As an entrepreneur, what do I need to know about spousal support?
As an entrepreneur, or a business owner, you know all about busy schedules. You understand the amount of work that it takes to be a successful entrepreneur or business owner. You know the time and commitment you have to sink into your business in order for it to grow. Many entrepreneurs focus most of their time and energy on their business, work long hours, and spend time away from home. Sometimes, your spouse isn’t on the same page and this can lead to the dissolution of a marriage.
It is risky starting your own business. Not only it is financially risky for you and your family, but it is subjects your marriage to risk. Divorce rate among entrepreneurs is higher than average and it is important to be aware of what to expect during a divorce.
It can be difficult to calculate spousal support for an entrepreneur or business owner. Sometimes, you don’t have the same income month to month. One month you may make double what you did the month prior. Some months you may not take a paycheck at all. You may tie up all your wealth into the business and have little cash in your personal accounts.
To be required to pay spousal support, you must be the supporting spouse and your spouse cannot be at fault for your divorce. There is no precise calculation for spousal support. The court uses its discretion in determining an amount and it often varies widely from case to case. The court will look at the length of the marriage, the standard of living the parties are accustomed to, the spouses’ relative earnings, the spouses’ capacity to earn, as well as other factors in determining spousal support.
How does an entrepreneur calculate his or her income?
Each type of business is different. There are different complexities and details to consider depending on the type of business you own. The nature of your business will play a controlling role in how you will have to calculate your income.
Tax forms and financial statements will be examined closely in order to bring clarity to what the entrepreneur’s income actually is. It is critical to prepare the most detailed cash flow statement possible as well as intelligently predicting your future income.
Hire an expert!
It would likely be very helpful to use an accountant or financial planner to help with these determinations. Whomever you hire should have forensic accounting experience and be able to calculate net cash flow as well as predict cash flow. This expert should be able to complete calculations as well as explain his calculations.
Avoid hiding income!
Sometimes as a business owner it can be tempting to hide income, especially I the midst of a divorce. It will appear that the business is worth less, therefore it would appear you have to give your spouse less. Not only is hiding income an issue, but unreported income may be an issue. Unreported income may include cash payments to your business.
Let it be clear that hiding income or failing to report income is a terrible idea. The consequences can be severe. Chances of getting caught are extremely high since both you and your spouse will likely be hiring accountants, and attorneys to pour over your financial records. If you are caught hiding income to lower a support obligation, it could amount to a federal crime penalizing you will massive fines and even jail time. The smartest move is to be open and honest about your business’s finances.
Modifying Spousal Support
In certain circumstances, spousal support may be modified. This may prove to be very beneficial to an entrepreneur or business owner. If your business suddenly is not as profitable as it was previously, there is a possibility that your spousal support obligation could be reduced. You would need to prove a substantial change in circumstance in order for the court to allow a modification in your spousal support obligation. An example of a substantial change in circumstance would be that your business was previously worth $100,000 and as of this month, it is now only worth $40,000. The change has to be more than small fluctuations.
What do I need to know about dividing stock options during divorce?
A stock option is a specific type of employment benefit in which the employer gives the employee an option to buy stock in the company in the future at a discounted or fixed rate. For this reason, dividing stock options in a divorce.
Sometimes, since stock options are not available until the future, spouses ignore them in a property division. You want to make sure that you remember to consider stock options since they are often a source of substantial wealth. If you are unsure whether your spouse has stock options, be sure to conduct a compete discovery and obtain all information on his or her employment benefits.
How are stock options classified?
Just as with any property, stock options will need to be classified as separate or community. If the stock options were granted during the marriage, they are likely community property. However, this is not always the case. Stock options are used by employers as an incentive for past and future work. If the option was granted prior to marriage but for a portion of the work completed during marriage, at least a portion of the option may be considered community property. Similarly, if a stock option was granted shortly after marriage for work completed prior to marriage, a portion of that stock option would be considered separate and therefore not subject to distribution. So it is important to look at what portion of work the stock option was granted for; before marriage or during marriage.
What is the difference between vested and unvested?
Vested refers to an option that has been exercised. Unvested on the other hand, refers to an option that is yet to be exercised. For example, in 2010 if an employee is given an option to be exercised in 2014, from 2010-2013 the option is unvested, and in 2014 the option becomes vested.
