At the outset, it is important to note that Father's child support payment cannot be modified retroactively prior to the point in time when Mother filed the second petition for modification. See Tenn. Code Ann. § 36-5-101(f)(1) (2005); see alsoAlexander v. Alexander, 34 S.W.3d 456, 460 (Tenn.Ct.App. 2000) ("[A] court has no power to alter a child support award as to any period of time occurring prior to the date on which an obligee spouse files his or her petition."). When Mother's second petition was filed on December 18, 2001, the parties' son was emancipated.

Father argues that the trial court erred by basing its finding of willful underemployment on the fact that Father lead an "opulent" lifestyle and suffered no change in lifestyle since the original child support order was issued. Father cites Alexander v. Alexander, 34 S.W.3d 456 (Tenn.Ct.App. 2000), in which the mother custodial parent petitioned the court to increase the child support payments of the obligor father based on, among other things, the father's opulent lifestyle. See Alexander, 34 S.W.3d at 458-59.

Where, however, the obligor parent's income is subject to variation, averaging is appropriate to determine net income for the purpose of calculating child support. Alexander v. Alexander, 34 S.W.3d 456, 460 (Tenn. Ct. App. 2000). The guidelines specifically allow averaging in determining gross income when establishing a prospective award: "[v]ariable income such as commissions, bonuses, overtime pay, and dividends, etc., should be averaged and added to the obligor's fixed salary."

Mr. Kesser contends that he is obligated to pay child support on capital gains only to the extent that they exceed capital losses, which is the same method employed in the Internal Revenue Code in determining taxable income. The term "capital gains" as used in the Guidelines is analogous to the term used in the Internal Revenue Code. Alexander v. Alexander, 34 S.W.3d 456, 462-63 (Tenn.Ct.App. 2000). While the Internal Revenue Code provides for the subtraction of capital losses from capital gains in some instances, the result is defined specifically in the Code as "net short-term capital gain," "net long-term capital gain," or "net capital gain."

An argument was advanced with respect to capital gains incurred by [Father]. Those gains must be averaged over the life of the asset, not in the year in which they were incurred. Alexander v. Alexander, 34 S.W.3d 456 (Tenn. Ct. App. 2000). Accordingly, they will not be considered. Child support will, therefore, be calculated with the stipulated days, [M]other's income and [F]ather's income as found herein.

An increase in the value of stock is properly identified as a capital gain. See Alexander v. Alexander, 34 S.W.3d 456, 463 (Tenn.Ct.App. 2000), Smith v. Smith, No. 01A01-9705-CH-00216, 1997 WL 672646, at *3 (Tenn.Ct.App. Oct. 29, 1997). The legislature included capital gains in the Guideline's non-exclusive list of earnings to be included in income for purposes of determining child support.

Furthermore, Tennessee courts have displayed "a preference for long-term averaging as the most appropriate method for calculating income that is variable in nature." Anderson v. Anderson, No. M2004-00078-COA-R3-CV, 2005 WL 2030614, *3 (Tenn.Ct.App. Aug. 23, 2005) (citations omitted) (remanding the case to the trial court for a redetermination of child support based on husband's average income over a long term period); see also, e.g.,Alexander v. Alexander, 34 S.W.3d 456, 460 (Tenn.Ct.App. 2000) (finding it appropriate to average the father's income over a period of four years to determine whether a significant variance existed for purposes of modifying child support); Stacey v. Stacey, No. 02A01-9802-CV-00050, 1999 WL 1097975, *4 (Tenn.Ct.App. Oct. 6, 1999) ("Since the amount of the option income varies from year to year, it would be fair to average the option income in 1996 and 1997 and add this figure to Husband's base salary."). As noted above, Husband's second amended Rule 14C affidavit, which the trial court accepted as "accurate and factual," lists his yearly bonuses for 2003, 2004, and 2005, which range from approximately $7,400 in 2003 to approximately $37,000 in 2005. It is undisputed that Husband's bonus at the end of trial in 2006 was the highest bonus he had received in the preceding four year period.

In addition, the State asserts that the Juvenile Court was without subject matter jurisdiction to grant Lewis a judgment against Mother for child support that he had paid and other expenses that he incurred in this matter. Both issues raised by the State on appeal are questions of law, which we review de novo, with no presumption of correctness in the Juvenile Court's decision. Alexander v. Alexander, 34 S.W.3d 456, 459 (Tenn.Ct.App. 2000); Tenn. R.App. P. 13(d). We first address the State's argument that the Juvenile Court erred in forgiving the child support arrearages.

Husband contends the Guidelines' definition of gross income is based upon the concept of gross income in the federal tax code, which allows an offset for capital losses. In support of this proposition, he cites our decision in Alexander v. Alexander, 34 S.W.3d 456, 462 — 63 (Tenn.Ct.App. 2000), where we stated: We start by noting that capital gains are included within the definition of gross income in the Guidelines.

The only judicially created exception to this rule involves capital gains resulting from the sale of an asset to fund the division of property in a divorce case. Alexander v. Alexander, 34 S.W.3d 456, 464 (Tenn.Ct.App. 2000). The purpose of this exception is to prevent the "double-dipping" that would result if capital gains were considered both as a marital asset and as income.