Minnesota Child Support & Alimony: How Will The Court Measure Income?

taxThe question most commonly asked of our divorce (and sometimes custody and paternity) clients involves how much support (either alimony or child support) they may receive, or pay, as part of their case.

The the answer to that inquiry can be rather complex, but the starting point in either situation involves a determination of “income” for each side.

Often overlooked by the litigants, “income” includes more than straight wages; it also involves unearned income, retained earnings, self-employment income, gifts, imputed income, housing benefits, per diem payments, and perks received as the owner of a business, or highly compensated individual.

For individuals who are W-2 employees, the determination of income is relatively straightforward. More digging occurs, however, when an individual is self-employed.

We often think of litigants as landing in one of four broad categories of earners: (1) W-2 employees; (2) self-employed individuals who run a “legitimate” business; (3) self-employed individuals who run a business haphazardly – often working for cash under the table; and (4) individuals who are not earning any income at all.

For the W-2 employee, a simple review of payroll records usually answers all questions.

A “legit” business owner typically employs an accountant, manages cashflow accurately, and files taxes on time. An interview the accountant and review of the relevant profit and loss statements and tax returns will typically result in a solid income figure.

Individuals who are unemployed will have income “imputed” to them at 150% of the state or federal minimum wage, whichever is larger.

The most difficulty arises in trying to determine the income of a business owner who is hiding money – either from their spouse, or the IRS. We often rely on a “lifestyle” argument in that situation, by presenting the Court with the basic facts about how large his/her home is (we’ve argued with “broke” parents who live in a $900,000 home), and what kind of car they drive, clothes they wear and vacations they take.

In general, the relevant statutes define income as “any periodic payment to an individual.” These types of payment can include:

  • Wages;
  • Tips;
  • Commissions;
  • Bonuses;
  • Workers’ Compensation Benefits;
  • Unemployment Benefits;
  • Annuity Payments;
  • Pension Payments;
  • Spousal Maintenance from a Prior Order;
  • Child Support from a Prior Order;
  • Social Security Benefits; or
  • Veteran’s Benefits.

Our clients also regularly ask about overtime pay. The law generally disfavors the inclusion of overtime pay (or other moonlighting earnings), unless overtime is required for employment, and was regularly worked during the relationship of the parties.

For more answers concerning alimony and child support, check out our spousal maintenance podcast and child support podcast.

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When And How Can A Spousal Maintenance Award Be Modified?

Once an award of spousal maintenance (alimony) is ordered by the court, it may be modified if certain criteria are met. In order to modify and award of alimony, the party seeking modification obtains a court date and serves and files motion papers. Keep in mind that the modification, if granted, is usually only retroactive to the date that the motion papers are served on the other side. For that reason, it is important to obtain legal assistance at the earliest possible time, rather than allowing arrears to build up, if you are unable to afford the maintenance obligation as ordered.

Any of the following provide a basis for the judge to modify an existing alimony order:

  • Substantially increased or decreased earnings of either party;
  • Substantially increased or decreased needs of either party;
  • Receipt of public assistance benefits;
  • Change in cost of living, as measured by the federal government; and
  • Significant medical expenses incurred on behalf of a child that are not otherwise addressed in the judgment and decree.

Additional factors for consideration include the initial standards the court addresses in awarding spousal maintenance:

  • Financial need of each party relative to their income;
  • The ability of one party to pay the other spousal support;
  • The length of marriage;
  • The mental and physical health of the parties;
  • The role each party played during the marriage, in terms of working or raising children;
  • Financial assets available to each party to supplement their income;
  • The educational background of each party; and
  • The age of each party.

While the issues involved in modifying spousal maintenance are usually addressed in motion papers alone (such as affidavits and exhibits), some judges will order an evidentiary hearing (trial) to determine whether the request for modification is appropriate.

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Podcast: Spousal Maintenance: Factors Considered By The Court

The Family Law Show returns with an overview of spousal maintenance (alimony) awards under Minnesota law.

Alimony is an emotionally-charged issue, with significant financial implications for both parties. The spouse asked to pay rarely wants to, while the spouse asking for support usually needs it. What is the Court going to do?

Topics discussed in this podcast include the role fault plays in an alimony award, the factors the court will examine in determining how much alimony is appropriate, the factors the court will examine in determining how long alimony should be paid, and the tax implications of spousal maintenance payments.

Run Time: 13:18

Download this episode (right click and save)

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Judge Stephen Halsey’s Minnesota Family Law Blog Highlights Alimony Award In Light Of Non-Marital Pension Benefit

In December of 2009, Minnesota Judge Stephen Halsey (chambered in Wright County) launched his Minnesota Family Law Issues Blog, a terrific resource for both lawyers and litigants. As I understand, Judge Halsey’s blog is the first of it’s kind in Minnesota (from the judiciary). His unique perspective provides an interesting addition to the exchange of family law information online – including podcasts.

Judge Halsey’s post entitled Post-Decree Modification of Maintenance: Pension as Income or Property caught my attention as I was reviewing the posts of others today. Judge Halsey writes:

A recent unpublished Court of Appeals decision, Hemp, 2010 WL 1657024, is worthy of review by family law practitioners and judges as it considers once again which portions of a maintenance obligor’s pension may be considered as income or property when a motion to modify maintenance is brought. The Court discusses Lee, 775 NW2d 631 (Minn.2009), which held “a district court may include in its calculation of an obligor’s ability to pay maintenance the portion of an obligor’s monthly pension payment exceeding the amount the obligor is entitled to receive each month as marital property.”

The Court of Appeals in Hemp approved the district court’s apportionment of the monthly pension benefit between what is marital property and what is not. The district court, however, erred in its interpretation of the valuation method used in the original dissolution decree.

I think one lesson to be learned is that counsel and the court should make detailed findings of fact in the original decree as to the valuation method agreed-upon by the parties or as ordered by the court so that such method is clear to the court hearing post-decree motions on maintenance.

In a good number of the cases we handle, the issue of spousal maintenance is front and center. From my perspective, the most important part in settling a maintenance claim involves agreeing to a specific timetable for payment. A client may pay a bit more than they like, but the fact that there is a cap on their future liability is usually worth it. The benefit to the recipient? These timetables usually accompany a non-modifiable (even if their ex’s income drops significantly) maintenance award.

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“I’ll Quit My Job” Says My Spouse. Can They Get Out Of Paying Child Support Or Alimony To Me?

The court will “impute” income if your spouse is voluntarily underemployed. Rest assured, you have nothing to fear.

Let’s suppose your spouse is trained as a physician and decides, for the time being, to work as a waiter at a local restaurant. The court can take an individual’s education, work history, job opportunities in the local market and earnings associated with those jobs into account in calculating appropriate child or spousal support. Assuming your spouse is reasonably assured of obtaining a position as a doctor with a six-figure salary, a doctor’s salary will be attributed to them.

One of the more common discussions we have with new clients involves a spouse’s claim (with laughter) that they will quit their job and our client will receive nothing. “I’ll quit my job” they say. Wrong strategy. Your spouse is free to work in whatever capacity they wish. At the end of the day, however, the amount of support they pay is based on what they actually earn or have the potential to earn, whichever is greater.

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