In Louisiana, stock options are subject to distribution regardless if they are vested or unvested.
How is value determined for the stock option?
Just like with other property, once the stock option is classified as either community or separate, value needs to be placed on the stock option. Often times, placing value on a stock option can be a difficult and tedious task. Several methods can be used to determine the value, and some methods are more complicated than others. It is generally suggested to hire a professional, such as a forensic accountant to help with these calculations.
How is the option divided?
Once value is assigned to the stock option, the option can be divided. The easiest way to do this is to “buy out” your spouse’s interest in the stock option by trading an asset.
For example, if the stock option has been valued at $50,000, the spouse’s interest is worth $25,000. Rather than attempting to split the stock option and potentially trigger adverse tax consequences, the non-employee spouse can agree to take $25,000 that she is owned by accepting another asset (lump sum payment, vehicle, etc.).
If a “buy out” option is not feasible, the spouses may arrange a deferred distribution model. This way, the spouses or the court may decide on a formula on how the non-employee spouse shall be paid. This is sort of a “wait and see” approach. You are less concerned about the current value of the stock option and essentially wait to pay your spouse until you receive the benefit of the stock option.
What about taxes?
Stock options worth value will result in incurring income taxes. The tax implications will vary depending on how much the option is worth along with some other factors. Transferring of a stock option may also cause some tax penalties. You should consult with an attorney and/or an accountant when completing your taxes when stock options are involved. It is important to be aware of the tax implications with stock options in advance.
What do I need to know about valuation?
In a divorce, all community property will be equitably distributed between the spouses. Before property can be distributed equally however, property must first be classified and have value set to it. Generally, value of property will be the fair market value as of the date of separation. As expected, sometimes fair market value is more easily determined than others.
For example, a bank account is a very easy asset to determine the value of; simply look at the balance of the account and that’s the value. A more difficult asset to place a value on would be benefits of a rewards account such as frequent traveler’s miles, hotel points, or any other kind of rewards points. Other difficult property to place value to are sentimental objects.
Remember, you will only need to put value to community property. Since you are dividing community property in half, you have to know what you are starting with as a whole.
Why is placing value on property difficult?
If your spouse is entitled to a portion of the value of your business, how do you determine how much that interest is worth? What about the equipment for the business? Or the furniture in your office? For obvious reasons it is often difficult to place a value to community property. It is very important to be aware of a business interest when dividing community property to be sure you are not taking less or giving more than you need to be.
How do you value a business interest?
Determining the value of a business interest is a very complicated aspect of an entrepreneur’s divorce. The entrepreneur will generally place a lower value to the business than the non-entrepreneur spouse since that would result in giving less value to the non-entrepreneur spouse. Valuation can become a very contentious part of an entrepreneur’s divorce.
There are a few different ways to determine the value of a business. First, and most simple if the parties are able, is that the parties can agree on a value of a business. If the parties are unable to agree on the value of the business, they can agree on an appraiser or accountant to determine the value. If the parties cannot agree on how to determine the value of the business, the court will appoint an appraiser or accountant to assign the business’s value.
What do I need to know about dividing my business in divorce?
After the property has been classified as community property and a value has been assigned, the value will need to be distributed between the spouses. A common way of doing this is having the entrepreneur “buy out” the non-entrepreneur spouse. Simply, the value of the business would be divided in half, and the entrepreneur would pay the non-entrepreneur that amount. In doing so, the entrepreneur has “bought out” the interest that the non-entrepreneur spouse had in the business. A “buy out” can happen in a lump sum payment, or the spouses can agree to payments over time.
Sometimes, instead of “buying out” the non-entrepreneur’s business interest with cash or monetary payment, spouses can trade another asset.
Let’s take a look at an example:
Stacy owns a bakery. She started her bakery three years before she married her husband, Ryan. During the marriage, Stacy used $10,000 of community funds to purchase new ovens and equipment for her bakery. Due to the improvements, the bakery saw a dramatic increase in revenue. In this case, if Stacy and Ryan get a divorce, Ryan will be entitled to half of the $10,000 as well as half of the value of any increase in value of the bakery during the marriage thanks to Stacy’s efforts during the marriage.
