially change the amount of support awarded. If you are in, or are about to be in, a child or spousal support proceeding, contact an experienced family law legal counsel to assist with your situation.