As I discussed in my prior blog, the income of the parents is one of the most important factors in determining child support. Many people assume that it is easy to know what figures to use, but disputes over income are the most common reason for parents to disagree about child support.
First, it’s important to know that when the child support formula is run, it is the monthly gross pre-tax income that is used. Because it’s too easy for people to manipulate their after-tax/after-deduction income, the child support guidelines were determined based on pre-tax income.
If a parent is a full-time, straight W-2 employee (i.e. just salary or hourly) without overtime, income is usually easy to determine. However, it rarely happens that both parents fall in this category.
Below are a couple of frequent issues raised in income determination:
When a parent is self-employed, it can be challenging to determine that parent’s income. The law states that income from self-employment is defined as gross receipts minus ordinary and necessary expenses required to produce the income.
This sometimes equates to the income shown on a parent’s tax returns from the business, but not always. For example, accelerated depreciation isn’t allowed to be deducted as an expense. Also, if a parent funds his/her own retirement account from the business and deducts that from taxable income, those retirement contributions are not deducted when calculating income for child support. This makes sense, since a salaried employee also cannot deduct his/her 401(k) contributions from income when calculating child support.
Another common situation is when a parent pays personal expenses out of a business – there are certain questions that need to be asked to see if those are appropriate expenses to deduct from gross receipts when calculating income for child support.
Unemployed or Underemployed parent
If a parent is unemployed, the question arises of whether income should be assessed to that parent, and if so, how much? If the parent is voluntarily unemployed, the court can assess an income to that parent for child support calculation (this is called “imputing income”).
Common factors in determining the amount of imputed income include:
- that parent’s history of earnings
- the current job market for that parent
- the parent’s education or training
- how long the parent has been out of the job market.
If a parent quit working to avoid paying child support, the court would likely immediately impute that parent his/her most recent income. If a parent wasn’t working because that was the expectation set during the marriage, that parent will likely be expected to work, but the court is more likely to give that parent time to get his/her skills updated or time to find a job before assessing income.
Another question is the reason for the unemployment – for example, did the parent quit to avoid paying child support, or did the parents agree during the marriage that a parent should quit working? These two reasons would lead to two very different court results.
There are situations under Colorado law in which a court would not impute income to an unemployed parent. For example, if a parent is enrolled in an education program that is intended to result in a degree or certification in a reasonable time and which will result in higher income, the court may not assess income to that parent during his/her schooling. Another example would be a parent caring for a child (of this case) under thirty months of age. Potential income would also not be assessed against a parent who is physically or mentally incapacitated.
I’ve given just an overview of scenarios described above (self-employed parent or unemployed parent). There are many factors that go into the analysis of both scenarios; each case is fact-specific and it’s rarely cut-and-dried. Because I’m an attorney very familiar with the law, and because of my many years of mediation experience, I’m able to consider and discuss all of the relevant facts of your case with you and the other party in mediation.
In my next blog, I’ll cover more common issues and complications that arise when trying to determine income for child support purposes.