There are forms of income that are clearly included in the calculation of child support. Regular paychecks, rental income, and guaranteed payments are clear examples of income that fall into the child support calculation, and assembling evidence of those forms of income is straightforward. However, sometimes a parent receives a financial benefit in the form of stock options or an expense account, and it’s not clear whether that income should be included in the calculation. Likewise, sometimes a parent’s income fluctuates and the court is tasked with taking a representative sample to predict average income. The following will identify how the court deals with discretionary and fluctuating income in the child support calculation.
Discretionary income refers to forms of income that are within the court’s discretion to include in computing the parent’s gross income. Discretionary income is often employment benefits received by the parent in addition to salary. Such benefits may include, but are not limited to, the following:
- Company car or car allowance provided by an employer
- Expense accounts
- Employer-provided housing
- Company credit cards.
- Unused PTO.
- Personal expenses paid by an employer
- Stock options.
Despite the principles of child support codified in Fam. C § 4053 which leads to most forms of income being included in the calculation, not all kinds of benefits are treated as income. Although some California cases have held that trial courts have the discretion to treat any benefits as income to the extent that it reduces the party’s living expenses, this approach has been criticized and is not often followed by judges. This so-called blanket approach appears to go beyond what is contemplated by law. Fam C §4058(a)(3) clearly confined itself to employment benefits and does not extend to “anything that reduces living expenses.” In any case, most judges avoid taking a blanket approach that includes anything that reduces living expenses as income.
The parent’s income may not be regular because the amount varies from time to time. This may be because the parent’s income is based on commission, royalties, or overtime. This may also happen when the parent relies on seasonal employment instead of regular employment.
In cases where a parent’s income fluctuates throughout the year, an issue arises as to how to calculate the monthly child support obligation in a way that won’t leave the parent in arrears during low-income months. In practice, the monthly net disposable income of the parent is usually determined by dividing the annual net disposable income by 12. In order to account for a parent’s fluctuating income, the court may order an adjustment.
In such cases, when an adjustment is deemed necessary, the family court will select a timeframe from which they will calculate the average monthly income to reasonably demonstrates what a parent’s income will be in the future.