I routinely encounter alimony disputes when one of the parties is self-employed and has the ability to control and regulate their income.
In (almost) every case, the self-employed party under reports their income and/or attempts to claim business expenses that were not “ordinary and necessary”. In these cases, it is crucial your divorce attorney is familiar with the alimony criteria in Florida and is savvy enough to “pry out” the party’s actual income at deposition and through financial disclosure.
In this article I write from the Wife’s perspective as the party requesting alimony. More and more, however, the Husband is seeking alimony from the Wife as the Wife is the higher earner.
In all cases, the Wife can be substituted for the Husband and vice-a-verse.
Am you entitled to alimony
Assuming the Wife has a need and the Husband has an ability to pay, the Wife will receive alimony. How much and how long the Wife will receive alimony is largely a factor of the length of the marriage.
Of note, a short-term marriage means a marriage of less than seven (7) years; a moderate-term marriage means a marriage of greater than seven (7) years but less than seventeen (17) years; a long-term marriage means a marriage of greater than seventeen (17) years.
How income will be calculated
Income means any form of payment to an individual, regardless of source, including, but not limited to: wages, salary, commissions and bonuses, compensation as an independent contractor, worker’s compensation, disability benefits, annuity and retirement benefits, pensions, dividends, interests, royalties, trusts, and any other payments.
Although this should be obvious to most cash payments, even when not reported to the IRS, are considered income.
If both parties work at a large corporation where their only source of income is salary – income is very rarely in dispute. But … what happens when one of the party’s incomes are not as easily defined?
Common example where income is in dispute
Husband is employed as a plumber for a local company, ABC plumbing. Husband works 30 hours per week as an independent contractor and receives a 1099 from ABC plumbing.
The Husband earns $45,000.00 per year through ABC plumbing. Husband also works “on the side” through his own company “Bill’s plumbing”. On these “side jobs”, a majority of the Husband’s clients pay in cash (which the Husband may or may not report).
The Husband writes off “everything” (i.e. car, phone, insurance, meals, vacation, sporting events, home office, etc.) thorough his company and, as such, declares a loss (or minimal profit) each year on his tax return.
The Husband states that his income for the divorce proceedings is $45,000.00 per year – the amount he earns from ABC plumbing. The Wife believes that her Husband’s income for the divorce proceedings is closer to $100,000.00 per year when accounting for the unreported cash and improperly claimed business expenses.
Who is correct?
Please note this example could just as easily been written where the Wife is working as a teacher with a side job earning cash as a SAT or reading tutor.
How does court compute the husband’s income for alimony purposes
The Court should include the Husband’s business income or his reimbursed or in-kind payments that reduced his living expenses when determining the Husband’s ability to pay alimony. Any business expenses that are not “ordinary and necessary” should be included in calculating the Husband’s business income.
Just because a “business expense” was “written off” on a tax return does not necessarily mean it should not be declared as income for alimony purposes.
Determining what business expenses are “ordinary and necessary” can be a hairy proposition and is often hotly contested. In the previous example, are purchased tools (that he uses for work and at home) an ordinary and necessary business expense? What about his season tickets to Dolphins’ games where he always brings a property manager of a hotel he is trying to acquire as business? How about his annual trip to Vegas where he attends a Plumbing Convention for 2 out of the 6 days? What about weekday lunches where he is talking about business with co-workers?
A savvy and experienced divorce attorney will attempt to convince the Court that these “in-kind” payments are actually business income being masqueraded as a business expense. Stated another way, these expenses are not ordinary and necessary and should not be “run” through the business. The Court may add some or all of these expenses back to the Husband as income (regardless of what and how it is reported on his tax returns).
Oftentimes, including these “in-kind” payments as income can significantly increase the amount of alimony paid by the Husband to the Wife.
Experience matters when it comes to income disputes
Divorce attorney Sean Collin has experience handling divorces where the parties are disputing income for alimony and child support purposes. Mr. Collin is skilled at cross-examining witnesses and presenting evidence that one party has underestimated their income to the detriment of the requesting party.
If you are considering divorce and your spouse is self-employed, writes off “everything” through their business, or does not report cash income, it is crucial you contact the divorce attorneys at Lyons, Snyder & Collin at 954.462.8035 for a free consultation. It could be the most important phone call you ever make.