Thursday, April 24, 2008

Child Support: How To Figure Out the Parties' Income?

I was asked that question not too long ago by someone representing themselves in a support modification case. Looking back, I realize something that seems self-evident to me is not at all so clear. It is one of those times where the experience of doing this for a living beats just reading (if they were in fact read) the Child Support Guidelines.

Not that the Indiana Child Support Guidelines help much in explaining the evidence needed to reach its goals:

A. Definition of Weekly Gross Income.

1. Definition of Weekly Gross Income (Line 1 of Worksheet). For purposes of these Guidelines, "weekly gross income" is defined as actual weekly gross income of the parent if employed to full capacity, potential income if unemployed or underemployed, and imputed income based upon "in‑kind" benefits. Weekly gross income of each parent includes income from any source, except as excluded below, and includes, but is not limited to, income from salaries, wages, commissions, bonuses, overtime, partnership distributions, dividends, severance pay, pensions, interest, trust income, annuities, capital gains, social security benefits, workmen's compensation benefits, unemployment insurance benefits, disability insurance benefits, gifts, inheritance, prizes, and alimony or maintenance received from other marriages. Specifically excluded are benefits from means‑tested public assistance programs, including, but not limited to Temporary Aid To Needy Families (TANF), Supplemental Security Income, and Food Stamps.

2. Self‑Employment, Business Expenses, In‑Kind Payments and Related Issues. Weekly Gross Income from self‑employment, operation of a business, rent, and royalties is defined as gross receipts minus ordinary and necessary expenses. In general, these types of income and expenses from self‑employment or operation of a business should be carefully reviewed to restrict the deductions to reasonable out‑of‑pocket expenditures necessary to produce income. These expenditures may include a reasonable yearly deduction for necessary capital expenditures. Weekly gross income from self‑employment may differ from a determination of business income for tax purposes.

Expense reimbursements or in‑kind payments received by a parent in the course of employment, self‑employment, or operation of a business should be counted as income if they are significant and reduce personal living expenses. Such payments might include a company car, free housing, or reimbursed meals.

The self‑employed shall be permitted to deduct that portion of their F.I.C.A. tax payment that exceeds the F.I.C.A. tax that would be paid by an employee earning the same Weekly Gross Income.
Nothing in there tells anyone what to use as evidence to determine income. I must put that down to the rule applies to all cases and in a specific case there are ought to be some knowledge of the source of income.

Let us assume that the person works for a wage or a salary and receives a pay check. How to prove income for the child support worksheet?

I prefer relying on pay stubs. This shows the person's current income. Most lawyers want also to see income tax returns. I do not like tax returns to show current income because that is last year's income and this is another year. Think about the volatility of Indiana employment in the past twenty years I have practiced law and you will see why I do not think tax returns are good for current income. Two good reasons exist for seeing tax returns. The first is to see if anyone is hiding income and the other is to find support for underemployment.

After being asked about the documents used to determine income, the Indiana Court of Appeals handed down In Re the Marriage of Kincaid on April 23. I usually shy away from writing about cases that are not published - I am not so sure that non-lawyers understand when a case cannot be cited as precedent. However, a NFP case has its uses even if it is not law. This opinion includes an explanation of what information was used to establish income including a long quote of the actual testimony. See pages 3- 5 of the opinion for this information.

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