When divorcing couples divide their property they, or their lawyers, often search for hidden assets to ensure a fair settlement or judgment. Child support is based on income, which results in a search for all sources of income. Information about the bulk of income for wage earners is found on pay stubs. They reveal the gross income, required deductions for taxes, and discretionary deductions for things like a retirement or medical savings plan. Some people overwithhold their taxes so they can receive a tax refund. This results in an artificial reduction in income that will undoubtedly be noticed during the review of income that will be performed as part of determining child support obligations.
In some states, the court may consider overtime wages in determining child support, if the overtime is a regular part of the employment and the employee can actually expect to regularly earn a certain amount of income from working overtime. In determining whether overtime pay is a regular part of employment, the court may consider such factors as the work history of the employee for the employer, the degree of control the employee has over work conditions, and the nature of the employer’s business or industry.
People whose income is highly commission-based or who are self-employed present a special challenge when it comes to agreeing on the amount of income to be used for the calculation of child support. Those on commission may have good years and bad years. Their income for the purposes of child support will generally be an average of their income over several years. Similarly, self-employed people may have irregular income. Sometimes this is due to a decision to invest sweat equity into the business rather than paying themselves. Such a choice may be challenged during negotiations or in court to ensure an appropriate basis for child support.
It has become common for people to change jobs, and even careers, many times throughout their working years. Some of these changes are voluntary, and some are involuntary, such as those due to market changes. While married, parents may choose to make career decisions that would result in a reduction of income and standard of living. After a divorce, this freedom may be limited. A child support payer who reduces his or her income, whether due to anger at their former spouse, a desire to try something new, or any other reason, may find that the court cares little about the motivation.
All state child support guidelines include a mechanism to handle situations in which a payer is not earning at the level he or she could. When a parent is determined to be unemployed or underemployed, a court is authorized to assume income at “earning capacity.” The court can base its calculation of earning capacity on factors such as work history, education, skills, and job opportunities. Earning capacity is not limited to wage-earning capacity, but includes moneys available from all sources. This means that an investment that once produced income, but was transferred to a long-term appreciating asset, could be considered when determining income.
