Child Support Income Calculations
When it comes to trying to cheat the child support system, the Michigan courts have seen it all. They have seen drastic maneuvers by desperate parents eager to manipulate their income to avoid paying more support than they feel is fair. Unscrupulous ex-spouses may use tricky tactics to artificially reduce the income that is the basis for calculating child support. The thought process is that “I’m not giving my ex any more of my hard-earned money than is absolutely necessary.” The failure in that thinking is that the kids are the ones that lose.
So the Michigan Child Support Formula Manual continues to get thicker to keep pace with new strategies. The section on child support income in the 2013 Manual covers every imaginable circumstance (and a lot of really creative unimaginable ones.) The bottom line is that if you’ve considered it, so have the courts. Here are a few of the highlights of how income manipulation is handled in the courts.
The basics of child support income calculations
Child support is contributed by both parents. It is based on ability to pay, the needs of the child(ren), number and age of the children, medical and educational needs of the children, child care costs and custody and parenting time schedules. The payer is responsible for payments until the kids are 18 years old(or in some special needs cases, 19.5.) Some couples may negotiate extended child support payments in their divorce settlements if, for instance, the payer agrees to contribute to college expenses, transportation or health insurance. These are optional extensions.
Child Support Payments are based on each parent’s income
“The term “net income” means all income minus the deductions and adjustments permitted by this manual. This is not the same as the deductions and adjustments permitted by the tax authorities. Just because the IRS will let you deduct it does not mean the court will allow you to deduct it from your income. A parent’s “net income” used to calculate support will not be the same as that person’s take home pay, net taxable income, or similar terms that describe income for other purposes,” according to the Michigan Child Support Formula Manual.
Keep in mind, the child support income determination based on the Michigan Child Support Formula Manual may not be the same amount used to calculate spousal support or division of assets.
How income is calculated
For the purposes of child support income considerations, the courts start with the basics including the W-2 numbers. This takes into account standard forms of income including wages, overtime, commissions or bonuses paid by an employer. The formula will also consider business and self-employment income as well as profit-sharing; pension or retirement income; annuities; unemployment; Workman’s Comp; Social Security or trust fund disbursements; Military pay; tips; gratuities; alimony; lottery winnings; gambling income; interest; dividends; capital gains; and employer contributions to a pension plan.
The courts will also calculate the monetary value of perks, including company cars, travel, room and board, and in-kind gifts like tickets, free admission to entertainment or use of business property.
In the “courts have seen it all” family of income manipulation, there is a line-item for personal loans from a self-owned business. Since the person benefitted from a lower interest rate and friendly repayment terms, the advantage counts as a financial benefit and therefore income. “A parent’s income includes the difference between the amount the parent repays and a repayment amount for a similar commercially available unsecured personal loan,” according to the Michigan Child Support Formula Manual.
Another tactic is payments made to friends of relatives. So let’s say you hire your brother-in-law to stain your deck. You pay him $4000 to do so. That’s $4000 that is not counted toward your income for child support calculations unless the value is higher than industry standard or you are getting a portion back. The courts consider the difference between the amount paid and the fair market value of the goods or services to be income for the purposes of calculating child support.
For self-owned business, one party may, in anticipation of support calculations, elect to voluntarily reduce his or her income either through a reduction in reported profits or reduced wages, bonuses, management fees or other forms of income. In these cases, the courts will look at a historical record and use a three-year average of child support income.
For seasonally-fluctuating work, the courts utilize a one-year income average.
The topic of gifts from family gets sticky. On the one hand, inheritances or one-time gifts that do not substantially contribute to the parent’s living expenses are generally exempt from income calculations. Ongoing gifts that contribute to shelter, food, transportation and medical costs can be considered income. There are ways to avoid this including personal loans.