The value in the bakery thanks to Stacy’s efforts during the marriage increased by $30,000. So this means that Ryan is entitled to half of that, or $15,000. Ryan is entitled to the $15,000 plus $5,000 (from his half of the $10,000), equaling $20,000. This means that Ryan’s business interest in the bakery is worth $20,000.
Conveniently, after Stacy and Ryan got married, they bought Ryan a new truck that is currently worth $40,000. Since the truck is community property each spouse has a $20,000 interest in Ryan’s truck.
Stacy has no interest in keeping Ryan’s truck. So she chooses to trade her $20,000 interest in Ryan’s truck, for his $20,000 interest in her bakery. Through this trade, Stacy has “bought out” Ryan’s business interest in her bakery.
If the parties are on good terms, co-ownership is always another option. This allows each spouse to retain his or her interest in the business. Lastly, the business could always be sold, and then the proceeds could be split. The entrepreneur often does not want to resort to this option, but it is another way that the parties can proceed in distribution.
Regardless of which option you choose to proceed with, it is very important that you make yourself aware (either through discovery or reviewing records on your own), of the exact financial status of your or your spouse’s business. This will help keep you from taking too little or giving too much when you don’t need to.
Let’s take a look at an example situation:
Stacy and Ryan have been married for six years. Ryan is a stay at home father and cares for their three children. Stacy owns a bakery. The bakery is worth $70,000. However, Stacy presents to the court that her business is only worth $50,000. Ryan is unaware of the value of the business and has no reason to believe that Stacy would be untruthful. Based off of the information Stacy provided, the court ordered her to pay Ryan $25,000 for his interest in her business.
A year later, after the court order has already been entered and acted upon, Ryan discovers what Stacy’s bakery was actually worth. Now, in order to recover the other $10,000 that he is owed, Ryan will have to enlist the help of an attorney to take legal action against Stacy.
All of this stress, time, and money could have been saved if both parties were aware of exactly how much the business was worth (and Stacy hadn’t lied to the court of course).
I am a doctor. Will I lose my license during my divorce?
Generally, due to divorce alone, professional licenses are not affected. However, if there may be circumstances in a divorce that amount to a violation of your license. For example, if the licensing board for the license you hold is has rules and guidelines about prohibited acts, and you commit one of those acts (related or unrelated to your divorce), the state licensing board will have control over what happens with your license. In other words, the family court will not concern itself with your licensing issues (unless it adversely affects a child in your divorce). The revocation or reprimand of your license is for the state board to determine. For more information on the parameters of your license, visit http://www.lsbme.la.gov.
Will I have to work after my divorce?
In most cases, both spouses will need to work after their divorce. If you were the homemaker in your marriage, you will likely need to begin working since even if you are awarded interim and/or final spousal support since it generally is not enough income to live off. If you worked prior to your divorce, you will likely need to continue to work since your assets, including any retirement accounts, have been divided in half.
In some circumstances, if you and your spouse had a significant amount of assets, your portion of the community may be enough to live off (depending on your age and monthly expenses), without needing to begin or go back to work.
It may be beneficial to speak with a financial planner to determine if you can live off of your portion of the community assets.
What about the business?
Sometimes, the situation arises in a divorce proceeding in which the parties own a business. This can become a complex issue to deal with when partitioning property. Remember that property means more than just your home and your vehicle. Property in a divorce proceeding refers to both tangible and intangible property. Tangible property includes land, houses, structures, vehicles, boats, campers and electronics. Intangible property includes bank accounts, retirement funds, and pensions. In this case, property is also your business. Any property your business owns from the building it operates out of to the income it generates will be reviewed during community partition in a divorce proceeding.
It is also important to remember that the way in which property is acquired will affect how it is partitioned. In this case, the way in which you acquired or started your business will affect how your business will be partitioned. Property may be acquired through purchase, gift, donation, intestate, or a will.
