All About a Self Employed Spouse and How to Impute Income
In almost all instances, when a couple is going through a disillusion of marriage (divorce) probably the most contested and important item is the financial outcomes which will largely determine the future of each spouse. While it is true parental timesharing (custody), when there are minor children involved, probably ranks the highest concern, without adequate financial considerations both in child support and alimony, the ability to care adequately for a minor child can be severely hampered. Income and expenses of both parties are considered when determining how monies should be adjudicated. And, while this sounds simple to do, in reality figuring out one’s income can take a number of twists and turns.
One of these twists is experienced when either or both parties are self employed. Here there is no employer records to verify income, bonuses, or a variety of perks with imputed value, How then does a self employed person present their true income to be used to figure child support and/or alimony? It becomes even trickier when one or both parties want to make their income total as small as possible. Each party will want proof of just how the income was computed and will often take issue with areas included or excluded in the final amount. Obviously the person who will be paying wants his or her income to be as low as possible while the person receiving the alimony or child support will want the income of the payer as high as possible. The following paragraphs will discuss some ways self employed income can be calculated, but in many instances a professional account or tax expert will be used to investigate and present proof for the final amount of earned self employment income.
While income reported to the IRS is representative of a self employed person’s earnings, there are often write offs included which are not solely related to the operation of business and for the purpose of family law financial determinations are considered a personal benefit rather than legitimately related to the operation of the business. These write offs are frequently written back into a self employed person’s income for the purpose of determining child support and/or alimony. Here there are two categories of expenses:
- Soft expenses: These expenses are not usually considered necessary to the running of the business and are usually written back into the income total. Soft expenses can include restaurant meals, entertainment, trips, car and cell phone if used in any way for personal needs, and at-home office space if a part of the regular home expenses such as house payments or rent and utilities.
- Hard expenses: usually kept, these expenses are legitimate expenses necessary to run the self employed person’s business and can include rent for office space away from the home, employees pay and expenses, and advertisement costs. Tools, office machinery, office paperwork expenses, and work related gas mileage expenses could also be included here. As each case is different there will be a number of possibilities for both hard and soft expenses.
Another consideration when a self employed person is computing their income for family law purposes, is what is called Imputed or Attributing expenses. These expenses occur when there is cash or non-cash compensation for the performance of services related to the business. An example would be the gift of airline tickets in exchange for a self employed carpenter building a deck on a client’s home. These airline tickets have an imputed value, the price of which must be added to the self employed person’s income. Again, imputed income is often a gray area, sometimes easily covered up, and may take a professional to ferret out the truth.
All in all, figuring out a self employed person’s income for the purpose of determining child support or alimony can, unless the presenting party is straightforward and honest, often become a difficult process. Using an experienced Family Law attorney such as Grant Gisondo, if you live in Palm Beach, Martin, St. Lucie, Miami-Dade, Broward, Hillsborough, or Orange counties in Florida or in Washington DC, can be of great help in working with the problem of accurately determining the income of a self employed spouse for the use in a case involving disillusionment of marriage. He will work with you and can recommend a financial specialist when needed. Call his office in Palm Beach Gardens at (561) 530-4568 for a free, initial, in-office consultation.