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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“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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