Domestic Issues for Business Owners, Part 3: Support
The conclusion to my three part series on domestic issues and business owners will focus on support. Previously in parts one and two I discussed marital property, separation, divorce and equitable distribution.
Support is divided into three general categories: child support, spousal support/alimony pendente lite (APL) and alimony.
Child support is paid for minor children until they are 18 years of age and graduated from high school, whichever occurs later. The amount of child support varies greatly from case to case and is dependent upon both parents’ monthly net incomes. Generally, the only deduction from a party’s gross income to determine net income is the party’s tax liability along with any mandatory retirement contributions or union dues. However, there are many other factors which come into play in determining a party’s income for purposes of payment of child support, including a party’s earning capacity, all sources of income, bonuses, draws, and the like. For business owners or individuals who are compensated through bonus income, the calculation of monthly net income can be complex. I typically never recommend that a party attend a child support conference without consulting with an attorney as to the approximate obligation that will be due, along with a discussion of the specific circumstances of that individual’s income. If you would like for me to provide you with an estimate of your child support obligation, or to sit down and discuss how child support is calculated and review an Order that is currently in place, please feel free to contact me.
Spousal Support and Alimony Pendente Lite (APL)
Spousal support and APL are essentially the same thing: support paid to a dependent spouse from separation until the entry of a final divorce decree. However, there are strategic reasons to request a particular type or defend against a spousal support request. If there are minor children, the amount of child support being paid is considered in the spousal support or APL award and the interplay between child support and support to a spouse must be handled correctly to ensure a payor isn’t paying too much or a payee is getting the correct amount.
Calculating Spousal Support/APL
Spousal support/APL calculations are as follows:
Spousal Support = Higher Paid Spouse’s Monthly Net Income – Lower Paid Spouse’s Monthly Net Income x 40%
Spousal Support = Higher Paid Spouse’s Monthly Net Income – Lower Paid Spouse’s Monthly Net Income – child support obligation x 30%
Alimony Pendente Lite (APL)
While there is no real way to defend against payment of APL if the net incomes require it, the spouse receiving it can only continue to collect it if he or she is moving the divorce matter forward. Therefore, a spouse who is receiving APL cannot simply sit back and receive support during a two year separation period.
What is Income for Support Purposes?
All sources of income are considered including, but not limited to:
Draws – even for taxes
Shareholders Distributions – use of retained earnings
Payment perks (e.g. automobile payments, automobile insurance payments, life insurance,
tax payments, some medical insurance payments, expense accounts and personal credit
Add back of depreciation
Receipt of rental income
The nuance in the law between spousal support and APL can have serious financial ramifications in a divorce proceeding, and, therefore, a potential payor of spousal support or APL should consult with an attorney who specializes in Family Law before dealing with an issue regarding support for a spouse.
However, new spouses’ income are not included as income for purposes of determining a child support obligation to a former spouse.
Stayed tuned for postings on How To Protect Your Business in the Event of a Separation or Divorce.
- Marital Agreement
- Premarital/Postnuptial Agreement