In most New York divorce actions, child support is the easiest issue to settle. The New York Child Support Standards Act (CSSA), lays out a standard formula that determines the child support obligation of the non-custodial parent.
The formula considers the number of children, each parent’s income, child care expenses, health insurance expenses, and any extraordinary expenses related to the child. It’s a fairly straightforward process if your income is verifiable.
Child support and divorce for the self-employed in general can become a little more complicated since in many cases it is difficult to determine the entrepreneur’s actual income. Many entrepreneurs don’t take a regular paycheck, or their pay varies on how well the business is doing.
And some work in cash business where it can be even more difficult to prove how much income they actually take home. The point of contention becomes what to plug into the CSSA formula as the business owner’s income.
What Is Considered Income
Since every business is different, there are many different things that may need to be considered when determining income. Depending on the complexity of the business and how financial records are kept, a forensic accountant may be required.
Income is not limited to salary. Other things the court may consider are:
- Rental income
- Fringe benefits
- Stock options.
Keep all of these things in mind when determining actual income for an entrepreneur for child support purposes.
How To Prove Income
To prove actual income, the business owner may have to provide tax returns, bank statements, and profit and loss statements for the business. They’ll have to show how much the business brings in and the businesses expenses.
One of the common ways to prove income is doing a lifestyle analysis. This is where the business owner’s expenses, bank account statements, and credit card statements are examined to discover inconsistencies.
I had a case where a spouse claimed an income of $18,000 a year but lived in a $4,000 a month apartment. The court imputed an income that supported the ability to pay that much in rent. If the numbers don’t make sense, the court can decide how much they think you can or are actually earning.
Takeaways About Child Support For The Self Employed
If you are a business owner who may have to pay child support there are several things you can do to make sure your income is verifiable:
- Don’t lie or hide assets. You will eventually be caught and you will pay more than you would have by telling the truth in the first place.
- Pay yourself a reasonable income. Put yourself on payroll and pay yourself a reasonable wage. Make sure it’s enough to cover your expenses. If everything adds up, the court is more likely to accept what you claim to be your income. Talk to an accountant about the tax implications.
- Make sure your lifestyle matches up with the income you claim. In my experience, this is the number one mistake business owners make when reporting income for child support purposes.
Divorce for business owners can be a more complicated process than for a W-2 wage earner. Your best tool in protecting yourself is to hire an attorney experienced in divorce for entrepreneurs.