What is income for purposes of determining child support?

In any divorce involving children, one necessary issue that must be resolved is the calculation of child support. There are a number of factors that go into the calculation of child support in Colorado including the number of overnights each parent has with the children, any applicable credits for payment of health insurance or child care, and each party’s gross monthly income. There are other items which may change the ultimate child support amount, but the primary question people have pertains to the income portion of the calculation.

As the prior paragraph states, the calculation of income for purposes of child support is based upon each parent’s gross monthly income. It is not based upon a parent’s net income. This is one common misunderstanding and misconception that people facing divorce have. The determination of a parent’s gross monthly income may be an easy task or may it be a difficult task depending upon the circumstances. For example, a self-employed person’s income may be more difficult to ascertain as opposed to someone who is paid hourly and works 40 hours per week. Someone who works in a commission-based position may have fluctuating income and determining what an appropriate amount of gross monthly income can be a tall task. Furthermore, income may include more than just employment-based income.

Colorado law sets forth a number of sources of income that will be included in a parent’s gross monthly income when determining child support. The statute lists the following sources of income as included in a parent’s income for purposes of child support:

·      Salaries

·      Wages (including tips)

·      Commissions

·      Payments received as an independent contractor

·      Bonuses

·      Dividends

·      Severance pay

·      Pensions and retirement benefits

·      Royalties

·      Rents

·      Interest (even interest that is merely re-invested)

·      Trust income

·      Annuities

·      Capital gains

·      Any money withdrawn by a self-employed invidiual for personal use that are deducted as a business expense (for example, payment of a cell phone bill using business funds, used for both business and personal use)

·      Social security benefits (which also includes benefits received by a parent for disability/death)

·      Worker’s compensation payments

·      Unemployment payments

·      Disability insurance payments

·      Monetary gifts

·      Monetary prizes (such as gambling winnings)

·      Income from partnerships

·      Expense reimbursements or in-kind payments received in course of employment

·      Alimony/maintenance received

·      Overtime pay (if it is required as a condition of employment)

Notably, the statute starts by stating that gross income includes income from any source, so even this extensive list is not exhaustive and may include other items.

Some of these items can have various components, limitations, exclusions or other considerations. For example, capital gains are only includible in income to a parent for the year in which the capital gains were actually received. Unrealized capital gains in an investment account are not to be included (such that earned gains which are not withdrawn do not count, but withdrawn earnings do).

Income from self-employment can be complicated. By statute, income from self-employment is defined as gross receipts (actual revenue) less ordinary and necessary expenses. Ordinary and necessary expenses are going to be context-dependent and based upon the employment, as it will differ from job to job. It does not include, however, depreciation which may be claimed on a business tax return or other investment credits and similar tax-advantaged business accounting practices.

Overtime is another complicated component. Overtime may not be include if it is voluntary and not required as a condition of employment (which can be difficult to establish, especially if it is consistent). However, the child support statute also allows for a Court to deviate from the guidelines if overtime is regular and consistent. Similarly, if a parent has two jobs, but one such job is more in the nature of a “second” job that results in employment beyond a regular full-time job, that income is not included.

As you can tell, the determination of what counts as income for child support purposes can be a tricky situation. It is important that you have competent counsel at your side to have navigate these issues. Please reach out to us for your FREE CONSULTATION if you are facing a child support issue!