Determining Income For Purposes of Child Support

1. Is child support based upon my total income?

The New Jersey Court Rules provide that a child support award is based upon net income. Net income is defined as gross income less any taxes and other expenses. The key issue in many family law cases is the other expenses that a court accepts and deducts from the payor’s gross income when it determines a child support award.

2. How does the court define the term “gross income”?

The definition of gross income involves the application of terms such as “earned income,” “recurring,” and “available.” The question of whether income is recurring is a fact issue for the court to decide.

3. How does the court verify income to determine child support?

The court reviews the parties’ CIS, tax returns, W-2 statements, and IRS 1099’s. If these types of tax documents are unavailable, the court can use any other available evidence of current earnings, such as pay stubs or statements of business receipts and expenses in the case of self-employed individuals.

4. My estranged husband has earned sporadic income during our marriage in the summer by installing pools. However, now that we are getting divorced, he claims that he can no longer earn any more part-time income. Will the court still add my husband’s part-time income to calculate my child support award?

Yes, the child support guidelines specifically provide that sporadic income should be included in child support calculations. The guidelines also define sporadic income as income that fluctuates from year to year and includes any seasonal work, dividends, royalties, and commissions. The court is permitted to ignore sporadic income if the party can prove that it will not be recurring in the future.

5. What is the status of New Jersey case law with regard to income averaging to determine child support?

In the case of Lanza v. Lanza, 268 N.J. Super. 603 (Ch. Div. 1993), the court instructed that child support be determined by income averaging because of the fluctuation in the payor’s income. The court opined that averaging of income is particularly significant in cases of self-employment where income fluctuates.

In the case of Platt v. Platt, 384 N.J. Super. 418 (App. Div. 2006), the court averaged the payor’s income over five years rather than three years based on the circumstances of the case. The court was mindful of the three-year period in the guidelines, but it determined that the circumstances justified a deviation to create a more expansive and representative time frame.

The courts have also consistently prorated income when its distribution is periodic. In the case of Cleveland v. Cleveland, 249 N.J. Super. 96 (App. Div. 1991), the former husband received a lump sum distribution every five years from a personal injury settlement. The court allocated the sum as if it were received monthly until the next distribution.

6. My husband has a company car and also receives other perks from his job. Can the value of the car and the value of the perks be considered as income when determining child support?

In many cases, a significant amount of a compensation package is comprised of “perks.” Many people receive a car, car insurance, free housing, meals, travel, health club membership, or country club memberships as perks. A key question is whether these perks are considered as income when determining child support. The New Jersey Child Support Guidelines, Appendix IX-B, clearly provides that in-kind services or benefits received in lieu of wages are considered to be income if they reduce personal living expenses. Therefore, an argument can always be made to the court to add a spouse’s perks to the amount of income. If the value of a car, car insurance, meals, etc., is added to a spouse’s yearly income, then the amount of child support awarded could be substantially higher.

7. Are bonuses and commissions considered to be a source of income under the child support guidelines?

Bonuses and commissions are both named as sources of income under the child support guidelines. If a payor spouse earns a sporadic bonus, then the parties may want to take an average of the bonus pay for the past three years and use that figure to determine the child support award. Alternatively, the parties can agree to exchange bonus pay information on a yearly basis; the payee spouse would agree to receive a percentage of the bonus each year. It is important to emphasize that if a percentage allocation is used, the payee spouse should insist on receiving a percentage on the gross bonus payment award and not the net bonus payment. As a devious ex-spouse could instruct the employer to take unanticipated deductions from the bonus, it is always advisable to stipulate that the payee spouse receive a percentage of the gross bonus payment. 

8. How are retirement contributions taken into consideration when a court determines child support?

The court carefully scrutinizes what type of deductions a payor spouse takes from his paycheck. Perhaps the largest deduction from a paycheck is for retirement contributions. The Child Support Guidelines, Appendix IX-B, allows mandatory retirement contributions to be excluded from income. However, any voluntary payments to a retirement annuity or any other deferred compensation plan are not excludable. The court will add any contributions to these plans back into a person’s gross income to determine child support.

9. My husband is a self-employed plumber. His tax returns show that he earns $50,000 a year. However, I have handled his books for years, and I am certain that he earns a lot more. How does a court determine child support obligations for those who are self-employed?

Determining child support for the self-employed can be a very difficult issue. Once again, the child support guidelines are instructive as to how to determine income in these cases. The Child Support Guidelines, Appendix IX-B, specifically provides that:

Gross income is gross receipts minus ordinary and necessary expenses required for self-employment or business operation. Personal income from the operation of a business includes all income sources listed above and potential cash flow resulting from loans taken from the business.

Any self-employed person or business owner earns much more than the figure shown on his tax return. Thus, it is important to point out to the court what the self-employed person’s or business owner’s cash flow actually is. The amount the self-employed person deposits into a checking account each week or month is a critical issue. If the case is contested, then you should obtain the banking records of the payor spouse so that you can compare the payor spouse’s cash flow and deposits with the actual amount of income claimed.

Certain expenses that are deductible on a self-employed person’s tax return are added back to determine child support. The expenses for depreciation, home office, entertainment, certain travel, car expenses, and voluntary contributions to pension plans in excess of 7% of gross income are added back to income for purposes of a child support determination. Moreover, any other business expense that appears to be inappropriate or excessive can also be added back to determine child support.

10. My husband is in the Army. His taxable income is only $25,000. However, he receives all types of housing and food benefits. How are these allowances treated when determining child support?

All service members receive Basic Allowance for Quarters (BAQ) and Basic Allowance for Subsistence (BAS) or live in government accommodations and eat at mess halls for free. If BAQ and BAS are not received due to government-provided accommodations and food, then the value of such in-kind income may be included in the service member’s gross income.

BAQ, BAS and Variable Housing Allowances (VHES) are considered to be income for the purpose of determining child support. These forms of income are not subject to tax.