Accurate income information is essential in all divorce and child support cases -- from the simplest case to the most complex one. The court uses this information to assess everything from the fee for mediation to awards of child support, maintenance and attorney's fees.
Of prime importance is collecting all documents which might help you verify your income or that of your spouse.
In most cases, the parties' respective income records will come from tax returns, paycheck stubs, W-2s and 1099s.
But what if your spouse is self-employed or works for the family business?
There are many ways to determine what his/her true income really is, though it may be necessary to hire a forensic accountant to get the proof you will need. Also, the court must take into account all manner of compensation.
KRS 403.212(2) states in its detailed discussion of the Kentucky child support guidelines:
(2) For the purposes of the child support guidelines:
(a) "Income" means actual gross income of the parent if employed to full capacity or potential income if unemployed or underemployed.
(b) "Gross income" includes income from any source, except as excluded in this subsection, and includes but is not limited to income from salaries, wages, retirement and pension funds, commissions, bonuses, dividends, severance pay, pensions, interest, trust income, annuities, capital gains, Social Security benefits, workers' compensation benefits, unemployment insurance benefits, disability insurance benefits, Supplemental Security Income (SSI), gifts, prizes, and alimony or maintenance received. Specifically excluded are benefits received from means-tested public assistance programs, including but not limited to public assistance as defined under Title IV-A of the Federal Social Security Act, and food stamps.
(c) For income from self-employment, rent, royalties, proprietorship of a business, or joint ownership of a partnership or closely held corporation, "gross income" means gross receipts minus ordinary and necessary expenses required for self-employment or business operation. Straight-line depreciation, using Internal Revenue Service (IRS) guidelines, shall be the only allowable method of calculating depreciation expense in determining gross income. Specifically excluded from ordinary and necessary expenses for purposes of this guideline shall be investment tax credits or any other business expenses inappropriate for determining gross income for purposes of calculating child support. Income and expenses from self-employment or operation of a business shall be carefully reviewed to determine an appropriate level of gross income available to the parent to satisfy a child support obligation. In most cases, this amount will differ from a determination of business income for tax purposes. Expense reimbursement or in-kind payments received by a parent in the course of employment, self-employment, or operation of a business or personal use of business property or payments of expenses by a business, shall be counted as income if they are significant and reduce personal living expenses such as a company or business car, free housing, reimbursed meals, or club dues.
(d) If a parent is voluntarily unemployed or underemployed, child support shall be calculated based on a determination of potential income, except that a determination of potential income shall not be made for a parent who is physically or mentally incapacitated or is caring for a very young child, age three (3) or younger, for whom the parents owe a joint legal responsibility. Potential income shall be determined based upon employment potential and probable earnings level based on the obligor's or obligee's recent work history, occupational qualifications, and prevailing job opportunities and earnings levels in the community. A court may find a parent to be voluntarily unemployed or underemployed without finding that the parent intended to avoid or reduce the child support obligation.
(e) "Imputed child support obligation" means the amount of child support the parent would be required to pay from application of the child support guidelines.
(f) Income statements of the parents shall be verified by documentation of both current and past income. Suitable documentation shall include, but shall not be limited to, income tax returns, paystubs, employer statements, or receipts and expenses if self-employed.
A Word About Divorce and Taxes
One extremely important and revealing source of financial information used in marriage dissolution is tax returns. In complex divorces, tax issues can play a major role in the resolution of the case.
The following general rules are intended to alert you to issues and provide you with general information. Before you sign or take any actions with respect to your federal or state income tax returns, review your situation with your tax adviser.
See also Tips for Recently Married or Divorced Taxpayers and Publication 504 -- Divorced or Separated Individuals on the IRS.gov website.