All property must be classified as either separate, or community. Anything you acquired prior to getting married would be considered your separate property. Once you are married, and you and your spouse acquire property together, all of that would be community property. That means not only things purchased after you were married, but things donated to you and your spouse jointly and anything purchased with joint funds. For example, the truck that you purchased when you graduated high school prior to your marriage would be considered separate property. However, the house, camper, and savings account that you and your spouse acquired after getting married would be considered community property. The classification of property, whether it is separate or community, does not change. Separate property belongs completely to the person who acquired it. Community property gives one half interest to each spouse. If you are acquiring property with separate funds, it may be helpful to obtain a declaration of acquisition of separate property so that you will have full ownership with less confusion in the case of partition.
Now let’s apply this to your business ownership. For partition, it will depend how you acquired your business. For the moment, we are just going to talk about just the business itself, not the income it generates.
Let’s look at an example situation:
Prior to your marriage, you started a business as a private contractor. You purchased the building you operate out of, all of the necessary equipment, and vehicles. Since all of this property was purchased with your individual and separate money, it will be classified as separate property. You operated your business for five years prior to getting married. During that time, your business was profitable and your take home salary was $50,000 per year. In the last five years, you took home $250,000. This money is in a savings account and has not been spent. Since this is income that you made while you were single, it will be classified as separate property.
You and your spouse then got married the following year. You and your spouse were married for five years. During those years you made $40,000 per year, totaling $200,000. This year, you and your spouse decide to get a divorce. Your divorce process takes one year. In your original divorce petition you requested that the community property regime be terminated. The income that you made during your marriage is classified as community property. This means that $200,000 is your spouse’s community property. This money is in a savings account. Since you requested that the community property regime be terminated in your original divorce petition, the community regime ceased to exist and collect more property and therefore, income you have generated since then will be solely your separate property.
The $250,000 you made prior to your marriage is your separate property. You are entitled to all of your separate property. The $200,000 you made during the course of your marriage is community property since it was acquired during the existence of the community property regime. Therefore, you have interest in one half of the amount, and your spouse has interest in the other half of the amount. This means that $100,000 belongs to you, and $100,000 belongs to your spouse.
If we total these amounts, you have $350,000 that belongs to you, and $100,000 belongs to your spouse.
Since the property that was acquired to build and begin your business was acquired prior to your marriage, it belongs to you. That is your separate property. From this situation, looking at only the business assets alone, you will retain the business and the property belonging to it as well as $350,000. Your spouse will retain $100,000 from the community property regime.
Of course this was a fairly simple example and rarely are partitions dealing with businesses that easy. There is usually spending, comingling of assets as well as joint ownership interests in the business itself.
Let’s take a look at a different situation:
You and your spouse met in medical school and became doctors. After graduating, you and your spouse got married. Immediately after, you each opened your own private practice. You each operated your practice for six years. Over the course of those six years, you made $2,400,000 of income. Your spouse made $2,700,000 of income during that time. You and your spouse then decide to get a divorce. In this situation, regarding only your and your spouse’s businesses, there is no separate property. Since you both acquired your practices after you got married, all income and property acquired for the businesses was acquired during the existence of the community property regime. This means that all property and income of each of your medical practices is community property.
In this case, during a partition, everything will be divided in half regardless of which spouse owned which business. So, you $2,400,000 will be divided in half, leaving each spouse with $1,200,000. Your spouse’s $2,700,000 will be divided in half, leaving each spouse with $1,350,000. This means that total, each spouse will retain $2,550,000.
Remember that this calculation is done only looking at the assets and income of the business, not the debts and expenses. All debts and expenses acquired during the marriage will also be community property and be split evenly between the two spouses.
To add to this example, let’s then say that your practice is in its own building which you own. You acquired this building for your practice after you were married. You purchased the building for $500,000 and $200,000 remains on the note. Your spouse on the other hand, rents an office out of a larger building from a landlord at $5,000 per month. The rent is due on the first of each month.
In this example, the note on your building is considered debt. You have been occupying the building and you are paying the bank so that you will eventually own the building outright. On the other hand, your spouse’s rent is not considered debt. Rent is generally considered an expense of the business. Here, the rent is a monthly expense. So the only debt of the community, concerning the businesses at least, is your remaining $200,000 building note. Since debts acquired during the community property regime are also split evenly between the spouses, $100,000 of debt will remain with you, and your spouse will be responsible for $100,000 of debt as well.
In total, you and your spouse are each keeping $2,550,000. Additionally, each spouse will be responsible for $100,000 worth or debt. After paying the debt, each spouse will be left with $2,450,000.