“For a variety of historical and policy reasons, the government allows considerable deductions for business-related expenses before taxes are calculated. Those same considerations are not relevant to monies a parent has available for support,” according to the Michigan Child Support Formula Manual. These deductions may include rent payments by the business to the parent; depreciation; business entertainment expenses; home-office expenses; travel expense reimbursements and auto repair and maintenance costs. Also deductible are union dues and other employment expenses; alimony payments to other ex-spouses; income taxes and FICA/Medicare taxes; life-insurance premiums where the children of the marriage are beneficiaries; and contributions to pensions up to 5.5 percent of the parent’s income.
In cases where parents are found to be artificially under-reporting child support income, the courts can adjust their income or use historical averages. The courts will also consider imputing (assigning) additional income estimations for those who are willfully unemployed or considered underemployed. This includes people who took years off to care for children or who changed careers voluntarily from a higher-paying to a lesser-paying job. Also considered is the ability of the party to work additional hours. If a person works part-time but could be employed full-time in the same job, the courts may impute additional income based on a 40-hour work-week. The courts cannot consider historical overtime amounts. For instance, the courts should not impute income for someone who had been working overtime and chooses to work full-time. The courts will look at several factors including the ability of the party to earn more and the value of their contribution in the home. According to the Michigan Child Support Formula Manual, here are 11 factors that give the courts leeway when determining how much income to impute:
- Prior employment experience and history, including reasons for any termination or changes in employment.
- (b) Educational level and any special skills or training.
- (c) Physical and mental disabilities that may affect a parent’s ability to obtain or maintain gainful employment.
- (d) Availability for work (exclude periods when a parent could not work or seek work, e.g., hospitalization, incarceration, debilitating illness, etc.).
- (e) Availability of opportunities to work in the local geographical area.
- (f) The prevailing wage rates in the local geographical area.
- (g) Diligence exercised in seeking appropriate employment.
- (h) Evidence that the parent in question is able to earn the imputed income.
- (i) Personal history, including present marital status and present means of support.
- (j) The presence of the parties’ children in the parent’s home and its impact on that parent’s earnings.
- (k) Whether there has been a significant reduction in income compared to the period that preceded the filing of the initial complaint or the motion for modification.
To demonstrate the idea of imputing income, Highland Child Support Attorney Jeffrey Worosz, gives the extreme example of someone is trained as a doctor who formerly made $300,000 but suddenly chooses to work as a part-time cashier for $20,000. The courts, in this case, would consider the person’s income to be closer to $300,000 than $20,000.
“Obviously most cases are not this extreme but it demonstrates the point,” Worosz says. “Usually the effects are much more subtle like someone who chooses to work 32 hours instead of 40 so they have time with their school-aged kids. Or the stay-at-home parent with a Master’s Degree that they haven’t utilized in a few years.”
He suggests that one of the more important factors is the time-frame of the income adjustment. The courts would be more lenient with a parent that has been a stay-at-home parent for 20 years. That person would be considered to be more removed from the steady work environment and less likely to be able to jump back into the workplace and earn what they made two decades previous. Also considered is the living arrangements of the parents. “It’s one thing if both parents agreed that one would stay home and one would be the breadwinner,” Worosz suggests. “It’s another if the family really needed the income and one parent opted not to work OR to contribute to child care and home maintenance.”
Parental Income is just one of many complex factors that go into child support calculations in Michigan. Commerce Township Child Support Attorney Kathryn Wayne-Spindler has more than 20 years experience helping divorcing clients get or pay a fair amount of child support. She is extremely knowledgeable about the latest child support income deductions and imputations. Contact the Milford, Michigan law firm of Kathryn Wayne-Spindler & Associates at 248-676-1000 for a free consultation to talk with Kathryn Spindler or Jeff Worosz about child support income considerations. The firm helps clients throughout Southeastern Michigan including Oakland, Washtenaw, Wayne, Livingston, and Genesee counties. The attorneys of Kathryn Wayne-Spindler & Associates handle child support cases in Milford, Michigan; Highland; Hartland; White Lake; Commerce Township; Waterford; Walled Lake; Wixom; South Lyon; New Hudson; Linden; Howell; Brighton; Grand Blanc; Holly and many more local communities.
Written and Posted by Christine Donlon Long
Communications’ Specialist for Kathryn Wayne-Spindler & Associates