In calculating child support, the key financial factor is the net disposable income of the parent. The net disposable income of the parent is computed by taking the gross income and then deducting the allowable deductions. In order to fully understand how child support is computed, we have to first determine what is included in the gross income of the parent.
The law broadly defines gross income as any income derived from whatever source, except for income that is legally exempt from the child support calculation. In arriving at the annual gross income, we have to look at two kinds of sources: (1) mandatory items and (2) discretionary items.
Mandatory vs Discretionary
For this article, we will discuss what comprises the list of mandatory items. The mandatory items are sources of income that judges must take into consideration in computing the gross income of the parent. The discretionary items, on the other hand, depend on the court’s discretion whether or not to include them in the computation of the gross income. Clearly, effective advocacy from your family law attorney concerning discretionary income can affect the final child support calculation.
What are the Mandatory Items?
The following are the sources of income that the court must include in computing the gross income:
- Salaries and Wages.
- Bonuses and Commissions.
- Business and Self Employment Incomes.
- Dividends and Interest.
- Pensions and Annuities.
- Worker’s Compensation Benefits.
- Unemployment Insurance Benefits.
- Disability insurance benefits.
- Social security benefits.
- Military allowances.
- Trust income.
Business and Self-Employment Income
The judge will take into consideration the business income earned by the parent. Business income is computed by deducting expenditures required for business from the gross receipts. However, not all deductions may be accepted by the family court. For example, a deduction for tax purposes may not be included by the court in computing business income. Furthermore, personal expenses may be deducted to reduce the net income.
Bonuses and Commissions
Ordinarily, bonuses and sales commissions must be included in the computation of gross income. In the computation of income, there are two kinds of bonuses or commissions:
- Predictable – In this case, the bonuses or commissions received are on a routine or regular basis. It is called predictable because the payment follows a predictable pattern. When including this kind of income the court will average the amounts received over a period of 12 months and include it in the annual gross income.
- Speculative – There is no predictable pattern of payment in this case. The court has two options in this case. The first is to totally exclude bonuses or commissions from the computation of income. The second option is to order that a certain percentage be paid as additional support whenever a bonus or commission is paid.
Overtime earnings must ordinarily be included in the calculation of gross income. However, overtime can be excluded if any of the following instances occur:
- It is unlikely that the overtime income will continue and there is evidence to support it.
- Including overtime in the calculation would lock the parent into an “excessively onerous work schedule.”
When the parent stops working overtime, the parent’s income must be computed based on an “objectively reasonable work regimen.” An objectively reasonable work regimen varies depending on what may be considered as the norm in the parent’s occupation. A reasonable work regimen depends on all relevant circumstances, including the choice of the jobs available within a particular occupation, working hours, and working conditions.
Employee Stock Options
Employee stock options are part of the parent’s employee compensation package and must be included in the income when the option is exercised, such as when the stock is acquired and then sold. The court may adjust the child support order given the sporadic nature of stock options.
Income from Gifts or Inheritances
Inheritances and gifts are generally not included in computing the income for child support purposes. Interest, rents, dividends or other forms of income actually earned from gifts and inheritances, however, are considered as income in calculating child support.
Lottery winnings may be considered as income in determining child support.