Our family law attorneys are often asked how self-employment affects California child custody and support obligations. Millions of people in California identify as self-employed, which sometimes makes calculating child support payments more complicated. Most people already know that child support is the amount of money one parent pays the other after a divorce or separation.
The exact amount is calculated by a judge who issues a court order. This order means that a parent is legally required to pay the other parent money to maintain their children's lifestyle.
Typically, these payments are designed to cover essential items such as their home, medical care, food, and clothing.
If you or your ex-spouse spouse is self-employed, you should know how the California family law court will use employment information to calculate support payments. Child support and spousal support payments always depend on someone's reported income. It is simpler to calculate support obligations when a spouse has a regular salary.
An honest and accurate reporting of self-employment income and expenses also makes calculating support a straightforward process, but this is an area that sparks heated debates and allegations of false reporting.
Any spouse who owns a business is not required to pay support based solely on their earnings. Instead, self-employed parents can deduct business expenses from their gross profits, and their income is then calculated on their net earnings.
In most cases, self-employment income is calculated based on a spouse's tax returns that list the income and expenses their business earns every year.
There are also statements from a bank account, profit and loss statements, and ledgers that can be utilized to give the family court judge a reasonably accurate assessment of the self-employed parent's financial situation.
Further, a parent who is self-employed will have to submit to a deposition and answer specific questions about their financial status. In this article by our California divorce lawyers, we will examine this topic further below.
What About Hidden Self-Employment Income?
It's not a secret that some self-employed parents will manipulate their income to make it appear they earn less money. A common tactic is when a spouse will overly estimate their business expenses to make it look like they earned less net profit than they received.
Another common tactic is for the self-employed parent to list personal assets and other expenses under the business name, which can complicate calculating support obligations.
When a self-employed business owner attempts to conceal their assets or income, the ex-spouse will need to uncover the deception attempt. How? Most spouses already have a fair understanding of their spouse's living standards and how much they earn from the business.
If the reported business profits suddenly drop during the divorce process, it's reasonable to conclude that their income is not accurately reported or their expenses are inflated.
When a self-employed spouse is dishonest about their income, there are some legal options to uncover the truth. In some California divorces, the self-employed spouse might be required to turn over a variety of documentation to justify their income:
- Bank statements,
- Savings accounts,
- Investment accounts,
- Retirement accounts,
- Financial documents, and
- Tax returns.
Further, a lawyer representing the spouse seeking support could retain a private investigator to search for hidden assets in some divorces. They could also use the professional services of an accountant to review financial documentation for omissions or mistakes.
What About Spousal Support and Self-Employment?
If one or both spouses are self-employed business owners, such as independent contractors, disputes over spousal support can become complex. Spousal support in California, called “alimony,” is not automatically guaranteed in a divorce, which makes it different from child support.
Family court judges have discretion when determining the amount and length of spousal support and how they examine a spouse's financial situation.
Self-employment frequently makes the determination of spousal support more complicated. Judges usually have more discretion in what they decide to include and exclude from business assets to determine spousal support.
For example, they can exclude income amounts deemed necessary to reinvest in the company when there is a valid business reason for a reinvestment. Also, they can exclude from income the non-recurring income or expenses.
Readers should note that spousal support is limited to the marital standard of living despite increases in income after the separation and divorce.
However, the family law courts have broad discretion in determining what was exactly was the marital standard of living. This means they don't have to consider excessive spending financed by more debt.
Get Help from Divorce and Family Law Professionals
Our California Certified Family Law Specialists are familiar with all the issues surrounding support obligations and self-employed parents. We know what documentation and information are crucial to your case, such as financial disclosures, assets, and examining tax returns.
If you are seeking spousal support or child support that you deserve from a self-employed spouse, we can help you. We know how to build the strongest possible case for you through negotiations.
If you are self-employed and not sure how to accurately report your income for support purposes, you need to consult with a lawyer about your legal obligations.
If you fail to report your income accurately, you could be facing serious consequences, such as contempt of court, fines, or being ordered to pay lawyer fees.
Likewise, if you believe your self-employed spouse is hiding assets or lying about their income, you should consult with an attorney as soon as possible. All parents have a legal obligation to support their children financially and must pay their fair share.
If you need to discuss your financially complicated divorce with our attorneys, reach out to us for a free case consultation at (818) 528-3471, or you can fill out the contact form.
Furman and Zavatsky are top-rated divorce and family law attorneys located in Los Angeles County, and we serve people throughout Southern California. We can help you navigate complex divorce issues from high-asset self-employed spouses who own their businesses.