In cases involving child support, spousal support and alimony, one of the primary issues for the court to decide is how much income each parent or spouse is earning. The child support guidelines place primary emphasis on the incomes of the parents, rather than expenditures. What sounds like a simple matter is actually quite sophisticated. Accountants or tax preparers can determine how much income will be taxed by the taxing authorities, but “net available income” for support and alimony cases may be quite different.
How to Calculate Income for Child Support Cases
These determinations begin with a definition of “net income” that is provided by Pennsylvania law (see 23 Pa.C.S. 4302, as follows):
“Income.” Includes compensation for services, including, but not limited to, wages, salaries, bonuses, fees, compensation in kind, commissions and similar items; income derived from business; gains derived from dealings in property; interest; rents; royalties; dividends; annuities; income from life insurance and endowment contracts; all forms of retirement; pensions; income from discharge of indebtedness; distributive share of partnership gross income; income in respect of a decedent; income from an interest in an estate or trust; military retirement benefits; railroad employment retirement benefits; social security benefits; temporary and permanent disability benefits; workers’ compensation; unemployment compensation; other entitlements to money or lump sum awards, without regard to source, including lottery winnings; income tax refunds; insurance compensation or settlements; awards or verdicts; and any form of payment due to and collectible by an individual regardless of source.
Net Available Income
This statute has been interpreted by the trial and appellate courts many times over the past three decades. Since the mid-1980’s, the Pennsylvania courts have held that net disposable income for support purposes is not the same as taxable income. In most cases, the definition of net disposable income is more expansive than taxable income. It may include bonuses, voluntary retirement contributions, tax-exempt interest income, depreciation, business income, capital gains, perquisites, rental income, trust income, and many other types of cash flow, whether or not reported on a tax return.
Executive Compensation | Business Income
The most complex support cases are those involving executive compensation and business income. Executives might be entitled to receive bonuses (discretionary or computational) or equity compensation such as stock options, restricted stock, stock appreciation rights, deferred income, or nonqualified retirement benefits (top-hat plans). These forms of income may fall within the statutory definition of net available income. Business income also may be considered by the courts, whether paid to shareholders or partners as draws or distributions, or retained by the business as retained earnings. Doctors, lawyers, dentists, accountants and their spouses also face unique challenges in pursuing support litigation or settlements. A Pittsburgh matrimonial lawyer can provide guidance concerning the rulings of our Pennsylvania courts.
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