Tag: Understanding Imputing Income
Key Information to Know about Wages in a Divorce in New Jersey
Influence of Income and Earning Potential on Divorce Outcomes in Monmouth and Ocean County, NJ
The lives of parents and children depend on financial support for their survival after divorce. Though the calculation for support begins with the income of both parents or spouses without children, determining what is and is not income for a support calculation can be tricky. The calculation for child support, for example, begins with each parent’s gross monthly or annual income. Gross income is commonly known as the before-tax income, whether by employee wages or self-employment income. Paid employees can easily calculate gross monthly income by their check stubs. Self-employed parents, however, have a more difficult time arriving at a gross monthly income due to expenses and other adjustments. Regardless of how calculated, support is a critical measure of post-divorce life quality for divorcing families.
One or both spouses may be wage earners before, during, and after marriage. Wage earner gross income includes wages, which a W2 summarizes for the year. Paycheck subs also provide monthly and year-to-date gross income calculations. However, wages may also be tips, bonuses, royalties, and commissions for food servers, CEO’s, artists, investors, and salespeople, for example. And for those who collect fees, say, for consulting, that income is also included. For self-employed folks, on the other hand, gross income includes proceeds from operating a business, less the ordinary expenses for running a business. For example, a landscaping business may bring in $4,000.00 a month for residential landscaping, but expenses to provide landscaping services include gas to run mowers, blowers, and trucks and maintenance on the tools and machinery to conduct the business. Business owners may also deduct employees and independent contractor pay from gross proceeds.
Examples of Gross Income in New Jersey
Other businesses, such as real estate rentals, include rental income and property value increases or gains from rental sales. Again, though, the cost of repairs, management fees, and other expenses incidental to owning and operating rental units can offset rental income. And investors have interest and dividends on their stock, annuities, trusts, life insurance policies, contracts, and other holdings to consider as income in addition to investment sales. Personal injury or other lawsuit awards, including workers’ compensation; retirement plan distributions; trust interests; profit-sharing plan distributions; disability payments; unemployment benefits; severance pay; and governmental and private retirement and deferred compensation distributions, are all part of gross income. Even alimony from prior relationships is income.
Dealing With Imputed Income
Other sources most people do not consider are net gambling winnings, income tax credits, rebates, and overtime pay. The most challenging source of income to calculate is cash. Some businesses operate on a cash basis, and without diligent records and truthful disclosure, cash income is easy to hide from taxing agencies and spouses in divorce proceedings. But what baffles many divorce participants is imputed income. Parties looking to dodge alimony or lower child support payments believe that working for lower wages helps them in the long run. For example, a top executive in a Fortune 500 company with an annual salary of over $500,000.00 a year may consider taking a lower-paying job as a sales manager in the company, making half as much annually, until the divorce is over.
How Do Courts Manage to Impute Income in NJ?
Courts are wise to that maneuver and may impute income, meaning assign an income to the party whose potential is to make the salary they did for the last three to ten years given their level of experience and education. They may also rely on state Labor Department statistics on earnings for the spouse’s occupation to attribute income. The same applies to an unemployed spouse with a consistent history of making a specific wage or salary in their employment history. A court may impute even a minimum wage full-time income to one who is unemployed or underemployed unless there are legitimate reasons for not working, like medical conditions, whether temporary or long-term. In that case, a party may have disability payments included in their income calculation.
When Determining Gross Income is not that Easy
While sometimes the gross income calculation is easy, other times the calculation is not that easy, even for a wage earner. Those caught in the part-time work cycle may have fluctuating income over the years, as do employees with annual bonuses or commissions that vary so that income averaging may be appropriate. A court may add up all sources of income, such as commissions, bonuses, and base pay for the three to five years before the time of calculation to assign a gross income to one or both parties. In addition, a court can configure future income with projections for those just starting careers. New employees expect pay raises as one party starts on a new job or career, like an unemployed homemaker who goes to school and becomes a teacher or a medical doctor who begins as an intern and then becomes a full-fledged doctor. The averaging projections can affect support and alimony.
Considerations on Income Averaging in New Jersey
Income averaging may cause conflict and controversy as it is not an exact reflection of income. For example, a spouse whose income includes large bonuses based on company performance in some years and small or nonexistent bonuses in others may be struggling to meet support obligations in leaner years. The same may be true for commission earners in industries with up and down cycles. For example, solar company sales may be profitable when government policies endorse and subsidize alternative energy sources but are poor under administrations that do not. Seasonal employment and teachers who do not work in the summers may also be subject to income averaging.
Having the Support of an Experienced NJ Family Lawyer Can Be a Turning Point in Your Case
Fortunately, experienced family lawyers can be creative to resolve impasses on income attribution and support. Support may be calculated based on supplemental support payments contingent on percentage increases due to good vs. bad years. Creativity and strong advocacy are essential for spouses who must live as single parents post-divorce. While married, one spouse may have sacrificed a career to child-rearing. At the time of divorce, the unemployed parent may need time and vocational rehabilitation to become self-supporting. Thus, alimony may be high for the payor spouse while the other spouse gets educated, trains for a position, or re-emerges into the workforce at an entry-level position.
