This really is Volume 2. Remember that these are excerpted from a book in progress, so you can imagine this post following immediately after Volume 1 almost on the same page. By way of introduction, however, Volume 2 focuses on the first 9 categories used as input variables on the Dissomaster child support calculator. I am literally going in order through the Dissomaster categories and explaining as I go. Look, I know it’s hard to make this stuff exciting or interesting and my winning personality won’t be coming through here, but I promise that if you read these three blog entries (Volume 3 to follow), you’ll know a HELL of a lot more about Dissomaster than most people and that probably includes your ex’s lawyer. Spend a few minutes on this so that you get the lay of the land.
First there is the entry for number of children. In most cases, the children travel together, but in some cases where there is a big age gap, the 15-year-old may live with Dad because he doesn’t take away her mobile phone as a punishment while the 6- and 4-year-old live with Mom because it’s easier for her to get them to school. In those cases, enter 1 child for Dad and 2 children for Mom and then use a timeshare percentage for each non-custodial parent in the box. Meaning, if the teenager lives with Dad during the school week and goes to Mom’s house on weekends when Mom has the younger kids and the younger kids follow the reverse of that model in going to Dad’s house, enter 20% timeshare for each parent.
- Tax Filing Status and Number of Exemptions
There’s always an afterthought fight over the children’s tax exemptions. For many W2 families, the tax return is an annual bonus that they receive from the federal government. There is plenty of writing about how, when you do that, you are simply giving Uncle Sam an interest-free loan that he pays you back in April each year. The tax return, though, is based on certain deductions and exemptions. The claiming of the children as exemptions is one of the major ways for parents to receive a discount on their tax returns. So, invariably, it comes up as a discussion point after we calculate child support.
I point out to the paying spouse (or recipient) that the tax advantages of claiming the children are calculated into the support program. Since you receive a $2,000 child tax credit for each child, the computer program assumes that you have $167 per month in additional monthly income per child. It factors that into the support calculation. Then, if you have the children as an exemption, you pay more in support. If you split the kids, then the computer gives you both the tax advantage associated with each. In the end, in most cases, there is very little difference each month in the calculation – you either pay for it monthly in the form of child support (and then get money back at the end of the year) or you pay less support but lose the annual exemption.
There are exceptions, of course, which are based around the basic tax rules. Lawyers hate talking about taxes because we are every bit as mystified by the tax code as you are except that you pay us to give you good advice. This book has been fact-checked so the analysis is as close to correct as I am willing to guarantee, but you should always double check tax information with tax professionals, including information I give you. That said, there are some circumstances where another child exemption won’t help you. High earners lose the child tax credit as it phases out with their income and low-earners do not get enough income to make it worthwhile. In those circumstances, it makes the most sense to give the exemptions to the other parent.
Whether you file Head of Household or Married Filing Jointly has a large impact on child support. Typically, from a child support perspective, filing Single 1, is the most costly of the ways you can file. Also, many times even lawyers make the mistake of listing both as Single 1 even though they may be filing as Married Filing Separately or Married Filing Jointly. Typically any way in which you can save money on your taxes means that you have more money available for support. So, if you file MFJ, you will have more money available for support and receive less child support – if you file MFJ -> New Spouse, that will hurt you the most, either direction. The computer program we use defaults to Single status, so it’s not uncommon for a lawyer to simply forget to put the right filing status into the computer program. It’s worth double checking, but you should understand the basic movement of child support liability – remember the Basic Rule for Child Support above; if you get more back from the IRS (or pay less), then the program will know that you have more money available for support.
- Timeshare Percentage
The Family Code still refers to “visitation,” a term that I think is antiquated, sexist and unfair. I’m going to call it “timeshare” because that is a more accurate reflection of the way you share the kids. Timeshare is perhaps the second most important element of the Dissomaster calculation (with earnings being the most important). A timeshare percentage change of 10% can have a major impact on the child support payment and the difference between a 20% “standard” plan (every other weekend and a dinner visit each week) and a 50% plan (alternating weeks or a 2-2-5 schedule) can be well over 50% of the total payment.
Although earnings and timeshare are the most important Dissomaster variables, for most people wages don’t change. The calculation “is whatever it is” – if you and your spouse are a W2 wage earners, the likelihood that there is going to be any major revelation or change in income is very slight. The biggest variation in the Dissomaster or XSpouse calculation will come in the timeshare percentage with the children.
