The Arizona Child Support Guidelines provide a standard of support for children and are based on both the needs of the children and the ability of the parents to pay. The Guidelines provide specific calculations to perform in order to determine the proportional share that each parent should pay based on various factors. In order to perform the calculation, each parent’s monthly gross income must be determined, which is often not a straightforward exercise. As a forensic accountant, I have encountered numerous different scenarios and complexities relating to calculating gross income of a parent. Following are very general answers relating to some of the most common questions I am asked by parents going through this process. Please keep in mind that every divorce case is unique and the answers are dependent on the particular facts of the case. In addition, a forensic accountant, who is an expert in financial matters, does not give legal advice. So, please talk to your attorney about the legal issues in your case.
Does the term “Gross Income” or “Adjusted Gross Income” used for child support have the same meaning as when these terms are used for tax purposes?
No. Although amounts reported on tax returns are used in calculations of gross income for support purposes, there are differences in the income and expenses includable for tax purposes and the income and expenses includable for support purposes. Due to the various factors and scenarios which may impact income used for support purposes, a forensic accountant is often hired to determine the income for child support.
What income is included in my gross income for child support purposes?
The Child Support Guidelines state the following:
“Gross income includes income from any source, and may include, but is not limited to,
income from salaries, wages, commissions, bonuses, dividends, severance pay, pensions, interest, trust income, annuities, capital gains, social security benefits (subject to Section 26), worker’s compensation benefits, unemployment insurance benefits, disability insurance benefits, recurring gifts, prizes, and spousal maintenance. Cash value shall be assigned to in-kind or other non-cash benefits”. (*)
When there are complexities relating to the spouse’s income producing assets, or difficulties determining income for the various sources, a forensic accounting expert can be retained.
If the court determines that I will receive spousal maintenance, will the spousal maintenance amount I receive be included in my gross income for purposes of calculating child support?
Yes. The court will determine the appropriate amount of spousal maintenance before establishing the child support amount. The amount of spousal maintenance received by a parent will be added to gross income, and the amount of spousal maintenance paid by a parent will be deducted from gross income in order to calculate income for child support.
My income fluctuates during the year. Will my monthly child support payment also fluctuate?
Although monthly figures are used to calculate child support, seasonal or fluctuating income is annualized so that the monthly payment remains the same. For example, assume that Mother is an accountant and works long hours during tax season. She earns wages of $5,000 per month January through April. During the other eight months of the year, she earns $2,000 per month. Her annual gross income would be calculated to be $36,000 ($5,000 x 4 months plus $2,000 x 8 months). The annual gross income of $36,000 would be divided by 12 months to calculate monthly gross income of $3,000.
I received a large bonus last year, but that was highly unusual and will likely not occur again. Is the amount includable in my gross income for child support purposes?
Income which is not continuing or recurring may not necessarily be included in gross income for child support purposes. However, based on the particular circumstances this might be a highly contested issue in the case.
My Wife is self-employed and her company paid a lot of personal expenses for her and our entire family. How does this affect the calculation?
When calculating income from self-employment, rent, royalties, proprietorship of a business, or joint ownership of a partnership or closely held corporation, “gross income means gross receipts minus ordinary and necessary expenses required to produce income.” (**) In many cases of self-employed individuals, the difficulty is determining which expenses paid by the business are “ordinary and necessary.” Typically personal expenses or non-ordinary expenses are identified and added back in order to calculate income for child support. In addition, expense reimbursements or benefits received by a parent, whether self-employed or as an employee, are included as income if they are “significant and reduce personal living expenses.” (***)
Does the court consider which spouse will be receiving certain income-producing assets in the divorce when establishing child support?
Yes, the court may consider the impact of the division of community property when the property will generate income to the parent who receives the property, such as investment income, rental income, etc.
I don’t believe the gross income amount my spouse has provided the court. What can I do?
Well, that is a topic for an entire blog! A forensic accountant can be hired to examine the records and perform procedures to make a determination of income to recommend to the court. The court will sometimes appoint an individual to perform the work, or both parties may jointly retain one expert. Consulting with your attorney on how best to move forward is usually the first step.
By Julia Allen Miessner, CPA/CFF
(*) The Arizona Child Support Guidelines, Adopted by the Arizona Supreme Court, Amended by Administrative Order No. 2011-56 Effective June 1, 2011.
(**) Ibid.
(***) Ibid.