On one hand, child support seems simple. Both parents have to support the child, so the court order just evens things out, ordering the parent without custody to help by paying the parent with custody. That money isn’t income for the second parent, per se, but helps buy food, buy clothing, and pay for the other many expenses of raising a child.
If you’re on a standard salary, this may be simple, but you’re not. You’re a business owner. You do pay yourself, but that pay fluctuates. A down year leaves you scraping by; a good year means you have extra and the staff gets bonuses. You can’t predict it. The business world is a risk, full of ebbs and flows, and income isn’t stable. Below are three reasons that child support orders for you and others in your position are more complex and difficult to draft:
1. You have different expenses and different income than most workers
A worker who gets paid by the hour simply gets the agreed-upon rate, multiplied by the hours worked, and that’s it. There are minimal exceptions, like bonuses and overtime pay, but it’s pretty straightforward. A business owner, though, has different avenues for income and far more expenses.
Just because the company made $5 million doesn’t mean the owner did. You may have to deduct $1 million in parts and materials, another $1 million to pay your staff, and much more. You also have to pay taxes, licensing fees and the like. This is far different and more complicated than just looking at bi-weekly pay stubs.
2. You have greater control over your assets
Business owners can move assets around in ways employees can’t. This can distort true earnings and expenses. For example, maybe you made an extra $500,000 last year. You want to invest it back in the business to help the company grow. Do you need to report it as income that you then spent, or is it money that you never really controlled since it stayed within the company and never hit your bank account?
What if you have business assets that you use – like a company car – so you don’t need as much income, allowing you to reduce your own salary to a level you could never afford without those assets? Does that distort your real income, since the company – and not you, technically – is paying for the car?
3. You have extra financial obligations
Employees have a lot of costs – like taxes – that come out of their paychecks. Business owners don’t, but they do pay these taxes and other fees after the fact. The same goes for self-employed workers. Maybe you made $750,000, but it’s really far less if you then have to pay 50 percent in taxes, compared to an employee who actually took home $750,000 in paychecks – actually “earning” even more, since the taxes came out on the front end.
Now, the legal realities here are different in every situation, but the above helps you see just how complex this can be and how many factors must be considered as a business owner. When looking at all aspects of divorce, from property division to child support, be sure you know your rights.