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Income as Determined by the New Jersey Child Support Guidelines

Posted by Richard DeMichele | Dec 07, 2015 | 0 Comments

Company Paid Personal Expenses as Income for Child Support

It is commonplace for an owner of a closely held business to provide themselves, other owners or key employees with substantial financial perks as part of their employment. For tax purposes, these benefits and perks are usually valid and allowable business expenses and not taxable as income. These expenses can include, but are not limited to, use of a company car, monthly auto allowance, use of a cellular telephone, the corporate expense account for hotels, restaurants, and other corporate entertaining. While these types of employment perks are not income for tax purposes the New Jersey Family Courts will often include the value of these benefits in determining income for child support purposes. The Philosophy Behind the New Jersey Child Support Guidelines The New Jersey Child Support Guidelines were established to provide the court with the adequate economic information to determine appropriate child support obligations. There is a rebuttable presumption that the guidelines will be used in determining the appropriate child support. The overarching philosophy of these guidelines is:

(1) child support is a continuous duty of both parents,

(2) children are entitled to share in the current income of both parents, and

(3) children should not be the economic victims of divorce or out-of-wedlock birth. The economic data and procedures of these guidelines attempt to simulate the percentage of parental net income that is spent on children in intact families.

Each parent's obligation for child support is based upon their relative incomes. Intact couples raising children tend to spend more on their children as their incomes increase. The child support guidelines increase the child support obligation as the parents' collective income increases. The income used is gross income for the purposes of the New Jersey Child Support Guidelines. Determining a parent's gross income sounds simple in theory. However, “income” is not exclusively limited to the amount of money indicated on a parent's paycheck. Gross Income as Determined by the New Jersey Child Support Guidelines When using the New Jersey Child Support Guidelines gross income, includes, but is not limited to, income from the following sources:

  1. compensation for services, including wages, fees, tips, and commissions;
  2. the operation of a business minus ordinary and necessary operating expenses (see IRS Schedule C); c. gains derived from dealings in property;
  3. interest and dividends (see IRS Schedule B);
  4. rents (minus ordinary and necessary expenses – see IRS Schedule E);
  5. bonuses and royalties; g. alimony and separate maintenance payments received from the current or past relationships;
  6. annuities or an interest in a trust;
  7. life insurance and endowment contracts;
  8. distributions from government and private retirement plans including Social Security, Veteran's Administration, Railroad Retirement Board, deferred compensation, Keoughs and IRA's; k. personal injury awards or other civil lawsuits;
  9. interest in a decedent's estate or a trust;
  10. disability grants or payments (including Social Security disability);
  11. profit sharing plans;
  12. worker's compensation;
  13. unemployment compensation benefits;
  14. overtime, part-time and severance pay; r. net gambling winnings;
  15. the sale of investments (net capital gain) or earnings from investments;
  16. income tax credits or rebates (excluding the federal and state Earned Income Credit and the N.J. homestead rebate);
  17. unreported cash payments (if identifiable);
  18. the value of in-kind benefits; and
  19. imputed income

Income from the Operation of a Business or Self-Employment When either parent has income from a closely held business or a sole proprietorship, his or her gross income includes all of the items listed above in addition to other forms of gross income which are specifically related to ownership in a business. For the purposes of the New Jersey Child Support Guidelines gross income is gross receipts minus ordinary and necessary expenses required for self-employment or business operation. The question then becomes which expenses are ordinary and necessary for the business to operate. Again, just because an expense is allowed under the IRS tax code it does not mean that it is necessary for the business to operate as determined by the New Jersey Child Support Guidelines.  The New Jersey Child Support Guidelines specifically exclude from necessary expenses the following expenses which are allowable by the IRS:

1) the accelerated component of depreciation expenses;

2) first-year bonus depreciation;

3) depreciation on appreciating real estate;

4) investment tax credits;

5) home offices;

6) entertainment;

7) travel in excess of the government rate;

8) non-automobile travel that exceeds standard rates;

9) automobile expenses;

10) voluntary contributions to pension plans in excess of 7% of gross income; and

11) any other business expenses that the court finds to be inappropriate for determining gross income for child support purposes.

Conclusion When one or both parents have an ownership interest in a closely held business is not enough to exclusively review their tax returns or pay stubs to determine their gross income. A careful review of streams of revenue and necessary expenses is required to get an accurate child support obligation. If you have any questions regarding the determination of income for child support, or family court matters generally in New Jersey, please contact us online today or call (856) 546-1350 for a confidential consultation with one of our skilled family court lawyers. _______

About the Author

Richard DeMichele

Richard A. DeMichele, Jr. is a seasoned litigator, devoting a substantial part of his practice to family law and personal injury matters.

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