Again, this was a relatively simple situation. As previously mentioned, situations become more complex when there is comingling of funds, or when a spouse helps the other’s business by funding it with separate property.
Let’s take a look at a reimbursement situation:
Reimbursement is a claim for a portion of money to be paid back. Often in property partitions we see reimbursement claims for rent or for mortgage depending on which spouse will remain in the martial home, and which spouse must seek residence elsewhere. But what about business reimbursement? Can a spouse file claim for reimbursement when they spent their own separate money to further the other’s business?
Well, it depends. As you have probably figured out by this point, timing has a lot to do with classification of property and how it will later be partitioned. So these questions boil down to a big picture question. Were community funds used to benefit the community, or were separate funds used to benefit the community.
For example, let’s say that you and your spouse met in 2010. At that time, you had $20,000 in a personal savings account. You have documentation showing the balance of the account, and that the date is before the date of marriage. In 2011, you and your spouse got married. Since the date of marriage you have not contributed anything to your separate account. Now, let’s say that your spouse wants to open their own business. To help your spouse get started, you contribute $12,000 from your separate account to your spouse’s business.
Let’s pause for a minute and recap:
The $12,000 that you contributed was separate property (money), from a separate account. Your spouse’s new business is community property. Why? Because it was acquired during the marriage and the existence of the community property regime. This also means that any income your spouse takes home from the business is also community property.
In this case, you used separate property to fulfill a community obligation. When this occurs, you have a reimbursement claim for one half of the money that you contributed. Why only one half and not all of what you contributed? Since you contributed to a community obligation you also received benefit from it. After all, your spouse made income from the business, and your spouse’s income benefits both of you.
So here, since you contributed $12,000 of separate funds to a community obligation, you have a reimbursement claim for $6,000.
Let’s take a look at the opposite situation:
Still sticking with reimbursement claims, we have another situation that often arises. What happens when community funds are used to fulfill a separate obligation? It’s a very similar answer. There will likely be a one half reimbursement claim.
For example, your spouse owns a business prior to your marriage. Your spouse purchased the building that the business operates out of. There is $50,000 left on the building note when you and your spouse get married. Since this $50,000 of debt was acquired prior to the marriage and prior to the existence of the community property regime, it is your spouse’s separate debt. You and your spouse both continue to work. You both deposit your paycheck into a joint account. Since your paychecks (income) are acquired during the marriage, they are automatically classified as community property.
You and your spouse decide to take money from the joint account and pay off the $50,000 building note. One year later, you and your spouse decide to get a divorce. When property is being partitioned, you will have a reimbursement claim for one half of $50,000. Why not all of it? Because the $50,000 was never all of your money. It was always community money. The community money was then used to fulfill the separate debt of your spouse. Since everything in the community is then divided equally during property partitioning, you have a one half reimbursement claim for your portion of the community money spent of your spouse’s debt.
Partitioning property concerning a business can often be a complex issue. However, the examples above may be helpful in understanding the process of how partition works.
Does it matter who is the owner of the business?
More important than whose name is listed as the business owner, is when the business was established. If the business was established before marriage and before the community property regime started, then the business is separate property. If it is separate property then, in the case of partition, the business would go to the spouse who owns the house.
If the business was established during the marriage, then the business will be community property, regardless of whose name is listed as the business owner. One spouse will generally retain the house by essentially “buying out” the other spouse’s half interest in the house. Another options would be to sell the business if possible. Once the business is sold, the proceeds from the sale would be divided equally between the spouses.
Does business travel affect custody outcomes?
Depending on your type of business, travelling may be a necessity. You may have to travel to buy or sell product, meet with investors or customers, or simply have to travel due to the nature of your business. For a traveling entrepreneur or business owner that has children, custody issues may arise.
Travel of any kind, especially business travel may affect your custody. Occasional travel will likely not have as big of an impact as frequent travel, as business travel often is.
It is important to remember that the court’s ultimate goal in a custody proceeding is to serve the best interest of the child. The court will work on setting a steady schedule, with a stable, healthy environment for the child. The court will not be inclined to give a parent custody when the parent travels and is out of town for weeks out of the month. If your business venture requires that you travel three weeks out of every month, a custody plan giving you visitation every other week is simply not feasible. If your work requires that you travel on the weekends, that too presents difficulties with giving you every other weekend visitation.
