What is Considered Income for Child Support & Spousal Support Purposes?

Child and Spousal Support

by Zonder Family Law Group

Child and spousal support can be one of the most significant financial aspects in a divorce, even more so than property division in some cases. While community property is split 50/50 at the time of judgment, child support can continue on for years after the divorce is over (generally until the children have graduated from high school) and spousal support monthly payments can continue indefinitely in some cases.

Thus, determining an appropriate child and spousal support monthly payment can have significant long-term ramifications. While a difference of $200 per month may seem relatively small, if a child support payment continues for another 15 years, that additional $200 will amount to $36,000 over that entire period.

Calculating Child and Spousal Support Generally

Child support payment amounts are generally calculated using a statewide formula based off of the respective parents’ income and amount of custodial time (note that parents can agree to a different amount, and there are limited situations where a court may depart from the guidelines such as where one parent has an extraordinary high income and proves that the guideline support amount would exceed the reasonable needs of the children). This is true for both temporary child support calculated prior to a trial or settlement agreement in a divorce or paternity case, and a permanent order following a trial or settlement.

Spousal support amounts are reached differently, although the respective incomes of the parties are still primary factors in doing so. A court may order temporary spousal support (support awarded during the pendency of a divorce) based on a similar formula incorporating the income of the parties. A permanent spousal support order reached in a trial will incorporate a number of factors related to, among other things, the marital lifestyle and the ability of the lesser-earning spouse to become self-supporting (and 20 different judges may reach 20 different conclusions on what such an amount would be), but again the income of both parties will be primary factors in this determination.

Income Available for Child and Spousal Support and Depreciation

With that background in mind, it becomes clear that determining what exactly qualifies as “income” can be hugely impactful in the long-term financial aspects of a spousal and/or child support order. When a paying spouse solely earns income as an employee for a company and receives a steady paycheck, this determination can be quite straightforward. But when a paying spouse is a business owner and/or entrepreneur/investor, determining what should qualify as income becomes more complex.

In such cases, a court (or the parties negotiating a stipulated agreement) will work to determine what is the “income available for support.” California state law provides guidance on this question, essentially defining income as a very broad category, but courts also have discretion in determining what such income entails where it is otherwise ambiguous under the state code.

In several appellate cases, California courts have dealt with the question of whether it is appropriate for a paying spouse to deduct depreciation amounts from their income in determining support. Their argument is essentially that, if depreciation qualifies as a business expense that can be deducted in determining a person’s taxable income, then it should similarly be deducted in determining the income available to pay spousal support and child support. The question of whether depreciation can be deducted is of course relevant to those paying spouses whose livelihood is in real estate investing and/or in operating businesses with significant equipment, vehicle, and building expenditures.

Ultimately, in a series of cases, the California courts have ruled that depreciation should not be deducted from a person’s income available for support, and thus should be “added back” to a person’s taxable income when calculating support. The courts have reasoned that only “ordinary and necessary business expenditures directly related to or associated with the active, day-to-day conduct of a business” should be deducted as business expenses when calculating income available for support, and, from the perspective of the courts, depreciation does not qualify as such an expense (“Depreciation of a business asset, by its very nature, is not essential to the day-to-day running of the business, but is intended to promote the continuity of the business over a longer term.”).

Calculating child support and spousal support amounts can be an unexpectedly complex process, particularly in the case of high earners with various streams of income and/or investments and self-owned businesses, and thus it is helpful to work with experienced family law counsel in reaching an appropriate outcome, particularly in light of the extended nature of such support payments.

Guidance on Your California Family Law Questions From a Westlake Village Child and Spousal Support Attorney

If you would like to learn more about how our office can provide guidance on any California family law issues you are facing in Ventura County or Los Angeles County, contact the Zonder Family Law Group office today at (805) 777-7740 or (818) 877-0001, or schedule your strategy session using easy-to-use online form here.