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truthfinder, Truth Finder
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Spousal support for self employed

Resolved Question:

I am in California. My husband is self employed. When calculating for support to get the income there are lots of deductions taken off the business income for income tax purposes that are not necessary business expenses. Such as travel, entertainment, meals, depreciation. Also I paid myself a salary that is deducted off the business income. How are these things handled? The net business income is not what we had as spendable income. Also, is my salary used as if it came from an outside source or is it added back to the income?
Submitted: 7 years ago.
Category: Legal
Expert:  truthfinder replied 7 years ago.

Generally the court will look at past tax returns, however, each judge will have his own way and even though they have "guidelines" to follow, it is ultimately up to them. The following information may help better explain the process and better prepare you for what to expect. The following site is a wonderful Self-help site that will give you more answers.....you still need to contact a local attorney in this matter for representation before the court:

http://www.courtinfo.ca.gov/selfhelp/family/support/supqna.htm

How are spousal and partner support (alimony) calculated?
It depends.

You can ask for spousal or partner support to be paid while your case is going on. This is called a "temporary spousal support order" or a "temporary partner support order." Many counties have formulas for calculating the amount of a temporary spousal or partner support order. Check your court's local rules for the temporary support guideline.

The judge will not use a formula to figure out how much spousal or partner support to order at the end of your case (called the "final judgment").

When the judge makes his or her final order, the judge must consider the factors in California Family Code section 4320. These factors are:

  • The length of the marriage or domestic partnership,
  • What each person needs,
  • What each person pays or can pay (including earnings and earning capacity),
  • Whether having a job would make it too hard to take care of the child(ren),
  • The age and health of both people,
  • Debts and property,
  • Whether 1 spouse or domestic partner helped the other get an education, training, career, or professional license,
  • Whether there was domestic violence in the marriage or domestic partnership,
  • Whether 1 spouse's, or domestic partner's, career was affected by unemployment, or by taking care of the children or home, and
  • The tax impact of spousal support (note: federal and state tax laws were not changed to recognize domestic partnerships.)

Click here for more information.

Alert! Spousal and partner support are difficult legal issues. See a lawyer or a family law facilitator in your county. They can tell you about how much spousal or partner support may be ordered, how long it may last, and how it might affect your taxes. Click here for help finding a lawyer.

How are spousal and partner support taxed?

Spousal Support
Usually, spousal support is tax deductible for the paying spouse and taxable income for the supported spouse.

Partner Support
Federal and state tax laws were not changed to recognize domestic partners. These laws can be very complicated, and it is important to talk with an attorney or accountant who is knowledgeable in this area, and about income, property, and other taxes.

When do spousal and partner support end?
Spousal and domestic partner support usually end when:

  • A court order or judgment says it ends,
  • 1 of the spouses or domestic partners dies, or
  • The person getting the support remarries or registers a new domestic partnership.

Here is a great explanation of the law and what the law states, pay particular close attention to 4320c, 4320e, and 4320j:

http://californiadivorce.info/legal.alimony.spousalsupportoverview.htm

 

If you need further help, please contact me. Good luck and God bless!

Customer: replied 7 years ago.
My main question is about self employment income and expense deductions and how those are allowed regarding support. You did not answer any of those questions. I already have all the other information you gave me.
Expert:  truthfinder replied 7 years ago.

If you have the other information and combined with what I sent you, you will see that Self Employment has to be filed on a tax return as well as any income from other sources, i.e., sale of property, gifts, 401K, Pensions, a 1040 or 1099 filing for work through another company or as a independent contractor, etc.; this is why I am saying that the court will look at the past tax returns. If you want to make an issue of the deductions, it will be your burden of proof (or the person wanting to include that in their support payments) to produce them for the court if they were not shown on the tax returns. You need to go back to your tax returns to see how you filed your salary that you paid yourself out of the business income if you filed it at all. If you are trying to make it seem like he made more then you will have to disprove his deductions and if you want to prove he made less, then you will have to show where the other money went and why it was not money made.

If this does not answer your question, please re-ask it in another manner, as this is the answer to the question you asked. I hope this has helped you and if you need further help, please let me know.

Customer: replied 7 years ago.

Thank you, XXXXX XXXXX I need to be more specific. I did the books for the business so I am aware of the exact nature of all the deductions. It was a sole proprietorship, filing schedule C. I paid myself a salary and gave myself a W-2 for that. I have read the family law code #4058 (2) which states "income from the proprietorship of a business, such as gross receipts from the business reduced by expenditures required for the operation of the business." This statement is a little gray to me. I have also read an explanation of this statement saying "some expenses that are allowed by the IRS should not be accepted for support purposes: personal expenses charged to the business, accelerated part of depreciation deductions, entertainment expenses, etc." Is this a true statement? And doing the calculations for support would my income be added back to the business income since it basically went right in to our joint account?

Let me give you the actual figures and explain and see if it becomes clearer for you.

Gross Income line 7 schedule C..........................$314,043.00

Net income line 31 schedule C.......................... $132,810.00

total expenses for the business line 28 schedule C ..........$175,295.00

Now, included in the total expenses was the following items that I am wondering if they should be added back in order to get a true net income, or our spendable income:

My salary...........................................$22,250.00

Accelerated depreciation..................$22,734.00

Travel, meals, entertainment............$19,348.00 (none were actual business expense)

I would really appreciate your help in clarifying this. Thank you.

 

I
Expert:  truthfinder replied 7 years ago.

I am not sure if you read ALL of the code, but I am including it as well as some others that might help reiterate that it is the court's decision to use your net or gross income and that they look at your income tax returns (which includes deductions) and make their ruling on a case by case basis. Some of these codes are for child support but are used similarly for spousal support:

Under code 4054(d) The Judicial Council may also review and report on other
matters, including, but not limited to:

(4) The benefits and limitations of a uniform statewide spousal
support guideline and the interrelationship of that guideline with
the state child support guideline.
(5) Whether the use of gross or net income in the guideline is
preferable.

4056. (a) To comply with federal law, the court shall state, in
writing or on the record, the following information whenever the
court is ordering an amount for support that differs from the
statewide uniform guideline formula amount under this article:
(1) The amount of support that would have been ordered under the
guideline formula.
(2) The reasons the amount of support ordered differs from the
guideline formula amount.
(b) At the request of any party, the court shall state in writing
or on the record the following information used in determining the
guideline amount under this article:
(1) The net monthly disposable income of each

(2) The actual federal income tax filing status of each parent
(for example, single, married, married filing separately, or head of
household and number of exemptions).
(3) Deductions from gross income for each parent.

from there the codes are much the same, stating that the judge will use all income to determine the spousal support payments. They will look at the tax returns (this includes where you have put your deductions) so he will see everything you are telling me. I am not sure what else you want to hear, but the fact is that the judge bases his judgment on all income that is produced for consideration and as reported on your income tax returns (which can be looked at and adjusted as needed in future hearings if there is a dramatic change). You can further read the codes beginning where I left off with the code you mentioned 4058 and the others below it that go along with the same subject.

http://www.leginfo.ca.gov/cgi-bin/displaycode?section=fam&group=04001-05000&file=4050-4076

If this is not a sufficient answer, then the only other thing I can suggest is looking into getting a Family Law Attorney in your area:

http://www.bobgoodman.com/

http://wizardoflaw.com/

http://www.magicyellow.com/category/Family_Law_Attorneys/Oakley_CA.html

Good luck and God bless!

truthfinder, Truth Finder
Category: Legal
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