We will pick this up in a lot more detail in the Custody and Visitation chapter below, but we play a strange game with judges regarding timeshare percentage – people have fought epic battles in the custody and visitation arena that are really proxy battles over child support. Judges typically do not like it when they think the parties are negotiating a timeshare percentage based on reducing (or increasing) child support. The policy of the state of California is that each parent should provide support to their children. That means both paying support and taking care of the kids. Typically the non-custodial parent pays the larger support amount because the custodial parent is taking care of the kids. Each is contributing to the children’s upbringing and needs, even when, sometimes John Cryer has to make sure that the mother of his child has $10,000 per month to keep her home even though she rarely saw the children.
Calculating timeshare is its own beast. You are both trying to maximize the amount of time you are awarded to reduce or increase your support payment, and trying to seem like you don’t care about how you count it. Courts typically do not like it when parties “count hours” to figure out the exact timeshare percentage, although they allow the Department of child support services to do it when they calculate support. The reasons probably have to do with the Court only seeking to maximize child support when there is money to be collected to pay back public assistance money received by the custodial parent versus counting hours to get more or pay less support by two parents who are not on government assistance.
At any rate, the counting hours method is where the court literally divides the total number of hours the noncustodial parent has with the children and divides by 168 hours in a week. I actually use 336 hours over two weeks because it helps to account for a Week 1/Week 2 schedule like alternating weekends, etc. Lawyers use a sort of shorthand that says every other weekend is 20%, two nights per week is 28%, 5 nights out of 14 is 36%, 6 nights out of 14 is 42%.
The support-paying parent often pays for hours when the children are in school or day care – this can actually lead to a type of double-dip where the support payor is not only paying for half of the child care or school expense but also paying support to the ex-spouse for time when the kids are in school or daycare. Many dads ask me: “Why can’t I get credit for those hours since the child is in school anyway?” The Court has opined on this issue several times, always stating that the person who gets the credit should be the one who would have to pick them up if they have to come home from school early because they are sick or for some other reason. The person getting the credit is the one who is responsible for them when they are in school. It’s imperfect in a more modern society with double income families where everyone is doing the best they can to manage where the kids are going to be and how they are going to get there. This is an area where there is potential growth in the timeshare percentage. It amounts to around 35 hours per week (20% of the timeshare in a week when the child is in school; and another 33% while the children are sleeping). If you are the parent who stays home when the child is sick, even when it’s not your day, you might be able to pick up extra timeshare for this and if not and you want to add timeshare percentage to your Dissomaster calculation, try to add additional time during the school day (although you will have to miss work when the kids are sick on your day).
I’m in favor of some rethinking of the guideline calculation of support. If I was drafting new child support regulation, I’d probably look at finding a way to split the support from the timeshare. I’d suggest picking a percentage such as 35% or 38% and using that as the timeshare number in all cases, then follow through with the rest of the Dissomaster giving the court some wider discretion on the “injustice” of “inappropriateness” of the orders such that a deviation from guideline would be more reasonable (such as cases where there is a true 50-50 or where a parent receives very little time share). I think this would actually lead to a drastic reduction in child custody battles, which are at least in no small part about child support.
In any event, there are many many courts moving toward shared parenting. Modern psychology tells us that contact with both parents is very important to kids. The “tender years”[1]doctrine is dead. Fathers are spending much more time with their kids and taking a quite a bit of pride and joy in fatherhood, including taking the kids to the doctor, going to school functions, participating in extracurricular activities and cooking home cooked meals. Women are increasingly becoming a force in the market and traditional “women’s professions” in the service fields (nursing and teaching) are becoming increasingly high-paid while women also are becoming more dominant in the professions such as law, engineering, technology and entrepreneurship. Courts are also increasingly recognizing that both parents, especially in two income families, are contributing to the upbringing of the children.
From my perspective, as a divorced dad, there is nothing more important in your divorce than the establishment of the timeshare on good terms for both parents. There is nothing more important than spending time with your children. Plus it drastically impacts the bottom line.
