Filing a divorce in Colorado? The following is how the court determines income for alimony and child support.
When the court must decide a child support amount or an alimony (now known as spousal maintenance) amount, it must make a determination of both parties’ “income.” But what does “income” mean?
This term is deceiving. Many of us think of income as simply the wages we receive from our employer. But, I challenge you to think out of the box and think about every way you could get money from any source. The list seems almost endless. If you thought of a way, it is probably considered “income.”
Income is defined in two statutes, section 14-10-115(5)(a)(I), C.R.S. defines “income” as it pertains to child support and section 14-10-114(8)(c)(I) defines income the same way, but for the spousal maintenance calculation.
In sum, “income” includes any income from any source unless the statute specifically excludes it. The statute literally outlines A-Z examples of income. They are as follows:
(I) “Gross income” includes income from any source, except as otherwise provided in subparagraph (II) of this paragraph (a), and includes, but is not limited to:
(A) Income from salaries;
(B) Wages, including tips declared by the individual for purposes of reporting to the federal internal revenue service or tips imputed to bring the employee’s gross earnings to the minimum wage for the number of hours worked, whichever is greater;
(D) Payments received as an independent contractor for labor or services, which payments must be considered income from self-employment;
(G) Severance pay;
(H) Pensions and retirement benefits, including but not limited to those paid pursuant to articles 51, 54, 54.5, and 54.6 of title 24, C.R.S., and article 30 of title 31, C.R.S.;
(L) Trust income;
(N) Capital gains;
(O) Any moneys drawn by a self-employed individual for personal use that are deducted as a business expense, which moneys must be considered income from self-employment;
(P) Social security benefits, including social security benefits actually received by a parent as a result of the disability of that parent or as the result of the death of the minor child’s stepparent but not including social security benefits received by a minor child or on behalf of a minor child as a result of the death or disability of a stepparent of the child;
(Q) Workers’ compensation benefits;
(R) Unemployment insurance benefits;
(S) Disability insurance benefits;
(T) Funds held in or payable from any health, accident, disability, or casualty insurance to the extent that such insurance replaces wages or provides income in lieu of wages;
(U) Monetary gifts;
(V) Monetary prizes, excluding lottery winnings not required by the rules of the Colorado lottery commission to be paid only at the lottery office;
(W) Income from general partnerships, limited partnerships, closely held corporations, or limited liability companies. However, if a parent is a passive investor, has a minority interest in the company, and does not have any managerial duties or input, then the income to be recognized may be limited to actual cash distributions received.
(X) Expense reimbursements or in-kind payments received by a parent in the course of employment, self-employment, or operation of a business if they are significant and reduce personal living expenses;
(Y) Alimony or maintenance received; and
(Z) Overtime pay, only if the overtime is required by the employer as a condition of employment.
One misunderstanding most clients bring to divorce lawyers is that they believe child support and maintenance is determined by using their net pay, after taxes and deductions. This is not true. The law required the child support and spousal maintenance calculation to use both parties’ gross pay. Therefore, even though 401(k) contributions, health insurance, and taxes are taken out of your pay check, the calculation will still be based on the amount you earned prior to these deductions. Additionally, military allowances, such as BAH, VA disability benefits, and BAS are also included as income. Not what you thought, huh? Fortunately, there are some exceptions that attorneys at our Colorado Springs office can help you understand.
Some of the most common sources of income, and where a lot of disagreements arise, are: (1) wages, (2) self-employment income, (3) bonuses and commission, (4) in-kind payments from an employer, (5) monetary gifts, and (6) overtime.
Wages become an issue when a person’s income varies and is inconsistent. For example, if you are a nurse, some of the shifts you take have you working late night hours. Often, these shifts allow for an increase in your hourly rate (i.e. a shift differential). One position is that if the shifts are available, you should be taking them and therefore the increase in income should be considered. Another position could be that it is not fair for your wage to consider all or a part of this increase when determining child support or spousal maintenance because it is not guaranteed and is not regular. Typically, one of our divorce lawyers will look to see how long you have worked the shift with the differential pay and determine how regular you work that shift and for how long. If it appears that the differential pay is regular, then it could be included as income.
2. Self-Employment Income
Self-employment income is determined by gross profits minus expenses. This is typically proven through income tax returns, balance sheets and profit and loss statements. What makes identifying self-employment income difficult is that it often varies year to year and month to month. Also, it is not uncommon for a business owner to exaggerate their business expenses or classify personal expenses as business expenses. This could be at the detriment of the other party because the calculation will not be based on what the business owner actually has earned. Regrettably, this can be difficult to prove. It can also be difficult for a business owner if the other party is wanting to improperly increase that person’s income or wants to use income from prior years when they made substantially more. A skilled divorce attorney at Skulborstad Legal Group can assist you in determining what will likely happen, can help you negotiate a fair settlement, or can advocate for you before a judge.
3. Bonuses and Commission
Employer bonuses and commission can be tricky in the same way as varying income/wages. If bonuses are discretionary and irregular, then the more likely they will not be included in income when determining child support or spousal maintenance. If your commission fluctuates and is irregular, it is common to look at you commissions over a longer period of time. Like with varying income, a child support or alimony attorney would look at historic pay stubs, possibly going back around three years, and determine the regularity of the bonuses.
4. In-kind Payments from Employer
An “in-kind payment” is a payment to you, but in the form of something other than money. For example, if you are a handyman and some repairs in someone’s home and instead of paying you with cash, you agree to exchange work for a fancy bottle of Pappy Van Winkle (an iconic, and every expensive whiskey), that bottle of Pappy is an in-kind payment and its value is considered income. Another example is if your boss provides you with a gas card to charge your gas to, or pays for 100% of your cell phone bill. In this instance, the employer related expenses are not income to you, but the amount you are paid that goes towards reducing your personal expenses is considered income. So, in other words, let’s say that your company pays you $500 a month to off-set your expenses to use your own vehicle (i.e. a vehicle stipend). You use your personal vehicle 10% of the time for work and the other 90% is used for personal use. $50, or 10% of $500, is income, but the remaining $450, of 90% is not considered income because it did not reduce your personal expenses related to your vehicle. It is important to note that this “in-kind payment” is only considered income if it is from an employer. That means if you were to get a gift from a friend or family, this would not be an in-kind payment, but could potentially be considered a gift and income if the gift is a regular occurrence.
5. Monetary Gifts
Monetary gifts are gifts of money. These will be considered income if they are regular and constant. Our divorce lawyers often see this in cases where a parent is regularly assisting their child, our client, to make ends meet. These regular payments are income. One exception to this is if the money is not a gift, but is rather a loan. If you are borrowing money from a parent, or the other side is claiming that money they received from their parents is a loan, it is important to speak with a divorce attorney in our Colorado Springs or Denver Metro office to see whether such money is considered income or is a debt. If you are planning on borrowing money from your parent(s), it is equally important to speak with someone to ensure that the money you borrow does not get classified as income. In this instance, we may recommend a promissory note or other proof of repayment.
Money you get for overtime is treated different when determining income for child support and for spousal maintenance purposes. For child support purposes, overtime is only included as income if the overtime is required by your employer or is mandatory. Otherwise, it is not included as income. For spousal maintenance purposes, overtime is included regardless of whether it is voluntary or mandatory.
This was just a small glimpse of one thing a court looks at when determining child support and maintenance. However, it is the backbone of these awards. Contact your Colorado Springs, Colorado lawyers to help you navigate the area of child support and spousal maintenance.