By: Stephen J. Plog
In the vast majority of Colorado divorce or custody cases I have litigated over the years, child support is an issue to be resolved. Child support is calculated based on a statutory formula, with the primary variables being the income of each party, the number of children, the number of overnight visits per year for each parent, and lesser items such as monthly health insurance premiums or day care costs. As one might imagine, people can argue over almost anything, including each of these variables that going into the calculation, but for the number of children. In most cases, the primary variable being argued over is income. Aside from arguments regarding someone being unemployed or underemployed and the amount of income that should be attributed to them, battles can arise over forms or types of income. This includes arguments regarding bonus and commission income which one might earn above and beyond their base salary. Contrary to common belief, bonuses and commissions are income for calculating child support pursuant to Colorado Revised Statutes 14-10-115.
C.R.S. 14-10-115(5) specifically enumerates income from bonuses and commissions as income for child support purposes. Invariably, almost any bonus or commission receiving earner, whether my client or on the other side, says “but my bonuses or commissions are not ‘guaranteed.’” The lay presumption is that because these streams of income may not be guaranteed, or perhaps may fluctuate, that they are not going to be included in the calculation. This is just not true. Nowhere in Subsection (5) is the word “guaranteed” stated. Once resolved in the realization that these proceeds are income, the next step is to assess with your Denver child support attorney just how these income items might be dealt with and calculated.
Though most professionals might have a base salary, there are some, such as those in sales, who work solely on commission. As anyone receiving bonus or commission income knows (as do their spouses), these items generally do fluctuate and are going to be based on performance or sales. Performance can include personal performance or overall company performance. Each situation is different. In situations in which a person has been in the same job for multiple years, there may be a clear record of how these items go up and down over the years. Presuming a track record exists, it is common for an average of this type of income to be calculated over the last few years. A three year average is typical. However, there may be arguments or reasons for averaging a longer period of time. This depends on which side of the coin you are on. For the earner, the number of years desired to be averaged will depend on the number at the end of that calculation. If more or less years lowers income, you advocate accordingly. Of course, the other side will argue for an averaging time period they believe helps them. Perhaps statute should set forth a specific number of years to look at, but it doesn’t. Thus, there is no clear rule.
Some exceptions may arise in which averaging makes no sense. Perhaps someone has only been employed in their first commissioned position for a few months, or a year. In these instances, there is nothing to average on a yearly basis and a court is likely to look at a year-to-date total or go back as far as it can. Likewise, someone might be newly employed and has received one bonus, with no idea whether another is coming. Fortunately, courts are open to any reasonable arguments and may be persuaded, in certain instances, to leave bonus income out. Given the variations for calculating these types of income or assessing whether and how they should be included, it’s important to discuss these matters in detail with your Denver family law attorney.
In this Part 1, I have focused in a very general sense on child support. The same principles apply to the issue of alimony (maintenance). However, there is greater latitude for creativity and argument when it comes time to calculating maintenance tied into dealing with bonus and commission income. Though alimony is generally going to be calculated pursuant to a formula, much like child support, application of that formula is not always mandatory. In Part 2, I will delve into some strategic ways to deal with bonus or commission income tied into payment of maintenance. I will also briefly discuss budgeting for purposes of making payments of either type of support, since commissions and bonuses may come erratically, yet monthly payments under court order generally do not.