I also suggest to many dads who make decent money (or get remarried to a wage earner) that they offer to pay support on a smaller timeshare in exchange for a larger timeshare. This can feel a little like “buying the kids” but for most dads who can afford it, paying extra to the children’s mother allows for the father to help keep her with housing and food stability while getting the time with the kids that he wants. Remember the Cryer case above – housing stability is an important part of paying support, if not the most important part. Often, that sort of deal comes in a modification of custody and visitation – where the kids are getting older and move to a 50% timeshare from a 35% timeshare. I will suggest that that the father offer to keep paying what he’s always paid in order to make the mother more likely to agree. This gives each party a little of what they want and helps reach a negotiated outcome that benefits everyone.
- Income – Wages
The Dissomaster distinguishes between income from employment (W2 income) and self-employment income. The program generates tax and support factors (including income tax and employment tax). If one of the income taxes does not apply to you, the program gives you an opportunity to exclude those taxes from the calculation. The more information you feed into the program, the better it is able to calculate the amount of income you have available for support. Basically all income that is subject one of the employment taxes goes into this category. The easiest way to do this is to take your Medicare wages and use that as your wages.
You can also divide the Medicare tax by 0.0145 to get the Medicare wages (that’s just the Medicare tax rate of 1.45% as a decimal. Unlike FICA, which has a ceiling, there is no upper wage limit for Medicare. That’s why you can just look for the Medicare wages. The Medicare box and the calculated Medicare wage should match up.
There isn’t much to say about income available for support if both of you are wage earners. The most likely number to use for income available for support is your W2 wages. The Court uses gross numbers (much to people’s chagrin) and then gives you a bunch of additional deductions and additions based on payments you make for certain things.
W2 income has the advantage of being relatively certain. Of course there are raises and the possibility of losing a job. Some people lose jobs during a divorce at a slightly higher rate than those who aren’t going through a divorce – an insult-to-injury suffering. It’s probably because the divorce can be so stressful that performance decreases – I wouldn’t say it’s a large percentage but in cases that drag on and on it can definitely happen. Wage earners who are seasonal workers should pay attention to ensuring that a Court does not calculate their income on a 12-month basis at their high season earnings. If you are a teacher, professor, wildland firefighter, involved in any business where there is a harvest, or you work at a tourism-based business in a seasonal job, make sure that this is clear to the Court when discussing the issue. In the past with truly seasonal workers, we’ve treated the income either as an annual average – meaning that in some months you’ve barely got enough to cover the payment and in some months you are flush with cash, but the most common way to do it is to pick a baseline number and carve out a sort of overtime percentage.
The only really exceptional thing regarding W2 income is overtime income. The short version regarding overtime is that it can screw the payor in the divorce proceedings. The Court cannot make you work more than a full-time week, but if you are going to work overtime, the Court can (and should) make you pay support based on what you actually earn. That is to say, if you have the type of job where you work overtime regularly (cops, firefighters, prevailing wage earners on big construction projects, Highway Transportation workers, nurses in hospitals, etc.), you will want to exclude overtime income from the calculation of support and use an “overtime” table to calculate your payment when you work overtime. There is good caselaw on this – it’s called an Ostler/Smith order from In re Marriage of Ostler and Smith (1990) 223 Cal.App.3d 33 in which the court sets a percentage of actually earned overtime or bonuses to be paid out as child and spousal support. It’s roughly 14% of gross earnings for each child and your spouse (capped at around 40%). Ostler/Smithorders are a pain in the ass because you have to continually provide evidence of what you have earned to your spouse, but they are fair because you don’t have to pay each month when you don’t have the overtime or bonus money coming in.
Some clients tell me they have decided not to work overtime anymore after a divorce. They will tell me that they worked the overtime to try to provide for their families or because they were trying to buy a house or pay off certain debts. They decide that they would like to work less and spend more time with their children. This is a noble idea. Almost 0% of the ones who say that actually do it. I think that’s because there are certain people who get so much identity from their work they simply do not really want to work less because it messes with their sense of self (I’m writing this Blog entry at 11:37 P.M. and worked last night on an Appellate Brief until 3;30 A.M, because working less messes with my sense of self – but also I like to do things like writing this book – it’s meditative and calming for me, like the painting I do on the side as well).
That said, if that is your choice, the Court cannotmake you work more than 40 hours per week. Argue hard for an Ostler/Smith overtime table and then don’t work the overtime hours. Your support will be based on your base wages with a percentage of overtime for the times when you can’t get out of it. Others start working more overtime after the initial support order so that they can try to keep a semblance of their former lives. This is fine too, although my caution to the overtime worker is that once you start working overtime there is always a chance that your support will increase because of it.[2]
- 401K Contribution (this has almost no impact on the Dissomaster, but it’s the fourth input variable).
