What are the complications of calculating child support when the other parent is self-employed?

Minnesota Family Law attorney Melisa Field discusses the challenges of calculating child support for self-employed parents.

Contact Melisa Field

Email: [email protected]

Phone: (651) 314-0059

Transcript:

The law requires us to use gross income of a parent in terms of calculating child support. If you’re a W2 wage earner it’s very simple, we just look at your pay stubs and your pay for full-time work. When you’re self-employed, it’s hard to calculate income because we look at a tax return and somebody who’s self-employed is motivated to decreases their income on a tax return for purposes of paying less tax. The child support statutes tell us very specifically, how we calculate gross income for somebody who’s self-employed. The formula is gross receipts minus cost of goods sold minus ordinary and necessary business expenses. It’s the burden of the person who is self-employed to prove to the court what are ordinary and necessary business expenses. And that includes depreciation that you claim on a tax return. And so just from the tax return alone, it can be very hard to see what the true income is. It’s often really helpful to go to the underlying financial statements from the business or whatever the entity is so we can look at the profit and loss statements, the accounts receivable reports, and the expenses to see what’s true and what’s a personal expense being routed through the business.