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Michigan Family Law Blog

Monday, July 8, 2019

How is a Parent's Income Determined for Child Support in Michigan?

Child support is determined by a formula.  Base child support takes both parent's incomes and the number of overnights each parent has with the child or children and plugs those numbers into a formula.  The formula then determines the base child support that one parent will pay to the other.  The formula will also calculate a health insurance adjustment, an out of pocket health care expense adjustment and a child care adjustment.  The child care adjustment applies until August after a child's twelfth birthday. 

This is relatively straight forward if each parent is a "W-2" employee, someone who is paid a standard monthly amount by a regular employer (not a family business or self-owned business) each month without receiving perks like the free use of a vehicle.  Determination of income can be much more problematic and complicated if either parent is self-employed, employed by a family business or has variable income. 

Determining Income for Child Support

The term “net income” means all income, parent’s “net income” used to calculate support will not be the same as that person’s take home pay, net taxable income, or similar terms that describe income for other purposes.  

For any parent, income includes, but is not limited to, the following: (1) wages, overtime pay, commissions, bonuses, or other monies from all employers;  (2) earnings generated from a business, partnership, contract, self-employment, or other similar arrangement, or from rentals; (3) distributed profits or payments from profit-sharing, a pension or retirement, an insurance contract, an annuity, trust fund, deferred compensation, retirement account, social security, unemployment compensation, supplemental unemployment benefits, disability insurance or benefits, or worker's compensation; (4) military specialty pay, allowance for quarters and rations, housing, veterans’ administration benefits, G.I. benefits (other than education allotment), or drill pay; (5) tips, gratuities, royalties, interest, dividends, fees, or gambling or lottery winnings to the extent that they represent regular income or may be used to generate regular income; (6) Ccpital gains to the extent that they result from recurring transactions. 

Income also includes the market value of perquisites (perks) received as goods, services, or other noncash benefit for which the parent did not pay, if they reduce personal expenses, and have significant value or are received regularly.  Common forms of perquisites (perks) or goods and services received in-kind include, but are not limited to: housing, meals, or room and board, personal use of a company business vehicle or mileage reimbursement, including use between home and primary worksite, and other goods or services.  

For parents that are self-employed, business owners and executives, the formula includes amounts that are not otherwise included as income for other parents.  It may be necessary to examine business tax returns, balance sheets, accounting or banking records, and other business documents to identify any additional monies a parent has available for support that were not included as personal income.  This includes the following forms of compensation: (a) distributed profits, profit sharing, officers’ fees and other compensation, management or consulting fees, commissions, and bonuses; (b) In-kind income or perquisites, gifts, free admission to entertainment, or personal use of business property and (c) redirected income, examples of this are personal loans, payments made to friends or relatives of the parent and reduced or deferred income.

In addition, many tax deductions that are allowable for tax purposes are not allowed when calculating child support.  A list of deductions that would be added back into one's income includes: (i) rent paid by the business to the parent, if it is not counted as income on that parent’s personal tax return; (ii) real estate depreciation; (iii) depreciation figured at a straight-line (not accelerated) rate on a parent’s tangible personal property, other than for personal vehicles or home offices, should be deducted from income; (iv) home office expenses, including rent, hazard insurance, utilities, repairs, and maintenance; (v) entertainment expenses spent by the parent; (vi) travel expense reimbursements, except where such expenses are inherent in the nature of the business or occupation (e.g., a traveling salesperson), and do not exceed the standard rates allowed by the state of Michigan for employee travel and (vii) personal automobile repair and maintenance expenses.

It is easy to see how difficult and complicated it may be to determine a parent's income for child support.  The same is true for calculating income when it comes to alimony or spousal support.  A Michigan child support and alimony attorney can provide guidance on what to do in your situation. These cases will turn on the facts of the individual situation. Contact Michigan child support and alimony attorney Cameron C. Goulding to discuss your options.


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