Dissomaster makes you pay more the more you contribute to your 401(k). This is because the program counts it as income to you not subject to employment taxes as it is pre-tax. Most people do not contribute enough to a 401(k) for it to have a deep impact on the calculations.
- Self-Employment Income
For the purposes of calculating income available for support, self-employment wages are where the fun really starts. At its most basic form, self-employment income is just business profits after expenses – that’s the number on the 1040 that transfers from Schedule C. The program then generates income tax, self-employment tax and guideline income from the entry. Since self-employment taxes are larger than W-2 employment taxes, for the same amount of income, a wage earner has more discretionary income (and a larger support payment) than someone who is self-employed.
But self-employment income is a bit of a moving target because divorce lawyers and judges (along with CPAs) are aware that self-employed business owners write many things off of their income as “expenses” that would be considered “perks” if a wage earner received them from their employer. For example, every small business owner writes off their cell phone and internet bills. You would have these items if you did not have a small business and you would not be able to write them off. If your wage paying boss provided them for you for personal use, the would be a perquisite that would be subject to income taxation. You essentially get a perquisite provided by your small business when you include them, even if you use them for work as well.
Other deductions that reduce self-employment income are meals and entertainment expenses, car leases and loans, mileage deductions, home office expenses and travel Ex: you wrote off that trip to Hawaii you took with your new paramour because you stopped into the pro shop and bought some golf clubs for your best client? May or may not pass muster with the IRS, but it creates a real problem in the family court where your income available for support is being reduced by a travel expense for a trip you took with a new romantic partner. Another big one is depreciation. In any business where you can depreciate assets, you are basically getting money for nothing. I had an opposing party who threw a $76,000 birthday party for himself and wrote it off as a business expense. The Court accepted it as a legitimate write off (that particular judge really really blew it on that one in my opinion).
All the action happens in what the Court will “add-back” into the income available for support. This is sort of a wildcat way of doing this. Most judges are not adept at using the detailed nuances of the Dissomaster program and do not know that there are places where itemized deductions can be added back into the program, so they will look at bottom line income. If you are real estate broker showing gross revenues of $200,000 on commissions but after expenses are showing profits of only $60,000, opposing counsel or the Judge will want to inquire about what is giving you the big write-offs. Inquiry is not the same as judgment. You may have great reasons – advertising expenditures in a brutally competitive market, sales associates whose salaries you are guaranteeing, the need for hot car, or the real need to wine and dine potential high-end clients at the country club that are real write offs that should be included in your business expenses. Most judges, however, will “add back” certain deductions taken for expenses that double as a personal benefit. Meals and entertainment, vehicle expenditures, mileage, and depreciation are major targets.
The family court is not in the business of telling you how to file your taxes and, frankly, isn’t interested in whether you are fully transparent about your expenditures with the IRS. Assuming you’ve been taking higher-risk deductions for years, your spouse will have signed the returns along with you. The family court is a place where, in theory, no one is in trouble; it’s a place to help you resolve problems. But, expect to be able to defend your Schedule C to the Judge or to opposing counsel.
Practice tip: add up all of the possible “add backs” and run the support calculation that way and then start analyzing each add-back as a percentage of the total amount of personal v. business use. If you rely heavily on your car and phone as many real estate professionals do, you may be entitled to the full deduction or at least a larger percentage of the deduction than, say a lawyer who leases a BMW to drive back and forth to the courthouse. If you are a commercial plumber, you may have a much larger Cost of Goods Sold or the need for a heavy duty work truck to move tools and equipment between jobsites. Make sure the Court knows the difference between a work and personal vehicle. Most courts spend about 5 seconds on these line items, so you will want to be prepared to answer quickly. Generally speaking, any perks that you can get credit for on your self-employment income are a win for the support payor.
For the support recipient, be prepared with counter arguments. If your ex is a “paper contractor” with a Ford F-350 King Ranch fully loaded dually that cost $80,000 off the lot because she likes to pull her horse trailer but would never carry a toolbox, make sure you tell the Court that their job could be done in a Toyota Prius. Same if your ex is deducting cell phone bills for his new girlfriend and her kids.
