In family law, determining income is often not as simple as looking at a tax return.
For child or spousal support purposes, income may be more than as personally declared if:
a) a party is self-employed and corporate income or unreasonably deducted expenses are added back;
b) a party is intentionally unemployed or underemployed; or
c) a party has wealth upon which they could be generating investment income.
“Imputation” is the term used in family law when a party is determined to have more income for support purposes than they actually earn.
If a self-employed person in control of a corporation keeps funds in the corporation that are available for support (in that they are not required to be kept in the corporation to maintain ongoing business operations), these funds may be added to their personal income for calculation of support.
For tax purposes, self-employed persons are permitted to deduct expenses reasonably incurred to conduct business. If a party pays personal expenses through a corporation or deducts expenses not reasonably incurred to conduct business, these expenses may be added back to their income for support purposes.
Intentional unemployment may be an unreasonably early retirement. Intentional underemployment may be a failure to obtain employment in keeping with a party’s income-earning potential, bearing in mind their education, employment history, age, and ability.
A party may be required to use their wealth to generate income for support purposes, within reason. If a party has significant assets but refuses to invest and generate a reasonable rate of return, income can be “imputed” to them for support purposes. For example, a support recipient in receipt of a significant property settlement may be expected to generate reasonable income on that wealth as it pertains to calculation of support.
In settling their family law affairs, parties can agree as to what incomes they use for calculation of support. If imputation of income is appropriate, they can agree to a more reasonable income for a party or both parties, based upon what they could or should be earning.
Alternatively, if the parties cannot agree, courts and arbitrators can impute income to parties in support orders and awards. In this case, imputation of income must be grounded in evidence, such as a vocational evaluation wherein an expert determines through investigation what a party can reasonably do for employment and, in turn, generate as income.
However income is calculated, parties will generally require capable legal representation to assist them in protecting their interests and their future. Lerners Family Law Lawyers can help.
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