In my April 2016 blog I discussed imputation of income when one spouse is unemployed, underemployed or has voluntarily reduced his/her income. The focus of this blog is on how the Court determines all income available to pay child support and spousal support.
Parties are required to file a current Income and Expense declaration (FL-150) prior to a hearing involving making or modifying a child support or spousal support order. Page two of the FL-150 asks if you have income from a number of sources, including: Wages (w-2), overtime, self-employment, pension/retirement, social security or other, disability, unemployment, worker’s compensation, investment income (including dividends or interest, rental property income, trust income), and spousal support from this marriage or another marriage. To cover any income that does fall into one of the categories listed above, they provide a space for “other.” You are also required to disclose one-time receipts of money, including lottery winnings and inheritance.
Typical case: Most child support and spousal support cases involve parties that have W-2 income. Husband and wife are both employed, receive paychecks at regular intervals, and receive a W-2 at the end of the year showing all reported taxable income from their employer. In this situation, it is generally a simple task for a court to make a support order.
The second most common case is when one party is self-employed. It can be somewhat difficult to determine a self-employed individual’s income for the purpose of support. If the business is a sole proprietorship, the court will start by looking at the individual’s Schedule C (profit and loss) from their most recent tax return. However, certain deductions can be added back as income for support purposes, such as depreciation, a percentage of meals, mileage, cell phone use, etc. If the business entity is a corporation, then their may be an issue with regard to undistributed profits of the corporation. Fluctuating income from year to year is usually addressed by using a 3-5 year average in order to reach an amount that is “fair and representative.” Marriage of Riddle. Generally, the Court will appoint a forensic accountant under Evidence Code section 730 to determine the “cash flow” for the self-employed party.
Can be considered income:
1. Gifts from parents (if gifts are regular and recurring) Marriage of Alter, but cash advances on inheritance is not income for support, Marriage of Williamson.
2. Sublet of space to tenant
3. Stock options (considered income for guideline child support), but may exceed reasonable needs.
4. Predictable recurring bonuses must be included in prospective earnings. However, if bonus is dependent on performance and profitability, then potential bonus should be subject to a percentage order (referred to as Ostler/Smith Order).
Not income for support:
1. Gifts that are not regular and recurring (less than specific amounts, paid for an unestablished duration.)
2. Loans (must be repaid)
3. Inheritance is not income, but investment return on the assets is income.
4. Unrealized equity in family residence.
5. Unrealized stock appreciation.
6. Life insurance proceeds – not income, but investment return on the insurance proceeds is income.
Deviating from Guideline support:
The Court has broad discretion to deviate upward from the guideline child support. In Marriage of de Guigne, husband had extensive property holdings which he liquidated to maintain a lifestyle well in excess of his earned income. The Trial Court properly considered all of husband’s assets, including his mansion, art work and stock accounts.
In short, determining each party’s income for the purpose of calculating child support and spousal support can be an involved process and may require extensive discovery and possibly the appointment of a forensic accountant.
Do you want to know more about how the court determines support as well as the latest information on family law? If you’d like more information in any area of family law, please contact our office to schedule a consultation. The Law Office of Family Law Attorneys Bawden & Kochis handle legal issues regarding separation, child custody, visitation, adoption, annulment, mediation, domestic violence, child and spousal support as well as pre and post-marital agreements. Telephone (909)792-0222, or email us at [email protected]