Let’s take a look at an example situation:
Eric and Haley are married and have a daughter named Elizabeth. They live in Louisiana. Eric works as a salesman for a medical supply company. His job requires him to travel throughout the country and meet with perspective clients. On average, Eric is out of town four days a week (Thursday, Friday, Saturday, and Sunday). Two weeks out of the month, Eric’s travel takes him out of the state.
Haley on the other hand, works from 9am to 3pm, Monday through Friday. Haley works in town, never travels, and is able to drop Elizabeth off at school in the morning and pick her up in the afternoon.
You can see how a custody arrangement with Eric having Elizabeth every other week would be a struggle with his constant traveling. Even a custody arrangement where Eric has visitation with Elizabeth every other weekend wouldn’t work since Eric works weekends out of town.
What does this mean for my custody case?
If you travel frequently for business, it is likely that your former spouse will be awarded more custody from the court than you simply because you are not present to exercise visitation.
What can I do to change this?
Logically, if the issue preventing you from getting more custody and visitation with your child is because you are out of town for business, cutting back on travel and your entrepreneurial lifestyle would remedy this issue. If your child is the most important thing in your life, and you would do anything to be with your child more, demonstrate that to the court. Reduce your travel obligations, and build a constant, stable environment for your child to be with you in.
What if I can’t manage a traditional custody schedule?
First let’s discuss what a traditional custody schedule is. An arrangement in which the child spends one week with the mother and the next with the father is a good example of a traditional custody schedule. Another example would be every other weekend, meaning the child is with the mother one weekend and with the father the next weekend and the time during the week is given to the domiciliary parent. Holidays are usually factored in to traditional custody arrangements. Father’s Day and Mother’s Day would go to the corresponding parent, and other holidays would be traded on and off every year. Entrepreneurs and business owners often work unpredictable hours. If a traditional custody schedule is not something that you can manage, the first step is to determine what will.
There is no rule in Louisiana that says custody arrangements must be done a certain way. You can be creative and work on a schedule with your former spouse that will fit both of your schedules, as well as serve the best interest of your child.
Let’s take a look at an example situation:
Thomas and Lindsey live in Louisiana and have a seven-year-old son named Lucas. Thomas owns his own business and as a business owner, is “on-call” from Tuesday to Thursday. Thomas works from 8am-5pm on Fridays. Thomas also schedules himself to be at work all day Saturday, from 8am-5pm. With a schedule like this, you can see how neither of the aforementioned traditional arrangements would work for Thomas. So what can he do?
Thomas and Lindsey sit down and discuss what would work for them. Thomas loves Lucas and wants to spend as much time with him as he can, so Thomas changes his Friday work schedule to end earlier in the afternoon. He also changes his Saturday schedule begin at 2pm. Thomas proposes that he will pick Lucas up from school at 3:30pm on Friday afternoons. Lucas will then stay with Thomas from Friday afternoon until Saturday around 1pm, before Thomas leaves for work. Lucas will then go with Lindsey from Saturday at 1pm until Sunday morning. Thomas will pick Lucas up for church, and spend all day Sunday and Monday with Lucas. Lindsey will then pick Lucas up at 7am on Tuesday morning and bring him to school. Tuesday through Thursday when Thomas is “on-call”, Lucas will stay with Lindsey as she will be the domiciliary parent.
This schedule works with both Thomas and Lindsey’s work schedules, and gives each of them a reasonable amount of time with Lucas. As you can see, Thomas and Lindsey didn’t use any sort of template to create this schedule. You can get as creative as you want so long as your schedule is feasible and does not interrupt the daily life of the child too much. You can create a schedule that fits your untraditional business hours.
What if my business becomes successful after we divide our community property?
As with many issues that arise during divorce, timing is everything. Sometimes it takes years for a startup business to become profitable. So what happens if after your community property is partitioned (divided), your business suddenly becomes very profitable?
Luckily for you, a property settlement is final (with a few exceptions). As long as you were honest about what your business was worth during the partitioning, there likely will be no plausible reason for modification. Since your settlement is final, your spouse cannot return and receive further profits from your business. As far as community property is concerned, your spouse is entitled to nothing further regardless of how profitable or unprofitable your business becomes.
