Arizona Court of Appeals Division One Holds That Trial Court Did Not Abuse Its Discretion in Finding That a “Like Kind Exchange” of Property Following a Child Support Order Did Not Provide Grounds for Treating Property as Income and Modifying Child Support Decree.

Before marrying Beverly Jenkins (“Mother”), Thomas Jenkins (“Father”) inherited a twenty-five percent interest in 520 acres of farmland (“Property”). Pursuant to their pre-marital agreement, the Property remained Father’s sole and separate property. When the parties divorced, the court did not include any amount of imputed return on the Property as income for purposes of calculating the amount of Father’s child support obligation. Father subsequently entered into an agreement to facilitate a “1031 exchange” or “Like-Kind Exchange” (a transaction in which an asset is sold and the proceeds of the sale are then reinvested in a similar asset), meaning he realized no capital gain from the sale of the Property, nor any actual income. In light of this transaction, Mother requested a modification to the child support decree, arguing that Father could have invested the proceeds (rather than entered into a Like-Kind Exchange), and if he had done so would have realized at least $32,000 in income (assuming a “conservative” 5% rate of return).

Distinguishing In re Marriage of Robinson, 201 Ariz. 328, 35 P.3d 89 (App. 2001), the Court explained that unlike vested, matured stock options, appreciation in the value of separate and existing property is not generally considered income for purposes of child support. Assuming, without deciding, that had Father chosen to transmute his real estate into income or income-producing property and that the income would be attributable to him for purposes of calculating his child support obligation, Father nevertheless did not do so here. Because Mother failed to establish that Father’s employment or earnings had undergone a substantial and continuing change subsequent to the decree, the Court found no abuse of discretion in the family court’s denial of Mother’s request for modification of child support.

The decision was authored by Judge Snow; Judges Orozco and Johnsen concurred.