Formulas for life stages can be helpful to keep parties from having to come back to court to adjust support based on changing incomes, though sometimes that is inevitable. People lose jobs, get sick, win the lottery, or otherwise roller coaster through the economic up and downturns. When you are divorcing and have variable income, you probably need help calculating support and arguing for a feasible solution to meet your support obligations or receive support for your children and you. Consulting with a professional family law attorney is a must to ensure you and your children have the means to survive and thrive.
Contact our Divorce & Family Lawyers for Advice on Earning Capacity Issues in Toms River & Freehold NJ
The lawyers at the Bronzino Law Firm have been helping clients balance their needs and priorities with the demands of everyday life, employment, and divorce for years. We have an attuned ear when it comes to understanding your situation and are particularly adept at crafting unique solutions to best resolve your conundrums throughout the divorce process.
If you are in need of assistance or further guidance in a divorce case in Howell, Jackson, Middletown, Manchester, Sea Girt, Beach Haven, Toms River, or elsewhere in Ocean and Monmouth County, contact our Brick office to confer with a lawyer free of charge.
We can help you assess how earning potential; past, current, and future income may impact your key issues like spousal support, custody, and equitable distribution. Call (732) 812-3102 today to learn more.
How to Understand Imputed Income in a Child Support Case
There are many cases where a person’s gross income does not reflect their professional capacities due to marital or family circumstances.
When a couple is divorcing and has children, many factors determine the custody arrangement, how parenting time will be divided, and how much child support will be required from the non-custodial parent. So how is income calculated to determine child support payments? In some cases, the New Jersey Superior Court: Family Part looks at each parent’s income to determine child support payments, but there are situations in which the determination of child support is not so cut and dried. Read on to learn more.
How is income determined?
Determining income is a straightforward process, right? It’s as simple as looking at a person’s income tax filings? Unfortunately, it’s not that simple to determine what a parent’s income is. The New Jersey Superior Court considers many factors when determining income, including business expenses that have greatly decreased the person’s income, non-monetary assets and other in-kind goods and services, and capacities for employment that have not been utilized due to the marriage or other reasons.
New Jersey business owners most often have non-monetary assets that can be included in their gross income. Additionally, their net profits are considered income for purposes of determining child support payments; only the business’s ordinary expenses are left out of the calculation of gross income, and those expenses must be directly related to the functioning of the business. Because there are many cases in which a person uses their business account to cover personal expenses such as car payments, etc., the Superior Court is hypervigilant in determining that all business expenses withdrawn from the person’s gross income are directly related to the running of the business. If the other spouse’s attorney finds a discrepancy in what is claimed to be a business expense, the Court will confirm and return the expense to its rightful place as part of the business owner’s gross income.
For those who are in traditional employee situations, their gross income is calculated as the amount of money earned before state and federal taxes are withdrawn. In the case of all New Jersey residents for whom the Superior Court is considering child support payments, their financial investments can be considered as an element of their gross income that will augment the amount of child support payments they are required to pay.
This Superior Court’s consideration of a partner’s status of employment – whether they are unemployed or underemployed due to marital or other circumstances – is the source of the Court determining whether they need to impute a spouse’s income in determining how much the person will be required to pay in monthly child support payments.
What is imputed income, and how does it affect child support payments?
There are many cases where a person’s gross income does not reflect their professional capacities due to marital or family circumstances. For example, a professional teacher who decides to become a stay-at-home parent does not have the income afforded to New Jersey teachers at their level of training, though they may be quite employable. In these cases, the Court may determine the person’s income if they were working and require that the person pay child support payments in alignment with that income. This is called imputing income.
The Court and other legal experts will review the person’s training, experience, education, and professional qualifications. They will review where the person lives and look at the going rate for professionals in that area with their level of qualifications. Because some people voluntarily choose to be unemployed or underemployed to lessen the financial responsibility to make child support payments, New Jersey Courts counter this by imputing income. This is the case both for people who avoid paying child support by becoming voluntarily underemployed or unemployed and people who lessen their professional impact to receive more in child support payments. In both of these cases, the New Jersey Superior Court: Family Part system is poised to conduct an audit of personal and professional income and expenses to ensure that the child receives the full extent of child support payments that they have the right to.
If you are divorcing and in the midst of a child support determination, you must have the support of a family law attorney.
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At Bronzino Law Firm, LLC., our founder Peter Bronzino, Esq and our team´s skilled attorneys will guide you through the process of getting a positive outcome of your child support case. Either on the phone or by visiting our conveniently located offices in Brick, NJ, we provide assistance to clients in Monmouth and Ocean County areas, including Marlboro Township, Matawan, Sea Girt, Howell, Toms River, Jackson, Ocean Township, and Middletown.