There are many issues that one must face in a divorce that include division of property and debt, division of retirement funds, alimony, custody and child support to name a few. Some of these can continue to be issues after a divorce is finalized. Issues revolving around alimony, child custody and child support may all linger for many years after a divorce because they can be modified. Changes in custody and fluctuation in incomes often require these issues to be revisited and they can be quite complicated in some instances. One such issue is how to handle income that results from net capital gains that one party earns as a result of a one-time or non-recurring event, such as the sale of stock or exercise of options or the sale of a business entity.
Will One-time or Nonrecurring Capital Gains Be Considered Income When Calculating Child Support?
When determining a person's income for the purposes of child support, typically all money that comes to a party during a year is considered income and there are many deductions that the IRS may allow which will not apply for the purposes of support. When a person earns a straight W-2 type income, it is relatively simple to calculate the child support using the formula. However, when a person is self-employed or has additional income like capital gains, additional business or non-traditional earnings, one must consult the Michigan Child Support Formula Guidelines handbook to figure it out.
Under the guidelines, it indicates that capital gains are to be considered income for the purposes of support. However, the handbook was recently revised to include how the court should handle capital gains "when attributable to a single event or year" It now states that the court may "consider them to the extent they can be used to represent income over several years". This new phraseology has not been addressed by case law. What it appears to indicate is that when one does receive a substantial sum in gains due to a single event, the court could potentially be asked to spread this income over a number of years to avoid an astronomical support burden for one year. It does not indicate what several years means, it could be argued that it should be spread out over the remaining years of support or even longer. This could potentially reduce the amount of support one would pay by stretching that income over a number of years rather than considering all of it in one single year.
Divorce, alimony and support can be very difficult and challenging areas of the law to handle and large sums of money can be involved depending on the amount of the capital gains or the gains from the sale of a business. If you have any questions regarding income for the purposes of alimony or child support, please do not hesitate to schedule a consultation with us.