It probably comes as no surprise that child support is one of the biggest areas of contention in family law cases. Parents commonly misunderstand the fundamental purpose of child support and this often leads to protracted disputes regarding the parents’ income for child support purposes
Gross Income Defined
First and foremost, it is critical to understand that “gross income” for child support purposes does not necessarily mean the same thing as gross income for tax purposes. The Arizona Child Support Guidelines define gross income as monthly income from any source, including but not limited to salaries, wages, commissions, bonuses, dividends, severance pay, pensions, interest, trust income, annuities, capital gains, (some) social security benefits, worker’s compensation benefits, unemployment benefits, disability insurance benefits, self employment, rent, royalties, recurring cash and non-cash gifts, and spousal maintenance. Seasonal or fluctuating income is annualized.
However, gross income does not include child support received or certain types of public assistance, such as Temporary Assistance to Needy Families (TANF), Supplemental Security Income (SSI), or Nutrition Assistance.
Overtime Wages or Second Jobs
Another source of considerable conflict is income earned from overtime or a second job. This is partially because the controlling law is inconsistent and subjectively applied. Here, the Arizona Child Support Guidelines state that family courts should not include wages earned through overtime or a second job as income for child support purposes. Unfortunately, the same section provides an ambiguous exception and states, “[t]he court may, however, consider income actually earned that is greater than would have been earned by full-time employment if that income was historically earned from a regular schedule and is anticipated to continue into the future.” Debate rages among family lawyers as to when income was “historically earned form a regular schedule” and as to what that even means. Inconsistent interpretation and application of this provision leads to unpredictable and often conflicting results.
Self Employed Parents
Here is where the child support definition of “gross income” really can diverge from the IRS definition of taxable gross income. Self employed parents almost always try to use their taxable income as gross income for child support calculations. Through creative accounting techniques and utilization of legal tax deductions, a self employed parent’s taxable income could realistically be zero or even negative, so the family court ignores most of the financial maneuvering and calculates income as gross receipts minus ordinary and necessary expenses. This means that any deduction that benefits the parent personally or reduces the parent’s personal living expenses will be considered as income for child support purposes even if it is not considered as income by the tax authorities.
In cases involving self employed parents, it is highly advisable to retain an attorney familiar with corporate structure and accounting. Our firm regularly represents corporate entities and executives in civil litigation and corporate transactions. These concepts and other complications of self employment can lead to a host of other child support issues, particularly related to enforcement of child support. Our litigation resources make it easy for our family law clients to deal with challenges that may elude ordinary family lawyers.
Attribution of Income
When a parent is unemployed or underemployed, the family court may attribute income consistent with that parent’s earning capacity. This is intended to prevent a parent from voluntarily terminating employment or assuming a demoted position to reduce or eliminate a child support obligation. This actually happens quite often. Here are a few examples from recent cases. In one case, a mother left a job as a nurse’s assistant to become a cosmetologist. She claimed her income for child support purposes was approximately minimum wage. We successfully attributed a significantly higher figure based on her previous earning capacity. In another case, a physician left his medical practice though, again, we attributed his historical income. Most recently, a mother terminated her job as an insurance agent and requested spousal maintenance on the basis that she was unemployed. The court denied her request and actually ordered her to get a job.
Income attribution may also be necessary when a parent receives cash or other concealable sources of income. Comprehensive discovery is important in these cases because bank statements, credit card statements, and evidence related to the parent’s standard of living may be sufficient to attribute an income higher than the parent claims.