As a family law attorney (divorce lawyer) in the Rochester Hills area of Oakland County Michigan I deal with issues regarding child custody, support and alimony on a daily basis. One question that often comes up is whether the court will “impute” income to a spouse or parent for the purposes of support when that party has an unexercised ability to earn an income.

The Issue

If a spouse delays the receipt of social security or pension benefits and thereby reduces his or her potential income, will the court consider that an unexercised ability to earn income and impute that income to the party for purposes of calculating support or alimony?

 The Answer

 When a party has an unexercised ability to earn income (where someone quits a job to avoid paying support for example) the court may impute income to that person for the purposes of calculating child support or alimony. What that means is that even if the person is not actually earning that income, the court will treat him or her as if that person is actually earning that income and base support on that unexercised ability to earn income.

In a published opinion of the Michigan Court of Appeals on June 26, 2012, the court dealt with the interesting issue of imputation where one party decides to delay receipt of social security benefits. In this case, the father, who was 64 years old, looked into the possibility of receiving social security retirement benefits. If he began receiving social security benefits immediately he would be entitled to $1,968 per month. If he delayed for two years at the age of 66 (consequently the same year that his son would turn 18 and no longer qualify for support) he would be entitled to $2,347 per month. He originally applied for the benefit but when he discovered that his ex-wife would receive 100% of the dependent benefit for their son, he withdrew the application and paid back the few months of benefits that social security paid to him. His ex-wife then filed a motion to increase his child support and requested that the court impute the social security benefits to him as income.

The Friend of the Court and the trial court both imputed that income to him and increased his child support obligation. He appealed and the Court of Appeals reversed and remanded the case. The divorce court engaged in the following analysis. First it reviewed the Michigan Child Support Formula Manuel which indicates that with respect to imputation of income, one of the primary goals is to ensure that the amount of potential income imputed should be sufficient to bring that parent’s income up to the level it would have been if the parent had not voluntarily reduced or waived income. The definition of income for alimony and support purposes includes social security benefits.

The Court of Appeals noted that with respect to imputing income the trial court must first make a finding that the parent is voluntarily unemployed, underemployed, or has an unexercised ability to earn. The trial court in this case found that the father had an unexercised ability to earn income by not receiving the benefits but it failed to consider the rest of the equation. The Michigan Court of Appeals found that the divorce court erred in determining that the father’s refusal to collect early social security retirement benefits in and of itself constituted the unexercised ability to earn.

The Court of Appeals then held that when the evidence establishes that a parent has declined to receive early social security retirement benefits in order to receive a higher benefit at a later time, the other parent has not demonstrated an unexercised ability to earn. This appears to be true with regards to pension payments and alimony as well. The court indicated that where a party could elect to take a share of pension payments without any reduction in benefits, then that amount could be imputed for the purposes of spousal support. However, where taking a share of the pension immediately would cause payment of a reduced amount, it is inappropriate to impute the pension benefit as income. To defer election of pension benefits to a later date when the benefits would be larger should not be viewed as a voluntary reduction in income, but rather as a possibly prudent investment strategy.

Summation

If it appears that a parent or spouse would receive a larger benefit if he or she decided to defer payment until a later time and absence any evidence suggesting a contrary motivation, then such a decision could properly be characterized as a prudent investment strategy and would not lead to imputation of income. Therefore, if a parent or ex-spouse has a current support obligation and is considering drawing from a pension or social security, he or she may want to delay the same if possible. If the person elects to receive the benefit, then it will be included as income for the purposes of determining support or alimony, but if that person delays receipt then he or she will get the benefit of a larger payment down the road and the court will not impute income to the person for the purposes of determining support.