As a divorce lawyer in Denver, one of the most common issues I see in child support battles, beyond whether someone is appropriately employed, relates to what does or does not constitute income for child support purposes. With this article, my hope is to clarify some things for my readers regarding the subject. To start, income for child support purposes is generally set forth in C.R.S. 14-10-115(5).
Subsection (5) sets forth a long list of what counts as income. I will dispense with reciting the whole list, but will set forth some of the more commonly misconstrued items, beyond what someone might earn from his or her paid job:
1. Bonuses: Bonuses do count as income. Most people with whom I speak who receive a bonus will either tell me, “it changes from year to year” or “they’re ending bonuses next year….” Their hope is that the court will not include the bonus or that their words will lead me to say the bonus will not be counted as income. Comporting with my moral compass, I must be truthful. Bonuses will count in a Colorado child support case! With a fluctuating bonus, the court will generally average the last few years to arrive at a fair figure. However, if the trend has always been going up, a court will be more likely to just use the current figure. If your employer is truly ending the bonus structure, you better get a letter to that effect or be ready to have someone above you testify to that effect.
2. Rental income and rent (from a roommate): Statute specifically sets forth the notion that rent is income. If you have a roommate living in your home who pays you rent, that would count and be added to your monthly income. A court would find, and statute would support the notion, that this is money received which reduces your living expenses. Thus, it counts. The other situation we see regarding rent is one in which a party, whether in a divorce, custody, or child support case, has rental property or a prior home which they rent out. In these situations, I almost always hear that person state, “I just use the rent to pay the mortgage.” If the rent truly just goes towards payment of mortgage and necessary expenses, C.R.S. 14-10-115(5)(III)(A) and (B) would support the notion that income from your rent would really only be any profit you make from the rental property after deducting those expenses. Of course, you should be ready with documentation to show where the procedes received from the tenant are going. If you have rental property that has no morgage or other expenses, you should absolutely count on the monthly payments being included as income for child support purposes.
3. Pension and retirement income: Income you receive on a regular basis from a retirement plan will generally count towards your child support income. The court will not care whether you earned that pension before the child support case. The court will not care whether that pension has been counted or divided as property as part of a divorce case (your ex’s portion would count as income, too). The court will not care whether the pension was accrued before the child was even born. If you are receiving pension income, that income will count towards your monthly child support income. Even if you also have a full, or part-time, job the pension income will be included added to your income.
4. Recurring gifts: Let’s say rich Uncle Wilbur gives you $10K each January as a gift. Though that money would generally be yours in divorce battle over property, the court could count Uncle Wilbur’s yearly gift as income for child support calculation purposes. Using another scenario I have seen, let’s say your parents give you $3000 each month to live, and it’s not titled a loan. If this goes on long enough, a court may include this as income to you. Let’s say instead of giving you money directly, mom and dad pay your rent, car payment, etc. on a monthly basis. A court may count that, too. I have even seen one situation in which mom and dad lived out of state, but owned a house here. They allowed the party to reside in that house and use their car, rent and payment free. The court counted the approximate value of those things as income.
5. Certain monthly business expense deductions allowed by the IRS: Income from a business is counted as child support income. When dealing with self employed parties, we Colorado divorce and custody lawyers, will almost always be forced to go through prior tax returns, profit and loss statements, etc. to assess the revenue of the business and what are legitimate expenses reducing income. The end goal is to determine whether the individual income reported by the business owner on his or her personal taxes matches up with the income of the business. It is also to determine if there is other personal income that could be used for child support. There are certain items that might be allowable business deductions or expenses for IRS purposes that might, but will not help reduce your child support income. Home office deductions are an item I will generally fight to get included as income. Car payments made by your business may be personal income. Health insurance payments paid by a business may be personal income. Even depreciation on business property, at least “accelerated depreciation”, may be counted as business income for child support purposes. Just because the IRS says it’s not income, does not mean Colorado child support law agrees. Additionally, people often think they can just pay personal expenses out of a business account and that those proceeds won’t count as income. They are wrong, from and IRS and child support standpoint. A good child support attorney will figure it out. We have our ways.
I will saved the “…not to be” analysis of child support income for another posting. Just as I see Denver child support clients’ jaws drop when I tell them something is income, I also see jaws drop when people are told something is not. I will elaborate another day. For now, take with you the understanding that each court is different and may interpret the niceties of determining income differently. Please also take to heart that income for child support purposes is potentially more than you think.
Colorado Child Support and Self-Employed Individuals