The Basics of Child and Spousal Support – Income for Support Reports

Read Part 1 in our Child and Spousal Support Series

In certain circumstances, it may be advisable to hire an accountant to calculate an individual’s income. These calculations are prepared in accordance with Federal Child Support Guidelines and are typically presented to the Court through an Income for Support Report.

When an Income for Support Report May be Advisable

For most salaried employees, income for support calculations are relatively straightforward. The Courts will consider a person’s individual tax return as record of their income and, barring any adjustments, calculate income available for support from these figures.

This process, however, gets significantly more complicated for self-employed persons. Self-employed persons have tax planning tools that allow them to reduce their taxable income and minimize the corresponding tax burden. As a consequence, what is reported on their personal tax return may be significantly different than the income available to pay support.

An Income for Support Report is prepared to assist the Court in determining the total income available to a spouse, beyond what is reported on their personal tax return.

Income for Support Adjustments

Here are a few ways we may adjust a self-employed person’s income when preparing an income for support report:

• Individuals who own a corporation can leave money they earn within the corporation, which means that income will not appear on the business owner’s personal tax return. In circumstances such as this, we would consider the company’s ownership structure, its current and historical financial position and industry benchmarks to determine if income earned is available to be withdrawn. If it is available, we would attribute the income to the business owner.
• Some business owners may income split between family members, to avoid paying tax at the top marginal rates. The amount received by these family members may not reflect a fair value wage for the work they perform for the business. We may allocate these wages and related taxes to the owner of the corporation.
• Business owners may write-off expenses, some of which have a personal benefit to the business owner. Items such as cellphones, meals and entertainment, travel, vehicle insurance, and repairs and maintenance may have a personal component not reflected in the financial statements. The Guidelines require personal expenses to be added back to income for support purposes.

These items are just some examples of the additional complexities that can arise when computing the income available for support for business owners. In any support case, it is important for both the support payor and support recipient to speak with a professional to make sure the level of support is fair.

At Davis Martindale, we want to provide our clients with peace of mind. We are experienced in preparing income for support reports for the Courts. If you are involved in a child or spousal support dispute, give us a call – we’d be happy to help you reach a resolution!