There are myriad ways divorced parents use to get out of paying child support. If you haven’t witnessed a case in your own network, just read any number of Reddit threads on the topic and you’ll be amazed at the lengths some individuals go: from taking only under-the-table jobs to even moving overseas!
When a divorce settlement is made, and child custody is determined, monthly child support amounts may be set as well. To account for changes in circumstances later on, parents can petition the court to revisit child support in the years that follow. See our earlier article on the topic here. Certainly, as the support-paying parent’s income increases, so should their support of their children. At the same time, the court is sympathetic to changes in circumstances that negatively affect a parent’s ability to continue to pay and allows for appropriate adjustment post-settlement. Where the court is not so sympathetic is in situations of voluntary unemployment or underemployment.
- Involuntary unemployment happens when a parent gets laid off or terminated. This was a circumstance (usually) outside their control that negatively affects their ability to continue paying child support.
- Voluntary unemployment, however, happens when a parent intentionally stops working. They take themselves out of the workforce in the period leading up to the point child support is revisited, so that the tax returns they submit as proof of income show no funds available to continue paying child support.
- In an underemployment situation, a parent intentionally reduces their work hours or changes to a lower-paying job to reduce the income available for support in the hopes of reducing child support payments.
When the receiving parent suspects a voluntary unemployment or underemployment situation, they can petition the court to adjust child support based on a concept called imputed income. By definition, “imputed” means “estimated”. The court can order child support based on what the paying parent’s income should be, regardless of what their income actually is; it’s an impetus for the support-avoiding parent to get back to work and provide for their children according to their capability.
Imputing income can happen in various ways.
- Income can be imputed as simply as minimum wage times 40 hours per week. In this case the court is basically saying, you have the ability to go get a minimum wage job, you just don’t, so we’re going to assess you this minimal responsibility to your children.
- Sometimes, for individuals with specific education and skills, income is imputed based on government labor and wage statistics for the career that fits such education and skills; you could be making at least X, you purposely don’t, and therefore we’re assessing this reasonable responsibility to your children.
- In more complex cases, such as for self-employed individuals, landlords, and business owners, more detailed analysis is required to derive actual versus reported income. The taxable income that these individuals report on their tax returns is usually substantially less than the income available as cash during the year. That available cash is what child support should be based on, not phantom losses caused by depreciation and whatever other write-offs are currently permitted by the tax code.
Forensic accountants can assist the court with deriving imputed income by identifying specific documents to request from the paying parent, providing insightful questions for follow-up demands, analyzing voluminous and complex financial records, submitting concise calculations and written reports, and testifying as an expert witness toward an equitable result.
Every divorce and financial situation is unique to a family’s circumstances. The Bonadio Group’s Fraud and Forensic Team can provide further analysis and support to help determine true income and obtain the funds necessary to care for children of divorced parents. Please do not hesitate to reach out to our trusted experts to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
