More and more individuals are faced with child support or spousal support obligations as a result of a divorce or paternity action. In order to determine how much child support or spousal support one will pay, it is necessary to examine his or her income from all sources. Family law attorneys frequently work with forensic accountants in order to prepare an analysis of income available for support purposes.
In California, for support purposes, the annual gross income of either party constitutes income from whatever source derived, including but not limited to commissions, salaries, royalties, wages, bonuses, rents, dividends, pensions, interest, trust income, annuities, workers’ compensation benefits, unemployment insurance bene fits, disability insurance benefits, social security benefits, and spousal support actually received from a person not a party to the proceeding.
Where one party owns his or her own company, the court will consider the gross receipts of the business less the business expenses required to operate the business to reach its determination of income available for support. The court also has discretion to consider employee benefits or self-employment benefits, and any corresponding reduction in living expenses, as income available for support.
Perquisites supplied by a company, to an employee, but not reported as income, can be considered as income available to the support payor for purposes of determining child support or spousal support. The same holds true for support payors who own their own business. There are various items that can be considered as perquisites of employment. A company car or company housing are common perquisites that are added back into the payor’s income for support purposes. Ultimately, the fair market value of the item is added back into the payor’s total income. For example, if a company provides a car that would otherwise rent for $500.00 per month, the court has the discretion to add $6,000 ($500.00/ month x 12 months = $6,000) to the payor’s gross yearly income. It is important to keep in mind the actual use of the perquisite, as the answer will ultimately assist in determining the percentage (dollar amount) of the expense that will be included in the income available for support.
Sole Proprietor or Small Business Owner Perquisites
In the same manner that company perquisites can be considered as income available to the support payor for purposes of determining child support or spousal support, the court can use its discretion with regard to a business owner’s business expenses listed on a profit and loss statement or a Schedule C to an income tax return. Arguably, there can be more discretion where a business owner has messy book keeping or comingles his or her personal expenses with business expenses.
Entertainment Client Perquisites
In Los Angeles, we deal with a significant number of cases that involve celebrities, from actors, athletes and musicians to various other types of performers. There are costly items that are required by certain professions. For example, think of all the wardrobe changes certain performers make during one event, and then consider the cost associated with yearly clothing expenses. If the clothing must be worn as a condition of employment, and is not suitable for everyday wear, the court has the discretion to consider the performer’s clothing expenses as a deduction from income for support purposes. In many cases, the performer’s wardrobe cannot meet both of these requirements, and are then considered perquisites which results in adding the total wardrobe expenses back into the performer’s income available for support purposes.
In many cases, it is beneficial to retain a forensic accountant to assist with preparing an income analysis for the purposes of determining child support or spousal support. Many family law attorneys in Los Angeles work hand in hand with forensic accountants who are extremely knowledgeable in assisting with complex financial issues presented in a dissolution of marriage proceeding. It is imperative that your family law attorney have an intimate understanding of the complex financial issues presented in such proceedings.Ann Moder