The 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:
- 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.