A new case came down from the Arizona Court of Appeals, Division II, in November of 2016. The case is Sherman v. Sherman, CA-CV 15-0201 FC (App. 2016), and creates a line of precedent unlike anything seen before in Arizona. In the Sherman case, the court ordered that a “revolving credit line” between the father and his cousin and her husband be attributed to his income for purposes of child support. It was a $100,000 line of credit and the father had utilized $35,000 of it in approximately six months. The Court based this ruling on two items: first, that father had not shown any significant changes to his lifestyle or expenditures, and second, that they did not think it credible that the father wasn’t going to return to work in order to pay off the debt or expect that debt to be forgiven.
The Court in Sherman references Cummings v. Cummings, 128 Ariz. 383, 897 P.2d 685 (App. 1994), for support of his ruling. The mother in Cummings, who had income attributed her, was receiving substantial and continuous gifts from her parents. Those gifts were not to be paid back, as is required with a loan. The leap from gifts as income from Division I in Cummings to loans as income in the Division II Sherman case is substantial and it is the opinion of attorney Maggie Schmidt that it cannot and should not be used as a slippery slope to deem that any loan or credit be income; for example, credit lines on credit cards or qualifying for large debts based on good credit scores. The result would be absurd and far too broad an application.
The Arizona Revised Statutes define “income” under the Family Support Duties Title as “any form of payment owed to an individual, regardless of source, including wages, salaries, commissions, bonuses, workers compensation, disability payments, payments pursuant to pension or retirement program and interest.” A.R.S. 25-500(6). The key verb in this definition is “owed.” Loans are not owed to an individual, to the contrary, the individual owes on the loan, making it an expense. The listed incomes in the statutory definition are all types of income that are not paid back or owed to any person or entity.
Additionally, child support can be modified at any time pursuant to A.R.S. 25-503(E) based on a substantial and continuing change of circumstances. This statute is important in this instance because if a party's income changes then modification of the child support is the proper remedy. Basing a child support order on credit is effectively sanctioning the paying parent and ordering they be in further debt. It creates a vicious cycle, likely adding to more arrears with substantial interest.
It is unclear how the trial courts will interpret this ruling and how narrow or broad it could be applied. Would this ruling attribute income to parents up to their maximum line of credit? Could a small loan from a family member be used to increase child support? We will have to wait and see.