Spousal support on the other hand is a little different. If you are required to pay final spousal support, it can be modified if spousal support was set in a court order. In order for your spousal support obligation to increase, your ability to pay would have needed to increase, and your former spouse’s needs would have had to increase. The court will consider these factors as well as the standard of living during the marriage and determine whether or not an increase in spousal support is warranted.
How does being an entrepreneur affect my child support obligation?
As we have discussed, property division and child custody issues sometimes are complex for entrepreneurs or business owners going through divorce. But what about child support?
Child support actually is one of the easier matters to settle in divorce. Louisiana uses the Child Support Guideline and a set calculation to determine child support obligations.
Child support guidelines are established in each state in hopes that support orders will be fair and consistent. These guidelines help the court in determining the correct child support amount in each case.
Child support is a continuous obligation of both parents. Many people believe the misconception that only men pay child support, but that is not the case. Children are entitled to share in the current income of both parents and should not be economic victims of divorce. In order to protect the child from suffering economically, the child support guidelines attempt to identify a percentage of parental income that is spent on the child in intact families, and mirror that in divorced families. In other words, the court is acting as a safeguard so that your child’s quality of life does not diminish economically due to your divorce. The courts do not want children living in poverty due to family disruption. The courts want to ensure that children from divorced household have the same opportunities available to children from intact families. For example, in a household with married parents that both work, let’s say the total monthly income in $3,000. Of that $3,000, the father makes $1,800 and the mother makes $1,200. That means the father makes 60% of the total income, and the mother makes 40% of the total income. If you look on the child support schedule below, and follow the first column down to $3,000, you will see that for one child the support obligation is $548. Assuming that the parents have joint custody and there are no extraordinary expenses, the father will be responsible for $328.80, and the mother will be responsible for $219.20.
In Louisiana, the child support guidelines include something called The Incomes Share approach. The Incomes Share approach incorporates a numerical schedule of support amounts. This schedule is used to estimate child-rearing costs for different levels of income. The schedule provides estimates depending on the number of children for each couple.
The schedule is based off of the couple’s combined adjusted monthly gross income. Gross income means the income from any source including, but not limited to:
- Social Security Benefits
- Unemployment Benefits
- Workers’ Compensation Benefits
- Spousal Support from a previous obligation
Gross income does not include:
- Child support received
- Benefits from any public assistance programs
- Per Diem Allowances
Adjusted gross income means gross income, minus amounts from pre-existing child support or spousal support obligations paid to a third party, or on behalf of a child who is not the subject of this child support proceeding. Therefore, combined adjusted gross income is the adjusted gross income amounts for each parent added together.
The schedule of support to be used for determining the basic child support obligation is as follows:
|Combined Adjusted Monthly Gross Income||One Child||Two Children
*This schedule is current through the 2016 First Extraordinary Session. Changes and corrections from the Louisiana State Law Institute are in process.
It is important to remember that these numbers are merely estimates. Obviously, income is not always conveniently rounded to the dollar. Since each situation is unique, the child support amount may differ from those portrayed in this schedule. It is helpful to think of this schedule as a base number to begin calculating your child support obligation from. In order to determine the exact child support amount, the court uses different child support worksheets that are more tailored for each specific arrangement. Each party will need to provide the court with a verified income statement showing gross income and adjusted gross income. In addition, the court will need to see documentation of current and past earnings. All other relevant information regarding the income with which household expenses are paid will need to be provided to the court as well. All necessary documents will need to be filed with the court within a reasonable time prior to trial. Additionally, the other party will need to be provided with a copy of all documentation for review as well.
The court will review the documentation and verify the percentage of each party’s contribution to the total combined adjusted monthly gross income amount. The court will then determine the basic child support obligation. As demonstrated by the schedule above, Louisiana has a minimum child support obligation. Child support will not be ordered in any amount less than one hundred dollars.
Once the court has determined the basic child support obligation, additional costs may be included. Such additions may include:
- Child care costs
- Health insurance premiums
- Extraordinary medical expenses
- Other extraordinary expenses
After considering these additional sources of costs, the court will ultimately issue a final child support order.