In some instances a spouse will accuse the other spouse of cheating on their income taxes or a lawyer will try to convince a judge that the self-employment income is understated, but there is good caselaw to help out the tax reporting party:
“[G]ross income, as stated under penalty of perjury on recent tax returns, should be presumptively correct. Returns are, after all, ultimately enforced by federal and state criminal penalties.” In re Marriage of Loh, 93 Cal. App. 4th 325, 332 (Cal. App. 4th Dist. 2001).
On occasion, the IRS has asserted that a taxpayer’s lifestyle belies their reported income – under the theory that the taxpayer is underreporting income. (E.g.,United States v. Gellman (11th Cir. 1982) 677 F.2d 65 [burden on United States to prove that taxpayer wilfully did not file returns where prosecution was based in part on lifestyle evidence].). There are established ways the IRS goes about computing income based on the contention that a taxpayer’s manner of living is inconsistent with his or her reported income. In re Marriage of Loh, 93 Cal. App. 4th 325, 332 (Cal. App. 4th Dist. 2001).
A few photos of an ex-spouse with assets owned by the ex-spouse’s new spouse or “nonmarital partner” would not be sufficient in tax court and they are not sufficient here. In the absence of tax returns, the only evidence as to Petitioner’s income is her own testimony and her income and expense declaration. Id.
The party alleging the underreporting must prove, above reporting party’s own stated income in her tax returns and income and expense declarations, both executed under penalty of perjury, that the reporting party has falsely underreported her income.
This is a high burden to meet. A colleague of mine once had an investigator stakeout out a hot dog cart in a busy tourist area in order to count cash sales. There were no credit cards processed – everyone a the beach knew that if you wanted a hot dog and a cold drink, the only way to pay was cash. He successfully showed that the operator was bringing in a little over $1,000 cash each day (and because the vendor was not being open and honest about his reporting, the Judge allowed my colleague to extrapolate that daily income to an annual income of over $200,000 per year – when the vendor protested that his busiest cash days were all clustered during the summer, the Judge told him he wasn’t credible because he had not been forthright about his income previously).
Generally speaking though, cash is difficult to prove. As one of our retiring judges says: “I’m in the evidence business!” You have to be in the evidence business too. If you want to prove underreported cash sales, you have to do more than produce lifestyle evidence with photographs and text messages, you have to find the money. Otherwise, the Court has no basis other than the documents submitted to the Court (the Income and Expense Declaration) and the Tax Returns.
- Other Taxable Income
This is the “catch all” category for income. It’s everything else besides employment income or self-employment income that you would otherwise include on your tax returns. There are categories for short- and long-term capital gains, rental property income, farm income and income from other sources. It’s key importance is that it is not subject to employment taxes but it is subject to income taxes or capital gains taxes. If the rather exhaustive list of options does not include your option, you can use the “other income” slot for you inputs.
- TANF plus CS Received
This is Temporary Assistance to Needy Families. It has no direct bearing on child support, but it’s a good way of helping the judge see the overall income picture for each of the parties.
- Other Nontaxable Income
This is where it’s a good idea to get creative (or not if you are trying to reduce your support payment). Nontaxable income could be certain disability payments, but it can also job perquisites that are not reportable income on your income taxes (or income at least that you do not report). Sometimes someone who gets caught with a certain amount of cash income finds that income being slotted in to the nontaxable category. It’s actually a bummer placement for people who are trying to reduce their support payment because it shows up as available income but is not adjusted for income or employment taxes.
You can also use it for tax advantages that someone gains, such as a credit for a hybrid vehicle or the use of a vehicle as part of a person’s job. I’ve also seen it included when someone is renting out a room in their home but that rental income is not making it to the tax return as income.
[1]The Tender Years doctrine said that kids under 5 should be with their mothers.
[2]There are practicalities and possibilities. The practicality is that a person who takes extra shifts to try to pay the child or spousal support award is unlikely to be punished by the Court for doing so. There is a basic understanding that people have to live and true fighters do whatever it takes to continue to live. The possibility is, however, always there that if you get an initial support order for $1,036 per month based on your wages of $60,000 per year and then take $10,000 per year in overtime in order to make up some of the loss, your payment could increase to $1,218 to account for the extra earnings of $833 per month (21% of your overtime gross).
